Chapter 7 Reductions And Losses: Study Guide
CHAPTER 7 DEDUCTIONS AND LOSSES: CERTAIN BUSINESS EXPENSES AND LOSSES SOLUTIONS TO PROBLEM MATERIALS
Question/ Problem 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Learning Objective LO 1 LO 1 LO 1 LO 1 LO 1 LO 1 LO 1 LO 2 LO 2 LO 3, 4 LO 3, 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 3, 4 LO 5 LO 5 LO 6 LO 6 LO 6 LO 7 LO 7
Topic Bad debts: accounts receivable Bad debts: basis Bad debts: worthlessness Bad debts: recovery Bad debts: business Bad debts: business Worthless securities versus theft loss Worthless securities versus bad debts Section 1244 stock Casualty loss versus business loss Casualty loss Casualty loss: timing Casualty loss: reimbursement Casualty loss: measurement rule for theft Casualty …show more content…
7-18 to 7-20 25. DPAD is a deduction that is determined in a unique manner. Unlike most deductions that are generated by expenditures, DPAD is based on income. If certain production activities produce a profit, DPAD is a percentage of that profit. Consequently, the larger the profit, the larger the deduction. Of course, the profit increases the income tax, while the deduction reduces the income tax. pp. 7-18 to 7-20 The taxable income limitation on the DPAD is determined after the application of any NOL deduction. Thus, a company with an NOL carryforward for a tax year is ineligible for the DPAD in the current year if the NOL carryforward eliminates current taxable income. A taxpayer that has an NOL carryback may lose part or all of the DPAD benefit for the tax year to which the NOL is applied. pp. 7-18 and 7-19 An unreimbursed employee business expense which is an itemized deduction is a business expense and hence, can create or increase an NOL for an individual taxpayer. p. 7-23 Individual Retirement Account deductions and alimony paid deductions are deductions for AGI. However, they are treated as nonbusiness deductions in computing an individual’s NOL. p. 7-23 Itemized deductions for personal casualty and theft losses and losses incurred in a transaction entered into for profit can create an NOL. p. 7-21 The AGI will be reduced by the NOL carryback, but this will not change the limit for the charitable contribution deduction in the carryback year. pp. 7-21 and 7-23 The tax issues for Thomas are as follows: • Are the following items trade or business deductions and hence, deductible in computing an
Question/ Problem 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Learning Objective LO 1 LO 1 LO 1 LO 1 LO 1 LO 1 LO 1 LO 2 LO 2 LO 3, 4 LO 3, 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 4 LO 3, 4 LO 5 LO 5 LO 6 LO 6 LO 6 LO 7 LO 7
Topic Bad debts: accounts receivable Bad debts: basis Bad debts: worthlessness Bad debts: recovery Bad debts: business Bad debts: business Worthless securities versus theft loss Worthless securities versus bad debts Section 1244 stock Casualty loss versus business loss Casualty loss Casualty loss: timing Casualty loss: reimbursement Casualty loss: measurement rule for theft Casualty …show more content…
7-18 to 7-20 25. DPAD is a deduction that is determined in a unique manner. Unlike most deductions that are generated by expenditures, DPAD is based on income. If certain production activities produce a profit, DPAD is a percentage of that profit. Consequently, the larger the profit, the larger the deduction. Of course, the profit increases the income tax, while the deduction reduces the income tax. pp. 7-18 to 7-20 The taxable income limitation on the DPAD is determined after the application of any NOL deduction. Thus, a company with an NOL carryforward for a tax year is ineligible for the DPAD in the current year if the NOL carryforward eliminates current taxable income. A taxpayer that has an NOL carryback may lose part or all of the DPAD benefit for the tax year to which the NOL is applied. pp. 7-18 and 7-19 An unreimbursed employee business expense which is an itemized deduction is a business expense and hence, can create or increase an NOL for an individual taxpayer. p. 7-23 Individual Retirement Account deductions and alimony paid deductions are deductions for AGI. However, they are treated as nonbusiness deductions in computing an individual’s NOL. p. 7-23 Itemized deductions for personal casualty and theft losses and losses incurred in a transaction entered into for profit can create an NOL. p. 7-21 The AGI will be reduced by the NOL carryback, but this will not change the limit for the charitable contribution deduction in the carryback year. pp. 7-21 and 7-23 The tax issues for Thomas are as follows: • Are the following items trade or business deductions and hence, deductible in computing an