TOOLS & TECHNIQUES OF LIFE INSURANCE PLANNING



TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING

11th Edition

College Course Materials

Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®

Associate Professor

CFP® Program Director

Personal Financial Planning Department

University of Missouri-Columbia

Please Note: Correct answers for each question are indicated in bold type. After each question, the number of the page containing information relevant to answering the question is given. When a calculation is necessary or the reasoning behind a given answer may be unclear, a brief rationale for the correct answer is also given.

Part B: Employee Benefit Planning

Fringe Benefits

Chapter 53: Company Car or Reimbursement Plan

True/False

53.1 Travel to and from home to a second job is tax deductible.

53.2 Using a car phone for business calls, carrying tools, or having advertising signs on a car is sufficient to have the commute be considered a business trip.

53.3 For a self-employed person using the car for business purposes, interest on a car loan is tax deductible to the extent that the vehicle was used in company business.

Answers:

53.1 False [p. 399]

53.2 False [p. 399]

53.3 True [p. 397]

Multiple Choice

53.4 Advantages of company car programs include which of the following:

a. employer owns the car and can enjoy deductions for depreciation and other expenses paid

b. having a company car can maximize tax benefits for employees

c. companies can utilize an investment credit for providing cars to employees

d. a and b

e. a and c

Answer: D [p. 395]

53.5 “Valuation of car availability” can be established by all but which of the following:

a. amount an unrelated third party would charge for use in arms-length transaction

b. lease value from IRS tables

c. mileage rate for vehicle used more than 50% in business

d. flat dollar amount per trip

e. fair market value of the car

Answer: E [p. 396]

53.6 Which of the following commuting arrangements is always tax deductible to the employee?

a. second job to main job

b. home to second job

c. second job home to temporary work location

d. a and b

e. a and c

Answer: E [p. 399]

Application

53.7 Sport Wheels, Inc., is developing policy on use of a company car or a reimbursement plan for its sales force. If Sport Wheels wants to maximize tax benefits for its employees, which of the following arrangements should Sport Wheels make with its employees?

a. let employee assume costs of business use of car and deduct these costs on his or her personal tax return

b. reimburse employee for costs incurred in using their own car for company business

c. Sport Wheels provides the car to employees, but reimburses employees for repair expenses

d. Sport Wheels provides the car to employees and pays all maintenance costs

e. add an amount equal to a 3-year auto lease to employee pay for those using the cars

Answer: D [p. 395]

53.8 Tandy Crocker is a self-employed accountant who operates a mobile office, bringing accounting services to her clients. For Tandy, all business- related car expenses are tax deductible.

a. true

b. false

Answer: A [p. 395]

53.9 Dan Hagerty works for Biz Pro, a marking consulting firm. Dan has a company car that he uses for business and personal travel. Last year, Dan put 10,000 personal miles on the car out of a total of 40,000 miles. The value of having the car available for use is estimated by Biz Pro to be $20,000. Biz Pro leases the car from Deals on Wheels, Inc. for $6,000 per year. How much must Dan include in his personal income tax from use of the car last year?

a. $0

b. $1,500

c. $4,000

d. $5,000

e. $6,000

Answer: D [p. 396 – [Personal miles (10,000) / total miles ($40,000)} x value of car availability ($20,000) = $5,000]

53.10 Pizza Now requires that employees use their personal cars to make pizza deliveries. Employees are reimbursed for mileage, but must make an accurate account of expenses to the manager of Pizza Now and return any excess reimbursement to their employer. This form of reimbursement plan is:

a. no plan

b. a non accountable plan

c. an accountable plan

d. a structured reimbursement plan

e. a company use plan

Answer: C [p. 397]

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