Question

[32] If an individual taxpayer's suspended passive losses and credits from an activity other than rental real estate cannot be used in the current year, they may be carried

A. Back 2 years, but they cannot be carried forward.

B. Forward up to a maximum period of 20 years, but they cannot be carried back.

C. Back 2 years or forward up to 20 years, at the taxpayer's election.

D. Forward indefinitely or until the property is disposed of in a taxable transaction.

[33] Kilgore is a self-employed flight instructor who assists in the writing of aviation books. She uses a room in her apartment as an office for her writing, and it constitutes her place of business. It is also used to store personal effects and as an occasional second bedroom. It takes up 25% of the space of the apartment and is used 50% of the time as an office. Kilge month and utilities are $50 per month. How much may Kilgore deduct for this office?

A. $0

B. $675

C. $1,350

D. $2,700

[34] Pierre, a headwaiter, received tips totaling $2,000 in December of Year 1. On January 5, Year 2, Pierre reported this tip income to his employer in the required written statement. At what amount, and in which year, should this tip income be included in Pierre's gross income?

A. $2,000 in Year 1.

B. $2,000 in Year 2.

C. $1,000 in Year 1 and $1,000 in Year 2.

D. $167 in Year 1 and $1,833 in Year 2.

[35] In the current year, Mr. A started a business that rents, sells, and repairs video recorders. Mr. A uses the accrual method of accounting and the calendar year as his tax year. The current year business receipts included payments for 1-year service contracts and payments for prepaid rent on video recorders. The video recorders are offered for sale without service contracts in the normal course of business. Which of the following statements regarding Mr. A's reporting of gross income is true?

A. He must include the payments for prepaid rent in gross income for the current year, but may include the payments for 1-year service contracts as he earns them over the periods of the contracts.

B. He may include the payments for prepaid rent and 1-year service contracts in gross income as he earns them over the periods of the contracts.

C. He must include the payments for 1-year service contracts in gross income for the current year, but may include the payments for prepaid rent over the periods of the rental contracts.

D. He must include the payments for prepaid rent and for 1-year service contracts in gross income for the current year.

[36] All of the following statements with respect to effective recordkeeping are true, except

A. Records should identify the source of income in order to determine if an income item is taxable or nontaxable.

B. If an individual cannot provide a canceled check to prove payment of an expense item, (s)he may be able to prove it with certain financial account statements.

C. Records that support the basis of property should be kept until the statute of limitations expires for the year that the property was acquired.

D. Records should show how much of an individual's earnings are subject to self-employment tax.

[37] Which of the following items represents sufficient documentary evidence to substantiate expenditures for travel, entertainment, or gift expenses?

A. A canceled check written to pay a motel bill on a business trip.

B. A statement from the taxpayer's employer.

C. An account book maintained daily by the taxpayer for her business meals (no meal was over $10).

D. Memos on a desk calendar.

Answer 1

Answers of the above questions:

32. (D) Forward indefinitely or until the property is disposed of in a taxable transaction

33. (B) $675 may Kilgore deduct for this office

34. (B) $2,000 in Year 2

35. (C) He must include the payments for 1-year service contracts in gross income for the current year, but may include the payments for prepaid rent over the periods of the rental contracts.

36. (B) If an individual cannot provide a canceled check to prove payment of an expense, (s)he may be able to prove it with certain financial account statements.

37. (B) A statement from the taxpayer's employer.