Exam 15: Compensation and Retirement Planning

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.

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

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

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

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.

Nonqualified deferred compensation plans are prohibited from discriminating in favor of highly compensated employees.

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.