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Chapter 2 & 3: Reporting Business Income on Schedule C & Business Deductions on Schedule C

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This lesson covers how to accurately report business income and identify eligible deductions on Schedule C. Learn essential tips to ensure compliance and maximize tax savings for your clients. DOCUMENTS FOR THIS LESSON IS ATTACTED TO THE PRIOR LESSON.

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1. Tom is a freelance photographer. In January, he received a $5,000 payment for a project he completed in December. If he uses the accrual method of accounting, when should Tom report the income?
In the year the payment was received (January). In the year the payment was earned (December). He can choose to report it in either year. He doesn’t need to report the income until it is deposited.
2. Alice receives payments through PayPal for her graphic design business. She does not receive any 1099 forms from her clients. Does she still need to report these payments on Schedule C?
No, without a 1099, the income does not need to be reported. b) Yes, all income from business activities must be reported, even without a 1099. Only if the payments exceed $20,000. She can choose whether or not to report the income.
3. John runs a landscaping business and issued a client a refund for services he wasn’t satisfied with. How should John report the refund on his Schedule C?
He can ignore the refund as it is not taxable. He should deduct the refund from his gross receipts as a return or allowance. He should report the refund as a personal loss. He should add the refund to his expenses.
4. Jenny received a $10,000 payment for consulting services but only performed 80% of the work by year-end. How should she report the income using the cash method of accounting?
Report the entire $10,000 when the payment is received. Only report 80% of the payment. Defer the entire payment until all work is completed. She should not report the payment until all work is completed.
5. Rachel is a self-employed IT consultant. She received several payments for services rendered but hasn’t received a 1099-NEC from her clients. What should she do?
Wait to receive the 1099-NEC before reporting the income. Only report the income if the client sends her a 1099-NEC. Report all income earned, even if a 1099-NEC is not received. Defer reporting the income until next year if no 1099 is issued.
6. Sam is a freelance software developer who works from home. He purchases a new laptop solely for his business. How should Sam deduct the cost of the laptop?
Deduct the entire cost of the laptop as a business expense. Deduct a portion of the cost based on his home office size. Depreciate the cost of the laptop over several years. Sam cannot deduct the laptop because it’s a personal asset.
7. Sarah runs a bakery from a rented storefront. She pays for advertising in the local newspaper and hires a web designer to create her website. How should Sarah report these expenses?
Deduct the advertising costs but not the web design fees. Deduct both the advertising and web design expenses as business expenses. Only deduct the costs if she made a profit from the ads and website. She cannot deduct either expense because they are promotional.
8. Mark uses a room in his home exclusively as his office for his graphic design business. The room is 10% of his home’s total square footage. What can Mark deduct as part of the home office deduction?
He can deduct 10% of his mortgage or rent, utilities, and home insurance. He can deduct his full mortgage payment and utilities. He can deduct only the cost of his office furniture. He can deduct all home-related expenses, even personal ones.
9. Lisa runs a small consulting business and travels frequently for client meetings. She spends $200 on business meals during one trip. How much of the meal expense can she deduct?
50% of the expense, or $100. The full $200. None, since it’s a personal expense. Only $50, as there is a limit on meal deductions.
10. James buys office supplies for his business and also uses some of the supplies for personal use. How should he handle this expense on his Schedule C?
Deduct the full cost of the supplies as a business expense. Deduct only the portion of the supplies used for business purposes. Report the expense as a personal deduction. He cannot deduct the expense at all.