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Tax Topic 15 - Deducting Business Expenses

 In this tax topic you will learn how deduct common business expenses and what is and is not deductible. In this tax lesson you'll also become aware of the specific expenses that are deductible. Business expenses are the costs of carrying on a business and they are normally deductible as long as the business is operated to make a profit. Here, you will learn what you can deduct, and how much to deduct when there are limits and when you can deduct the business expenses. In addition, you will encounter information on not-for-profit activities and the limitations imposed on them.

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Student Instructions:

Print this page, work on the questions and then submit test by mailing the answer sheet or by completing quiz online.

Instructions to submit quiz online successfully: Step-by-Step check list

Answer Sheet            Quiz Online

Most forms are in Adobe Acrobat PDF format. Get Adobe ReaderYou will need Adobe Reader to view and print these forms. If you do not already have Adobe Reader installed on your computer, you may download the software for free.

 

Please use IRS Publication 535, and Form 1040 Instructions (Form 1040 instructions only up to page 98) to complete this tax topic.

Please note: Form 1040 Instructions (Form 1040 instructions only up to page 98) will be used for the rest of the topics in the initial tax preparer certification course. You will be responsible to answer questions from the Form 1040 instructions booklet (up to page 98) on every topic so read it carefully.

 

Tax Return Situation 1:

Use the appropriate forms to complete a tax return for Xela Holling:

Form 1040 (You may also need Form 1040 Instructions),  Schedule A, Schedule C, Schedule SE,   for this topic.

Xela Holling enjoys making masks. She learned to make masks two years ago in November at the "Dia De Los Muertos" celebration while visiting her parent's home town Chichicastenango, in Guatemala. She fell in love with the different varieties of masks that she saw people wearing for the celebration. As a result she started making her own masks once she was back in the U.S. She would dedicate her weekends for her passion. Some weekends she is not able to dedicate it to her mask making work because she has to work overtime at her regular job. She does make money from the masks as word got around that she creates such beautiful work. Although her art is suitable for wear, most of her customers buy it for wall decoration and display. Once in a while she rents a small space at the local flea-market to display her art and sometimes even at the local museum and auctions. As a result of this, she makes numerous sales. She also displays her work online. She never imagined ever making money from something that she does not consider work.

In 2013, she had the following from her mask making activities:

 
Gross income $3,700
   
advertising $250
Supplies $2,600
rent - space $790
rent - truck $450
Penalty for operating without a business license* $279
Business license $150
Temporary event staff $370
Webhosting $195
Treats for events $95

*Xela was forced to acquire a business license as she had received a penalty in 2013 for not having one.

In addition, Xela pays a mortgage and had the following in 2013:

 
Home Mortgage Interest $5,790
Property taxes $1,345
   

Xela was not married and did not have any dependents in 2013. Get all basic information from the following W2, including income information.

 

 

1. Look at the Form 1040 you prepared for Xela Holling. What is the amount on Form 1040, Line 12?

A. $0.
B. $3,700.
 C. $(1,479). 
D. $(1,200).

2. Look at the Form 1040 you prepared for Xela Holling. What is the amount on Form 1040, Line 21?

A. $0.
B. $3,700.
 C. $(1,479). 
D. $(1,200).

 
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Revised: 11/26/17