Chapter 3 Tax Whittenburg

Chapter 3: Business Expenses and Retirement Plans

Student: ___________________________________________________________________________

1. Passive losses are fully deductible as long as they do not exceed $50,000 during the year. 
True    False

2. Net losses on the rental of vacation homes are limited to 15 percent of total gross income. 
True    False

3. Dividend income is considered "passive income." 
True    False

4. Wages are considered "active income." 
True    False

5. A deduction for a business bad debt is allowed only to the extent that income related to the debt was previously included in taxable income. 
True    False

6. A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements. 
True    False

7. If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty. 
True    False

8. The taxpayer must use either the FIFO or LIFO method of valuing inventory, depending upon which method reflects the actual goods the taxpayer has on hand. 
True    False

9. In some cases, a taxpayer may deduct an otherwise allowable contribution to an IRA, even though the contribution is made after the close of the tax year. 
True    False

10. Once the election to use the LIFO inventory method has been made by a taxpayer, the inventory method may be changed only with the consent of the IRS. 
True    False

11. Most taxpayers must use the specific charge-off method in calculating the bad debt deduction. 
True    False

12. Subject to the annual dollar limitation and the earned income limitation, deductible IRA contributions are allowed for all taxpayers who do not participate in a qualified retirement plan. 
True    False

13. A taxpayer must make contributions to a regular or Roth IRA prior to the end of the year in order to claim the deduction for that year. 
True    False

14. If under 50 years of...