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?

Thelma can get the 10% penalty on the early withdrawal from her IRA waived if the money is used to pay her son's college tuition.

The Data Company employs John and Jesse.John has worked for Data for 4 years,whereas Jesse has worked for the company for only 18 months.Both are 27 years old. I.John is eligible to participate in Data's qualified pension plan. II.Jesse is eligible to participate in Data's qualified pension plan. ​

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.

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

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 $83,800 for married taxpayers filing jointly. ​

Kelly purchases a warehouse for her sole proprietorship on January 5,2016 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?

A nonqualified stock option is a right to buy a share of stock at a fixed price within a specified time period.If the employee recognizes income when the stock option is received then the employer can take a deduction of the same amount.

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.

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

To obtain the rehabilitation expenditures tax credit certain criteria must be satisfied.Which of the following are correct statements about the credit? I.Rehabilitation of business-use,investment-use,and personal-use residential real estate that is certified as historic qualifies for the historic structures rehabilitation credit. II.The rehabilitation work cannot remove more than 25% of the internal walls and framework. ​

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. ​

Ken is a 15% partner in the Robinson & Sons and has net self-employment income of $98,000,$100,000 and $102,000 in his highest three consecutive years.The maximum amount that Ken can receive under a Keogh defined benefit 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. ​

A company that maintains a SIMPLE-401(k)has the option of funding the plan by I.Contributing 2% of an employee's salary up to a maximum of $5,300. II.Match the employee's contribution up to a maximum of 3 percent of the employee's compensation with a maximum contribution of $12,000. ​

On June 1,2016,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?

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

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

On May 1,2015,Peyton is granted the right to acquire 500 shares of the Simon Corporation for $18 per share.The option qualifies under the company's incentive stock option plan.The current fair market value of the stock is $10.On September 18,2016 when the stock is selling for $20 per share,Peyton exercises his option to purchase the stock.Peyton sells the shares on November 15,2017,for $30 per share.Determine the tax consequences for Peyton and the Simon Corporation on the a.Date of grant b.Date of exercise c.Date of sale

On March 11,2014,Carlson Corporation granted Lana an option to acquire 200 shares of the company's stock for $6 per share.The fair market price of the stock on the date of grant was $10.The stock requires that Lana remain with the company for one year after the date of exercise.The option did not have a readily ascertainable fair market value.Lana exercises the option on June 12,2015,when the fair market value of the stock is $15.On June 12,2016,the fair market value of the stock is $20 per share.How much must she report as income in 2016?