Tax ( Individuals )
chapter 6 with correct
questions and answers
usr
[COMPANY NAME] [Company address]
,1. Deductions for AGI Answer: Directly related to
Business activities Indirectly related to business activities
subsidizing specific activities
2. Deductions Directly related to business activities Answer: Expenses incurred to
generate business income. (deduct against gross income )
Business activities Vs Investment activities.
3. Motivation Answer: Profit
Motivated ( BUSINESS) OR
Motivated by personal objectives (INVESTMENT)
4. Profit Motivated Answer: Both Business and Investment activities
5. Business activities Answer: sometimes referred to as *Trade or Business*
requires relatively high levels of involvement or ettort.
Ex* Full time business employee, Self employed too
6. Investment activities Answer: Profit
motivated DONT require a high degree of
involvement or ettort.
Ex* Investing in property for appreciation or for income payments
7. Business expenses Answer: Deducted for AGI
EXCEPT unreimbursed employee business expenses, which are deductible as miscellaneous itemized
deductions ( FROM AGI)
8. Investment Expenses Answer: Deducted from AGI
EXCEPT expenses associated with rental and royalty activities are deductible for AGI regardless if the activity
is Business or Investment .
, 9. Trade or Business expense Answer: Congress limits business deductions to expenses
directly related to the business activity and those that are ordinary and necessary for the activity
( deductions must be appropriate and helpful for generating a profit)
reported with business revenues on schedule C of the form 1040
10. Page 1 1040 Answer: reports the NET INCOME OR NET LOSS from schedule C to form
1040
schedule C contains Revenue and expenses to = net income or net loss
11. Schedule C Answer:
Contains Revenue Contains
Expenses
to give you a profit or loss when netted
12. Net Income Answer: Front
page of your 1040 ( line 12)
13. Rental and Royalty expenses Answer:
Deducted FOR AGI Reported with Rental and Royalty
revenues on Schedule E
Then calculate Net Income or Loss and transfer that amount onto Form 1040 Page 1 ( line 17)
14. Schedule E Answer: Contains rental
and Royalty revenues and Expenses
Net them together and you get Net income or loss
Transfer that amount to page 1 ( line 17 )
15. Why is Rental and royalty Expenses deducted FOR AGI if it is an
Investment activity? Answer: Congress believes that these activities usually require more taxpayer
involvement than other types of Investing activities.
16. Rental Losses Answer: Subject to limitations ( basic, at risk, and passive loss rules)
chapter 6 with correct
questions and answers
usr
[COMPANY NAME] [Company address]
,1. Deductions for AGI Answer: Directly related to
Business activities Indirectly related to business activities
subsidizing specific activities
2. Deductions Directly related to business activities Answer: Expenses incurred to
generate business income. (deduct against gross income )
Business activities Vs Investment activities.
3. Motivation Answer: Profit
Motivated ( BUSINESS) OR
Motivated by personal objectives (INVESTMENT)
4. Profit Motivated Answer: Both Business and Investment activities
5. Business activities Answer: sometimes referred to as *Trade or Business*
requires relatively high levels of involvement or ettort.
Ex* Full time business employee, Self employed too
6. Investment activities Answer: Profit
motivated DONT require a high degree of
involvement or ettort.
Ex* Investing in property for appreciation or for income payments
7. Business expenses Answer: Deducted for AGI
EXCEPT unreimbursed employee business expenses, which are deductible as miscellaneous itemized
deductions ( FROM AGI)
8. Investment Expenses Answer: Deducted from AGI
EXCEPT expenses associated with rental and royalty activities are deductible for AGI regardless if the activity
is Business or Investment .
, 9. Trade or Business expense Answer: Congress limits business deductions to expenses
directly related to the business activity and those that are ordinary and necessary for the activity
( deductions must be appropriate and helpful for generating a profit)
reported with business revenues on schedule C of the form 1040
10. Page 1 1040 Answer: reports the NET INCOME OR NET LOSS from schedule C to form
1040
schedule C contains Revenue and expenses to = net income or net loss
11. Schedule C Answer:
Contains Revenue Contains
Expenses
to give you a profit or loss when netted
12. Net Income Answer: Front
page of your 1040 ( line 12)
13. Rental and Royalty expenses Answer:
Deducted FOR AGI Reported with Rental and Royalty
revenues on Schedule E
Then calculate Net Income or Loss and transfer that amount onto Form 1040 Page 1 ( line 17)
14. Schedule E Answer: Contains rental
and Royalty revenues and Expenses
Net them together and you get Net income or loss
Transfer that amount to page 1 ( line 17 )
15. Why is Rental and royalty Expenses deducted FOR AGI if it is an
Investment activity? Answer: Congress believes that these activities usually require more taxpayer
involvement than other types of Investing activities.
16. Rental Losses Answer: Subject to limitations ( basic, at risk, and passive loss rules)
