Question 1

During 2019, Zach has net income from his sole proprietorship of $35,000.He also earned $106,600 as an employee in 2019.How much self-employment tax must Zach pay?

Accepted Answer

A) $5,355 
B) $4,905 
C) $4,945 
D) $4,199
$\begin{array}{|l|r|r|}
\hline \text { Social Security and Medicare Taxes } & \mathbf{2 0 1 9} & \mathbf{2 0 1 8} \
\hline \text { FICA Social Security tax rate } & 6.2 \% & 6.2 \% \
\hline \text { SECA Social Security tax rate } & 12.4 \% & 12.4 \% \
\hline \text { FICA Medicare tax rate } & 1.45 \% & 1.45 \% \
\hline \text { SECA Medicare tax rate } & 2.9 \% & 2.9 \% \
\hline \text { Social Security income limit } & \$ 132,900 & \$ 128,400 \
\hline \text { Medicare tax income limit } & \mathrm{None} & \mathrm{None} \
\hline \text { Total SECA rate below SS income limit } & 15.3 \% & 15.3 \% \
\hline \text { Deductible SECA rate below SS income limit } & 7.65 \% & 7.65 \% \
\hline
\end{array}$ 
A) $5,355 
B) $4,905 
C) $4,945 
D) $4,199
$\begin{array}{|l|r|r|}
\hline \text { Social Security and Medicare Taxes } & \mathbf{2 0 1 9} & \mathbf{2 0 1 8} \
\hline \text { FICA Social Security tax rate } & 6.2 \% & 6.2 \% \
\hline \text { SECA Social Security tax rate } & 12.4 \% & 12.4 \% \
\hline \text { FICA Medicare tax rate } & 1.45 \% & 1.45 \% \
\hline \text { SECA Medicare tax rate } & 2.9 \% & 2.9 \% \
\hline \text { Social Security income limit } & \$ 132,900 & \$ 128,400 \
\hline \text { Medicare tax income limit } & \mathrm{None} & \mathrm{None} \
\hline \text { Total SECA rate below SS income limit } & 15.3 \% & 15.3 \% \
\hline \text { Deductible SECA rate below SS income limit } & 7.65 \% & 7.65 \% \
\hline
\end{array}$

Question 2

In a defined benefit retirement plan, the employer bears the financial risk for the plan investments.

Accepted Answer

A) True 
 B)False

Question 3

All of the following expenditures qualify for reimbursement under an educational reimbursement plan except:

Accepted Answer

A) Tuition 
B) Private tutoring 
C) Fees 
D) Books 
A) Tuition 
B) Private tutoring 
C) Fees 
D) Books

Question 4

As long as the plan is nondiscriminatory, any life insurance provided employees as a fringe benefit is tax-exempt.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a purpose of a per diem allowance?

Accepted Answer

A) Eliminate the substantiation requirement for business expenses. 
B) Reduce the amount an employer must reimburse for employee business expenses. 
C) Eliminate paper work for certain employee business expenses. 
D) Reduce reimbursement disagreements between employer and employee. 
A) Eliminate the substantiation requirement for business expenses. 
B) Reduce the amount an employer must reimburse for employee business expenses. 
C) Eliminate paper work for certain employee business expenses. 
D) Reduce reimbursement disagreements between employer and employee.

Question 6

Susie worked as a counselor at a wilderness camp for inner city children for six weeks during the summer.Her weekly benefits included a $200 salary, lodging in a private cabin valued at $60, and meals in the camp dining facilities worth $70.Susie was required by her employer to be available at all times during the 6-week period in case of emergencies.How much must Susie include in her gross income?

Accepted Answer

A) $1,200 
B) $1,560 
C) $1,620 
D) $1,980 
A) $1,200 
B) $1,560 
C) $1,620 
D) $1,980

Question 7

Which of the following are characteristics of a traditional IRA?

Accepted Answer

A) Most distributions made before age 59½ are subject to a 10 percent penalty tax. 
B) A taxpayer must begin taking distributions from the IRA by age 75½. 
C) Neither is a characteristic. 
D) Both are characteristics. 
A) Most distributions made before age 59½ are subject to a 10 percent penalty tax. 
B) A taxpayer must begin taking distributions from the IRA by age 75½. 
C) Neither is a characteristic. 
D) Both are characteristics.

Question 8

Henry is an employee of Argus Corporation.His fringe benefits for the current year included: -$2,500 contributed by Argus to his qualified deferred compensation retirement plan.This year, the retirement plan earned $600 in interest and dividend income.Henry received no distributions from this plan
-A $500,000 face value group term life insurance policy for which Argus paid premiums of $650.Henry is a key employee and it is a discriminatory plan.The uniform monthly premium for $1,000 of group term life insurance is $0.15.
-The use of a company-owned automobile.The annual lease value of this car is $15,000.Henry used it 70% of the time (and miles) for personal use and 30% for business use.
-Free parking in the company parking lot (valued at $100 per month)
How much must Henry include in gross income?

Accepted Answer

A) zero 
B) $10,575 
C) $10,568 
D) $11,150 
A) zero 
B) $10,575 
C) $10,568 
D) $11,150

Question 9

A sole proprietor never has to pay employment taxes on income earned by any of his or her children who work for the business.

Accepted Answer

A) True 
 B)False

Question 10

ABC Corporation awarded John 1,000 options in 2015; each option allows him to purchase one share of ABC Corporation stock for $20.The ABC stock is selling for $18 per share at the grant date.In 2017, John exercises the options when the stock's selling price was $40 per share.In 2019, John sells the stock for $50 per share.What is ABC Corporation's deduction if they are incentive stock options?

Accepted Answer

A) $0 
B) $18,000 
C) $20,000 
D) $40,000 
A) $0 
B) $18,000 
C) $20,000 
D) $40,000

Question 11

Employees are subject to and employers withhold FICA and FUTA taxes.

Accepted Answer

A) True 
 B)False

Question 12

Wilma is CEO of and owns 100 percent of WT Enterprises, a cash-basis, calendar-year corporation.The company has always been profitable but over the last five years Wilma's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends.Which of the following will not occur if the IRS determines that $500,000 of her salary is unreasonable?

Accepted Answer

A) Wilma will pay an additional tax on the $500,000 recharacterized as dividend. 
B) Wilma will be eligible for a refund of Medicare taxes. 
C) WT will lose a deduction for the $500,000 recharacterized as a dividend. 
D) WT will be eligible for a refund of a portion of FICA taxes it paid. 
A) Wilma will pay an additional tax on the $500,000 recharacterized as dividend. 
B) Wilma will be eligible for a refund of Medicare taxes. 
C) WT will lose a deduction for the $500,000 recharacterized as a dividend. 
D) WT will be eligible for a refund of a portion of FICA taxes it paid.

Question 13

Which type of retirement plan guarantees a specific amount of income for the person upon retirement?

Accepted Answer

A) Defined benefit plan 
B) Defined contribution plan 
C) 401(k) plan 
D) An ESOP 
A) Defined benefit plan 
B) Defined contribution plan 
C) 401(k) plan 
D) An ESOP

Question 14

An employee who receives a nonqualified stock option recognizes income when the option is received and when it is exercised regardless of the strike price.

Accepted Answer

A) True 
 B)False

Question 15

Sara, a cash-basis, calendar-year taxpayer, worked overseas for the past three years and is eligible for the foreign earned income exclusion for the income earned from January 1 through January 31, 2019 before she returned to the United States.She was paid $30,000 including bonuses for this month's work but she did not have to pay any foreign taxes on this income.The maximum foreign earned income exclusion for 2019 is $105,900.What is her foreign earned income exclusion for 2019?

Accepted Answer

A) She has no exclusion, as she paid no foreign taxes. 
B) $8,994 
C) $30,000 
D) $103,900 
A) She has no exclusion, as she paid no foreign taxes. 
B) $8,994 
C) $30,000 
D) $103,900

Question 16

ABC Corporation awarded John 1,000 options in 2015; each option allows him to purchase one share of ABC Corporation stock for $20.The ABC stock was selling for $18 per share at the grant date.In 2017, John exercised the options when the stock's selling price was $40 per share.In 2019, John sells the stock for $50 per share.How much gain does John recognize in 2019 when he sells the stock if they are incentive stock options?

Accepted Answer

A) $0 
B) $10,000 
C) $20,000 
D) $30,000 
A) $0 
B) $10,000 
C) $20,000 
D) $30,000

Question 17

James owns a sole proprietorship.James pays his son Albert, age 17, $8,000 and his daughter Chloe, age 19, $11,000 for their work in the business.Both wages are reasonable for the work they perform.How much FICA tax must the sole proprietorship pay on the wages?

Accepted Answer

A) 0 
B) $612 
C) $842 
D) $1,454 
A) 0 
B) $612 
C) $842 
D) $1,454

Question 18

S corporations have an incentive to pay unusually low salaries to an employee-shareholder to avoid FICA taxes.

Accepted Answer

A) True 
 B)False

Question 19

A taxpayer must work out of the country for a complete tax year, or he or she will not be eligible for the foreign earned income exclusion.

Accepted Answer

A) True 
 B)False

Question 20

Self-employed individuals make the deposits to their self-employment taxes in the months of April, July, September, and January.

Accepted Answer

A) True 
 B)False

During 2019, Zach has net income from his sole proprietorship of $35,000.He also earned $106,600 as an employee in 2019.How much self-employment tax must Zach pay?

In a defined benefit retirement plan, the employer bears the financial risk for the plan investments.

All of the following expenditures qualify for reimbursement under an educational reimbursement plan except:

As long as the plan is nondiscriminatory, any life insurance provided employees as a fringe benefit is tax-exempt.

Which of the following is not a purpose of a per diem allowance?

Which of the following are characteristics of a traditional IRA?

A sole proprietor never has to pay employment taxes on income earned by any of his or her children who work for the business.

Employees are subject to and employers withhold FICA and FUTA taxes.

Which type of retirement plan guarantees a specific amount of income for the person upon retirement?

An employee who receives a nonqualified stock option recognizes income when the option is received and when it is exercised regardless of the strike price.

James owns a sole proprietorship.James pays his son Albert, age 17, $8,000 and his daughter Chloe, age 19, $11,000 for their work in the business.Both wages are reasonable for the work they perform.How much FICA tax must the sole proprietorship pay on the wages?

S corporations have an incentive to pay unusually low salaries to an employee-shareholder to avoid FICA taxes.

A taxpayer must work out of the country for a complete tax year, or he or she will not be eligible for the foreign earned income exclusion.

Self-employed individuals make the deposits to their self-employment taxes in the months of April, July, September, and January.

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

During 2019, Zach has net income from his sole proprietorship of $35,000.He also earned $106,600 as an employee in 2019.How much self-employment tax must Zach pay?

In a defined benefit retirement plan, the employer bears the financial risk for the plan investments.

All of the following expenditures qualify for reimbursement under an educational reimbursement plan except:

As long as the plan is nondiscriminatory, any life insurance provided employees as a fringe benefit is tax-exempt.

Which of the following is not a purpose of a per diem allowance?

Which of the following are characteristics of a traditional IRA?

A sole proprietor never has to pay employment taxes on income earned by any of his or her children who work for the business.

Employees are subject to and employers withhold FICA and FUTA taxes.

Which type of retirement plan guarantees a specific amount of income for the person upon retirement?

An employee who receives a nonqualified stock option recognizes income when the option is received and when it is exercised regardless of the strike price.

James owns a sole proprietorship.James pays his son Albert, age 17, $8,000 and his daughter Chloe, age 19, $11,000 for their work in the business.Both wages are reasonable for the work they perform.How much FICA tax must the sole proprietorship pay on the wages?

S corporations have an incentive to pay unusually low salaries to an employee-shareholder to avoid FICA taxes.

A taxpayer must work out of the country for a complete tax year, or he or she will not be eligible for the foreign earned income exclusion.

Self-employed individuals make the deposits to their self-employment taxes in the months of April, July, September, and January.

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