Exam 3: Business Income and Expenses Part I

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.

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

Girard is a self-employed marketing consultant who spends significant time entertaining potential customers. He keeps all the appropriate records to substantiate his entertainment. He has the following business-related expenses in the current year. ​ What is the tax deductible entertainment expense Girard may claim in the current year. On which tax form should he claim the deduction?

Jezebel loaned her friend $7,000 to buy a used car. She had her friend sign a note with repayment terms and set a reasonable interest rate on the note because she wanted her friend to understand that this was purely a loan and not a gift. Her friend is now on disability and has made it clear she has no way of paying back the loan. How should Jezebel treat the bad loan for tax purposes?

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

Which of the following is deductible as dues, subscriptions or publications?

Which of the following is not a factor that the IRS looks at to determine if a loss is from a hobby or from a business? ​

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

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?

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?

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? ​

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 2016, his expenses for maintaining and operating 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 2016? ​ Explain.

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? ​

Anna is a self-employed newspaper columnist who does her work exclusively from a home office. Anna had a bad year and her taxable income from her business is only $2,000 before the home office expenses this year. Her office takes up 250 square feet of her 1,000 square foot apartment. The total expenses for her apartment are $8,000 for rent, $1,000 for utilities, $200 of renter's insurance and $800 for pest control and other maintenance. What is Anna's home office deduction? Please show your calculations.

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.

Acacia Company had inventory of $300,000 on December 31, 20X1. Other information is as follows: ​ ​ ​ ​ ​ What is the amount of Acacia's cost of goods sold for 20X1?

Peter is a self-employed attorney. He gives the following information about his business to his CPA for use in preparing his 2016 tax return: Peter also drove his car 5,528 miles for business and used the standard mileage method for computing transportation costs. How much will Peter show on his Schedule C for 2016 for: a.Income b.Tax deductible expenses c.Taxable income

Katie operates a ceramics studio from her garage. She incurs the following expenses: Katie's gross receipts from her business were $2,000. a.If the studio is deemed to be a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return. b.If the studio is not a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.

Keri is a single taxpayer and has a net operating loss of $30,000 in 2016. Her taxable income for the last 5 years has been about $10,000 each year. She expects 2017 to be a very good year and projects that her income will be over $100,000. If you were Keri's tax advisor, what would you recommend that she do with her 2016 operating loss? Explain.

Which of the following taxpayers may not use the standard mileage method of calculating transportation costs?