What form does a self-employed sole proprietor usually use to report income and expenses from business?
a. Schedule C
b. Schedule D
c. Schedule A, Miscellaneous Itemized Deductions
d. Form 2106, Employee Business Expenses
e. None of the above
2. In the current year, Mary started a profitable housekeeping business as a sole proprietor. She has ten housekeepers working for her and spends her time selling their services and coordinating her employees’ time. Mary made $50,000 in her first year of operations. In addition to filing a Schedule C to report her business earnings, Mary must also file:
a. Schedule A
b. Schedule SE
c. Schedule B
d. Schedule D
e. None of the above
3. Daniel is a self-employed consultant. Until this year he was always an employee.
He comes to discuss his new business with you. As his tax accountant, you should:
a. Discuss setting up a good record-keeping system for his new business
b. Discuss the substantiation requirements for meals and entertainment
c. Discuss the self-employment tax, as well as the income tax, on business earnings in order to help Daniel estimate what he might owe in taxes for the year
d. Discuss the rules for deducting automobile expenses
e. Discuss all of the above
4. Which of the following formulas represents the proper method of calculating cost of goods sold?
a. Beginning inventory 1 Ending inventory 2 Purchases
b. Ending inventory 2 Purchases 2 Beginning inventory
c. Purchases 2 Beginning inventory 2 Ending inventory
d. Beginning inventory 1 Purchases 2 Ending inventory
e. None of the above
5. If a taxpayer has beginning inventory of $25,000, purchases of $185,000, and Ending inventory of $30,000, what is the amount of the cost of goods sold for the current year?
a. $155,000
b. $180,000
c. $190,000
d. $185,000
e. None of the above
6. Which of the following taxpayers may use the standard mileage method of calculating transportation costs?
a. A taxi driver who owns a fleet of six cars for hire
b. A taxpayer who used accelerated depreciation on his automobile
c. A business executive who claimed bonus depreciation in the first year she used the car
d. An attorney who uses his Porsche for calling on clients
e. None of the above
7. Which of the following taxpayers is entitled to a travel expense deduction?
a. An employee, who worked in the Salt Lake City plant of a company, who is assigned to the Denver plant of the company for 4 years
b. An employee who travels between several business locations within the same city each day
c. A manager of a chain of department stores who works in the main store 3 weeks out of every month and visits distant branch locations on overnight trips during the remainder of the month
d. An employee who resigns from his current job and accepts a new job in a city 500 miles away from his current residence
e. A bank employee who travels to a branch office for a couple of hours of work and decides to stay overnight to attend a play
8. Which of the following expenses incurred while the taxpayer is away from home “overnight” is not included as a travel expense?
a. Laundry expenses
b. Transportation expenses
c. Meal expenses
d. Business gifts
e. Lodging expenses
9. Under the high-low method, the federal per diem amount given in the text for 2014 for a high cost locality for travel in the United States is:
a. $163 per day
b. $242 per day
c. $251 per day
d. $300 per day
e. Some other amount
10. Joe is a self-employed information technology consultant from San Francisco, CA. He takes a trip to Chicago primarily for business. He takes two personal days to go to museums and see the sights of Chicago. How should he treat the expenses related to this trip?
a. One hundred percent of the trip should be deducted as a business expense since the trip was primarily for business.
b. Fifty percent of the trip should be deducted as a business expense since the IRS limits such business expenses to 50 percent of the actual cost.
c. The cost of all of the airfare and the business days should be deducted, while the cost of the personal days is not deductible.
d. None of the expenses are deductible since there was an element of personal enjoyment in the trip.
11. Which of the following expenses is deductible as an entertainment expense?
a. The depreciation on an airplane used to entertain customers
b. The cost of a hunting camp used to entertain customers
c. The dues of a racket club used to keep in shape
d. The cost of a cocktail party for clients paid for by a computer salesman at a computer fair
e. The cost of a meal at the taxpayer’s country club with a potential client during which they discussed golf