Exam 3: Business Income and Expenses, Part I

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?

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.

To be deductible as the cost of special work clothing or uniforms:

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.

During 2013,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?

Which of the following items incurred while on travel is not considered a travel expense?

Jasper owns a small retail store as a sole proprietor.The business records show that the cost of the store's inventory items has been steadily increasing.The cost of the end of the year inventory is $200,000 and the cost of the beginning of the year inventory was $250,000.Jasper uses the FIFO method of inventory valuation.Which of the following statements is true?

Kendra is a self-employed taxpayer working exclusively from her home office.Before the home office deduction,Kendra has $5,000 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?

Barry is a self-employed attorney who travels to New York on a business trip during 2013.Barry's expenses were as follows: Airfare \ 560 Taxis \ 40 Meals \ 100 Lodging \ 350 How much may Barry deduct as travel expenses for the trip?

Nancy owns a small dress store.During 2013,Nancy gives business gifts having the indicated cost to the following individuals: Mrs. Johns (a customer) \ 37 plus \ 3 shipping Mr. Johns (nonclient husband of Mrs. Johns) \ 10 Ms. Brown (a customer) \ 22 What is the amount of Nancy's deduction for business gifts?

Karen has a net operating loss in 2013.If she does not make any special elections,what is the first year to which Karen can carry the net operating loss?

Donald,a cash basis dentist,had $7,000 of uncollectible accounts receivable in 2013.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 2013 tax return? Explain.

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.

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

The expense of a sales luncheon may be deductible 50 percent in 2013)even if no sale is made.

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 2013,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?

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?

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

Peter is a self-employed investment advisor who uses his automobile for business.Peter drove his new automobile a total of 20,000 miles during 2013;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 Peter's transportation deduction based on the standard mileage method? b.How much is Peter's transportation deduction based on the actual cost method? c.Which method should Peter use to calculate his transportation deduction,assuming he used the standard mileage method in 2012? Why? d.Where should he deduct the expenses on his 2013 tax return?

Marco makes the following business gifts during the year: Miss Scarlett (a potential client) \ 35 Mr. and Mrs. White (both are clients) \ 40 Professor Plum (a client) \ 18 Mrs. Plum (the nonclient wife of Professor Plum) \ 10 Charles Mustard (Marco's boss) \ 22 Marco also spent $10 on wrapping paper and a card for the above gift to the Whites. Calculate Marco's total allowed deduction for gifts.