Tax Accounting Chapter 8 2023 Study Test

What sources of income is included in business income? - Gross profit from inventory sales, income from services provided to customers, and income from renting property If a taxpayer's "business" activity doesn't meet the for-profit requirement, how is it treated? - As a hobby and expenses are deducted as a misc itemized deduction (subject to the 2% of AGI floor) Business expenditures must be both _______ and ________ to be deductible - Ordinary and necessary What is an ordinary expense? - an expense that is normal and appropriate for the business under the circumstances What is a necessary expense? - An expense that is helpful or conducive to the business activity, but needs not be essential or indispensable Ordinary and necessary business expenses are deductible to what amount? - Only to the extent that they are reasonable in amount What are some expenses that businesses can't deduct? - Fines, penalties, illegal bribes, or illegal kickbacks A business must capitalize it's expenditures for which types of assets? - Tangible assets that have a useful life of more than one year Are personal, living or family expenses deductible for a business? - No, unless it is a personal item that is specially adapted for business use