FIT-Ch 7
Angie starts a new job on July 1 and becomes covered under the employer's health insurance plan which has an annual deductible of $2,400. Angie contributes the maximum amount into a Health Savings Account. Which of the following statements regarding Angie's Health Savings Account is correct? A) Angie can contribute and deduct $1,200 for AGI. B) Angie's contribution will be deductible if she itemizes, and the contribution along with her out-of-pocket medical expenses exceed 10% of AGI. C) If Angie withdraws $500 to pay for X-rays, the $500 is taxable. D) Interest income earned on the HCA is taxable.
A
Gayle, a doctor with significant investments in the stock market, traveled on a cruise ship to Bermuda. Investment specialists provided daily seminars which Gayle attended. The cost of the cruise for four days is $2,500. Gayle can deduct (before application of any floors)A) $0. B) $1,250.C) $2,000.D) $2,500.
A
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 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
Which of the following is true about H.R.10 (Keogh) plans? A) The plan must be established before the end of the tax year, and contributions must be made before the due date of the tax return, plus extensions. B) The plan must be established and contributions must be made before the end of the tax year. C) The plan must be established and contributions must be made before April 1. D) The plan must be established and contributions must be made before the due date of the tax return, plus extensions.
A
Which of the following is true about future qualified distributions from a Roth IRA by a person who will be 65 years old at the time the distributions begin? Assume the individual opened the account before age 60. A) The entire amount of the distributions will be tax-free. B) Only the accumulated earnings will be tax-free. C) Only the previous contributions will be tax-free. D) The entire amount of the distribution will be taxable.
A
Which of the following statements is incorrect regarding the SEP IRA? A) Both employers and employees can contribute to the plan .B) Contributions made by the due date of the tax return can be treated as made on the last day of the related tax year. C) Employer contributions must be nondiscriminatory. D) The maximum contribution for 2019 is $56,000.
A
Which of the following statements regarding Coverdell Education Savings Accounts is incorrect, disregarding any AGI limits? A) Distributions cannot be used for elementary and secondary education expenses. B) Distributions to the beneficiary are not taxable as long as they are used for tuition, fees, room and board. C) Contributions can be made until the beneficiary reaches 18. D) Contributors can make nondeductible contributions of up to $2,000 for each beneficiary.
A
Which of the following statements regarding independent contractors and employees is true? A) Independent contractors pay Social Security and Medicare tax of 15.3%. B) Employees must pay unemployment taxes. C) Independent contractors and employees pay the same Social Security and Medicare tax rates. D) Independent contractors deduct their business expenses "from AGI."
A
Which statement is correct regarding SIMPLE retirement plans? 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
yler (age 50) and Connie (age 48) are a married couple. Tyler is covered under a qualified retirement plan at his job and earned $175,000 in 2019. Connie is employed as a lab technician and earned $35,000 but is not covered under a qualified retirement plan. They file a joint return; have interest and dividend income of $30,000. What is their maximum for AGI deduction for contributions to a traditional IRA? A) $0 B) $6,000 C) $7,000 D) $13,000
A
During 2019, Marcia, who is single and is covered under a pension plan at work, contributes $6,000 into a Roth IRA. If her AGI is $68,000, which of the following is true? A) All of the contribution is deductible. B) None of the contribution is deductible. C) She must withdraw all of the contribution immediately since she is covered under a plan at work. D) Only 60% of the contribution is deductible since her AGI exceeds $64,000 by $4,000 and her maximum contribution is phased out by 40%.
B
Louisa, an active duty U.S. Air Force pilot, receives orders to transfer from the Fort Benning (Georgia) base to the Fort Hood (Texas) base. It is a permanent transfer. John is a civilian employee of the U.S. Navy. He is transferred by the Navy from Norfolk (Virginia) to San Diego (California). Both individuals pay their own moving expenses. Regarding their ability to deduct the moving expenses A) John will be allowed a deduction, but Louisa cannot deduct her moving expenses. B) Louisa will be allowed a deduction, but John cannot deduct his moving expenses. C) both Louisa and John will be allowed a moving expense deduction. D) neither Louisa, nor John, will be allowed a moving expense deduction.
B
Martin Corporation granted a nonqualified stock option to employee Caroline on January 1, 2015. 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 1,000 shares of Martin stock. The option itself does not have a readily ascertainable FMV. Caroline exercised the option on August 1, 2019, when the stock's FMV was $250. Caroline sells the stock on September 5, 2020, for $300 per share. Martin Corporation will be allowed a deduction of A) $150,000 in 2015. B) $100,000 in 2019. C) $50,000 in 2020. D) $100,000 in 2019 and $50,000 in 2020.
B
The following individuals maintained offices in their home:(1) Dr. Austin is a self-employed surgeon who performs surgery at four hospitals. He uses his home for administrative duties as he does not have an office in any of the hospitals.(2) June, who is a self-employed plumber, earns her living in her customers' homes. She maintains an office at home where she bills clients and does other paperwork related to her plumbing business.(3) Cassie is an employed as a sales representative of Montgomery Products, an out-of-town company which does not have a local office. She uses an extra room in her home to plan her sales calls, write up orders and store inventory. The use of this room in her home is a required part of the job., and this work is the only use of this room. Who is entitled to a home office deduction? A) Dr AustinB) Dr. Austin and JuneC) Cassie and June D) All of the taxpayers are entitled to a deduction.
B
Tobey receives 1,000 shares of YouDog! stock as part of his compensation package. Tobey's employment contract with YouDog!, Inc., states that if he leaves before completion of three years of employment, he will forfeit the stock. The stock currently has a fair market value of $12 per share. Which of the following statements regarding Tobey's choices is not true? A) Tobey does not have to recognize any income from receiving the stock until his rights to the stock are fully vested. B) Tobey must report $12,000 as income due to the receipt of the stock in the current year. C) Tobey may elect to report the $12,000 FMV of the stock as ordinary income in the current year. D) If Tobey elects to report $12,000 as income in the current year and the stock price falls to $5 per share when his rights to the stock are vested, Tobey is not allowed to deduct a loss.
B
Which of the following statements is incorrect regarding unfunded deferred compensation plans? A) The employee is not taxed on the compensation amount when it is deposited in an escrow account. B) An accrual-basis employer can deduct the compensation amount when it is accrued in the year of service. C) An employee is taxed when the amount is actually paid or made available. D) A 20% excise tax will apply if the employee can voluntarily elect to receive payment early.
B
Which of the following statements regarding Health Savings Accounts is incorrect? A) Taxpayers are allowed to deduct contributions to a health savings account for AGI. B) All taxpayers are eligible to establish a health savings account. C) Distributions from a health savings account are excluded from gross income if used to pay qualified medical expenses. D) Health savings account contributions are limited to the lesser of 100% of annual deductible under a high-deductible health plan or $3,500 in 2019 for taxpayers without family coverage.
B
All of the following are true with regard to a Roth IRA except A) contributions to Roth IRAs are subject to special modified AGI limitations that are higher than those for traditional IRAs. B) contributions to Roth IRAs are never tax deductible .C) contributions to Roth IRAs must cease after the owner has reached age 70 1/2. D) contributions to existing Roth IRAs must be made by the due date of the return.
C
An individual taxpayer incurs expenses connected with her work as an independent contractor and her rental real estate activities. Assuming all the expenses are ordinary, necessary and reasonable, they will be deductible A) as deductions for AGI for the business expenses and as itemized deductions for the rental property expenses. B) as deductions for AGI for the rental property expenses and as itemized deductions for the business expenses. C) as deductions for AGI for both the business expenses and the rental property expenses. D) as itemized deductions for both the business expenses and the rental property expenses.
C
Carol, a self-employed CPA, purchases hockey tickets online for $180 and takes a client to the game. Immediately before the game, Carol and the client dine on chicken wings and other food and beverages at the restaurant in the arena, and Carol charges the full $120 bill for dinner on her credit card. During dinner, and at various points throughout the game, they discuss an ongoing project Carlos is working on for the client and a potential new project. Carol will deduct A) $150. B) $120. C) $60. D) $300.
C
Characteristics of profit-sharing plans include all of the following with the exception of A) a predetermined formula is used to allocate employer contributions to individual employees and to establish benefit payments. B) forfeitures of benefits under the plan may be reallocated to the remaining participants. C) the company must make contributions to the plan if it has profits during the year. D) annual employer contributions are not required, but substantial, recurring contributions must be made to satisfy the requirement that the plan be permanent.
C
Charishma, a CPA, paid the following expenses in pursuing her profession: -Professional society dues -$450-Tax and accounting journals -$250 How much of these expenses can be deducted if she is an employee of an accounting firm, and how much is deductible is she is a self-employed CPA? Ignore any potential limitations based on AGI. A) Employee -$0; Self-employed -$0 B) Employee -$700; Self-employed -$700 C) Employee -$0; Self-employed -$700 D) Employee -$700; Self-employed -$0
C
In which of the following situations is the individual more likely to be classified as an independent contractor rather than an employee? A) a nurse who is directly supervised by doctors in an office B) a computer programmer who is instructed as to what projects to undertake, programming language and format, and hours of work C) a nurse who travels to several different patients; she sets her own hours and is responsible for the delivery of nursing care and end result D) a teacher whose hours, classroom responsibilities, content and methods of instruction are established by the school
C
Tanya is considering whether to rollover her traditional IRA to a Roth IRA. Factors important to consider include all of the following except A) current marginal tax rate. B) expected tax rate after retirement. C) whether the current year's AGI will exceed $100,000. D) her age.
C
Tucker (age 52) and Elizabeth (age 48) are a married couple. Tucker is covered under a qualified retirement plan at his job and earned $90,000 in 2019. Elizabeth is employed as a lab technician and earned $30,000 but is not covered under a qualified retirement plan. They file a joint return; have interest and dividend income of $25,000. What is the maximum amount of tax deductible contributions that may be made to a traditional IRA? A) $0 B) $12,000 C) $6,000 D) $13,000
C
Tyne is a 48-year-old an unmarried taxpayer who is not an active participant in an employer- sponsored qualified retirement plan. Before IRA contributions, her AGI is $66,000 in 2019. What is the maximum amount she may contribute to a tax deductible IRA? A) $ 0 B) $4,800 C) $6,000 D) $7,000
C
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? 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.
C
Which of the following statements is correct regarding limitations on employer's contributions to qualified retirement plans in 2019?A) Defined benefit plans are limited to an annual benefit to an employee of the lesser of $56,000 or 100% of the employee's average compensation for the highest three years. B) Defined contribution plan contributions are limited to the lesser of $225,000 or 25% of an employee's compensation. C) Defined contribution plan contributions are limited to the lesser of $56,000 or 100% of an employee's compensation. D) If an employer has more than one type of qualified plan, a maximum deduction of 100% of compensation is allowed.
C
A partnership plans to set up a retirement plan to benefit the partners and the employees. All of the following retirement plans are appropriate except A) an H.R. 10 (Keogh) plan. B) a SEP IRA. C) a SIMPLE plan. D) a Solo 401(k).
D
All of the following characteristics are true of an incentive stock option with the exception of 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.
D
All of the following individuals are allowed a deduction except 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.
D
All of the following may deduct education expenses except A) Richard is a self-employed dentist who incurs expenses to attend a convention on new techniques in oral surgery. B) Paige is an self-employed accountant who incurs expenses to take advanced tax courses. C) Hope is an independent business consultant who incurs expenses to pursue an MBA degree. D) Marvin is a high school teacher who incurs expenses for education courses to meet new course requirements to maintain his job.
D
Carlos, a self-employed CPA, entertains a client in a luxury box at the hockey game. Immediately before the game starts, while dining on chicken wings and other food and beverages, and at various points throughout the evening, they discuss an ongoing project Carlos is working on for the client and a potential new project. Carlos is billed a fixed $300 for the box for the evening, which includes the refreshments and the game tickets. Carlos estimates the cost of the refreshments at $100. Carlos will deduct A) $300. B) $150. C) $50. D) $0.
D
Hannah is a 52-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions, her AGI is $66,000 in 2019. What is the maximum amount she may contribute to a tax deductible IRA? A) $4,800 B) $5,600 C) $6,000 D) $7,000
D
Hunter retired last year and will receive annuity payments for life from his employer's qualified retirement plan of $30,000 per year starting this year. During his years of employment, Hunter contributed $130,000 to the plan on a pre-tax basis. Based on IRS tables, his life expectancy is 260 months. All of the contributions were on a pre-tax basis. This year, Hunter will include what amount in income?A) $0 B) $6,000 C) $24,000 D) $30,000
D
In a contributory defined contribution pension plan, all of the following are true with the exception of A) a separate account is established for each participant. B) both the employee and employer can make contributions to the plan. C) amounts are contributed to the plan based upon a specific formula. D) retirement benefits are a fixed amount based on the level of compensation earned by the employee during the working years.
D
Ross works for Houston Corporation, which has a contributory defined contribution pension plan. The employer's monthly contribution to the plan is 8 percent of each participating employee's monthly salary, while the employee contributes only 6 percent. Which of the following statements best describes the benefits of the plan? A) Houston receives a deduction for its contributions to the plan when Ross receives a distribution from the plan. B) While Ross is taxed on the employer's contributions to the plan, his own contributions are not taxed until he receives a distribution from the plan. C) Ross may deduct his own contributions to the pension plan, and Ross reports income from the plan each year until he receives distributions from the plan. D) The amounts contributed to the plan and the earnings on those contributions are not taxed to Ross until he retires or receives a distribution from the plan.
D
Tessa is a self-employed CPA whose 2019 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 2019? A) $100,000 B) $80,000 C) $70,000 D) $56,000
D
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.
False
A self-employed consultant takes a client to a major league football game to propose a new consulting engagement. Assuming appropriate documentation is maintained, the individual will receive a deduction for AGI for 50% of the ticket cost.
False
A self-employed taxpayer is considered to be in travel status for temporary work assignments of two years or less.
False
A sole proprietor establishes a Keogh plan. The highest effective percentage of earned income she can contribute is 25 percent.
False
A sole proprietor has met the requirements to deduct the costs of a home office. The deduction will be calculated on Schedule C.
False
A three-day investment conference is held in Las Vegas. Dr. Singh, a dentist, travels from Ohio to improve his taxable investment portfolio performance. Ms. Gondin, a financial planner, travels from Seattle to attend the same conference to improve her skills in managing her clients' investment portfolios. The same standards of deductibility will apply to both attendees.
False
According to the IRS, a person's tax home is the location of the family residence regardless of the location of the taxpayer's principal place of work.
False
All taxpayers are allowed to contribute funds to Health Savings Accounts to supplement their health insurance.
False
An employer contributing to a qualified retirement plan will be allowed a deduction when the employee recognizes the income at retirement or separation from service.
False
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.
False
Camellia, an accountant, accepts a new job located 1,000 miles away from her current job location. She has to pay a moving company plus the transportation costs for herself to move to the new location. The new employer does not pay moving costs. Camellia will be allowed a deduction for the work-related move.
False
Clarissa is a very successful self-employed real estate attorney. She spends $5,000 per year taking her clients out to dinner upon completion of a sale. Unfortunately, Clarissa is not a good recordkeeper and does not maintain receipts. However, such meals are standard practice in her field, and trade journals indicate that $5,000 is a reasonable amount for a successful high-end attorney. Clarissa will be allowed to deduct $2,500.
False
Corporations issuing incentive stock options receive a tax deduction for compensation expense.
False
Costs associated with commuting to and from a business location is a deductible expense.
False
Educational expenses incurred by a self-employed bookkeeper for courses necessary to sit for the CPA exam are fully deductible.
False
Entertainment expense (i.e., the hockey tickets) is not deductible. If food and beverages are consumed before, during, or after an entertainment event, the cost of the meals must be separately paid for or separated from the cost of the entertainment. In this case, the food and beverages are not separately stated from the entertainment cost.An employee travels out of town as required by his job, and he is not reimbursed. The employee can deduct these work-related travel costs.
False
Generally, 50% of the cost of business gifts is deductible up to $25 per donee per year for self- employed individuals.
False
If a self-employed individual is not "away from home," expenses related to local transportation are never deductible.
False
If the standard mileage rate is used in the first year, the actual expense method may not be used in future years.
False
In order to simplify recordkeeping, a self-employer taxpayer elects to use the federal per diem rate for business travel expenses. This election eliminates the requirement of maintaining documentation of time, place and business purpose of the travel.
False
In-home office expenses for an office used by the taxpayer for administrative or management activities of the taxpayer's trade or business are never deductible.
False
Lokesh, a self-employed taxpayer,recently returned from a business conference out of town. Unfortunately, due to a malware attack on his system, he has lost his hotel and meal receipts. Due to the lack of receipts, Lokesh will not be able to deduct his hotel and meals.
False
SIMPLE retirement plans allow a higher level of employer contributions than do SEP IRAs.
False
Self-employed individuals are allowed to deduct ordinary, necessary and reasonable expenses incurred in operating the trade or business. These allowable deductions are included in itemized deductions.
False
Taxpayers may use the standard mileage rate method when five vehicles are used simultaneously for business.
False
Tessa, a self-employed architect, has planned a five-day vacation trip to Miami with her husband. Before leaving, one of Tessa's clients asks her to visit a potential building site while in Miami. Tessa spends one morning evaluating the site and bills the client for the time. Tessa can now deduct the cost of the airfare for the trip.
False
The maximum tax deductible contribution to a Roth IRA in 2019 is $6,000 ($7,000 for a taxpayer age 50 or over).
False
There are several different types of qualified retirement plans. One common criteria across qualified retirement plans is that employers deduct the contributions and employees include the contributions in taxable income in the same period.
False
Under a qualified pension plan, the employer's deduction is usually deferred until the employee recognizes income.
False
Unreimbursed employee business expenses are deductions for AGI.
False
Vincent, a self-employed taxpayer, travels to a business conference out of town. While at the conference, he spends $500 on breakfasts and dinners. Because he eats alone, he cannot deduct any of the meal costs.
False
4) Jason, who lives in New Jersey, owns several apartment buildings in Baltimore. His travel expenses to Baltimore to inspect his property are tax deductible.
True
A qualified pension plan requires that employer-provided benefits must be 100 percent vested after five years of service.
True
A self-employed consultant takes a client to dinner to propose a new consulting engagement. Assuming appropriate documentation is maintained, the individual will receive a deduction for AGI for 50% of the meal cost.
True
A sole proprietor will not be allowed to deduct current home office expenses to the extent that they create or increase a loss from her business.
True
An employee travels out of town on company business. She is fully reimbursed from her employer under an accountable plan. The employee can exclude the reimbursement from income.
True
Educational expenses incurred by a self-employed CPA for courses necessary to meet continuing education requirements are fully deductible.
True
Employees receiving nonqualified stock options recognize ordinary income at the grant date or exercise date if there is a readily ascertainable fair market value.
True
Fin is a self-employed tutor, regularly meeting with clients in a 100 square foot area of his home. Fin is terrible at keeping records. Without the records, he will be able to deduct $500 for a home office deduction for AGI.
True
If an individual is self-employed, business-related expenses are deductions for AGI.
True
In a defined contribution pension plan, fixed amounts are contributed based upon a specific formula and retirement benefits are based on the value of a participant's account at the time of retirement.
True
In determining whether a taxpayer is considered to be in travel status for tax purposes, a general rule is that if a person is reassigned for an indefinite period, the individual's tax home shifts to the new location and the taxpayer is not considered to be in travel status.
True
In-home office expenses are deductible if the office is used exclusively on a regular basis as the principal place of business for any trade or business of the taxpayer.
True
In-home office expenses which are not deductible in the year in which the costs were incurred due to income limitations may be carried forward to subsequent years.
True
Nonqualified deferred compensation plans can discriminate in favor of highly compensated executives.
True
Rui, the sole proprietor of a CPA firm, is responsible for a large client base. She often drives to meetings at two different clients' offices in a single day. Rui can deduct the transportation costs of driving to the various client meetings.
True
The key distinguishing factor for classifying a worker as either an employee or self-employed includes the right to control and direct the worker with respect to both the end result and the means to accomplish that end result.
True
The maximum tax deductible contribution to a traditional IRA in 2019 is $6,000 ($7,000 for a taxpayer age 50 or over).
True
Travel expenses related to foreign conventions are disallowed unless the meeting is directly related to the taxpayer's business, and it is reasonable for the meeting to be held outside of North America.
True
