Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

​Wanda is a single taxpayer and an elementary school teacher. She also tutors students in her home as a small business. During 2016, Wanda purchased $200 in school supplies for her classroom. She also purchased $400 in supplies and materials for her tutoring business. Lastly, she uses a 200 square foot spare bedroom in her house to tutor her clients. Occasionally, her mother also stays in that room during holidays. If Wanda elects to use the simplified method for her home office and the educator's expense is extended for 2016, what are her deductions based on the information provided (ignore any income limitations)?

Accepted Answer

$600. Wanda may deduct $200 as an educat

Question 3

Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2016 and she is unable to pay back Ellen. In 2016, 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 2016? ​

Accepted Answer

A) $12,000, with $33,000 carried forward to 2017 
B) $18,000, with $27,000 carried forward to 2017 
C) $35,000 
D) $15,000, with $30,000 carried forward to 2017 
E) $0 
A) $12,000, with $33,000 carried forward to 2017 
B) $18,000, with $27,000 carried forward to 2017 
C) $35,000 
D) $15,000, with $30,000 carried forward to 2017 
E) $0

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Taxpayers who use their country club more than 50 percent for business may deduct the total amount of their membership dues.

Accepted Answer

A) True 
 B)False

Question 6

Paul is a self-employed investment adviser who uses his automobile for business. Paul drove his automobile a total of 20,000 miles during 2016; 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 Paul's transportation deduction based on the standard mileage method?
b.How much is Paul's transportation deduction based on the actual cost method?
c.​
Which method should Paul use to calculate his transportation deduction, assuming he used the standard mileage method in 2015? Why?
d.Where should he deduct the transportation expense on his 2016 tax return?

Accepted Answer

The answer of Paul is a self-employed investment adviser who...

Question 7

Donald, a cash basis dentist, had $7,000 of uncollectible accounts receivable in 2016. 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 2016 tax return? Explain.

Accepted Answer

$0. Because the income from th

Question 8

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

Accepted Answer

A) The expertise of the taxpayer 
B) The time and effort expended by the taxpayer 
C) Financial status of the taxpayer 
D) Income and loss history from the activity 
E) All of the above 
A) The expertise of the taxpayer 
B) The time and effort expended by the taxpayer 
C) Financial status of the taxpayer 
D) Income and loss history from the activity 
E) All of the above

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

There is a limitation of $25 per donee on the deduction of gifts to employees for length of service.

Accepted Answer

A) True 
 B)False

Question 11

Kendra is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kendra has $6,000 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?

Accepted Answer

A) Only $6,000 home office expenses may be deducted, resulting in net business income of zero.The remaining $4,000 of home office expenses may be carried forward and deducted in a future year against business income. 
B) Only $3,000 a year of the home office expenses may be deducted. 
C) All home office expenses may be deducted, resulting in a business loss of $4,000. 
D) Only $6,000 of home office expenses may be deducted, resulting in a net business income of zero.None of the remaining $4,000 of home office expenses may be carried forward or deducted. 
A) Only $6,000 home office expenses may be deducted, resulting in net business income of zero.The remaining $4,000 of home office expenses may be carried forward and deducted in a future year against business income. 
B) Only $3,000 a year of the home office expenses may be deducted. 
C) All home office expenses may be deducted, resulting in a business loss of $4,000. 
D) Only $6,000 of home office expenses may be deducted, resulting in a net business income of zero.None of the remaining $4,000 of home office expenses may be carried forward or deducted.

Question 12

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

Accepted Answer

A) The cost of meals 
B) The cost of lodging 
C) Transportation costs 
D) Cost of entertaining clients 
E) None of the above 
A) The cost of meals 
B) The cost of lodging 
C) Transportation costs 
D) Cost of entertaining clients 
E) None of the above

Question 13

Choose the correct statement:

Accepted Answer

A) If a taxpayer does a lot of business travel, the taxpayer may deduct the amount paid for an airline club membership. 
B) Membership dues to a golf club are deductible as long as there is a business purpose. 
C) In order to be deductible, dues and subscriptions must be related to the taxpayer's occupation. 
D) If a financial planner becomes certified, then he/she may not deduct the Certified Financial Planner (CFP) dues because it is not necessary to be certified in order to engage in the business of being a financial planner. 
A) If a taxpayer does a lot of business travel, the taxpayer may deduct the amount paid for an airline club membership. 
B) Membership dues to a golf club are deductible as long as there is a business purpose. 
C) In order to be deductible, dues and subscriptions must be related to the taxpayer's occupation. 
D) If a financial planner becomes certified, then he/she may not deduct the Certified Financial Planner (CFP) dues because it is not necessary to be certified in order to engage in the business of being a financial planner.

Question 14

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 2016, 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?

Accepted Answer

A) $0 
B) $2,000 
C) $2,500 
D) $3,000 
E) None of the above 
A) $0 
B) $2,000 
C) $2,500 
D) $3,000 
E) None of the above

Question 15

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

Accepted Answer

A) Apply only to individuals with wages, itemized deductions, and personal exemptions. 
B) Require the use of a 2-year carryback in all cases. 
C) Are primarily designed to provide relief for trade or business losses. 
D) Allow the deduction for home mortgage interest to create an NOL. 
E) Would not be necessary if tax rates were progressive. 
A) Apply only to individuals with wages, itemized deductions, and personal exemptions. 
B) Require the use of a 2-year carryback in all cases. 
C) Are primarily designed to provide relief for trade or business losses. 
D) Allow the deduction for home mortgage interest to create an NOL. 
E) Would not be necessary if tax rates were progressive.

Question 16

Jess has had a couple of good years in his new business and generated large amounts of taxable income. In the current year, however, he has a net operating loss of $8,000. He is uncertain about the future of the business, and has a serious cash flow problem. As his tax accountant, how would you recommend Jess treat his net operating loss?

Accepted Answer

Since Jess has income in the 2 years pri

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Patrick has a business net operating loss of $70,000 in 2016. Patrick's business generated significant taxable profits in 2014 and in 2015. Which of the following is true? ​

Accepted Answer

A) Patrick may offset income he generated in 2014 and 2015 with 2016's net operating loss by carrying the net operating loss back to each of those tax years.The remaining net operating loss (if any) can be carried forward and used to offset future taxable income. 
B) Patrick may use the net operating loss to offset income from any year he chooses. 
C) Net operating losses can offset only future income. 
D) Patrick may elect to offset the income he generated in 2015 with 2016's net operating loss.The remaining net operating loss (if any) can be used to offset future taxable income. 
E) None of the above. 
A) Patrick may offset income he generated in 2014 and 2015 with 2016's net operating loss by carrying the net operating loss back to each of those tax years.The remaining net operating loss (if any) can be carried forward and used to offset future taxable income. 
B) Patrick may use the net operating loss to offset income from any year he chooses. 
C) Net operating losses can offset only future income. 
D) Patrick may elect to offset the income he generated in 2015 with 2016's net operating loss.The remaining net operating loss (if any) can be used to offset future taxable income. 
E) None of the above.

Question 19

Barry is a self-employed attorney who travels to New York on a business trip during the year. Barry's expenses were as follows: How much may Barry deduct as travel expenses for the trip?

Accepted Answer

A) $0 
B) $950 
C) $1,000 
D) $1,050 
E) None of the above 
A) $0 
B) $950 
C) $1,000 
D) $1,050 
E) None of the above

Question 20

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

Accepted Answer

A) True 
 B)False

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.

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

Taxpayers who use their country club more than 50 percent for business may deduct the total amount of their membership dues.

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

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

There is a limitation of $25 per donee on the deduction of gifts to employees for length of service.

Kendra is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kendra has $6,000 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?

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

Choose the correct statement:

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

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

Patrick has a business net operating loss of $70,000 in 2016. Patrick's business generated significant taxable profits in 2014 and in 2015. Which of the following is true?

Barry is a self-employed attorney who travels to New York on a business trip during the year. Barry's expenses were as follows: How much may Barry deduct as travel expenses for the trip?

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

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding Estimated Payments and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

Exam 3: Business Income and Expenses Part I

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.

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

Taxpayers who use their country club more than 50 percent for business may deduct the total amount of their membership dues.

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

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

There is a limitation of $25 per donee on the deduction of gifts to employees for length of service.

Kendra is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kendra has $6,000 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?

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

Choose the correct statement:

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

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

Patrick has a business net operating loss of $70,000 in 2016. Patrick's business generated significant taxable profits in 2014 and in 2015. Which of the following is true? ​

Barry is a self-employed attorney who travels to New York on a business trip during the year. Barry's expenses were as follows: How much may Barry deduct as travel expenses for the trip?

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

The Individual Income Tax Return

Gross Income and Exclusions

Business Income and Expenses Part II

Itemized Deductions and Other Incentives

Credits and Special Taxes

Accounting Periods and Methods and Depreciation

Capital Gains and Losses

Withholding Estimated Payments and Payroll Taxes

Partnership Taxation

The Corporate Income Tax

Tax Administration and Tax Planning

Filters

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

Patrick has a business net operating loss of $70,000 in 2016. Patrick's business generated significant taxable profits in 2014 and in 2015. Which of the following is true?