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Exam 17: Individuals As Employees and Proprietors

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Question 51

Multiple Choice

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The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes,provided the privilege is not abused.Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings.The copies made during the year would have cost $150 at a local office supply.

A) Ed must include $150 in his gross income.
B) Ed may exclude the cost of the copies as a no-additional cost fringe benefit.
C) Ed may exclude the cost of the copies only if the organization is a client of Mauve.
D) Ed may exclude the cost of the copies as a de minimis fringe benefit.
E) None of the above.

F) C) and D)
G) B) and D)

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Question 52

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Low- and middle-income taxpayers may make nondeductible contributions up to $4,000 per child per year to a Coverdell Education Savings Account (CESA).

A) True
B) False

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Question 53

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One of the tax advantages of being self-employed (rather than being an employee) is:

Merrill is a participant in a SIMPLE § 401(k) plan,and he elects to contribute 4% of his $40,000 compensation to the account,while his employer contributes 3%.What amount will vest immediately,if any?

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.

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

Mary establishes a Roth IRA at age 50 and contributes the maximum amount per year to the Roth IRA for 15 years.The account is now worth $199,000,consisting of $75,000 in contributions plus $124,000 in accumulated earnings.How much can Mary withdraw tax-free?

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

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.

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.

Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays,when the number of players on the course is at its lowest.Tom,an employee of the country club played 40 rounds of golf during the year at no charge when the non-employee charge was $20 per round.

The taxpayer's marginal tax bracket is 25%.Which would the taxpayer prefer?

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

A U.S.citizen who works in France from February 1,2013 until January 31,2014 is eligible for the foreign earned income exclusion in 2013 and 2014.

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.

Ralph made the following business gifts during the year. Presuming proper substantiation,Ralph's deduction is:

By itself,credit card receipts will not constitute adequate substantiation for travel expenses.

If a taxpayer cansatisfy the three-out-of-five year presumption test associated with hobby losses,then expenses from the activity can be deducted in excess of the gross income from the activity.

Roger is in the 35% marginal tax bracket.Roger's employer has created a flexible spending account for medical and dental expenses that are not covered by the company's health insurance plan.Roger had his salary reduced by $1,200 during the year for contributions to the flexible spending plan.However,Roger incurred only $1,100 in actual expenses for which he was reimbursed.Under the plan,he must forfeit the $100 unused amount.His after-tax cost of overfunding the plan is $65.

A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.