Question

Advanced Scenario 7: Austin Drake Directions Using the tax software, complete the tax return, including Form 1040 and all appropriate forms, schedules, or worksheets. Answer the questions following the scenario. Note: When entering Social Security numbers (SSNs) or Employer Identification Numbers (EINs), replace the Xs as directed, or with any four digits of your choice. Interview Notes • Austin works as a self-employed ride share driver. – Austin is a cash-basis taxpayer who materially participates in the operation of his business. He did not make any payments that would require him to file Form 1099. Austin uses business code 485990. • He received Form 1099-MISC and a Form 1099-K from the ride share company. He had an additional $3,027 in cash tip income from individual customers NOT included on the Forms 1099. • Austin provided a statement from the ride share company that indicated the amount of mileage driven and fees paid for the year. These fees are considered ordinary and necessary for the ride share business. – 22,500 miles driven while transporting customers. – Share ride fee $3,960 – Safe driver fee $120 – Airport fee $715 – GPS device fee $120 • Austin’s recordkeeping application shows he drove 4,570 miles between rides; 2,250 miles driven between his home and his first and last customer of the day. He had the following miscellaneous expenses: – Bottled water for customers $42 – Auto deodorizers $15 – Car washes $85 – Lunches eaten while waiting for customers $1,200 • The total mileage on his car for 2018 was 37,200 miles. He placed his car in service on January 6, 2017. He always takes the standard mileage rate. This is Austin’s only car and it was available for personal use. • Austin paid $300 each month in 2018 for private health insurance premiums established under his business. His insurance met the requirements for minimum essential coverage (MEC).

Advanced Scenario 7: Test Questions

25. What income must Austin report for his business on Schedule C, Profit or Loss From Business? a. Only income reported on Form 1099-MISC, Miscellaneous Income, and Form 1099-K, Payment Card and Third Party Network Transactions, from the ride share company. b. Only cash tip income from individual customers. c. None. He must report all income from his ride share company as Other Income. d. His income reported on Form 1099-MISC, Form 1099-K, and the cash tip income from his customers.

26. What is Austin’s mileage expense deduction (at the standard mileage rate) for his business as a ride share driver? (Round to the nearest dollar.) a. $12,263 b. $14,753 c. $15,979 d. $20,274

27. Which item(s) can be deducted by Austin as a business expense? (Select all that apply.) a. Bottled water for customers b. Safe driver fees c. Lunch d. GPS device fee

28. How does Austin’s self-employment tax affect his tax return? a. Austin’s self-employment tax is not reported anywhere on Form 1040. b. A portion of the self-employment tax is deducted as a business expense on Schedule C-EZ, Net Profit From Business, or Schedule C, Profit or Loss From Business. c. The self-employment tax is added to his other taxes and the full amount is deducted as an adjustment to income. d. The self-employment tax is added to his other taxes and one half the amount is shown as an adjustment to income.

29. Austin’s qualified business income (QBI) deduction reduces his self-employment tax. a. True b. False 86 Advanced Scenarios

30. Self-employed health insurance deduction is claimed as a business expense on Schedule C, Profit or Loss From Business. a. True b. False

31. Austin indicates he is not able to pay the entire balance due by the due date of the return (without extensions). What are his options? a. He can submit a Form 9465, Installment Agreement Request. b. He can apply for a full pay 120-day agreement online. c. He can pay using his credit card. d. Any of the above.

Answer 1

Answer:

1. What income must Austin report for his business on Schedule C, Profit or Loss From Business?

d. His income reported on Form 1099-MISC, Form 1099-K, and the cash tip income from his customers

Reason: He received both form 1099-MISC and Form 1099-K from ride share company. That means that, his income is fully pertains to cab driving. Other income in the form of cash tips is purely relating to his business. Therefore, all these amounts forms part of his business and shall be reported on Schedule C, Profit or Loss From Business.

2. What is Austin’s mileage expense deduction (at the standard mileage rate) for his business as a ride share driver?

c. $15,979

Reason: He is allowed to take deduction at a standard rate of USD 54.5 cents per mile driven for business use. Mile driven for business use includes, 4,570 miles between rides and 2,250 miles driven between his home and his first and last customer of the day. Therefore, total miles driven for his business his use is 29,320. 54.5 cents per mile comes to 15,979$.

3. Which item(s) can be deducted by Austin as a business expense?

a. Bottled water for customers b. Safe driver fees d. GPS device fee

Reason: Except lunch expenses, all the other expenses can be claimed as deduction.

4. How does Austin’s self-employment tax affect his tax return?

b. A portion of the self-employment tax is deducted as a business expense on Schedule C-EZ.

Reason: As per the provisions of IRS.

5. Austin’s qualified business income (QBI) deduction reduces his self-employment tax.

a. False

Reason: Increase in qualified business income (QBI) deduction will increase his  self-employment tax. Because, to that extent he will not be eligible to claim deduction in computration of his self-employment tax.

6. Self-employed health insurance deduction is claimed as a business expense on Schedule C, Profit or Loss From Business.

b. False

Reason: The same is not a part of his business.

7. Austin indicates he is not able to pay the entire balance due by the due date of the return (without extensions). What are his options?

d. Any of the above.

Reason: He can exercise any one option.

____________________________________________________________________

Please revert if any further clarifications required,.