Exam 6: Self-Employed Business Income

Alan owns a ranch in Kansas. During the year, a tornado damaged one of his barns and destroyed some equipment. The following information provides the details of the losses Alan suffered from the tornado. How much loss from the tornado can he deduct on his tax return for the current year?

Terry, a CPA, flew from Dallas to New York to attend a conference. The conference lasted four days. Then she took three days of vacation to go sightseeing. Terry's expenses for the trip are as follows: Calculate Terry's travel expense deduction.

A business bad debt is treated as a short-term capital loss and can be deducted only when it becomes completely worthless.

Paola purchased an office building on January 5, 2013, for $450,000. $30,000 of the price was for the land. On September 25, 2015, he sold the office building. What is the cost recovery deduction for 2015 rounded to the nearest dollar?

Sole proprietors must pay self-employment tax on 100% of their self-employment income.

A sole proprietor's trade or business income or loss is reported on Schedule C, Form 1040.

§179 expense is available for all of the following business assets except:

If property is inherited, the property's basis for purposes of depreciation is the same as the decedent's basis.

Which of the following is incorrect regarding luxury automobile limitations?

Which expenses incurred in a trade or business are deductible?

Which of the following properties is not eligible for the §179 expense election when purchased?

In order for an employee to deduct home office expenses, which of the following must occur:

When business property is lost in a fire, storm, shipwreck, theft, or other casualty, the taxpayer normally receives a capital loss deduction.

The significance of meeting the "travel away from home" standard is that it allows the deduction of meals, lodging, and other incidental expenses such as dry cleaning.

Education expenses are deductible if the education maintains or improves existing skills or if the education helps the taxpayer qualify for a new trade or business.

The standard mileage rate encompasses depreciation or lease payments, maintenance and repairs, gasoline, oil, insurance, and vehicle registration fees.

On November 30, 2015, Constance purchased an apartment building for $750,000. Determine her cost recovery deduction for 2015 rounded to the nearest dollar.

Alice is a high school teacher who enjoys knitting. She knits scarves and sweaters and sells them in a local boutique. Alice spends 10 to 15 hours a week knitting the scarves and sweaters. Alice had sales of $6,000 and expenses of $10,000 related to knitting and selling the goods. Alice's $10,000 of expenses consisted of $800 of interest expense and $1,600 in property taxes for her building and tools, $3,000 in supplies, and $4,600 in depreciation charges. How would Alice's income and expenses be reported on her tax return if her knitting activity is characterized as a hobby?

For an expense to be necessary, it must be essential to the taxpayer's business.

Which of the following individuals can deduct his or her education expenses?