South western federal taxation 2018 individual income taxes 41st edition hoffman test bank

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses 1. One indicia of independent contractor (rather than employee) status is when the individual performing the services is paid based on time spent (rather than on tasks performed). a. True b. False ANSWER: False What is described is a criterion for employee classification.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

2. In some cases it may be appropriate for a taxpayer to report work-related expenses by using both Form 2106 and Schedule C. a. True b. False ANSWER: True A taxpayer with two jobs may be both an employee (Form 2106) and self-employed RATIONALE: (Schedule C).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

3. The IRS will issue advanced rulings as to whether a worker’s status is that of an employee or an independent contractor. a. True b. False ANSWER: True A ruling from the IRS can be obtained by filing Form SS–8.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

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

Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses a. True b. False ANSWER: RATIONALE:

False Because Jake does not provide his own helper and tools, this indicates that he is probably not an independent contractor.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

5. A statutory employee is not a common law employee but is subject to Social Security tax. a. True b. False ANSWER: True A statutory employee is subject to Social Security tax.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

6. For tax purposes, a statutory employee is treated the same as a common law employee. a. True b. False ANSWER: False Among other differences, statutory employees claim their expenses as deductions for AGI on RATIONALE: Schedule C.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

7. 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. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

8. The work-related expenses of an independent contractor will be subject to the 2%-of-AGI floor. a. True b. False ANSWER: False The expenses are deductions for AGI. Only certain itemized deductions are subject to the 2% RATIONALE: limitation.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 IITX.SWFT.LO: 9-11 - LO: 9-11 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

9. After she finishes working at her main job, Ann returns home, has dinner, then drives to her second job. Ann may deduct the mileage between her first and second job. a. True b. False ANSWER: True The deduction is based on the mileage between the first and the second job.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

10. A taxpayer who maintains an office in the home to conduct his only business will not have nondeductible commuting expense. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses NATIONAL STANDARDS: STATE STANDARDS: KEYWORDS: OTHER:

United States - BUSPORG: Comprehension - BUSPORG:Comprehension United States - AK - AICPA: FN-Reporting Bloom's: Comprehension Time: 2 min.

11. After the automatic mileage rate has been set by the IRS for a year, it cannot later be changed by the IRS. a. True b. False ANSWER: False In the past and because of rising fuel costs, the IRS has raised the rates in midyear.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

12. In choosing between the actual expense method and the automatic mileage method, a taxpayer should consider the cost of insurance on the automobile. a. True b. False ANSWER: True If taxpayer lives and works in a metropolitan area and a significant commute is involved, car RATIONALE: insurance premiums could be quite costly.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

13. A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of tolls and parking. a. True b. False ANSWER: True Such costs are deductible under both methods.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses STATE STANDARDS: KEYWORDS: OTHER:

United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Bloom's: Knowledge Time: 2 min.

14. A deduction for parking and other traffic violations incurred during business use of the automobile is allowed under the actual cost method but not the automatic mileage method. a. True b. False ANSWER: False No such deduction is allowed under either method.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

15. 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. a. True b. False ANSWER: True An adjustment to the basis of the automobile will have to be made for the depreciation RATIONALE: deemed taken under the automatic mileage method.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

16. Once the actual cost method is used, a taxpayer cannot change to the automatic mileage method in a later year. a. True b. False ANSWER: False A change is permitted if MACRS (statutory percentage method) depreciation has not been RATIONALE: used or the § 179 election to expense was not made.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses STATE STANDARDS: KEYWORDS: OTHER:

United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Bloom's: Knowledge Time: 2 min.

17. For tax purposes, “travel” is a broader classification than “transportation.” a. True b. False ANSWER: True Travel expenses include transportation expenses and meals and lodging while away from RATIONALE: home in the pursuit of a trade or business.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

18. 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. a. True b. False ANSWER: False The absence must be a period substantially longer than an ordinary day’s work and must RATIONALE: require rest.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

19. 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. True b. False ANSWER: True RATIONALE: This could be the case of a long-haul truck driver where his tax home goes with him.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses STATE STANDARDS: KEYWORDS: OTHER:

United States - AK - AICPA: FN-Reporting Bloom's: Comprehension Time: 2 min.

20. 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). a. True b. False ANSWER: False Marvin’s tax home is where his principal job is located. This is determined by considering RATIONALE: numerous factors, among which are the level of income earned and the amount of time spent. Thus, it is incorrect to resolve the tax home issue without more facts.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

21. A taxpayer who lives and works in Kansas City is sent to Chicago on an eight-day business trip. While in Chicago, taxpayer uses the hotel valet service to have some laundry done. The valet charge is a nondeductible personal travel expense. a. True b. False ANSWER: False Valet service is part of the travel expense deduction.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

22. The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of employment that exceeds one year. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses STATE STANDARDS: KEYWORDS: OTHER:

United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Bloom's: Knowledge Time: 2 min.

23. A taxpayer who lives and works in Tulsa travels to Buffalo for five days. If three days are spent on business and two days are spent on visiting relatives, only 60% of the airfare is deductible. a. True b. False ANSWER: False For domestic mixed travel (i.e., both business and personal), no allocation of transportation is RATIONALE: required.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

24. 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. a. True b. False ANSWER: True Bob meets the seven-days-or-less exception.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

25. Eileen lives and works in Mobile. She travels to Rome for an eight-day business meeting, after which she spends two days touring Italy. All of Eileen’s airfare is deductible. a. True b. False ANSWER: True Eileen meets the less-than-25%-personal-time exception.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

26. Liam just graduated from college. Because it is his first job, the cost of moving his personal belongings from his parents’ home to the job site does not qualify for the moving expense deduction. a. True b. False ANSWER: False There is no prohibition against claiming moving expenses if the first job is involved.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

27. Sick of her 65 mile daily commute, Edna purchases a condo that is only four miles from her job. Edna’s moving expenses to her new condo are not allowed and cannot be claimed by her as a deduction. a. True b. False ANSWER: True Edna does not have qualified moving expenses since she did not change job locations.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

28. In November 2017, Katie incurs unreimbursed moving expenses to accept a new job. Katie cannot deduct any of these expenses when she timely files her 2017 income tax return since she has not yet satisfied the 39-week time test. a. True b. False ANSWER: False The deduction can be claimed even if the time test has not yet been met.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses KEYWORDS: OTHER:

Bloom's: Comprehension Time: 2 min.

29. In May 2017, after 11 months on a new job, Ken is fired after he assaults a customer. Ken must include in his gross income for 2017 any deduction for moving expenses he may have claimed on his 2016 tax return. a. True b. False ANSWER: False Since Ken worked for 11 months, he has already satisfied the 39-week time test.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

30. A moving expense deduction is allowed even if at the time of the move the taxpayer did not have a job at the new location. a. True b. False ANSWER: True As long as the taxpayer ultimately satisfies the time test, it does not matter when the work RATIONALE: assignment is obtained.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

31. Kelly, an unemployed architect, moves from Boston to Phoenix to accept a job as a chef at a restaurant. Kelly’s moving expenses are not deductible because her new job is in a different trade or business. a. True b. False ANSWER: False For moving expenses to be deductible, a taxpayer need not remain in the same trade or RATIONALE: business.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses KEYWORDS: OTHER:

Bloom's: Knowledge Time: 2 min.

32. Alexis (a CPA) sold her public accounting practice in Des Moines and accepted a job with the Seattle office of a national accounting firm. Her moving expenses are not deductible because she has changed employment status (i.e., went from self-employed to employee). a. True b. False ANSWER: False The change does not matter for purposes of the moving expense deduction.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 5 min.

33. Qualified moving expenses include the cost of lodging but not meals during the move. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

34. Qualified moving expenses of an employee that are not reimbursed are a deduction for AGI. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

35. At age 65, Camilla retires from her job in Boston and moves to Florida. As a retiree, she is not subject to the time test in deducting her moving expenses. a. True Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses b. False ANSWER: False Camilla is not an expatriate and does not come under that exception.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 IITX.SWFT.LO: 9-11 - LO: 9-11 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

36. After completing an overseas assignment in Oslo (Norway), Daniel retires from Pelican Corporation and moves to a retirement community in Key West (Florida). Daniel’s moving expenses from Oslo to Key West are deductible as they are exempt from the time test. a. True b. False ANSWER: True A special exception for retiring expatriates applies.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 IITX.SWFT.LO: 9-11 - LO: 9-11 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

37. An education expense deduction may be allowed even if the education results in a promotion or pay raise for the employee. a. True b. False ANSWER: True There is no prohibition as to this result in deducting education expenses.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

38. 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. a. True Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses b. False ANSWER: RATIONALE:

False A deduction might be available under the § 222 qualified tuition for higher education provision. Here, it does not matter that a new skill is being acquired.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

39. Under the right circumstances, a taxpayer’s meals and lodging expense can qualify as a deductible education expense. a. True b. False ANSWER: True If the education involves the taxpayer being away from home (i.e., in travel status).

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

40. There is no cutback adjustment for meals and entertainment as to employees who are subject to regulation by the U.S. Department of Transportation. a. True b. False ANSWER: False The cutback adjustment applies, but at a reduced rate.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

41. Mallard Corporation pays for a trip to Aruba for its two top salespersons. This expense is subject to the cutback adjustment. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses RATIONALE:

The cost of the trips to Aruba are additional compensation to the employees involved.

Consequently, they are not subject to the cutback adjustment and are fully deductible by Mallard Corporation. They are also taxed as income to the employees.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

42. 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 cutback adjustment. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

43. 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% cutback adjustment) per ticket is deductible. a. True b. False ANSWER: True $60 ($120 × 50% cutback adjustment) per ticket is deductible.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

44. Ethan, a bachelor with no immediate family, uses the Pine Shadows Country Club exclusively for his business entertaining. All of Ethan’s annual dues for his club membership are deductible. a. True b. False ANSWER: False Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses Dues to country clubs are not deductible.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

45. Jackson gives his supervisor and her husband each a $30 box of chocolates at Christmas. Jackson may claim only $25 as a deduction. a. True b. False ANSWER: False As gifts to supervisors and spouses are not deductible, Jackson has no deduction.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

46. On their birthdays, Lily sends gift certificates (each valued at $25) to Caden (a key client) and to each of Caden’s two minor children. Lily can deduct only $25 as to these gifts. a. True b. False ANSWER: True These gifts will be aggregated in applying the $25 limit.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

47. Travis holds rights to a skybox (containing 10 seats) at Memorial Stadium which he uses to entertain key clients. At one sporting event, he took only six clients since three were ill. Even so, Travis may still deduct the appropriate cost of all ten seats. a. True b. False ANSWER: True Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

48. In the case of an office in the home deduction, the exclusive business use test does not apply when the home is used as a daycare center. a. True b. False ANSWER: True Mixed use (i.e., business and personal) of the home is permitted in daycare situations.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

49. If a taxpayer does not own a home but rents an apartment, the office in the home deduction is not available. a. True b. False ANSWER: False The only difference would be a substitution of rent expense for depreciation. Otherwise, the RATIONALE: deduction is equally available.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

50. A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction. a. True b. False ANSWER: False The office in the home deduction will be allowed if the taxpayer is self-employed.

RATIONALE: POINTS: 1 DIFFICULTY: Easy Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

51. Under the regular (actual expense) method, the portion of the office in the home deduction that exceeds the income from the business can be carried over to future years. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

52. For tax year 2016, Taylor used the simplified method of determining her office in the home deduction. For 2017, Taylor must continue to use the simplified method and cannot switch to the regular (actual expense) method. a. True b. False ANSWER: False RATIONALE: A new choice is available each year. Taylor cannot, however, change the choice she made for 2016.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension United States - AK - AICPA: FN-Measurement STATE STANDARDS: AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehensive OTHER: Time: 2 min.

53. Under the simplified method, the maximum office in the home deduction allowed is the greater of $1,500 or the office square feet × $5. a. True b. False ANSWER: False RATIONALE: The deduction is office square feet x $5 but not to exceed $1,500 or the net income from the business.

POINTS: 1 DIFFICULTY: Easy Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension United States - AK - AICPA: FN-Measurement STATE STANDARDS: AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

54. If the cost of uniforms is deductible, their maintenance cost (e.g., laundry, dry cleaning, alterations) also is deductible. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

55. Tired of renting, Dr. Smith buys the academic robes she will wear at her college’s graduation procession. The cost of this attire does not qualify as a uniform expense. a. True b. False ANSWER: False These robes do qualify as they are not adaptable for ordinary wear.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

56. Frank, a recently retired FBI agent, pays job search expenses to obtain a position with a city police department.

Frank’s job search expenses do qualify as deductions. a. True b. False ANSWER: True It appears that Frank is seeking a job in the same trade or business (i.e., law enforcement).

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses STATE STANDARDS: KEYWORDS: OTHER:

United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Bloom's: Comprehension Time: 2 min.

57. After graduating from college with a degree in chemistry, Alberto obtains a job as a chemist with DuPont. Alberto’s job search expenses qualify as deductions. a. True b. False ANSWER: False Job search expenses incurred in obtaining the first job are not deductible.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

58. Qualifying job search expenses are deductible even if the taxpayer does not change jobs. a. True b. False ANSWER: True No job change requirement exists.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

59. Madison is an instructor of fine arts at a local community college. If she spends $600 (not reimbursed) on art supplies for her classes, $250 of this amount can be claimed as a deduction for AGI. a. True b. False ANSWER: False The $250 special rule for school supplies applies only to elementary and secondary school RATIONALE: teachers.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses KEYWORDS: OTHER:

Bloom's: Knowledge Time: 2 min.

60. Both traditional and Roth IRAs possess the advantage of tax-free accumulation of income within the plan. a. True b. False ANSWER: True In the case of a traditional IRA, however, the income will be taxed when distributed to the RATIONALE: participant.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-08 - LO: 9-08 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

61. When contributions are made to a traditional IRA, they are deductible by the participant. Later distributions from the IRA upon retirement are fully taxed. a. True b. False ANSWER: True Contributions are deductible, while distributions are taxable.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-08 - LO: 9-08 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

62. By itself, credit card receipts will not constitute adequate substantiation for travel expenses. a. True b. False ANSWER: True The credit card receipts establish the date, place, and amount of the expenditure. Because RATIONALE: neither the business relationship nor the business purpose is established, the substantiation is incomplete.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-09 - LO: 9-09 IITX.SWFT.LO: 9-11 - LO: 9-11 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses KEYWORDS: OTHER:

Bloom's: Knowledge Time: 2 min.

63. The Federal per diem rates that can be used for “deemed substantiated” purposes are the same for all locations in the country. a. True b. False ANSWER: False The Federal per diem rates are different for different locations in the United States.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-09 - LO: 9-09 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

64. For self-employed taxpayers, travel expenses are not subject to the 2%-of-AGI floor. a. True b. False ANSWER: True For self-employed taxpayers, travel expenses are deductions for adjusted gross income. The RATIONALE: 2%-of-AGI floor applies only to certain deductions from AGI, such as unreimbursed employee expenses.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-10 - LO: 9-10 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

65. A taxpayer who claims the standard deduction will not avoid the 2%-of-AGI floor on unreimbursed employee expenses. a. True b. False ANSWER: False The 2%-of-AGI floor applies only to miscellaneous itemized deductions. A taxpayer who RATIONALE: claims the standard deduction will not be itemizing.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-10 - LO: 9-10 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses KEYWORDS: OTHER:

Bloom's: Comprehension Time: 2 min.

66. Employees who render an adequate accounting to the employer and are fully reimbursed will shift the 50% cutback adjustment to their employer. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 IITX.SWFT.LO: 9-09 - LO: 9-09 IITX.SWFT.LO: 9-11 - LO: 9-11 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

67. Aiden performs services for Lucas. Which, if any, of the following factors indicate that Aiden is an employee, rather than an independent contractor? a. Aiden provides his own support services (e.g., work assistants). b. Aiden obtained his training (i.e., job skills) from his father. c. Aiden is paid based on hours worked. d. Aiden makes his services available to others. e. None of these.

ANSWER: c Choices a., b., and d. reflect independent contractor status.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

68. Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent contractor, rather than an employee? a. Ryan sets the work schedule. b. Ryan provides the tools used. c. Jordan files a Form 2106 with his Form 1040. d. Jordan is paid based on tasks performed. e. None of these.

ANSWER: d Choices a., b., and c. reflect employee status.

RATIONALE: Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

69. Which, if any, of the following factors is not a characteristic of independent contractor status? a. Work-related expenses are reported on Form 2106. b. Receipt of a Form 1099 reporting payments received. c. Workplace fringe benefits are not available. d. Services are performed for more than one party. e. None of these.

ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 IITX.SWFT.LO: 9-10 - LO: 9-10 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

70. A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons: a. Avoids the cutback adjustment as to business meals. b. All of the self-employment tax is deductible for income tax purposes. c. Work-related expenses are not subject to the 2%-of-AGI floor. d. A Schedule C does not have to be filed. e. None of these.

ANSWER: c Independent contractors are also subject to the cutback adjustment (choice a.). All of the selfRATIONALE: employment tax is not deductible (choice b.). Because all work-related expenses are deductions for AGI, the 2%-of-AGI reduction is avoided (choice c.). Work-related expenses will have to be reported on Schedule C (choice d.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 IITX.SWFT.LO: 9-11 - LO: 9-11 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses 71. A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons: a. To claim unreimbursed work-related expenses as a deduction for AGI. b. To avoid the self-employment tax. c. To avoid the cutback adjustment on unreimbursed business entertainment expenses. d. To avoid the 2%-of-AGI floor on unreimbursed work-related expenses. e. None of these.

ANSWER: b The self-employment tax is twice the Social Security equivalent imposed on employees RATIONALE: (choice b.). Most unreimbursed employee expenses are deductions from AGI (choice a.) and will be subject to the 2%-of-AGI adjustment (choice d.). Unreimbursed entertainment expenses will be subject to the cutback adjustment (choice c.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 IITX.SWFT.LO: 9-11 - LO: 9-11 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

72. Statutory employees: a. Report their expenses on Form 2106. b. Include common law employees. c. Are subject to income tax withholdings. d. Claim their expenses as deductions for AGI. e. None of these.

ANSWER: d Their expenses are reported on Schedule C, not Form 2106 (choice a.). Although subject to RATIONALE: Social Security tax, they are not subject to income tax withholdings (choice c.). Statutory employees are not common law employees (choice b.). Expenses are deductions for AGI (choice d.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 5 min.

73. Corey is the city sales manager for “RIBS,” a national fast food franchise. Every working day, Corey drives his car as follows: Home to office Office to RIBS No. 1 RIBS No. 1 to No. 2

Miles 20 15 18

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses RIBS No. 2 to No. 3 RIBS No. 3 to home

13 30

Corey’s deductible mileage is: a. 0 miles. b. 50 miles. c. 66 miles. d. 76 miles. e. None of these.

ANSWER: e 15 miles + 18 miles + 13 miles = 46 miles. The mileage for driving from his home to the office RATIONALE: (20 miles) and from the last worksite to home (30 miles) is not deductible.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

74. Amy works as an auditor for a large major CPA firm. During the months of September through November of each year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her home to Garnet and returns home after work. Mileage is as follows: Home to office Home to Garnet Office to Garnet

Miles 10 30 35

For these three months, Amy’s deductible mileage for each workday is: a. 0. b. 30. c. 35. d. 60. e. None of these.

ANSWER: d The round trip from home to Garnet (at temporary job site) of 60 miles (30 miles × 2) is the RATIONALE: mileage that is deductible.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses 75. Aaron is a self-employed practical nurse who works out of his home. He provides nursing care for disabled persons living in their residences. During the day he drives his car as follows.

Aaron’s home to patient Louise Patient Louise to patient Carl Patient Carl to patient Betty Patient Betty to Aaron’s home

Miles 12 4 6 10

Aaron’s deductible mileage for each workday is: a. 10 miles. b. 12 miles. c. 20 miles. d. 22 miles. e. 32 miles.

ANSWER: e Since Aaron’s office is in his home, he has no nondeductible commuting mileage—all of the RATIONALE: mileage is deductible.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

76. When using the automatic mileage method, which, if any, of the following expenses also can be claimed? a. Engine tune-up. b. Parking. c. Interest on automobile loan. d. MACRS depreciation. e. None of these.

ANSWER: b Choices a., c., and d. would be allowed under the actual cost method.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

77. In which, if any, of the following situations is the automatic mileage available? a. A limousine to be rented by the owner for special occasions (e.g., weddings, high school proms). b. The auto belongs to taxpayer’s mother.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses c. One of seven cars used to deliver pizzas. d. MACRS statutory percentage method has been claimed on the automobile. e. None of these.

ANSWER: e Multiple vehicles (5 or more) cannot qualify (choice c.) nor can vehicles held for hire (choice RATIONALE: a.). The car must be owned or leased by the taxpayer (choice b.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

78. Under the actual cost method, which, if any, of the following expenses will not be allowed? a. Car registration fees. b. Auto insurance. c. Interest expense on a car loan (taxpayer is an employee). d. Dues to auto clubs. e. All of these will be allowed.

ANSWER: c Interest on a car loan is deductible only by a self-employed taxpayer (not an employee)— RATIONALE: choice c. (This assumes the car financing is not handled with a home equity loan—see Chapter 10.)

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

79. Dave is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City. When the company opens new stores in Boise, Dave is given the task of supervising their initial operation. For three months, he works weekdays in Boise and returns home on weekends. He spends $350 returning to Salt Lake City but would have spent $410 had he stayed in Boise for the weekend. As to the weekend trips, how much, if any, qualifies as a deduction? a. $0, since the trips are personal and not work related. b. $0, since Dave’s tax home has changed from Salt Lake City to Boise. c. $60 d. $350 e. $410 ANSWER: d Dave’s assignment in Boise is temporary, so his tax home has not changed (choice b.).

RATIONALE: Dave’s deduction is limited to the lesser of what he actually spent and what he would have

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses spent had he not returned home (choice d.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

80. Allowing for the cutback adjustment (50% reduction for meals and entertainment), which of the following trips, if any, will qualify for the travel expense deduction? a. Dr. Jones, a general dentist, attends a two-day seminar on developing a dental practice. b. Dr. Brown, a surgeon, attends a two-day seminar on financial planning. c. Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving his language skills. d. Myrna went on a two-week vacation in Boston. While there, she visited her employer’s home office to have lunch with former co-workers. e. All of these.

ANSWER: a POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 5 min.

81. During the year, John went from Milwaukee to Alaska on business. Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are: Air fare Lodging Meals Entertainment

$3,200 900 800 600

Presuming no reimbursement, deductible expenses are: a. $3,200. b. $3,900. c. $4,800. d. $5,500. e. None of these.

ANSWER: c $3,200 + $900 + $700 [50%($800 + $600)] = $4,800. No allocation is required for domestic RATIONALE: transportation costs (i.e., the airfare) since the trip is primarily business related.

POINTS:

1

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

82. During the year, Sophie went from Omaha to Lima (Peru) on business. She spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Sophie’s unreimbursed expenses are: Air fare Lodging Meals Entertainment

$3,000 800 600 400

Sophie’s deductible expenses are: a. $4,300. b. $3,100. c. $2,800. d. $2,500. e. None of these.

ANSWER: b RATIONALE: $1,800 [60% (6 days business/10 day trip) × $3,000 (air fare)] + $800 + $500 [50%($600 + $400)] = $3,100. The air fare has to be allocated as Sophie did not meet either the seven days (or less) or less than 25% personal use exceptions for foreign travel.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

83. During the year, Walt travels from Seattle to Tokyo (Japan) on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion): Air fare Lodging Meals and entertainment

$3,000 2,000 1,000

Presuming no reimbursement, Walt’s deductible expenses are: a. $3,500. b. $4,500. c. $5,500.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses d. $6,000. e. None of these.

ANSWER: RATIONALE:

c $3,000 + $2,000 + (50% × $1,000) = $5,500 . Since the 7-days-or-less exception applies, the full airfare ($3,000) is allowed.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

84. In terms of meeting the distance test for purposes of deducting moving expenses, which of the following statements is correct? a. The taxpayer’s new job location must be at least 50 miles away from the old job. b. The taxpayer’s new residence must be at least 50 miles away from the new job. c. The taxpayer’s new residence must be at least 50 miles away from the old residence. d. The taxpayer’s new job location must be at least 50 miles farther from the old residence than the old residence was to the old job. e. None of these.

ANSWER: d The distance comparison is between the old residence to the old job and old residence to RATIONALE: new job (choice d.). In this regard, the location of the new residence is immaterial (choices b. and c.), as is the distance between the old and new jobs (choice a.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

85. As to meeting the time test for purposes of deducting moving expenses, which of the following statements is correct? a. Work at the new location must involve a full-time job—part-time job will not suffice. b. The taxpayer has two years in which to satisfy the 39-weeks or 78-weeks requirement. c. The time test is waived for persons whose move follows retirement. d. The moving expense deduction cannot be claimed if the taxpayer has not yet met the time test. e. None of these.

ANSWER: a Full-time status (not part-time) is required (choice a.). The two-year limitation applies only to RATIONALE: the 78-week option—twelve months is required for the 39-week option (choice b.). The retirement waiver applies only to expatriates (choice c.).

POINTS:

1

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

86. Due to a merger, Allison transfers from Miami to Chicago. Under a new job description, she is reclassified from employee to independent contractor status. Her moving expenses, which are not reimbursed, are as follows: Transportation Meals Lodging Cost of moving household goods Penalty for breaking lease on Miami apartment

$1,400 400 500 4,000 3,000

Allison’s deductible moving expense is: a. $0. b. $5,900. c. $6,100. d. $8,900. e. $9,300.

ANSWER: b $1,400 (transportation) + $500 (lodging) + $4,000 (moving household goods) = $5,900 RATIONALE: (choice b.). Meals are not qualified moving expenses (choices c. and e.) nor are penalties for breaking a lease (choices d. and e.). It is immaterial that Allison’s status as an employee changed to that of an independent contractor (choice a.).

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-04 - LO: 9-04 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

87. Rachel is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI approximates $50,000. During the year, she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $4,100 (tuition), $300 (books), $200 (other school supplies), and $200 (transportation to and from campus). Disregarding the 2%-of-AGI limitation, as to the MBA program, Rachel has a: a. Deduction for and deduction from AGI of $0. b. Deduction for AGI of $4,000 and deduction from AGI of $800. c. Deduction for AGI of $4,000 and deduction from AGI of $700. d. Deduction for AGI of $4,100 and deduction from AGI of $700. e. None of these.

ANSWER: b Section 222 allows up to $4,000 for qualified tuition and related expenses. As Rachel spent RATIONALE: Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses $4,100, she can claim only $4,000 as a deduction for AGI. The remaining expenses of $800 ($100 + $300 + $200 + $200) can be claimed as deductions from AGI.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

88. The § 222 deduction for tuition and related expenses is available: a. Only if the taxpayer itemizes deductions from AGI. b. To deduct that portion of the tuition in excess of that allowed under the lifetime learning credit. c. To cover the tuition of a son who does not qualify as taxpayer’s dependent. d. Only if job related. e. None of these.

ANSWER: e The § 222 deduction is a deduction for AGI (choice a.). The deduction is not available when RATIONALE: the lifetime learning credit is used (choice b.). The student involved is not a dependent of the taxpayer (choice c.). The education need not be job related (choice d.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Comprehension OTHER: Time: 2 min.

89. The § 222 deduction for tuition and related expenses is available: a. Regardless of the amount of a taxpayer’s MAGI. b. To cover room and board expenses to attend college. c. To a married taxpayer filing a separate return. d. Even if a taxpayer does claim the standard deduction. e. None of these.

ANSWER: d No deduction at all is allowed if the taxpayer has AGI in excess of $80,000 ($160,000 in the RATIONALE: case of a joint return) (choice a.). Section 222 does not cover room and board (choice b.). In order to claim a deduction under § 222, a married taxpayer must file a joint return (choice c.).

Since § 222 provides for a deduction for AGI, it does not matter if a taxpayer claims the standard deduction.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses STATE STANDARDS: KEYWORDS: OTHER:

United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Bloom's: Comprehension Time: 5 min.

90. Which, if any, of the following is subject to a cutback adjustment? a. An airline pilot for an executive jet rental company who pays his own travel expenses. b. Meals provided at cost to employees by a cafeteria funded by the employer. c. Fourth of July company picnic for employees. d. A trip to Bermuda awarded to the company’s top salesperson. e. None of these.

ANSWER: a Although a reduced rate is in effect, the cutback adjustment still applies to persons subject to RATIONALE: regulation by the U.S. Department of Transportation.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 5 min.

91. Robert entertains several of his key clients on January 1 of the current year. Expenses paid by Robert are as follows: Cab fare Cover charge at supper club Dinner at club Tips to waiter

$ 60 200 800 160

Presuming proper substantiation, Robert’s deduction is: a. $610. b. $640. c. $740. d. $1,220. e. None of these.

ANSWER: b RATIONALE: $60 + [50% × ($200 + $800 + $160)] = $640.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses 92. Tracy, the regional sales director for a manufacturer of exercise equipment, pays $2,500 to rent a skybox for a visiting performance of the Harlem Globetrotters. The skybox holds 10 seats, and Tracy invites 7 clients to the event. Nonluxury seats range in price from $80 to $120. The refreshments provided during the event cost $600. If Tracy meets all of the requirements for deductibility (i.e., business discussion, substantiation), she may deduct: a. $900. b. $1,100. c. $1,260. d. $1,500. e. $1,550.

ANSWER: a 50% × [(10 × $120) + $600] = $900.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

93. Ralph made the following business gifts during the year.

To Robert (a key client) at Christmas To Angel (Robert’s 8-year old daughter) on her birthday To Art (Ralph’s secretary) on his birthday ($3 was for gift wrapping) To Paige (Ralph’s boss) at Christmas

$50 20 30 40

Presuming proper substantiation, Ralph’s deduction is: a. $0. b. $53. c. $73. d. $78. e. $98.

ANSWER: b $25 (Robert) + $28 (Art) = $53. The gift to Angel counts as a gift to Robert (whose $25 limit RATIONALE: already has been reached). Gifts to superiors (Paige) cannot be deducted.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

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

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses a. No depreciation on the personal residence has to be computed. b. The exclusive use requirement does not have to be met. c. Allows the expense to be classified as a deduction for AGI. d. Can also be used for a residence that is rented (not owned) by the taxpayer. e. None of these.

ANSWER: a RATIONALE: The exclusive use requirement (choice b.) always has to be met for an office in the home deduction to be available. The method chosen for arriving at the deduction has no relevance to how it is classified (i.e., deduction for or from AGI)--choice c. Either the simplified method or the regular method can be used for rented property (choice d.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension United States - AK - AICPA: FN-Measurement STATE STANDARDS: AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

95. Which of the following expenses, if any, qualify as deductible? a. Contributions to a Coverdell Education Savings Account (CESA). b. Contributions to a qualified tuition program (§ 529 plan). c. Job hunting expense of FBI agent who applies for the job of city manager of Beaumont (TX). d. Contribution to a traditional IRA. e. None of these.

ANSWER: d Although the benefits paid out are nontaxable, neither the contribution to CESAs (choice a.)

RATIONALE: nor § 529 plans (choice b.) are deductible. Since being an FBI agent and a city manager do not appear to be in the same trade or business (law enforcement), the job hunting expense does not qualify (choice c.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 IITX.SWFT.LO: 9-07 - LO: 9-07 IITX.SWFT.LO: 9-08 - LO: 9-08 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Comprehension OTHER: Time: 5 min.

96. Which, if any, of the following expenses is subject to the 2%-of-AGI floor? a. Qualified tuition expenses under § 222. b. Contribution to traditional IRA. c. Cost of a CPA exam review course—taxpayer just began employment with an accounting firm. d. Office in the home deduction for a self-employed taxpayer. e. None of these.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses ANSWER: e Choices a., b., and d. are deductions for AGI. Choice c. is not deductible.

RATIONALE: POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-10 - LO: 9-10 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

97. Which, if any, of the following expenses is subject to the 2%-of-AGI floor? a. Gambling losses (to the extent of gambling gains). b. Moving expenses (not reimbursed by employer). c. Teaching supplies (in excess of $250) purchased by a fifth grade teacher. d. Union dues of self-employed machinist. e. None of these.

ANSWER: c Moving expenses and teaching supplies (up to $250) are deductions for AGI (choice b.).

RATIONALE: Likewise, the union dues of a self-employed taxpayer are classified as a deduction for AGI. Gambling losses are miscellaneous itemized deductions but are not subject to the 2% adjustment (choice a.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-10 - LO: 9-10 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Reporting KEYWORDS: Bloom's: Knowledge OTHER: Time: 2 min.

98. Which, if any, of the following expenses are not subject to the 2%-of-AGI floor? a. Safety shoes purchased by an plumber employed by a company. b. Reimbursed employee expenses. Taxpayer-employee renders an adequate accounting to the employer. c. Unreimbursed employee expenses. d. Tax return preparation fee paid by a non-employed retiree. e. None of these.

ANSWER: b Being employed, all job-related expenses are deductions from AGI (choice a.). All employee RATIONALE: expenses, unless reimbursed pursuant to an adequate accounting, are subject to the 2%-ofAGI floor (choices a. and c.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 IITX.SWFT.LO: 9-10 - LO: 9-10 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses KEYWORDS: OTHER:

AICPA: FN-Measurement Bloom's: Knowledge Time: 5 min.

99. 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 2106. c. Form W-2. d. Schedule A of Form 1040. e. None of these.

ANSWER: a Form 2106 is used by those employees who do not account to their employer(s) or are not RATIONALE: wholly reimbursed (choice b.). Schedule C is used to list the job-related income and expenses of self-employed taxpayers (choice a.). Form W-2 reports the wages earned by employees (choice c.). Income earned by self-employed persons is often shown on Form 1099. The results of Form 2106 (see choice b.) are transferred to Schedule A (choice d.)

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 IITX.SWFT.LO: 9-09 - LO: 9-09 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge OTHER: Time: 3 min.

100. One of the tax advantages of being self-employed (rather than being an employee) is: a. The self-employment tax is lower than the Social Security tax. b. The cutback adjustment does not apply. c. The actual cost method for deducting the business use of an automobile can be selected. d. Job-related expenses are deductions for AGI. e. A deduction for an office in the home is available.

ANSWER: d The self-employment tax is double what the employee pays (choice a.). The cutback RATIONALE: adjustment also applies to self-employed taxpayers (choice b.). Job-related expenses are reported on Schedule C (rather than Schedule A) which results in deduction-for-AGI treatment (choice d.). The actual cost method and the deduction for office in the home are equally available to both employees and self-employed persons (choices c. and e.).

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-01 - LO: 9-01 IITX.SWFT.LO: 9-09 - LO: 9-09 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Knowledge Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses OTHER:

Time: 3 min.

101. Meredith holds two jobs and attends graduate school on weekends. The education improves her skills, but does not qualify her for a new trade of business. Before going to the second job, she returns home for dinner. Relevant mileage is as follows: Home to first job First job to second job Home to second job Home to university

9 miles 13 miles 15 miles 7 miles

How much of the mileage qualifies for deduction purposes?

ANSWER: 27 miles. The mileage from the first job to the second job, 13 miles, qualifies. Also, round trip mileage to the university (14 miles) can be claimed if the education Meredith is obtaining is deductible.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

102. Paul is employed as an auditor by a CPA firm. On most days, he commutes by auto from his home to the office.

During one month, however, he has an extensive audit assignment closer to home. For this engagement, Paul drives directly from home to the client’s premises and back. Mileage information is summarized below: Home to office Office to audit client Audit client to home

12 miles 15 miles 10 miles

If Paul spends 20 days on the audit, what is his deductible mileage?

ANSWER: 400 miles [20 miles (each day) × 20 days].

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

103. During 2017, Eva used her car as follows: 12,000 miles (business), 1,400 miles (commuting), and 4,000 miles (personal). In addition, she spent $440 for tolls (business) and $620 for parking (business). If Eva uses the automatic mileage method, what is the amount of her deduction?

ANSWER: $7.480. (12,000 miles × $0.535) + $440 + $620 = $7,480.

POINTS: 1 Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

104. Elsie lives and works in Detroit. She is the regional sales manager for a national fast-food chain. Due to unusual developments, she is compelled to work six straight weeks in the Cleveland area. Instead of spending the weekend there, she flies home every Friday night and returns early Monday morning. The cost of coming home for the weekend approximates $600. Had she stayed in Cleveland, deductible meals and lodging would have been $700. How much, if any, may Elsie deduct as to each weekend?

ANSWER: $600 for each weekend, the lesser of the $600 cost of returning home or the $700 cost of staying in Cleveland.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

105. Alfredo, a self-employed patent attorney, flew from his home in Chicago to Miami, had lunch alone at the airport, conducted business in the afternoon, and returned to Chicago in the evening. His expenses were as follows: Airfare Airport parking (Chicago) Lunch Taxis (Miami)

$900 60 30 42

What is Alfredo’s deductible expense for the trip?

ANSWER: $1,002 ($900 + $60 + $42). As Alfredo was not away from home, his lunch is not deductible.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

106. Rod uses his automobile for both business and personal use and claims the automatic mileage rate for all purposes.

During 2017, his mileage was as follows:

Personal Copyright Cengage Learning. Powered by Cognero.

Miles Driven 4,000 Page 39

Chapter 09: Deductions: Employee and Self-Employed-Related Expenses Business Qualifying moving expense Medical Charitable Qualifying education (MBA program)

8,000 3,500 1,800 1,500 800

How much can Rod claim for mileage?

ANSWER: $5,819 [(8,800 miles × $0.535, business and education) + (3,500 miles × $0.17, moving) + (1,800 miles × $0.17, medical) + (1,500 miles × $0.14, charitable)].

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-02 - LO: 9-02 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

107. Lily went from her office in Portland to Lisbon, Portugal on business. While there, she spent part of the time on vacation. How much of the air fare of $5,000 can she deduct based on the following assumptions: a. Lily was gone five days (i.e., three business and two personal). b. Lily was gone five weeks (i.e., four business and one personal). c. Lily was gone five weeks (i.e., three business and two personal).

ANSWER: a. $5,000. b. $5,000. c. $3,000. (60% × $5,000).

Transportation costs for mixed use (i.e., both business and personal) need not be allocated as long as domestic trips are involved. Such allocation is necessary, however, for foreign trips unless one of two exceptions applies. One exception deals with trips lasting seven days or less and covers part a. (but not part b. or part c.) above. The second exception, less than 25% of the time was for personal use, applies to part b. but not to part c. Thus, in part b. no allocation is necessary, while in part c. the air fare must be allocated.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

108. Noah moved from Delaware to Arizona to accept a better job. He incurred the following unreimbursed moving expenses: Transportation Lodging Meals in route Penalty for breaking apartment lease Copyright Cengage Learning. Powered by Cognero.

$3,000 400 500 1,000 Page 40

Chapter 09: Deductions: Employee and Self-Employed-Related Expenses Forfeiture of athletic club membership Moving company cost

500 7,000

What is Noah’s moving expense deduction?

ANSWER: $10,400 ($3,000 + $400 + $7,000). Meals ($500), lease penalty ($1,000), and membership forfeiture ($500) are not qualifying moving expenses.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

109. After graduating from college, Clint obtained employment in Omaha. In moving from his parents’ home in Baltimore to Omaha, Clint incurred the following expenses: Transportation Meals Lodging Cost of moving household goods

$ 700 380 400 3,500

a. b.

How much may Clint deduct as moving expense?

Would any deduction be allowed if Clint claimed the standard deduction for the year of the move? Explain.

ANSWER: a. $4,600 ($700 + $400 + $3,500). No deduction is allowed for meals. b.

Yes. Moving expenses are deductions for AGI and can be claimed regardless of whether a taxpayer takes the standard deduction or chooses to itemize.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-03 - LO: 9-03 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

110. Arnold is employed as an assistant manager in the furniture division of a national chain of department stores. He is a recent college graduate with a degree in marketing. During 2017, he enrolls in the evening MBA program of a local university and incurs the following expenses: tuition, $4,200; books and computer supplies, $800; transportation expense to and from the university, $450; and meals while on campus, $400. Arnold is single and his annual AGI is $64,000. As to these expenses, what are Arnold’s: a.

Deductions for AGI?

b. Deductions from AGI? ANSWER: a.

$4,000. Although the tuition was $4,200, § 222 imposes a limitation of $4,000.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses b.

$1,450. $200 (excess tuition not allowed under § 222) + $800 (books and computer supplies) + $450 (transportation) = $1,450. No deduction is allowed for meals, since Arnold is not in travel status. Further adjustment will be required due to the 2%-of-AGI limitation on certain itemized deductions.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

111. Cathy takes five key clients to a nightclub and incurs the following costs: $320 limousine rental, $460 cover charge, $920 drinks and dinner, and $200 tips. Several days after the function, Cathy mails each client a pen costing $25. In addition, Cathy pays $4 for gift wrapping and mailing each pen. Assuming adequate substantiation and a business justification, what is Cathy’s deduction?

ANSWER: $1,255. $320 + [($460 + $920 + $200) × 50%] = $1,110. Also allowed are the gifts of $145 (5 × $29). The cost of gift wrapping and mailing each pen ($4) can be added to the maximum amount of gift allowed ($25).

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

112. For the current football season, Tern Corporation pays $40,000 for a skybox (containing 12 seats) at Veterans Stadium for eight home games. Regular nonskybox seats at each game range from $120 to $150 a seat. In November, a Tern employee and ten clients use the skybox to attend a game. The event is preceded by a bona fide business discussion, and Tern spent $1,000 for food and drinks during the game. What is Tern’s deduction?

ANSWER: $1,400. (12 seats × $150) + $1,000 = $2,800 × 50% (cutback adjustment) = $1,400. Even though only ten clients attended, all available seats are considered. The highest cost of a regular seat ($150) is used in the computation.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

113. Brian makes gifts as follows: Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses Recipient Mr. Brown (a client) Mrs. Brown (Mr. Brown’s wife) Ms. Smith (Brian’s receptionist) Mr. Jones (Brian’s boss)

Cost of Gift $27 * 15 30 40

* Includes $2 for gift wrapping Presuming adequate substantiation and no reimbursement, how much may Brian deduct?

ANSWER: $52 ($27 + $25). The deduction for Mr. Brown’s gift can include nominal costs for giftwrapping and engraving. No deduction is allowed for the gift to Mrs. Brown unless she is in a separate business. Otherwise, she falls under the $25 limit applicable to Mr. Brown. The deduction for Ms. Smith’s gift is limited to $25. No deduction is allowed for Brian’s gift to his boss.

POINTS: 1 DIFFICULTY: Easy LEARNING OBJECTIVES: IITX.SWFT.LO: 9-06 - LO: 9-06 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 5 min.

114. In the current year, Bo accepted employment with a Kansas City law firm after graduating from law school. Her expenses for the year are listed below: Cost of bar review course Qualified moving expenses Job hunting expenses Subscriptions to legal journals Membership dues in bar associations State bar dues

$1,500 2,100 1,800 450 620 300

Since Bo worked just part of the year, her salary was only $32,100. In terms of deductions from AGI, how much does Bo have?

ANSWER: $770. AGI is $30,000 [$32,100 (salary) – $2,100 (moving expenses)]. Thus, the 2%-of-AGI floor is $600 ($30,000 × 2%). Qualifying itemized deductions are $1,370 ($450 + $620 + $300). Thus, $1,370 – $600 = $770 is the allowable itemized deduction. No deduction is allowed for the bar review course and the job hunting expenses. In this case, it is apparent that Bo should claim the standard deduction and not itemize.

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-05 - LO: 9-05 IITX.SWFT.LO: 9-07 - LO: 9-07 IITX.SWFT.LO: 9-10 - LO: 9-10 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement Copyright Cengage Learning. Powered by Cognero.

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Chapter 09: Deductions: Employee and Self-Employed-Related Expenses KEYWORDS: OTHER:

Bloom's: Application Time: 10 min.

115. Rocky has a full-time job as an electrical engineer for the city utility. In his spare time, Rocky repairs TV sets in the basement of his personal residence. Most of his business comes from friends and referrals from former customers, although occasionally he runs an ad in the local suburbia newspaper. Typically, the sets are dropped off at Rocky’s house and later picked up by the owner when notified that the repairs have been made.

The floor space of Rocky’s residence is 2,500 square feet, and he estimates that 20% of this is devoted exclusively to the repair business (i.e., 500 square feet). Gross income from the business is $13,000, while expenses (other than home office) are $5,000. Expenses relating to the residence are as follows: Real property taxes Interest on home mortgage Operating expenses of residence Depreciation (based on 20% business use)

$4,500 8,000 3,000 1,000

What is Rocky’s net income from the repair business a. If he uses the regular (actual expense) method of computing the deduction for office in the home? b. If he uses the simplified method?

ANSWER: a. Business income $13,000 Less: Expenses (5,000) Net business income before office in the home expenses $ 8,000 Less: Real property taxes ($4,500 (900) × 20%) Mortgage interest ($8,000 × (1,600) 20%) Operating expenses($3,000 × (600) 20%) Depreciation (1,000) Net income fro m business $ 3,900 b.

Net business income before office in the home expense (see part a. above) Office in the home expense Net income from business *As no more than 300 square feet can be considered, the maximum allowed is $1,500 (300 square feet x $5).

$ 8,000 (1,500) * $ 6,500

POINTS: 1 DIFFICULTY: Moderate LEARNING OBJECTIVES: IITX.SWFT.LO: 9-07 - LO: 9-07 NATIONAL STANDARDS: United States - BUSPORG: Comprehension - BUSPORG:Comprehension STATE STANDARDS: United States - AK - AICPA: FN-Measurement AICPA: FN-Measurement KEYWORDS: Bloom's: Application OTHER: Time: 10 min.

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