1. Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions for 2018:

Salary from job $90,000

Child support paid to ex-wife 10,000

Medical expenses paid 8,000

Based on this information alone, Sammy has:

a. AGI of $80,000.

b. AGI of $90,000.

c. AGI of $82,000.

d. AGI of $100,000.

e. Taxable income of $100,000.

2. Which of the following is not a deductible trade or business expense?

a. Interest on business indebtedness.

b. Property taxes on business property.

c. Parking fees paid for business auto.

d. Contributions by a law firm to the campaign fund of candidate for election to state supreme court.

e. All of the above are trade or business expenses.

3. Paula is the sole shareholder of Violet, Inc. For 2019, she receives from Violet a salary of $300,000 and dividends of $100,000. Violets taxable income for 2019 is $500,000. On audit of Violet, the IRS determines that $100,000 of Paulas salary was unreasonable. Which of the following statements is correct?

a. Paulas gross income will increase by $100,000 as a result of the IRS adjustment.

b. Paulas taxable income will not be affected by the IRS adjustment.

c. Paulas gross income will decrease by $100,000 as a result of the IRS adjustment.

d. Violets taxable income will not be affected by the IRS adjustment.

e. Paulas tax liability will be increased because of the recharacterization of $100,000 of her salary as dividend income.

4. Andrew, who operates a laundry business as a sole proprietorship, incurred the following expenses during the year.

Parking ticket of $250 for one of his delivery vans that parked illegally while making a delivery.

Parking fee of $15 when he parked one of the business delivery vans while he and his wife were attending a rock concert 50 miles away.

DUI ticket of $500 while returning from the rock concert.

Court costs of $60 incurred in contesting the $250 delivery van parking ticket.

What amount can Andrew deduct for these expenses?

a. $0.

b. $250.

c. $60.

d. $310.

e. $75.

5. Tommy, an automobile mechanic employed by an auto dealership, is considering buying an existing fast food franchise. If Tommy acquires the fast food franchise as a sole proprietorship, any investigation expenses incurred while he is considering the acquisition are:

a. A deduction for AGI, up to the amount of income from the business.

b. A deduction from AGI, subject to the 2 percent floor.

c. A deduction from AGI, not subject to the 2 percent floor.

d. Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period.

e. Not deductible.