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

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Question 61

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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 2014, 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?

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c. $4,000. Although the tuition was $4,2...

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Question 62

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Employees who render an adequate accounting to the employer and are fully reimbursed will shift the 50% cutback adjustment to their employer.

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B) False

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Question 63

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Dana contributes $2,000 too much to a § 401(k) plan which is not returned within 2 1/2 months after the close of the tax year. The employer will have to pay a tax of $200.

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.

An individual, age 40, who is not subject to the phase-out provision may contribute a nondeductible amount to a Roth IRA up to $5,500 per year in 2014.

Statutory employees:

Qualified moving expenses include the cost of lodging but not meals during the move.

Felicia, a recent college graduate, is employed as an accountant by an oil company. She would like to continue her education and obtain a law degree. Discuss Felicia's tax status if she attends a local law school on a: a. Part-time basis. b. Full-time basis.

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).

As to meeting the time test for purposes of deducting moving expenses, which of the following statements is correct?

In May 2014, after 11 months on a new job, Ken is fired after he assaults a customer. Ken must include in his gross income for 2014 any deduction for moving expenses he may have claimed on his 2013 tax return.

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: $\begin{array}{lc}\text { Real property taxes } & \$ 4,500 \\\text { Interest on home mortgage } & 8,000 \\\text { Operating expenses of residence } & 3,000 \\\text { Depreciation (based on } 20 \% \text { business use) } & 1,000\end{array}$ 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?

Tickets to a theater performance or sporting event can be treated as either business entertainment or a business gift if the taxpayer does not accompany the client to the event.

Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years. The account is now worth $376,000. How much of these funds can Frank withdraw tax-free?

Any pre­tax amount elected by an employee as a plan contribution to a § 401(k) plan that does not exceed the statutory limit is not includible in gross income in the year of deferral and is 100% vested.

If a married taxpayer is an active participant in another qualified retirement plan, the traditional IRA deduction phaseout begins at $96,000 of AGI for a joint return in 2014.

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

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.

Ralph made the following business gifts during the year. To Robert (a key client) at Christmas $50 To Angel (Robert's 8­year old daughter) on her birthday 20 To Art (Ralph's secretary) on his birthday ($3 was for gift wrapping) 30 To Paige (Ralph's boss) at Christmas 40 Presuming proper substantiation, Ralph's deduction is:

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