Income tax fundamentals Ch. 3 & 4 Exam Solved 100% Correct
Schedule C - ANSWER-Profit or Loss from Business (Sole Proprietorship) Schedule SE - ANSWER-Self Employment tax- USE TO CALCULATE SOCIAL SECURITY AND MEDICARE TAXES DUE ON NET EARNINGS Test for deductibility - ANSWER-1.The Ordinary & Necessary Test 2. The Business Propose Test 3.The Reasonableness Test Ordinary test - ANSWER-Common and Accepted:Expenses must be ordinary and necessary. That the type of expense is commonly found in the specific business. Necessary Test - ANSWER-Helpful and Appropriate: Helpful and appropriate in running the business Business Propose Test - ANSWER-Expenses must have a legitimate business purpose to be considered deductible Reasonableness Test - ANSWER-Not lavish or extravagant Transportation expenses - ANSWER-Expenses that include only the cost of transportation (taxi fares, automobile expenses ect.) - Travel by plane, tram, rail and bus (no meals and Lodging) - Allowed to deduct even if away from home. - Commuting is not deductible -Job 1 to Job 2 on same day is deductable Travel Expenese - ANSWER-Has to be ordinary and Necessary - must be overnight due to work - Gone for more than 1 day with rest needed - Away from Tax home (place of business) - Temporary- (less 1 yr) not practical to return home - Indefinite(more than 1 yr) new location on new tax home- cannot deduct while there Meals and entertainment - ANSWER-Self employed and Employee - allowed a 50% deduction Directly related - main purpose is business and expect to make a sale Associated with Active
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