Exam 15: Choice of Business Entity - Other Considerations

Concerning individual retirement accounts (IRAs), I.A single taxpayer that is an active participant in a qualified plan and has adjusted gross income of $64,000 may contribute and deduct up to $5,500 of the annual contribution. II.A taxpayer who is not an active participant and whose spouse does not work may contribute $11,000 into two separate IRAs but can only deduct $5,500 for AGI.

Ann is the sole owner of a computer store and established a simplified employee pension plan (SEP)for herself and her two full-time employees.Her net self-employment income for the year is $70,000.The maximum amount she can contribute to her SEP is

The maximum contribution that can be made on behalf of an employee in a Keogh defined contribution money purchase plan is:

Cisco and Carmen are both in their 30's and are married.Carmen earns $69,000 and Cisco earns $28,000.Their adjusted gross income is $102,000.Carmen is an active participant in her company's pension plan.Cisco's employer does not have a pension plan.What are Carmen and Cisco's maximum combined IRA contribution and deduction amounts? Contribution $\quad$ Deduction a. $\$ - 0 - \quad \$ - 0 -$ b. $\$ 11,000 \quad \$ 5,500$ c. $\$ 11,000 \quad \$ 9,075$ d. $\$ 11,000 \quad \$ 11,000$

With regard to the alternative minimum tax (AMT), I.the AMT rate equals the highest individual income tax rate. II.the AMT is separate and distinct from,yet parallel to,the regular income tax system.

IRS scrutiny of reasonable compensation usually deals with excess compensation paid to the shareholders of closely held corporations and unreasonably low salaries to shareholders of an S corporation.

Kelly purchases a warehouse for her sole proprietorship on January 5,2013 for $1,000,000.She claims MACRS depreciation of $25,641 for the year.The depreciation under the Alternative Depreciation System (ADS)is $25,000.What is the amount of Kelly's AMT adjustment for depreciation on the warehouse?

Ester is employed by Montgomery Enterprises and will retire at the end of the current year after 22 years of service.Under the company's defined benefit plan,she can retire at 80% of the average of her three highest consecutive years' salary.Her average salary over these three years is $80,000.What is the maximum amount Ester can receive from Montgomery's pension plan?

Pension plans are subject to excess contribution penalties.Which of the following are correct: I.There is an excess contribution penalty for IRAs or Roth IRAs that equal 6% of the amount in excess of $5,500 or the value of the individual's IRA whichever is less. II.A 10% excess contribution penalty applies to IRAs and Roth IRAs.

Eileen is a single individual with no dependents.Her adjusted gross income for 2013 is $60,000.She has the following items that qualify as itemized deductions.What is the amount of Eileen's AMT adjustment for itemized deductions for 2013? Medical expenses (before limitations) \ 12,000 Mortgage interest on a qualified residence 8,000 Charitable contribution of a Rockwell portrait (\ 12,000;\ 10,000 basis) 12,000 State income taxes paid and withheld 3,000 Real estate taxes paid 1,500 Unreimbursed employee expenses (before limitation) 2,400 Income tax return preparation fee (before limitation) 400

The maximum contribution that can be made on behalf of an owner-partner in a Keogh defined contribution money purchase plan is:

Sylvester is a U.S.citizen living in Canada working as a computer programmer for Excel Designs,Inc.,a U.S.company. I.Sylvester is a nonresident alien for U.S.tax purposes. II.If Sylvester earns $10,000 for a consulting job in London,this income will be subject to U.S.tax.

Amanda is an employee of the Kiwi Corporation with a yearly salary of $80,000.The company maintains a noncontributory profit-sharing plan.During the year the company contributes $24,000 to the plan on her behalf in recognition of her outstanding work.The Kiwi Corporation is subject to an excess contribution penalty of

Karen receives the right to acquire 400 shares of Fremont Corporation stock through the company's incentive stock option plan.The fair market value of the stock at the date of the grant is $15 and the exercise price of the option is $19 per share.The fair market value of the stock at the date of exercise is $22.At the date of exercise,the tax consequences to Karen and the Fremont Corporation are Karen Fremont a. \ 1,600 \ 1,600 b. \ 1,600 \- 0- c. \- 0- \- 0- d. \- 0- \ 1,600

Which of the following credits can not be used to reduce the alternative minimum tax?

Drew is a partner with Peyton LLP.Peyton maintains a money purchase Keogh plan for its partners and employees.Drew owns a 30% partnership interest in Peyton.Determine the maximum deductible contribution Drew can make to the plan in each of the following situations: a.Drew 's net self-employment income is $85,000. b.Drew's net self-employment income is $270,000.

The employee's contribution to a nonqualified pension plan cannot be deferred,and the employer is not allowed a tax deduction for the contribution even though the employee includes the contribution in their income.

A Keogh plan is administratively more convenient and economical than a simplified employee pension plan (SEP).

For the current year,Steven's tentative alternative minimum tax is $24,360.His regular tax liability is $23,000.Steven has $24,000 in taxes withheld from his salary. I.Steven's alternative minimum tax is $1,360 II.Steven's tax liability is $23,000. III.Steven will have to pay an additional $360 in tax. IV.Steven's total tax liability is $24,360

Match each statement with the correct term below. -Defined contribution plan