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

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Question 1

True/False

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Carol is self-employed and uses her automobile solely in 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 2

Multiple Choice

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Ellie a single taxpayer) is the owner of ABC, LLC. The LLC a sole proprietorship) reports QBI of $900,000 and is not a "specified services" business. ABC paid total W-2 wages of $300,000, and the total unadjusted basis of property held by ABC is $30,000. Ellie's taxable income before the QBI deduction is $740,000 this is also her modified taxable income) . What is Ellie's QBI deduction for 2018?

A) $75,750.
B) $148,000.
C) $150,000.
D) $180,000.

E) A) and D)
F) None of the above

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Question 3

Multiple Choice

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

During the year, Sophie a self-employed marketing consultant) went from Omaha to Lima Peru) on business. She spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Sophie's expenses are: $\begin{array} { l r } \text { Air fare } & \$ 3,000 \\\text { Lodging } & 800 \\\text { Meals } & 600 \\\text { Entertainment } & 400\end{array}$ Sophie's deductible expenses are:

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).

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

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

Nick Lee is a linebacker for the Baltimore Ravens a professional football club). During the football season he rents an apartment in a Baltimore suburb. The rest of the time he lives with his family in Ann Arbor MI) and works at a local bank as a vice president in charge of public relations. Can Nick deduct his expenses while away from Ann Arbor? Explain.

One of the purposes of the qualified business income deduction was to reduce the taxes on businesses who are operating in non-corporate business forms

Rachel is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI approximates $50,000. During the year, she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $4,100 tuition) , $300 books) , $200 other school supplies) , and $200 transportation to and from campus) . As to the MBA program, Rachel has a:

Jenna Parker owns and manages her single member LLC which provides a wide variety of financial services to her clients. She is married and will file a joint tax return with her spouse, Paul. Her LLC reports $300,000 of net income, W-2 wages of $120,000, and assets with an unadjusted basis of $75,000. Their taxable income before the QBI deduction is $285.000 this is also their modified taxable income) . What is their QBI deduction for 2018?

A self-employed taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of automobile club dues.

Qualified business income includes the "reasonable compensation" paid to the taxpayer by a qualified trade or business and guaranteed payments made to a partner for services rendered.

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

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

Under the simplified method, the maximum office in the home deduction allowed is the greater of $1,500 or the office square feet × $5.

How are combined business/pleasure trips treated for travel within the United States as opposed to foreign travel?

In some cases it may be appropriate for a taxpayer to deduct work-related expenses as both a sole proprietor and an employee.

Which, if any, of the following factors is a characteristic of independent contractor status?

For tax purposes, a statutory employee is treated the same as a common law employee.