Deck 11: Individuals As Employees and Proprietors

Question 1

If an employer pays for the employee's long-term care insurance premiums, the employee can exclude from gross income the premiums but all of the benefits collected must be included in gross income.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

A U.S.citizen is always required to include in gross income the salary and wages earned while working in a foreign country even if the foreign country taxes the income.

Answer 3

False

Question 4

Roger is in the 35% marginal tax bracket.Roger's employer has created a flexible spending account for medical and dental expenses that are not covered by the company's health insurance plan.Roger had his salary reduced by $1,200 during the year for contributions to the flexible spending plan.However, Roger incurred only $1,100 in actual expenses for which he was reimbursed.Under the plan, he must forfeit the $100 unused amount.His after-tax cost of overfunding the plan is $65.

Question 5

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

Question 6

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 7

In some cases it may be appropriate for a taxpayer to report work-related expenses by using both Form 2106 and Schedule C.

Question 8

Meg's employer carries insurance on its employees that will pay an employee his or her regular salary while the employee is away from work due to illness.The premiums for Meg's coverage were $1,800.Meg was absent from work for two months as a result of a kidney infection.Meg's employer's insurance company paid Meg's regular salary of $8,000 while she was away from work.Meg also collected $2,000 on a wage continuation policy she had purchased.Meg must include $11,800 in her gross income.

Question 9

After she finishes working at her main job, Ann returns home, has dinner, then drives to her second job.Ann may deduct the mileage between her first and second job.

Question 10

Employees of a CPA firm located in Maryland may exclude from gross income the meals and lodging provided by the employer while they were on an audit in Delaware.

Question 11

Fresh Bakery often has unsold donuts at the end of the day.The bakery allows employees to take the leftovers home.The employees are not required to recognize gross income because the bakery does not incur any additional cost.

Question 12

Carla is a deputy sheriff.Her employer requires that she live in the county where she is employed.Housing is very expensive; so the county agreed to pay her $4,800 per year to cover the higher cost of housing.Carla must include the housing supplement in her gross income.

Question 13

One indicia 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 14

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

Question 15

For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.

Question 16

Nicole's employer pays her $150 per month towards the cost of parking near a railway station where Nicole catches the train to work.The employer also pays the cost of the rail pass, $75 per month.Nicole can exclude both of these payments from her gross income.

Question 17

Sarah's employer pays the hospitalization insurance premiums for a policy that covers all employees and retired former employees.After Sarah retires, the hospital insurance premiums paid for her by her employer can be excluded from her gross income.

Question 18

A U.S.citizen who works in France from February 1, 2017 until January 31, 2018 is eligible for the foreign earned income exclusion in 2017 and 2018.

Question 19

The work-related expenses of an independent contractor will be subject to the 2%-of-AGI floor.

Question 20

Mauve Company permits employees to occasionally use the copying machine for personal purposes.The copying machine is located in the office where the higher paid executives work, so they occasionally use the machine.However, the machine is not convenient for use by the lower paid warehouse employees and, thus, they never use the copier.The use of the copy machine may not be excluded from gross income because the benefit is discriminatory.

Question 21

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 22

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 23

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 24

Alexis (a CPA) sold her public accounting practice in Des Moines and accepted a job with the Seattle office of a national accounting firm.Her moving expenses are not deductible because she has changed employment status (i.e., went from self-employed to employee).

Question 25

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

Question 26

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

Question 27

In November 2017, Katie incurs unreimbursed moving expenses to accept a new job.Katie cannot deduct any of these expenses when she timely files her 2017 income tax return since she has not yet satisfied the 39-week time test.

Question 28

In May 2017, after 11 months on a new job, Ken is fired after he assaults a customer.Ken must include in his gross income for 2017 any deduction for moving expenses he may have claimed on his 2016 tax return.

Question 29

Kelly, an unemployed architect, moves from Boston to Phoenix to accept a job as a chef at a restaurant.Kelly's moving expenses are not deductible because her new job is in a different trade or business.

Question 30

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 31

A taxpayer who lives and works in Kansas City is sent 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 32

Qualified moving expenses include the cost of lodging but not meals during the move.

Question 33

Sick of her 65 mile daily commute, Edna purchases a condo that is only four miles from her job.Edna's moving expenses to her new condo are not allowed and cannot be claimed by her as a deduction.

Question 34

A moving expense deduction is allowed even if at the time of the move the taxpayer did not have a job at the new location.

Question 35

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 36

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 37

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

Question 38

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

Question 39

Liam just graduated from college.Because it is his first job, the cost of moving his personal belongings from his parents' home to the job site does not qualify for the moving expense deduction.

Question 40

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 41

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 42

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

Question 43

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 44

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

Question 45

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

Question 46

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 47

Qualifying job search expenses are deductible even if the taxpayer does not change jobs.

Question 48

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

Question 49

For tax year 2016, Taylor used the simplified method of determining her office in the home deduction.For 2017, Taylor must continue to use the simplified method and cannot switch to the regular (actual expense) method.

Question 50

Tired of renting, Dr.Smith buys the academic robes she will wear at her college's graduation procession.The cost of this attire does not qualify as a uniform expense.

Question 51

After graduating from college with a degree in chemistry, Alberto obtains a job as a chemist with DuPont.Alberto's job search expenses qualify as deductions.

Question 52

Frank, a recently retired FBI agent, pays job search expenses to obtain a position with a city police department.Frank's job search expenses do qualify as deductions.

Question 53

If the cost of uniforms is deductible, their maintenance cost (e.g., laundry, dry cleaning, alterations) also is deductible.

Question 54

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 55

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 56

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

Question 57

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 58

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 59

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

Question 60

Travis holds rights to a skybox (containing 10 seats) at Memorial Stadium which he uses to entertain key clients.At one sporting event, he took only six clients since three were ill.Even so, Travis may still deduct the appropriate cost of all ten seats.

Question 61

Corey is the city sales manager for "RIBS," a national fast food franchise.Every working day, Corey drives his car as follows: $$\begin{array} { l c } & { \text { Miles } } \\\text { Home to office } &{ 20 } \\\text { Office to RIBS No. } 1 & 15 \\\text { RIBS No. } 1 \text { to No. } 2 & 18 \\\text { RIBS No. } 2 \text { to No. } 3 & 13 \\\text { RIBS No. } 3 \text { to home } & 30\end{array}$$ ? Corey's deductible mileage is:

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

Question 62

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 63

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 64

If a married taxpayer is an active participant in another qualified retirement plan, the traditional IRA deduction phaseout begins at $99,000 of AGI for a joint return in 2017.

Question 65

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 2017.

Question 66

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 files a Form 2106 with his Form 1040.
D)Jordan is paid based on tasks performed.
E)None of these.

Question 67

On February 1, 2017, 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 starting in April 2017.

Question 68

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. $$\begin{array} { l c } & \text { Miles } \\\text { Aaron's home to pati ent Louise } & 12 \\\text { Patient Louise to patient Carl } & 4 \\\text { Patient Carl to patient Betty } & 6 \\\text { Patient Betty to Aaron's home } & 10\end{array}$$ ? Aaron's deductible mileage for each workday is:

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

Question 69

Only self-employed individuals are required to make estimated tax payments.

Question 70

The base amount for the Social Security portion (old age, survivors, and disability insurance) is different from that for the Medicare portion of FICA.

Question 71

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

Question 72

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 73

Amy works as an auditor for a large major CPA firm.During the months of September through November of each year, she is permanently assigned to the team auditing Garnet Corporation.As a result, every day she drives from her home to Garnet and returns home after work.Mileage is as follows: $$\begin{array} { l c } & \text { Miles } \\\text { Home to office } & 10 \\\text { Home to Garnet } & 30 \\\text { Office to Garnet } & 35\end{array}$$ ? For these three months, Amy's deductible mileage for each workday is:

A)0.
B)30.
C)35.
D)60.
E)None of these.

Question 74

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

Question 75

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

A)Avoids the cutback adjustment as to business meals.
B)All of the self-employment tax is deductible for income tax purposes.
C)Work-related expenses are not subject to the 2%-of-AGI floor.
D)A Schedule C does not have to be filed.
E)None of these.

Question 76

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 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

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 79

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 80

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.