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Exam 11: Individuals As Employees and Proprietors

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Question 31

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

A) $0.
B) $53.
C) $73.
D) $78.
E) $98.

F) D) and E)
G) C) and D)

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Question 32

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

A) True
B) False

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Question 33

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One indicator 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).

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

When contributions are made to a traditional IRA, they are deductible by the participant.Later distributions from the IRA upon retirement are fully taxed.

Mallard Corporation pays for a trip to Aruba for its two top salespersons.This expense is subject to the overall limitation (50%).

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.

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.

Randy is the manager of a motel.As a condition of his employment, Randy is required to live in a room on the premises so that he would be there in case of emergencies.Randy considered this a fringe benefit since he would otherwise be required to pay $800 per month rent.The room that Randy 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, Randy is required to include in gross income.

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.

After the automatic mileage rate has been set by the IRS for a year, it cannot later be changed by the IRS.

Fresh Bakery often has unsold donuts at the end of the day.The bakery allows employees to take the leftovers home.The employees are not required to recognize gross income because the bakery does not incur any additional cost.

Under the automatic mileage method, depreciation is not taken into account in the mileage rate allowed.

A self-employed taxpayer who lives and works in Kansas City travels to Chicago on an eight-day business trip. While in Chicago, the taxpayer uses the hotel valet service to have some laundry done.The valet charge is a nondeductible personal travel expense.

Qualified business income (QBI) is defined as the ordinary income less ordinary deductions a taxpayer earns from a qualified trade or business (e.g., from a sole proprietorship, S corporation, or partnership) conducted in the United States by the taxpayer.

If an employer pays for an employee's long-term care insurance premiums, the employee can exclude from gross income the premiums, but all of the benefits collected must be included in gross income.

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.

Julie was suffering from a viral infection that caused her to miss work for 90 days.During the first 30 days of her absence, she received her regular salary of $8,000 from her employer.For the next 60 days, she received $12,000 under an accident and health insurance policy purchased by her employer.The premiums on the health insurance policy were excluded from her gross income.During the last 30 days, Julie received $6,000 on an income replacement policy she had purchased.Of the $26,000 she received, Julie must include in gross income:

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 for these gifts.

Code § 199A permits an individual to deduct 25% of the qualified business income generated through a sole proprietorship, a partnership, or an S corporation.