Chapter 9

Question 1

When one person performs services for another, the person performing the service is either ________ or __________.

Answer 1

Employee

Self-Employed (independent contractor)

Question 2

Unlike employees _______ persons do not have to be included in various ______ _______ ______?

Answer 2

Sefl employed

frinde benefit programs

Question 3

expenses of self employed tax payers, to the extent allowable, are classified as deductions ________ AGI, and are recorded on Schedule _____ of for 1040

Answer 3

For

C(Profit or loss from business)

Question 4

with the exception of reimbursement under an accoutable plan expenses of employess are deductions _____ AGI. THey are reported on form ______ and Schedule _______ of form 1040

Answer 4

From

2106

A

Question 5

Certain factors indicate an employee/employer relationship. These include the performance of the following by the employer

Answer 5

furnishing of tools or equipment and a place to work

providing support services including the hiring of assistants to help do the work

making training available to provide needed job skills

allowing participation in various workplace frindge benefits

paying for services based on time rather that task performed

Question 6

Self employed people are not subject to _____ and ____ taxes

Answer 6

FUTA/SUTA

FICA

Question 7

_______ are certain employess who are not common law employess but are treated as employees for employment tax purposes. Some include certain drivers, life insurance sales agents, home workers, and other sales persons

Answer 7

Statutory employees

Question 8

Employee expenses fall into one of the following categories

Answer 8

transportation

travel

moving

education

entertainment

other

Question 9

AN employee may deduct unreimbursed employment-related transportion expenses as ________.

Answer 9

itemized deductions from AGI

Question 10

______ include only the cost of transporting the employee from one place to another in the course of employment when the employee is not away from home in traval status. Such costs include taxi fares, automobile expenses, tolls, and parking

Answer 10

Transportation Expenses

Question 11

THe rule that disallows a deduction for commuting expenses has several exceptions. An employee who uses an automobile to transport heavy tools to work and who otherwise would not drive to work is _______ a deductions

Answer 11

allowed (but only for the additional costs incurred to transport the work implements.)

Question 12

Expenses of getting from one job to another are _______

Answer 12

Deductible

Question 13

If the TP is required to incur a transportation exepense to travel between workstations, and the commuting costs from home to a temporay workstation and from a temporary workstation to home are ______

Answer 13

deductible

Question 14

A taxpayer has 2 choices in determining automobile expenses

Answer 14

automatic mileage method

actual cost method

Question 15

Automatic mileage method is also called

Answer 15

the standard mileage method

Question 16

To calculate the standard mileage method the TP has to multiply the ______ by the miles driven

Answer 16

automatic mileage rate (55.5 cents)

Question 17

The automatic mileage rate for deductible education expenses is _______ and the moving rate is ______

Answer 17

55.5 Cents

23 cents

Question 18

Pakring fees and tolls are _______ in addition to expenses computed using the automatic mileage method.

Answer 18

allowed

Question 19

A TP can elect either method for any year with these restrictions:

Answer 19

• the vehicle much be owned or leased by the taxpayer
• the vehicle is not used for hire (taxicab)
• if 5 of more vehicles are in use (for Business purposes) at the same time, a TP may not use the automatic mileage method
• a basis adjustment is required if the TP changes from the automatic mileage to the actual operating cost method. Depreciation is considered allowed for the business miles in accordance with the following schedule for the most recent 5 years.
• Use of the automatic mileage method in the 1st year the auto is places in service is considered an election to exclude the auto from the MACRS
• a taxpayer may not switch to the automatic mileage method if the MACRS statutory percentage method or the election to expense under section 179 has been used.

Question 20

Under the Actual Cost Method, the automobile is used to compute the deduction. Actual costs include:

Answer 20

gas and oil, lubrication

depreciation (or lease payments)

insurance

Dues to auto clubs

repairs

tires and other parts

licenses and registration fees

parking and tolls

Question 21

If a TP is an employee interest on car loans is ______. If the TP is self employed the interest on car loans is ______

Answer 21

nondedutible

a business expense

Question 22

Sales tax paid on the purchase of a car are included in the cost of the car and therefore are recovered by _____

Answer 22

Depreciation

Question 23

An itemized deduction is _______ for unreimbursed travel expense related to a TP’s employment.

Answer 23

Allowed

Question 24

______ include transportation expenses and meals and lodging while away from home in the pursiut of a trade or business.

Answer 24

Travel Expenses

Question 25

A deduction for travel expenses is available only if \_\_\_\_

Answer 25

the TP is away from his/her tax home

Question 26

What is a tax home?

Answer 26

the area TP derives his/her source of income

Question 27

The crucial test for the deductibility of travel expenses is whether the employee is \_\_\_\_\_

Answer 27

away from home overnight (overnight need not be a 24 hour period, but it must be a period substantially longer than an ordinary day's work and must require rest, sleep, or a relief-from-work period

Question 28

If the taxpayer employee is reassigned to a new post for an indefinite period of time, that new post becomes \_\_\_\_\_\_

Answer 28

his/her new tax home. (temporary indicates that the assignment's termination is expected within a reasonably short period of time.)

Question 29

Travel expenses are ________ if a TP is reassigned for an indefinite period and does not move his or her place of residence to the new location

Answer 29

not deductible

Question 30

The Code specifies that a taxpayer "\_\_\_\_\_\_\_\_ during any period of employment if such period exceeds 1 year."

Answer 30

Shall not be treated as temporarily away from home

Question 31

In order for a convention to be deductible the convention must \_\_\_\_\_\_

Answer 31

be directly related to the TP's trade or business

Question 32

In order for a spouse's or dependent's travel expenses to be deductible, this person must \_\_\_\_\_\_

Answer 32

serve a bona fide business purpose, and the expeneses must be otherwise deductible

Question 33

Travel as a form of eductation is \_\_\_\_\_. If travel is envolved in education it is \_\_\_\_\_\_\_

Answer 33

Non deductible deductible

Question 34

If the business/pleasure trip is from one point of the US to another point in the US, the transportation expenses are deductible only if \_\_\_\_\_\_\_

Answer 34

the trip is primarliy for business. (meals and lodging and other expenses will be allocated between the personal and business days)

Question 35

When the trip is outside of the US, transportation must be allocated between business and person unless

Answer 35

* the TP is away from home for 7 days or less * less the 25% of the time was for personal purposes. (weekends, legal holidays, and intervening days are considered business days.) (No allocation is required if the TP has no substantial control over arrangements for the trip or the desire for a vaction is not a major factor in taking the trip)

Question 36

Moving expenses are _______ for moves in connection with the commencement of work at a new principal place of work.

Answer 36

deductible (both employees and self-employed individuals can deduct these expenses.)

Question 37

To be eligible for a moving expense deduction a TP must meet 2 basic test:

Answer 37

distance time

Question 38

To meet the distance test, the TP's new job location must be \_\_\_\_\_\_\_\_.

Answer 38

at least 50 miles farther from the TP's old residence than theold residence was from the former place of employment.

Question 39

To meet the time test, an employee must \_\_\_\_\_.

Answer 39

be employed on a full-time basis at the new location for 39 weeks in the 12 month period following the move. If the TP is a self employed individual, he or she must work in the new location for 78 weeks during the next 2 years. (time is disregarded if the TP dies, becomes disabled, or is discharged

Question 40

If the TP is not able to meet the 39 week test by the due date of the tax return they can

Answer 40

can take the deduction even though the test hasnt been met. then if the TP fails to meet the test * the income of the following year is increased by an amount equal to the deduction previously claimed for moving epenses * amended return is filed for the year of the move. They could have also wait until the year that the test was met and take the deduction then.

Question 41

"Qualified" moving expenses include *reasonable* expense of:

Answer 41

* moving household goods and persaonl effects * traveling from the former residence to the new place of residence. (traveling expenses include lodging for the TP and members of the household but not meals.) (moving expense deduction is allowed regarless of whether the employee is transferred by the existing employer or is employed by a new employer. it is allowed if the employee moves to a new area and obtains employment or swtiched from self-employed to employee status. it is also allowed if an individual is unemployed before obtaining employment in a new area. )

Question 42

Qualified moving expenses that are not reimbursed and those of self employed TP's are deductions ______ AGI

Answer 42

for

Question 43

An employee can deduct expenses incurred for educations as _______ provided the expenses are incurred for either of these reasons:

Answer 43

ordinary and necessary business expenses * to maintain or improve existing skills required in the present job * to meet the express requirements of the employer or the requirements imposed by law to retain his or her employment status. (educational expenses include books, supplies, tuition, transportation(from the office to school), and travel(meals and lodging while away from the home at summer school) ($250 for AGI, remaining will be misc itemized deduction)

Question 44

Educational expenses not deductible if the education is for either of the following purposes:

Answer 44

* to meet the minimum educational standards for qualification in the taxpayer's existing job * to qualify the TP for a new trade of business.

Question 45

Tuition and fees deduction:

Answer 45

$4000 max. Only for tuition and fees FOR AGI Phase out $65,000

Question 46

Credits are available if _______ business expenses and Section 222.

Answer 46

you dont take. Lifetime Learning Opportuniity Credit (must have tax liability to use these credits)

Question 47

Cut back rule of meals and entertainment?

Answer 47

can only deduct 50% for business purposes. Exceptions: * work for deptartment of transportation you arent subject to 50%, only subject to 20% * subsidized eating facility (hospital) can deduct cost of meals for employees in full * entertainment can deduct the cost of a highend ticket and do not have to be available to deduct

Question 48

\_\_\_\_\_\_\_\_ are the self employed equivalent of corporate pension plans. these are qualified retirement plans and must be administered by an independent trustee.

Answer 48

Keogh Plans

Question 49

a self employed individual may annually contribute the smaller or _____ or _____ to a definded contribution Keopgh Plan

Answer 49

$50,000 or 100% of earned income

Question 50

Under a defined benefit Keogh plan, the annual benefit payable to an employee is limited to the smaller of _____ or \_\_\_\_\_.

Answer 50

$200,000 or 100% of the employee's average compensation for the 3 highest yeears of employment

Question 51

A ______ is an ideal candidate for a Keogh Plan

Answer 51

sole proprietor with no employees

Question 52

A ________ is designed for self-employed individuals can combines a regular Section 401K plan with a profit sharing plan. The maximum annual elective contribution to a Section 401K is $17,000

Answer 52

Solo 401K Plans

Question 53

Employers with 100 or fewer employees who do not maintain another qualified retirement plan may establish a \_\_\_\_\_\_\_\_\_.

Answer 53

Simple incentive match plan for employees (SIMPLE Plan) The plan can be in the form of a Section 401K plan or an IRA. It is not subject to the nondiscrimination rules that are normally applicable to 401k plans

Question 54

The contributions made by the employee into a SIMPLE must be \_\_\_\_\_\_\_rather than as a fixed dollar amount.

Answer 54

expressed as a percentage (the simple plan must not permit the simple elective employee contribution for the year to exceed $11,500. The simple elective deferral limit is increased under the catch-up provision for employees age 50 and over, which is $2,500

Question 55

When it comes to a SIMPLE Plan, The employer must either 1) 2)

Answer 55

* match elective employee contributions up to 3 percent of the employee's compensation * provide nonmatching contributions of 2% of compensation for all eligible employees

Question 56

With a SIMPLE Plan, no other contributions may be made to the plan other than the employee elective contribution and the required employer contribution. All contributions are \_\_\_\_\_\_\_

Answer 56

Fully vested