CHAPTER 9 DEDUCTIONS: EMPLOYEE AND SELF-EMPLOYED-RELATED EXPENSES

1. Myra’s classification of those who work for her as independent contractors is being questioned by the IRS. It is the position of the IRS that these workers are really employees. What type of factors can Myra utilize to justify her classification?

2. Taylor performs services for Jonathan on a regular basis. There exists considerable doubt as to whether Taylor is an employee or an independent contractor.

a. What can Jonathan do to clarify the matter?

b. Suppose Jonathan treats Taylor as an independent contractor but Taylor thinks she is an employee. What is Taylor’s recourse, if any?

3. Jacob is a landscape architect who works out of his home. He wonders whether or not he will have nondeductible commuting expenses when he drives to the locations of his clients. Please comment.

4. Under the automatic mileage method, one rate does not cover every type of expense. For 2014, what are the rates for business use, education, moving, charitable, and medical?

5. Christopher just purchased an automobile for $40,000 which he plans to claim 100% as being for business use. In order to take advantage of MACRS and § 179, he plans to use the actual cost method for determining his deduction in the first year. In subsequent years, he will switch to the automatic mileage method. Comment on Christopher’s proposed approach.

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6. Once set for a year, when might the IRS change the rate for the automatic mileage method?

7. Travel status requires that the taxpayer be away from home overnight.

a. What does “away from home overnight” mean?

b. What tax advantages result from being in travel status?

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8. When is a taxpayer’s work assignment in a new locale temporary? Permanent? What difference does it make?

9. 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.

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

11. Concerning the deduction for moving expenses, what circumstances, if any, will excuse a taxpayer from meeting the time test of 39 or 78 weeks?

12. A taxpayer just changed jobs and incurred unreimbursed moving expenses.

a. What are his (or her) options if an income tax return has to be filed before the time test is met?

b. What happens if the moving expense deduction has been claimed and the time test is not later satisfied?

13. Nicole just retired as a partner in a Philadelphia law firm. She moved to San Francisco where she took a job as an adjunct professor at a local law school. Can Nicole deduct her moving expenses? Explain

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

a. Cost of a CPA exam review course.

b. Cost of a review course for the bar exam.

c. Cost of a law degree by a taxpayer who does not intend to practice law.