I am not sure how to do this Margaret started her own business in the current ye
ID: 2507607 • Letter: I
Question
I am not sure how to do this
Margaret started her own business in the current year and will report a profit for her first year. Her results of operations are as follows:
Gross income $50,000
Travel 1,000
Transportation 6,173 miles, using standard mileage method
Entertainment in" total 4,000
Seven gifts at $50 each 350
Rent and utilities for apartment in total 10,000
(20% is used for a home office)
What is the net income Margaret should show on her Schedule C? Show the cal-culation of her taxable business income.
Explanation / Answer
www.irs.gov website and use the search box for the schedule C and choose the line by line instructions for the schedule C for this purpose.
http://www.irs.gov/instructions/i1040sc/...
Line 9
You can deduct the actual expenses of operating your car or truck or take the standard mileage rate. This is true even if you used your vehicle for hire (such as a taxicab). You must use actual expenses if you used five or more vehicles simultaneously in your business (such as in fleet operations). You cannot use actual expenses for a leased vehicle if you previously used the standard mileage rate for that vehicle.
You can take the standard mileage rate for 2011 only if you:
Owned the vehicle and used the standard mileage rate for the first year you placed the vehicle in service, or
Leased the vehicle and are using the standard mileage rate for the entire lease period (except the period, if any, before 1998).
If you take the standard mileage rate:
Multiply the number of business miles driven by 51 cents for miles driven before July 1, 2011, and 55.5 cents per mile for miles driven after June 30, 2011, and
Add to this amount your parking fees and tolls, and enter the total on line 9.
Do not deduct depreciation, rent or lease payments, or your actual operating expenses.
If you deduct actual expenses:
Line 24b
Enter your total deductible business meal and entertainment expenses. This includes expenses for meals while traveling away from home for business and for meals that are business-related entertainment.
Deductible expenses. Business meal expenses are deductible only if they are (a) directly related to or associated with the active conduct of your trade or business, (b) not lavish or extravagant, and (c) incurred while you or your employee is present at the meal.
You cannot deduct any expense paid or incurred for a facility (such as a yacht or hunting lodge) used for any activity usually considered entertainment, amusement, or recreation.
Also, you cannot deduct membership dues for any club organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs, airline and hotel clubs, and clubs operated to provide meals under conditions favorable to business discussion. But it does not include civic or public service organizations, professional organizations (such as bar and medical associations), business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards, unless a principal purpose of the organization is to entertain, or provide entertainment facilities for, members or their guests.
Amount of deduction. In most cases, you can deduct only 50% of your business meal and entertainment expenses, including meals incurred while away from home on business.
Line 30
Business use of your home. You may be able to deduct certain expenses for business use of your home, subject to limitations. You must attach Form 8829 if you claim this deduction. For details, see the Instructions for Form 8829 and Pub. 587.
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