Question 1

Travel expenses related to temporary work assignments of one year or less are deductible.

Accepted Answer

The assignment must generally be for a period of one year or less to be considered in travel status.

Question 2

Incremental expenses of an additional night's lodging and additional day's meals that are incurred to obtain "excursion" air fare rates with respect to employees whose business travel extends over Saturday night are not deductible business expenses.

Accepted Answer

Additional expenses incurred to obtain "excursion" air fares are generally deductible.

Question 3

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.

Accepted Answer

The tax law does impose a nondeductible floor of 2% of AGI on unreimbursed employee business expenses, investment expenses, and many other miscellaneous itemized deductions such as tax preparation fees.

Question 4

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

Accepted Answer

The first three items are deductible-$2,000 + $1,000 + $1,500 = $4,500. The floor is $1,800 (.02 × $90,000), leaving a deduction of $2,700. The will preparation is a nondeductible personal expense.

Question 5

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

Accepted Answer

When income is earned for services provided today, but a company plan or arrangement provides for payment in the future, tax law governing deferred compensation will apply.

Question 6

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."

Accepted Answer

Independent contractors are responsible for their own Social Security taxes and Medicare taxes which are paid as a "self employment" tax in addition to income taxes.

Question 7

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

Accepted Answer

Gambling losses are miscellaneous itemized deductions but are not subject to the 2% floor.

Question 8

In which of the following situations is the individual is 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

Accepted Answer

This nurse is not under supervision of an employer. The nurse sets her own hours and the delivery of care and the end result.

Question 9

If the purpose of a trip is primarily personal and only secondarily related to business, the transportation costs to and from the destination are deductible.

Accepted Answer

The trip must be primarily for business purposes for the transportation to be deductible.

Question 10

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

Accepted Answer

Personal travel expenses are not deductible.

Question 11

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

Accepted Answer

It is generally true that self-employment expenses are deductions for AGI, whereas unreimbursed expenses incurred by employees are deductions from AGI.

Question 12

Unreimbursed employee business expenses are deductions for AGI.

Accepted Answer

Unreimbursed employee business expenses are deductions from AGI

Question 13

An employer-employee relationship exists where the employer has the right to control and direct the individual providing services with regard to the end result and the means by which the result is accomplished.

Accepted Answer

Right to control and direct regarding the end result and the means to accomplish that end result are key criteria in determining whether an individual is an employee or an independent contractor.

Question 14

The deduction for unreimbursed transportation expenses for employees is subject to the 2% of AGI floor.

Accepted Answer

Unreimbursed employee business expenses, including transportation, are part of the miscellaneous category subject to the 2% of AGI floor.

Question 15

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.

Accepted Answer

According to the IRS, a taxpayer's home is his principal place of employment.

Question 16

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.

Accepted Answer

The assignment must generally be for a period of one year or less to be considered in travel status.

Question 17

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

Accepted Answer

Such expenses may be classified as deductible transportation expenses.

Question 18

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.

Accepted Answer

Only the mortgage interest and taxes are allowable deductions not subject to the 2% floor. Unreimbursed employee expenses and investment fees are miscellaneous itemized deductions subject to the 2% nondeductible floor. $10,000 + [(4,000 + $500) - $1,600] = $12,900.

Question 19

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.

Accepted Answer

Is these criteria are not met, the spouse's travel will be considered personal and nondeductible.

Question 20

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

Accepted Answer

See Table I:9-1.

Quiz 9: Employee Expenses and Deferred Compensation