STUDY UNIT 5: SELF-EMPLOYMENT AND FARMING

Question 1

Farming exp. deduction

Answer 1

1. First phone line not deductible; 2nd phone line only the business portion deductible. Farm product used by labor not delectable.

Question 2

Farming conservation

Answer 2

is Limited to 25% *(Gross Farm income=Gross income- cost of livestock)

Question 3

Domestic Production Gross Receipts deduction for income attributable to domestic activities

Answer 3

lesser of the following:
9% of the qualified production activities income (QPAI),QPAI=DPGR-%*directly relocatable
9% of the taxable income of the taxpayer, or
50% of the W-2 wages allocable only to qualified production activities income for the year.

Question 4

Section 199 states that gross receipts from the sale or lease of personal property that is manufactured in the U.S. are considered DPGR

Answer 4

However, gross receipts from the lease, rental, or license of property to a related party does not qualify as DPGR.

Question 5

The net earnings from self-employment

Answer 5

0.9235*net bus income (do not deduct fed tax)

Question 6

Intent to deceive is

Answer 6

necessary element of actual fraud

Question 7

support a finding of constructive common law fraud

Answer 7

Whether a CPA is liable for fraud depends on whether (s)he acted with scienter. Scienter means that the person making a representation knew that it was false at the time of making it or acted with a reckless disregard for the truth. The difference between actual and constructive fraud is that the scienter requirement for the latter is met by gross negligence (reckless disregard). Thus, the following four elements are necessary to prove constructive fraud: (1) misrepresentation of a material fact, (2) reckless disregard for the truth, (3) reasonable reliance by the injured party, and (4) injury. Thus, the presence of reckless disregard for the truth would support a finding of constructive fraud on the part of a CPA.

Question 8

Vacation Home utility Treatment

Answer 8

The expenses for rental property must be allocated between personal and rental use. Deductions are only allowed for those expenses related to the rental expense. In order to qualify to deduct these amounts, the taxpayer must pass the “Minimum Rental Use” test, which states that the property must be rented for at least 15 days to qualify as business use. In addition, if the taxpayer uses the residence for personal use more than either 14 days or 10% of the days it is rented, the deductions are further limited.

Question 9

nonqualified stock option will result in compensation equal to

Answer 9

FMV – exercise price) × shares

Question 10

self-employment reduced by the employer’s portion of FICA taxes

Answer 10

0.0765

Question 11

meal & entertainment deduction

Answer 11

50% only

Question 12

FICA Tax 7.65%=

Answer 12

Medicare:1.45%+

OASDI(SS):6.20%(celling$127,200)=15.3

Question 13

standard mileage rate. For 2017, the standard mileage rate is

Answer 13

$0.535 per mile

Question 14

Repair of equipment

Answer 14

should be deducted_ restore to previous condition

Question 15

Section 274 disallows a deduction for expenditures made with respect to a facility used in connection with entertainment or recreation

Answer 15

ie.

country club membership

Question 16

Taxable life insurance

Answer 16

cost of employer/shareTotal share-total cost /share($50000/$coverage amount)

Question 17

COGS=

Answer 17

BI+Add-EI

Question 18

Freight on shipments of finished goods

Answer 18

Do not included in add on inventory; freight on shipments to bring in raw material is included in inventory.

Question 19

FICA Tax

Answer 19

12. 4 2.9 15.3

6. 2 1.45 7.65 92.35

Question 20

Loan origination fee

Answer 20

divided by Loan term expended as interest expenses.

Question 21

FUTA

Answer 21

6% of first 7K

Question 22

employer-provided

Answer 22

transit passes $255/month parking:255/month
moving reimbursements : the actual expenses of moving a taxpayer and his or her household goods and personal effects and travel (including lodging) from the former residence to the new residence. The cost of meals en route is not deductible. Indirect expenses are not deductible and include house-hunting expenses and temporary living expenses.
employer-provided educational assistance:$5250 (Book yes; not include the costs of meals, lodging, transportation, tools, or supplies that the employee retains after the course.)
incurred by their employer for qualified dependent care: lesser of 5000(2500MFS) or insurance Cost -5000(2500MFS)
season tickets:Taxalbe

Question 23

start-up costs

Answer 23

excess of $5,000 are capitalized and amortized over a 180-month/exceed $50,000 wasted . eg. $2,700 [$5,000 – ($52,300 – $50,000)] +$276 [($52,300 – $2,700) ÷ 180 months]