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

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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 8

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.

Question 9

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 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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 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 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.

Question 20

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

Question 21

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

Question 22

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

Question 23

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 24

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 25

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 26

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 27

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

Question 28

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 29

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 30

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 31

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

Question 32

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 33

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 34

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

Question 35

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 36

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 37

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

Question 38

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 39

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

Question 40

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 41

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 42

Qualified business income QBI) is defined as the ordinary income less ordinary deductions a taxpayer earns from a "qualified trade or business"

Question 43

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

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

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

Question 46

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

Question 47

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 48

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 49

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 50

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 51

Code § 199A permits an individual to deduct 25 percent of the qualified business income generated through a sole proprietorship, a partnership, or an S corporation.

Question 52

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 53

A "qualified trade or business" includes any trade or business including providing services as an employee.

Question 54

One of the purposes of the qualified business income deduction was to reduce the taxes on businesses who are operating in non-corporate business forms

Question 55

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

Question 56

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

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

There are three limitations on the qualified business income deduction. An overall limitation based on modified taxable income), another that applies to high income taxpayers, and a third that applies to certain types of services businesses.

Question 60

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

Question 61

The § 222 deduction for tuition and related expenses is available:

A) Only if the taxpayer itemizes deductions from AGI.
B) To deduct that portion of the tuition in excess of that allowed under the lifetime learning credit.
C) To cover the tuition of a son who does not qualify as taxpayer's dependent.
D) Only if job related.
E) None of these.

Question 62

In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions, which of the following items involve self-employed?

A) Schedule C of Form 1040.
B) Form W-4.
C) Form W-2.
D) Schedule A of Form 1040.
E) None of these.

Question 63

During the year, Sophie a self-employed marketing consultant) went from Omaha to Lima Peru) on business. She spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Sophie's expenses are: $$\begin{array} { l r } \text { Air fare } & \$ 3,000 \\\text { Lodging } & 800 \\\text { Meals } & 600 \\\text { Entertainment } & 400\end{array}$$ Sophie's deductible expenses are:

A) $4,300.
B) $2,900.
C) $2,800.
D) $2,500.
E) None of these.

Question 64

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 65

Which, if any, of the following is subject to an overall limitation on meals in 2018?

A) Meals provided to employees during a business meeting.
B) Meals provided at cost to employees by a cafeteria funded by the employer.
C) Fourth of July company picnic for employees.
D) Meals provided to employees during a training event or retreat at an off-site location.
E) All 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

Which of the following expenses, if any, qualify as deductible?

A) Contributions to a Coverdell Education Savings Account CESA).
B) Contributions to a qualified tuition program § 529 plan).
C) Job hunting expense of FBI agent who applies for the job of city manager of Beaumont TX).
D) Contribution to a traditional IRA.
E) None of these.

Question 68

Which, if any, of the following expenses are deductible?

A) Safety shoes purchased by an plumber employed by a company.
B) Bottled water purchased by a gig driver for passengers.
C) Unreimbursed employee expenses.
D) Tax return preparation fee paid by a non-employed retiree.
E) None of these.

Question 69

The § 222 deduction for tuition and related expenses is available:

A) Regardless of the amount of a taxpayer's MAGI.
B) To cover room and board expenses to attend college.
C) To a married taxpayer filing a separate return.
D) Even if a taxpayer does claim the standard deduction.
E) None of these.

Question 70

Which, if any, of the following is an advantage of using the simplified method for determining the office in the home deduction?

A) No depreciation on the personal residence has to be computed.
B) The exclusive use requirement does not have to be met.
C) Allows the expense to be classified as a deduction for AGI.
D) Can also be used for a residence that is rented not owned) by the taxpayer.
E) None of these.

Question 71

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 72

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 73

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 74

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 75

Rachel is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI approximates $50,000. During the year, she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $4,100 tuition), $300 books), $200 other school supplies), and $200 transportation to and from campus). As to the MBA program, Rachel has a:

A) Deduction for and deduction from AGI of $0.
B) Deduction for AGI of $4,000 and deduction from AGI of $0.
C) Deduction for AGI of $4,000 and deduction from AGI of $800.
D) Deduction for AGI of $4,100 and deduction from AGI of $700.
E) None of these.

Question 76

Qualified business income includes the "reasonable compensation" paid to the taxpayer by a qualified trade or business and guaranteed payments made to a partner for services rendered.

Question 77

Ralph made the following business gifts during the year. $\begin{array}{llcc} \text { To Robert (a key client) at Christmas } &\$ 50 \\ \text {To Angel (Robert's 8-year old daughter) on her birthday } &20\\ \text { To Art (Ralph's secretary) on his birthday (\$3 was for gift wrapping) } &30\\ \text { To Paige (Ralph's boss) at Christmas } &40\\\end{array}$
Presuming proper substantiation, Ralph's deduction is:

A) $0.
B) $53.
C) $73.
D) $78.
E) $98.

Question 78

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 79

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 80

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.