Chapter 9 - Test Bank - test bank PDF

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CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses 1028. One indicia of independent contractor (rather than employee) status is when the individual performing the services is paid based on tasks performed (rather than time spent). *a. True b. False 1029. In some cases it may be appropriate for a taxpayer to report work-related expenses by using both Form 2106 and Schedule C. *a. True b. False 1030. The IRS will issue advanced rulings as to whether a worker’s status is that of an employee or an independent contractor. *a. True b. False 1031. Jake performs services for Maude. If Maude provides Jake with a helper and tools, this is indicative of independent contractor (rather than employee) status. a. True *b. False

1032. A statutory employee is not a common law employee but is subject to income tax withholdings. a. True *b. False 1033. For tax purposes, a statutory employee is not treated the same as a common law employee. *a. True b. False 1034. 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. *a. True b. False 1035. The work-related expenses of an independent contractor will be subject to the 2%-of-AGI floor. a. True *b. False

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses 1036. After she finishes working at her main job, Ann returns home, has dinner, then drives to her second job. Ann may deduct the mileage between her home and second job. a. True *b. False 1037. After the automatic mileage rate has been set by the IRS for a year, it cannot later be changed by the IRS. a. True *b. False 1038. In choosing between the actual expense method and the automatic mileage method, a taxpayer should consider the cost of insurance on the automobile. *a. True b. False 1039. A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of tolls and parking. *a. True b. False

1040. A deduction for parking and other traffic violations is allowed under the actual cost method but not the automatic mileage method.

a. True *b. False 1041. Once the actual cost method is used, a taxpayer cannot change to the automatic mileage method in a later year. a. True *b. False

1042. For tax purposes, “travel” is a broader classification than “transportation.” *a. True b. False 1043. Amy lives and works in St. Louis. In the morning she flies to Boston, has a three-hour business meeting, and returns to St. Louis that evening. For tax purposes, Amy was away from home. a. True *b. False

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses 1044. Janet, who lives and works in Newark, travels to Atlanta for a Thursday-Friday business conference. She stays over after the conference and visits relatives and friends on Saturday. Under certain circumstances, the meals and lodging expenses for Saturday can be considered as business related. *a. True b. False 1045. Marvin lives with his family in Alabama. He has two jobs: one in Alabama and one in North Carolina. Marvin’s tax home is where he lives (Alabama). a. True *b. False

1046. A taxpayer who lives and works in Kansas City is sent to Chicago on an eight-day business trip. While in Chicago, taxpayer uses the hotel valet service to have some laundry done. The valet charge is a deductible travel expense. *a. True b. False 1047. The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of employment that exceeds one year. *a. True b. False

1048. A taxpayer who lives and works in Tulsa travels to Buffalo for five days. If three days are spent on business and two days are spent on visiting relatives, only 60% of the airfare is deductible. a. True *b. False

1049. Bob lives and works in Newark, NJ. He travels to London for a three-day business meeting, after which he spends three days touring Scotland. All of his air fare is deductible. *a. True b. False 1050. Edna lives and works in Cleveland. She travels to Berlin for an eight-day business meeting, after which she spends two days touring Germany. All of Edna’s airfare is deductible. *a. True b. False 1051. Daniel just graduated from college. The cost of moving his personal belongings from his parents’ home to his first job site does not qualify for the moving expense deduction.

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses a. True *b. False

1052. Tired of her 60 mile daily commute, Margaret purchases a condo that is only five miles from her job. Margaret’s moving expenses to her new condo are not allowed and cannot be claimed by her as a deduction. *a. True b. False 1053. In November 2011, Katie incurs unreimbursed moving expenses to accept a new job. Katie cannot deduct any of these expenses when she timely files her 2011 income tax return since she has not yet satisfied the 39-week time test. a. True *b. False 1054. In May 2011, after 11 months on a new job, Ken is fired after he assaults a customer. Ken must include in his gross income for 2011 any deduction for moving expenses he may have claimed on his 2010 tax return. a. True *b. False

1055. A moving expense deduction is allowed even if at the time of the move the taxpayer did not have a job at the new location. *a. True b. False

1056. Kelly, an unemployed architect, moves from Boston to Phoenix to accept a job as a chef at a restaurant. Kelly’s moving expenses are not deductible because her new job is in a different trade or business. a. True *b. False

1057. Alexis (a CPA and JD) sold her public accounting practice in Des Moines and accepted a job with the Seattle office of a national accounting firm. Her moving expenses are not deductible because she has changed employment status (i.e., went from self-employed to employee). a. True *b. False 1058. Qualified moving expenses include the cost of lodging but not meals during the move.

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses *a. True b. False

1059. Qualified moving expenses of an employee that are not reimbursed are a deduction for AGI. *a. True b. False

1060. At age 65, Camilla retires from her job in Boston and moves to Florida. As a retiree, she is not subject to the time test in deducting her moving expenses.

a. True *b. False 1061. An education expense deduction can be allowed even if the education results in a promotion or pay raise for the employee. *a. True b. False

1062. Lloyd, a practicing CPA, pays tuition to attend law school. Since a law degree involves education leading to a new trade or business, the tuition is not deductible. a. True *b. False 1063. Under the right circumstances, a taxpayer’s meals and lodging expense can qualify as a deductible education expense. *a. True b. False 1064. A taxpayer who always claims the standard deduction (i.e., does not itemize his or her deductions from AGI) will not be able to receive a tax benefit from any education expenses incurred. a. True *b. False 1065. There is no cutback adjustment for meals and entertainment as to employees who are subject to regulation by the U.S. Department of Transportation. a. True *b. False

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses 1066. Crow Corporation pays for a trip to Bermuda for its two top salespersons. This expense is subject to the cutback adjustment. a. True *b. False 1067. Mallard Corporation furnishes meals at cost to its employees by means of a cafeteria it maintains. The cost of operating the cafeteria is not subject to the cutback adjustment. *a. True b. False 1068. Every year, Penguin Corporation gives each employee a fruit basket and a bottle of wine at Christmas. These gifts are not subject to the cutback adjustment. *a. True b. False 1069. A taxpayer takes six clients to an NBA playoff game. If all of the tickets (list price of $120 each) are purchased on the Internet for $1,800 ($300 each), only $60 ($120 ´ 50% cutback adjustment) per ticket is deductible. *a. True b. False 1070. Ethan, a bachelor with no immediate family, uses the Pine Shadows Country Club exclusively for his business entertaining. All of Ethan’s annual dues for his club membership are deductible. a. True *b. False 1071. A sole proprietor is allowed a deduction for a $25 gift he gives to his office manager on her birthday. *a. True b. False 1072. The $25 limitation on the deductibility of business gifts can be circumvented by making separate gifts to the family (e.g., spouse, children) of the client. a. True *b. False

1073. Tickets to a theater performance or sporting event can be treated as either business entertainment or a business gift if the taxpayer does not accompany the client to the event.

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses *a. True b. False

1074. In the case of an office in the home deduction, the exclusive business use test does not apply when the home is used as a daycare center. *a. True b. False

1075. If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available. a. True *b. False 1076. A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction. a. True *b. False 1077. The portion of the office in the home deduction that exceeds the income from the business can be carried over to future years. *a. True b. False

1078. If the cost of uniforms is deductible, their maintenance cost (e.g., laundry, dry cleaning, alterations) also is deductible. *a. True b. False

1079. Tired of renting, Dr. Smith buys the academic robes she will wear at her college’s graduation procession. The cost of this attire qualifies as a uniform expense.

*a. True b. False 1080. Frank, a recently retired FBI agent, pays job search expenses to obtain a position with a city police department. Frank’s job search expenses do not qualify as deductions. a. True *b. False

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses 1081. After graduating from college with a degree in chemistry, Alberto obtains a job as a chemist with DuPont. Alberto’s job search expenses qualify as deductions. a. True *b. False 1082. Qualifying job search expenses are deductible even if the taxpayer does not change jobs. *a. True b. False

1083. Madison is an instructor of fine arts at a local community college. If she spends $600 (not reimbursed) on art supplies for her classes, some of this amount can be claimed as a deduction for AGI. a. True *b. False 1084. Both traditional and Roth IRAs possess the advantage of tax-free accumulation of income within the plan. *a. True b. False 1085. When contributions are made to a traditional IRA, they are deductible by the participant. Later distributions from a the IRA, however, are fully taxed. *a. True b. False 1086. By itself, credit card receipts will not constitute adequate substantiation for travel expenses. *a. True b. False 1087. The Federal per diem rates that can be used for “deemed substantiated” purposes are the same for all locations in the country. a. True *b. False

1088. For self-employed taxpayers, travel expenses are not subject to the 2%-of-AGI floor. *a. True b. False 1089. A taxpayer who claims the standard deduction will not avoid the 2% floor on unreimbursed employee expenses.

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses a. True *b. False

1090. Employees who render an adequate accounting to the employer and are fully reimbursed will shift the 50% cutback adjustment to their employer. *a. True b. False

1091. Ryan performs services for Jordan. Which, if any, of the following factors indicate that Ryan is an employee, rather than an independent contractor? *a. Jordan provides Ryan with support services (e.g., work assistants). b. Ryan obtained his own training (i.e., job skills). c. Ryan is paid based on tasks performed. d. Ryan makes his services available to others. e. None of the above. 1092. Corey performs services for Sophie. Which, if any, of the following factors indicate that Corey is an independent contractor, rather than an employee? a. Sophie sets the work schedule. b. Sophie provides the tools used. c. Corey files a Form 2106 with his Form 1040. *d. Corey is paid based on the tasks performed. e. None of the above. 1093. Which, if any, of the following factors is not a characteristic of independent contractor status? a. Services are performed for more than one party. b. Receipt of a Form 1099 reporting payments received. *c. Workplace fringe benefits are available. d. Work-related income and expenses are reported on Schedule C. e. None of the above. 1094. A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons: a. Avoids the cutback adjustment as to business meals. b. All of the self-employment tax is deductible for income tax purposes. *c. Work-related expenses are not subject to the 2%-of-AGI floor. d. A Schedule C does not have to be filed. e. None of the above.

1095. A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons: *a. To avoid the self-employment tax. b. To claim unreimbursed work-related expenses as a deduction for AGI. c. To avoid the cutback adjustment on unreimbursed business entertainment expenses.

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses d. To avoid the 2%-of-AGI floor on unreimbursed work-related expenses. e. None of the above.

1096. Statutory employees: a. Report their expenses on Form 2106. b. Include common law employees. c. Are subject to income tax withholdings. *d. Claim their expenses as deductions for AGI. e. None of the above.

1097. Michael is the city sales manager for “Chick-Stick,” a national fast food franchise. Every working day, Michael drives his car as follows:

Home to office Office to Chick-Stick No. 1 Chick-Stick No. 1 to No. 2 Chick-Stick No. 2 to No. 3 Chick-Stick No. 3 to home

Miles 20 15 18 13 30

Michael’s deductible mileage is: a. 76 miles. *b. 46 miles. c. 30 miles. d. 0 miles. e. None of the above. 1098. Amy works as an auditor for a large major CPA firm. During the months of September through November of each year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her home to Garnet and returns home after work. Mileage is as follows:

Home to office Home to Garnet Office to Garnet

Miles 10 30 35

For these three months, Amy’s deductible mileage for each workday is: a. 0. b. 30. c. 35. *d. 60. e. None of the above. 1099. Aaron is a self-employed practical nurse who works out of his home. He provides nursing care for disabled persons living in their residences. During the day he drives his car as follows.

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

Aaron’s home to patient Louise Patient Louise to patient Carl Patient Carl to patient Betty Patient Betty to Aaron’s home

Miles 12 4 6 10

Aaron’s deductible mileage for each workday is: *a. 32 miles. b. 22 miles. c. 20 miles. d. 12 miles. e. 10 miles. 1100. When using the automatic mileage method, which, if any, of the following expenses also can be claimed? a. Engine tune-up. b. Auto insurance. *c. Toll charges. d. MACRS depreciation. e. None of the above.

1101. In which, if any, of the following situations is the automatic mileage available? a. A limousine to be rented by the owner for special occasions (e.g., weddings, high school proms). b. The auto belongs to taxpayer’s mother. c. One of seven cars used to deliver pizzas. *d. MACRS statutory percentage method has not been claimed on the automobile. e. None of the above. 1102. Under the actual expense method, which, if any, of the following expenses will not be allowed? a. Car registration fees. b. Interest expense on a car loan (taxpayer is self-employed). c. Auto insurance. d. Dues to auto clubs. *e. Parking fines incurred during business use. 1103. Bill is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City. When the company opens new stores in Boise, Bill is given the task of supervising their initial operation. For three months, he works weekdays in Boise and returns home on weekends. He spends $410 returning to Salt Lake City but would have spent $390 had he stayed in Boise for the weekend. As to the weekend trips, how much, if any, qualifies as a deduction? a. $0, since the trips are personal and not work related. b. $0, since Bill’s tax home has changed from Salt Lake City to Boise. *c. $390.

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses d. $410. e. None of the above.

1104. Allowing for the cutback adjustment (50% reduction for meals and entertainment), which of the following trips, if any, will qualify for the travel expense deduction? *a. Dr. Jones, a general dentist, attends a two-day seminar on developing a dental practice. b. Dr. Brown, a surgeon, attends a two-day seminar on financial planning. c. Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving his language skills. d. Myrna went on a two-week vacation in Boston. While there, she visited her employer’s home office to have lunch with former co-workers. e. None of the above. 1105. During the year, Walt went from Louisville to Hawaii on business. Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are: Air fare Lodging Meals Entertainment

$3,200 900 800 600

Presuming no reimbursement, deductible expenses are: a. $5,500. *b. $4,800. c. $3,900. d. $3,200. e. None of the above. 1106. During the year, Peggy went from Nashville to Quito (Ecuador) on business. She spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Peggy’s unreimbursed expenses are: Air fare Lodging Meals Entertainment Peggy’s deductible expenses are: a. $2,500. b. $2,800. *c. $3,100. d. $4,300. e. None of the above.

$3,000 800 600 400

CHAPTER 9 Deductions: Employee and Self-Employed-Related Expenses 1107. During the year, Oscar travels from Raleigh to Moscow (Russia) on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion): Air fare Lodging Meals and entertainment

$3,000 2,000 1,000

Presuming no reimbursement, Oscar’s deductible expenses are: a. $6,000. *b. $5,500. c. $4,500. d. $3,500. e. None of the above. 1108. In terms of meeting the distance test for purposes of deducting moving expenses, which of the following statements is correct? a. The taxpayer’s new job location must be at least 50 miles away from the old job. b. The taxpayer’s new residence must be at least 50 miles away from the new job. *c. The taxpayer’s new job location must be at least 50 miles farther from the old residence than the old residence was to the old job. d. The taxpayer’s new residence must be at least 50 miles away from the old residence. e. None of the above. 1109. As to meeting the time test for purposes of deducting moving expenses, which of the following statements is correct? *a. Work at the new location must involve a full-time job—part-time job will not suffice. b. The taxpayer has two years in which to satisfy the 39-weeks or 78-weeks requirement. c. The time test is waived for persons whose move follows retirement. d. The moving expense deduction cannot be claimed if the taxpayer has not yet met the time test. e. None of the above. 1110. Due to a merger, Allison transfers from Miami to Chicago. Under a ne...