Question 1

Which statement is correct regarding SIMPLE retirement plans?

Accepted Answer

A) SIMPLE plans are not subject to nondiscrimination rules. 
B) This plan can only be adopted by employers with 50 or fewer employees. 
C) Only the employer can contribute to the plan. 
D) Employer contributions must vest within three years. 
A) SIMPLE plans are not subject to nondiscrimination rules. 
B) This plan can only be adopted by employers with 50 or fewer employees. 
C) Only the employer can contribute to the plan. 
D) Employer contributions must vest within three years.

Question 2

All of the following individuals are allowed a "for AGI" deduction except:

Accepted Answer

A) Cora owns her own CPA firm and travels from Lafayette,LA,to Washington,DC,to attend a tax conference. 
B) Jennifer,who lives in Houston,is the owner or several apartment buildings in Salt Lake City and travels there to inspect and manage her investments. 
C) Alan is self-employed and is away from home overnight on job-related business. 
D) Alison is an employee who is required to travel to company facilities throughout the United States in the conduct of her management responsibilities.She is not reimbursed by her employer. 
A) Cora owns her own CPA firm and travels from Lafayette,LA,to Washington,DC,to attend a tax conference. 
B) Jennifer,who lives in Houston,is the owner or several apartment buildings in Salt Lake City and travels there to inspect and manage her investments. 
C) Alan is self-employed and is away from home overnight on job-related business. 
D) Alison is an employee who is required to travel to company facilities throughout the United States in the conduct of her management responsibilities.She is not reimbursed by her employer.

Question 3

Josiah is a human resources manager of a large software company.He is considering asking for a leave of absence to pursue an MBA degree.Josiah will pay for his MBA tuition of $45,000 a year without any employer assistance.Josiah will incur a large debt if he pursues an MBA.Upon completing his MBA,he would want to consider various job opportunities.Discuss the tax issues affecting Josiah's decision.

Accepted Answer

Josiah should consider whether the educa

Question 4

Assuming AGI below the threshold,a contributor may make a deductible contribution to a Coverdell Education Savings Account for a qualified designated beneficiary of up to $2,000.

Accepted Answer

A) True 
 B)False

Question 5

Educational expenses incurred by a CPA for courses necessary to meet continuing education requirements are fully deductible.

Accepted Answer

A) True 
 B)False

Question 6

Tessa has planned a five-day trip to Miami with her husband.Before leaving,Tessa's supervisor asks her to take a morning meeting with a client while she is there.Tessa can now deduct the cost of the airfare for the trip.

Accepted Answer

A) True 
 B)False

Question 7

The maximum tax deductible contribution to a traditional IRA in 2017 is $5,500 ($6,500 for a taxpayer age 50 or over).

Accepted Answer

A) True 
 B)False

Question 8

Tessa is a self-employed CPA whose 2017 net earnings from her business (before the H.R.10 plan contribution but after the deduction for one-half of self-employment taxes)is $400,000.What is the maximum contribution that Tessa can make on her behalf to her H.R.10 (Keogh)plan in 2017?

Accepted Answer

A) $100,000 
B) $80,000 
C) $66,250 
D) $54,000 
A) $100,000 
B) $80,000 
C) $66,250 
D) $54,000

Question 9

Ruby Corporation grants stock options to Iris on February 1,2016.The options do not have a readily ascertainable value.The option price is $100,and the FMV of the Ruby stock is also $100 on the grant date.The option allows Iris to purchase 200 shares of Ruby stock.Iris exercises the option on August 1,2017,when the stock's FMV is $150.Iris sells the stock on December 5,2018 for $400.Determine the amount and character (i.e.ordinary,LTCG or STCG)of income recognized by Iris and the deduction allowed Ruby Corporation in 2016,2017 and 2018 under the following assumptions:
a.The stock option is an incentive stock option.
b.The stock option is a nonqualified stock option.

Accepted Answer

a.Incentive stock op

Question 10

Which of the following conditions would generally not favor the rollover of an untaxed retirement fund (e.g.traditional IRA or 401(k)plan)to a Roth account?

Accepted Answer

A) expected higher tax rates at retirement 
B) significant after-tax funds available to pay taxes 
C) an advanced age of the taxpayer 
D) All of the above create favorable conditions for a rollover to a Roth. 
A) expected higher tax rates at retirement 
B) significant after-tax funds available to pay taxes 
C) an advanced age of the taxpayer 
D) All of the above create favorable conditions for a rollover to a Roth.

Question 11

SIMPLE retirement plans allow a higher level of employer contributions than do SEP IRAs.

Accepted Answer

A) True 
 B)False

Question 12

A company maintains a qualified pension plan for all of its employees.The company can also establish a qualified profit-sharing plan for its management team.

Accepted Answer

A) True 
 B)False

Question 13

All of the following characteristics are true of an incentive stock option with the exception of:

Accepted Answer

A) the option price must be equal to or greater than the stock's FMV on the option's grant date. 
B) the employee cannot own more than ten percent of the voting power of the employer corporation's stock immediately prior to the option's grant date. 
C) the option must be granted within ten years from the date the plan is adopted and the employee must exercise the stock option within ten years from the grant date. 
D) there is no limit to the value of the options that become exercisable to an employee in a single year. 
A) the option price must be equal to or greater than the stock's FMV on the option's grant date. 
B) the employee cannot own more than ten percent of the voting power of the employer corporation's stock immediately prior to the option's grant date. 
C) the option must be granted within ten years from the date the plan is adopted and the employee must exercise the stock option within ten years from the grant date. 
D) there is no limit to the value of the options that become exercisable to an employee in a single year.

Question 14

Mirasol Corporation granted an incentive stock option to employee Josephine two years ago.The option price was $150 and the FMV of the Mirasol stock was also $150 on the grant date.The option allowed Josephine to purchase 160 shares of Mirasol stock.Josephine exercised the option this year when the stock's FMV was $250.Unless otherwise stated,assume Josephine is a qualifying employee.The results of the above transactions to Mirasol Corporation will be

Accepted Answer

A) no compensation deduction. 
B) a compensation deduction of $16,000 on the grant date. 
C) an alternative minimum tax adjustment item of $16,000 on the exercise date. 
D) a compensation deduction of $16,000 on the exercise date. 
A) no compensation deduction. 
B) a compensation deduction of $16,000 on the grant date. 
C) an alternative minimum tax adjustment item of $16,000 on the exercise date. 
D) a compensation deduction of $16,000 on the exercise date.

Question 15

Explain when educational expenses are deductible for an employee.

Accepted Answer

Educational expenses are deductible if t

Question 16

Daniel has accepted a new job and is reviewing the retirement plan information.He has a choice of participating in the company's conventional Sec.401(k)plan or a Roth 401(k)plan.Explain the difference between the two plans in terms of employee contributions and retirement distributions from the plan.

Accepted Answer

Under the conventional Sec.401(k)plan,Da

Question 17

Martin Corporation granted an incentive stock option to employee Caroline on January 1,2012.The option price was $150,and the FMV of the Martin stock was also $150 on the grant date.The option allowed Caroline to purchase 160 shares of Martin stock.Caroline exercised the option on August 1,2016,when the stock's FMV was $250.Unless otherwise stated,assume Caroline is a qualifying employee.If Caroline sells the stock on September 5,2017,for $350 per share,she must recognize (ignore alternative minimum tax)

Accepted Answer

A) 0)No gain or loss is recognized at exercise or sale with incentive stock options. 
B) long-term capital gain of $16,000 in 2017. 
C) ordinary income of $16,000 on the exercise date and a long-term capital gain of $16,000 in 2017. 
D) long-term capital gain of $32,000 in 2017. 
A) 0)No gain or loss is recognized at exercise or sale with incentive stock options. 
B) long-term capital gain of $16,000 in 2017. 
C) ordinary income of $16,000 on the exercise date and a long-term capital gain of $16,000 in 2017. 
D) long-term capital gain of $32,000 in 2017.

Question 18

Deductible moving expenses include the cost of moving household goods and personal effects as well as temporary living expenses.

Accepted Answer

A) True 
 B)False

Question 19

Pat is a sales representative for a publishing company.He entertains customers as part of his job.During the current year he spends $10,000 on business entertainment.The company reimburses him $5,000.Before consideration of the entertainment costs and the reimbursement,Pat earns AGI of $100,000,and he has itemized deductions of $12,000 due to mortgage interest and taxes.Pat is single,with no dependents.What is Pat's taxable income
a.assuming the employer maintains an accountable plan?
b.assuming the employer does not maintain an accountable plan?

Accepted Answer

@#IMG-DLM& 
*Under the accountable plan,the entert

Question 20

Nonqualified deferred compensation plans can discriminate in favor of highly compensated executives.

Accepted Answer

A) True 
 B)False

Exam 25: Employee Expenses and Deferred Compensation

Which statement is correct regarding SIMPLE retirement plans?

All of the following individuals are allowed a "for AGI" deduction except:

Assuming AGI below the threshold,a contributor may make a deductible contribution to a Coverdell Education Savings Account for a qualified designated beneficiary of up to $2,000.

Educational expenses incurred by a CPA for courses necessary to meet continuing education requirements are fully deductible.

Tessa has planned a five-day trip to Miami with her husband.Before leaving,Tessa's supervisor asks her to take a morning meeting with a client while she is there.Tessa can now deduct the cost of the airfare for the trip.

The maximum tax deductible contribution to a traditional IRA in 2017 is $5,500 ($6,500 for a taxpayer age 50 or over).

Tessa is a self-employed CPA whose 2017 net earnings from her business (before the H.R.10 plan contribution but after the deduction for one-half of self-employment taxes)is $400,000.What is the maximum contribution that Tessa can make on her behalf to her H.R.10 (Keogh)plan in 2017?

Which of the following conditions would generally not favor the rollover of an untaxed retirement fund (e.g.traditional IRA or 401(k)plan)to a Roth account?

SIMPLE retirement plans allow a higher level of employer contributions than do SEP IRAs.

A company maintains a qualified pension plan for all of its employees.The company can also establish a qualified profit-sharing plan for its management team.

All of the following characteristics are true of an incentive stock option with the exception of:

Explain when educational expenses are deductible for an employee.

Deductible moving expenses include the cost of moving household goods and personal effects as well as temporary living expenses.

Nonqualified deferred compensation plans can discriminate in favor of highly compensated executives.

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