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

Question 1

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

Answer 1

False

Question 2

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

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

Question 5

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

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

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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 13

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 14

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

Question 15

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

Question 16

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

Question 17

Carol is self-employed and uses her automobile solely for 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

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

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

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

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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 for these gifts.

Question 30

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 31

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 32

The moving expense deduction has been eliminated for all taxpayers.

Question 33

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

Question 34

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 35

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 36

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

Question 37

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 airfare is deductible.

Question 38

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

Question 39

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

Question 40

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 41

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

Question 42

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

Question 43

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 44

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

Question 45

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 46

One of the purposes of the qualified business income deduction was to reduce the taxes on businesses that are operating in noncorporate business forms (e.g., sole proprietors, partnerships, and S corporations).

Question 47

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

Question 48

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

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

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 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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 56

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 57

For tax year 2019, Taylor used the simplified method of determining her office in the home deduction. For 2020, Taylor must continue to use the simplified method and cannot switch to the regular (actual expense) method.

Question 58

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

Question 59

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

Question 60

Qualified business income (QBI) is defined as the ordinary income less ordinary deductions a taxpayer earns from a qualified trade or business (e.g., from a sole proprietorship, S corporation, or partnership) conducted in the United States by the taxpayer.

Question 61

During the year, John (a self-employed management consultant) went from Milwaukee to Hawaii on business. Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are: $$\begin{array} { l r } \text { Airfare } & \$ 3,200 \\\text { Lodging } & 900 \\\text { Meals } & 800 \\\text { Entertainment } & 600\end{array}$$ Presuming no reimbursement, deductible expenses are:

A) $3,200.
B) $3,900.
C) $4,500.
D) $5,500.
E) None of these.

Question 62

Jordan performs services for Ryan. Which of the following factors, if any, indicates 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 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: $$\begin{array} { l r } \text { Airfare } & \$ 3,000 \\\text { Lodging } & 800 \\\text { Meals } & 600 \\\text { Entertainment } & 400\end{array}$$ Sophie's deductible expenses are:

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

Question 64

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 65

Aaron is a self-employed practical nurse who works from his home. He provides nursing care for disabled persons living in their residences. During the day, he drives his car as follows. $\begin{array}{lc}&\text { Miles }\\\text { Aaron's home to patient Louise } & 12 \\\text { Patient Louise to patient Carl } & 4 \\\text { Patient Carl to patient Betty } & 6 \\\text { Patient Betty to Aaron's home } & 10\end{array}$ Aaron's deductible mileage for each workday is:

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

Question 66

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 67

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

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

Question 68

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 69

Under the actual cost method, which of the following expenses, if any, 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.

Question 70

During the year, Walt (self-employed) travels from Seattle to Tokyo, Japan, on business. His time was spent as follows: two days travel (one day each way), two days business, and two days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion): $$\begin{array} { l r } \text { Airfare } & \$ 3,000 \\\text { Lodging } & 2,000 \\\text { Meals } & 1,000\end{array}$$ Presuming no reimbursement, Walt's deductible expenses are:

A) $3,500.
B) $4,500.
C) $5,500.
D) $6,000.
E) None of these.

Question 71

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

A) Work-related expenses are reported on Schedule A (Form 1040).
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 is correct.

Question 72

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 73

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 the taxpayer's dependent.
D) Only if it is job related.
E) None of these.

Question 74

Corey is the city sales manager for RIBS, a national fast food franchise. Every working day, Corey drives his car as follows: $\begin{array}{ll}&\text { Miles }\\\text { Home to office } & 20 \\\text { Office to RIBS No. } 1 & 15 \\\text { RIBS No. } 1 \text { to No. } 2 & 18 \\\text { RIBS No. } 2 \text { to No. } 3 & 13 \\\text { RIBS No. } 3 \text { to home } & 30\end{array}$ Corey 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 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 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 76

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 coworkers.
E) All of these.

Question 77

Aiden performs services for Lucas. Which of the following factors indicates 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

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

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

Question 79

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 these would constitute an employer-employee relationship.

Question 80

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

A) Meals provided to employees during a business meeting.
B) Meals provided at cost to employees at a cafeteria funded by the employer.
C) A 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.