Exam 15: Compensation and Retirement Planning

In 2019,Dargo Inc.,a calendar year corporation,accrued a $75,000 year-end bonus payable to its communications director.Dargo and the director are not related parties.Dargo paid the bonus to the director on February 8,2020.Dargo can deduct the bonus in 2019.

Ms.Jorland is a 30-year old single taxpayer.Her $3,760 AGI is the total of $7,940 interest and dividend income from a trust fund,$4,190 income from a rent property,and an $8,370 loss from a new business that she started this year.Compute Ms.Jorland's maximum IRA contribution.

Mr.Smith,age 61,withdrew $12,000 from his traditional IRA this year.The balance in the account at year-end was $183,700,which included $40,000 of nondeductible contributions.Compute the taxable portion of the $12,000 withdrawal.

This year,Nilo Inc.granted nonqualified stock options to 230 employees.For financial statement purposes,Nilo recorded a $179,200 expense for the estimated value of the options.As a result of this transaction,Nilo has a:

Employees who save for retirement through an employer-sponsored qualified plan never include the earnings on their savings in gross income.

Any individual taxpayer who earns any amount of compensation or self-employment income can contribute $6,000 to a traditional IRA.

Reimbursed employment-related business expenses have no net effect on the employee's taxable income.

This year,Jenko Inc.,a calendar year taxpayer,issued 1,000 shares of its publicly traded stock as a bonus to its employee,Mrs.Leder.On the date of issuance,the stock's fair market value was $25,000,and Mrs.Leder's ownership rights in the stock were unrestricted.Which of the following statements is true?

On June 30,2016,Kelso Inc.,a calendar year corporation,issued 2,000 shares of its publicly traded stock as compensation to its employee,Nick Penn.On date of issuance,the stock's fair market value was $13,500.Under the terms of his employment contract,Mr.Penn couldn't dispose of the stock before February 1,2020,and if he terminated his employment with Kelso before that date,he had to forfeit the stock back to Kelso.On February 1,2020,the fair market value of the 2,000 shares was $20,000.Which of the following statements is true?

Self-employed individuals are allowed to deduct the cost of health insurance for themselves and their families only as an itemized deduction.

Six years ago,HOPCO granted Mrs.Sing an incentive stock option (ISO)to purchase 1,000 shares of HOPCO stock for $55 per share.On date of grant,the market price was $50 per share.This year,Mrs.Sing exercised the ISO when the market price was $64 per share.How much ordinary income does she recognize because of the exercise?

Mr.Hazel,the principal executive officer of a publicly held corporation,received $2.5 million compensation this year.The compensation consisted of an $800,000 base salary and a $1.7 million year-end bonus for outstanding performance.The corporation is allowed to deduct the entire amount of Mr.Hazel's compensation.

Which of the following statements concerning the client-independent contractor relationship is false?

Employers must withhold state and federal income tax from compensation paid to independent contractors.

Mr.and Mrs.Williams are the sole shareholders of Lessing,Inc.,an S corporation.Last year,Lessing employed the Williams' son and paid him a $50,000 salary.During a recent IRS audit,the revenue agent discovered that the son rarely shows up for work and spends most of his time playing golf.Which of the following statements is true?

Mr.Wang's corporate employer transferred him from its Seattle office to its San Jose office.Mr.Wang incurred $18,000 of moving expenses to relocate his household to San Jose.Which of the following statements is true?

Peter is a 20-year-old college student.His AGI consists of $12,000 interest and dividend income from a trust fund and $4,180 of wages from a part-time job.Compute Peter's maximum IRA contribution:

New companies and those with volatile earnings and uncertain cash flows generally prefer defined-contribution plans to defined-benefit plans.

Carl Meyer,age 56,terminated his employment with his corporate employer because he wanted to begin a second career as a freelance photographer.If Carl withdraws funds from his employer-sponsored qualified plan,he will pay the 10% premature withdrawal penalty.

A stock option is the right to purchase the stock of a corporate employer at a stated price for an indefinite period of time.