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Exam 17: Individuals As Employees and Proprietors

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Question 1

True/False

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

A) True
B) False

Correct Answer

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False

Question 2

Multiple Choice

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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) $0.
B) $600.
C) $3,500.
D) $4,100.
E) None of the above.

F) A) and B)
G) A) and C)

Correct Answer

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A

Question 3

True/False

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Amy lives and works in St.Louis.In the morning she flies to Boston,has a three-hour business meeting,and returns to St.Louis that evening.For tax purposes,Amy was away from home.

Bob lives and works in Newark,NJ.He travels to London for a three-day business meeting,after which he spends three days touring Scotland.All of his air fare is deductible.

In terms of IRS attitude,what do the following expenses have in common?

The exclusion for health insurance premiums paid by the employer applies to:

Nicole's employer pays her $150 per month towards the cost of parking near a railway station where Nicole catches the train to work.The employer also pays the cost of the rail pass,$75 per month.Nicole can exclude both of these payments from her gross income.

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

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

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.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: What is Rocky's net income from the repair business?

The ceiling amounts and percentages for 2013 for the two portions of the self-employment tax are: Social Security portion Medicare portion

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.

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

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

Joyce,age 40,and Sam,age 42,who have been married for seven years,are both active participants in qualified retirement plans.Their total AGI for 2013 is $120,000.Each is employed and earns a salary of $65,000.What are their combined deductible contributions to traditional IRAs?

Amy works as an auditor for a large major CPA firm.During the months of September through November of each year,she is permanently assigned to the team auditing Garnet Corporation.As a result,every day she drives from her home to Garnet and returns home after work.Mileage is as follows: For these three months,Amy's deductible mileage for each workday is:

If a married taxpayer is an active participant in another qualified retirement plan,the traditional IRA deduction phaseout begins at $95,000 of AGI for a joint return in 2013.

Dave is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City.When the company opens new stores in Boise,Dave is given the task of supervising their initial operation.For three months,he works weekdays in Boise and returns home on weekends.He spends $350 returning to Salt Lake City but would have spent $410 had he stayed in Boise for the weekend.As to the weekend trips,how much,if any,qualifies as a deduction?

Eileen lives and works in Mobile.She travels to Rome for an eight-day business meeting,after which she spends two days touring Italy.All of Eileen's airfare is deductible.

Robert entertains several of his key clients on January 1 of the current year.Expenses paid by Robert are as follows: Presuming proper substantiation,Robert's deduction is: