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Exam 11: Individuals As Employees and Proprietors

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Question 51

True/False

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Both traditional and Roth IRAs possess the advantage of tax-free accumulation of income within the plan.

A) True
B) False

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Question 52

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A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction.

A) True
B) False

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Question 53

Multiple Choice

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Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each statement. -Sue uses her own tools.

Mallard Corporation pays for a trip to Aruba for its two top salespersons.This expense is subject to the overall limitation 50%).

James has a job that compels him to go to many different states during the year.It is possible that James was never away from his tax home during the year.

A U.S.citizen is always required to include in gross income the salary and wages earned while working in a foreign country even if the foreign country taxes the income.

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

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.

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

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities, but reimburses its employee for the cost of parking in a nearby garage, up to $150 per month.

Margaret is trying to decide whether to place funds in a qualified tuition program.Her son will be attending college in 4 years.She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments.Thus, $10,000 will accumulate to $11,948 after-tax) in 4 years.Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years.Her son will be in the 12% marginal tax bracket in all relevant years.Given these assumptions, should Margaret participate in the qualified tuition program?

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.

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).

George is employed by the Quality Appliance Company.All the full time employees are allowed to purchase appliances at the company's cost plus 10%.The employee also is given, at no cost, a 1-year service contract on all the goods purchased from the company.George purchased a refrigerator for $500.The company's normal selling price for the refrigerator is $800.George also received a service contract, at no charge, that had a value of $150.During the year, George was required to have his refrigerator serviced once.The cost of the call would have been $75 if he had not had the service contract.Is George required to recognize any income from the purchase of the refrigerator, the receipt of the service contract, and the service call?

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

The § 222 deduction for tuition and related expenses is available:

Qualified business income QBI) is defined as the ordinary income less ordinary deductions a taxpayer earns from a "qualified trade or business" e.g., from a sole proprietorship, S corporation, or partnership) conducted in the United States by the taxpayer.

James, a cash basis taxpayer, received the following compensation and fringe benefits in the current year: His actual salary was $72,000.He received only $66,000 because his salary was garnished and the employer paid $6,000 on James's credit card debt he owed.The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled.The long-term care insurance is available to all employees and pays $150 per day towards a nursing home or similar facility.What is James's gross income from the above?

Myra's classification of those who work for her as independent contractors is being questioned by the IRS.It is the position of the IRS that these workers are really employees.What type of factors can Myra utilize to justify her classification?

Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each statement. -Sue uses her own helpers.