Question

____   1.   Al single, age 70, and has gross income of $100,000. His deductible expenses are as follows:

Alimony	$9,000
Charitable contributions	5,000
Contribution to a traditional IRA	4,000
Medical expenses	11,850
State income taxes	4,000
Expenses paid on rental property	8,000
Unreimbursed moving expenses to a new job in a new city (400 miles away)	1,000
Interest on home mortgage and property taxes on personal residence	8,000
State income tax	9,000

What is Al’s medical deduction?

a.	$2,300.
b.	$7,700.
c.	$6,000.
d.	$7,700.
e.	None of the above.

____   2.   Rex, a cash basis calendar year taxpayer, runs a bingo operation which is illegal under state law. During 2016, a bill designated H.R. 9 is introduced into the state legislature which, if enacted, would legitimize bingo games. In 2016, Rex had the following expenses:

Operating expenses in conducting bingo games	$127,000
Payoff money to state and local police	34,000
Newspaper ads supporting H.R. 9	13,000
Political contributions to legislators who support H.R. 9	18,000

Of these expenditures, Rex may deduct:

a.	$127,000.
b.	$214,000.
c.	$227,000.
d.	$282,000.
e.	None of the above.

____   3.   Terry and Jim are both involved in operating illegal businesses. Terry operates a gambling business and Jim operates a drug running business. Both businesses have gross revenues of $500,000. The businesses incur the following expenses.

	Terry	Jim
Employee salaries	$200,000	$200,000
Bribes to police	25,000	25,000
Rent and utilities	50,000	50,000
Cost of goods sold	–0–	125,000

Which of the following statements is correct?

a.	Neither Terry nor Jim can deduct any of the above items in calculating the business profit.
b.	Terry should report profit from his business of $250,000.
c.	Jim should report profit from his business of $500,000.
d.	Jim should report profit from his business of $250,000.
e.	None of the above.

____   4.   Black Corporation incurred the following expenses in connection with the development of a new product:

Salaries	$110,000
Utilities	16,000
Materials	15,000
Advertising	5,000
Market survey	3,000
Depreciation on machine	10,000

Black expects to begin selling the product in November 1 of this year. If Black elects to amortize research and experimental expenditures over 60 months, determine the amount of the deduction for research and experimental expenditures for the current year.

a.	$0.
b.	$151,000.
c.	$5,034.
d.	$152,000.
e.	None of the above.

Answer 1

Answer:

1.)

The AI's medical deductions are $11,850.

Option (e) None of the above

The AI single is about 70 years old. He has gross income of $100,000 but he have the certain expenses to pay from the gross income so the medical expenses he have to pay is $11,850. given in the deductible expenses list

2.)

Option (a) $127,000

Rex is only allowed to deduct expenses related to game and in the act rest of the expenses like payoff money to state and local police Newspaper ads supporting H.R.9 political contributions to legislators who supports H.R.9 are not allowable.

3.)

Option (b) Terry should report profits from his business of $250,000.

Since buss is illegal bus assesse can claim deductions of expenses.

However deductions of illegal bribe to police is not available. So profits are as follows.

4.)

Salaries $110,000
Utilities $16,000
Materials $15,000
Depreciation on machine $10,000

Total deductible expenditure $151,000

deductible expenses for current year($151,000/60 months)*6 months = $15,100

Option (e) None of the above