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Home └NLT Pro Network Community Preparer Training └Chapter 6 & 7: Depreciation and Capital Expenses; Self-Employment Tax and Estimated Payments

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Chapter 6 & 7: Depreciation and Capital Expenses; Self-Employment Tax and Estimated Payments

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This lesson explains how to handle depreciation, report capital expenses, and calculate self-employment tax. Learn to manage estimated payments to help clients stay compliant and avoid penalties.

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1. Steve purchased new equipment for his business at a cost of $10,000. He expects to use the equipment for 5 years. How should Steve deduct the cost of the equipment using MACRS depreciation?
Deduct the entire $10,000 in the first year. Depreciate the cost over 5 years using the MACRS schedule. Deduct half of the cost in the first year and the rest over the next 4 years. He cannot deduct any portion of the equipment cost.
2. Jane buys a piece of machinery for $50,000 and wants to take advantage of the Section 179 deduction. How much of the cost can Jane deduct in the year of purchase under Section 179?
She can deduct the full $50,000 under Section 179. She can only deduct half of the cost, or $25,000. She must depreciate the cost over the life of the asset. She can only deduct $10,000 under Section 179.
3. Maria purchases a new office building for $500,000. How should Maria handle the depreciation of the building?
She can deduct the full $500,000 as a business expense in the year of purchase. She must depreciate the building over 39 years using MACRS. She can depreciate the building over 15 years using the straight-line method. She cannot depreciate real property.
4. Mark purchased a new computer for his business. He wants to use bonus depreciation to deduct a portion of the cost. How much can he deduct in the first year under current bonus depreciation rules?
He can deduct 80% of the computer’s cost under bonus depreciation. He can only deduct 50% of the cost. He must depreciate the computer over 5 years using MACRS. He cannot claim bonus depreciation for the computer.
5. Sarah bought office furniture for $10,000 but decided to claim Section 179 instead of using MACRS depreciation. What happens if her business does not earn enough income to support the full deduction in the year of purchase?
She loses the unused portion of the Section 179 deduction. She can switch to MACRS depreciation for the remaining balance. She must file an amended return to reduce the deduction. She can carry forward the unused portion of the deduction to future years.
6. Jeff is a freelance graphic designer. His net earnings from his self-employed work for the year were $80,000. What portion of his earnings is subject to self-employment tax?
The full $80,000 Only half of the earnings, or $40,000 92.35% of $80,000 Self-employment tax only applies if he earns more than $100,000
7. Jack's self-employment net income is $120,000. He wants to calculate his self-employment tax liability. How much of his income is subject to the 12.4% Social Security tax?
The full $120,000 $100,000 160,200 (the Social Security wage base limit) $160,200, but capped at the Social Security wage base for the year
8. Liz is self-employed and estimates she will owe $18,000 in federal taxes for the current year. She already made $10,000 in estimated payments. What is the minimum amount she must pay by the next estimated tax deadline to avoid an underpayment penalty?
She must pay at least 90% of the total estimated taxes She must pay the full remaining $8,000 She can wait until she files her taxes to pay the balance She needs to pay at least 75% of her total tax liability
9. Michelle is self-employed and earns $250,000 per year. In addition to self-employment tax, which additional tax may apply to her income?
Capital gains tax Alternative minimum tax (AMT) Additional 0.9% Medicare tax for high earners Only self-employment tax, with no additional taxes
10. Susan is a freelance writer with no employer withholding taxes for her. She expects to owe $20,000 in total taxes for the year. Which action should she take to avoid penalties for underpayment?
Wait until the end of the year to pay her taxes in full Make estimated quarterly tax payments throughout the year using Form 1040-ES File an extension and pay her taxes when she files Pay taxes once a year when she files her return