Exam 15: Compensation and Retirement Planning

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?

Employees don't include the value of any compensatory fringe benefits in gross income because the benefit doesn't consist of a direct cash payment.

Unreimbursed employment-related business expenses are an itemized deduction.

Mrs. Connelly, a self-employed individual, maintains a defined-contribution Keogh plan. Regardless of the amount of her self-employment income, Mrs. Connelly may contribute $57,000 to the Keogh plan in 2020.

Mr. Thano, age 47, withdrew $22,000 from his employer-sponsored qualified retirement plan to pay for his daughter's wedding. Compute the tax cost(and premature withdrawal penalty, if applicable) of the withdrawal if Mr. Thano has a 37% marginal tax rate on ordinary income.

Which of the following statements regarding the tax consequences of employee wages is false?

A cafeteria plan allows employees to select between a variety of nontaxable fringe benefits or taxable cash compensation.

Ms. Knox, age 34 and single, has $129,800 AGI, $108,200 of which is compensation income. Compute her maximum contribution to her Roth IRA.

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:

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.

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.

Mr. Scott, age 46, quit his job with MNP Inc. and withdrew the $184,000 balance in his Section 401(k) plan. Mr. Scott immediately deposited the withdrawal in a new rollover Roth IRA with a local bank. Which of the following statements is false?

Lana, an employee of Compton University, paid $1,500 for professional journal subscriptions and $1,000 membership dues to academic organizations. Her employer reimbursed her only for the $1,000 membership dues. Which of the following statements is true?

In 2020, Largo Inc., a calendar year corporation, accrued a $45,000 year-end bonus payable to its communications director. Largo and the director are not related parties. Largo paid the bonus to the director on April 3, 2021. Dargo can deduct the bonus in 2020.

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

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?

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.

In 2020, Amanda earned $70,000 self-employment income. She was allowed a $4,945 above-the line deduction for her SE tax. Compute Amanda's maximum contribution to her profit-sharing Keogh plan.

Eight years ago, Acnex Inc. granted Ms. Cardena a nonqualified option to purchase 1,000 shares of Acnex stock at $44 per share. On date of grant, the market price was $42 per share. This year, Ms. Cardena exercised the option when the market price was $75 per share. Which of the following statements is true?

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?