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Chapter 9 Deductions: Employee And Self-Employedrelated Expenses
Discussion Questions
1. LO.1, 9 Sophia and Jacob are married and file a joint return. The return for 2015 included a Form 2106 for each of them. The return for 2016, however, included a Form 2106 and a Schedule C. In terms of employment status, what could have changed?
2. LO.1 Mason performs services for Isabella. In determining whether Mason is an employee or an independent contractor, comment on the relevance of each of the factors listed below.
a. Mason performs services only for Isabella and does not work for anyone else.
b. Mason sets his own work schedule.
c. Mason reports his job-related expenses on a Schedule C.
d. Mason obtained his job skills from Isabella’s training program.
e. Mason performs the services at Isabella’s business location.
f. Mason is paid based on time worked rather than on task performed.
3. LO.2 Milton is a resident of Mobile (AL) and is employed by Scaup Corporation.
Because Scaup closed its Mobile office, Milton no longer has any nondeductible commuting expenses although he continues to work for Scaup. Explain why.
4. LO.2 In 2014, Emma purchased an automobile, which she uses for both business and personal purposes. Although Emma does not keep records as to operating expenses (e.g., gas, oil, and repairs), she can prove the percentage of business use and the miles driven each year. In March 2016, Emma seeks your advice as to what income tax benefit, if any, she can derive from the use of her automobile.
What would you suggest?
5. LO.3 Dr. Werner is a full-time professor of accounting at Pelican University. During the year, he teaches continuing education programs for CPA groups in several cities. He also serves as an expert witness in numerous lawsuits involving accounting fraud. Comment on the possible tax treatment of Dr. Werner’s job-related expenses.
6. LO.4 To qualify for the moving expense deduction, a taxpayer must satisfy a time test.
a. What is the time test?
b. When might the taxpayer be excused from satisfying the time test?
c. What reporting procedure should be followed when the taxpayer has to file a return after the moving expenses have been incurred but before the time test requirement is met?
d. Create a brief PowerPoint presentation (two or three slides) summarizing your solution, and e-mail it to your instructor.
7. LO.4 Emma, who lives and works in Wisconsin, is planning to retire and move to
Costa Rica. She has heard that when you retire and move to a foreign country, all moving expenses are deductible. Does Emma have a correct grasp of the rules involved? Explain.
8. LO.5, 10 Jamie has an undergraduate degree in finance and is employed full-time by a bank. She is taking courses at a local university leading to an MBA degree.
a. Is the cost of this education deductible to her?
b. If so, what limitations are imposed on the deduction?
9. LO.5, 10 In connection with § 222 (deduction for qualified tuition and related expenses), comment on the relevance of the following:
a. The standard deduction is claimed.
b. Enrollment at a college does not require the payment of a student activity fee.
c. Miscellaneous itemized deductions are less than 2% of AGI.
d. The taxpayer is married and files a separate return.
e. A father pays the tuition on behalf of a daughter who does not qualify as his dependent.
f. The taxpayer is single and has MAGI of $80,001.
g. The lifetime learning credit is claimed.
h. The taxpayer, a CPA, pays for tuition and course materials to attend law school.
10. LO.6 In each of the following situations, indicate whether there is a cutback adjustment.
a. Each year, the employer awards its top salesperson an all-expense-paid trip to
Jamaica.
b. The employer has a cafeteria for its employees where meals are furnished at cost.
c. The employer sponsors an annual Labor Day picnic for its employees.
d. Every Christmas, the employer gives each employee a fruitcake.
e. The taxpayer, an airline pilot, pays for meals and lodging during a layover between flights.
f. The taxpayer pays a cover charge to take key clients to a nightclub.
g. The taxpayer gives business gifts to her clients at Christmas.
h. The taxpayer purchases tickets to take clients to an athletic event.
11. LO.7 In connection with the office in the home deduction, comment on the following:
a. The exclusive use requirement.
b. The distinction between direct and indirect expenses.
c. The effect of the taxpayer’s work status (i.e., employed or self-employed) on the deduction.
d. The ownership status of the residence (i.e., owned or rented).
e. The tax treatment of office furnishings (e.g., desk, chairs, and file cabinets).
f. The treatment of expenses that exceed the gross income from the business.
12. LO.7 Review the advantages and disadvantages of the simplified method for determining the office in the home deduction. Create a brief summary of your findings, and e-mail it to your instructor.
13. LO.4, 7 Trent, a resident of Florida, attends Rice University. After graduation, he moves to Dallas, where he begins a job search. Shortly thereafter, he accepts a position with a local TV station as a reporter. Trent’s college degree is in accounting. Presuming no reimbursement, what employment-related expenses might Trent be eligible to deduct?
14. LO.8 Regarding the tax implications of various retirement plans, comment on the following:
a. The difference between Keogh (H.R. 10) and traditional deductible IRA plans.
b. The difference between traditional IRA and Roth IRA plans.
15. LO.8 Joey, who is single, is not covered by another qualified plan and earns $119,000 at his job in 2016. How much can he contribute to a traditional IRA or to a Roth IRA in 2016?
16. LO.9 What tax return reporting procedures must be followed by an employee under the following circumstances?
a. Expenses and reimbursements are equal under an accountable plan.
b. Reimbursements at the appropriate Federal per diem rate exceed expenses, and an adequate accounting is made to the employer.
c. Expenses exceed reimbursements under a nonaccountable plan.