Chapter 6 Questions Flashcards
It is “ordinary” for a landlord to pay a lawn maintenance crew three times the local average.
False. Such an extraordinary expense may not be deductible.
A business owner cannot deduct as an expense the purchase of equipment expected to last more than 1 year.
True. The business owner could take depreciation on that capital expenditure.
A small business cannot deduct the cost of hiring a lobbyist to the federal government.
True. Lobbying costs at the state and federal level are prohibited deductions.
A licensed engineer cannot deduct the cost of a “continuing education” course to maintain her license.
False. She could deduct this expense because it is to maintain her profession.
A financial advisor invites his best client over to watch the Super Bowl. They do not discuss any business, but their relationship is improved. The financial advisor can deduct 50% of the cost of snacks as a business expense.
False. Meal expenses are only deductible if business is explicitly discussed or transacted.
50% of entertainment expenses can be deducted as a business expense.
False. As of 2018, entertainment expenses are generally not deductible.
Travel expenses above $75 must be documented with time, place, cost, and purpose of the travel.
True. Business travel expenses for trips costing at least $75 must have written documentation and justification.
An LLC has total income of $200,000 and compensates its owners $100,000. It’s Qualified Business Income is $200,000.
False. It’s QBI is the total income minus owner compensation; in this case, $200K minus $100K = $100K.
An employee converts his guest bedroom into a home office that he only used while working on flex time for his employer. He is able to deduct expenses related to that portion of his home from his income.
False. Employees may not deduct home-office expenses.
A family rents out their primary residence for 6 home football games per year. They must report that rental income in their gross income but may deduct any qualified expenses.
False. This home experiences minimal rental use. They do not need to include this rent in their gross income but they are prohibited from deducting these expenses.
As of 2018, miscellaneous deductions subject to the 2% AGI floor have been eliminated.
True. This change, along with the near-doubling of the standard deduction, means far fewer taxpayers will itemize.
