Question

Your friend, Deron, is confused about where to report business expenses on his tax return. He knows they are deducted FOR AGI, but he does not see them on the Form 1040. Which of these answers do you give him?

a. The revenues and expenses from a business are reported on a separate schedule and the resulting profit or loss is transferred to the Form 1040
b. The details of revenues and expenses do NOT have to be reported on the tax return, but kept in the company files in the event of an audit
c. The net income reported on a business' income statement for financial reporting is reported on the Form 1040

Answer 1

The revenues and expenses from a business are reported on a separate schedule (Schedule C) and the resulting profit or loss is transferred to the Form 1040.

Step-by-step explanation:

The correct answer is a. The revenues and expenses from a business are reported on a separate schedule and the resulting profit or loss is transferred to the Form 1040. Business expenses are deductible for adjusted gross income (AGI), but they are not listed directly on the Form 1040.

On the Form 1040, there is a separate schedule called Schedule C (Profit or Loss From Business) where businesses report their revenues and expenses. The net profit or loss from Schedule C is then transferred to the Form 1040 to calculate the AGI.

For example, if Deron owns a small business and incurs expenses such as rent, supplies, and advertising, he would report those expenses on Schedule C. The resulting profit or loss from the business would then be transferred to the Form 1040.