Question 1

You operate a business and file your tax return on a calendar-year basis. You bought a fire insurance policy on your building effective November 1, Year 1, and paid a premium of $1,200 for 2 years of coverage. How much can you deduct on your Year 1 return?

1 $1,200

2 $600

3 $100

4 $50

Question 2

Regarding other business expenses, all of the following statements are correct except

1 You may deduct your own education expenses, including certain related travel that is related to your trade or business.

2 Penalties you pay for late performance or nonperformance of a contract are generally deductible.

3 Legal fees paid to acquire a new office building must be added to the basis of the building and recovered through depreciation.

4 The cost of a license granted by a governmental unit or agency including issuances and renewals is a deductible business expense.

Question 3

Ms. Patel, a self-employed attorney, is a member of Executive Club, which is a professional business persons club. Ms. Patel uses the club on a regular basis to entertain clients. Ms. Patel had the following detailed records to substantiate the expenses of Executive Club during the current year:

Dues $2,400

Meals directly related to bona fide business discussions with clients 2,000

Tips 400

Transportation to/from meals 300

What amount may Ms. Patel deduct on her income tax return for the current year?

1 $5,100

2 $2,600

3 $1,700

4 $1,500

Question 4

Partiers Unlimited sent one of its employees to attend an association meeting on behalf of the company. It is customary, and good for business, for spouses to attend these meetings and participate in the social activities in the evenings. The employee took her spouse along for this purpose. Airfare for the employee was $200, food was $100, and lodging was $200. Airfare for the spouse was $200, food was $100, and lodging was $150. Partiers reimbursed its employee for these amounts but included $450 on the employees W-2 as compensation at the end of the year. How much, and in what manner, should Partiers deduct for these expenses?

1 $450 as travel expense.

2 $900 as travel expense.

3 $450 as travel expense and $450 as compensation.

4 $650 as travel expense and $250 as compensation.

Question 5

Mr. Crowell, a self-employed seafood wholesaler, arranged a business meeting with his five principal clients during the current year. The night the clients arrived in town, Mr. and Mrs. Crowell entertained the clients and their spouses at their home. The cost of the food and beverages was $400. As each client left, they were given a cheese and fruit basket, which cost $40 each. The business meeting was held the next day at Mr. Crowells office. Assuming no other similar expenses during the current year, what amount of the above expenses may Mr. Crowell deduct?

1 $0

2 $125

3 $300

4 $325