Deck 11: Individuals As Employees and Proprietors

Question 1

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.

Answer 1

C

Question 2

Sue does not file a Schedule SE with her Form 1040.

Answer 2

a

Question 3

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

Answer 3

False

Question 4

Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each statement.


-Sue was trained by Lynn.

A)Indicates employee status.
B)Indicates independent contractor status.

Question 5

Lynn determines when the services are to be performed.

Question 6

Sue files a Schedule SE with her Form 1040.

Question 7

The services are performed at Sue's premises.

Question 8

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 9

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

Question 10

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 11

Sue does not work for other parties.

Question 12

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 13

Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each statement.


-Sue uses her own helpers.

A)Indicates employee status.
B)Indicates independent contractor status.

Question 14

Sue charges by the hour for her work.

Question 15

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 16

Sue has unreimbursed expenses.

Question 17

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 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

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

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

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.

Question 22

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 23

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 24

Myra's classification of those who work for her as independent contractors is being questioned by the IRS.It is the position of the IRS that these workers are really employees.What type of factors can Myra utilize to justify her classification?

Question 25

Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each statement.

-Sue uses her own tools.

A)Indicates employee status.
B)Indicates independent contractor status.

Question 26

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 27

Melody works for a company with only 22 employees.Her employer contributed $2,000 to her health savings account HSA), and the account earned $100 in interest during the year.Melody withdrew only $1,200 to pay medical expenses during the year.Melody is not required to recognize any gross income from the HSA for the year.

Question 28

James, a cash basis taxpayer, received the following compensation and fringe benefits in the current year: His actual salary was $72,000.He received only $66,000 because his salary was garnished and the employer paid $6,000 on James's credit card debt he owed.The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled.The long-term care insurance is available to all employees and pays $150 per day towards a nursing home or similar facility.What is James's gross income from the above?

A)$66,000.
B)$72,000.
C)$73,000.
D)$75,000.
E)None of these.

Question 29

A U.S.citizen who works in France from February 1, 2018 until January 31, 2019 is eligible for the foreign earned income exclusion in 2018 and 2019.

Question 30

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 31

The exclusion for health insurance premiums paid by the employer applies to:

A)Only current employees and their spouses.
B)Only current employees and their spouses and dependents.
C)Only current employees and their disabled spouses.
D)Current employees, retired former employees, and their spouses and dependents.
E)None of these.

Question 32

Matilda works for a company with 1,000 employees.The company has a hospitalization insurance plan that covers all employees.However, the employee must pay the first $3,000 of his or her medical expenses each year.Each year, the employer contributes $1,500 to each employee's health savings account HSA).Matilda's employer made the contributions in 2017 and 2018, and the account earned $100 interest in 2018.At the end of 2018, Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy.As a result, Matilda must include in her 2018 gross income:

A)$0.
B)$100.
C)$1,600.
D)$3,100.
E)None of these.

Question 33

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 34

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.

Question 35

Julie was suffering from a viral infection that caused her to miss work for 90 days.During the first 30 days of her absence, she received her regular salary of $8,000 from her employer.For the next 60 days, she received $12,000 under an accident and health insurance policy purchased by her employer.The premiums on the health insurance policy were excluded from her gross income.During the last 30 days, Julie received $6,000 on an income replacement policy she had purchased.Of the $26,000 she received, Julie must include in gross income:

A)$0.
B)$6,000.
C)$8,000.
D)$14,000.
E)$20,000.

Question 36

All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums $8,000 for each employee).None of the employees has sufficient medical expenses to deduct the premiums.Instead of giving raises next year, United is considering paying the employee's hospitalization insurance premiums.If the change is made, the employee's after-tax and insurance pay will:

A)Decrease by the same amount for all employees.
B)Increase more for the lower paid employees 10% and 12% marginal tax bracket).
C)Increase more for the higher income 35% marginal tax bracket) employees.
D)Increase by the same amount for all employees.
E)None of these.

Question 37

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 38

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 39

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 40

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 41

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.Which of the following is correct:

A)If Louise worked in the foreign branch from May 1, 2017 until October 31, 2018, she may exclude $40,000 from gross income in 2017 and exclude $50,000 in 2018.
B)If Louise worked in the foreign branch from May 1, 2017 until October 31, 2018, she cannot exclude anything from gross income because she was not present in the country for 330 days in either year.
C)If Louise began work in the foreign country on May 1, 2017, she must work through November 30, 2018 in order to exclude $55,000 from gross income in 2018 but none in 2017.
D)Louise will not be allowed to exclude any foreign earned income because she made less than $103,900.
E)None of these.

Question 42

Randy is the manager of a motel.As a condition of his employment, Randy is required to live in a room on the premises so that he would be there in case of emergencies.Randy considered this a fringe benefit, since he would otherwise be required to pay $800 per month rent.The room that Randy occupied normally rented for $70 per night, or $2,100 per month.On the average, 90% of the motel rooms were occupied.As a result of this rent-free use of a room, Randy is required to include in gross income.

A)$0.
B)$800 per month.
C)$2,100 per month.
D)$1,890 $2,100 × .90).
E)None of these.

Question 43

The Royal Motor Company manufactures automobiles.Non-management employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally, management employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost.Which of the following statements is correct?

A)The non-management employees who buy automobiles at a discount are not required to recognize income from the purchase.
B)None of the employees who take advantage of the fringe benefits described above are required to recognize income.
C)Employees of Royal are required to recognize as gross income 18% 20% - 2%) of the cost of the automobile purchased.
D)All of these.
E)None of these.

Question 44

Peggy is an executive for the Tan Furniture Manufacturing Company.Peggy purchased furniture from the company for $9,500, the price Tan ordinarily would charge a wholesaler for the same items.The retail price of the furniture was $12,500, and Tan's cost was $9,000.The company also paid for Peggy's parking space in a garage near the office.The parking fee was $600 for the year.All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy.However, the company does not pay other employees' parking fees.Peggy's gross income from the above is:

A)$0.
B)$600.
C)$3,500.
D)$4,100.
E)None of these.

Question 45

Under the Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year. I.Group medical and hospitalization insurance for the employee, $3,600 a year.
II)Group medical and hospitalization insurance for the employee's spouse and children,
$1,200 a year.
III)Child-care payments, actual cost but not more than $4,800 a year.
IV)Cash required to bring the total of benefits and cash to $8,000.
Which of the following statements is true?

A)Sam, a full-time employee, selects choices II and III and $2,000 cash.His gross income must include the $2,000.
B)Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him.Paul is not required to include the $8,000 in gross income.
C)Sue, a full-time employee, elects to receive choices I, II and $3,200 for III.Sue is required to include $3,200 in gross income.
D)All of these.
E)None of these.

Question 46

Margaret is trying to decide whether to place funds in a qualified tuition program.Her son will be attending college in 4 years.She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments.Thus, $10,000 will accumulate to $11,948 after-tax) in 4 years.Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years.Her son will be in the 12% marginal tax bracket in all relevant years.Given these assumptions, should Margaret participate in the qualified tuition program?

Question 47

The de minimis fringe benefit:

A)Exclusion applies only to property received by the employee.
B)Can be provided on a discriminatory basis.
C)Exclusion is limited to $250 per year.
D)Exclusion applies to employee discounts.
E)None of these.

Question 48

Adam repairs power lines for the Egret Utilities Company.He is generally working on a power line during the lunch hour.He must eat when and where he can and still get his work done.He usually purchases something at a convenience store and eats in his truck.Egret reimburses Adam for the cost of his meals.

A)Adam must include the reimbursement in his gross income.
B)Adam can exclude the reimbursement from his gross income since the meals are provided for the convenience of the employer.
C)Adam can exclude the reimbursement from his gross income because he eats the meals on the employer's business premises the truck).
D)Adam may exclude from his gross income the difference between what he paid for the meals and what it would have cost him to eat at home.
E)None of these.

Question 49

The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes, provided the privilege is not abused.Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings.The copies made during the year would have cost $150 at a local office supply.

A)Ed must include $150 in his gross income.
B)Ed may exclude the cost of the copies as a no-additional cost fringe benefit.
C)Ed may exclude the cost of the copies only if the organization is a client of Mauve.
D)Ed may exclude the cost of the copies as a de minimis fringe benefit.
E)None of these.

Question 50

A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay.However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds.An officer incurred $1,500 in medical expenses and was reimbursed for that amount.An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

A)Both employees must include all benefits received in gross income.
B)The officer must include $500 in gross income.
C)The officer must include $1,500 in gross income.
D)The hourly employee must include $1,000 in gross income.
E)None of these.

Question 51

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities, but reimburses its employee for the cost of parking in a nearby garage, up to $150 per month.

A)Kristen and Karen must recognize gross income from the parking services.
B)Kristen can exclude the employer provided parking from gross income, but Karen must include her reimbursement in gross income.
C)Kristen must include the value of the employer provided parking from her gross income, but Karen can exclude her reimbursement from gross income.
D)Neither Kristen nor Karen is required to include the cost of parking in gross income.
E)None of these.

Question 52

Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays, when the number of players on the course is at its lowest.Tom, an employee of the country club played 40 rounds of golf during the year at no charge when the non-employee charge was $20 per round.

A)Tom must include $800 in gross income.
B)Tom is not required to include anything in gross income because it is a de minimis fringe benefit.
C)Tom is not required to include the $800 in gross income because the use of the course was a gift.
D)Tom is not required to include anything in gross income because this is a "no-additional-cost service" fringe benefit.
E)None of these.

Question 53

The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel.All employees are allowed to obtain food from the restaurant at no charge during working hours.In the case of the employees who operate the gambling facilities, bar, and restaurant, 60% of all of Casino's employees, the meals are provided for the convenience of the Casino.However, the hotel workers demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work.Which of the following is correct?

A)All the employees are required to include the value of the meals in their gross income.
B)Only the restaurant employees may exclude the value of their meals from gross income.
C)Only the employees who work in gambling, the bar, and the restaurant may exclude the meals from gross income.
D)All of the employees may exclude the value of the meals from gross income.
E)None of these.

Question 54

George is employed by the Quality Appliance Company.All the full time employees are allowed to purchase appliances at the company's cost plus 10%.The employee also is given, at no cost, a 1-year service contract on all the goods purchased from the company.George purchased a refrigerator for $500.The company's normal selling price for the refrigerator is $800.George also received a service contract, at no charge, that had a value of $150.During the year, George was required to have his refrigerator serviced once.The cost of the call would have been
$75 if he had not had the service contract.Is George required to recognize any income from the purchase of the refrigerator, the receipt of the service contract, and the service call?

Question 55

The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees.The CEO is concerned about retaining his talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.

Question 56

A U.S.citizen worked in a foreign country for the period July 1, 2017 through August 1, 2018.Her salary was $10,000 per month.Also, in 2017 she received $5,000 in dividends from foreign corporations not qualified dividends).No dividends were received in 2018.Which of the following is correct?

A)The taxpayer cannot exclude any of the income because she was not present in the foreign country more than 330 days in either 2017 or 2018.
B)The taxpayer can exclude a portion of the salary from U.S.gross income in 2017 and 2018, and all of the dividend income.
C)The taxpayer can exclude from U.S.gross income $60,000 salary in 2017, but in 2018 the taxpayer will exceed the twelve month limitation and, therefore, all of the 2018 compensation must be included in gross income.All of the dividends must be included in 2017 gross income.
D)The taxpayer must include the dividend income of $5,000 in 2017 gross income, but the taxpayer can exclude a portion of the compensation income from U.S.gross income in 2017 and 2018.
E)None of these.

Question 57

Heather is a full-time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

A)Heather reduced her salary by $1,200, actually spent $1,500, and received only $1,200 as reimbursement for her medical expenses.Heather's gross income will be reduced by $1,500.
B)Heather reduced her salary by $1,200, and received only $900 as reimbursement for her actual medical expenses.She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200.
C)Heather reduced her salary by $1,200, and received only $800 as reimbursement for her medical expenses.She is not refunded the $400.Her gross income is reduced by $800.
D)Heather reduced her salary by $1,200, and received only $900 as reimbursement for her medical expenses.She forfeits the $300.Her gross income is reduced by $300.
E)None of these.

Question 58

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

A)The meal is not extravagant.
B)The meals are provided on the employer's premises for the employer's convenience.
C)There are no places to eat near the work location.
D)The meals are provided for the convenience of the employee.
E)None of these.

Question 59

Evaluate the following statements: I.De minimis fringe benefits are those that are so immaterial that accounting for them is impractical.
II)De minimis fringe benefits are subject to strict anti-discrimination requirements.
III)Generally, a fringe benefit of less than $50 is considered de minimis and can be excluded from gross income.

A)Only I is true.
B)Only III is true.
C)Only I and III are true.
D)I, II, and III are true.
E)None of these.

Question 60

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

Question 61

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

Question 62

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 63

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 64

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

Question 65

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 66

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 67

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 68

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 69

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 70

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

Question 71

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

Question 72

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

Question 73

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 74

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

Question 75

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 76

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

Question 77

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 78

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

Question 79

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 80

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.