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Exam 11: Individuals As Employees and Proprietors

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Question 21

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Carla is a deputy sheriff.Her employer requires that she live in the county where she is employed.Housing is very expensive; so the county agreed to pay her $4,800 per year to cover the higher cost of housing.Carla must include the housing supplement in her gross income.

A) True
B) False

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Question 22

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Carol is self-employed and uses her automobile solely for her business.If she uses the actual expense method to compute expenses, she can include any interest paid on the loan taken out to purchase the car.

A) True
B) False

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Question 23

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For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.

For which of the following situations, if any, is the automatic mileage available?

The tax law specifically provides that a taxpayer cannot be temporarily away from home for any period of employment that exceeds one year.

The work-related expenses of an independent contractor are treated as itemized deductions.

Under the actual cost method, which of the following expenses, if any, will not be allowed?

When using the automatic mileage method, which of the following expenses, if any, also can be claimed?

Matilda works for a company with 1,000 employees.The company has a hospitalization insurance plan that covers all employees.However, the employee must pay the first $3,000 of his or her medical expenses each year.Each year, the employer contributes $1,500 to each employee's health savings account (HSA) .Matilda's employer made the contributions in 2018 and 2019, and the account earned $100 interest in 2019.At the end of 2019, Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy.As a result, Matilda must include in her 2019 gross income:

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 the $6,000 owed on James's credit card.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 toward a nursing home or similar facility.What is James's gross income from the above?

The de minimis fringe benefit:

The taxpayer's marginal federal and state tax rate is 25%.Which would the taxpayer prefer?

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

James has a job that compels him to go to many different states during the year.It is possible that he was never away from his tax home during the year.

For tax year 2019, Taylor used the simplified method of determining her office in the home deduction.For 2020, Taylor must continue to use the simplified method and cannot switch to the regular (actual expense) method.

Ethan, a bachelor with no immediate family, uses Pine Shadows Country Club exclusively for his business entertaining.All of Ethan's annual dues for his club membership are deductible.

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

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

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities but reimburses its employees for the cost of parking in a nearby garage up to $150 per month.

A deduction for parking and other traffic violations incurred during business use of an automobile is allowed under the actual cost method but not the automatic mileage method.