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Exam 11: Individuals As Employees and Proprietors

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Question 71

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Discuss the 2%-of-AGI floor and the 50% cutback limitation in connection with various employee expenses under the following arrangements: a.The employee is not reimbursed by the employer. b.The employee is fully reimbursed under a nonaccountable plan. c.The employee is partially reimbursed under an accountable plan. d.The employee is fully reimbursed under an accountable plan.

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Question 72

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How does the FICA tax compare to the self-employment tax? How are these two taxes similar and how do they differ?

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These taxes, commonly referred to as "pa...

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Question 73

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Match the statements that relate to each other. (Note: Choice L may be used more than once.) -Roth IRAs

Match the statements that relate to each other. (Note: Choice L may be used more than once.) -Education expense that is not deductible to maintain or improve existing skills

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.

Lily went from her office in Portland to Lisbon 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).

An individual is considered an active participant in an employer-sponsored retirement plan merely because an individual's spouse is an active participant for any part of a plan year in applying the IRA phase-out provision.

Sue performs services for Lynn. Regarding this arrangement, use the legend provided to classify each statement. -Sue was trained by Lynn.

If an individual is ineligible to make a deductible contribution to a traditional IRA, nondeductible contributions of any amount can be made to a traditional IRA.

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

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

In terms of IRS attitude, what do the following expenses have in common? a.Cost of a CPA exam review course. b.Cost of a review course for the bar exam. c.Cost of a law degree by a taxpayer who does not intend to practice law.

Ridge is the manager of a motel. As a condition of his employment, Ridge is required to live in a room on the premises so that he would be there in case of emergencies. Ridge considered this a fringe benefit, since he would otherwise be required to pay $800 per month rent. The room that Ridge occupied normally rented for $70 per night, or $2,100 per month. On the average, 90% of the motel rooms were occupied. As a result of this rent-free use of a room, Ridge is required to include in gross income.

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: ​ Sophie's deductible expenses are:

James, a cash basis taxpayer, received the following compensation and fringe benefits in the current year: ​ His actual salary was $72,000. He received only $66,000 because his salary was garnished and the employer paid $6,000 on James's credit card debt he owed. The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled. The long-term care insurance is available to all employees and pays $150 per day towards a nursing home or similar facility. What is James's gross income from the above?

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:

Regarding tax favored retirement plans for employees and self-employed persons, comment on the following: a.The exclusion versus deduction approaches as to contributions by participants. b.Tax-free accumulation of earnings. c.The deferral of income tax consequences. d.Employee versus self-employed status.

Adam repairs power lines for the Egret Utilities Company. He is generally working on a power line during the lunch hour. He must eat when and where he can and still get his work done. He usually purchases something at a convenience store and eats in his truck. Egret reimburses Adam for the cost of his meals.

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