Question 1

Deductible transportation expenses:

Accepted Answer

A) Include meals and lodging. 
B) Include only costs incurred while away from home. 
C) Do not include the normal costs of commuting. 
D) Do not include daily expenses for transportation between the taxpayer's home and temporary work locations if the taxpayer has a regular place of business. 
A) Include meals and lodging. 
B) Include only costs incurred while away from home. 
C) Do not include the normal costs of commuting. 
D) Do not include daily expenses for transportation between the taxpayer's home and temporary work locations if the taxpayer has a regular place of business. C

Question 2

Once a taxpayer uses the standard mileage method to determine the deduction for automobile expenses for the tax year, the standard mileage method must be used in all subsequent years.

Accepted Answer

A) True 
 B)False  False

Question 3

Terry is a practicing attorney who decides to become an agent for musical groups on the side. Terry engages in the activity and has the following revenue and expenses:
a.What are four of the factors the IRS will consider when evaluating whether her activity is a hobby?
b.If the activity is deemed to be a regular business, what is the amount of Terry's net income or loss from the activity?
c.If the activity is deemed to be a hobby, what is the amount (if any) of Terry's expenses from the activity that may be deducted, before applying the 2 percent of AGI floor for miscellaneous itemized deductions?

Accepted Answer

a. Any four of the following factors are acceptable as answers:
1. Whether the activity is conducted like a business
2. The expertise of the taxpayer
3. The time and effort expended
4. Previous success of the taxpayer in similar activities
5. Income and loss history from the activity
7. Financial status of the taxpayer
6. Relationship of income to losses in the activity
8. Whether the losses are due to circumstances beyond your control
9. Whether you change your methods of operation in an attempt to improve profitability
b. A loss of $11,500 = $500 - $6,500 - (50% × $5,000) - $3,000
c. $500. Expenses are allowed as deductions only to the extent of income from the activity.

Question 4

Sherri is a tax accountant. She prepared a large corporate tax return 2 years ago and billed $5,000 to her client. After 2 years of attempting to collect the money, it is clear that she will not be able to collect anything since the business has gone bankrupt. She reports income on her tax return on the accrual basis as she bills it, so the $5,000 was included in her taxable income 2 years ago. Can she claim a bad debt deduction for the $5,000? Explain.

Accepted Answer

Yes. A business bad debt deduc

Question 5

Anna is a self-employed newspaper columnist who does her work exclusively from a home office. Anna had a bad year and her taxable income from her business is only $2,000 before the home office expenses this year. Her office takes up 250 square feet of her 1,000 square foot apartment. The total expenses for her apartment are $8,000 for rent, $1,000 for utilities, $200 of renter's insurance and $800 for pest control and other maintenance. What is Anna's home office deduction? Please show your calculations.

Accepted Answer

$2,000. The total costs of her apartment

Question 6

Katie operates a ceramics studio from her garage. She incurs the following expenses:
Katie's gross receipts from her business were $2,000.
a.If the studio is deemed to be a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.
b.If the studio is not a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.

Accepted Answer

a. If the business is deemed to be a hob

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

What is the advantage of carrying a net operating loss back against prior years' income rather than forward against future years?

Accepted Answer

It results in an immediate tax

Question 9

Choose the correct statement:

Accepted Answer

A) If a taxpayer does a lot of business travel, the taxpayer may deduct the amount paid for an airline club membership. 
B) Membership dues to a golf club are deductible as long as there is a business purpose. 
C) In order to be deductible, dues and subscriptions must be related to the taxpayer's occupation. 
D) If a financial planner becomes certified, then he/she may not deduct the Certified Financial Planner (CFP) dues because it is not necessary to be certified in order to engage in the business of being a financial planner. 
A) If a taxpayer does a lot of business travel, the taxpayer may deduct the amount paid for an airline club membership. 
B) Membership dues to a golf club are deductible as long as there is a business purpose. 
C) In order to be deductible, dues and subscriptions must be related to the taxpayer's occupation. 
D) If a financial planner becomes certified, then he/she may not deduct the Certified Financial Planner (CFP) dues because it is not necessary to be certified in order to engage in the business of being a financial planner.

Question 10

Girard is a self-employed marketing consultant who spends significant time entertaining potential customers. He keeps all the appropriate records to substantiate his entertainment. He has the following business-related expenses in the current year.
What is the tax deductible entertainment expense Girard may claim in the current year. On which tax form should he claim the deduction?

Accepted Answer

$4,000. Girard may deduct 50 p

Question 11

Carlos drives to Oregon to consult with a client. He works for 1 day and spends 3 days enjoying Oregon since the consultation was right before a 3-day weekend. His expenses were $175 to drive to Oregon and back, $600 for lodging, $50 for food on the day that he worked, and $125 for food on the other 3 days. How much of his travel expenses are deductible?

Accepted Answer

A) $0 
B) $175 
C) $200 
D) $350 
E) $800 
A) $0 
B) $175 
C) $200 
D) $350 
E) $800

Question 12

Splashy Fish Store allows qualified customers to purchase items on credit. During 2015, Lisa, the owner of the store, determines that $3,500 of accounts receivable are not collectible. Which of the following statements is true with respect to Splashy Fish Store's deduction for the uncollectible accounts receivable? ​

Accepted Answer

A) Splashy is not allowed a deduction for the uncollectible accounts if the income arising from the accounts has not been previously included in taxable income. 
B) Any deduction for the uncollectible accounts receivable will be treated as a short-term capital loss. 
C) Only $3,000 of the uncollectible accounts receivable may be deducted in the current year. 
D) All of the above statements are true. 
E) Two of the above statements are true. 
A) Splashy is not allowed a deduction for the uncollectible accounts if the income arising from the accounts has not been previously included in taxable income. 
B) Any deduction for the uncollectible accounts receivable will be treated as a short-term capital loss. 
C) Only $3,000 of the uncollectible accounts receivable may be deducted in the current year. 
D) All of the above statements are true. 
E) Two of the above statements are true.

Question 13

Carol, a CPA, is always required by her employer to wear to work either a gray or a blue business suit with matching shoes. Carol would never consider wearing her gray or blue suits and matching shoes anywhere other than work since she considers them uncomfortable as well as unattractive. Can Carol deduct the cost of the suits and shoes as special work clothing or uniforms? Explain.

Accepted Answer

No. The suits and shoes can be

Question 14

In determining whether an activity should be classified as a hobby, the tax law provides a rebuttable presumption with regard to the profits or losses of an activity. Which of the following statements describes the profit/loss test which must be satisfied in order to meet the presumption that the activity is not a hobby?

Accepted Answer

A) The activity shows a profit for 3 of the 5 previous years. 
B) The activity shows a loss for 3 of the 5 previous years. 
C) The activity shows a profit for 3 of the 7 previous years. 
D) The activity shows a loss for 3 of the 7 previous years. 
E) None of the above. 
A) The activity shows a profit for 3 of the 5 previous years. 
B) The activity shows a loss for 3 of the 5 previous years. 
C) The activity shows a profit for 3 of the 7 previous years. 
D) The activity shows a loss for 3 of the 7 previous years. 
E) None of the above.

Question 15

Schedule C or Schedule C-EZ may be used to report the net profit or loss from a partnership with business expenses of $2,500 or less.

Accepted Answer

A) True 
 B)False

Question 16

Sue is a small business owner who often gives gifts to clients. She gives a $40 gift to her client, Mr. Smith, and his wife. Sue spent $6 to wrap the gift. She also gave out 400 calendars with her company name on them. Each calendar cost $1. Sue also gave her secretary a $370 watch for his 10 years of service. How much of the above expenses may she deduct?

Accepted Answer

A) $816 
B) $446 
C) $795 
D) $801 
E) None of the above 
A) $816 
B) $446 
C) $795 
D) $801 
E) None of the above

Question 17

Indicate which of the following dues, subscriptions, and publications are deductible and which are not deductible:
1. Subscription to "The New England Journal of Medicine" for an electrician
2. Ford truck shop manual for an auto mechanic
3. Subscription to "Shape" magazine for an aerobics teacher
4. Dues for a hairstyle video club for a hairdresser
5. Movie of the Month club for an appraiser

Accepted Answer

1. Not deductible
2.

Question 18

Which of the following factors are considered by the IRS in evaluating whether an activity is classified as a business or a hobby?

Accepted Answer

A) The expertise of the taxpayer 
B) The time and effort expended by the taxpayer 
C) Financial status of the taxpayer 
D) Income and loss history from the activity 
E) All of the above 
A) The expertise of the taxpayer 
B) The time and effort expended by the taxpayer 
C) Financial status of the taxpayer 
D) Income and loss history from the activity 
E) All of the above

Question 19

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

Accepted Answer

A) Schedule A, Miscellaneous Itemized Deductions 
B) Schedule B 
C) Schedule C 
D) Form 2106, Employee Business Expenses 
E) None of the above 
A) Schedule A, Miscellaneous Itemized Deductions 
B) Schedule B 
C) Schedule C 
D) Form 2106, Employee Business Expenses 
E) None of the above

Question 20

Which of the following is deductible as dues, subscriptions or publications?

Accepted Answer

A) Dues to a health club for a doctor 
B) Subscription to "Vogue" magazine for a corporate president 
C) Dues to the drama club for a student 
D) Subscription to the "Journal of Taxation" for a tax attorney 
E) None of the above 
A) Dues to a health club for a doctor 
B) Subscription to "Vogue" magazine for a corporate president 
C) Dues to the drama club for a student 
D) Subscription to the "Journal of Taxation" for a tax attorney 
E) None of the above

Deductible transportation expenses:

Once a taxpayer uses the standard mileage method to determine the deduction for automobile expenses for the tax year, the standard mileage method must be used in all subsequent years.

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.

What is the advantage of carrying a net operating loss back against prior years' income rather than forward against future years?

Choose the correct statement:

Schedule C or Schedule C-EZ may be used to report the net profit or loss from a partnership with business expenses of $2,500 or less.

Which of the following factors are considered by the IRS in evaluating whether an activity is classified as a business or a hobby?

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

Which of the following is deductible as dues, subscriptions or publications?

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Exam 3: Business Income and Expenses, Part I

Deductible transportation expenses:

Once a taxpayer uses the standard mileage method to determine the deduction for automobile expenses for the tax year, the standard mileage method must be used in all subsequent years.

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.

What is the advantage of carrying a net operating loss back against prior years' income rather than forward against future years?

Choose the correct statement:

Schedule C or Schedule C-EZ may be used to report the net profit or loss from a partnership with business expenses of $2,500 or less.

Which of the following factors are considered by the IRS in evaluating whether an activity is classified as a business or a hobby?

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

Which of the following is deductible as dues, subscriptions or publications?

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses, Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding, Estimated Payments, and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters