Chapter 3- Business Expenses

Question 1

When do Accrual basis tax payers deduct vacation pay?

Answer 1

Accrual-basis taxpayers deduct vacation pay when it is paid

Question 2

An activity that results in a profit in any ___ of ___ consecutive years tax years (____ of ____ for the breeding and racing of horses)

Answer 2

3 of 5 consecutive years

2 out of 7 consecutive years

Question 3

A deductible expense must be BOTH ______ & _____ to be deductible

Answer 3

Ordinary & Necessary

Question 4

Compensation must meet all of the following test to be deductible

Answer 4

1. Ordinary & Necessary
2. Reasonable
3. For services performed
4. Paid or Incurred

Question 5

An employee may exclude up to $_______ from his or her gross income for qualified education expenses

Answer 5

$5,250

Question 6

Max employee may be reimbursed for dependent care services & excluded from income

Answer 6

$5,000

Question 7

Statutory employees are/ are not liable for self-employment tax

Answer 7

are not- because their employers must treat them as employees for SS tax purposes