Exam 15: Choice of Business Entity-Other Considerations

Abraham establishes a Roth IRA at age 45 and contributes $5,500 per year for the next 25 years. Assume he meets the income limits during this period. The account balance is now $364,500 $137,500 contributions, $227,000 earnings). Abraham would like to draw out the entire amount this year. How much tax would Abraham have to pay as a result of this decision?

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.

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

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

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

Peter opened his IRA in 2003 and withdrew money to purchase a house in 2014. Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.

Hillside Group, a partnership, purchased a building for $60,000 that was originally placed in service in 1929. The partnership incurs $180,000 rehabilitating the building. The building serves as the partnership's headquarters. The rehabilitation is completed in November 2014. What amount can the Hillside Group claim on their partnership return as a rehabilitation tax credit?

Dunn Company bought an old building in downtown Lafayette for $75,000. The land was not purchased; it is being leased. The building was originally placed into service in 1918. Dunn spends $100,000 to rehabilitate the building with the intent to develop a microbrewery on the site. The company retained 80% of the external and internal walls and framework. Assume the amount of the older building rehabilitation credit Dunn can claim is $10,000. What is the basis in the building for depreciation purposes?

An exemption amount is allowed for the AMT calculation I. as a deduction from tentative AMTI. II. to provide the average individual taxpayer with the opportunity to not be effected by the AMT provisions. III. through legislative grace for taxpayers with moderate amounts of taxable income and without significant preferences and/or adjustments. IV. In the amount of $51,900 for married taxpayers filing jointly.

When calculating AMTI, individual taxpayers must add back the following: I. Miscellaneous itemized deductions subject to the 2% limitation. II. Personal exemption amounts.

Kathy and Patrick are married with salaries of $28,000 and $21,000, respectively. Adjusted gross income on their jointly filed tax return is $54,000. Both individuals are active participants in employer provided qualified pension plans. What are Kathy and Patrick's maximum combined IRA contribution and deduction amounts? Contribution Deduction

The Holden Corporation maintains a SIMPLE-IRA retirement plan for its employees. The company has notified its employees that for 2014 it will fund the SIMPLE-IRA by matching an employee's contribution up to a maximum of 3% of the employee's salary. Harrison's salary in 2014 is $50,000 and he contributed $2,000 to the plan. What amount must Holden contribute on Harrison's behalf?

To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied. Which of the following are correct statements about the credit? I. If the rehabilitated structure is sold before the end of the ten-year period following the year of the tax credit, recapture occurs. II. The amount of the credit can be either 10% or 20% of qualified expenditures, depending on the classification of the building.

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.

Grand Corporation has $100,000 of U.S. source taxable income and $200,000 of foreign source taxable income from operations in Poland. Poland levied $80,000 in taxes on the foreign source income. U.S. taxes before credits are $105,000. The overall foreign tax credit limitation is

Tim has a 25% interest in Hill and Associates, a partnership. Tim is eligible for coverage as an employee under the firm's qualified pension plan.

Thomas maintains an IRA account. During the year he wins $10,000 in the state lottery and contributes it to his IRA account. Because he is an active participant in a qualified pension plan, he does not take a deduction for any part of his contribution. At the end of 2014 the total assets in the account are $30,000. Thomas is subject to a penalty on his contribution of

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

Wan-Ying, age 64, retired from the Meadowbrook Corporation during the current year. Wan-Ying's defined contribution profit sharing plan is valued at $300,000 at her retirement date. Which of the following are correct statements? I. Beginning on April 1 of the following tax year, Wan-Ying must receive either a lump sum distribution from her pension plan or begin to receive an annuity distribution. II. By electing to receive a lump-sum distribution at the date of her retirement, Wan-Ying can wait 5 years before receiving the lump sum distribution.

A qualified distribution from a Roth IRA must meet which of the following requirements: I. The distribution must be made on or after the taxpayer reaches age 591/2. II. The distribution is for qualified education expenses. III. The taxpayer must begin distributions after reaching age 701/2.