Question

Dr. Mark Sloan is a single, self-employed heart surgeon who uses the cash method of accounting. During 2019, he received $600,000 in total cash payments from patients. Of that total amount, $175,000 was for services performed and billed during 2018, $25,000 was for a surgery he will perform in January 2020, and the rest was for 2019 services. On July 1, 2019 he prepaid $36,000 to a company that will provide services to his office for the next 9 months. On November 15, 2019, he agreed to settle a malpractice claim for $80,000. Under the settlement, he will pay this entire payment liability on January 15, 2020. During 2019, he paid his staff salaries and wages of $150,000, including paychecks issued on January 1st 2019 for work they performed the prior December (for this problem, ignore any other costs that might apply to employees such as benefits and FICA taxes). His utility costs paid during the year for his office were $7,000. What is Dr. Sloan’s net business income or loss for 2019?

B.Use the information from the previous question (including your answer) about Dr. Mark Sloan, the single, self-employed heart surgeon. Dr. Sloan heard about a new deduction for small businesses. If he files single and takes the standard deduction, and his income is what you calculated in the previous question, how much can he claim as a deduction for Qualified Business Income?

Answer 1

Computation of Dr. Sloan's Net Business Income/ Loss for the year 2019
Method of accounting: Cash method (i.e recognise as and when cash is received or paid)
	Particulars	Amount $
	Sale of services (175000+25000+400000)	600,000
	Less:
	Prepaid expenses	(36,000)
	Salaries & Wages	(150,000)
Answer:	Net Business Income for the year	414,000
Assumptions
1	Since the method of accounting is cash basis the above computation takes into account money received during the year for any prior or future periods
2	The malpractice claim of $ 80000 has not been considered in the year 209 since the payment liability is in the year 2020
Conclusion	In case Mr. Sloan is eligible for the standard deduction, he may claim the same provided all the conditions of claiming such deduction are being fulfilled. To compute the deduction amount, additional information with respect to the particular deduction for qualified businesses is required.