Exam 3: Business Income and Expenses

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.

Mary is an insurance salesperson and a member of the Country Club. During the current year, Mary used the club 40 percent for entertaining clients and 60 percent for pleasure. She incurred the following expenses at the Country Club: Annual dues \8 ,000 Business meals 1,800 Personal meals 2,000 Tennis fees (business use) 600 Calculate the amount that Mary is allowed to deduct.

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

Paul is a general contractor. How much of the following expenses may Paul deduct? Dues paid to the Associated Builders Society \ 250 Dues paid to the Masonry Society 325 Dues paid to the Wine of the Month Club 200 Subscription to "Dwell", a home design magazine 25 Subscription to "Sports Illustrated" magazine 40

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

Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2019 and she is unable to pay back Ellen. In 2019, 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 2019?

Donald, a cash basis dentist, had $7,000 of uncollectible accounts receivable in 2019. 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 2019 tax return? Explain.

The cost of transportation from New York to London for a trip that is for both business and pleasure may be deducted in full as a travel expense.

The expense of travel as a form of education is not deductible.

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

Which of the following does not give rise to a business expense for self-employed taxpayer's uniforms or special clothing?

During the current year 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: 10 at $10 each 8 at $25 each 8 at $50 each 8 at $100 each For the current year, what is the amount of Bob's business gift deduction?

Sue is a small business owner who often gives gifts to clients. She gives a $40 gift to her client, Mr. Smith, and his wife. Sue spent $6 to wrap the gift. She also gave out 400 calendars with her company name on them. Each calendar cost $1. Sue also gave her secretary a $370 watch for his 10 years of service. How much of the above expenses may she deduct?

Splashy Fish Store allows qualified customers to purchase items on credit. During the current year, Lisa, the owner of the store, determines that $3,500 of accounts receivable are not collectible. Which of the following statements is true with respect to Splashy Fish Store's deduction for the uncollectible accounts receivable?

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?

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 2019, 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?

The IRS has approved two per diem methods to substantiate travel expenses, the standard federal method and the high-low method .

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

Bobby is an accountant who uses a portion of his home as his office. His home is 2,500 square feet and his office space occupies 1,500 square feet. Rent expense is $18,000 a year; utilities expense is $2,000 a year; and maintenance expense is $3,000 a year. What is the total amount of these expenses that can be allocated to his home office?

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: Gross income from the boutique \ 10,000 Supplies for the boutique \ 2,400 Depreciation on total residence \ 12,000 Utilities for total residence \ 6,000 What amount of income or loss from the boutique should Richard show on his return?