Exam 3: Business Income and Expenses, Part I

Terry is a policeman employed by the city. He must purchase and maintain his uniforms. The total cost of purchasing and maintaining uniforms is $1,000 for the current year. How much may he deduct, why, and where on his tax return?

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?

Which of the following expenses, incurred while on travel, does not qualify as a travel expense?

Paul is a self-employed investment adviser who uses his automobile for business. Paul drove his new automobile a total of 20,000 miles during 2014; 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 2013? Why? d.Where should he deduct the expenses on his 2014 tax return?

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.

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?

Nancy owns a small dress store. During 2014, Nancy gives business gifts having the indicated cost to the following individuals: What is the amount of Nancy's deduction for business gifts?

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

Carol, a CPA, is always required by her employer to wear to work either a gray or a blue business suit with matching shoes. Carol would never consider wearing her gray or blue suits and matching shoes anywhere other than work since she considers them uncomfortable as well as unattractive. Can Carol deduct the cost of the suits and shoes as special work clothing or uniforms? Explain.

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

Vinnie has a small retail store and sells one product. His beginning inventory consisted of 1,000 products at $4 each for a total of $4,000. During the year, Vinnie made the following purchases of the product: March 1 5,000 products at $5 each = $25,000 August 1 1,000 products at $6 each = $ 6,000 Vinnie uses the FIFO method of inventory valuation and he sells 5,000 products during the current year. a. Calculate the total cost of goods available for sale. b. Calculate the cost of the ending inventory. c. Calculate the cost of goods sold.

Jasper owns a small retail store as a sole proprietor. The business records show that the cost of the store's inventory items has been steadily increasing. The cost of the end of the year inventory is $200,000 and the cost of the beginning of the year inventory was $250,000. Jasper uses the FIFO method of inventory valuation. Which of the following statements is true?

What is the advantage of carrying a net operating loss back against prior years' income rather than forward against future years?

Mikey is a self-employed computer game software designer. He takes a week-long trip to Maui, primarily for business. He takes 2 personal days at the beach. How should he treat the expenses related to this trip?

Ruth is a self-employed surgeon and is required to take a week of continuing medical education every year to keep her license. This year she paid $2,000 in course fees for her continuing medical education in Honolulu. She also paid $1,500 for airfare and a hotel room and $400 for meals. What is the total amount she can deduct on her Schedule C related to these expenses?

The cost of a blue wool suit for an accountant is a deductible expense.

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

Stone Pine Corporation, a calendar year taxpayer, has ending inventory of $160,000 on December 31, 2014. During the year, the corporation purchased additional inventory of $375,000. If cost of goods sold for 2014 is $470,000, what was the beginning inventory at January 1, 2014? ​

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?

Jack is a lawyer who is a member at Ocean Spray Country Club where he spends $7,200 in dues, $4,000 in meals, and $2,000 in green fees to entertain clients. He is also a member of the local Rotary club where he meets potential clients. The dues for the Rotary club are $1,200 a year. How much of the above expenses can Jack deduct as business expenses?