Question 1

Which of the following statements regarding fringe benefits is false?

Accepted Answer

A)  The general rule is that an employee fringe benefit is taxable unless the benefit is specifically excluded from the employee's gross income. 
B)  Employers are not allowed to deduct the cost of nontaxable employee fringe benefits. 
C)  Nontaxable fringe benefits must be provided to employees on a nondiscriminatory basis. 
D)  None of the above is false. 
A)  The general rule is that an employee fringe benefit is taxable unless the benefit is specifically excluded from the employee's gross income. 
B)  Employers are not allowed to deduct the cost of nontaxable employee fringe benefits. 
C)  Nontaxable fringe benefits must be provided to employees on a nondiscriminatory basis. 
D)  None of the above is false.

Question 2

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?

Accepted Answer

A)  $91,000 
B)  $87,000 
C)  $95,000 
D)  $99,000 
A)  $91,000 
B)  $87,000 
C)  $95,000 
D)  $99,000

Question 3

Mr. and Mrs. Williams are the sole shareholders of Lessing, Inc., a regular 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 treat the $50,000 payment as a constructive dividend to the son. 
B)  The IRS can treat the $50,000 payment as a constructive dividend to Mr. and Mrs. Williams. 
C)  The IRS can disallow Lessing's $50,000 deduction for the son's salary. 
D)  Both B. and C. are true. 
A)  The IRS can treat the $50,000 payment as a constructive dividend to the son. 
B)  The IRS can treat the $50,000 payment as a constructive dividend to Mr. and Mrs. Williams. 
C)  The IRS can disallow Lessing's $50,000 deduction for the son's salary. 
D)  Both B. and C. are true.

Question 4

In 2016, 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.

Accepted Answer

A)  $13,011 
B)  $12,022 
C)  $65,055 
D)  $53,000 
A)  $13,011 
B)  $12,022 
C)  $65,055 
D)  $53,000

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Mr. Paul, age 73 and single, earned a $150,000 salary (AGI) as a university professor. He no longer participates in the university's qualified retirement plan. Which of the following is true?

Accepted Answer

A)  Mr. Paul can make a $6,500 deductible contribution to a traditional IRA. 
B)  Mr. Paul can make a $6,500 nondeductible contribution to a traditional IRA. 
C)  Mr. Paul can make a $6,500 nondeductible contribution to a Roth IRA. 
D)  Mr. Paul can't make an IRA contribution. 
A)  Mr. Paul can make a $6,500 deductible contribution to a traditional IRA. 
B)  Mr. Paul can make a $6,500 nondeductible contribution to a traditional IRA. 
C)  Mr. Paul can make a $6,500 nondeductible contribution to a Roth IRA. 
D)  Mr. Paul can't make an IRA contribution.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

Vernon Inc. needs an additional worker on a multiyear project. Vernon could either hire an employee for a $70,000 annual salary or engage an independent contractor for a $75,000 annual fee. If Vernon's marginal income tax rate is 34%, which option minimizes the after-tax cost of obtaining the worker?

Accepted Answer

The independent contractor option is the

Question 10

Mr. and Mrs. Lawry, both age 60, each make the maximum contribution to their traditional IRAs. Mr. Lawry is an active participant in a section 401(k) plan, but Mrs. Lawry is not an active participant in any other qualified plan. If their joint AGI before any IRA deduction is $144,900, compute their AGI.

Accepted Answer

A)  $144,900 
B)  $139,400 
C)  $138,400 
D)  $131,900 
A)  $144,900 
B)  $139,400 
C)  $138,400 
D)  $131,900

Question 11

Dargo Inc., a calendar year corporation, accrued a $75,000 year-end bonus payable to its CEO in 2016. Dargo and the CEO are not related parties. Dargo paid the bonus to the CEO on February 8, 2017. Dargo can deduct the bonus in 2016.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  Expatriates may not claim a foreign tax credit for foreign tax paid on excluded income. 
B)  The exclusion is limited to an inflation-adjusted annual dollar amount. 
C)  The exclusion is available to any U.S. citizen employed by a foreign company. 
D)  The exclusion is available to any U.S. citizen working and residing in a foreign country. 
A)  Expatriates may not claim a foreign tax credit for foreign tax paid on excluded income. 
B)  The exclusion is limited to an inflation-adjusted annual dollar amount. 
C)  The exclusion is available to any U.S. citizen employed by a foreign company. 
D)  The exclusion is available to any U.S. citizen working and residing in a foreign country.

Question 13

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?

Accepted Answer

A)  If his employer paid him a $15,000 moving allowance, Mr. Wang is allowed a $3,000 above-the-line deduction. 
B)  If his employer paid him a $15,000 moving allowance, Mr. Wang is allowed a $3,000 itemized deduction not subject to the 2% AGI floor. 
C)  If his employer paid him a $15,000 moving allowance, Mr. Wang is allowed a $3,000 miscellaneous itemized deduction. 
D)  Mr. Wang is not allowed any deduction for unreimbursed moving expenses. 
A)  If his employer paid him a $15,000 moving allowance, Mr. Wang is allowed a $3,000 above-the-line deduction. 
B)  If his employer paid him a $15,000 moving allowance, Mr. Wang is allowed a $3,000 itemized deduction not subject to the 2% AGI floor. 
C)  If his employer paid him a $15,000 moving allowance, Mr. Wang is allowed a $3,000 miscellaneous itemized deduction. 
D)  Mr. Wang is not allowed any deduction for unreimbursed moving expenses.

Question 14

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:

Accepted Answer

A)  Temporary favorable book/tax difference 
B)  Temporary unfavorable book/tax difference 
C)  Permanent favorable book/tax difference 
D)  Permanent unfavorable book/tax difference 
A)  Temporary favorable book/tax difference 
B)  Temporary unfavorable book/tax difference 
C)  Permanent favorable book/tax difference 
D)  Permanent unfavorable book/tax difference

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

Contributions to an employer-sponsored qualified retirement plan are deductible by the employer in the year of contribution but are not included in the employees' gross income.

Accepted Answer

A) True 
 B)False

Question 17

The value of employer-provided health insurance is excluded from the employee's gross income.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Lana, an employee of Compton University, paid $1,500 for professional journal subscriptions and $1,000 of membership dues to academic organizations. These unreimbursed employment-related expenses are Lana's only miscellaneous itemized deduction. Which of the following statements is false?

Accepted Answer

A)  If Lana's AGI is $136,000, none of the expenses are deductible. 
B)  If Lana's AGI is $87,500, $750 of the expenses is deductible. 
C)  If Lana's AGI is $42,000, $1,660 of the expenses is deductible. 
D)  None of the statements is false. 
A)  If Lana's AGI is $136,000, none of the expenses are deductible. 
B)  If Lana's AGI is $87,500, $750 of the expenses is deductible. 
C)  If Lana's AGI is $42,000, $1,660 of the expenses is deductible. 
D)  None of the statements is false.

Question 20

This year, Mrs. Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

Accepted Answer

A)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $400,000 deduction. 
B)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $400,000 deduction. 
C)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $325,000 deduction. 
D)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $325,000 deduction. 
A)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $400,000 deduction. 
B)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $400,000 deduction. 
C)  This year, Mrs. Pike must include $400,000 in gross income, and her employer is allowed a $325,000 deduction. 
D)  This year, Mrs. Pike must include $325,000 in gross income, and her employer is allowed a $325,000 deduction.

Which of the following statements regarding fringe benefits is false?

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?

In 2016, 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.

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

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

Mr. Paul, age 73 and single, earned a $150,000 salary (AGI) as a university professor. He no longer participates in the university's qualified retirement plan. Which of the following 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.

Dargo Inc., a calendar year corporation, accrued a $75,000 year-end bonus payable to its CEO in 2016. Dargo and the CEO are not related parties. Dargo paid the bonus to the CEO on February 8, 2017. Dargo can deduct the bonus in 2016.

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

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?

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:

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.

Contributions to an employer-sponsored qualified retirement plan are deductible by the employer in the year of contribution but are not included in the employees' gross income.

The value of employer-provided health insurance is excluded from the employee's gross income.

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

Lana, an employee of Compton University, paid $1,500 for professional journal subscriptions and $1,000 of membership dues to academic organizations. These unreimbursed employment-related expenses are Lana's only miscellaneous itemized deduction. Which of the following statements is false?

This year, Mrs. Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

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

Which of the following statements regarding fringe benefits is false?

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?

In 2016, 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.

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

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

Mr. Paul, age 73 and single, earned a $150,000 salary (AGI) as a university professor. He no longer participates in the university's qualified retirement plan. Which of the following 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.

Dargo Inc., a calendar year corporation, accrued a $75,000 year-end bonus payable to its CEO in 2016. Dargo and the CEO are not related parties. Dargo paid the bonus to the CEO on February 8, 2017. Dargo can deduct the bonus in 2016.

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

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?

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:

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.

Contributions to an employer-sponsored qualified retirement plan are deductible by the employer in the year of contribution but are not included in the employees' gross income.

The value of employer-provided health insurance is excluded from the employee's gross income.

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

Lana, an employee of Compton University, paid $1,500 for professional journal subscriptions and $1,000 of membership dues to academic organizations. These unreimbursed employment-related expenses are Lana's only miscellaneous itemized deduction. Which of the following statements is false?

This year, Mrs. Pike's compensation from her corporate employer consisted of $325,000 current salary and $75,000 unfunded deferred compensation payable upon her retirement at age 66. Which of the following statements is true?

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