Deck 9: Employee Expenses and Deferred Compensation

Question 1

Allison,who is single,incurred $4,000 for unreimbursed employee expenses,$10,000 for mortgage interest and real estate taxes on her home,and $500 for investment counseling fees.Allison's AGI is $80,000.Allison's allowable deductions from AGI are (after limitations have been applied)

A)$10,500.
B)$12,900.
C)$14,000.
D)$14,500.

Answer 1

B

Question 2

Unreimbursed employee business expenses are deductions for AGI.

Answer 2

False

Question 3

According to the IRS,a person's tax home is the location of the family residence regardless of the location of the taxpayer's principal place of employment.

Answer 3

False

Question 4

If an individual is self-employed,business-related expenses are deductions for AGI.

Question 5

Travel expenses related to foreign conventions are disallowed unless the meeting is directly related to the taxpayer's business or is employment related and it is reasonable for the meeting to be held outside of North America.

Question 6

Jason,who lives in New Jersey,owns several apartment buildings in Baltimore.His travel expenses to Baltimore to inspect his property are tax deductible.

Question 7

Travel expenses for a taxpayer's spouse are deductible if the spouse is an employee,the travel is for a bona fide purpose,and the expenses are otherwise deductible.

Question 8

The key distinguishing factor for classifying a worker as either an employee or self-employed includes the right to control and direct the worker with respect to both the end result and the means to accomplish that end result.

Question 9

In determining whether travel expenses are deductible,a general rule is that if a person is reassigned for an indefinite period,the individual's tax home shifts to the new location and travel expenses are not deductible.

Question 10

Personal travel expenses are deductible as miscellaneous itemized deductions subject to the 2% of AGI floor.

Question 11

Which of the following statements regarding independent contractors and employees is true?

A)Independent contractors pay Social Security and Medicare tax of 15.3%.
B)Employees must pay unemployment taxes.
C)Independent contractors and employees pay the same Social Security and Medicare tax rates.
D)Independent contractors deduct their business expenses "from AGI."

Question 12

Travel expenses related to temporary work assignments of two years or less are deductible.

Question 13

West's adjusted gross income was $90,000.During the current year he incurred and paid the following: None of the expenses were reimbursed.Assuming he can itemize deductions,how much should West claim as miscellaneous itemized deductions (after limitations have been applied)?

A)$2,700
B)$4,500
C)$3,500
D)$5,300

Question 14

In which of the following situations is the individual is more likely to be classified as an independent contractor rather than an employee?

A)A nurse who is directly supervised by doctors in an office
B)A computer programmer who is instructed as to what projects to undertake,programming language and format,and hours of work
C)A nurse who travels to several different patients.She sets her own hours and is responsible for the delivery of nursing care and end result
D)A teacher whose hours,classroom responsibilities,content and methods of instruction are established by the school

Question 15

Tessa has planned a five-day trip to Miami with her husband.Before leaving,Tessa's supervisor asks her to take a morning meeting with a client while she is there.Tessa can now deduct the cost of the airfare for the trip.

Question 16

Gambling losses are miscellaneous itemized deductions subject to the 2% of AGI floor.

Question 17

An employee travels out of town for his job,and he is not reimbursed.The deduction for his travel costs are a deduction from AGI subject to the 2% floor.

Question 18

If an individual is not "away from home," expenses related to local transportation are never deductible.

Question 19

Deferred compensation refers to methods of compensating employees based upon their current service where the benefits are deferred until future periods.

Question 20

A nondeductible floor of 2% of AGI is imposed on unreimbursed employee business expenses,investment expenses,and many other miscellaneous itemized deductions such as tax preparation fees.

Question 21

All of the following are allowed a "for AGI" deduction except:

A)Cora owns her own CPA firm and travels from Lafayette,LA.to Washington,D.C.to attend a tax conference.
B)Jennifer,who lives in Houston,is the owner or several apartment buildings in Salt Lake City and travels there to inspect and manage her investments.
C)Alan is self-employed and is away from home overnight on job-related business.
D)Alison is an employee who is required to travel to company facilities throughout the U.S.in the conduct of her management responsibilities.She is not reimbursed by her employer.

Question 22

Jordan,an employee,drove his auto 20,000 miles this year,15,000 to meetings with clients and 5,000 for commuting and personal use.The cost of operating the auto for the year was as follows: Jordan submitted appropriate reports to his employer,and the employer paid a reimbursement of $ .50 per mile.Jordan has used the actual cost method in the past.Jordan's AGI is $50,000.What is Jordan's deduction for the use of the auto after application of all relevant limitations?

A)$1,500
B)$500
C)$1,000
D)$8,000

Question 23

Sarah purchased a new car at the beginning of the year.She makes an adequate accounting to her employer and receives a $2,400 (12,000 miles × 20 cents per mile)reimbursement in 2016 for employment-related business miles.She incurs the following expenses related to both business and personal use:
She also spent $200 on parking and tolls that were related to business.During the year she drove a total 20,000 miles.
What are the possible amounts of Sarah's deductible transportation expenses?

Question 24

A three-day investment conference is held in Las Vegas.Dr.Singh,a dentist,travels from Ohio to attend to improve his taxable investment portfolio performance.Ms.Gondin,a financial planner,travels from Seattle to attend the same conference to improve her skills in managing her clients' investment portfolios.The same standards of deductibility will apply to both attendees.

Question 25

David acquired an automobile for $30,000 for use in his unincorporated business at the beginning of 2016 and used the standard mileage rate method in 2016.He plans to switch to the actual expense method for 2017.The automobile was used 25,000 miles in 2016.What is the amount of the adjusted basis of the automobile for purposes of computing depreciation in 2017?

A)$30,000
B)$15,625
C)$24,000
D)$20,000

Question 26

Brittany,who is an employee,drove her automobile a total of 20,000 business miles in 2016.This represents about 75% of the auto's use.She has receipts as follows: Brittany's AGI for the year of $50,000,and her employer does not provide any reimbursement.She uses the standard mileage rate method.After application of any relevant floors or other limitations,Brittany can deduct

A)$10,500.
B)$12,500.
C)$11,500.
D)$9,800.

Question 27

Ron is a university professor who accepts a visiting position at another university for six months and obtains a leave of absence from his current employer.Ron rents an apartment near the university and purchases his food.These living expenses incurred by Ron while visiting the university will be

A)deductible for AGI.
B)deductible from AGI,without application of a floor.
C)deductible from AGI,subject to the 2% of AGI floor.
D)nondeductible.

Question 28

Chelsea,who is self-employed,drove her automobile a total of 20,000 business miles in 2016.This represents about 75% of the auto's use.She has receipts as follows: Chelsea has an AGI for the year of $50,000.Chelsea uses the standard mileage rate method.After application of any relevant floors or other limitations,she can deduct

A)$11,500.
B)$12,200.
C)$10,800.
D)$11,325.

Question 29

Chuck,who is self-employed,is scheduled to fly from Minneapolis to London on a business trip.His flight schedule included a connection through New York City.When Chuck arrived in New York City,he learned that his flight to London had been cancelled due to a volcanic eruption in Iceland.All air travel to Europe was delayed for five days because of significant amounts of ash in the air,causing Chuck to incur costs for hotel and meals in New York City.Since Chuck had never been to New York City before,he spent the time sightseeing.What tax issues are present?

Question 30

If the standard mileage rate is used in the first year,the actual expense method may not be used in future years.

Question 31

Norman traveled to San Francisco for four days on vacation,and while there spent another two days conducting business for his employer.Norman's plane fare for the trip was $500;meals cost $150 per day;hotels cost $300 per day;and a rental car cost $150 per day that was used for all six days.Norman was not reimbursed by his employer for any expenses.Norman's AGI for the year is $40,000 and he did not have any other miscellaneous itemized deductions.Norman may deduct (after limitations)

A)$250.
B)$800.
C)$1,050.
D)$1,200.

Question 32

Rajiv,a self-employed consultant,drove his auto 20,000 miles this year,15,000 to meetings with clients and 5,000 for commuting and personal use.The cost of operating the auto for the year was as follows: Rajiv's AGI is $100,000 before considering the auto costs.Rajiv has used the actual cost method in the past.What is Rajiv's deduction for the use of the auto after application of all relevant limitations?

A)$8,325
B)$9,000
C)$6,325
D)$7,000

Question 33

Gayle,a doctor with significant investments in the stock market,traveled on a cruise ship to Bermuda.Investment specialists provided daily seminars which Gayle attended.The cost of the cruise for four days is $2,500.Gayle can deduct (before application of any floors)

A)$0.
B)$1,250.
C)$2,000.
D)$2,500.

Question 34

Commuting to and from a job location is a deductible expense.

Question 35

Rui is a CPA is employed by a firm with offices downtown.She is assigned to an audit client in the suburbs for a few weeks.On most days,she drives straight to the client's location,works there all day,and then drives home at night.Rui's transportation costs driving between home and the client's location are deductible as unreimbursed employee business expenses.

Question 36

Transportation expenses incurred to travel from one job to another are deductible if a taxpayer has more than one job.

Question 37

Taxpayers may use the standard mileage rate method when five vehicles are used simultaneously for business.

Question 38

Richard traveled from New Orleans to New York for both business and vacation.He spent 4 days conducting business and some days vacationing.He incurred the following expenses:
What is his miscellaneous itemized deduction (before the floor),assuming Richard is an employee and is not reimbursed,under the following two circumstances?
a.He spends three days on vacation,in addition to the business days.
b.He spends six days on vacation,in addition to the business days.

Question 39

Gwen traveled to New York City on a business trip for her employer.Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area.Gwen's plane fare for the trip was $250.Meals cost $160 per day.Hotels and other incidental expenses amounted to $250 per day.Gwen was not reimbursed by her employer for any expenses.Her AGI for the year is $50,000 and she itemizes but has no other miscellaneous itemized deductions.Gwen may deduct (after limitations)

A)$570.
B)$890.
C)$1,890.
D)$1,570.

Question 40

What factors are considered in determining whether an expense is a deductible travel expense?

Question 41

Steven is a representative for a textbook publishing company.Steven attends a convention which will also be attended by many potential customers.During the week of the convention,Steven incurs the following costs in entertaining potential customers. Having recently been to a company seminar on tax laws,Steven makes sure that business is discussed at the various dinners,and that the entertainment is on the same day as the meetings with customers.Steven is reimbursed $2,000 by his employer under an accountable plan.Steven's AGI for the year is $50,000,and while he itemizes deductions,he has no other miscellaneous itemized deductions.What is the amount and character of Steven's deduction after any limitations?

A)$500 from AGI
B)$500 for AGI
C)$2,000 from AGI
D)$2,000 for AGI

Question 42

Joe is a self-employed tax attorney who frequently entertains his clients at his country club.Joe's club expenses include the following: Assuming the business meals and entertainment qualify as deductible entertainment expenses,Joe may deduct

A)$2,000.
B)$4,700.
C)$5,300.
D)$4,000.

Question 43

Generally,50% of the cost of business gifts is deductible up to $25 per donee per year.

Question 44

Austin incurs $3,600 for business meals while traveling for his employer,Tex,Inc.Austin is reimbursed in full by Tex pursuant to an accountable plan.What amounts can Austin and Tex deduct?

A)
B)
C)
D)

Question 45

A taxpayer goes out of town to a business convention.The 50% reduction applies to the cost of food,entertainment and transportation expenses.

Question 46

Pat is a sales representative for a publishing company.He entertains customers as part of his job.During the current year he spends $10,000 on business entertainment.The company reimburses him $5,000.Before consideration of the entertainment costs and the reimbursement,Pat earns AGI of $100,000,and he has itemized deductions of $12,000 due to mortgage interest and taxes.Pat is single,with no dependents.What is Pat's taxable income
a.assuming the employer maintains an accountable plan?
b.assuming the employer does not maintain an accountable plan?

Question 47

Dues paid to social or athletic clubs are deductible if they meet a primary-use test,requiring that more than 50% of the use of the facility be for business purposes.

Question 48

Sarah incurred employee business expenses of $5,000 consisting of $3,000 business meals and $2,000 customer entertainment.She provided an adequate accounting to her employer's accountable plan and received reimbursement for one-half of the total expenses.How much of the meals and entertainment will be deductible by Sarah without consideration of the 2% of AGI limit?

A)$0
B)$1,250
C)$2,500
D)$5,000

Question 49

A gift from an employee to his or her superior does not qualify as a business gift.

Question 50

An accountant takes her client to a hockey game following a business meeting.Because it is a playoff game,and the tickets were purchased that day,a premium was paid.The deduction for the tickets is limited to 50% of the face value.

Question 51

"Associated with" entertainment expenditures generally must occur on the same day that business is discussed.

Question 52

Rita,a single employee with AGI of $100,000 before consideration of the items below,incurred the following expenses during the year,all of which were unreimbursed unless otherwise indicated:
In addition,Rita paid $300 for dues to her professional business association.The company reimbursed her after she submitted the appropriate documentation for the dues.What is Rita's net miscellaneous itemized deduction for the year after application of all relevant limitations?

Question 53

Matt is a sales representative for a local company.He entertains customers as part of his job.During the current year he spends $3,000 on business entertainment.The company provides him an expense allowance of $2,000 under a nonaccountable plan.How will Matt treat the $2,000 partial reimbursement and the $3,000 entertainment expense?

A)He will deduct the $1,000 net expense as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
B)He will deduct $500 of the net expense as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
C)He will recognize $2,000 of income and deduct $3,000 as a miscellaneous itemized deduction,subject to the 2% of AGI floor.
D)He will recognize $2,000 of income and deduct $1,500 as a miscellaneous itemized deduction,subject to the 2% of AGI floor.

Question 54

Clarissa is a very successful real estate agent.She spends $5,000 per year taking her clients out to dinner upon completion of a sale.Unfortunately,Clarissa is not a good recordkeeper and does not maintain receipts.However,such entertainment is standard practice in her field,and trade journals indicate that $5,000 is a reasonable amount for a successful high-end agent.Before consideration of the 2% of AGI floor,Clarissa will be allowed to deduct $2,500.

Question 55

Shane,an employee,makes the following gifts,none of which are reimbursed: What amount of the gifts is deductible before application of the 2% of AGI floor for miscellaneous itemized deductions?

A)$125
B)$150
C)$75
D)$178

Question 56

If an employee incurs travel expenditures and is fully reimbursed by the employer,neither the reimbursement nor the deduction is reported on the employee's tax return if reporting is pursuant to an accountable plan.

Question 57

Self-employed individuals receive a for AGI deduction for 50% of entertainment expenses paid or incurred in the trade or business.

Question 58

An employer adopts a per diem policy for hotel and meal travel reimbursements for employees,following the IRS tables.Employees will no longer have to submit any documentation.

Question 59

If an employee incurs business-related entertainment expenses that are fully reimbursed,it is the employer who is subject to the 50% limitation.

Question 60

A tax adviser takes a client to a major league hockey game following the conclusion of a meeting involving the signing of a major planning engagement.As it is not "directly related," the entertainment cannot be deductible.

Question 61

Educational expenses incurred by a CPA for courses necessary to meet continuing education requirements are fully deductible.

Question 62

What two conditions are necessary for moving expenses to be deductible?

Question 63

Deductible moving expenses include the cost of moving household goods and personal effects as well as temporary living expenses.

Question 64

In addition to the general requirements for in-home office expenses,employees must also prove that the exclusive use of the office is for the convenience of the employer.

Question 65

Ellie,a CPA,incurred the following deductible education expenses to maintain or improve her skills:
Ellie's AGI for the year is $60,000.
a.If Ellie is self-employed,what are the amount of and the nature of the deduction for these expenses?
b.If,instead,Ellie is an employee who is not reimbursed by his employer,what are the amount of and the nature of the deduction for these expenses (after limitations)?

Question 66

Donald takes a new job and moves to a new residence.The distances are as follows: By how many miles does the move exceed the minimum distance requirement for the moving expense deduction?

A)12 miles
B)20 miles
C)62 miles
D)none of the above

Question 67

Edward incurs the following moving expenses: The employer reimburses Edward for the full $10,000.What is the amount to be reported as income by Edward?

A)$0
B)$4,000
C)$6,000
D)$10,000

Question 68

When a public school system requires advanced education for a teacher to continue employment,the teacher's expenses are a deductible education expense.

Question 69

Josiah is a human resources manager of a large software company.He is considering asking for a leave of absence to pursue an MBA degree.Josiah will pay for his MBA tuition of $45,000 a year without any employer assistance.Josiah will incur a large debt if he pursues an MBA.Upon completing his MBA,he would want to consider various job opportunities.Discuss the tax issues affecting Josiah's decision.

Question 70

All of the following may deduct education expenses except:

A)Richard is a self-employed dentist who incurs expenses to attend a convention on new techniques in oral surgery.
B)Paige is an accountant who incurs expenses to take a CPA exam review course.
C)Hope is a business executive who incurs expenses to pursue an MBA degree.
D)Marvin is a high school teacher who incurs expenses for education courses to meet new course requirements to maintain his job.

Question 71

Educational expenses incurred by a bookkeeper for courses necessary to sit for the CPA exam are fully deductible.

Question 72

Kim currently lives in Buffalo and works in Rochester,a 60-mile commute each way.Kim accepts a new job in a town outside of Rochester,and the new commute is 75-miles each way.Kim decides the commute for the new job is too long,and she moves to Rochester.Kim is eligible to deduct her moving expenses.

Question 73

Bill obtained a new job in Boston.He incurred the following moving expenses: Assuming Bill is entitled to deduct moving expenses,what is the amount of the deduction?

A)$2,600
B)$4,600
C)$6,300
D)$6,800

Question 74

Which of the following situations will disqualify a taxpayer from taking a deduction for moving expenses?

A)Pam moves from Phoenix to Los Angeles to take a new job.She works at the Los Angeles job for 45 weeks before starting a new job in Las Vegas.
B)Paul moves from Boston to Miami to start a new business selling t-shirts.The business is not successful and Paul returns to Boston after 52 weeks.
C)Phyllis moves from Seattle to San Francisco to open a coffee bar.She still owns the coffee bar and lives in San Francisco 90 weeks after her move.
D)Marva moves from Dallas to Washington D.C.in her job as an IRS agent.She is still working at the IRS Washington office after one year.

Question 75

In-home office expenses are deductible if the office is used exclusively on a regular basis as the principal place of business for any trade or business of the taxpayer.

Question 76

Explain when educational expenses are deductible for an employee.

Question 77

Ron obtained a new job and moved from Houston to Washington.He incurred the following moving expenses: Assuming Ron is eligible to deduct his moving expenses,what is the amount of the deduction?

A)$3,466
B)$6,600
C)$9,066
D)$8,366

Question 78

Fiona is about to graduate college with a management degree.She has been offered a job as a sales representative for a pharmaceutical company.The job will require significant travel and entertainment expenses for which she will be given a salary supplement.What tax issues should Fiona consider in her decision?

Question 79

All of the following statements regarding tax treatment of education expenses except

A)Fred,who recently graduated law school,is working in a law firm.The firm requires that he pass the bar exam by a certain date,or he will lose his job.Fred can deduct his cost for the bar exam review course as a miscellaneous itemized deduction (subject to the 2% nondeductible floor).
B)Sophie is a partner in a CPA firm.She pays out of her own funds to attend an update course on estate and gift tax planning.Sophie can deduct the cost of the course for AGI.
C)Javier is an associate in a CPA firm.He pays out of his own funds to attend an update course on new FASB standards.Javier can deduct his cost for the course as a miscellaneous itemized deduction (subject to the 2% nondeductible floor).
D)Iris is an associate in a law firm.She attends an update course on contract drafting,and she is reimbursed by the law firm.There is no effect on Iris' tax return.

Question 80

Gina is an instructor at State University in Birmingham.Her university has asked her if she would be interested in taking a temporary assignment at their Montgomery campus.In addition to her salary,the University would pay her living expenses while in Montgomery.What should Gina consider with regard to taxes in deciding whether or not to accept the offer?