Question

True/false

1- The fair market value of property or services received in bartering must be included in gross income.

2- Mr. Barley an accountant, accepted a painting for his office from his client in lieu of payment of his customary fee of $400 for preparation of a tax return. He must include the $400 income.

3- An ordinary expenditure is one which is commonly incurred by other businesses.

4- Rent and royalty expenses are deductible from adjusted gross income.

5- Federal income taxes paid by a taxpayer in connection with her business are not deductible in computing the business federal taxable income.

6- A necessary expense is one that is appropriate to helpful to the continuation of the taxpayer' business; ordinary refers to an expense that is customary and acceptable in the taxpayer's type of business.

7- If debt becomes worthless, the amount allowed as bad deduction is the adjusted basis of the debt.

8- Independent contractor is self-employed individuals who perform services for another individual or business entity and are considered employees of the persons or business that hire them.

9- The portion of an employee's salary deemed ''unreasonable'' may be considered a dividend distribution to an employee that is also a shareholder of the corporation.

10- taxpayers cannot deduct the costs of tickets to any entertainment actively or facility whether or not the taxpayer's attendance at the activity is related to business.

Answer 1

1. False, Fair market value will not be added. If there is difference between the amount of both products which is getting bartered then difference will be added to the gross amount under the head capital gain head

2. True, This is against the CA norms but this transaction is as per arms length transactions then the amount will be treated as its income.

3. True, ordinary expenditure means those expenditures which has to be bear by all same type of businesses.

4. False, Rent and Royalty amount will be adjusted in profit and loss accounts. These are part of business. It can't be adjusted in gross income.

5. True, income tax is the actual liability of the assessee so he is not liable to get deduction of income tax

6. True

7. False, The bad debt are allowed for deduction from the profit and loss amount to get the real income. This is the loss of revenue not an adjusted basis of debt

8.false, contractors are working on contractual agreement basis, individual or business who is hiring them to do work as per the contract. The contractor are responsible for their own work. The work must be done at right time in a right way efficiently. Contractee can't interfere in the way of working. Contractee needs only their work to be done as per their requirements.

9. False, Dividend must be paid to every shareholders. If excess amount is paid as per the fixed rate of share capital, the rate must be the same rate to all the share holder, then it will be treated as dividend, Otherwise it will be bonus to the employees.

10. False, if activities are related to tax payer's business then he is allowed to deduction at the time of calculating net revenues