Exam 3: Business Income and Expenses, Part I

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

Karen was ill for most of the current year. She received tax-free disability income that covered most of her expenses. She paid the deductible expense of owning her home, interest on the mortgage, and property taxes out of this income. Her tax return shows negative taxable income of $25,000. Can this loss be carried back to prior years or carried forward to future years? Why or why not?

The cost of a subscription to the New England Journal of Medicine is a deductible expense for a hospital intern.

Greg, a self-employed plumber, commutes from his home to his office which is 10 miles away. He loads his truck for the day with the parts that he needs. Then he is off to see his first customer of the day, Mr. Smith. Mr. Smith is 5 miles away from the office. After Mr. Smith's job, Greg goes to his next job, Martin's Dry Cleaning, which is 21 miles away from Mr. Smith. Greg spends the rest of the day at Martin's Dry Cleaning. From Martin's Dry Cleaning, Greg goes home which is now only 7 miles away. How much can Greg count as deductible transportation miles?

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

A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements.

In determining whether an activity should be classified as a hobby, the tax law provides a rebuttable presumption with regard to the profits or losses of an activity. Which of the following statements describes the profit/loss test which must be satisfied in order to meet the presumption that the activity is not a hobby?

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

Dennis is a self-employed hair stylist who operates a salon in his home. The property taxes and interest allocated to the business amount to $5,000, maintenance and utilities allocated to the business total $2,100, and depreciation allocated to the business use of the home equals $3,100 for the 2014 tax year. a.​If Dennis' gross revenue after deducting supplies for his business is $5,900 for the current tax year, calculate his allowable deductions for the home office. b.​If Dennis' gross revenue after deducting supplies for his business is $13,800, calculate his allowable deductions for the home office.

A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.

Paul is a general contractor. How much of the following expenses may Paul deduct? ​

Schedule C or Schedule C-EZ may be used to report the net profit or loss from a partnership with business expenses of $2,500 or less.

Candace uses an office in her home exclusively for her business. The business use of the home is 100 sq ft out of 2,000 sq ft for the entire home. The total expenses to allocate are $3,000. Candace wishes to maximize her deduction ​in 2014. What is the amount of her home office deduction before any income limitations?

Katie operates a ceramics studio from her garage. She incurs the following expenses: Katie's gross receipts from her business were $2,000. a. If the studio is deemed to be a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return. b. If the studio is not a hobby, then calculate the amount of expenses Katie may deduct, and describe how she may report the income and expenses on her tax return.