Exam 15: Choice of Business Entity - Other Considerations

Rodrigo and Raquel are married with 2 dependent children,age 18 and 20,and reported the following items on their 2013 tax return: Adjusted gross income \1 90,000 Less: Deductions from adjusted gross income Home mortgage interest \ 9,500 Home equity loan interest (for college education) 5,000 State income taxes 12,000 Property taxes 6,800 Charitable contributions 4.400 Miscellaneous itemized deductions \4 ,800 Less: 2 \% \times \ 190,000 3,800 1,000 38,700 Less: Exemptions (4\times\ 3,900) 15,600 Determine Rodrigo and Raquel's regular tax liability and,if applicable,the amount of their alternative minimum tax.

Which of the following statements are correct concerning the general business credit? I.The general business tax credit only applies to an individual or corporation with a tax liability in excess of $100,000. II.The general business credit only applies to an individual or corporation that has a tax credit carryover or can claim more than one general business credit during the year.

When calculating AMTI,individual taxpayers must add back the following: I.The standard deduction amount. II.Casualty and theft losses.

Jane is a partner with Smithstone LLP.Smithstone maintains a profit-sharing Keogh plan for its partners and employees.Determine the maximum deductible contribution Jane can make to the plan in each of the following situations: a.Jane's net self-employment income is $80,000. b.Jane's net self-employment income is $280,000.

Patricia and her daughter Sheila each own 50% of Draper,Inc.Patricia is the president and CFO of the corporation and receives a salary of $125,000.Other individuals with similar responsibilities as Patricia are paid approximately the same salary.Sheila,who is vice president,is paid a salary of $50,000.However,Sheila is not involved in the business decisions and rarely visits the office.Which of the following are correct statements? I.Draper can deduct $175,000 as salary expense. II.Sheila must report $50,000 as income.

Lynne is a 15% partner with Webb Brothers and has net self-employment income of $100,000 in 2013.The maximum amount that Lynne can contribute to a Keogh profit sharing plan is

A Keogh plan must be established as a defined contribution plan,and the rules are similar to those of a qualified pension plan.

All of the following are requirements of a qualified pension plan except:

Arturo is a 15% partner in the Franklin Group and has net self-employment income of $250,000 in 2013.The maximum amount that Arturo can contribute to a Keogh money purchase plan is

Curtis is 31 years old,single,self-employed,and has no qualified pension plan.His net self-employment income is $33,000 and he contributes the maximum amount to his Keogh account during the current year.How much can Curtis deduct for AGI this year?

Which of the following itemized deductions is not allowed for AMT purposes?

Karl is scheduled to receive an annuity distribution of $10,000 from his pension plan in 2013.Due to his recent success in the stock market,he has requested that he receive only $5,000 in 2013.Because Karl will fail to receive the required annuity distribution in 2013,he is subject to a penalty of

On January 3,2013,Great Spirit Inc.,grants Jordan a nonqualified stock option to acquire 1,000 shares of the company's stock for $12 per share.The fair market price of the stock on the date of grant is $15.The option does not have a readily ascertainable fair market value.On October 1,2013,when the fair market value of the stock is $18,Jordan exercises the stock option.Determine the tax consequences for Jordan and Great Spirit Inc.,on the grant date of the option and the exercise date.

In 2008,Merlin received the right to acquire 1,200 shares of Noble Corporation stock through the company's incentive stock option plan at an exercise price of $17 per share.On January 4,2012,Merlin exercises the option when the fair market value of the stock is $22 per share.Which of the following is(are)correct statements? I.Noble can deduct $6,000 as compensation expense in 2012. II.Merlin does not recognize any income but must include $6,000 as a tax preference item in computing his alternative minimum taxable income.

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

On June 1,2013,Sutton Corporation grants Anne an option under its nonqualified stock option plan to acquire 300 shares of the company's stock for $12 per share.The fair market price of the stock on the date of grant is $18.The fair market value of the option is $4.How much must Anne report as income at the date of grant?

Carmelo,an employee of the Rondo Corporation,is granted an option to acquire 400 shares of the company's stock under its nonqualified stock option plan.Which of the following are correct statements? I.If the option has a readily ascertainable fair market value,Carmelo must report income equal to the fair market value of the option times the number of shares granted (i.e.,400 shares). II.If the option does not have a readily ascertainable fair market value Carmelo will not report any income at the date of grant.

Ross and Reba are both in their 30's and they are married.Reba earns $64,000 annually,and Ross earns $1,800 annually working part time.Their adjusted gross income is $81,500.Reba participates in an employer-sponsored retirement plan.Ross and Reba contribute the maximum amount allowable annually to their IRAs.What is their allowable deduction for this year's contributions?

Match each statement with the correct term below. -Incentive stock option

Sergio is a 15% partner in the Hopkins Group and has net self-employment income of $100,000 in 2013.The maximum amount that Sergio can contribute to a Keogh money purchase plan is