1. Which of the following taxpayers may not deduct their educational expense?
a. A CPA who attends a course to review for the real estate agents’ exam
b. A corporate president who attends a management course at a local university
c. An attorney who attends a course on computing legal damages
d. A real estate broker who attends a college course on real estate law
e. All of the above are deductible
2. Which of the following is not deductible by the taxpayer?
a. A subscription to The CPA Journal by a CPA
b. A subscription to The Yale Medical Journal by a doctor
c. A subscription to Financial Management by a chief financial officer
d. A subscription to The Harvard Law Review by a lawyer
e. All of the above are deductible
3. Which of the following employees are most likely permitted to deduct the cost of their uniform?
a. A lawyer who is required by her employer to wear a business suit
b. A furnace repairman who must wear overalls while on the job
c. A nurse who can wear casual clothes while on duty
d. A marine who must purchase uniforms for on-duty and off-duty hours
e. A cheerleader for the San Diego Chargers football team who purchases her own costume
4. Which of the following business gifts are fully deductible?
a. A gift to a client costing $35
b. A gift to an employee, for 10 years of continued service, costing $250
c. A gift to a client and her non client spouse costing $45
d. A gift to an employee paid under a qualified plan, for not having an on-the-job injury for 25 years, costing $1,650
e. None of the above is fully deductible
5. Loren loaned a friend $9,000 as financing for a new business venture. In the current year, Loren’s friend declares bankruptcy and the debt is considered totally worthless. What amount may Loren deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?
a. $9,000 ordinary loss
b. $9,000 short-term capital loss
c. $3,000 short-term capital loss
d. $3,000 ordinary loss
e. $6,000 short-term capital loss
6. Kathy is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kathy has $3,000 of net income. Her allocable home office expenses are $5,000 in total (includes $2,000 of allocated interest and property taxes). How are the home office expenses treated on her current year tax return?
a. All home office expenses may be deducted, resulting in a business loss of $2,000.
b. Only $3,000 of home office expenses may be deducted, resulting in net business income of zero. None of the extra $2,000 of home office expenses may be carried forward or deducted.
c. Only $3,000 of home office expenses may be deducted, resulting in net business income of zero. The extra $2,000 of home office expenses may be carried forward and deducted in a future year against home office income.
d. None of the home office expenses may be deducted since Kathy’s income is too low.
7. Which of the following taxpayers qualifies for a home office deduction?
a. An attorney who is employed by a law firm and has a home office in which to read cases
b. A doctor who has a regular office downtown and a library at home to store medical journals
c. An accounting student who maintains a home office used exclusively to prepare tax returns
d. A nurse who maintains a home office to pay bills and read nursing journals
e. A corporate president who uses his home office to entertain friends and customers
8. Carol maintains an office in her home where she conducts a dressmaking business. During the year she collects $4,000 from sales, pays $1,300 for various materials and supplies, and properly allocates $2,500 of rent expense and $500 of her utilities expense to the use of her home office. What amount of the rent and utilities expense may Carol deduct in the current year in computing her net income or loss from the dressmaking business?
a. $0
b. $500
c. $2,500
d. $2,700
e. $3,000
9. Bonita earns $31,000 from her job, and she has $1,000 of interest income. She has itemized deductions and personal exemptions of $35,000. There are no casualty or theft losses in the itemized deductions. What is Bonita’s net operating loss for the current year?
a. $0
b. $1,000
c. $3,000
d. $4,000
e. Some other amount
10. Jim has a net operating loss in 2014. If he does not make any special elections, what is the first year to which Jim carries the net operating loss?
a. 2011
b. 2012
c. 2013
d. 2015
e. 2016
11. Which of the following factors is not considered by the IRS in determining whether an activity is a hobby?
a. Whether the activity is conducted like a business
b. The time and effort expended by the taxpayer
c. Elements of personal recreation in the activity
d. Financial status of the taxpayer
e. All of the above are considered to determine if an activity is a hobby