Deck 17: 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

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.

Answer 2

True

Question 3

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.

Answer 3

True

Question 4

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.
TRUE

Question 5

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

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

Question 8

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 9

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

Question 10

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

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

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 13

A U.S.citizen who works in France from February 1,2013 until January 31,2014 is eligible for the foreign earned income exclusion in 2013 and 2014.

Question 14

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

Question 15

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 16

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

Question 17

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 18

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.
FALSE

Question 19

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 20

Generally,a U.S.citizen is 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.

Question 21

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

Question 22

In November 2013,Katie incurs unreimbursed moving expenses to accept a new job.Katie cannot deduct any of these expenses when she timely files her 2013 income tax return since she has not yet satisfied the 39-week time test.

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

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 25

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

Question 26

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

Question 27

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 28

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 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

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 31

Janet,who lives and works in Newark,travels to Atlanta for a Thursday-Friday business conference.She stays over after the conference and visits relatives and friends on Saturday.Under certain circumstances,the meals and lodging expenses for Saturday can be considered as business related.

Question 32

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

Question 33

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 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

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 36

In May 2013,after 11 months on a new job,Ken is fired after he assaults a customer.Ken must include in his gross income for 2013 any deduction for moving expenses he may have claimed on his 2012 tax return.

Question 37

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 38

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

Question 39

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

Question 40

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 41

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

Question 42

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 43

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

Question 44

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 45

Tickets to a theater performance or sporting event can be treated as either business entertainment or a business gift if the taxpayer does not accompany the client to the event.

Question 46

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

Question 47

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 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

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

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

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 56

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 57

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

Question 58

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 59

For self-employed taxpayers,travel expenses are not subject to the 2%-of-AGI floor.

Question 60

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 61

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

Question 62

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

Question 63

In determining whether an activity should be classified as a business or as a hobby,the satisfaction of the presumption (i.e.,profit in at least 3 out of 5 years)ensures treatment as a business.

Question 64

Hobby activity expenses are deductible from AGI to the extent of hobby income.Such expenses not in excess of hobby income are not subject to the 2% of AGI floor.

Question 65

A hobby activity can result in all of the hobby income being included in AGI and no deductions being allowed.

Question 66

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 67

If a married taxpayer is an active participant in another qualified retirement plan,the traditional IRA deduction phaseout begins at $95,000 of AGI for a joint return in 2013.

Question 68

If an item such as property taxes and home mortgage interest exceed the income from a hobby,the excess amount of this item over the hobby income can be deducted if the taxpayer itemizes deductions.

Question 69

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 2013.

Question 70

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 the above.

Question 71

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)Jordn is paid based on tasks performed.
E)None of the above.

Question 72

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 73

If a taxpayer cansatisfy the three-out-of-five year presumption test associated with hobby losses,then expenses from the activity can be deducted in excess of the gross income from the activity.

Question 74

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.

Question 75

If an activity involves horses,a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

Question 76

The calculation of FICA and the self-employment tax both involve two components: the Social Security portion and the Medicare portion,each portion of which is imposed on the same base amounts.

Question 77

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

Question 78

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 79

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 the above.

Question 80

Low- and middle-income taxpayers may make nondeductible contributions up to $4,000 per child per year to a Coverdell Education Savings Account (CESA).