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Exam 17: Individuals As Employees and Proprietors

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Question 61

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One indicia 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).

A) True
B) False

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Question 62

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Only self-employed individuals are required to make estimated tax payments.

A) True
B) False

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Question 63

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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.

Jacob is a landscape architect who works out of his home.He wonders whether or not he will have nondeductible commuting expenses when he drives to the locations of his clients.Please comment.

For an activity classified as a hobby,the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g.,depreciation,amortization,and depletion) . (2) Amounts deductible under other Code sections without regard to the nature of the activity,such as property taxes and home mortgage interest. (3) Amounts deductible under other Code sections if the activity had been engaged in for profit,but only if those amounts do not affect adjusted basis (e.g.,maintenance,utilities,and supplies) . If these expenses exceed the gross income from the activity and are thus limited,the sequence in which they are deductible is:

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

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 employee for the cost of parking in a nearby garage,up to $150 per month.

All employees of United Company are covered by a group hospitalization insurance plan,but the employees must pay the premiums ($8,000 for each employee) .None of the employees has sufficient medical expenses to deduct the premiums.Instead of giving raises next year,United is considering paying the employee's hospitalization insurance premiums.If the change is made,the employee's after-tax and insurance pay will:

Ashley and Matthew are husband and wife and both are practicing CPAs.On a joint return,Ashley gets to deduct her professional dues but Matthew does not.Explain.

Assuming an activity is deemed to be a hobby,discuss the order and limits in which expenses must be deducted.

In connection with the office in the home deduction,comment on the following:

James,a cash basis taxpayer,received the following compensation and fringe benefits in 2013: 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?

If a business retains someone to provide services,that person may either be an employee or be self-employed (i.e.,independent contractor).

In terms of meeting the distance test for purposes of deducting moving expenses,which of the following statements is correct?

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan) .She has the following income items for the year: What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2013,assuming the self-employment tax rate is 15.3%?

A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons:

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.

If an employer pays for the 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.

Frank,a recently retired FBI agent,pays job search expenses to obtain a position with a city police department.Frank's job search expenses do qualify as deductions.

In May 2013,after 11 months on a new job,Ken is fired after he assaults a customer.Ken must include in his gross income for 2013 any deduction for moving expenses he may have claimed on his 2012 tax return.