Question 1

Educational expenses incurred by a self-employed bookkeeper for courses necessary to sit for the CPA exam are fully deductible.

Accepted Answer

A) True 
 B)False

Question 2

Ross works for Houston Corporation,which has a contributory defined contribution pension plan.The employer's monthly contribution to the plan is 8 percent of each participating employee's monthly salary,while the employee contributes only 6 percent.Which of the following statements best describes the benefits of the plan?

Accepted Answer

A) Houston receives a deduction for its contributions to the plan when Ross receives a distribution from the plan. 
B) While Ross is taxed on the employer's contributions to the plan,his own contributions are not taxed until he receives a distribution from the plan. 
C) Ross may deduct his own contributions to the pension plan,and Ross reports income from the plan each year until he receives distributions from the plan. 
D) The amounts contributed to the plan and the earnings on those contributions are not taxed to Ross until he retires or receives a distribution from the plan. 
A) Houston receives a deduction for its contributions to the plan when Ross receives a distribution from the plan. 
B) While Ross is taxed on the employer's contributions to the plan,his own contributions are not taxed until he receives a distribution from the plan. 
C) Ross may deduct his own contributions to the pension plan,and Ross reports income from the plan each year until he receives distributions from the plan. 
D) The amounts contributed to the plan and the earnings on those contributions are not taxed to Ross until he retires or receives a distribution from the plan.

Question 3

Carlos,a self-employed CPA,entertains a client in a luxury box at the hockey game.Immediately before the game starts,while dining on chicken wings and other food and beverages,and at various points throughout the evening,they discuss an ongoing project Carlos is working on for the client and a potential new project.Carlos is billed a fixed $300 for the box for the evening,which includes the refreshments and the game tickets.Carlos estimates the cost of the refreshments at $100.Carlos will deduct

Accepted Answer

A) $300. 
B) $150. 
C) $50. 
D) $0. 
A) $300. 
B) $150. 
C) $50. 
D) $0.

Question 4

Employees receiving nonqualified stock options recognize ordinary income at the grant date or exercise date if there is a readily ascertainable fair market value.

Accepted Answer

A) True 
 B)False

Question 5

Clarissa is a very successful self-employed real estate attorney.She spends $5,000 per year taking her clients out to dinner upon completion of a sale.Unfortunately,Clarissa is not a good recordkeeper and does not maintain receipts.However,such meals are standard practice in her field,and trade journals indicate that $5,000 is a reasonable amount for a successful high-end attorney.Clarissa will be allowed to deduct $2,500.

Accepted Answer

A) True 
 B)False

Question 6

In a defined contribution pension plan,fixed amounts are contributed based upon a specific formula and retirement benefits are based on the value of a participant's account at the time of retirement.

Accepted Answer

A) True 
 B)False

Question 7

A qualified pension plan requires that employer-provided benefits must be 100 percent vested after five years of service.

Accepted Answer

A) True 
 B)False

Question 8

Frank is a self-employed CPA whose 2019 net earnings from his trade or business (before the H.R.10 plan contribution but after the deduction for one-half of self-employment taxes)is $240,000.What is the maximum contribution that Frank can make on his behalf to his H.R.10 (Keogh)plan in 2019?

Accepted Answer

A) $19,000 
B) $48,000 
C) $56,000 
D) $60,000 
A) $19,000 
B) $48,000 
C) $56,000 
D) $60,000

Question 9

An employer contributing to a qualified retirement plan will be allowed a deduction when the employee recognizes the income at retirement or separation from service.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is incorrect regarding the SEP IRA?

Accepted Answer

A) Both employers and employees can contribute to the plan. 
B) Contributions made by the due date of the tax return can be treated as made on the last day of the related tax year. 
C) Employer contributions must be nondiscriminatory. 
D) The maximum contribution for 2019 is $56,000. 
A) Both employers and employees can contribute to the plan. 
B) Contributions made by the due date of the tax return can be treated as made on the last day of the related tax year. 
C) Employer contributions must be nondiscriminatory. 
D) The maximum contribution for 2019 is $56,000.

Question 11

Which of the following is true about future qualified distributions from a Roth IRA by a person who will be 65 years old at the time the distributions begin? Assume the individual opened the account before age 60.

Accepted Answer

A) The entire amount of the distributions will be tax-free. 
B) Only the accumulated earnings will be tax-free. 
C) Only the previous contributions will be tax-free. 
D) The entire amount of the distribution will be taxable. 
A) The entire amount of the distributions will be tax-free. 
B) Only the accumulated earnings will be tax-free. 
C) Only the previous contributions will be tax-free. 
D) The entire amount of the distribution will be taxable.

Question 12

Alex is a self-employed dentist who operates a qualifying office in his home.Alex has $180,000 gross income from his practice and $160,000 of expenses directly related to the business,i.e.,non-home office expenses.Alex's allocable home office expenses for mortgage interest expenses and property taxes are $14,000 and other home office expenses are $9,000.What is Alex's total allowable home office deduction?

Accepted Answer

A) $9,000 
B) $14,000 
C) $20,000 
D) $23,000 
A) $9,000 
B) $14,000 
C) $20,000 
D) $23,000

Question 13

If an individual is self-employed,business-related expenses are deductions for AGI.

Accepted Answer

A) True 
 B)False

Question 14

Nonqualified deferred compensation plans can discriminate in favor of highly compensated executives.

Accepted Answer

A) True 
 B)False

Question 15

A self-employed consultant takes a client to dinner to propose a new consulting engagement.Assuming appropriate documentation is maintained,the individual will receive a deduction for AGI for 50% of the meal cost.

Accepted Answer

A) True 
 B)False

Question 16

H (age 50)and W (age 48)are married but only W is employed.She is not covered by a retirement plan at work.She earns $75,000 during the year and they have combined AGI of $78,000 before any IRA contribution.In 2019,the maximum amount together they may contribute to tax deductible IRAs is

Accepted Answer

A) $6,000. 
B) $7,000. 
C) $12,000. 
D) $13,000. 
A) $6,000. 
B) $7,000. 
C) $12,000. 
D) $13,000.

Question 17

Unreimbursed employee business expenses are deductions for AGI.

Accepted Answer

A) True 
 B)False

Question 18

Vincent,a self-employed taxpayer,travels to a business conference out of town.While at the conference,he spends $500 on breakfasts and dinners.Because he eats alone,he cannot deduct any of the meal costs.

Accepted Answer

A) True 
 B)False

Question 19

Wilson Corporation granted an incentive stock option to Reva on January 1,two years ago.The option price was $300,and the FMV of the Wilson stock was also $300 on the grant date.The option allowed Reva to purchase 150 shares of Wilson stock.Reva exercised the option on August 1,this year,when the stock's FMV was $400.Unless otherwise stated,assume Reva is a qualifying employee.The results of the above transactions to Reva will be

Accepted Answer

A) no income to Reva on the grant date or exercise date but there is an alternative minimum tax adjustment item to Reva of $15,000. 
B) no income tax or alternative minimum tax effect for Reva. 
C) ordinary income to Reva on the exercise date of $15,000. 
D) capital gain to Reva on the exercise date of $15,000. 
A) no income to Reva on the grant date or exercise date but there is an alternative minimum tax adjustment item to Reva of $15,000. 
B) no income tax or alternative minimum tax effect for Reva. 
C) ordinary income to Reva on the exercise date of $15,000. 
D) capital gain to Reva on the exercise date of $15,000.

Question 20

The maximum tax deductible contribution to a traditional IRA in 2019 is $6,000 ($7,000 for a taxpayer age 50 or over).

Accepted Answer

A) True 
 B)False

Exam 23: Business Expenses and Deferred Compensation

Educational expenses incurred by a self-employed bookkeeper for courses necessary to sit for the CPA exam are fully deductible.

Employees receiving nonqualified stock options recognize ordinary income at the grant date or exercise date if there is a readily ascertainable fair market value.

In a defined contribution pension plan,fixed amounts are contributed based upon a specific formula and retirement benefits are based on the value of a participant's account at the time of retirement.

A qualified pension plan requires that employer-provided benefits must be 100 percent vested after five years of service.

Frank is a self-employed CPA whose 2019 net earnings from his trade or business (before the H.R.10 plan contribution but after the deduction for one-half of self-employment taxes)is $240,000.What is the maximum contribution that Frank can make on his behalf to his H.R.10 (Keogh)plan in 2019?

An employer contributing to a qualified retirement plan will be allowed a deduction when the employee recognizes the income at retirement or separation from service.

Which of the following statements is incorrect regarding the SEP IRA?

Which of the following is true about future qualified distributions from a Roth IRA by a person who will be 65 years old at the time the distributions begin? Assume the individual opened the account before age 60.

If an individual is self-employed,business-related expenses are deductions for AGI.

Nonqualified deferred compensation plans can discriminate in favor of highly compensated executives.

A self-employed consultant takes a client to dinner to propose a new consulting engagement.Assuming appropriate documentation is maintained,the individual will receive a deduction for AGI for 50% of the meal cost.

H (age 50)and W (age 48)are married but only W is employed.She is not covered by a retirement plan at work.She earns $75,000 during the year and they have combined AGI of $78,000 before any IRA contribution.In 2019,the maximum amount together they may contribute to tax deductible IRAs is

Unreimbursed employee business expenses are deductions for AGI.

Vincent,a self-employed taxpayer,travels to a business conference out of town.While at the conference,he spends $500 on breakfasts and dinners.Because he eats alone,he cannot deduct any of the meal costs.

The maximum tax deductible contribution to a traditional IRA in 2019 is $6,000 ($7,000 for a taxpayer age 50 or over).

Tax Research

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