Deck 9: Deductions: Employee and Self-Employed-Related Expenses

Question 1

Janet works at Green Company's call center. If Janet's compensation is based on the number of calls she handles, she is an independent contractor.

Answer 1

False

Question 2

A deduction for parking and other traffic violations incurred during business use of the automobile is allowed under the actual cost method but not the automatic mileage method.

Answer 2

False

Question 3

A taxpayer who maintains an office in the home to conduct his only business will not have nondeductible commuting expense.

Answer 3

True

Question 4

For tax purposes, "travel" is a broader classification than "transportation."

Question 5

The IRS will issue advanced rulings as to whether a worker's status is that of an employee or an independent contractor.

Question 6

For tax purposes, a statutory employee is treated the same as a common law employee.

Question 7

A statutory employee is not a common law employee but is subject to Social Security tax.

Question 8

After the automatic mileage rate has been set by the IRS for a year, it cannot later be changed by the IRS.

Question 9

A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of tolls and parking.

Question 10

Jake performs services for Maude. If Maude provides a helper and tools, this is indicative of independent contractor (rather than employee) status.

Question 11

One indicator of independent contractor (rather than employee) status is when the individual performing the services is paid based on time spent (rather than on tasks performed).

Question 12

In some cases it may be appropriate for a taxpayer to deduct work-related expenses as both a sole proprietor and an employee.

Question 13

Once the actual cost method is used, a taxpayer cannot change to the automatic mileage method in a later year.

Question 14

Carol is self-employed and uses her automobile solely in her business. If she uses the actual expense method to compute expenses, she can include any interest paid on the loan taken out to purchase the car.

Question 15

In choosing between the actual expense method and the automatic mileage method, a taxpayer should consider the cost of insurance on the automobile.

Question 16

A self-employed taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of automobile club dues.

Question 17

Under the automatic mileage method, depreciation is not taken into account in the mileage rate allowed.

Question 18

If an individual is subject to the direction or control of another only to the extent of the end result but not as to the means of accomplishment, an employer-employee relationship does not exist.

Question 19

A taxpayer who uses the automatic mileage method for the business use of an automobile can change to the actual cost method in a later year.

Question 20

The work-related expenses of an independent contractor are treated as itemized deductions.

Question 21

Lloyd, a practicing CPA, pays tuition to attend law school. Since a law degree involves education leading to a new trade or business, the tuition is not deductible.

Question 22

In 2018, a taxpayer takes six clients to an NBA playoff game. If all of the tickets (list price of $120 each) are purchased on the Internet for $1,800 ($300 each), only $60 ($120 × 50% overall limitation) per ticket is deductible.

Question 23

Qualified moving expenses of an employee that are not reimbursed are a deduction for AGI.

Question 24

A taxpayer who always claims the standard deduction (i.e., does not itemize his or her deductions from AGI) may still be able to receive a tax benefit from any education expenses incurred.

Question 25

Under the right circumstances, a taxpayer's meals and lodging expense can qualify as a deductible education expense.

Question 26

Beginning in 2018, the moving expense deduction has been eliminated for all taxpayers.

Question 27

James has a job that compels him to go to many different states during the year. It is possible that James was never away from his tax home during the year.

Question 28

Jackson gives his supervisor and her husband each a $30 box of chocolates at Christmas. Jackson may claim only $25 as a deduction.

Question 29

Mallard Corporation pays for a trip to Aruba for its two top salespersons. This expense is subject to the overall limitation (50%).

Question 30

Amy lives and works in St. Louis. In the morning she flies to Boston, has a three-hour business meeting, and returns to St. Louis that evening. For tax purposes, Amy was away from home.

Question 31

Ethan, a bachelor with no immediate family, uses the Pine Shadows Country Club exclusively for his business entertaining. All of Ethan's annual dues for his club membership are deductible.

Question 32

An education expense deduction may be allowed even if the education results in a promotion or pay raise for the employee.

Question 33

Marvin lives with his family in Alabama. He has two jobs: one in Alabama and one in North Carolina. Marvin's tax home is where he lives (Alabama).

Question 34

Bob lives and works in Newark, NJ. He travels to London for a three-day business meeting, after which he spends three days touring Scotland. All of his air fare is deductible.

Question 35

A self-employed taxpayer who lives and works in Kansas City travels to Chicago on an eight-day business trip.
While in Chicago, taxpayer uses the hotel valet service to have some laundry done. The valet charge is a nondeductible personal travel expense.

Question 36

Eileen lives and works in Mobile. She travels to Rome for an eight-day business meeting, after which she spends two days touring Italy. All of Eileen's airfare is deductible.

Question 37

Flamingo Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains. The cost of operating the cafeteria is not subject to the overall limitation (50%).

Question 38

The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of employment that exceeds one year.

Question 39

On their birthdays, Lily sends gift certificates (each valued at $25) to Caden (a key client) and to each of Caden's two minor children. Lily can deduct only $25 as to these gifts.

Question 40

A taxpayer who lives and works in Tulsa travels to Buffalo for five days. If three days are spent on business and two days are spent on visiting relatives, only 60% of the airfare is deductible.

Question 41

The maximum annual contribution to a Roth IRA for an unmarried taxpayer who is age 35 is the smaller of $5,500 or the individual's compensation for the year in 2018.

Question 42

Under the regular (actual expense) method, the portion of the office in the home deduction that exceeds the income from the business can be carried over to future years.

Question 43

If an individual is ineligible to make a deductible contribution to a traditional IRA, nondeductible contributions of any amount can be made to a traditional IRA.

Question 44

Under the simplified method, the maximum office in the home deduction allowed is the greater of $1,500 or the office square feet × $5.

Question 45

The Federal per diem rates that can be used for "deemed substantiated" purposes are the same for all locations in the country.

Question 46

For self-employed taxpayers, travel expenses are deductions for AGI.

Question 47

If a married taxpayer is an active participant in another qualified retirement plan, the traditional IRA deduction phaseout begins at $101,000 of AGI for a joint return in 2018.

Question 48

If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available.

Question 49

By itself, credit card receipts will not constitute adequate substantiation for travel expenses.

Question 50

Employees who render an adequate accounting to the employer and are fully reimbursed will shift the 50% overall limitation on meal expenses to their employer.

Question 51

A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.

Question 52

Both traditional and Roth IRAs possess the advantage of tax-free accumulation of income within the plan.

Question 53

When contributions are made to a traditional IRA, they are deductible by the participant. Later distributions from the IRA upon retirement are fully taxed.

Question 54

Every year, Teal Corporation gives each employee a turkey and a bottle of wine at the December holiday season.
These gifts are subject to the 50% limitation.

Question 55

A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction.

Question 56

Contributions to a Roth IRA can be made up to the due date (excluding extensions) of the taxpayer's income tax return.

Question 57

In the case of an office in the home deduction, the exclusive business use test does not apply when the home is used as a daycare center.

Question 58

A taxpayer who claims the standard deduction may be able to claim an office in the home deduction.

Question 59

For tax year 2018, Taylor used the simplified method of determining her office in the home deduction. For 2019, Taylor must continue to use the simplified method and cannot switch to the regular (actual expense) method.

Question 60

Madison is an instructor of fine arts at a local community college. If she spends $600 (not reimbursed) on art supplies for her classes, $250 of this amount can be claimed as a deduction for AGI.

Question 61

Which of the following would constitute an employer-employee relationship?

A) A plumber who comes to your home to fix a leaking faucet.
B) A CPA who prepares a client's tax return.
C) A physician who hires a nurse to help her with patient screening and preliminary tests in the office.
D) A gardener who takes care of individual lawns for a monthly fee.
E) None of the above would constitute an employer-employee relationship.

Question 62

In which, if any, of the following situations is the automatic mileage available?

A) A limousine to be rented by the owner for special occasions (e.g., weddings, high school proms).
B) The auto belongs to taxpayer's mother.
C) One of seven cars used to deliver pizzas.
D) MACRS statutory percentage method has been claimed on the automobile.
E) None of these.

Question 63

Under the actual cost method, which, if any, of the following expenses will not be allowed?

A) Car registration fees.
B) Auto insurance.
C) Interest expense on a car loan (taxpayer is an employee).
D) Dues to auto clubs.
E) All of these will be allowed.

Question 64

When using the automatic mileage method, which, if any, of the following expenses also can be claimed?

A) Engine tune-up.
B) Parking.
C) Interest on automobile loan.
D) MACRS depreciation.
E) None of these.

Question 65

Which, if any, of the following factors is not a characteristic of independent contractor status?

A) Work-related expenses are reported on Form 2106.
B) Receipt of a Form 1099 reporting payments received.
C) Workplace fringe benefits are not available.
D) Services are performed for more than one party.
E) None of these.

Question 66

A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons:

A) To claim unreimbursed work-related expenses as a deduction for AGI.
B) To avoid the self-employment tax.
C) To avoid the overall limitation (50%) on unreimbursed business entertainment expenses.
D) To avoid the limitations on unreimbursed work-related expenses.
E) None of these.

Question 67

Aaron is a self-employed practical nurse who works out of his home. He provides nursing care for disabled persons living in their residences. During the day he drives his car as follows.
Aaron's deductible mileage for each workday is:

A) 10 miles.
B) 12 miles.
C) 20 miles.
D) 22 miles.
E) 32 miles.

Question 68

An individual is considered an active participant in an employer-sponsored retirement plan merely because an individual's spouse is an active participant for any part of a plan year in applying the IRA phase-out provision.

Question 69

Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent contractor, rather than an employee?

A) Ryan sets the work schedule.
B) Ryan provides the tools used.
C) Jordan follows a specific set of instructions from Ryan to complete tasks.
D) Jordan is paid based on tasks performed.
E) None of these.

Question 70

A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.

Question 71

A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons:

A) Avoids the overall limitation (50%) as to business meals.
B) All of the self-employment tax is deductible for income tax purposes.
C) Work-related expenses of an independent contractor are deductible for AGI.
D) A Schedule C does not have to be filed.
E) None of these.

Question 72

On February 1, 2018, Tuan withdrew $15,000 from his IRA #1. He deposited the funds back into IRA #1 within 60 days (a"rollover"). Tuan may do one more nontaxable rollover distribution from either IRA #1 or IRA #2 in April 2018.

Question 73

Statutory employees:

A) Report their expenses as miscellaneous itemized deductions.
B) Include common law employees.
C) Are subject to income tax withholdings.
D) Claim their expenses as deductions for AGI.
E) None of these.

Question 74

Allowing for the overall limitation (50% reduction for meals), which of the following trips, if any, will qualify for the travel expense deduction?

A) Dr. Jones, a self-employed general dentist, attends a two-day seminar on developing a dental practice.
B) Dr. Brown, a self-employed surgeon, attends a two-day seminar on financial planning.
C) Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving his language skills.
D) Myrna went on a two-week vacation in Boston. While there, she visited her employer's home office to have lunch with former co-workers.
E) All of these.

Question 75

Tax advantages of being self-employed (rather than being an employee) include:

A) The self-employment tax is lower than the Social Security tax.
B) The overall limitation (50%) on meals does not apply.
C) An office in the home deduction (for AGI) is available.
D) Job-related expenses are deductions for AGI.
E) Both c. and d. are advantages.

Question 76

An individual, age 40, who is not subject to the phase-out provision may contribute a nondeductible amount to a Roth IRA up to $5,500 per year in 2018.

Question 77

Aiden performs services for Lucas. Which, if any, of the following factors indicate that Aiden is an employee, rather than an independent contractor?

A) Aiden provides his own support services (e.g., work assistants).
B) Aiden obtained his training (i.e., job skills) from his father.
C) Aiden is paid based on hours worked.
D) Aiden makes his services available to others.
E) None of these.

Question 78

Distributions from a Roth IRA that are subject to taxation are treated first as from earnings and last as from contributions.

Question 79

Corey is the city sales manager for "RIBS," a national fast food franchise. Every working day, Corey drives his car as follows:
Corey renders an adequate accounting to his employer. As a result, Corey's reimburseable mileage is:

A) 0 miles.
B) 50 miles.
C) 66 miles.
D) 76 miles.
E) None of these.

Question 80

For the spousal IRA provision to apply, a joint return must be filed.