Exam 15: Compensation and Retirement Planning

Employees typically recognize compensation income in the year in which they are granted stock options.

This year,Mr.Cox elected to contribute $4,000 of his $95,000 salary to his Section 401(k)plan.Mr.Cox's employer made a $4,000 matching contribution.How much compensation is reported on Mr.Cox's Form W-2?

Profit-sharing plans and employee stock ownership plans are examples of defined-benefit plans.

An independent contractor is not entitled to the same fringe benefits as an employee.

An employee who receives restricted stock as compensation from a corporate employer must include the stock's fair market value in gross income in the year of receipt,even though the employee's ownership rights in the stock are nonvested.

Julie,a single individual,is employed by Dashell Inc.but doesn't participate in any employer-sponsored retirement plan.Julie's annual contribution to her traditional IRA is deductible.

Louise,age 51,quit her job and received a $70,000 distribution from her employer-sponsored qualified retirement plan.She immediately contributed $50,000 to a rollover IRA and used the remaining $20,000 to purchase a car.Compute the tax cost (and premature withdrawal penalty,if applicable)of the distribution if Louise has a 32% marginal tax rate on ordinary income.

Self-employed individuals have fewer opportunities than employees to underpay income and payroll taxes.

Mr.Sherman incurred $7,000 of employment-related business expenses.Which of the following statements is true?

Jason Inc.maintains a qualified profit-sharing plan for its employees.This year,Jason contributed $2,300 to Ms.Preston's profit-sharing account.Which of the following statements is true?

Lansing Corporation,a publicly held company with a 21% tax rate,paid its PEO an annual salary of $1 million plus a year-end bonus of $500,000 million.The bonus was based on a targeted amount of annual gross revenue.Ignoring payroll taxes,calculate the after-tax cost of this payment.

Wages paid by an employer to an employee who is the employer's child under age 18 are not subject to federal FICA and unemployment taxes.

A corporation that transfers restricted stock to an employee as compensation may deduct the stock's fair market value in the year of transfer even if the employee doesn't recognize the value as gross income in the year of transfer.

Lansing Corporation,a publicly held company with a 21% tax rate,paid its PEO an annual salary of $2.3 million.Ignoring payroll taxes,calculate the after-tax cost of this payment.

Qualified withdrawals from both traditional and Roth IRAs are tax-exempt.

The classification of a worker as an employee or an independent contractor determines how much payroll tax a company must pay.

Six years ago,HOPCO granted Mr.Sing a nonqualified option to purchase 1,000 shares of HOPCO stock at $55 per share.On date of grant,the market price was $50 per share.This year,Mr.Sing exercised the option when the market price was $64 per share.How much ordinary income does Mr.Sing recognize because of the exercise?

Mrs.Lee,age 70,withdrew $10,000 from her Roth IRA this year.Mrs.Lee opened this account in 2000.The balance in the account at year-end was $76,600,which included $50,000 of contributions.Compute the taxable portion of the $10,000 withdrawal.

Which of the following statements regarding the foreign earned income exclusion is false?

Employers typically use nonqualified deferred compensation plans to provide additional retirement savings for rank-and-file employees.