Question 1

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

False

Question 2

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

Accepted Answer

Travel expenses include not only transportation, but also lodging, meals, and incidental expenses such as tips and fees. Therefore, travel is a broader classification than just transportation.

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

The taxpayer can switch from the standard mileage rate to the actual expense method in a later year, but cannot switch back to the standard mileage rate after using the actual expense method.

Question 4

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 compute auto expenses for business purposes includes all costs of operating the vehicle, such as maintenance and repairs, gas, oil, and insurance, thus excluding the deduction of additional expenses like automobile club dues for the business portion.

Question 5

A deduction for parking and other traffic violations incurred during business use of an automobile is allowed under the actual cost method but not the automatic mileage method.

Accepted Answer

Under both the actual cost method and the automatic mileage method for calculating automobile expenses, deductions for parking and other traffic violations are not allowed. These costs are considered personal expenses and are not deductible for tax purposes.

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.

Accepted Answer

This statement is true. An individual can be classified as an independent contractor if they have control over the method and means of completing the task, even if they are ultimately working towards a specific result or goal directed by someone else. In this situation, an employer-employee relationship does not exist.

Question 7

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

Accepted Answer

The statement is incorrect. Taxpayers can switch from the actual cost method to the automatic mileage method in a later year, but they cannot switch back to the actual cost method after using the mileage method for the same vehicle.

Question 8

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

Accepted Answer

The automatic mileage method takes into account all expenses related to operating a vehicle, including tolls and parking. Therefore, the taxpayer can deduct the business portion of these expenses in addition to the mileage deduction.

Question 9

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 10

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 choosing between the actual expense method and the standard mileage rate method for deducting automobile expenses, a taxpayer should consider all relevant costs, including insurance, as these costs can significantly impact the total deductible amount under the actual expense method.

Question 11

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

Accepted Answer

A statutory employee is considered an independent contractor for income tax purposes but is treated as an employee for Social Security and Medicare tax purposes. Therefore, they are subject to Social Security tax.

Question 12

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

Compensation based on the number of calls handled does not automatically classify Janet as an independent contractor; the determination depends on factors such as control over work, financial investment, and relationship permanence.

Question 13

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 actually the opposite of the true indicator of independent contractor status. Independent contractors are typically paid based on tasks performed or the overall outcome of their work, rather than based on time spent. Employees, on the other hand, are typically paid based on an hourly wage or a salary for a set amount of time worked.

Question 14

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

Accepted Answer

The standard mileage rate set by the IRS for calculating deductions for the business use of a vehicle does take into account depreciation, along with gas, maintenance, and other costs.

Question 15

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 can issue advanced rulings on worker classification as employees or independent contractors.

Question 16

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 change the automatic mileage rate at any time during the year if economic conditions warrant a change.

Question 17

Carol is self-employed and uses her automobile solely for 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

Under the actual expense method, all expenses related to the business use of the car can be deducted, including interest on a car loan.

Question 18

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 and payment arrangements must also be considered to determine the worker's classification.

Question 19

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

Accepted Answer

A statutory employee has a tax status that combines aspects of both an independent contractor and an employee, allowing them to have taxes withheld like an employee but also deduct work-related expenses like an independent contractor, which differs from the treatment of common law employees.

Question 20

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

Accepted Answer

Since the taxpayer's home office is their sole place of business, there is no commute to deduct as all travel is done in order to perform business functions in their home office.

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