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Exam 11: Individuals As Employees and Proprietors

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Question 1

True/False

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For a person who is in the 35% marginal tax bracket,$1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.

A) True
B) False

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False

Question 2

Multiple Choice

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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?

A) $0
B) $1,200
C) $1,600
D) $2,800
E) None of above

F) None of the above
G) A) and C)

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Question 3

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Alexis (a CPA)sold her public accounting practice in Des Moines and accepted a job with the Seattle office of a national accounting firm.Her moving expenses are not deductible because she has changed employment status (i.e. ,went from self-employed to employee).

A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay.However,for all employees who are not officers,the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds.An officer incurred $1,500 in medical expenses and was reimbursed for that amount.An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

Carla is a deputy sheriff.Her employer requires that she live in the county where she is employed.Housing is very expensive;so the county agreed to pay her $4,800 per year to cover the higher cost of housing.Carla must include the housing supplement in her gross income.

A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.

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) .Disregarding the 2%-of-AGI limitation,as to the MBA program,Rachel has a:

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

The calculation of FICA and the self-employment tax both involve two components: the Social Security portion and the Medicare portion,each portion of which is imposed on the same base amounts.

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.

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.

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:

Peggy is an executive for the Tan Furniture Manufacturing Company.Peggy purchased furniture from the company for $9,500,the price Tan ordinarily would charge a wholesaler for the same items.The retail price of the furniture was $12,500,and Tan's cost was $9,000.The company also paid for Peggy's parking space in a garage near the office.The parking fee was $600 for the year.All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy.However,the company does not pay other employees' parking fees.Peggy's gross income from the above is:

A taxpayer who uses the automatic mileage method to compute auto expenses can also deduct the business portion of tolls and parking.

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.

A taxpayer who claims the standard deduction will not be able to claim an office in the home deduction.

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.

Travis holds rights to a skybox (containing 10 seats)at Memorial Stadium which he uses to entertain key clients.At one sporting event,he took only six clients since three were ill.Even so,Travis may still deduct the appropriate cost of all ten seats.

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

In some cases it may be appropriate for a taxpayer to report work-related expenses by using both Form 2106 and Schedule C.