When an activity is classified as a hobby, which of the following statements is true?

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Income from the activity does not need to be reported for tax purposes.

Expenses of a hobby are deductible.

Net losses (more expense than income) from hobby activities are not deductible.

There is no distinction between hobby activities and business activities

2

Although corporations tout the advantage of limited liability, which type of debt can the decision-making shareholders still be held personally liable for?

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Mortgages on company owned real estate

Withheld employment taxes

Debts to other corporations

Employee health plans

3

To avoid being treated as a hobby for tax purposes, a business must:

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Have employees

Be engaged in the activity for a profit

Have a location, separate from the home

Have a business license

4

A partnership has three equal partners, who all have March 31 year-ends. When should the partnership year end?

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December 31st

Any tax year selected with the first partnership return

September 30th

March 31st

5

Ida and Susan formed a corporation to begin a tanning business. Ida invested $100,000 of her own money, and Susan invested a building for which she had a tax basis of $75,000, and which had a fair market value of $150,000. Each received 50,000 shares of stock and Susan also received $25,000 in cash. What is Susan's basis in her 50,000 shares?

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$50,000

$75,000

$100,000

$125,000