Tax Preparation Self-Employment and Business Taxes 2 — Questions and Answers
Question 1: Which method allows a self-employed taxpayer to calculate the home office deduction using $5 per square foot?
- Actual expense method
- Simplified method (Correct answer)
- Straight-line method
- Percentage-of-home method
Correct answer: Simplified method
The simplified method allows a deduction of $5 per square foot of the home office, up to 300 square feet ($1,500 maximum).
Question 2: Business meals are generally deductible at what percentage for self-employed taxpayers?
- 100%
- 80%
- 50% (Correct answer)
- 25%
Correct answer: 50%
Business meals are generally only 50% deductible; the TCJA eliminated the deduction for entertainment expenses entirely.
Question 3: A self-employed individual buys a $20,000 vehicle used 60% for business. What is the maximum first-year depreciation deduction using Section 179?
- $20,000
- $12,000 (Correct answer)
- $10,000
- $6,000
Correct answer: $12,000
Section 179 deduction is limited to the business-use percentage: $20,000 × 60% = $12,000 (subject to annual limitations and luxury auto caps).
Question 4: Quarterly estimated tax payments are due on which dates?
- Jan 15, Apr 15, Jul 15, Oct 15
- Apr 15, Jun 15, Sep 15, Jan 15 (Correct answer)
- Mar 15, Jun 15, Sep 15, Dec 15
- Apr 15, Jul 15, Oct 15, Jan 15
Correct answer: Apr 15, Jun 15, Sep 15, Jan 15
Estimated tax due dates are April 15, June 15, September 15, and January 15 of the following year.
Question 5: A taxpayer can avoid the underpayment penalty by paying at least what percentage of the prior year's tax?
- 90% of current year tax
- 100% of prior year tax (or 110% if income over $150,000) (Correct answer)
- 85% of estimated current year tax
- 95% of current year tax
Correct answer: 100% of prior year tax (or 110% if income over $150,000)
The safe harbor rule allows avoiding the underpayment penalty by paying 100% of the prior year's tax (or 110% if prior year AGI exceeded $150,000).
Question 6: A sole proprietor reports income and expenses on which form?
- Form 1120-S
- Schedule E
- Schedule C (Correct answer)
- Form 1065
Correct answer: Schedule C
Sole proprietors report business income and deductible expenses on Schedule C (Profit or Loss from Business) of Form 1040.
Tax Preparation Self-Employment and Business Taxes 2
Which method allows a self-employed taxpayer to calculate the home office deduction using $5 per square foot?