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Exam 11: Individuals As Employees and Proprietors

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Question 41

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Corey is the city sales manager for RIBS, a national fast food franchise.Every working day, Corey drives his car as follows: Corey renders an adequate accounting to his employer.As a result, Corey's reimburseable mileage is:

A) 0 miles.
B) 50 miles.
C) 66 miles.
D) 76 miles.
E) None of these.

F) A) and B)
G) None of the above

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Question 42

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If an activity involves horses, a profit in at least two of seven consecutive years meets the presumptive rule of § 183.

A) True
B) False

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Question 43

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One of the purposes of the qualified business income deduction was to reduce the taxes on businesses that are operating in noncorporate business forms (e.g., sole proprietors, partnerships, and S corporations).

During the year, Walt (self-employed) travels from Seattle to Tokyo, Japan, on business.His time was spent as follows: two days travel (one day each way) , two days business, and two days personal.His expenses for the trip were as follows (meals and lodging reflect only the business portion) : Presuming no reimbursement, Walt's deductible expenses are:

Flamingo Corporation furnishes meals at cost to its employees at a cafeteria it maintains.The cost of operating the cafeteria is not subject to the overall limitation (50%).

Robert entertains several of his key clients on January 1 of the current year.Expenses that he paid are as follows: Presuming proper substantiation, Robert's deduction is:

A hobby activity results in all of the hobby income being included in AGI and no deductions being allowed for hobby- related expenses.

Jake performs services for Maude.If Maude provides a helper and tools, this is indicative of independent contractor (rather than employee) status.

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.

If a taxpayer can satisfy the three-out-of-five year presumption test associated with hobby losses, then expenses from the activity can be deducted in excess of the gross income from the activity.

A taxpayer who always claims the standard deduction (i.e., does not itemize his or her deductions from AGI) may still be able to receive a tax benefit from any education expenses incurred.

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

Meg's employer carries insurance on its employees that will pay an employee his or her regular salary while the employee is away from work due to illness.The premiums for Meg's coverage were $1,800.Meg was absent from work for two months as a result of a kidney infection.Her employer's insurance company paid Meg's regular salary of $8,000 while she was away from work.Meg also collected $2,000 on a wage continuation policy she had purchased.Meg must include $11,800 in her gross income.

If property taxes and home mortgage interest expense are related to a hobby, the excess amount of these items over the hobby income cannot be deducted even if the taxpayer itemizes deductions.

Every year, Teal Corporation gives each employee a turkey and a bottle of wine during the December holiday season.These gifts are subject to the 50% limitation.

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% overall limitation) per ticket is deductible.

In some cases, it may be appropriate for a taxpayer to deduct work-related expenses as both a sole proprietor and an employee.

Which of the following would constitute an employer-employee relationship?

A self-employed taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of automobile club dues.

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