Tax I Final Exam amna lam be Name 1 Which of the following

Tax I - Final Exam amna lam be Name: 1. Which of the following is a deduction from AGI? a. Trade or business expenses. b· Losses on the sale of property. c. Reimbursed employee business expenses. d. Investment-related expenses attributable to the production of investment income. e. None of the above. 2 Forrest, a calendar year cash basis taxpayer, has the following transactions: Salary from job $60,000 IRA contribution 5,000 Student loan interest 1,500 Moving expenses 3,500 Based on this information, Forrest has: a. b. c. d. e. AGI of S50,000. AGI of S56,500. AGI of $58,500. AGI of $60,000. None of the above. 3. Dwain operates an illegal gambling operation and incurred the following expenses: Salaries $200,000 Illegal kickbacks 32,000 Bribes to border guards 44,000 Cost of goods sold 300,000 Rent 12,000 Interest 18,000 Which of the above amounts reduces his taxable income? a. $300,000. b. $530,000. c $562,000. d. $606,000. None of the above.

Solution

1. e. None of the above

2. a. AGI= $ 50,000 (Total Gross Income = 60,000 - Deductions = 5000+1500+3500 = 10,000 )

3. e. None of the above

Expenses relating to Gambling are not at all allowed as deduction unless the Taxpayer is a professional Gambler i.e. who is engaged in the business of gambling to earn a living rather than conducting it as a hobby. As a business owner professional gambler has to keep record of his profits and expenses and should comply with all the requirements of conducting a business as per IRS.

4. (c) Include $ 11,500 in Income and deduct none of the expenses since hobby expenses must be itemised.