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1. The Internal Revenue Code authorizes deductions for trade

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1. The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary".
2. Tax cost recovery methods include depreciation, amortization, and depletion.
3. The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.
4. An asset's tax adjusted basis is usually greater than its book adjusted basis.
5. All tax gains and losses are ultimately characterized as either ordinary or capital.
6. Generally, interest income is taxed at preferential capital gains rates and dividend income is taxed at ordinary rates.
7. When a taxable bond is issued at a premium, the taxpayer must calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.
8. One purpose of Form W-4 is to determine an employee's withholding.
9. Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.
10. Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can) contribute to an employee's plan.
11. A taxpayer can only receive a saver's credit if she contributes to a qualified retirement account.
12. Renting a residence may have nontax advantages over owning a home.
13. Taxpayers meeting certain requirements may be allowed to exclude at least a portion of gain realized on the sale of a principal residence.

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Solution Preview

Answers to your homework questions:

1. The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary". TRUE
2. Tax cost recovery methods include depreciation, amortization, and depletion. TRUE
3. The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion. FALSE
4. An asset's tax adjusted basis is usually greater than its book adjusted basis. TRUE
5. All tax gains and losses are ultimately ...

Solution Summary

1. The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary".
2. Tax cost recovery methods include depreciation, amortization, and depletion.
3. The basis for a personal use asset converted to business use is the lesser of the asset's cost basis or fair market value on the date of the transfer or conversion.
4. An asset's tax adjusted basis is usually greater than its book adjusted basis.
5. All tax gains and losses are ultimately characterized as either ordinary or capital.
6. Generally, interest income is taxed at preferential capital gains rates and dividend income is taxed at ordinary rates.
7. When a taxable bond is issued at a premium, the taxpayer must calculate and apply the yearly amortization amount to reduce a portion of the actual interest payments that taxpayers include in gross income.
8. One purpose of Form W-4 is to determine an employee's withholding.
9. Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.
10. Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can) contribute to an employee's plan.
11. A taxpayer can only receive a saver's credit if she contributes to a qualified retirement account.
12. Renting a residence may have nontax advantages over owning a home.
13. Taxpayers meeting certain requirements may be allowed to exclude at least a portion of gain realized on the sale of a principal residence.

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