Schedule C Updates Flashcards
Review
Of the below choices, which one represents the START of the threshold for the qualified business income (QBI) deduction for married filing jointly, for 2024?
* $29,200
* $191,950
* $383,900
* $483,900
My answer: $383,900
Explanation
The threshold for the QBI deduction starts at $383,900 for married filing jointly in 2024. This is the beginning of the phase-in range for the deduction.
What is the threshold for 1099-K reporting in 2025 for third-party network transactions?
* 600
* $2500
* 200 + transactions
* 20,000
Answer: 2500
Explanation
As of 2025, the 1099-K reporting threshold for third-party network transactions has been adjusted to $2,500, simplifying reporting for smaller transactions.
Which of the following is NOT true regarding wages paid by a sole proprietor to their child under the age of 18?
- No Fica taxes are owed
- No FUTA taxes are owed
- The child is not eligible to receive any reporting forms
- The proprietor takes a deduction for wages paid on schedule C
Answer:
The child is not eligible to receive any reporting forms
Explanation
This choice is not true because the child does receive a reporting form—specifically, a Form W-2, just like any other employee. Although certain taxes (like FICA and FUTA) are exempt depending on the child’s age, W-2 reporting still applies.
Which of these choices is CORRECT regarding the self-employed health insurance deduction?
- The deduction goes to schedule C
- The deduction goes to schedule 1
- The insurance must always be in the individuals name
- The deductions is allowed no matter the self employment income or loss
Answer: The deduction goes to schedule 1
Explanation
The deduction goes on Schedule 1 as an adjustment for adjusted gross income. The deduction only reduces income tax, not self-employment tax.
For 2024, what is the maximum amount of elective deferrals a sole proprietor under the age of 50 can make (assuming they have adequate earnings from self-employment)?
$7000
$16,000
$23,000
$69,000
Answer:
$23,000
When a proprietor makes a SEP contribution for themselves, where does the deduction go for tax form reporting purposes?
- On a Schedule C as employee benefit
- On Schedule 1as an adjustment for gross income
- On a Schedule A as itemized deduction
- As an adjustment to self-employment income on Schedule SE
On Schedule 1as an adjustment for gross income
Explanation
SEP contributions made by a proprietor are reported on Schedule 1 as an adjustment for adjusted gross income. This allows the proprietor to reduce their taxable income without affecting self-employment tax.
Test
What year will the “$600”, 1099-K reporting threshold take effect?
A2024
B2025
C2026
D2027
My answer:
2026
Test
What is the correct treatment of hobby income and expenses for tax purposes?
A. Hobby income is not taxable, and no reporting is required.
B. Hobby income is taxable and reported as “other income” on Schedule 1, but hobby expenses are not deductible.
C. Hobby income is taxable, and the related expenses are deductible on Schedule C.
D. Hobby income is taxable, and hobby expenses are deducted directly from the income on Schedule 1.
My answer:
B. Hobby income is taxable and reported as “other income” on Schedule 1, but hobby expenses are not deductible.
Which of the following are drawbacks of establishing a 401(k) plan for a sole proprietor?
A. More cumbersome to establish, costlier to maintain, and may require annual filings and document setup costs.
B. Might be too much horsepower for a sole proprietor, depending on available funds for contribution.
C. Employees must be covered, which may require a third-party administrator, annual non-discrimination testing, and additional fees.
D. All of the above
My Answer:
D. All of the above
Test
Which of the following are the benefits of a 401(k) plan for a sole proprietor?
A.It allows for more deductions than a SIMPLE IRA and more flexibility than a SEP (if there’s enough self-employment income to allow for the deduction).
B. It allows for more deductions than a SIMPLE IRA and more flexibility than a SEP (if there are loans against the account, which is not available in SIMPLE IRAs and SEPs.
C. Both A and B
D.None of the above
My answer:
Both A and B
Test
As a self-employed individual, you may be eligible for a health insurance deduction for premiums paid on health coverage. Which of the following statements is INCORRECT regarding the self-employed health insurance deduction?
A. The deduction reduces self-employment income.
B. The deduction is an adjustment to AGI on Schedule 1.
C. The insurance can be in the individual’s name or the LLC name (if it’s a 1-owner LLC).
D. The deduction is limited to the amount of net income from the business.
My Answer:
The deduction is an adjustment to AGI on Schedule 1.
Test
Fred employs his 17-year-old son in Fred’s sole proprietorship. Identify the true statements regarding the wages paid to his son.
A. The wages are exempt from FICA.
B. The wages are exempt from FUTA.
C. The wages are reported on Form W-2.
D. All of these are true.
My answer:
All of these are true.
Test
What does SEP stand for in the context of retirement plans?
A. Sole Employee Pension
B. Simplified Employee Pension
C. Special Employee Pension
D. Systematic Employer Pension
My Answer:
B. Simplified Employee Pension
Test
Mary is a sole proprietor who runs her business from her home. She owns her house and is claiming a deduction for the home office. What depreciation period should she use when calculating the depreciation deduction related to her home?
A. No depreciation needs to be calculated.
B. 2 0 years
C. 27.5 years
D. 39 years
My Answer:
39 years
Test
For 2024, a sole proprietorship that has inventory can only use the cash method of accounting if its 3-year average income is less than ________________.
A. $5 million
B. $25 million
C. $30 million
D. $100 million
My Answer:
$30 million
Test
Freddy owns a sole proprietorship and qualifies to claim a home office deduction on his Schedule C. His net profit is $25,000, and his office is 150 square feet. If he uses the simplified method, what amount is his home office deduction?
A. $0, there is no simplified method
B. $750
C. $1,500
D. $5,000
My Answer:
$750
