Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A sole proprietor in the 39.6% tax bracket pays her 16-year-old son a reasonable salary of $10,000 for services performed for the proprietorship. Compute the family's tax savings if the son has no other income, is claimed as a dependent on his parents' return, and takes a $6,300 standard deduction.

Accepted Answer

A)  $3,590 
B)  $3,960 
C)  $2,455 
D)  None of the above 
A)  $3,590 
B)  $3,960 
C)  $2,455 
D)  None of the above

Question 3

Six years ago, HOPCO granted Lin 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, Lin Sing exercised the option when the market price was $64 per share. How much ordinary income does Lin Sing recognize because of the exercise?

Accepted Answer

A)  $0 
B)  $5,000 
C)  $9,000 
D)  $14,000 
A)  $0 
B)  $5,000 
C)  $9,000 
D)  $14,000

Question 4

Jason, a single individual, is employed by KLD Inc. but doesn't participate in any employer-sponsored retirement plan. Jason's annual contribution to his Roth IRA is deductible.

Accepted Answer

A) True 
 B)False

Question 5

An S corporation generated $160,000 ordinary taxable income this year. The shareholders must pay both income and self-employment tax on their pro rata shares of this income.

Accepted Answer

A) True 
 B)False

Question 6

The value of a nontaxable fringe benefit is different for each employee because employees have different financial needs and consumption preferences.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Six years ago, HOPCO granted Ms. Cardena a nonqualified option to purchase 1,000 shares of HOPCO stock at $12 per share. On date of grant, the market price was $10 per share. This year, Ms. Cardena exercised the option when the market price was $33 per share. Compute HOPCO's deduction resulting from the exercise.

Accepted Answer

A)  $0 
B)  $12,000 
C)  $23,000 
D)  None of the above. 
A)  $0 
B)  $12,000 
C)  $23,000 
D)  None of the above.

Question 9

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

Accepted Answer

A)  Cash basis employees must report wages in the year payment is actually or constructively received. 
B)  Employees may elect whether or not their employer withholds income and payroll taxes from their wages. 
C)  Whether wages are currently deductible by the employer depends on the type of services rendered by the employee. 
D)  Wages paid to business employees are either deductible by the employer or treated as a capitalized cost. 
A)  Cash basis employees must report wages in the year payment is actually or constructively received. 
B)  Employees may elect whether or not their employer withholds income and payroll taxes from their wages. 
C)  Whether wages are currently deductible by the employer depends on the type of services rendered by the employee. 
D)  Wages paid to business employees are either deductible by the employer or treated as a capitalized cost.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 of the distribution if Louise has a 33% marginal tax rate on ordinary income.

Accepted Answer

A)  $6,600 
B)  $8,600 
C)  $23,100 
D)  $30,100 
A)  $6,600 
B)  $8,600 
C)  $23,100 
D)  $30,100

Question 12

Traditional IRAs but not Roth IRAs are subject to a minimum distribution requirement when the owner reaches age 70½.

Accepted Answer

A) True 
 B)False

Question 13

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?

Accepted Answer

A)  Ms. Cardena recognizes $31,000 ordinary income, and Acnex is allowed a $31,000 deduction this year. 
B)  Ms. Cardena recognizes $31,000 ordinary income, and Acnex is allowed a $44,000 deduction this year. 
C)  Ms. Cardena recognizes $33,000 ordinary income, and Acnex is allowed a $33,000 deduction this year. 
D)  Ms. Cardena recognizes $33,000 ordinary income, and Acnex is allowed a $44,000 deduction this year. 
A)  Ms. Cardena recognizes $31,000 ordinary income, and Acnex is allowed a $31,000 deduction this year. 
B)  Ms. Cardena recognizes $31,000 ordinary income, and Acnex is allowed a $44,000 deduction this year. 
C)  Ms. Cardena recognizes $33,000 ordinary income, and Acnex is allowed a $33,000 deduction this year. 
D)  Ms. Cardena recognizes $33,000 ordinary income, and Acnex is allowed a $44,000 deduction this year.

Question 14

A shareholder-employee of an S corporation prefers to receive a greater salary rather than a greater pro-rata share of corporate taxable income.

Accepted Answer

A) True 
 B)False

Question 15

Ms. Knox, age 34 and single, has $124,800 AGI, $108,200 of which is compensation income. Compute her maximum contribution to her Roth IRA.

Accepted Answer

A)  $0 
B)  $2,640 
C)  $2,860 
D)  $5,500 
A)  $0 
B)  $2,640 
C)  $2,860 
D)  $5,500

Question 16

Both traditional IRAs and Roth IRAs are tax-exempt accounts.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  The IRS can disallow Lessing's $50,000 deduction for the son's salary. 
B)  The IRS can treat the $50,000 payment as a constructive dividend to the son. 
C)  The IRS can treat the $50,000 payment as a constructive dividend to Mr. and Mrs. Williams. 
D)  The discovery has no tax consequences to Mr. and Mrs. Williams or their son. 
A)  The IRS can disallow Lessing's $50,000 deduction for the son's salary. 
B)  The IRS can treat the $50,000 payment as a constructive dividend to the son. 
C)  The IRS can treat the $50,000 payment as a constructive dividend to Mr. and Mrs. Williams. 
D)  The discovery has no tax consequences to Mr. and Mrs. Williams or their son.

Question 18

Stock options are a form of compensation that requires a substantial cash outlay by the corporate employer.

Accepted Answer

A) True 
 B)False

Question 19

The 10% penalty imposed on premature withdrawals from qualified retirement plans is intended to discourage participants from withdrawing funds before retirement.

Accepted Answer

A) True 
 B)False

Question 20

Keogh plans allow self-employed individuals to save for retirement on a tax-deferred basis.

Accepted Answer

A) True 
 B)False

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

A sole proprietor in the 39.6% tax bracket pays her 16-year-old son a reasonable salary of $10,000 for services performed for the proprietorship. Compute the family's tax savings if the son has no other income, is claimed as a dependent on his parents' return, and takes a $6,300 standard deduction.

Jason, a single individual, is employed by KLD Inc. but doesn't participate in any employer-sponsored retirement plan. Jason's annual contribution to his Roth IRA is deductible.

An S corporation generated $160,000 ordinary taxable income this year. The shareholders must pay both income and self-employment tax on their pro rata shares of this income.

The value of a nontaxable fringe benefit is different for each employee because employees have different financial needs and consumption preferences.

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

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

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

Traditional IRAs but not Roth IRAs are subject to a minimum distribution requirement when the owner reaches age 70½.

A shareholder-employee of an S corporation prefers to receive a greater salary rather than a greater pro-rata share of corporate taxable income.

Ms. Knox, age 34 and single, has $124,800 AGI, $108,200 of which is compensation income. Compute her maximum contribution to her Roth IRA.

Both traditional IRAs and Roth IRAs are tax-exempt accounts.

Stock options are a form of compensation that requires a substantial cash outlay by the corporate employer.

The 10% penalty imposed on premature withdrawals from qualified retirement plans is intended to discourage participants from withdrawing funds before retirement.

Keogh plans allow self-employed individuals to save for retirement on a tax-deferred basis.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 15: Compensation and Retirement Planning

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

A sole proprietor in the 39.6% tax bracket pays her 16-year-old son a reasonable salary of $10,000 for services performed for the proprietorship. Compute the family's tax savings if the son has no other income, is claimed as a dependent on his parents' return, and takes a $6,300 standard deduction.

Jason, a single individual, is employed by KLD Inc. but doesn't participate in any employer-sponsored retirement plan. Jason's annual contribution to his Roth IRA is deductible.

An S corporation generated $160,000 ordinary taxable income this year. The shareholders must pay both income and self-employment tax on their pro rata shares of this income.

The value of a nontaxable fringe benefit is different for each employee because employees have different financial needs and consumption preferences.

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

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

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

Traditional IRAs but not Roth IRAs are subject to a minimum distribution requirement when the owner reaches age 70½.

A shareholder-employee of an S corporation prefers to receive a greater salary rather than a greater pro-rata share of corporate taxable income.

Ms. Knox, age 34 and single, has $124,800 AGI, $108,200 of which is compensation income. Compute her maximum contribution to her Roth IRA.

Both traditional IRAs and Roth IRAs are tax-exempt accounts.

Stock options are a form of compensation that requires a substantial cash outlay by the corporate employer.

The 10% penalty imposed on premature withdrawals from qualified retirement plans is intended to discourage participants from withdrawing funds before retirement.

Keogh plans allow self-employed individuals to save for retirement on a tax-deferred basis.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters