Question 1

Which of the following fringe benefit does not impose a limit on the amount eligible as a tax-free benefit?

Accepted Answer

A) A child and dependent care program 
B) Group term life insurance premiums 
C) Education assistance plan 
D) Excess capacity services (such as unsold airplane seats) 
A) A child and dependent care program 
B) Group term life insurance premiums 
C) Education assistance plan 
D) Excess capacity services (such as unsold airplane seats) D

Question 2

Stock appreciation rights allow an employee to benefit from an increase in the value of the employer's stock without actually purchasing the stock.

Accepted Answer

A) True 
 B)False  True

Question 3

Qualified deferred compensation plans have the following characteristics except:

Accepted Answer

A) Taxation of earnings is postponed. 
B) Employee taxation occurs when payment is received. 
C) Employee contributions are made on an after-tax basis. 
D) Employer deducts contributions when made. 
A) Taxation of earnings is postponed. 
B) Employee taxation occurs when payment is received. 
C) Employee contributions are made on an after-tax basis. 
D) Employer deducts contributions when made. C

Question 4

Carl, age 44, wants to contribute the maximum allowed to a Roth IRA.He is single and his AGI is $124,000.How much can he contribute to the Roth IRA?

Accepted Answer

A) $6,000 
B) $5,200 
C) $2,000 
D) $800 AGI Phase-Out Ranges for 2019 IRAs
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\text { Phase-out range }$
$\begin{array}{lcc} 
\hline & \text { Single } & \text { Married filing jointly } \
\text { Traditional } & \$ 64,000-\$ 74,000 & \$ 103,000-\$ 123,000 \
\text { Roth } & \$ 122,000-\$ 137,000 & \$ 193,000-\$ 203,000
\end{array}$ 
A) $6,000 
B) $5,200 
C) $2,000 
D) $800 AGI Phase-Out Ranges for 2019 IRAs
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\text { Phase-out range }$
$\begin{array}{lcc} 
\hline & \text { Single } & \text { Married filing jointly } \
\text { Traditional } & \$ 64,000-\$ 74,000 & \$ 103,000-\$ 123,000 \
\text { Roth } & \$ 122,000-\$ 137,000 & \$ 193,000-\$ 203,000
\end{array}$

Question 5

Tavis works for a company that sponsors a flexible spending arrangement (FSA) as part of the cafeteria plan.Tavis's annual salary is $150,000 before any reduction for contributions to the FSA.Tavis elects to fund his FSA by reducing his salary by $2,500 to pay for medical and dental expenses not covered by insurance.Tavis pays $2,420 in qualified expenses through the FSA.The unused $80 is retained by the plan.Tavis received no distributions from this plan.Tavis's employer also paid $470 for premiums on a $240,000 face value group term life insurance policy for him.The group term life insurance rate is $0.15 per month per $1,000.Tavis is a key employee but it is not a discriminatory plan.How much gross income must Tavis report on his tax return?

Accepted Answer

A) $148,050 
B) $147,932 
C) $147,842 
D) $147,580 
A) $148,050 
B) $147,932 
C) $147,842 
D) $147,580

Question 6

Manuel's employer provides him with $80,000 of group term life insurance coverage for the year at no cost.The amount from the group term life insurance premium table for someone who is 40 years old is $0.10.How much must Manuel include in income as a result of this benefit if he is 40 years old and is not considered a key employee?

Accepted Answer

A) 0 
B) $3 
C) $8 
D) $36 
E) $96 
A) 0 
B) $3 
C) $8 
D) $36 
E) $96

Question 7

Which type of retirement plan would not be available to a corporation with 3,000 employees?

Accepted Answer

A) ESOP 
B) 401(k) 
C) SIMPLE plan 
D) Profit sharing plan 
A) ESOP 
B) 401(k) 
C) SIMPLE plan 
D) Profit sharing plan

Question 8

An independent contractor pays self-employment taxes instead of FICA taxes.

Accepted Answer

A) True 
 B)False

Question 9

The contribution limit for a defined contribution plan for 2019 is:

Accepted Answer

A) $6,000 
B) $19,000 
C) $56,000 
D) $225,000 
A) $6,000 
B) $19,000 
C) $56,000 
D) $225,000

Question 10

A single employee who is not covered by an employer's retirement plan may always contribute at least $6,000 of earned income to his or her IRA.

Accepted Answer

A) True 
 B)False

Question 11

What is the maximum deductible contribution that Erick (age 32 and single) can make in 2019 to an Individual Retirement Account(s) if he earns $62,000 and is not covered by an employer-sponsored retirement plan?

Accepted Answer

A) $7,000 ($6,000 plus an extra $1,000 catch-up contribution) to a traditional IRA and zero to a Roth IRA. 
B) $6,000 to a traditional IRA but only $1,500 additional to a Roth IRA 
C) $6,000 to a traditional IRA 
D) $4,500 to a traditional IRA due to the income limitation
AGI Phase-Out Ranges for 2019 IRAs
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\text { Phase-out range }$
$\begin{array}{lcc} 
\hline & \text { Single } & \text { Married filing jointly } \
\text { Traditional } & \$ 64,000-\$ 74,000 & \$ 103,000-\$ 123,000 \
\text { Roth } & \$ 122,000-\$ 137,000 & \$ 193,000-\$ 203,000
\end{array}$ 
A) $7,000 ($6,000 plus an extra $1,000 catch-up contribution) to a traditional IRA and zero to a Roth IRA. 
B) $6,000 to a traditional IRA but only $1,500 additional to a Roth IRA 
C) $6,000 to a traditional IRA 
D) $4,500 to a traditional IRA due to the income limitation
AGI Phase-Out Ranges for 2019 IRAs
$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\quad $$\text { Phase-out range }$
$\begin{array}{lcc} 
\hline & \text { Single } & \text { Married filing jointly } \
\text { Traditional } & \$ 64,000-\$ 74,000 & \$ 103,000-\$ 123,000 \
\text { Roth } & \$ 122,000-\$ 137,000 & \$ 193,000-\$ 203,000
\end{array}$

Question 12

In 2014, Hu Corporation granted incentive stock options to Trevor to buy 5,000 shares of Hu stock at $20 per share exercisable for six years.At the date of grant, the stock was selling for $19 per share.In 2017, Trevor exercises the options when the market price was $38 per share.Trevor sells the stock in 2019 for $42 per share.How much income or gain does Trevor recognize and in which year?

Accepted Answer

A) $110,000 capital gain in 2019 only 
B) $95,000 income in 2014 only 
C) $90,000 income in 2017 and $20,000 capital gain in 2019 
D) $90,000 income in 2017 only 
A) $110,000 capital gain in 2019 only 
B) $95,000 income in 2014 only 
C) $90,000 income in 2017 and $20,000 capital gain in 2019 
D) $90,000 income in 2017 only

Question 13

Which of the following is not a reason for a business to prefer to hire an independent contractor rather than an employee?

Accepted Answer

A) The independent contractor does not participate in company fringe benefits. 
B) The company does not have to pay FICA taxes on the amounts paid to the independent contractor. 
C) The company does not have to supply a workplace or tools to the independent contractor. 
D) The company only has to pay FUTA on the independent contractor's wages. 
A) The independent contractor does not participate in company fringe benefits. 
B) The company does not have to pay FICA taxes on the amounts paid to the independent contractor. 
C) The company does not have to supply a workplace or tools to the independent contractor. 
D) The company only has to pay FUTA on the independent contractor's wages.

Question 14

If an employee is reimbursed through an accountable plan which of the following is not true?

Accepted Answer

A) All reimbursements are included in income. 
B) A reimbursement equal to the expense is not included in income. 
C) A reimbursement in excess of expense is included in income. 
D) The itemized deduction for unreimbursed business expenses is suspended. 
A) All reimbursements are included in income. 
B) A reimbursement equal to the expense is not included in income. 
C) A reimbursement in excess of expense is included in income. 
D) The itemized deduction for unreimbursed business expenses is suspended.

Question 15

What is a phantom stock plan?

Accepted Answer

A) A purchase of stock by an unnamed party. 
B) A cash payment equal to the stock's increase in fair market value over the prior year. 
C) A stock option that is given to only a few employees. 
D) Employee compensation hypothetically invested in stock for a period of time after which the employee receives the fair market value of the stock. 
A) A purchase of stock by an unnamed party. 
B) A cash payment equal to the stock's increase in fair market value over the prior year. 
C) A stock option that is given to only a few employees. 
D) Employee compensation hypothetically invested in stock for a period of time after which the employee receives the fair market value of the stock.

Question 16

Five years ago, Devin Corporation granted Laura nonqualified stock options to buy 1,000 shares of Devin stock at $22 per share exercisable for six years.At the date of grant, the stock was selling for $19 per share.Laura exercised the options this year when the market price was $28 per share.How much income must Laura recognize from the exercise of the options?

Accepted Answer

A) zero 
B) $3,000 
C) $6,000 
D) $22,000 
A) zero 
B) $3,000 
C) $6,000 
D) $22,000

Question 17

A taxpayer who is a bona fide resident of a foreign country for an entire tax year may:

Accepted Answer

A) Exclude up to $105,900 of earned income from gross income. 
B) Take a foreign tax credit for foreign taxes paid on the foreign income. 
C) Take a deduction for foreign taxes paid on foreign income. 
D) Select any one of the above alternatives. 
A) Exclude up to $105,900 of earned income from gross income. 
B) Take a foreign tax credit for foreign taxes paid on the foreign income. 
C) Take a deduction for foreign taxes paid on foreign income. 
D) Select any one of the above alternatives.

Question 18

In 2019 Lindsey decides she no longer wants to work in public accounting and decides to attend massage therapy school so that she may work as a massage therapist.She spends $6,000 for the education, obtains the required training and licensures in 2019, and began working with clients within her new career as a massage therapist in November 2019.For Susie, is the massage therapy school a work-related education expense?

Accepted Answer

A) Yes, the education is required by her potential employers and the law. 
B) Yes, the education is required to meet the minimum educational requirements of the trade. 
C) No, the education is not required by her potential employers or the law 
D) No, the education is required to meet the minimum educational requirements of the trade. 
A) Yes, the education is required by her potential employers and the law. 
B) Yes, the education is required to meet the minimum educational requirements of the trade. 
C) No, the education is not required by her potential employers or the law 
D) No, the education is required to meet the minimum educational requirements of the trade.

Question 19

Pablo earns $85,000 from his regular job as a salesman and an additional $60,000 from his sole proprietorship in 2019.What is his self-employment tax (rounded to the nearest dollar)?

Accepted Answer

A) $21,483 
B) $9,180 
C) $7,546 
D) $5,939
$\begin{array}{|l|r|r|}
\hline \text { Social Security and Medicare Taxes } & \mathbf{2 0 1 9} & \mathbf{2 0 1 8} \
\hline \text { FICA Social Security tax rate } & 6.2 \% & 6.2 \% \
\hline \text { SECA Social Security tax rate } & 12.4 \% & 12.4 \% \
\hline \text { FICA Medicare tax rate } & 1.45 \% & 1.45 \% \
\hline \text { SECA Medicare tax rate } & 2.9 \% & 2.9 \% \
\hline \text { Social Security income limit } & \$ 132,900 & \$ 128,400 \
\hline \text { Medicare tax income limit } & \text { None } & \text { None } \
\hline \text { Total SECA rate below SS income limit } & 15.3 \% & 15.3 \% \
\hline \begin{array}{l}
\text { Deductible SECA rate below SS income } \
\text { limit }
\end{array} & 7.65 \% & 7.65 \% \
\hline
\end{array}$ 
A) $21,483 
B) $9,180 
C) $7,546 
D) $5,939
$\begin{array}{|l|r|r|}
\hline \text { Social Security and Medicare Taxes } & \mathbf{2 0 1 9} & \mathbf{2 0 1 8} \
\hline \text { FICA Social Security tax rate } & 6.2 \% & 6.2 \% \
\hline \text { SECA Social Security tax rate } & 12.4 \% & 12.4 \% \
\hline \text { FICA Medicare tax rate } & 1.45 \% & 1.45 \% \
\hline \text { SECA Medicare tax rate } & 2.9 \% & 2.9 \% \
\hline \text { Social Security income limit } & \$ 132,900 & \$ 128,400 \
\hline \text { Medicare tax income limit } & \text { None } & \text { None } \
\hline \text { Total SECA rate below SS income limit } & 15.3 \% & 15.3 \% \
\hline \begin{array}{l}
\text { Deductible SECA rate below SS income } \
\text { limit }
\end{array} & 7.65 \% & 7.65 \% \
\hline
\end{array}$

Question 20

Which of the following is a characteristic of an incentive stock option?

Accepted Answer

A) The issuer recognizes compensation expense if the strike price is below the stock's selling price when the option is granted. 
B) The issuer recognizes a compensation deduction when the option is exercised. 
C) The option holder recognizes compensation income when the option is exercised. 
D) The option holder recognizes capital gain when the stock acquired with the option is sold. 
A) The issuer recognizes compensation expense if the strike price is below the stock's selling price when the option is granted. 
B) The issuer recognizes a compensation deduction when the option is exercised. 
C) The option holder recognizes compensation income when the option is exercised. 
D) The option holder recognizes capital gain when the stock acquired with the option is sold.

Which of the following fringe benefit does not impose a limit on the amount eligible as a tax-free benefit?

Stock appreciation rights allow an employee to benefit from an increase in the value of the employer's stock without actually purchasing the stock.

Qualified deferred compensation plans have the following characteristics except:

Carl, age 44, wants to contribute the maximum allowed to a Roth IRA.He is single and his AGI is $124,000.How much can he contribute to the Roth IRA?

Which type of retirement plan would not be available to a corporation with 3,000 employees?

An independent contractor pays self-employment taxes instead of FICA taxes.

The contribution limit for a defined contribution plan for 2019 is:

A single employee who is not covered by an employer's retirement plan may always contribute at least $6,000 of earned income to his or her IRA.

What is the maximum deductible contribution that Erick (age 32 and single) can make in 2019 to an Individual Retirement Account(s) if he earns $62,000 and is not covered by an employer-sponsored retirement plan?

Which of the following is not a reason for a business to prefer to hire an independent contractor rather than an employee?

If an employee is reimbursed through an accountable plan which of the following is not true?

What is a phantom stock plan?

A taxpayer who is a bona fide resident of a foreign country for an entire tax year may:

Pablo earns $85,000 from his regular job as a salesman and an additional $60,000 from his sole proprietorship in 2019.What is his self-employment tax (rounded to the nearest dollar)?

Which of the following is a characteristic of an incentive stock option?

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters

Exam 4: Employee Compensation

Which of the following fringe benefit does not impose a limit on the amount eligible as a tax-free benefit?

Stock appreciation rights allow an employee to benefit from an increase in the value of the employer's stock without actually purchasing the stock.

Qualified deferred compensation plans have the following characteristics except:

Carl, age 44, wants to contribute the maximum allowed to a Roth IRA.He is single and his AGI is $124,000.How much can he contribute to the Roth IRA?

Which type of retirement plan would not be available to a corporation with 3,000 employees?

An independent contractor pays self-employment taxes instead of FICA taxes.

The contribution limit for a defined contribution plan for 2019 is:

A single employee who is not covered by an employer's retirement plan may always contribute at least $6,000 of earned income to his or her IRA.

What is the maximum deductible contribution that Erick (age 32 and single) can make in 2019 to an Individual Retirement Account(s) if he earns $62,000 and is not covered by an employer-sponsored retirement plan?

Which of the following is not a reason for a business to prefer to hire an independent contractor rather than an employee?

If an employee is reimbursed through an accountable plan which of the following is not true?

What is a phantom stock plan?

A taxpayer who is a bona fide resident of a foreign country for an entire tax year may:

Pablo earns $85,000 from his regular job as a salesman and an additional $60,000 from his sole proprietorship in 2019.What is his self-employment tax (rounded to the nearest dollar)?

Which of the following is a characteristic of an incentive stock option?

Introduction to Taxation

The Tax Practice Environment

Determining Gross Income

Deductions for Individuals and Tax Determination

Business Expenses

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Tax-Deferred Exchanges

Taxation of Corporations

Sole Proprietorships and Flow-Through Entities

Estates, Gifts, and Trusts

Filters