AFTR Business Tax Basics Flashcards

A sole proprietor reports business income and expenses on which schedule attached to Form 1040?

Answer: Schedule C

Schedule C, Profit or Loss from Business, is used by sole proprietors to report gross income, deductible business expenses, and net profit or loss.

Under the cash method of accounting, a business recognizes income when:

Answer: Payment is constructively or actually received

Under the cash method, income is recognized when payment is actually or constructively received, and expenses are deducted when actually paid.

Section 179 expensing allows a business to:

Answer: Deduct the full cost of qualifying business property in the year it is placed in service

Section 179 lets businesses immediately expense (deduct) the cost of qualifying depreciable business property placed in service during the tax year, up to the annual dollar limit.

What is the primary purpose of Form 1099-NEC?

Answer: To report nonemployee compensation paid of $600 or more to independent contractors

Form 1099-NEC is used to report nonemployee compensation of $600 or more paid to individuals who are not employees, such as independent contractors.

Bonus depreciation under current law generally allows businesses to deduct what percentage of the cost of qualifying new or used property in the first year?

Answer: 100%

The Tax Cuts and Jobs Act allowed 100% bonus depreciation for qualifying property placed in service after September 27, 2017, though this percentage phases down after 2022.

A taxpayer who uses part of their home exclusively and regularly for business may be able to deduct home office expenses using which form?

Answer: Form 8829

Form 8829, Expenses for Business Use of Your Home, is used to calculate and claim home office deductions for self-employed taxpayers using the regular method.