Exam 3: Business Income and Expenses, Part I

Hope Springs, a teacher, loaned Hugh Owens, a friend, $10,000 to invest in real estate. Hugh declared bankruptcy in 2015 and cannot repay the $10,000. a.What is the nature of Hope's loss? b.Assuming Hope has no other capital transactions, is there a limit on the amount she may deduct for 2015? Explain. c.What amount of the loss may Hope deduct in 2015?

During 2015, Harry, a self-employed accountant, travels from Kansas City to Miami for a 1-week business trip. While in Miami, Harry decides to stay for an additional 5 days of vacation. Harry pays $600 for airfare, $200 for meals, and $500 for lodging while on business. The cost of meals and lodging while on vacation was $300 and $500, respectively. How much may Harry deduct as travel expenses for the trip?

For an expense to qualify as a travel expense, the taxpayer must be away from home for at least 24 hours.

What is the purpose of Schedule C?

Dennis, the owner of Dennis Company, incurs the following expenses while away from home on a 3-week business trip during 2015: In addition to the above expenses, Dennis incurred the following expenses for a weekend sightseeing trip to Washington D.C.: ​ Calculate the amount Dennis may deduct for 2015 as travel expenses for the trip. Calculate the amount Dennis may deduct for 2015 as entertainment. Calculate the amount Dennis may deduct for 2015 as business gifts.

The cost of a blue wool suit for an accountant is a deductible expense.

Chris opens a chiropractic office in Houston on January 1, 2015. In 2015, Chris drives a total of 4,200 miles from his office to clients' homes to do chiropractic adjustments. In addition, he drives a total of 3,000 miles for commuting between his home and his office in 2015. He elects to use the standard mileage method. On January 1, 2015, Chris purchases an annual subscription to a chiropractic journal for $200 and a 1-year medical reference service for $500. Calculate Chris's deduction for the above items for the 2015 tax year.

Larry qualifies for a home office deduction. The amount of space devoted to the business is 500 square feet of the total 2,000 square feet in his house. Larry's total rent on the house is $7,000, and he pays utilities (other than telephone) of $4,500 for the year. Calculate Larry's deductions for home office expenses before the gross income limitation. ​ Rent expense Utilities Total home office expenses

Which of the following taxpayers may not use the standard mileage method of calculating transportation costs?

Gary is a self-employed accountant who pays $2,000 for business meals. How much of a deduction can he claim for the meals and where should the deduction be claimed?

Which of the following would be a business bad debt if it were uncollectible? ​

Jack is a lawyer who is a member at Ocean Spray Country Club where he spends $7,200 in dues, $4,000 in meals, and $2,000 in green fees to entertain clients. He is also a member of the local Rotary club where he meets potential clients. The dues for the Rotary club are $1,200 a year. How much of the above expenses can Jack deduct as business expenses?

Taxpayers who use their country club more than 50 percent for business may deduct the total amount of their membership dues.

The standard mileage rate for automobiles in 2015 is 56 cents per mile.

When a taxpayer uses the FIFO inventory valuation method, the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.

In which of the following situations may the taxpayer take an education expense on Schedule C?

Taxpayers who make a combined business and pleasure trip:

Which of the following does not give rise to a business expense for uniforms or special clothing?

Linda is self-employed and spends $600 for business meals and $900 for business entertainment in 2015. What is Linda allowed to deduct in 2015 for these expenses?

Lew started a business writing a popular syndicated Japanese gardening column in the current year and will report a profit for his first year. His results of operations are as follows: What is the net income Lew should show on his Schedule C? Show the calculation of his taxable income.