Question 1

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 the current year.What is the amount of her home office deduction before any income limitations?

Accepted Answer

The answer of Candace uses an office in her home...

Question 2

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

Accepted Answer

The answer of What is the advantage of carrying a...

Question 3

Net operating losses may be carried forward indefinitely.

Accepted Answer

The answer of Net operating losses may be carried forward...

Question 4

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.

Accepted Answer

The answer of Anna is a self-employed newspaper columnist who...

Question 5

Larry qualifies for a home office deduction.The amount of space devoted to the business is 500 square feet of the total 2,000 square feet in his house.Larry's total rent on the house is $7,000,and he pays utilities (other than telephone)of $4,500 for the year.Calculate Larry's deductions for home office expenses before the gross income limitation.
​
Rent expense
Utilities
Total home office expenses

Accepted Answer

The answer of Larry qualifies for a home office deduction.The...

Question 6

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

Accepted Answer

The net operating loss (NOL) provisions are primarily designed to provide relief for trade or business losses, making choice C the correct answer. NOLs are not limited to individuals with specific deductions or exemptions, and there is not a required 2-year carryback in all cases. Additionally, the deduction for home mortgage interest cannot create an NOL. The need for NOL provisions is not related to the progressivity of tax rates.

Question 7

Keri is a single taxpayer and has a net operating loss of $30,000 in 2017.Her taxable income for the last 5 years has been about $10,000 each year.She expects 2018 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 2017 operating loss? Explain.

Accepted Answer

The answer of Keri is a single taxpayer and has...

Question 8

Patrick has a business net operating loss of $70,000 in 2017.Patrick's business generated significant taxable profits in 2015 and in 2016.Which of the following is true? ​

Accepted Answer

According to the IRS, a net operating loss can be carried back up to two years and carried forward up to 20 years. Therefore, Patrick may offset income he generated in 2015 and 2016 with 2017's net operating loss by carrying the net operating loss back to each of those tax years. The remaining net operating loss (if any) can be carried forward and used to offset future taxable income. Option B is not accurate because there are limitations on carrying back and carrying forward the net operating loss. Option C is incorrect because the net operating loss can be used to offset income generated in the past (carry back) or future (carry forward). Option D is incorrect because Patrick can carry back the loss to 2 years prior, not just 1 year.

Question 9

Karen has a net operating loss in 2017.If she does not make any special elections,what is the first year to which Karen can carry the net operating loss? ​

Accepted Answer

Per Internal Revenue Code Section 172(b)(1)(A), taxpayers with a net operating loss may carry the loss back two years and then forward up to 20 years after the year of the loss. This means Karen can carry the loss back to 2015, but not to any earlier years (e.g. 2014, 2013, 2012) because those years would be more than two years before the year of the loss (i.e. 2017). Therefore, the correct answer is D) 2015.

Question 10

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?

Accepted Answer

According to the tax law, the rebuttable presumption that an activity is not a hobby is met if the activity shows a profit in at least 3 of the past 5 years (or 2 of the past 7 years for certain horse-related activities). Choice A correctly states this requirement.

Question 11

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 current 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.

Accepted Answer

The answer of Dennis is a self-employed hair stylist who...

Question 12

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? ​

Accepted Answer

The IRS does not consider whether the activity is owned and run by the taxpayer alone as a factor in determining if a loss is from a hobby or from a business. Factors such as the history of income and loss, whether losses are due to circumstances beyond control, and the taxpayer's financial status are considered.

Question 13

In his spare time,Fred likes to restore old furniture and sell it to his friends.He is a lawyer by trade.During 2017,he sells $500 worth of furniture and has $21,000 worth of expenses.Which one of the following is true?

Accepted Answer

Fred is engaged in a hobby, not a trade or business. Therefore, his deductions are limited to the income from selling furniture. He cannot deduct all of his expenses.

Question 14

Jess has had a couple of good years in his new business and generated large amounts of taxable income.In the current year,however,he has a net operating loss of $8,000.He is uncertain about the future of the business,and has a serious cash flow problem.As his tax accountant,how would you recommend Jess treat his net operating loss?

Accepted Answer

The answer of Jess has had a couple of good...

Question 15

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?

Accepted Answer

The answer of Karen was ill for most of the...

Question 16

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.

Accepted Answer

The answer of Katie operates a ceramics studio from her...

Question 17

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

Accepted Answer

All of the factors listed (expertise, time and effort, financial status, and income/loss history) are considered by the IRS in evaluating whether an activity is a business or a hobby. These factors help determine whether the taxpayer has a genuine intention to make a profit from the activity.

Quiz 3: Business Income and Expenses Part I

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

Net operating losses may be carried forward indefinitely.

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

Patrick has a business net operating loss of $70,000 in 2017.Patrick's business generated significant taxable profits in 2015 and in 2016.Which of the following is true?

Karen has a net operating loss in 2017.If she does not make any special elections,what is the first year to which Karen can carry the net operating loss?

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?

In his spare time,Fred likes to restore old furniture and sell it to his friends.He is a lawyer by trade.During 2017,he sells $500 worth of furniture and has $21,000 worth of expenses.Which one of the following is true?

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

Quiz 3: Business Income and Expenses Part I

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

Net operating losses may be carried forward indefinitely.

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

Patrick has a business net operating loss of $70,000 in 2017.Patrick's business generated significant taxable profits in 2015 and in 2016.Which of the following is true? ​

Karen has a net operating loss in 2017.If she does not make any special elections,what is the first year to which Karen can carry the net operating loss? ​

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? ​

In his spare time,Fred likes to restore old furniture and sell it to his friends.He is a lawyer by trade.During 2017,he sells $500 worth of furniture and has $21,000 worth of expenses.Which one of the following is true?

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

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

Patrick has a business net operating loss of $70,000 in 2017.Patrick's business generated significant taxable profits in 2015 and in 2016.Which of the following is true?

Karen has a net operating loss in 2017.If she does not make any special elections,what is the first year to which Karen can carry the net operating loss?

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?