ACC250 Chapter 6

Question 1

An employer’s reimbursement plan under which employees must submit documentation supporting expenses to receive reimbursement and reimbursements are limited to legitimate business expenses.

Answer 1

ACCOUNTING PLAN

Question 2

A common planning strategy in which a taxpayer pays two year’s worth of itemized expenses in one year to exceed the standard deduction in that year.

Answer 2

BUNCHING ITEMIZED DEDUCTIONS

Question 3

A profit-motivated activity that requires a relatively high level of involvement or effort from the taxpayer to generate income.

Answer 3

BUSINESS ACTIVITIES

Question 4

Any asset that would have generated a long-term capital gain if the taxpayer had sold the property for its fair market value.

Answer 4

CAPITAL GAIN PROPERTY

Question 5

A loss arising from a sudden, unexpected, or unusual event such as a fire, storm, shipwreck or loss from theft.

Answer 5

CASUALTY LOSS

Question 6

Limitations that are maximum amounts for adjustments to taxable income (or credits). The amounts in excess of the ceiling are either lost or carried to another tax year.

Answer 6

CEILING

Question 7

Traveling from a personal residence to the place of business.

Answer 7

COMMUTING

Question 8

A fixed deduction allowed for each individual who qualifies as a “dependent” of the taxpayer.

Answer 8

DEPENDENCY EXEMPTION

Question 9

A fixed income tax deduction a taxpayer may claim for each person who qualifies as a dependent of the taxpayer. This includes the taxpayer (and spouse on a joint return) who does not qualify as a dependent of another.

Answer 9

EXEMPTION

Question 10

A minimum amount that an expenditure (or credit or other adjustment to taxable income) must meet before any amount is allowed.

Answer 10

FLOOR LIMITATION

Question 11

A revenue-generating activity that is motivated by personal motives rather than profit objectives.

Answer 11

HOBBY

Question 12

A profit-seeking activity that is intermittent or occasional in frequency including the production or collection of income or the management, conservation, or maintenance of property held for the production of income.

Answer 12

INVESTMENT ACTIVITIES

Question 13

Deductions representing the sum of certain itemized deductions, such as reimbursed employee business expenses, investment expenses, and tax preparation fees, that are subject to a special floor limitation.

Answer 13

MISCELLANEOUS ITEMIZED DEDUCTIONS

Question 14

Interpreted as an expense that is normal or appropriate and that is helpful or conducive to the business activity.

Answer 14

ORDINARY AND NECESSARY

Question 15

Property that if sold would generate income taxed at ordinary rates.

Answer 15

ORDINARY INCOME PROPERTY

Question 16

A fixed deduction allowed for an individual taxpayer, and spouse if filing a joint tax return.

Answer 16

PERSONAL EXEMPTION

Question 17

Privately sponsored foundations that disburse funds to other charities.

Answer 17

PRIVATE NONOPERATING FOUNDATIONS

Question 18

Privately sponsored foundations that actually fund and conduct charitable activities.

Answer 18

PRIVATE OPERATING FOUNDATIONS

Question 19

Consist of tuition and related costs for enrolling the taxpayer, spouse, or a dependent at a post-secondary institution of higher education.

Answer 19

QUALIFIED EDUCATION EXPENSES

Question 20

Loans whose proceeds are used to pay qualified education expenses.

Answer 20

QUALIFIED EDUCATIONAL LOANS

Question 21

A fixed deduction offered in lieu of itemized deductions. The amount of the standard deduction depends on the taxpayer’s filing status.

Answer 21

STANDARD DEDUCTION

Question 22

A profit-motivated activity characterized by a sustained, continuous, high level of individual involvement or effort.

Answer 22

TRADE OR BUSINESS