Chapter 9 Flashcards
When one person performs services for another, the person performing the service is either ________ or __________.
Employee
Self-Employed (independent contractor)
Unlike employees _______ persons do not have to be included in various ______ _______ ______?
Sefl employed
frinde benefit programs
expenses of self employed tax payers, to the extent allowable, are classified as deductions ________ AGI, and are recorded on Schedule _____ of for 1040
For
C(Profit or loss from business)
with the exception of reimbursement under an accoutable plan expenses of employess are deductions _____ AGI. THey are reported on form ______ and Schedule _______ of form 1040
From
2106
A
Certain factors indicate an employee/employer relationship. These include the performance of the following by the employer
furnishing of tools or equipment and a place to work
providing support services including the hiring of assistants to help do the work
making training available to provide needed job skills
allowing participation in various workplace frindge benefits
paying for services based on time rather that task performed
Self employed people are not subject to _____ and ____ taxes
FUTA/SUTA
FICA
_______ are certain employess who are not common law employess but are treated as employees for employment tax purposes. Some include certain drivers, life insurance sales agents, home workers, and other sales persons
Statutory employees
Employee expenses fall into one of the following categories
transportation
travel
moving
education
entertainment
other
AN employee may deduct unreimbursed employment-related transportion expenses as ________.
itemized deductions from AGI
______ include only the cost of transporting the employee from one place to another in the course of employment when the employee is not away from home in traval status. Such costs include taxi fares, automobile expenses, tolls, and parking
Transportation Expenses
THe rule that disallows a deduction for commuting expenses has several exceptions. An employee who uses an automobile to transport heavy tools to work and who otherwise would not drive to work is _______ a deductions
allowed (but only for the additional costs incurred to transport the work implements.)
Expenses of getting from one job to another are _______
Deductible
If the TP is required to incur a transportation exepense to travel between workstations, and the commuting costs from home to a temporay workstation and from a temporary workstation to home are ______
deductible
A taxpayer has 2 choices in determining automobile expenses
automatic mileage method
actual cost method
Automatic mileage method is also called
the standard mileage method
To calculate the standard mileage method the TP has to multiply the ______ by the miles driven
automatic mileage rate (55.5 cents)
The automatic mileage rate for deductible education expenses is _______ and the moving rate is ______
55.5 Cents
23 cents
Pakring fees and tolls are _______ in addition to expenses computed using the automatic mileage method.
allowed
A TP can elect either method for any year with these restrictions:
- the vehicle much be owned or leased by the taxpayer
- the vehicle is not used for hire (taxicab)
- if 5 of more vehicles are in use (for Business purposes) at the same time, a TP may not use the automatic mileage method
- a basis adjustment is required if the TP changes from the automatic mileage to the actual operating cost method. Depreciation is considered allowed for the business miles in accordance with the following schedule for the most recent 5 years.
- Use of the automatic mileage method in the 1st year the auto is places in service is considered an election to exclude the auto from the MACRS
- a taxpayer may not switch to the automatic mileage method if the MACRS statutory percentage method or the election to expense under section 179 has been used.
Under the Actual Cost Method, the automobile is used to compute the deduction. Actual costs include:
gas and oil, lubrication
depreciation (or lease payments)
insurance
Dues to auto clubs
repairs
tires and other parts
licenses and registration fees
parking and tolls
If a TP is an employee interest on car loans is ______. If the TP is self employed the interest on car loans is ______
nondedutible
a business expense
Sales tax paid on the purchase of a car are included in the cost of the car and therefore are recovered by _____
Depreciation
An itemized deduction is _______ for unreimbursed travel expense related to a TP’s employment.
Allowed
______ include transportation expenses and meals and lodging while away from home in the pursiut of a trade or business.
Travel Expenses
A deduction for travel expenses is available only if ____
the TP is away from his/her tax home
What is a tax home?
the area TP derives his/her source of income
The crucial test for the deductibility of travel expenses is whether the employee is _____
away from home overnight
(overnight need not be a 24 hour period, but it must be a period substantially longer than an ordinary day’s work and must require rest, sleep, or a relief-from-work period
If the taxpayer employee is reassigned to a new post for an indefinite period of time, that new post becomes ______
his/her new tax home.
(temporary indicates that the assignment’s termination is expected within a reasonably short period of time.)
Travel expenses are ________ if a TP is reassigned for an indefinite period and does not move his or her place of residence to the new location
not deductible
The Code specifies that a taxpayer “________ during any period of employment if such period exceeds 1 year.”
Shall not be treated as temporarily away from home
In order for a convention to be deductible the convention must ______
be directly related to the TP’s trade or business
In order for a spouse’s or dependent’s travel expenses to be deductible, this person must ______
serve a bona fide business purpose, and the expeneses must be otherwise deductible
Travel as a form of eductation is _____. If travel is envolved in education it is _______
Non deductible
deductible
If the business/pleasure trip is from one point of the US to another point in the US, the transportation expenses are deductible only if _______
the trip is primarliy for business.
(meals and lodging and other expenses will be allocated between the personal and business days)
When the trip is outside of the US, transportation must be allocated between business and person unless
- the TP is away from home for 7 days or less
- less the 25% of the time was for personal purposes.
(weekends, legal holidays, and intervening days are considered business days.)
(No allocation is required if the TP has no substantial control over arrangements for the trip or the desire for a vaction is not a major factor in taking the trip)
Moving expenses are _______ for moves in connection with the commencement of work at a new principal place of work.
deductible
(both employees and self-employed individuals can deduct these expenses.)
To be eligible for a moving expense deduction a TP must meet 2 basic test:
distance
time
To meet the distance test, the TP’s new job location must be ________.
at least 50 miles farther from the TP’s old residence than theold residence was from the former place of employment.
To meet the time test, an employee must _____.
be employed on a full-time basis at the new location for 39 weeks in the 12 month period following the move. If the TP is a self employed individual, he or she must work in the new location for 78 weeks during the next 2 years.
(time is disregarded if the TP dies, becomes disabled, or is discharged
If the TP is not able to meet the 39 week test by the due date of the tax return they can
can take the deduction even though the test hasnt been met. then if the TP fails to meet the test
- the income of the following year is increased by an amount equal to the deduction previously claimed for moving epenses
- amended return is filed for the year of the move.
They could have also wait until the year that the test was met and take the deduction then.
“Qualified” moving expenses include reasonable expense of:
- moving household goods and persaonl effects
- traveling from the former residence to the new place of residence.
(traveling expenses include lodging for the TP and members of the household but not meals.)
(moving expense deduction is allowed regarless of whether the employee is transferred by the existing employer or is employed by a new employer. it is allowed if the employee moves to a new area and obtains employment or swtiched from self-employed to employee status. it is also allowed if an individual is unemployed before obtaining employment in a new area. )
Qualified moving expenses that are not reimbursed and those of self employed TP’s are deductions ______ AGI
for
An employee can deduct expenses incurred for educations as _______ provided the expenses are incurred for either of these reasons:
ordinary and necessary business expenses
- to maintain or improve existing skills required in the present job
- to meet the express requirements of the employer or the requirements imposed by law to retain his or her employment status.
(educational expenses include books, supplies, tuition, transportation(from the office to school), and travel(meals and lodging while away from the home at summer school)
($250 for AGI, remaining will be misc itemized deduction)
Educational expenses not deductible if the education is for either of the following purposes:
- to meet the minimum educational standards for qualification in the taxpayer’s existing job
- to qualify the TP for a new trade of business.
Tuition and fees deduction:
$4000 max. Only for tuition and fees
FOR AGI
Phase out $65,000
Credits are available if _______ business expenses and Section 222.
you dont take.
Lifetime Learning
Opportuniity Credit
(must have tax liability to use these credits)
Cut back rule of meals and entertainment?
can only deduct 50% for business purposes.
Exceptions:
- work for deptartment of transportation you arent subject to 50%, only subject to 20%
- subsidized eating facility (hospital) can deduct cost of meals for employees in full
- entertainment can deduct the cost of a highend ticket and do not have to be available to deduct
________ are the self employed equivalent of corporate pension plans. these are qualified retirement plans and must be administered by an independent trustee.
Keogh Plans
a self employed individual may annually contribute the smaller or _____ or _____ to a definded contribution Keopgh Plan
$50,000 or 100% of earned income
Under a defined benefit Keogh plan, the annual benefit payable to an employee is limited to the smaller of _____ or _____.
$200,000 or 100% of the employee’s average compensation for the 3 highest yeears of employment
A ______ is an ideal candidate for a Keogh Plan
sole proprietor with no employees
A ________ is designed for self-employed individuals can combines a regular Section 401K plan with a profit sharing plan. The maximum annual elective contribution to a Section 401K is $17,000
Solo 401K Plans
Employers with 100 or fewer employees who do not maintain another qualified retirement plan may establish a _________.
Simple incentive match plan for employees (SIMPLE Plan)
The plan can be in the form of a Section 401K plan or an IRA. It is not subject to the nondiscrimination rules that are normally applicable to 401k plans
The contributions made by the employee into a SIMPLE must be _______rather than as a fixed dollar amount.
expressed as a percentage
(the simple plan must not permit the simple elective employee contribution for the year to exceed $11,500. The simple elective deferral limit is increased under the catch-up provision for employees age 50 and over, which is $2,500
When it comes to a SIMPLE Plan, The employer must either
1)
2)
- match elective employee contributions up to 3 percent of the employee’s compensation
- provide nonmatching contributions of 2% of compensation for all eligible employees
With a SIMPLE Plan, no other contributions may be made to the plan other than the employee elective contribution and the required employer contribution. All contributions are _______
Fully vested
