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

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Question 41

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In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions, which of the following items involve self-employed?

A) Schedule C of Form 1040.
B) Form W-4.
C) Form W-2.
D) Schedule A of Form 1040.
E) None of these.

F) B) and D)
G) A) and B)

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Question 42

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

A) True
B) False

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Question 43

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

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

For self-employed taxpayers, travel expenses are deductions for AGI.

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

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

Flamingo 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 overall limitation 50%).

When is a taxpayer's work assignment in a new locale temporary? Permanent? What difference does it make?

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.

An education expense deduction may be allowed even if the education results in a promotion or pay raise for the employee.

Fran is a CPA who has a small tax practice in addition to working as the controller for a local manufacturing business. Fran runs her tax practice out of a 150 square foot office in her home where she meets clients and works on their tax returns and researches their tax issues. She meets the exclusive use test for this space. The gross income from her tax practice amounts to $7,500 for the year. Business expenses amount to $1,000. Based on square footage, $4,000 of Fran's mortgage interest and real estate taxes are allocable to the home office. The allocable portion of maintenance, utilities, and depreciation is $4,500. Assuming no other expenses related to the business were incurred, what amount of the maintenance, utilities, and depreciation is deductible by Fran?

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

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.

If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available.

A taxpayer who uses the automatic mileage method for the business use of an automobile can change to the actual cost method in a later year.

Employees who render an adequate accounting to the employer and are fully reimbursed will shift the 50% overall limitation on meal expenses to their employer.

When contributions are made to a traditional IRA, they are deductible by the participant. Later distributions from the IRA upon retirement are fully taxed.

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.

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