Exam 3: Business Income and Expenses, Part I

Curt is self-employed as a real estate salesman and drives his car frequently to take clients to see homes for sale. Curt drove his car 20,000 miles for business purposes and 25,000 miles in total. His actual expenses for operating the auto including depreciation are $10,000 since he drove it so much during the year. Curt has used the actual cost method since he started his business in 2013. How much is Curt's deductible auto expense for the year?

Richard operates a hair styling boutique out of his home. The boutique occupies 420 of the home's 1,200 square feet of floor space. Other information is as follows: What amount of income or loss from the boutique should Richard show on his return?

Paul is a self-employed investment adviser who uses his automobile for business. Paul drove his automobile a total of 20,000 miles during 2015; 75 percent was business mileage. The actual cost of gasoline, oil, depreciation, repairs, and insurance for the year was $6,200. a.How much is Paul's transportation deduction based on the standard mileage method? b.How much is Paul's transportation deduction based on the actual cost method? c.​ Which method should Paul use to calculate his transportation deduction, assuming he used the standard mileage method in 2014? Why? d.Where should he deduct the transportation expense on his 2015 tax return?

Martin has a home office for his business as an agent for rock-and-roll bands. The business shows a loss of $2,000 before home office expenses. How should the home office expenses be treated?

Kendra is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kendra has $6,000 of net income. Her allocable home expenses are $10,000 in total. How are the home office expenses treated on her current year tax return?

A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements.

Which of the following is not a test to deduct business expenses:

Which of the following expenses, incurred while on travel, does not qualify as a travel expense?

Generally, for an activity to be treated as a trade or business, which of the following is required:​

​Wanda is a single taxpayer and an elementary school teacher. She also tutors students in her home as a small business. During 2015, Wanda purchased $200 in school supplies for her classroom. She also purchased $400 in supplies and materials for her tutoring business. Lastly, she uses a 200 sq. ft. spare bedroom in her house to tutor her clients. Occasionally, her mother also stays in that room during holidays. If Wanda elects to use the simplified method for her home office and the educator's expense is extended for 2015, what are her deductions based on the information provided (ignore any income limitations)?

​Sally is a high school math teacher. In 2015, she purchases $400 worth of supplies related to her teaching. Her spouse, Gabe, is a high school math teacher and spends $100 in education supplies for his classes. If married filing jointly, what is the for-AGI educator's expenses deduction, assuming the 2014 law is extended into 2015?

A deduction for a business bad debt is allowed to the extent that income related to the debt was previously included in taxable income.

Net operating losses may be carried forward indefinitely.

The home office deduction is an easy way for a taxpayer to show a loss on his or her tax return.

Peter operates a dental office in his home. The office occupies 250 square feet of his residence, which is a total of 1,500 square feet. During 2015, Peter pays rent for his home of $12,000, utilities of $4,800, and maintenance expenses of $1,200. What amount of the total expenses should be allocated to the home office?

Tim loaned a friend $4,000 to buy a used car. In the current year, Tim's friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year? ​

A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.

Brandi operates a small business and employs three staff members, all of which perform the same tasks with more or less the same level of skill. Two of the staff members are paid wages of $10 per hour; however, the third staff member, Whiski, is Brandi's sister and earns $17 per hour. What amount per hour can Brandi deduct for ​wages paid to Whiski?

Nancy owns a small dress store. During 2015, Nancy gives business gifts having the indicated cost to the following individuals: What is the amount of Nancy's deduction for business gifts?

David purchases a yacht solely for the purpose of entertaining real estate clients. He wishes to position himself as a high-end real estate salesperson specializing in very expensive residences and uses the yacht only for business entertainment. During 2015, his expenses for maintaining the yacht, including depreciation, were $28,000. In addition, he incurred $9,000 of catering expenses for meals he provided to business clients on the yacht. What is David's tax deduction in 2015? ​ Explain.