Question 1

Which of the following miscellaneous expenses is deductible?

Accepted Answer

Losses from Ponzi-type investment schemes are deductible as theft losses, not as miscellaneous itemized deductions. This makes them distinct from the other options, which, under tax law changes such as the Tax Cuts and Jobs Act of 2017, are generally not deductible.

Question 2

Ralph made the following business gifts during the year. $\begin{array}{lr}
\text { To Robert (a key client) at Christmas } & \$ 50 \
\text { To Angel (Robert's 8-year old daughter) on her birthday } & 20 \
\text { To Art (Ralph's secretary) on his birthday (\$3 was for gift wrapping) } & 30 \
\text { To Paige (Ralph's boss) at Christmas } & 40
\end{array}$ Presuming proper substantiation, Ralph's deduction is:

Accepted Answer

The IRS allows a deduction of up to $25 per person per year for business gifts. The gift to Angel is not deductible because it is a personal gift, not a business gift. The gift wrapping for Art's gift is included in the total gift cost, making the deductible amount for Art's gift $25 (not the full $30 because of the $25 limit). Thus, Ralph can deduct $25 each for gifts to Robert, Art, and Paige, totaling $75. However, incidental costs, such as gift wrapping, are not subject to the $25 limit if they do not add substantial value to the gift. Therefore, the $3 for gift wrapping for Art's gift can be added to the deduction, making the total deduction $78.

Question 3

Which of the following expenses, if any, is/are deductible?

Accepted Answer

The answer of Which of the following expenses, if any,...

Question 4

Robert entertains several of his key clients on January 1 of the current year.Expenses that he paid are as follows: $$\begin{array} { l r } 
\text { Cab fare } & \$ 60 \
\text { Cover charge at supper club } & 200 \
\text { Dinner at club } & 800 \
\text { Tips to waiter } & 160
\end{array}$$ Presuming proper substantiation, Robert's deduction is:

Accepted Answer

The answer of Robert entertains several of his key clients...

Question 5

Which of the following expenses, if any, qualify as deductible?

Accepted Answer

Contributions to a traditional IRA are deductible, allowing taxpayers to reduce their taxable income by the amount contributed, subject to IRS limits and rules. Contributions to Coverdell ESAs and 529 plans are not deductible on federal income tax returns, though they may grow tax-free and be withdrawn tax-free for qualified education expenses. Job-hunting expenses are no longer deductible following changes in tax law effective from 2018.

Question 6

Which of the following expenses, if any, are deductible?

Accepted Answer

The answer of Which of the following expenses, if any,...

Question 7

Under the actual expense method, which of the following expenses, if any, will not be allowed?

Accepted Answer

Parking fines incurred during business use of a car are not considered a legitimate business expense and therefore are not allowed under the actual expense method. The other expenses listed (B, C, and D) are all considered legitimate business expenses and would be allowed under the actual expense method.

Question 8

Under the deemed substantiation method of accounting for expenses, what is the maximum amount taxpayers are allowed as a deduction without being required to substantiate the amount of the expenses?

Accepted Answer

Under the deemed substantiation method, taxpayers can use the appropriate Federal per diem amount as a deduction for travel, meals, and incidental expenses. This amount varies based on the location and time of year of the travel, but is generally a set rate for expenses in that area. Taxpayers are not required to substantiate the amount spent on these expenses as long as they use the appropriate per diem rate.

Question 9

Fran is a CPA who has a small tax practice in addition to working as the controller for a local manufacturing business.Fran runs her tax practice out of a 150-square foot office in her home where she meets clients and works on their tax returns and researches their tax issues.She meets the exclusive use test for this space.The gross income from her tax practice amounts to $7,500 for the year.Business expenses amount to $1,000.Based on square footage, $4,000 of Fran's mortgage interest and real estate taxes are allocable to the home office.The allocable portion of maintenance, utilities, and depreciation is $4,500.Assuming no other expenses related to the business were incurred, what amount of the maintenance, utilities, and depreciation is deductible by Fran?

Accepted Answer

Fran can deduct maintenance, utilities, and depreciation up to the net income from her tax practice after other expenses. Her net income is $7,500 (gross income) - $1,000 (business expenses) - $4,000 (mortgage interest and real estate taxes) = $2,500. Therefore, she can deduct $2,500 of the maintenance, utilities, and depreciation.

Question 10

Which of the following, if any, is an advantage of using the simplified method for determining the office in the home deduction?

Accepted Answer

The simplified method does not require the taxpayer to compute depreciation on their personal residence, which can be a complex and time-consuming process.

Question 11

In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions, which of the following items involve people who are self-employed?

Accepted Answer

Schedule C (Form 1040) is used by self-employed individuals to report their income and expenses from their business. Form W-4 is used by employees to indicate their withholding preferences for federal income tax. Form W-2 is used by employers to report wages and salaries, as well as taxes withheld, to their employees and the government. Schedule A (Form 1040) is used by individuals to report itemized deductions on their tax return. Therefore, only the option A involves people who are self-employed.

Question 12

Which of the following factors, if any, is a characteristic of independent contractor status?

Accepted Answer

All of the factors listed are characteristics of independent contractor status. An independent contractor typically performs services for multiple clients or businesses, receives a Form 1099 instead of a W-2 to report income received, is not eligible for workplace fringe benefits such as health insurance or retirement plans, and reports work-related income and expenses on Schedule C (Form 1040).

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