KU ACCT 330 Final Exam
Questions And Correct Answers
Who is an Employee?
•Any individual that provides services for another person or entity
Traits of an employee
•Level of exclusivity
•employer has control
Traits of an independent contractor
•No exclusivity (can work with whoever)
•Have their own control
How do you determine whether a worker is an employee or an independent
contractor
-behavior control
-financial control
-relationship to parties
,•Behavior Control
•Amount of instruction and training provided to the worker
•Financial Control
A lot more is on the line for independent contractors
-Worry about profit/loss
•Relationship to Parties
•Employee benefits and explicit written contracts
what happens if you treat the worker as an independent contractor
•Don't have to provide them with fringe benefits
Why should the IRS be indifferent between the classification of an employee or
independent contractor
the amount of payroll taxes collected should be equal
Reasonable Compensation
,•Compensation resulting from arms-length negotiations is reasonable
What does the IRS care about with reasonable compensation
•Closely held firms (2-3 people own it)
•Family firms
•If compensation is deemed unreasonable
Reclassify unreasonable compensation as a constructive dividend
-Doesn't change anything for employee.
-Changes the deduction allowed for employer
Expenses for an independent contractor
Deduct business expenses on schedule C of your tax return
Expenses for an employee
No longer able to deduct unreimbursed expenses
Business Expenses- independent contractor
•Related to profit-motivated activities of the taxpayer
, •Must be ordinary expenses
•Normal and appropriate to the practice
•Must be necessary
•Helpful or conducive to the practice
•Reasonable in amount
•Properly Documented
Actual expense
Expenses Contrary to Public Policy
•Bribes and Kickbacks
•Fines and Penalties
•Bribes and Kickbacks
•Prohibits any deductions associated
-Seen as gov't subsidizing illegal activity
•Fines and Penalties
•Prohibits any deductions related to violations of the law
-Anywhere in the world
Questions And Correct Answers
Who is an Employee?
•Any individual that provides services for another person or entity
Traits of an employee
•Level of exclusivity
•employer has control
Traits of an independent contractor
•No exclusivity (can work with whoever)
•Have their own control
How do you determine whether a worker is an employee or an independent
contractor
-behavior control
-financial control
-relationship to parties
,•Behavior Control
•Amount of instruction and training provided to the worker
•Financial Control
A lot more is on the line for independent contractors
-Worry about profit/loss
•Relationship to Parties
•Employee benefits and explicit written contracts
what happens if you treat the worker as an independent contractor
•Don't have to provide them with fringe benefits
Why should the IRS be indifferent between the classification of an employee or
independent contractor
the amount of payroll taxes collected should be equal
Reasonable Compensation
,•Compensation resulting from arms-length negotiations is reasonable
What does the IRS care about with reasonable compensation
•Closely held firms (2-3 people own it)
•Family firms
•If compensation is deemed unreasonable
Reclassify unreasonable compensation as a constructive dividend
-Doesn't change anything for employee.
-Changes the deduction allowed for employer
Expenses for an independent contractor
Deduct business expenses on schedule C of your tax return
Expenses for an employee
No longer able to deduct unreimbursed expenses
Business Expenses- independent contractor
•Related to profit-motivated activities of the taxpayer
, •Must be ordinary expenses
•Normal and appropriate to the practice
•Must be necessary
•Helpful or conducive to the practice
•Reasonable in amount
•Properly Documented
Actual expense
Expenses Contrary to Public Policy
•Bribes and Kickbacks
•Fines and Penalties
•Bribes and Kickbacks
•Prohibits any deductions associated
-Seen as gov't subsidizing illegal activity
•Fines and Penalties
•Prohibits any deductions related to violations of the law
-Anywhere in the world
