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Exam 11: Individuals As Employees and Proprietors

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Question 61

True/False

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Qualified business income includes the reasonable compensation paid to the taxpayer by a qualified trade or business and guaranteed payments made to a partner for services rendered.

A) True
B) False

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Question 62

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Under Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the following benefits, but the total received by each employee cannot exceed $8,000 a year. I.Group medical and hospitalization insurance for the employee, $3,600 a year. II.Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III.Child care payments, actual cost but not more than $4,800 a year.IV.Cash required to bring the total of benefits and cash to $8,000. Which of the following statements is true?

A) Sam, a full-time employee, selects choices II and III and $2,000 cash.His gross income must include the $2,000.
B) Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provides these same insurance benefits, which would cover him (II) .Paul is not required to include the $8,000 in gross income.
C) Sue, a full-time employee, elects to receive choices I, II, and $3,200 for III.Sue is required to include $3,200 in gross income.
D) All of these.
E) None of these.

F) A) and E)
G) C) and D)

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Question 63

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Jackson gives both his supervisor and her husband a $30 box of chocolates at Christmas.Jackson may claim only $25 as a deduction.

In determining whether an activity should be classified as a business or as a hobby, the satisfaction of the presumption (i.e., profit in at least three out of five years) ensures treatment as a business.

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.

Which of the following trips, if any, will qualify for the travel expense deduction?

Under the right circumstances, a taxpayer's meals and lodging expense can qualify as a deductible education expense.

Which of the following, if any, is subject to an overall limitation on meals?

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

The Royal Motor Company manufactures automobiles.Nonmanagement employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally, management employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost.Which of the following statements is correct?

Aiden performs services for Lucas.Which of the following factors indicates that Aiden is an employee rather than an independent contractor?

A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons:

Evaluate the following statements: I.De minimis fringe benefits are those that are so immaterial that accounting for them is impractical. II.De minimis fringe benefits are subject to strict antidiscrimination requirements. III.Generally, a fringe benefit of less than $50 is considered de minimis and can be excluded from gross income.

The moving expense deduction has been eliminated for all taxpayers.

Peggy is an executive for the Tan Furniture Manufacturing Company.She purchased furniture from the company for $9,500, the price Tan ordinarily would charge a wholesaler for the same items.The retail price of the furniture was $12,500, and Tan's cost was $9,000.The company also paid for Peggy's parking space in a garage near the office.The parking fee was $600 for the year.All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy.However, the company does not pay other employees' parking fees.Peggy's gross income from the above is:

A company has a medical reimbursement plan for officers that covers all costs that the company's insurer will not pay.However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds.An officer incurred $1,500 in medical expenses and was reimbursed for that amount.An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.