SU 19: Retirement Plans for Small Businesses

Sandra, age 30, has worked for XY Company for 5 years. She is covered by its simplified employee pension (SEP-IRA) plan. She is also covered by a money-purchase qualified plan. Sandra's earned income from XY Company was $115,000 in 2021. In 2021, her employer contributed $20,000 to her qualified plan and $12,000 to her SEP-IRA. What is the amount of the deduction XY Company is allowed for contributions made to Sandra's retirement accounts? $32,000 $17,250 $58,000 $28,750

$28,750. Deduction is limited to 25% of the contribution, so 115,000x25%= 28,750.

Sam, a bartender, is a common-law employee of the Cowboy Bar. The Cowboy Bar, a sole proprietorship, has a money purchase pension plan (a defined contribution qualified plan) in which Sam is eligible to participate. The following items represent Sam's income from the Cowboy Bar in 2021: Wages $22,000 Bonus $9,000 Tips $30,000 Accountable expense allowance for uniforms $2,000 How much can the Cowboy Bar contribute to Sam's retirement account for 2021? $31,000 $15,250 $61,000 $58,000

$58,000. Limited to 100% of compensation or $58,000 for a defined contribution plan's annual contributions. Does not include accountable expenses, so 61,000 is the total compensation.

Your qualified 401(k) plan can include what type of contribution arrangement? -Both cash and elective deferral arrangements. -None of the answers are correct. -Elective deferral. -Cash.

-Both cash and elective deferral arrangements.

If you receive an eligible rollover distribution from a qualified plan, you can defer the tax on it by rolling it over into an IRA or other eligible retirement plan. Which of the following is an eligible rollover distribution? -A distribution, such as a return of excess contributions or deferrals under a 401(k) plan. -The portion of a distribution that represents the return of your deductible contributions to the plan. -An annual payment under a 10-year (or more) annuity contract. -A required distribution.

-The portion of a distribution that represents the return of your deductible contributions to the plan.

Which of the following types of income is NOT considered to be earnings from self-employment? -Guaranteed payments to limited partners, which are paid for services to the partnership. -Commissions. -Income passed through to shareholders of S corporations. -Fringe Benefits.

Income passed through to shareholders of S corporations.

The SIMPLE 401(k) plan is a qualified retirement plan. It is not subject to nondiscrimination and top-heavy rules if it meets all of the following conditions EXCEPT -Under the plan, the employee may choose salary reduction contributions to a trust up to $13,500 for 2021. -Participants age 50 and over can make a catch-up contribution up to $3,000. -Employers must make matching contributions of 3% of compensation for the year or non-elective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from his employer for the year. -The employee's rights to any contributions are forfeitable.

The employee's rights to any contributions are forfeitable. The SIMPLE 401(k) plan is available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer in the preceding year. Employers are not permitted to maintain another qualified plan. Employers are generally required to match employee contributions on a dollar-for-dollar basis up to 3% of an employee's compensation for the year. An employer may elect to make a nonelective contribution of 2% of compensation for each eligible employee who has earned at least $5,000 in compensation from the employer during the year. The employees vest immediately in employer SIMPLE contributions; therefore, the funds are not forfeitable.

Roland owns a 60% interest in Kramer Partnership and an 80% interest in Burns Partnership. In February 2020, Kramer sold land to Burns for $80,000. The land had a basis to Kramer of $90,000. In July 2021, Burns sold the land to Wilson, an unrelated individual, for $84,000. What is the amount of gain (loss) that Burns Partnership should recognize in 2021? $(10,000) $0 $(6,000) $4,000

$0. 80,000-90,000= 10,000 unrealized loss. 84,000-80,000 basis= 4,000 gain-10,000= 6,000 unrealized loss.

Tony and Carolyn, both age 52 and married, withdrew $10,000 from their IRA to use as a down payment on the purchase of a home for their son, who has lived with them for the last 5 years. The son has never owned his own personal residence before. The transaction closed 31 days after the distribution from the IRA. What amount of the withdrawal from the IRA is subject to the 10% early withdrawal tax? $10,000 $2,417 $0 $5,000

$0. First time home-buying credit is acceptable for children and more.

Deb, under age 50, is self-employed and has no other employees. Her net earnings, after the deduction for one-half of self-employment tax but before deducting any contributions she makes to her own SIMPLE, are $14,000. What is the most that can be contributed to Deb's SIMPLE for 2021 (employer and employee contributions)? $420 $13,500 $14,000 $13,920

$13,920. 13,500+420(14,000x3% employer matching contributions)

What is the highly compensated employee threshold amount in 2020 for determining treatment in 2021? $125,000 $130,000 $115,000 $120,000

$130,000.

Grey Corporation made cash contributions totaling $20,000 to qualified charitable organizations. Grey received $30,000 in dividends from a domestic corporation in which it holds 24% stock ownership. Grey was able to deduct 65% of the dividends received from the domestic corporation. Grey's taxable income for the year was $48,300 after the dividends-received deduction but before the deduction for charitable contributions. What is Grey's charitable contribution deduction for the year? $16,950 $12,600 $20,000 $15,000

$16,950. 30,000x65%= 19,500 dividends received deduction. 48,300+19,500= 67,800x25%= 16,950.

John, a self-employed taxpayer, has a SEP plan for his business. He has three eligible employees, Sara (age 35), Joseph (age 37), and Jean (age 45), who have worked for him for the past 10 years. For the year 2021, Sara earned $15,000, Joseph earned $25,000, and Jean earned $30,000. John wants to elect the 25% contribution rate so he can put as much as possible in for himself. If he elects 25%, how much must he contribute to the plan for his employees? $0 $14,500 $58,000 $17,500

$17,500. Lesser of 25% of employee compensation or $58,000. So 25%x(15,000+25,000+30,000)= 17,500.

Village, Inc.'s employee, John, is 55 years old and earned $105,000. John elected to defer 15% of his salary. Village made a 2% nonelective contribution. The total allowable contribution for John under a SIMPLE IRA plan is $13,500 $18,600 $15,600 $16,500

$18,600. 16,500+2,100= 18,600.

Kim transferred property with an adjusted basis of $16,000 and a fair market value of $25,000 to Corporation K, in exchange for 90% of K's only class of stock and $3,000 cash. The stock received by Kim had a fair market value of $22,000 at the time of the exchange. What is Corporation K's basis in the property received from Kim? $16,000 $22,000 $19,000 $25,000

$19,000. 22,000-3,000= 19,000.

The 2021 basic limit on elective deferrals in 401(k) plans (excluding SIMPLE plans) for participants under age 50 is $13,500 $26,000 $16,500 $19,500

$19,500.

Gerald, age 50, withdrew $10,000 from his IRA to pay for the graduate school expenses of his son. His son's educational expenses were $10,000, and he received a $2,000 scholarship from the university to help reduce these expenses. What amount of the withdrawal from the IRA is subject to the 10% early withdrawal tax? $8,000 $2,000 $0 $10,000

$2,000.

Lenore, who is 43 years old, opened a SIMPLE IRA on January 19, 2020. On September 22, 2021, she withdrew the entire $10,000 value of the account. The distribution does not meet any early withdrawal exceptions to the additional tax on early distributions. How much additional tax (penalty) is the distribution subject to? $1,000 $600 $2,500 $1,500

$2,500. 10,000x25%= 2,500.

Lenore, who is 43 years old, opened a SIMPLE IRA on January 19, 2020. On September 22, 2021, she withdrew the entire $10,000 value of the account. The distribution does not meet any early withdrawal exceptions to the additional tax on early distributions. How much additional tax (penalty) is the distribution subject to? $1,500 $600 $1,000 $2,500

$2,500. Penalty for an early distribution from a SIMPLE IRA within 2 years of commencing to participate in the program, the penalty increases from 10% to 25%.

Karla is a self-employed individual. She maintains a money purchase pension plan (defined contribution retirement plan) for herself and all eligible employees. The plan calls for contributions of 20% of the compensation of each participant. For 2021, the net earnings of the business before the deduction for any contributions to the retirement plan were $15,000. Karla paid her common-law employees $100,000 compensation in 2021. What is the combined deductible contribution for both Karla and the common-law employees? $20,000 $23,000 $15,000 $22,500

$20,000. Employer's deduction for contributions to a money purchase plan is generally limited to 25% of the compensation paid during the year. So 100,000x20%= 20,000 is entirely deductable.

In 2021, Colleen started a SIMPLE plan for all five of her employees and herself. It cost her $400 in fees to administer the plan. She never had a pension plan prior to starting this plan. Her tax credit is $0 $100 $400 $200

$200. 400x50%= 200.

Charles retired 3 years ago at age 72 from working at his family's laminating business. His required minimum distribution for 2021 is $2,000. Charles elects to only withdraw $1,500 from his IRA account. How much excise tax may Charles have to pay for that year? $50 $200 $250 $100

$250. 2,000-1,500= 500 not distributed as required. 500x50%= 250 excise tax.

Joe (single, age 51) wants to defer the maximum amount possible to his 401(k) plan. What is the amount of basic and catch-up contributions he may make for tax year 2021? $19,500 $23,000 $26,000 $58,000

$26,000.

Chip, a waiter, is a common-law employee of Tiger Company. Tiger Company, a sole proprietorship, has a defined contribution qualified plan in which Chip is eligible to participate. The following items represent Chip's income from Tiger in 2021: Wages $25,000 Bonus $5,000 Commissions $1,000 Reimbursement for travel expenses $5,000 How much can Tiger Company contribute to Chip's retirement account for 2021? $25,000 $31,000 $7,750 $36,000

$31,000. A defined contribution plan's annual contributions to the account of a participant cannot exceed the lesser of $58,000 or 100% of the compensation actually paid to the participant. Compensation includes wages and salary, fees, tips, commissions, and bonuses, but it does not include reimbursements or expense allowances. Therefore, Tiger Company may contribute a maximum of $31,000 [100% of ($25,000 wages + $5,000 bonus + $1,000 commissions)].

For 2021, what is the maximum amount that can be contributed on your behalf, assuming other requirements are met to a SIMPLE plan, if you are over 50 years old? $13,500 $16,500 $33,000 $27,000

$33,000. 16,500 personal contribution+16,500 matching contribution by employer.

Max, a fiduciary, pledged his client's traditional IRA of $300,000 as security for a loan. If Max is found liable for engaging in a prohibited transaction, what is the minimum penalty he is most likely to pay if the transaction is not corrected? $300,000 $345,000 $45,000 $30,000

$345,000. 300,000x15%= 45,000. 300,000+45,000= 345,000.

Holover Corporation started business on July 1 of last year and has elected to amortize its organizational expenses of $60,000. The maximum deduction that can be claimed for organizational expense on Holover's current-year federal income tax return is $2,000 $0 $60,000 $4,000

$4,000. 60,000x(12/180 months)= 4,000.

Anthony, Bill, and Chester decided to form Paradise Corporation. Anthony transferred property with an adjusted basis of $35,000 and a fair market value of $44,000 for 440 shares of stock. Bill exchanged $33,000 cash for 330 shares of stock. Chester performed services valued at $33,000 for 330 shares of stock. The fair market value of Paradise Corporation's stock is $100 per share. What is Paradise's basis in the property received from Anthony? $9,000 $44,000 $35,000 $0

$44,000. 33,000/330= 100 per share. 100x440= 44,000 FMV of the stock exchanged.

C Core Consulting is a Canadian C corporation that has operations in the United States. C Core manufactures and sells inventory through a U.S. branch. For the current year, $15,000 of inventory was sold to U.S. customers and $30,000 of inventory was sold to foreign customers. All inventory is shipped FOB shipping point. Also, C Core owns debt securities in a U.S. corporation for which it receives $3,000 of interest income per year. Without considering the effect of tax treaties, how much of C Core's income is U.S. source income? $48,000 $18,000 $45,000 $0

$48,000. 15,000+30,000+3,000= 48,000.

Ira, your only employee, earned $300,000 in 2021. What is the maximum contribution that you can make to his SEP-IRA for the year? $58,000 $72,500 $75,000 $19,500

$58,000.

Crispian is employed by P, Inc. P, Inc., has a simplified employee pension (SEP) plan for its employees in which Crispian participates. Crispian's compensation for 2021, before P's contribution to his SEP-IRA, was $305,000. What is the maximum contribution that P, Inc. can contribute to Crispian's SEP-IRA? $76,250 $58,000 $30,500 $72,500

$58,000. Under Sec. 404(h), the amount of deductible contributions for a simplified employee pension shall not exceed 25% of the employee's compensation (limited to $290,000) during the taxable year. P's maximum deductible contribution is $58,000 (limited to the lesser of $290,000 × 25%, or $58,000).

Janet, a fiduciary, guarantees her client's traditional IRA of $500,000 as security on a loan for real estate. What is the minimum penalty Janet is likely to pay if she is found liable for engaging in a prohibited transaction if the transaction is corrected within the tax period? $0 $500,000 $75,000 $575,000

$75,000.

A self-employed individual employs the following individuals: Employee-Age-Years Employed-Compensation for Year 10-Union Membership-Residency-U.S. Source Earned Income A-20-,7-10-$ 1,200-No-Mexico-$1,200 B-35-,1, 9-10-$20,000-No-U.S.-$0 C-25-,5-6, 8, 10-$500-No-U.S.-$500 D-30-,7-10-$650-Yes-Canada-$650 E-45-,3-5, 7-10-$50,000-No-Mexico-$0 The employer wishes to establish a simplified employee pension plan and exclude as many employees as possible. Based on the information given, what is the employer's ideal number of plan participants allowed in a SEP for Year 10? -7. -1. -3. -5.

-1. A qualifying employee must be 21 years old, employment includes 3 of the last 5 years, and a minimum of $650 minimum compensation paid during the year. Only B qualifies.

Participants of SIMPLE plans who take early withdrawals are generally subject to -25% withdrawal penalty. -25% withdrawal penalty on withdrawals made during the 2-year period beginning on the date the participant began participating in the plan and a 10% withdrawal penalty on all other early distributions. -A 10% withdrawal penalty. -A 25% withdrawal penalty on the first $10,000 and a 10% withdrawal penalty on the remainder.

-25% withdrawal penalty on withdrawals made during the 2-year period beginning on the date the participant began participating in the plan and a 10% withdrawal penalty on all other early distributions.

Participants of SIMPLE plans who take early withdrawals are generally subject to -A 10% withdrawal penalty. -A 25% withdrawal penalty. -A 25% withdrawal penalty on the first $10,000 and a 10% withdrawal penalty on the remainder. -A 25% withdrawal penalty on withdrawals made during the 2-year period beginning on the date the participant began participating in the plan and a 10% withdrawal penalty on all other early distributions.

-A 25% withdrawal penalty on withdrawals made during the 2-year period beginning on the date the participant began participating in the plan and a 10% withdrawal penalty on all other early distributions.

Which of the following is NOT a disqualified person for the purpose of determining whether a prohibited transaction has been entered into under the qualified retirement plan rules? -A fiduciary that invests the plan's assets in FGH partnership. FGH deposits 10% of the plan's assets into the fiduciary's own account. -A 70-year old individual who receives a distribution of the full value of his retirement account from a plan established by a business that he owns. -A fiduciary's spouse who receives a loan from a plan. -A plan fiduciary who deposits contributions into his or her own account and uses the funds to pay personal business expenses.

-A 70-year old individual who receives a distribution of the full value of his retirement account from a plan established by a business that he owns.

Which of the following distributions would be subject to the 10% additional tax that is imposed upon premature distributions from a qualified plan prior to an employee reaching age 59 1/2? -A distribution made to an employee after separation from service, if the separation occurred during or after the calendar year in which the employee reached age 55. -A distribution made to an employee for medical care to the extent that the distribution does not exceed the amount allowable as a medical expense deduction (determined without regard to whether the employee itemizes deductions). -A timely made distribution to reduce excess employee or matching employer contributions (excess aggregate contributions). -A distribution made to permit the employee to purchase a vacation home.

-A distribution made to permit the employee to purchase a vacation home.

Which of the following statements about prohibited transactions for qualified plans is false? -A transfer of plan income or assets to, or the use of them by or for the benefit of, a qualified person is a prohibited transaction. -A fiduciary of the plan is considered a disqualified person. -Certain transactions between a plan and a disqualified person are prohibited and are subject to a 15% excise tax on the amount involved. -If the transaction is not corrected within the taxable period, an additional tax of 100% of the amount involved is imposed.

-A transfer of plan income or assets to, or the use of them by or for the benefit of, a qualified person is a prohibited transaction.

If persons in the following positions are treated as having earnings from self-employment, the only ones who can establish qualified plans with regard to those earnings are -U.S. citizens employed in the United States by foreign governments. -Ministers solely employed by a congregation for a salary with no income for preforming marriages, baptisms, or other personal services. -Full-time insurance salespeople. -Accountants.

-Accountants.

All of the following are true statements about contributions to SIMPLE IRA plans EXCEPT -Employer contributions have to be expressed as a percentage of the employee's compensation and cannot exceed $13,500 in 2021 for employees under age 50. -Unless an election is made otherwise, the employer must match the elective contribution of an employee in an amount not exceeding 3% of the employee's compensation. -An employee's SIMPLE IRA contribution cannot exceed 3% of the employee's compensation. -An employer may elect to limit its matching contribution for all eligible employees to a smaller percentage of compensation, but not less than 1%.

-An employee's SIMPLE IRA contribution cannot exceed 3% of the employee's compensation. A SIMPLE IRA must allow each eligible employee to elect to have the employer make payments either directly to the employee in cash or as a contribution, expressed as a percentage of compensation, to the SIMPLE account. Elective contributions are limited to $13,500 for employees under age 50 for 2021, but there is no limit based on a percentage of compensation. The employer must match the elective contribution of an employee in an amount not exceeding 3% of the employee's compensation. However, an employer may elect to limit its match to a smaller percentage of compensation not to fall below 1%.

Which of the following statements concerning a simplified employee pension (SEP) plan is NOT true? -Employees whose retirement benefits are part of their union's bargaining agreement with their employer do not have to be considered for coverage under their employer's SEP. -A qualified employee must be at least 21 years old, have worked at least 3 of the prior 5 years for the employer, and have received at least the minimum amount of compensation required by the IRS. -An employer who signs SEP arrangements is required to make contributions to the SEP. -A leased employee (an employee who is hired by a leasing organization but who preforms services for another) may have to be included in the SEP of the organization receiving the services if certain conditions are met.

-An employer who signs SEP arrangements is required to make contributions to the SEP.

Which of the following statements is NOT a requirement of a qualified plan? -Plan assets may not be used for or diverted to the employer. -The plan must be in writing and must be communicated to employees. -An employer's qualified plan must permit all employees to participate in the plan. -Under a qualified plan, contributions or benefits to be provided must not discriminate in favor of highly compensated employees.

-An employer's qualified plan must permit all employees to participate in the plan.

Which of the following statements with respect to a Sec. 401(k) plan is false? -Any qualified plan can include a 401(k) plan. -Eligible employees can elect to have their employer contribute part of their before-tax pay to the 401(k) plan rather than receive the pay in cash. -The amount contributed to a 401(k) plan within applicable limits, and any earnings on it, remain tax-free until it is distributed by the plan. -A 401(k) plan may not require, as a condition of participation, that an employee complete a period of service beyond the later of age 21 or the completion of 1 year of service.

-Any qualified plan can include a 401(k) plan.

To avoid a 50% penalty, which is the required beginning date for a taxpayer to begin taking required minimum distributions from his or her retirement account? -Dec. 31 of the calendar year following the taxpayer retiring. -Apr. 15 of the calendar year following the later of the taxpayer attaining age 70 or retiring. -Apr. 1 of the calendar year following the later of the taxpayer attaining age 72 or retiring. -Apr. 1 of the calendar year following the later of the taxpayer attaining age 70 or retiring.

-Apr. 1 of the calendar year following the later of the taxpayer attaining age 72 or retiring.

Minimum employee participation requirements for a qualified plan include all of the following EXCEPT the employee must -Complete at least 1 year of service. -Be at least age 21. -Be at least age 70 1/2. -Complete at least 1,000 hours of service.

-Be at least age 70 1/2.

Benjamin, a sole proprietor, has a retirement plan for himself and all eligible employees. For 2021, Benjamin paid salaries of $75,000 on which contributions to the plan were based. With regard to the tax on prohibited transactions, all of the following are considered disqualified persons with respect to the retirement plan EXCEPT -Benjamin's employee and plan participant, Marcy, who received wages of $7,000. -Tate, who provides services to the retirement plan. -Benjamin. -Benjamin's grandson, Bryan.

-Benjamin's employee and plan participant, Marcy, who received wages of $7,000.

Contributions to a simplified employee pension plan must not discriminate in favor of highly compensated employees. All of the following statements describe a 2021 highly compensated employee of AB Company EXCEPT -Hazel was an officer of AB company and received 2020 compensation of $135,000. -June received 2020 annual compensation from AB Company of $135,000. -Cora received 2020 annual compensation from AB Company of $133,000 and was among the top 20% most highly paid employees during the year. -Cathy owns 5% of the capital or profits interest of AB Company.

-Cathy owns 5% of the capital or profits interest of AB Company.

Which of the following is more than the allowable contribution amount to a self-employed retirement plan for 2021? -$8,000 contribution into a SIMPLE IRA by an employee who earns $30,000. -Contribution of $40,000 to a self-employed individual's own defined contribution qualified plan. The individual's net earnings from self employment (on Sch. C) are $40,000. -A contribution of $10,000 to an employee's account in a defined contribution plan. The employee earned $40,000. -$25,000 to the SEP-IRA of an employee who earned $100,000 in 2021.

-Contribution of $40,000 to a self-employed individual's own defined contribution qualified plan. The individual's net earnings from self employment (on Sch. C) are $40,000. Need to take the deduction for self-employment taxes paid first.

Darryl recently withdrew $6,000 from his IRA. Darryl is 56 years of age. In which of the following scenarios would the 10% early withdrawal penalty tax apply? -Darryl uses the funds to purchase a vehicle. -The funds are allocated towards education expenditures. -The funds are received on account of a qualifying disability. -The funds pay medical insurance premiums of an unemployed individual.

-Darryl uses the funds to purchase a vehicle.

SIMPLE retirement plans are available to -Employers with 75 or fewer employees who received at least $13,500 in compensation from the employer in the preceding year. -Employers with 50 or fewer employees who received at least $5,000 in compensation from the employer in the preceding year. -Employers with 100 or fewer employees who received at least $5,000 in compensation from the employer in the preceding year. -Employers with 100 or fewer employees who received at least $3,000 in compensation from the employer in the preceding year.

-Employers with 100 or fewer employees who received at least $5,000 in compensation from the employer in the preceding year.

Which of the following statements is false with respect to qualified plans? -If a plan is a defined benefit plan subject to the minimum funding requirements, the employer must make quarterly installment payments of the required contributions. -If a defined contribution plan is a profit-sharing plan, the employer can make contributions for common-law employees out of net profits only. -An employer can have more than one qualified plan. -A separate account is set up for each participant under a defined contribution plan.

-If a defined contribution plan is a profit-sharing plan, the employer can make contributions for common-law employees out of net profits only.

If the total of an employee's elective deferrals (salary reduction) under a qualified 401(k) plan exceeds the limit for 2021, the employee can elect to withdraw the excess or leave the excess in the plan. With regard to the treatment of such excess deferrals, which of the following statements is false? -If the employee takes out any income earned on the excess deferral, it will be taxable in the year in which it is taken out. The distribution is not subject to the additional 10% tax on premature distributions. -If the employee does not take out the excess deferral by April 15, 2022, the excess, though taxable in 2021, will not be included in the employee's cost basis in figuring the taxable amount of any eventual benefits or distributions under the plan. -If the employee takes out the excess deferral by April 15, 2022, it will be reported in the employee's gross income for 2021. -If the employee takes out the excess deferral by April 15, 2022, the amount will not be considered contributed for purposes of satisfying (or not satisfying) the nondiscrimination requirements of the plan.

-If the employee takes out the excess deferral by April 15, 2022, the amount will not be considered contributed for purposes of satisfying (or not satisfying) the nondiscrimination requirements of the plan.

Which of the following statements with respect to self-employed retirement plan prohibited transactions is false? -Exchanging property between a disqualified person and a plan is a prohibited transaction. -The tax on a prohibited transaction is 15% of the amount involved. -If the prohibited transaction is not corrected within the taxable period, an additional tax of 80% of the amount involved is imposed. -Disqualified persons include a fiduciary of the plan.

-If the prohibited transaction is not corrected within the taxable period, an additional tax of 80% of the amount involved is imposed.

When figuring compensation for a self-employed individual for purposes of determining the amount of an allowable contribution to a traditional IRA, which of the following statements is NOT true? -When you have both self-employment income and salary and wages, your compensation includes both amounts. -If you have a net loss from self-employment, you must subtract the loss from any salary or wages received when figuring total compensation. -In order to include net earnings from a trade or business as compensation, your personal services must be a material income-producing factor. -Self-employment income must be reduced by the deduction allowed for one-half of your self-employment taxes.

-If you have a net loss from self-employment, you must subtract the loss from any salary or wages received when figuring total compensation.

Generally, the deadline to file Form 5500, Annual Return/Report of Employee Benefit Plan, is the -Fifteenth day of the 7th month after the end of the plan year. -Fifteenth day of the 5th month after the end of the plan year. -Last day of the 7th month after the end of the plan year. -Fifteenth day of the 4th month after the end of the plan year.

-Last day of the 7th month after the end of the plan year.

Which of the following is NOT considered a prohibited transaction for a qualified plan? -Rodger personally guarantees a bank loan to her qualified plan to purchase real estate. -Mary uses a self-directed IRA to invest in a 35%-owned corporation by a disqualified person. -Katie sells an interest in a piece of property owned by her qualified plan to her son. -Steven uses his qualified plan funds to lend an entity controlled and owned by his mother.

-Mary uses a self-directed IRA to invest in a 35%-owned corporation by a disqualified person. Must be less than 50% to qualify.

All of the following are true statements about the rollover characteristics of a SIMPLE plan EXCEPT a participant -May not roll over distributions from a SIMPLE account to a tax-sheltered annuity arrangement tax-free. -May roll over distributions from one SIMPLE account to another SIMPLE account tax-free. -May roll over distributions from a SIMPLE account to a qualified plan tax-free after just 1 year of participation. -May roll over distributions from a SIMPLE account to an IRA without penalty if the individual has participated in the SIMPLE plan for 2 years.

-May roll over distributions from a SIMPLE account to a qualified plan tax-free after just 1 year of participation.

Which of the following is required for an individual to qualify for a simplified employee pension (SEP)? -The individual must not be covered by another retirement plan. -None of the answers are correct. -Self-employment net loss is subtracted from any salaries and wages when figuring total compensation. -The individual must not be age 70 1/2 by the end of the tax year.

-None of the answers are correct.

Mike is self-employed. He is a calendar-year taxpayer. If he wants to set up a SEP plan for his business for the year 2021, he must do so by (including extensions) -Jan. 31, 2022. -Oct. 15, 2022. -Apr. 15, 2022. -Dec. 31, 2021.

-Oct. 15, 2022. Normal due date plus extension.

The SIMPLE plan must be available to every employee who -Received at least $5,000 in compensation from the employer during any 2 preceding years and is reasonably expected to receive at least $5,000 in compensation during the current year. -Received at least $5,000 in compensation from the employer during each of the 2 preceding years and is reasonably expected to receive at least $5,000 in compensation during the current year. -Received at least $5,000 in compensation from the employer during any 2 preceding years. -Is reasonably expected to receive at least $5,000 in compensation during the current year.

-Received at least $5,000 in compensation from the employer during any 2 preceding years and is reasonably expected to receive at least $5,000 in compensation during the current year.

Which of the following retirement plans does NOT have a salary reduction (elective deferral) component to it? -SIMPLE 401(k) plan. -Simplified employee pension plan. -Qualified 401(k) plan. -SIMPLE IRA plan.

-Simplified employee pension plan.

The Bearcat Corporation purchased an apartment building in October of the current year. The cost of the building was $4,000,000 and its estimated life was 40 years. Corporate management wants to know the alternative methods of deducting the cost of the building for tax purposes. The company may use the straight-line method over 27.5 years or can elect to use the -Declining-balance method at 125% of the straight-line rate using a recovery period of 27.5 or 30 years. -Straight line method over a recovery period of any length between 27.5 and 45 years. -Straight line method over a recovery period of 35 or 45 years. -Straight line method over a recovery period of 30 years.

-Straight line method over a recovery period of 30 years.

When Bob is figuring the deduction for contributions made to his own SEP-IRA, compensation is his net earnings from self-employment, which takes the following into account: -A reduction for all of Bob's self-employment tax. -A reduction for all of Bob's self-employment tax and a reduction for the maximum allowable contribution to Bob's own SEP-IRA. -A reduction for the maximum allowable contribution to Bob's own SEP-IRA. -The deduction for one-half of Bob's self-employment tax and the deduction for contributions to his own SEP-IRA.

-The deduction for one-half of Bob's self-employment tax and the deduction for contributions to his own SEP-IRA.

A qualified plan must meet certain requirements. Which of the following is NOT a requirement of a qualified plan? -The plan must make it impossible for its assets to be used for or diverted to purposes other than for the benefit of employees and their beneficiaries. -Minimum coverage requirements must be met. -The plan cannot provide for payment of retirement benefits before the normal retirement age. -Contributions or benefits must not discriminate in favor of highly compensated employees.

-The plan cannot provide for payment of retirement benefits before the normal retirement age.

To qualify for the tax benefits available, a qualified plan must meet certain requirements of the tax law. In this regard, which of the following statements is true? -The plan must make it impossible for its assets to be used for or diverted to purposes other than for the benefit of employees and their beneficiaries. -The plan must satisfy certain requirements regarding when benefits vest. A benefit is vested when it becomes forfeitable. -The plan cannot provide for payment of retirement benefits before the normal retirement age. -Under the plan, contributions or benefits to be provided may discriminate in favor of highly compensated employees.

-The plan must make it impossible for its assets to be used for or diverted to purposes other than for the benefit of employees and their beneficiaries.

Which of the following plan provisions or benefits will preclude a qualified plan from qualifying for the tax benefits available to qualified plans? -The plan permits a benefit reduction for a post-separation increase in the Social Security benefit level or wage base for any participant receiving benefits under the plan. -The plan benefits at least the fewer of 50 employees or 40% of all employees. -The defined benefit plan provides for automatic survivor benefits in the form of a qualified preretirement survivor annuity for a vested participant who dies before the annuity starting date and who has a surviving spouse. -The plan permits loans to a participant or beneficiary if the loan is secured by the participant's accrued nonforfeitable benefit and is exempt from the tax on prohibited transactions.

-The plan permits a benefit reduction for a post-separation increase in the Social Security benefit level or wage base for any participant receiving benefits under the plan.

Antonio is an ordained minister. As a minister, Antonio is a common-law employee of the church where he works, but his earnings and parsonage allowance are treated as self-employment income on which he pays self-employment tax. If the church had no retirement plan under which Antonio was covered, which of the following would Antonio be permitted to establish for himself? -Simplified employee pension (SEP). -Traditional IRA. -Both a traditional IRA and a Savings Incentive Match Plan for Employees (SIMPLE) IRA. -Savings Incentive Match Plan for Employees (SIMPLE) IRA.

-Traditional IRA.

For federal tax purposes, the term "partnership" includes all of the following EXCEPT a -Trust. -Syndicate. -Pool. -Joint venture.

-Trust.

With regard to a qualified plan, which of the following statements is true? -Only a sole proprietor or a partner can establish a qualified plan. -An employee must be allowed to participate in the plan if the employee is at least age 21, but not over age 59 1/2, and has at least 1 year of service (2 years if the plan provides that, after not more than 2 years of service, the employee has a nonforfeitable right to all of his or her accrued benefits). -For qualified plan purposes, a self-employed individual is both an employer and an employee. As an employer, the individual can usually deduct, subject to limits, contributions made to a qualified plan, excluding those made for his or her own retirement. -You can choose not to have tax withheld on long-term periodic distributions and required distributions.

-You can choose not to have tax withheld on long-term periodic distributions and required distributions.

Joaquin is a small business owner who maintains a SEP for his employees: Jan, a 42-year-old part-timer who has worked for Joaquin in this business since 2011. She works 15 hours per week. She earned $13,650 in 2022. Malik, a 72-year-old seasonal worker who works from September through December. He has worked for Joaquin in this business since 2013 and earned $6,150 in 2021. Monica is 21 years old and works 10 hours per week all year. She has worked for Joaquin since June 2019 and earned $4,950 in 2021. Joaquin's business had net taxable income in 2020 of $62,300. All employees and Joaquin are U.S. citizens, and none of them are union members. Which of the individuals listed below can be excluded from coverage under the SEP in 2021? Jan. Malik. Monica. Joaquin.

Monica. In order for an employee to be eligible for coverage under a SEP, the employee must be 21 years old, have worked for the employer in at least 3 of the last 5 years, and have earned at least $650 in compensation. Therefore, Monica is excludable because she has not been working for Joaquin for the necessary amount of time.