Question

Which of the following statements is correct regarding rental activities?

A) Rental activities may be classified as investment activities or business activities, but the expenses are always deducted from AGI.
B) Rental activities are always classified as business activities and the expenses are deducted for AGI.
C) Rental activities may be classified as investment activities or business activities, but the expenses are always deducted for AGI.
D) Rental activities are always classified as investment activities and the expenses are deducted from AGI.

Question 391:
With the exception of rent/royalty expenses, investment interest expense is deducted ____AGI while self-employed business expenses are deducted ___AGI.
A) Before; After
B) After; Before
C) After; After
D) Before; Before

Question 392:
Choose the statement that is INCORRECT regarding a loss that is generated from the disposal or sale of assets for individuals?
A) Losses from business assets are deductible for AGI.
B) Losses from capital assets are deductible against gains from capital assets.
C) When capital losses exceed capital gains, up to $3,000 can be deducted for AGI.
D) Losses from personal use assets are deductible for AGI.

Question 393:
Your friend, Deron, is confused about where to report business expenses on his tax return. He knows they are deducted for AGI, but he does not see them on the Form 1040. Which of the following answers should you give Deron?
A) The net income reported on a business' income statement for financial reporting is reported on the Form 1040.
B) The revenues and expenses from a business are reported on a separate schedule, and the resulting profit or loss is transferred to the Form 1040.
C) The details of revenues and expenses do NOT have to be reported on the tax return, but kept in the company files in the event of an audit.
D) Business expenses are reported directly on Form 1040.

Question 394:
Entities such as partnerships, LLCs, and S corporations are known as - entities because their income is reported on the owners' tax returns. Any expenses or losses from these entities are typically deductible AGI.
A) Flow-Through
B) Business-Owned
C) Passive-Activity
D) C-Corporation

Question 395:
Expenses associated with generating rental or royalty income are deductible ___ AGI.
A) For
B) After
C) Before
D) In lieu of

Question 396:
Mike sold equipment he is no longer using in his business at a loss of $4,000, and he sold investments at a loss of $8,000. Mike had no other sales of property in the current year. What are the tax implications of these losses to Mike?
A) Deduct $3,000 of the loss on equipment and $3,000 of the loss on investment in the current year. The remaining losses are carried forward.
B) Deduct the $4,000 loss on equipment and $3,000 of the loss on investment in the current year. The remaining investment loss is carried forward.
C) Deduct the $4,000 loss on equipment but not the $8,000 investment loss as this is considered a personal asset.
D) Deduct both losses in their entirety in the current year.

Question 397:
Which of the following characteristics are required for a business expense to be deductible? (Check all that apply.)
A) Repetitive
B) Critical for business success
C) Necessary
D) Directly related to the business
E) Ordinary

Question 398:
How much of a self-employed taxpayer's self-employment tax may be deducted for AGI?
A) All of the self-employment tax is deductible.
B) The employer portion of self-employment tax is deductible.
C) Self-employment tax is deductible to the extent of the self-employment income.
D) None of self-employment tax is deductible.

Question 399:
Edward is a partner in ENS, Ltd. The partnership generated a loss during the current year. Edward's share of the loss was $7,000. How should Edward handle the loss for tax purposes assuming there are no basis, at-risk, or passive loss limitations?
A) Edward can deduct $7,000 from AGI.
B) Edward can deduct $7,000 for AGI.
C) Edward can deduct $3,000 for AGI and carryforward the remaining loss.
D) Edward does NOT report the loss because it will be reported on the partnership tax return.

Question 400:
Izzy ran into a cash shortfall and had to cash in a certificate of deposit early. She incurred a $50 penalty for early withdrawal. How should Izzy treat the penalty for tax purposes?
A) Izzy can deduct the $50 as an investment expense from AGI (if she is able to itemize deductions).
B) Izzy can NOT deduct the $50 penalty because penalties are against public policy.
C) Izzy can deduct the $50 as a "for" AGI deduction.
D) Izzy can deduct the $50 from any interest income reported for tax purposes.

I hope you find these questions helpful. If you have more questions or need further assistance, please feel free to ask.

Answer 1

Rental activities may be classified as investment activities or business activities, expenses are always deducted before AGI, losses from business assets are deductible for AGI, revenues and expenses from a business are reported on a separate schedule and transferred to Form 1040, Flow-through entities have income reported on owners' tax returns, rental or royalty expenses are deducted before AGI, $3,000 of losses can be deducted on equipment and investment in the current year, business expenses must be necessary, directly related to the business, and ordinary to be deductible, self-employment tax is deductible to the extent of the self-employment income, Edward can deduct $7,000 from AGI assuming no limitations, and Izzy cannot deduct the $50 penalty as an investment expense.

Step-by-step explanation:

Question 391:

Investment interest expense is deducted before AGI, while self-employed business expenses are deducted after AGI.

Question 392:

The statement that is INCORRECT regarding a loss that is generated from the disposal or sale of assets for individuals is D) Losses from personal use assets are deductible for AGI.

Question 393:

The correct answer is B) The revenues and expenses from a business are reported on a separate schedule, and the resulting profit or loss is transferred to the Form 1040.

Question 394:

Entities such as partnerships, LLCs, and S corporations are known as flow-through entities because their income is reported on the owners' tax returns. Any expenses or losses from these entities are typically deductible after AGI.

Question 395:

Expenses associated with generating rental or royalty income are deductible before AGI.

Question 396:

The correct tax implications for Mike's losses are A) Deduct $3,000 of the loss on equipment and $3,000 of the loss on investment in the current year. The remaining losses are carried forward.

Question 397:

The characteristics that are required for a business expense to be deductible are C) Necessary, D) Directly related to the business, and E) Ordinary.

Question 398:

The self-employment tax may be deducted for AGI to the extent of the self-employment income. So the correct answer is C) Self-employment tax is deductible to the extent of the self-employment income.

Question 399:

Assuming there are no basis, at-risk, or passive loss limitations, Edward can deduct the entire $7,000 loss from AGI.

Question 400:

Izzy cannot deduct the $50 penalty for the early withdrawal of a certificate of deposit as an investment expense from AGI. The correct answer is B) Izzy can NOT deduct the $50 penalty because penalties are against public policy.