Exam 3: Business Income and Expenses, Part I

Natasha is a self-employed private language tutor. In 2015, she obtained her teaching credentials, hoping to receive a job as a seventh grade public school English teacher. She had the following education expenses for the year: Natasha also attended a seminar in Washington, D.C., titled "The Motivated Student." Her expenses for the trip are as follows: Determine how much of the above expenses are deductible on her Schedule C.

If an employee is transferred to a distant location for an indefinite period of time, the new location typically will be considered the employee's new tax home.

Jess has had a couple of good years in his new business and generated large amounts of taxable income. In the current year, however, he has a net operating loss of $8,000. He is uncertain about the future of the business, and has a serious cash flow problem. As his tax accountant, how would you recommend Jess treat his net operating loss?

Maria runs a small business out of her home. She has expenses of $2,000 per year and uses the cash basis method of accounting. Her only employee is her cousin who works for her part-time. What form should she use to report her business income?

The expense of a sales luncheon may be deductible (50 percent in 2015) even if no sale is made.

If the taxpayer does not maintain adequate records of the car expenses (i.e., gas, tires, car insurance, etc.), the standard mileage rate cannot be used.

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.

Acme Corporation had the following expenses: 1. 1,000 pads of paper embossed with the company logo to hand out at the Big Time Convention $ 700 2. Display racks to use at the convention center 200 3. An all-expense vacation for Susie's 25 years of service awarded under a qualified plan 2,500 4. A golden cone to recognize Wayne's on the job safety record 320 Acme has a qualified plan for the job awards. Calculate Acme's total deductions for the above expenses.

Gene is a self-employed taxpayer working from his home. His net income is $7,000 before home office expenses. His allocable home office expenses are $8,000 in total. How are the home office expenses treated on his current year tax return?

In the current year, Johnice started a profitable bookkeeping business as a sole proprietor. Johnice made $38,000 in her first year of operation. What two forms must Johnice file for her business?

Acacia Company had inventory of $300,000 on December 31, 2015. Other information is as follows: ​ Purchases $1,500,000 Sales 1,800,000 Inventory 1/1/2015 500,000 ​ What is the amount of Acacia's cost of goods sold for 2015?

If a home office is used for both business and personal purposes, the home office expenses, such as rent or depreciation, should be allocated between the business and personal use and then deducted.

Which of the following is not a factor that the IRS looks at to determine if a loss is from a hobby or from a business? ​

Donald, a cash basis dentist, had $7,000 of uncollectible accounts receivable in 2015. Because Donald had always been a cash basis taxpayer, he had not reported the $7,000 in taxable income when the services were performed. ​ How much of the $7,000 bad debt can Donald take as a bad debt deduction on his 2015 tax return? Explain.

Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2015 and she is unable to pay back Ellen. In 2015, Ellen also had $20,000 of income from her part-time job and $15,000 of capital gain from the sale of stock. How much of the $45,000 bad debt can Ellen claim as a capital loss in 2015? ​

Mikey is a self-employed computer game software designer. He takes a week-long trip to Maui, primarily for business. He takes 2 personal days at the beach. How should he treat the expenses related to this trip?

If an employer chooses a per diem method of substantiation for travel expenses,

Michael has a very successful business as a financial consultant. Michael attends the following seminars: How much can Michael deduct as business education expenses?

A business gift with a value of $35 presented to a client and his nonclient spouse is fully deductible by the donor.

The net operating loss (NOL) provisions of the Internal Revenue Code ​