Exam 3: Business Income and Expenses, Part I

Peter is a self-employed attorney. He gives the following information about his business to his CPA for use in preparing his 2014 tax return: Peter also drove his car 5,191 miles for business and used the standard mileage method for computing transportation costs. How much will Peter show on his Schedule C for 2014 for: a.Income b.Tax deductible expenses c.Taxable income

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

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.

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?

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.

During 2014, Harry, a self-employed accountant, travels from Kansas City to Miami for a 1-week business trip. While in Miami, Harry decides to stay for an additional 5 days of vacation. Harry pays $600 for airfare, $200 for meals, and $500 for lodging while on business. The cost of meals and lodging while on vacation was $300 and $500, respectively. How much may Harry deduct as travel expenses for the trip?

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

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?

If the taxpayer does not maintain adequate records of the car expenses (i.e., gas, tires, car insurance, etc.), the standard mileage rate cannot be used.

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

What is the purpose of Schedule C?

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.

The expense of a sales luncheon may be deductible (50 percent in 2014) even if no sale is made.

Linda is self-employed and spends $600 for business meals and $1,000 for business entertainment in 2014. What is Linda allowed to deduct in 2014 for these expenses?

Marco makes the following business gifts during the year: Marco also spent $15 on wrapping paper and a card for the above gift to the Whites. Calculate Marco's total allowed deduction for gifts.

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.

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?

Terry is a practicing attorney who decides to become an agent for musical groups on the side. Terry engages in the activity and has the following revenue and expenses: a. What are four of the factors the IRS will consider when evaluating whether her activity is a hobby? b. If the activity is deemed to be a regular business, what is the amount of Terry's net income or loss from the activity? c. If the activity is deemed to be a hobby, what is the amount (if any) of Terry's expenses from the activity that may be deducted, before applying the 2 percent of AGI floor for miscellaneous itemized deductions?

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?

To file a Schedule C-EZ, the taxpayer must: