Exam 15: Choice of Business Entity-Other Considerations

Under a qualified pension plan I. The yearly earnings on the pension plan assets are taxable income to the employee. II. An employer's contribution is not taxable income to the employee at the time of the contribution.

Which of the following is are) AMT tax preference items)? I. Tax-exempt interest from private activity bonds. II. Percentage depletion in excess of basis.

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.

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?

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

The Rector Corporation maintains a SIMPLE-IRA retirement plan for its employees. The company has notified its employees that in 2014 it will fund the SIMPLE-IRA by matching an employee's contribution up to a maximum of 2% of the employee's salary. Avis' salary in 2014 is $240,000 and she contributes $2,800 to the plan. What amount must Avis contribute on Andorra's behalf?

On September 15, 2014, Spiral Corporation grants Jay an option to acquire 250 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant is $14. The option does not have a readily ascertainable fair market value. How much must Jay report as income at the date of grant?

Alex is 37 years old, single and employee of Ellis Company. I. If Alex is an active participant in the company's pension plan, he is allowed to make a contribution to his IRA account only if his adjusted gross income is less than $60,000. II. If Alex is an active participant in the company's pension plan, and has adjusted gross income of $65,000, he is allowed to contribute $5,500 to his IRA account, but he is only allowed a deduction of $2,750 for the contribution because his adjusted gross income is between $60,000 - $70,000.

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.

A Keogh plan is a type of qualified pension for self-employed individuals. An individual or entity that establishes a Keogh plan can I. Only establish a defined contribution profit sharing pension plan. II. Have both employees and self-employed individuals as participants.

On May 10, 2012, Rafter Corporation granted Peter an option to acquire 500 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant was $12. The fair market value of the option at the date of grant was $3. Peter exercises the option on July 1, 2014, when the fair market value of the stock is $20. How much income must Peter report at the date of exercise?

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.

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

Kyle is 31 years old, single, self-employed, and has no qualified pension plan. His net self-employment income is $35,000 and he contributes the maximum amount to his IRA account during the current year. How much can Kyle deduct for AGI this year?

Kelly purchases a warehouse for her sole proprietorship on January 5, 2014 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?

On May 21, 2012, Becker Corporation granted Howard an option to acquire 200 shares of the company's stock for $8 per share. The fair market price of the stock on the date of grant was $14. The option did not have a readily ascertainable fair market value. Howard exercises the option on July 7, 2014, when the fair market value of the stock is $20. How much must she report as income at the date of exercise?

One of the benefits of an incentive stock option is that the employee can sell the option at any time.

Cary is an employee with the Bayview Corporation. Bayview maintains a defined contribution plan for all its employees. Determine the maximum deductible contribution Bayview can make to the pension plan in each of the following situations: a. Cary's salary is $90,000. b. Cary's salary is $220,000.

When calculating AMTI, individual taxpayers must add back the following: I. Charitable contributions. II. Qualified home mortgage interest.

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.