Answer the following statements true (T) or false (F)

Question

1. Fines and penalties are tax deductible if related to the taxpayer's trade or business.
2. A sole proprietor contributes to the election campaign of a state governor. The candidate has promised to change a law that severely limits the growth of the sole proprietor's business. Given the direct benefit, the sole proprietor can deduct the contribution.
3. Taxpayers may deduct lobbying expenses incurred to influence legislation if the legislation is of direct interest to the taxpayer's trade or business.
4. Kaitlyn owns a hotel in Phoenix, Arizona. The city of Phoenix has proposed legislation to increase the hotel room tax. Kaitlyn incurs $1,000 of lobbying expenses to discourage passage of the legislation. Kaitlyn can deduct the $1,000.
5. A taxpayer opens a new business this year. Prior to opening, she incurred $45,000 of business investigation and preopening costs. The taxpayer can elect to currently deduct $5,000 and amortize the balance over 180 months.

Answer 1

1. FALSE
Fines and penalties are contrary to public policy.
2. FALSE
Explanation: Contributions to political candidates or political parties are never allowed as a deduction.
3. FALSE
Lobbying expenses are not deductible even if of direct benefit to a business. Effective in 2018, previously-allowed local lobbying expenses are no longer allowed.
4. FALSE
Expenses incurred to influence legislation (i.e., lobbying expenses) are not deductible regardless of whether of direct interest to the taxpayer's business. Effective in 2018, previously-allowed local lobbying expenses are no longer allowed.
5. TRUE
A taxpayer can elect to immediately deduct up to $5,000 of start-up expenditures, with the balance amortized over 180 months. Limitations apply when expenditures exceed $50,000.