Question 1

Which of the following statements comparing traditional and Roth IRAs is false?

Accepted Answer

A)  For a 57-year old individual, the maximum allowable contribution to either type of IRA is $6,500. 
B)  Contributions to traditional IRAs may be deductible; contributions to Roth IRAs are nondeductible. 
C)  Individuals who have reached age 70½ must begin liquidating either type of IRA. 
D)  Individuals may have to pay a premature withdrawal penalty from either type of IRA. 
A)  For a 57-year old individual, the maximum allowable contribution to either type of IRA is $6,500. 
B)  Contributions to traditional IRAs may be deductible; contributions to Roth IRAs are nondeductible. 
C)  Individuals who have reached age 70½ must begin liquidating either type of IRA. 
D)  Individuals may have to pay a premature withdrawal penalty from either type of IRA.

Question 2

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 3

Mr. and Mrs. Alexander, ages 43 and 44, each earn substantial salaries but do not participate in any type of employer-sponsored qualified retirement plan. Which of the following is true?

Accepted Answer

A)  The couple can each contribute $5,500 to a traditional IRA and take an $11,000 itemized deduction on their joint Form 1040. 
B)  The couple can each contribute $5,500 to a traditional IRA and take an $11,000 above-the-line deduction on their joint Form 1040. 
C)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 above-the-line deduction on their joint Form 1040. 
D)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 itemized deduction on their joint Form 1040. 
A)  The couple can each contribute $5,500 to a traditional IRA and take an $11,000 itemized deduction on their joint Form 1040. 
B)  The couple can each contribute $5,500 to a traditional IRA and take an $11,000 above-the-line deduction on their joint Form 1040. 
C)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 above-the-line deduction on their joint Form 1040. 
D)  The couple can each contribute $2,750 to a traditional IRA and take a $5,500 itemized deduction on their joint Form 1040.

Question 4

Defined-contribution plans provide participants with a targeted retirement benefit, typically in the form of a monthly pension.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements regarding employee versus independent contractor status is false?

Accepted Answer

A)  The determination as to whether a worker is an employee or an independent contractor is based on a subjective set of guidelines. 
B)  An employer has a financial incentive to classify a worker as an independent contractor instead of an employee. 
C)  The IRS has a higher probability of collecting income and payroll taxes from an independent contractor than from an employee. 
D)  If the IRS reclassifies a worker from independent contractor to employee, the employer can become liable for the employee's share of unpaid payroll taxes. 
A)  The determination as to whether a worker is an employee or an independent contractor is based on a subjective set of guidelines. 
B)  An employer has a financial incentive to classify a worker as an independent contractor instead of an employee. 
C)  The IRS has a higher probability of collecting income and payroll taxes from an independent contractor than from an employee. 
D)  If the IRS reclassifies a worker from independent contractor to employee, the employer can become liable for the employee's share of unpaid payroll taxes.

Question 6

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.

Accepted Answer

A)  $0 
B)  $4,226 
C)  $5,774 
D)  $10,000 
A)  $0 
B)  $4,226 
C)  $5,774 
D)  $10,000

Question 7

Lansing Corporation, a publicly held company with a 35% marginal tax rate, paid its CEO an annual salary of $1 million plus a bonus of $1.3 million. The bonus was based a targeted amount of annual gross revenue. Ignoring payroll taxes, calculate the after-tax cost of this payment.

Accepted Answer

A)  $2.3 million 
B)  $1.495 million 
C)  $1.95 million 
D)  $0 
A)  $2.3 million 
B)  $1.495 million 
C)  $1.95 million 
D)  $0

Question 8

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 9

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 10

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

Accepted Answer

A) True 
 B)False

Question 11

An employee receives $110,000 of group term life insurance coverage per year. The cost of this coverage to his employer is $90. The cost based on the IRS's uniform premium table is $1.08 per year per $1,000 of coverage. What amount is taxable to the employee?

Accepted Answer

A)  $64.80 
B)  $54.00 
C)  $90.00 
D)  $118.80 
A)  $64.80 
B)  $54.00 
C)  $90.00 
D)  $118.80

Question 12

Unreimbursed moving expenses are a miscellaneous itemized deduction.

Accepted Answer

A) True 
 B)False

Question 13

Mrs. Soon retired at age 68 and withdrew the entire $77,100 balance from an IRA to buy a sailboat. She opened this account in 1999. Which of the following statements is false?

Accepted Answer

A)  If the account is a Roth IRA, none of the withdrawal is taxable. 
B)  If the account is a traditional IRA to which Mrs. Soon made $32,000 nondeductible contributions, $45,100 of the withdrawal is taxable. 
C)  If the account is a traditional IRA funded entirely with deductible contributions, the entire $77,100 withdrawal is taxable. 
D)  None of the above is false. 
A)  If the account is a Roth IRA, none of the withdrawal is taxable. 
B)  If the account is a traditional IRA to which Mrs. Soon made $32,000 nondeductible contributions, $45,100 of the withdrawal is taxable. 
C)  If the account is a traditional IRA funded entirely with deductible contributions, the entire $77,100 withdrawal is taxable. 
D)  None of the above is false.

Question 14

Which of the following statements regarding Keogh plans is false?

Accepted Answer

A)  Keogh plans provide a tax-deferred retirement savings option for self-employed individuals. 
B)  Keogh plans must be administered by an independent trustee. 
C)  Keogh plans can be either defined-benefit or defined-contribution plans. 
D)  A self-employed person with a Keogh plan is not required to provide retirement benefits to his or her employees through the plan. 
A)  Keogh plans provide a tax-deferred retirement savings option for self-employed individuals. 
B)  Keogh plans must be administered by an independent trustee. 
C)  Keogh plans can be either defined-benefit or defined-contribution plans. 
D)  A self-employed person with a Keogh plan is not required to provide retirement benefits to his or her employees through the plan.

Question 15

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 16

Which of the following statements concerning qualified retirement plans is false?

Accepted Answer

A)  Employer contributions to the plan are not included in the employees' gross income. 
B)  The plan is tax-exempt so that earnings can accumulate on a before-tax basis. 
C)  Employer contributions are deductible in the year of payment. 
D)  None of the above is false. 
A)  Employer contributions to the plan are not included in the employees' gross income. 
B)  The plan is tax-exempt so that earnings can accumulate on a before-tax basis. 
C)  Employer contributions are deductible in the year of payment. 
D)  None of the above is false.

Question 17

Mrs. Lee, age 70, withdrew $40,000 from her traditional IRA this year. The balance in the account at year-end was $96,600, which included $28,000 of nondeductible contributions. Compute the taxable portion of the $40,000 withdrawal.

Accepted Answer

A)  $0 
B)  $8,199 
C)  $31,801 
D)  $40,000 
A)  $0 
B)  $8,199 
C)  $31,801 
D)  $40,000

Question 18

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.

Accepted Answer

A)  $0 
B)  $3,760 
C)  $4,190 
D)  $5,500 
A)  $0 
B)  $3,760 
C)  $4,190 
D)  $5,500

Question 19

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 20

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

Which of the following statements comparing traditional and Roth IRAs is false?

Mr. and Mrs. Alexander, ages 43 and 44, each earn substantial salaries but do not participate in any type of employer-sponsored qualified retirement plan. Which of the following is true?

Defined-contribution plans provide participants with a targeted retirement benefit, typically in the form of a monthly pension.

Which of the following statements regarding employee versus independent contractor status is false?

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.

Lansing Corporation, a publicly held company with a 35% marginal tax rate, paid its CEO an annual salary of $1 million plus a bonus of $1.3 million. The bonus was based a targeted amount of annual gross revenue. Ignoring payroll taxes, calculate the after-tax cost of this payment.

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

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

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

An employee receives $110,000 of group term life insurance coverage per year. The cost of this coverage to his employer is $90. The cost based on the IRS's uniform premium table is $1.08 per year per $1,000 of coverage. What amount is taxable to the employee?

Unreimbursed moving expenses are a miscellaneous itemized deduction.

Mrs. Soon retired at age 68 and withdrew the entire $77,100 balance from an IRA to buy a sailboat. She opened this account in 1999. Which of the following statements is false?

Which of the following statements regarding Keogh plans is false?

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

Which of the following statements concerning qualified retirement plans is false?

Mrs. Lee, age 70, withdrew $40,000 from her traditional IRA this year. The balance in the account at year-end was $96,600, which included $28,000 of nondeductible contributions. Compute the taxable portion of the $40,000 withdrawal.

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.

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.

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 comparing traditional and Roth IRAs is false?

Mr. and Mrs. Alexander, ages 43 and 44, each earn substantial salaries but do not participate in any type of employer-sponsored qualified retirement plan. Which of the following is true?

Defined-contribution plans provide participants with a targeted retirement benefit, typically in the form of a monthly pension.

Which of the following statements regarding employee versus independent contractor status is false?

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.

Lansing Corporation, a publicly held company with a 35% marginal tax rate, paid its CEO an annual salary of $1 million plus a bonus of $1.3 million. The bonus was based a targeted amount of annual gross revenue. Ignoring payroll taxes, calculate the after-tax cost of this payment.

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

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

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

An employee receives $110,000 of group term life insurance coverage per year. The cost of this coverage to his employer is $90. The cost based on the IRS's uniform premium table is $1.08 per year per $1,000 of coverage. What amount is taxable to the employee?

Unreimbursed moving expenses are a miscellaneous itemized deduction.

Mrs. Soon retired at age 68 and withdrew the entire $77,100 balance from an IRA to buy a sailboat. She opened this account in 1999. Which of the following statements is false?

Which of the following statements regarding Keogh plans is false?

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

Which of the following statements concerning qualified retirement plans is false?

Mrs. Lee, age 70, withdrew $40,000 from her traditional IRA this year. The balance in the account at year-end was $96,600, which included $28,000 of nondeductible contributions. Compute the taxable portion of the $40,000 withdrawal.

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.

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.

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