Question
1. [LO 1] Q1 What is an ordinary and necessary business expenditure? 2. [LO 1] Q2 Explain how cost of goods sold is treated when
1. [LO 1] Q1 What is an ordinary and necessary business expenditure?
2. [LO 1] Q2 Explain how cost of goods sold is treated when a business sells inventory.
3. [LO 1] Q3 Whether a business expense is reasonable in amount is often a difficult question. Explain why determining reasonableness is difficult and describe a circumstance where reasonableness is likely to be questioned by the IRS.
4. [LO 2] Q5 What kinds of deductions are prohibited as a matter of public policy? Why might Congress deem it important to disallow deductions for expenditures against public policy?
5. [LO 2] Q6 Provide an example of an expense associated with the production of taxexempt income, and explain what might happen if Congress repealed the prohibition against deducting expenses incurred to produce tax-exempt income.
6. [LO 2] Q7 {Research} Peggy is a rodeo clown, and this year she expended $1,000 on special funny clothes and outfits. Peggy would like to deduct the cost of these clothes as work-related because she refuses to wear the clothes unless she is working. Under what circumstances can Peggy deduct the cost of her clown clothes?
7. [LO 1, LO 2] Q11 What expenses are deductible when a taxpayer combines both business and personal activities on a trip? How do the rules for international travel differ from the rules for domestic travel?
8. [LO 2] Q13 Describe the record-keeping requirements for business deductions expenses including mixed-motive expenditures.
9. [LO 2] Q14 Describe the computation of the limit placed on the business interest deduction. Is the disallowed interest ever deductible? 10. [LO 3] Q16 How do casualty loss deductions differ when a business asset is completely destroyed as opposed to the destruction of a personal-use asset?
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