Question 1

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 2

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

Parking and traffic violation fines are not deductible under either the actual cost method or the automatic mileage method for business use of an automobile.

Question 3

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's home office is their only place of business, there is no commuting between different work locations, and therefore no nondeductible commuting expenses.

Question 4

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

Accepted Answer

Travel expenses can include transportation, lodging, meals, and other incidental expenses, while transportation expenses only refer to the cost of getting from one place to another. Therefore, travel is a broader classification than transportation.

Question 5

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 to determine whether a worker is an employee or independent contractor. This can be helpful for both employers and workers to know their tax obligations and benefits.

Question 6

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

Accepted Answer

Statutory employees are treated differently for tax purposes, as they have specific tax withholding rules and may receive a W-2 form with different tax treatment compared to common law employees.

Question 7

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

Accepted Answer

A statutory employee is a type of worker that is defined by the Internal Revenue Service (IRS) and is subject to Social Security tax, but they are not considered common law employees.

Question 8

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 needed. However, any changes made will only apply to mileage incurred from the date of the change forward.

Question 9

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 already takes into account expenses related to the operation of the vehicle, such as gas and maintenance, but tolls and parking are separate expenses that can be deducted in addition to the mileage deduction.

Question 10

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 determine whether Jake is an employee or independent contractor. Other factors, such as the level of control Maude has over Jake's work and whether Jake is free to work for other clients, must also be considered.

Question 11

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

Payment based on time spent or on tasks performed alone is not necessarily a determinant of independent contractor status. Other factors must also be considered, such as the level of control the employer has over the individual's work and the degree of independence the individual has in carrying out the work.

Question 12

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 13

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 choose to switch between the actual cost method and the automatic mileage method in later years. However, once they choose the automatic mileage method, they cannot switch back to the actual cost method.

Question 14

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

Interest paid on a car loan used solely for business can be included in the actual expense method of computing expenses for a self-employed individual.

Question 15

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 16

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 17

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 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 statement accurately describes the concept of independent contractors or freelancers, who are hired to accomplish a specific task or project but are allowed to use their own methods and tools to achieve the end result. In these situations, there is no employer-employee relationship because the worker is not under the direct control or supervision of the hiring company.

Question 19

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

According to IRS guidelines, a taxpayer who uses the standard mileage rate in one year can switch to the actual cost method in a later year, but the reverse is not allowed.

Question 20

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.

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