1. Which of the following statements is incorrect?
A. Qualified job-related expenses (e.g., auto, travel, gift expenses) spent by a self-employed taxpayer are classified as deduction for AGI.
B. Only half of the qualified meal expenses can be deductible (“50% rule”).
C. Self-employed taxpayers can deduct the amount of contribution on individual retirement account (IRA). The intention of the tax law is to make self-employed taxpayers fairer with employee taxpayers who can exclude contribution to retirement account from gross income.
D. In addition to the $0.575 per mile auto expenses, the self-employed taxpayer who chooses the standard mileage method (rather than the actual cost method) can claim deduction on depreciation, gas and oil, repair, insurance, license expenses.
2. Which of the following statements is incorrect?
A. The purpose of QBI tax law is to provide tax benefit to individuals who are doing a pass-through business, making them fair compared to corporations.
B. A self-employed taxpayer whose business income is $120,000 can claim half of its self-employment tax paid as deduction for AGI.
C. A taxpayer who is married and filing a separate return and who has MAGI of $120,000 is eligible to claim an interest on student loans.
D. A self-employed taxpayer whose business income is $300,000 can claim health insurance premium paid as deduction for AGI.
E. For a self-employed taxpayer, the auto expenses related to commuting between home and his/her job are not qualified for deduction.
3. Finn is single and operates a barber shop as a sole proprietorship. In 2021, the shop has $85,000 of net income. Finn does not itemize and has other income from capital gain of $3,000. Determine Finn’s QBI (Qualified Business Income) deduction and taxable income for 2021.
A. $14,520 B. $73,480 C. $61,080 D. $60,480 E. $72,880
4. The night king had the following for the current year:
Active income Portfolio income Passive income
Income (Loss) $8,000 $17,000 ($20,000)
Determine the taxable income for the current year from the three activities if the night king is an individual and the passive income is not related to a rental real estate activity.
A. $17,000 B. $8,000 C. $5,000 D. $25,000 E. ($20,000)
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