50 Free Test Bank for Taxation of Business Entities 2013 4th Edition by Spilke

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Which of the following is a true statement about the domestic manufacturing deduction?

•  A. This deduction is determined by the amount of goods manufactured in the United States for export abroad.
•  B. The deduction is calculated as a percentage of the cost of goods manufactured in the United States.
•  C. This deduction represents a subsidy to taxpayers who manufacture or construct goods in the United States.
•  D. The domestic manufacturing deduction is not affected by the cost of labor.
•  E. All of these are true.

Dick pays insurance premiums for his employees. What type of insurance premium is not deductible as compensation paid to the employee?

•  A. Health insurance with benefits payable to the employee.
•  B. Whole life insurance with benefits payable to the employee's dependents.
•  C. Group term life insurance with benefits payable to the employee's dependents.
•  D. key man life insurance with benefits payable to Dick.
•  E. All of these are deductible by Dick.

Which of the following is a true statement?

•  A. Meals, lodging, and incidental expenditures are only deductible if the taxpayer is away from home overnight while traveling.
•  B. Meals are deductible for an employee who is forced to work during the lunch hour.
•  C. When a taxpayer travels solely for business purposes, only half of the costs of travel are deductible.
•  D. If travel has both business and personal aspects, the cost of transportation is always deductible but the deductibility of lodging depends upon whether business is conducted that day.
•  E. None of these is true.

John is a self-employed computer consultant who lives and works in Dallas. John paid for the following activities in conjunction with his business. Which is not deductible in any amount?1, Dinner with a potential client where the client's business was discussed. 2,A trip to Houston to negotiate a contract.3,A seminar in Houston on new developments in the software industry.4,A trip to New York to visit a school chum who is also interested in computers.

•  A. 1 only.
•  B. 2 only.
•  C. 3 only.
•  D. 4 only.
•  E. None of these.

George operates a business that generated adjusted gross income of $250,000 and taxable income of $170,000 this year (before the domestic manufacturing deduction). Included in income was $70,000 of qualified production activities income. George paid $60,000 of wages to employees engaged in domestic manufacturing. What domestic manufacturing deduction will George be eligible to claim this year?

•  A. $5,400
•  B. $6,300
•  C. $7,200
•  D. $15,300
•  E. $22,500

Paris operates a talent agency as a sole proprietorship, and this year she incurred the following expenses in operating her talent agency. What is the total deductible amount of these expenditures? $1,000 dinner with a film producer where no business was discussed; $500 lunch with sister Nicky where no business was discussed; $700 business dinner with a client but Paris forgot to keep any records; $900 tickets to the opera with a client following a business meeting

•  A. $450
•  B. $900
•  C. $1,100
•  D. $1,200
•  E. $800

Which of the following business expense deductions is most likely to be unreasonable in amount?

•  A. Compensation paid to the taxpayer's spouse in excess of salary payments to other employees.
•  B. Amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations.
•  C. Cost of entertaining a former client when there is no possibility of any future benefits from a relation with that client.
•  D. None of these is likely to be unreasonable in amount.
•  E. Compensation paid to the taxpayer's spouse in excess of salary payments to other employees, amounts paid to a subsidiary corporation for services where the amount is in excess of the cost of comparable services by competing corporations, and cost of entertaining a former client when there is no possibility of any future benefits from a relation with that client are all likely to be considered unreasonable in amount.

According to the Internal Revenue Code §162, deductible business expenses must be one of the following?

•  A. incurred for the production of investment income
•  B. ordinary and necessary
•  C. minimized
•  D. appropriate and measurable
•  E. personal and justifiable

Which of the following is likely to be a fully deductible business expense?

•  A. Salaries in excess of the industry average paid to attract talented employees.
•  B. The cost of employee uniforms that can be adapted to ordinary personal wear.
•  C. A speeding fine paid by a trucker who was delivering a rush order.
•  D. The cost of a three-year subscription to a business publication.
•  E. None of these is likely to be deductible.

Which of the following is a true statement?

•  A. Meals are never deductible as a business expense.
•  B. An employer can only deduct half of any meals provided to employees.
•  C. The cost of business meals must be reasonable.
•  D. A taxpayer can only deduct a meal for a client if business is discussed during the meal.
•  E. None of these is true.

After a business meeting with a prospective client Holly took the client to dinner and the theatre. Holly paid $290 for the meal and $250 for the theatre tickets, amounts that were reasonable under the circumstances. What amount of these expenditures can Holly deduct as a business expense?

•  A. $540.
•  B. $415.
•  C. $270.
•  D. None unless Holly discussed business with the client during the meal and the entertainment.
•  E. None-the meals and entertainment are not deductible except during travel.

Individual proprietors report their business income and deductions on:

•  A. Form 1065
•  B. Form 1120S
•  C. Schedule C
•  D. Schedule A
•  E. Form 1041

Which of the following expenditures is most likely to be deductible for a construction business?

•  A. A fine for a zoning violation.
•  B. A tax underpayment penalty.
•  C. An "under the table" payment to a government representative to obtain a better price for raw materials.
•  D. A payment to a foreign official to expedite an application for a business permit.
•  E. An arm's length payment to a related party for emergency repairs of a sewage line.

Qualified production activities income is defined as follows for purposes of the domestic manufacturing deduction.

•  A. net income from selling or leasing property the taxpayer manufactured in the United States.
•  B. revenue from selling or leasing property the taxpayer manufactured in the United States.
•  C. revenue from selling or leasing property the taxpayer manufactured in the United States but the revenue was less that 50 percent of qualifying wages used in the production.
•  D. 6 percent of revenue from selling or leasing property the taxpayer manufactured in the United States.
•  E. None of these.