Module 3:Gross Income "Part 2"

Question 1

Business Income or Loss, Schedule C

Answer 1

Expenses:

• business and meal expenses (deductible 50%)
• salaries, COGS, depreciation, interest on business loans, employee benefits

Question 2

Nondeductible on Schedule C Business and Income Loss

Answer 2

• Salaries paid to self
• Charity contributions exam
• PERSONAL potion of travel and meals
• Health insurance of self (on Adjustment AGI)

Question 3

Net Business Income or Loss: Schedule C

Answer 3

Two taxes:
Income tax & Self-employment tax
If a loss:
Can carry back two years and forward 20 years
Uniform Capitalization Rules (aka specific rules to businesses to pay more tax):
-Capitalized costs include: materials, labor, factory overhead
-Uncapitalized (dont have to include): marketing and selling expenses, research, g&a expenses

Question 4

Long-term contracts for Business Income Schedule C

Answer 4

• Uses the percentage completion method since the contract goes from year to year.
• Calculation: work done/total work= % earned in that given year (costs incurred/total expected cost)

Question 5

Farm Income Schedule F

Answer 5

• Can deduct produce

- Accrual if inventory

Question 6

Rental Income of Loss: Schedule E

Answer 6

Formula:
Rent Income + Prepaid income + cancellation payment +Improvement in lieu of rent - rent expenses= Net

-If rent more than 15 days its rental residence, fewer is personal
-Losses are passive and can only deduct to extent of income
Exception: Mom and Pop rule where can deduct up to $25,000 against the nonpassive income