Seminar 102 - Business Use of Your Home

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You will need IRS Publication 587, and California Tax News , CA information, FTB 984, and FTB 987 to complete this topic.

Please answer the following as accurately as possible.

1. To qualify to deduct expenses for business use of your home, you must use part of your home

a. Exclusively and regularly as your principal place of business.
b. Exclusively and regularly as a place where you meet and deal with patients, clients, or customers in the normal course of your trade of business.
c. For rental use or as a day care facility.
d. Any of the above.

2. If you are an employee and you use part of your home for business, you may qualify for a deduction for its business use. Besides qualifying your home or part of your home to deduct for business use,

a. The business use must be for the convenience of your employer.
b. You must not rent any part of your home to your employer and use the rented portion to perform services as an employee for that employer.
c. The use of your home office is merely appropriate and helpful to be able to deduct expenses for the business use of your home.
d. Both A and B above.

3. To qualify under this test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition. This test is

a. The trade-or-business-use-test.
b. The exclusive use test.
c. The regular use test.
d. The principal place of business test.

4. To qualify under this test, you must use a specific area of your home for business on a regular basis. Incidental or occasional business use does not satisfy this test. You must consider all facts and circumstances in determining whether your use satisfies this test. This test is

a. The trade-or-business-use-test.
b. The exclusive use test.
c. The regular use test.
d. The principal place of business test.

5. To qualify under this test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade of business, you cannot take a deduction for its business use. This test is

a. The trade-or-business-use-test.
b. The exclusive use test.
c. The regular use test.
d. The principal place of business test.

6. You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under this test, your home must be your principal place of business for than trade or business. This test is

a. The trade-or-business-use-test.
b. The exclusive use test.
c. The regular use test.
d. The principal place of business test.

7. To determine whether your home is your principal place of business

a. You must consider the relative importance of the activities performed at each place where you conduct business and the amount of time spend at each place where you conduct business.
b. You must use it exclusively and regularly for administrative or management activities of your trade or business.
c. You must have no other fixed location where you conduct substantial administrative or management activities of your trade or business.
d. All of the above.

8. If after considering your business locations, your home cannot be identified as your principal place of business, you can still deduct home office expenses.

True False

9. The following activities performed by you or others will disqualify your home office from being your principal place of business.

a. You have others conduct your administrative or management activities at locations other than your home.
b. You conduct administrative or management activities at places that are not fixed location of your business, such as in a car or a hotel room.
c. You have suitable space to conduct administrative or management activities outside your home, but choose to use your home office for those activities instead.
d. None of the above.

10.  The same home office can be the principal place of business for two or more separate business activities. Whether your home office is the principal place of business for more than one business activity must be determined separately for each of your trade or business activities. You must use the home office exclusively and regularly

a. As the principal place of business for one or more of your trade or businesses.
b. As a place to meet or deal with patients, clients, or customer in the normal course of one or more of your trades or businesses.
c. If your home office is a separate structure, in connection with one or more or your trades or businesses.
d. Any of the above.

11. You can use your home office for more than one business activity and occasional non-business (personal) activities.

True False

12. If you are an employee, any use of the home office in connection with your employment must be for the convenience of your employer.

True False

13. If you meet or deal with patients, clients, or customers in your home in the normal course of your business, even though you can also carry on business at another location, you can deduct your expenses for the part of your home used exclusively and regularly for business if

a. You physically meet with patients, clients, or customers on your premises.
b. Their use of your home is substantial and integral to the conduct of your business.
c. You use your home for occasional meetings and telephone calls.
d. Both A and B.

14. The part of your home you use exclusively and regularly to meet patients, clients, or customers has to be your principal place of business.

True False

15. You can deduct expenses for a separate free-standing structure, such as a studio, garage, or barn, if you use it exclusively and regularly for your business.

True False

16. To find the business percentage, compare the size of the part of your home that your use for business to your entire house. Use the resulting percentage to figure the business part of the expenses for operating your entire home. To figure the percentage

a. Use any reasonable method to determine the business percentage.
b. Divide the area (length multiplied by the width) used for business by the total area of your home.
c. You can divide the number of rooms in your home if the rooms in you home are all about the same size.
d. Any of the above.

17. Your deduction of nondeductible expenses, such as insurance, utilities, and depreciation that are allowable to the business, is limited to the gross income from the business use of your home minus

a. The business part of the expenses you could deduct even if you did not use your home for business (such as mortgage interest, real estate taxes, and casualty and theft losses that are allowable as itemized deductions.
b. The business expenses that relate to the business activity in the home such as business phone, supplies, and depreciation on equipment, but not the use of the home itself.
c. The business expenses such as insurance, utilities, and depreciation for the entire home.
d. Both A and B above.

18. You home is the only fixed location of your business of selling gardening equipment at retail. You regularly use half of your basement for storage of inventory and supplies. You sometimes use the area for personal purposes. As a result,

a. The expenses for the storage space are not deductible since you have used the space for personal purposes.
b. You must calculate the days you used the space for personal use and prorate the amounts accordingly.
c. The expenses for the storage space are deductible even though you do not use this part of your basement exclusively for business.
d. None of the above.

19. You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities related to your own investments. As a result,

a. The expenses for part of your home are deductible since you use this part of your home exclusively for your financial matters. Your activities are not part of a trade or business and you cannot take a deduction for the business use of your home.
b. Your activities are not part of a trade of business and you cannot take a deduction for the business use of your home.
c. This is a fixed location where you conduct substantial administrative or management activities of your trade or business, therefore expenses are 100% deductible.
d. Your use of the home is not for the storage of inventories or product samples, so you cannot take a deduction for the business use of your home.

20. Yolandita is employed as a teacher. She is required to teach and meet with students at the school and to grade papers and tests. The school provides her with a small office where she can work on her lesson plans, grade papers and tests, and meet with parents and students. The school does not require her to work at home. However, Yolandita prefers to use the office she has set up in her home and does not use the one provided by the school. She used this home office exclusively and regularly for the administrative duties of her teaching job. As a result,

a. Yolandita cannot deduct the expenses for her office in the home because her activities are not part of a trade or business.
b. Since Yolandita is an employee and uses a part of her home for business, she qualifies for a deduction for the business use.
c. Yolandita has suitable space to conduct her administrative or management activities outside of her home and chooses to use her home office instead, but she can still deduct her business expenses.
d. He employer provides her with an office and does not require her to work at home, so she cannot claim a deduction for the business use of her home.

21. Hernando meets the requirements for deducting expenses for the business use of his home. He uses 20% of his home for business. In 2007, his business expenses and the expenses for the business use of his home are the following:

Other Expenses for home:

What is the total amount that can be deducted for 2007?

a. $29,000.
b. $6,000.
c. $7,400.
d. None of the above.

22. Certain expenses are deductible whether or not you use your home for business. If you qualify to deduct business use of the home expenses, use the business percentage of these expenses to figure your total business use of the home deduction. The following is not one of these expenses.

a. Real estate taxes and deductible mortgage interest.
b. Qualified mortgage insurance premiums.
c. Casualty losses.
d. None of the above.

23. Certain expenses are deductible only if you use your home for business. You can use the business percentage of these expenses to figure your total use of the home deduction. The following are not one of these expenses.

a. Depreciation and insurance.
b. Rent and repairs.
c. Security system, utilities and services.
d. None of the above.

24. If you have a casualty loss on your home that you use for business, treat the casualty as a direct expenses, an indirect expense, or an unrelated expense, depending on the property affected. The following expense is the loss on property you use for both business and personal purposes.

a. A direct expense.
b. An indirect expense.
c. An unrelated expense.
d. None of the above.

25. The cost of repairs that relate to your business, including labor (other than your own labor), is a deductible expense. For example, a furnace repair benefits the entire home. If you use 20% of your home for business, you can deduct

a. 10% of the cost of the furnace repair.
b. 20% of the cost of the furnace repair.
c. 25% of the cost of the furnace repair.
d. None of the cost of the furnace repair.

26. If you own your home and qualify to deduct expenses for its business use, you can claim a deduction for depreciation. Before you figure your depreciation deduction, you need to know

a. The month and year you started using your home for business.
b. The adjusted basis and fair market value of your home at time you began using it for business and the cost of any improvements before and after you began using the property for business.
c. The percentage of your home used for business.
d. All of the above.

27. If you provide food for your daycare recipients, do not include the expense as a cost of using your home for business. Which of the following is correct regarding a deduction for food?

a. You can claim 100% of food your daycare recipients as a deduction on Schedule C (Form 1040).
b. You can never deduct the cost of food consumed by you or your family.
c. Generally only 50% of the cost of food consumed by your employees or 100% if its value can be excluded from their wages as a minimus fringe benefit.
d. All of the above.

28. If you qualify as a family daycare provider, you can use the standard meal and snack rates, instead of actual costs, to compute the deductible cost of meals and snacks provided to eligible children. For these purposes

a. A family daycare provider is a person engaged in the business of providing family daycare.
b. Family daycare is childcare provided to eligible children in the home of the family daycare provider.
c. Eligible children are minor children receiving family daycare in the home of the family daycare provider.  
d. All of the above. 

29. You deduct expenses for the business use of your home on Form 1040. Where you deduct these expenses on the form depends on

a. Whether you are a self-employed person or an employee.
b. Whether you meet the convenience-of-the-employer test or not.
c. The relative importance of the activities performed.
d. None of the above.

30. In June 2007, Claudio Perez bought a desk and three chairs to use in his office. His total bill for the furniture was $1,975. His taxable business income for the year was $3,000 without any deduction for the office furniture. Claudio can

a. Take a section 179 deduction for the full cost of the office furniture.
b. Take part of the cost of the furniture as a section 179 deduction and depreciate the balance.
c. Depreciate the full cost of the office furniture.
d. Any of the above.

31. In order to claim a home office expense, you must insure that the area of your home is used regularly and exclusively for business purposes.

True False

32. If the regularly and exclusively for business purpose use is met, then you would be able to claim

a. Any direct expenses that are used exclusively for business.
b. The percentage of indirect expenses such as utilities.
c. The percentage of your home that is being used for business purposes and apply the percentage against any indirect expenses such as insurance, utilities and depreciation.
d. Any of the above.

33.  Transactions marked with the promise of tax benefits with correlating risk of economic loss and the transactions typically have no economic purpose other than reducing taxes. These are

a. Tax benefits.
b. Abusive tax shelters.
c. Illegal tax avoidances. 
d. All of the above.

34. Creating the appearance of having a home based business, where none actually exists, and deducting personal, living, or family expenses is in violation of the tax laws. In order to generate and claim allowable business expenses, the Internal Revenue Code provides that

a. Tax scams are legal tax avoidance.
b. Individual taxpayers can deduct most, or all, of their personal expenses as business expenses by setting up a home-based business.
c. A clear business purpose and profit motive must exist in order to generate and claim allowable business expenses.
d. None of the above.

35. Many online promoters claim to offer legitimate ways to reduce a taxpayer's income taxes, or even to pay no taxes at all. Many promoters market bogus websites,  home-based businesses, and incorporation packages on the internet that purport to entitle the taxpayer to big write-offs.

True False

36.  Some promoters advocate incorporation of a business in a non-income taxing state to avoid paying California income taxes. This is okay, since California residents are only taxed on income from California an not on income from sources outside of California.

True False

37. The FTB urges California taxpayers to avoid the common tax scams affecting California taxpayers. Several of the tax scams popular in California of which are known to FTB and to the IRS does not include the following.

a. Phony home-based business.
b. Bogus websites, home-based businesses, and incorporation packages that entitle the taxpayers to big write-offs.
c. Offshore accounts and phishing.
d. None of the above.

38. Domestic shell corporations and other entities are being formed and operated in certain state for the purpose of disguising the ownership of the business or financial activity. Once formed, these anonymous entities can be, and are being, used to facilitate

a. Underreporting of income and non-filing of tax returns.
b. Money laundering and financial crimes.
c. Possibly terrorist financing.
d. All of the above.

39. Personal, family, and living expenses are not deductible business expenses. Creating the appearance of having a home-based business, where none actually exists, and deducting personal, living, or family expenses is a violation of the tax laws.

True False

40. To deduct an direct expense for your office in the home, such as office supplies, you would compute the percentage of your home that is being used for business purposes and apply that percentage against that direct expense.

True False