Exam 3: Business Income and Expenses

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

What income tax form does a self-employed sole proprietor usually use to report business income and expense?

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

The cost of a subscription for a hospital intern to the New England Journal of Medicine is a deductible expense for the hospital.

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?

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.

Maria runs a small business out of her home. She has expenses of $2,000 per year and uses the cash basis method of accounting. Her only employee is her cousin who works for her part-time. What form should she use to report her business income?

Hope Springs, a teacher, loaned Hugh Owens, a friend, $10,000 to invest in real estate. Hugh declared bankruptcy in 2019 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 2019? Explain. c. What amount of the loss may Hope deduct in 2019?

Patricia is a business owner who is trying to determine her cost of goods sold for the current year. She bought 20 units of inventory at $11, then 26 units at $10, and finally 18 units at $14. She sold 30 units at an average price of $16 per unit during the current year and uses FIFO for her inventory valuation. What was her cost of goods sold in the current year, assuming that there was no inventory at the beginning of the year?

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

If a per diem method is not used, which of the following items is not required as substantiation for the deduction of a travel expense?

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

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

Choose the correct statement:

If a taxpayer takes a trip within the United States which is primarily for business, the cost of travel to and from the destination need not be prorated between the business and personal portion of the trip.

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

Chris opens a chiropractic office in Houston on January 1, 2019. In 2019, 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 2019. He elects to use the standard mileage method. On January 1, 2019, 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 2019 tax year.

Sally and Martha are tax accountant partners operating a tax firm in San Diego. Every year, they attend the Tax Planning Forum in Las Vegas featuring nationally renowned tax experts. The Forum lasts for 2 days. One evening Sally and Martha attend a show and another evening they lose $10 gambling on the nickel slot machines. Their expenses are as follows: Airfare \ 400 Hotels 300 Meals 180 Forum registration 1,000 Tickets to show 100 Gambling loss 10 \1 ,990 Calculate the firm's deduction for attending this event.

Stone Pine Corporation, a calendar year taxpayer, has ending inventory of $150,000 on December 31, 20X2. During the year 20X2, the corporation purchased additional inventory of $375,000. If cost of goods sold for 20X2 is $470,000, what was the beginning inventory at January 1, 20X2?

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?