Question

Deductions for a Corporation:
Select the correct answer from the following:
A. Fully deductible on the current year's tax return
B. Partially deductible , subject to limitations, on the current year's tax return
C. Not deductible on the current years' tax return
1. The net capital loss of $2,000
2. Advertising expenses
3. Estimated federal tax payments.
4. Payment of penalty for delinquent taxes.
5. Dividends paid to shareholder.
6. Unreasonable compensation to the company's president
and majority shareholder.
7. Depreciation calculated under MACRS.
8. Group life insurance premiums paid for insurance policies on employees in
which the which the employees are the direct beneficiaries.
9. Charitable Contributions of cash
10. Charitable contribution of inventory to Feed the Children.
11. Bonuses paid to nonshareholder employees
12. Interest expense on a loan to purchase investments.
13. For the current year, the Board of Directors authorized a charitable
contribution of $12,000 to be paid on March 1 of the next year.
14. Life insurance premiums paid for insurance policies on the president of the
corporation in which the corporation is the direct beneficiary.
15. Expenses to lease a luxury skybox during football season when
bona fide business discussion proceeds and follows the game.

Answer 1

1. Capital loss of 2000 is deductible in the current year only upto the limit of current year capital gain. C corporation capital losses may not be deducted from a C corporation's ordinary income; capital losses may only be offset against capital gains. Correct answer is B.

2. Advertising expense are fully deductible on current year tax return. Correct answer is A.

3. Estimated federal tax payments are not deductible at all in the tax return. Correct Answer is C.

4.  Payment of penalty & interest on any taxes in not deductible at all. Correct Answer is C.

5. Dividends paid to shareholder by a corporation are not deductible under the corporate tax return as it is profit earned by the company. Correct answer is C.

6. IRC Section 162(a)(1) permits a deduction for a “reasonable allowance for salaries or other compensation for personal services actually rendered. If unreasonable compensation is being paid then the same is consideres as dividend paid by the company in the form of compensation and therefore the same is not deductible in tax return. Correct answer is C.

7. Depreciation calculated under MACRS is deductible in tax return but the maximum amount for increased depreciation is  $510,000 under Section 179. Therefore Correct answer is B.

8.   group policy premiums are tax deductible, but not for any money paid to provide coverage in excess of a $50,000 death benefit. Therefore, Correct answer is A with certain limitations.

9. You may deduct charitable contributions of money or property made to qualifiedorganizations if you itemize your deductions. Generally, you may deduct up to 50 percent of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases. Correct answer is B.