Question 1

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

Accepted Answer

The standard mileage rate, often referred to as the automatic mileage method for calculating vehicle expenses for business use, includes an allowance for depreciation. This rate is designed to cover all the costs associated with operating a vehicle, including depreciation, fuel, maintenance, and insurance.

Question 2

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

Accepted Answer

Since the taxpayer only conducts business from home, there is no commuting expense that would be considered nondeductible. However, there are specific requirements and limitations for claiming a home office deduction, so taxpayers should consult with a tax professional before taking this deduction.

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.

Accepted Answer

A taxpayer is allowed to switch from the automatic mileage method to the actual cost method in a later year if they choose to do so. However, once they have switched to the actual cost method, they cannot switch back to the automatic mileage method in subsequent years.

Question 4

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

Accepted Answer

Statutory employees are a unique category of workers who are not considered common law employees but are still subject to Social Security tax. Examples of statutory employees include certain salespeople, home workers, and drivers.

Question 5

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

Accepted Answer

The IRS can adjust and change the automatic mileage rate at any time. It is typically revised annually, but can be revised more frequently if needed.

Question 6

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

Accepted Answer

This statement is false. Taxpayers can switch between the actual cost and automatic mileage methods from year to year. However, once a taxpayer chooses the automatic mileage method, they cannot switch to the actual cost method for that particular vehicle.

Question 7

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

Accepted Answer

Using the standard mileage rate to calculate auto expenses for business purposes includes all costs associated with operating the vehicle, such as maintenance and insurance, thus excluding the deduction of additional expenses like automobile club dues.

Question 8

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.

Accepted Answer

Janet's compensation being based on the number of calls she handles does not automatically make her an independent contractor. The determination of independent contractor status depends on various factors, including the degree of control the company has over her work and how integral her work is to the business, not just on how she is paid.

Question 9

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).

Accepted Answer

The statement is incorrect. Payment based on time spent or task performed is not a clear indicator of whether an individual is an independent contractor or an employee. Other factors such as the level of control over the work and the tools/ resources provided are taken into consideration to determine the employee-employer relationship.

Question 10

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

Accepted Answer

The IRS may issue advanced rulings on worker classification, determining whether a worker is an employee or an independent contractor.

Question 11

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

Accepted Answer

The answer of In some cases it may be appropriate...

Question 12

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

Accepted Answer

Travel includes transportation costs as well as expenses for lodging, meals, and other incidental expenses while away from home.

Question 13

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

Accepted Answer

When deciding between the actual expense method and the standard mileage rate for deducting automobile expenses, the cost of insurance is one of the actual expenses to be considered, as it can significantly impact the total expense calculation.

Question 14

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

Accepted Answer

The work-related expenses of an independent contractor are not treated as itemized deductions; instead, they are deducted directly from their business income on Schedule C (Form 1040) to calculate their net business income.

Question 15

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

Accepted Answer

The answer of For tax purposes, a statutory employee is...

Question 16

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

Accepted Answer

This is because the automatic mileage method already includes an allowance for both fuel and maintenance costs, but tolls and parking are considered separate expenses and can be deducted in addition to the mileage rate.

Question 17

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.

Accepted Answer

According to the IRS guidelines, self-employed individuals who use the actual expense method to calculate car expenses can deduct any interest paid on the loan taken out to purchase the car as part of their business expenses.

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.

Accepted Answer

This is the definition of an independent contractor relationship, where the individual is hired to achieve a specific end goal but has control over how the work is carried out. In an employer-employee relationship, the employer has control over both the end result and the means of accomplishing it.

Question 19

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.

Accepted Answer

The answer of A deduction for parking and other traffic...

Question 20

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

Accepted Answer

The fact that Maude provides a helper and tools does not necessarily indicate independent contractor status. Other factors such as control over the work being performed, payment arrangements, and the nature of the relationship between Jake and Maude would also be considered.

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