Exam 3: Business Income and Expenses, Part I

If an employee is transferred to a distant location for an indefinite period of time, the new location typically will be considered the employee's new tax home.

Chris opens a chiropractic office in Houston on January 1, 2014. In 2014, Chris drives a total of 4,200 miles from his office to clients' homes to do chiropractic adjustments. In addition, he drives a total of 3,000 miles for commuting between his home and his office in 2014. He elects to use the standard mileage method. On January 1, 2014, Chris purchases an annual subscription to a chiropractic journal for $200 and a 1-year medical reference service for $500. Calculate Chris's deduction for the above items for the 2014 tax year.

Splashy Fish Store allows qualified customers to purchase items on credit. During 2014, Lisa, the owner of the store, determines that $3,500 of accounts receivable are not collectible. Which of the following statements is true with respect to Splashy Fish Store's deduction for the uncollectible accounts receivable? ​

If an employer chooses a per diem method of substantiation for travel expenses,

Martin has a home office for his business as an agent for rock-and-roll bands. The business shows a loss of $2,000 before home office expenses. How should the home office expenses be treated?

Indicate which of the following dues, subscriptions, and publications are deductible and which are not deductible: 1. Subscription to "The New England Journal of Medicine" for an electrician 2. Ford truck shop manual for an auto mechanic 3. Subscription to "Shape" magazine for an aerobics teacher 4. Dues for a hairstyle video club for a hairdresser 5. Movie of the Month club for an appraiser

If a taxpayer works at two or more jobs during the same day, he or she may deduct the cost of transportation from one job to the other.

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

Carlos drives to Oregon to consult with a client. He works for 1 day and spends 3 days enjoying Oregon since the consultation was right before a 3-day weekend. His expenses were $175 to drive to Oregon and back, $600 for lodging, $50 for food on the day that he worked, and $125 for food on the other 3 days. How much of his travel expenses are deductible?

Gene is a self-employed taxpayer working from his home. His net income is $7,000 before home office expenses. His allocable home office expenses are $8,000 in total. How are the home office expenses treated on his current year tax return?

Under the specific charge-off method, a deduction for a bad debt is taken when the debt is determined to be worthless.

Patricia is a business owner who is trying to determine her cost of goods sold for 2014. She bought 20 units of inventory at $11, then 26 units at $10, and finally 18 units at $14. She sold 30 units at an average price of $16 per unit in 2014 and uses FIFO for her inventory valuation. What was her cost of goods sold in 2014, assuming that there was no inventory at the beginning of the year? ​

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?

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

When a taxpayer uses the FIFO inventory valuation method, the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.

If a home office is used for both business and personal purposes, the home office expenses, such as rent or depreciation, should be allocated between the business and personal use and then deducted.

Which of the following does not give rise to a business expense for uniforms or special clothing?

Keri is a single taxpayer and has a net operating loss of $30,000 in 2014. Her taxable income for the last 5 years has been about $10,000 each year. She expects 2015 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 2014 operating loss? Explain.

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

What income tax form does a self-employed sole proprietor usually use to report business income and expense?