1. James operates a sole proprietorship, maintaining the business records under

Question

1. James operates a sole proprietorship, maintaining the business records under the cash-basis method of accounting. James performs services for a client and sends the client a bill for 12,000. Six months later, before payment is received by James, the client files bankruptcy, with no assets available for unsecured creditors such as James. James will deduct:

A) $12,000 ordinary loss B) $3,000 long-term capital loss C) $0 D) $3,000 short-term capital loss

2. A taxpayer has generated a net operating loss in the current year and is weighing whether to carryback the NOL or elect to carryforward the NOL. The factors to consider in making this decision include all of the following except:

A) Tax credits available in the carryback years B) Refundable tax credits expected in future years C) Time Value of Money D) Marginal tax rates in the relevant years

3. A taxpayer has low AGI this year, but unusually high itemized deductions. The one itemized deduction that is allowed to increase the NOL is:

A) Casualty loss on personal-use assets B) Medical expenses C) State & Local Income and property taxes D) Home mortgage interest

Explanation / Answer

This loss will be shown a bad debt expense of the income statement of J. No separate deduction would be allowed for this loss. Therefore, J will $0.

The correct answer is C.

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