Exam 3: Business Income and Expenses, Part I

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?

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?

Net operating losses may be carried forward indefinitely.

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

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?

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?

Most taxpayers must use the specific charge-off method in calculating the bad debt deduction.

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.

During the 2013 holiday season,Bob,a barber,gave business gifts to 34 customers.The values of the gifts,which were not of a promotional nature,were as follows: 8 at $10 each 8 at $25 each 8 at $50 each 10 at $100 each For 2013,what is the amount of Bob's business gift deduction?

Under the specific charge-off method,a deduction for a bad debt is taken when the debt is determined to be worthless.

Ruth is a self-employed surgeon and is required to take a week of continuing medical education every year to keep her license.This year she paid $2,000 in course fees for her continuing medical education in Honolulu.She also paid $1,500 for airfare and a hotel room and $400 for meals.What is the total amount she can deduct on her Schedule C related to these expenses?

Stone Pine Corporation,a calendar year taxpayer,has ending inventory of $160,000 on December 31,2013.During the year,the corporation purchased additional inventory of $415,000.If cost of goods sold for 2013 is $470,000,what was the beginning inventory at January 1,2013?

Greg,a self-employed plumber,commutes from his home to his office which is 10 miles away.He loads his truck for the day with the parts that he needs.Then he is off to see his first customer of the day,Mr.Smith.Mr.Smith is 5 miles away from the office.After Mr.Smith's job,Greg goes to his next job,Martin's Dry Cleaning,which is 21 miles away from Mr.Smith.Greg spends the rest of the day at Martin's Dry Cleaning.From Martin's Dry Cleaning,Greg goes home which is now only 7 miles away.How much can Greg count as deductible transportation miles?

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.How much is Curt's deductible auto expense for the year?

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,$45 for food on the day that he worked,and $125 for food on the other 3 day s.How much of his travel expenses are deductible?

Dennis is a self-employed hair stylist who operates a salon in his home.The property taxes and interest allocated to the business amount to $5,000,maintenance and utilities allocated to the business total $2,100,and depreciation allocated to the business use of the home equals $3,000 for the 2013 tax year. a.If Dennis' gross revenue after deducting supplies for his business is $5,800 for the current tax year,calculate his allowable deductions for the home office. b.If Dennis' gross revenue after deducting supplies for his business is $13,800,calculate his allowable deductions for the home office.

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.

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