Question

Kelly Kerr is a high school history teacher, and a national expert in ancient ruins. In July of 2020, Kelly was hired by the local university to teach an elective course in ancient Mayan history. Kelly then conducted a field trip of the ruins in Guatemala with some of the local students from July 30th to August 10th. Kelly recruited another local expert to teach the last class that fell during the dates of the trip.

Kelly earned $55,000 from the teaching job, and negotiated a contract price of $5,000 to teach the university elective and $7,000 to conduct the tour. The university provided Kelly with office space during the month of July. Kelly's personal laptop and collection of books were used to prepare the lectures and the tour material. Kelly was paid on July 31st and August 31st and was not provided any additional benefits or insurance by the university.

Required: Determine the tax treatment of Kelly's income and expenses for 2020. Apply the four tests within the guidelines used by the courts to determine whether a taxpayer is an employee or an independent contractor.

Answer 1

Kelly Kerr's income should be treated as that of an independent contractor, given the level of control she has over her work and the lack of benefits provided by the university. She can deduct business expenses such as her personal laptop and books but not the office space provided by the university.

Step-by-step explanation:

The tax treatment of Kelly's income and expenses for 2020 depends on whether she is considered an employee or an independent contractor. To determine this status, one should reference the four tests generally used by courts: (1) Behavioral Control, (2) Financial Control, (3) The Relationship of the Parties, and (4) Type of Relationship.

Based on the details given, Kelly negotiated a contract price for the elective course and tour, used her own equipment, was not provided any additional benefits or insurance, and had another expert cover for her while she was conducting the field trip. These factors suggest Kelly functions as an independent contractor rather than an employee. Therefore, Kelly could deduct legitimate business expenses, such as the use of her personal laptop and books. However, the office space provided by the university is not a deductible expense for Kelly, as it was provided to her. Kelly's payments received on July 31st and August 31st should be reported as income.

Answer 2

Kelly Kerr appears to be an independent contractor for her university work based on IRS guidelines involving control and relationship type. Her teaching salary is regular employee income, while the university payments are self-employment income. Deductible expenses may include the use of her laptop and books, although exact figures are not provided.

Step-by-step explanation:

Tax Treatment of Kelly's Income and Expenses for 2020

The question at hand concerns the tax treatment of an individual who has a mix of employment and independent contracting income. Kelly Kerr, a high school history teacher and national expert in ancient ruins, taught an elective course in ancient Mayan history at a university and conducted a field trip in Guatemala. In determining the tax implications for Kelly's income and expenses in 2020, we must consider IRS guidelines on employee versus independent contractor status.

To determine whether Kelly is an employee or an independent contractor for the university, we would apply the four common law tests:

• Behavioral control (does the employer control how the worker does their job)
• Financial control (does the employer control the economic aspects of the worker's job)
• The type of relationship (is there a written contract, employee benefits such as pension plan, insurance, vacation pay, etc.)
• The permanency of the relationship (is the work performed a key aspect of the business).

Based on the details provided, it seems Kelly would be classified as an independent contractor for the university's work. She negotiated a contract price for the teaching and the tour, used her personal laptop and book collection for preparing material, had no additional benefits, and recruited another expert to cover for her absence, indicating a level of financial and behavioral control over her work consistent with independent contracting.

In terms of tax implications, the $55,000 salary as a high school teacher would be treated as employee income, with taxes withheld by the employer. The $5,000 and $7,000 earned from the university for the course and the tour, respectively, would likely be considered self-employment income. Expenses related to the university's work, such as the use of Kelly's laptop and books, may be deductible as business expenses, but we lack information on her exact expense amounts to make a definitive statement on those deductions.