Question 1

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

Accepted Answer

A) State income taxes. 
B) Qualified housing interest. 
C) Investment interest. 
D) Interest on home equity loan where loan proceeds are used to improve the residence. 
E) Charitable contributions. 
A) State income taxes. 
B) Qualified housing interest. 
C) Investment interest. 
D) Interest on home equity loan where loan proceeds are used to improve the residence. 
E) Charitable contributions.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

On May 21,2011,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 7,2013,when the fair market value of the stock is $20.How much must she report as income at the date of exercise?

Accepted Answer

A) $ -0- 
B) $ 1,200 
C) $ 2,400 
D) $ 7,200 
E) $10,800 
A) $ -0- 
B) $ 1,200 
C) $ 2,400 
D) $ 7,200 
E) $10,800

Question 4

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.

Accepted Answer

a.His contribution is based on his net s

Question 5

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?
 $$\begin{array} { l r } 
\text { Medical expenses (before limitations) } & \$ 12,000 \
\text { Mortgage interest on a qualified residence } & 8,000 \
\text { Charitable contribution of a Rockwell portrait } & \
( \$ 12,000  \mathrm {~  FMV } ; \$ 10,000 \text { basis) } &  12,000  \
\text { State income taxes paid and withheld } & 3,000 \
\text { Real estate taxes paid } &1,500  \
\text { Unreimbursed employee expenses (before limitation) } & 2,400 \
\text { Income tax return preparation fee (before limitation) } & 400
\end{array}$$ 
1.Charitable contributions.
2.Casualty and theft losses.
3.Qualified housing interest.
4.Investment interest.
5.Miscellaneous itemized deductions,not subject to 2% of AGI."6.Unreimbursed medical expenses in excess of 10% (not 7.5%)of AGI.Accordingly,Eileen must add back $1,500 of her medical expense deduction,$3,000 of her state income taxes,$1,500 of her real estate taxes,and the deductible portion of her miscellaneous itemized deductions ($1,600)to her taxable income.Because only $1,600 of the expenses are deductible,that amount and not the entire $2,400 is added back to taxable income.
 $\begin{array}{ll}
\text { Medical expense adjustment: }\
\text { Regular tax deduction } & \$ 12,000-(7.5 \% \times \$ 60,000 \mathrm{AGI})=\$ 7,500\
\text { less } &\$ 12,000-(10 \% \times \$ 60,000 \mathrm{AGI})=6,000&\$1,500
\end{array}$ 
Unreimbursed employee expenses + tax prep fee:
 $\begin{array}{lr}
\$ 2,800(\$ 2,400+400)-[2 \% \times \$ 60,000 \mathrm{AGI}] &1,600 \
 \text {State income taxes} &3,000 \
 \text {Real estate taxes  } &\underline{1,500 }\
 \text { Total } &\underline{\$ 7,600} \
\end{array}$ "

Accepted Answer

Eileen must add back $7,600 of

Question 6

Peter opened his IRA in 2003and withdrew money to purchase a house in 2012.Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 8

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 2013 the total assets in the account are $30,000.Thomas is subject to a penalty on his contribution of

Accepted Answer

A) $ -0- 
B) $ 180 
C) $ 270 
D) $1,000 
E) $1,800 
A) $ -0- 
B) $ 180 
C) $ 270 
D) $1,000 
E) $1,800

Question 9

Helen receives the right to acquire 700 shares of Smith Corporation stock through the company's incentive stock option plan.The fair market value of the stock at the date of the grant is $8 and the exercise price of the option is $15 per share.The fair market value of the stock at the date of exercise is $19.Helen will recognize income at the date of grant and the exercise date of
Date of grant $\quad$ Exercise date
a. $\$ - 0 -$$\quad$$\$ - 0 -$
b. $\$ - 0 - \quad \$ 2,800$
c. $\$ - 0 - \quad \$ 4,900$
d. $\$ 5,600 \quad \$ - 0$ -

Accepted Answer

The answer of Helen receives the right to acquire 700...

Question 10

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 $59,000.
II.If Alex is an active participant in the company's pension plan,and has adjusted gross income of $64,000,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 $59,000 - $69,000.

Accepted Answer

A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements are correct. 
D) Neither statement is correct.

Question 11

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

Accepted Answer

A) $ 9,130 
B) $10,500 
C) $14,000 
D) $17,500 
E) $49,000 
A) $ 9,130 
B) $10,500 
C) $14,000 
D) $17,500 
E) $49,000

Question 12

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.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 13

Nestor receives the right to acquire 1,000 shares of Knolls Corporation stock through the company's incentive stock option plan.The fair market value of the stock at the date of the grant is $20 and the exercise price of the option is $24 per share.For the option to qualify as an incentive stock option
I.Nestor must exercise the option within 10 years of the date of grant.
II.Nestor must hold the stock for at least 2 years after the date of exercise before selling it.

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 14

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?

Accepted Answer

A) $ - 0 - 
B) $1,500 
C) $3,000 
D) $4,000 
E) $5,500 
A) $ - 0 - 
B) $1,500 
C) $3,000 
D) $4,000 
E) $5,500

Question 15

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.

Accepted Answer

A) Only I is correct. 
B) Only II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only I is correct. 
B) Only II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 16

On May 1,2013,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 18,2014 when the stock is selling for $20 per share,Peyton exercises his option to purchase the stock.Peyton sells the shares on November 15,2015,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
c.Date of sale

Accepted Answer

a.Peyton does not recognize any income a

Question 17

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

Accepted Answer

A) $ -0- 
B) $ 400 
C) $1,000 
D) $2,000 
E) $3,750 
A) $ -0- 
B) $ 400 
C) $1,000 
D) $2,000 
E) $3,750

Question 18

Rodrigo and Raquel are married with 2 dependent children,age 18 and 20,and reported the following items on their 2013 tax return:
 $\begin{array}{lrrr}
 \text { Adjusted gross income }&&&\$ 190,000 \
 \text {Less: Deductions from adjusted gross income  } \
\text { Home mortgage interest } && \$ 9,500 \
\text { Home equity loan interest (for college education) } && 5,000 \
\text { State income taxes } && 12,000 \
\text { Property taxes } && 6,800 \
\text { Charitable contributions } && 4,400\
\text { Miscellaneous itemized deductions}&\$ 4,800\
\text { Less: } 2 \% \times \$ 190,000&\underline { (3,800)} &\underline { (1,000)} &(38,700)\
\text { Less: Exemptions }(4 \times \$ 3,900) &&&(15,600)\
\end{array}$ 
Determine Rodrigo and Raquel's regular tax liability and,if applicable,the amount of their alternative minimum tax.

Accepted Answer

None

Question 19

The Holden Corporation maintains a SIMPLE-IRA retirement plan for its employees.The company has notified its employees that for 2013 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 2013 is $50,000 and he contributed $2,000 to the plan.What amount must Holden contribute on Harrison's behalf?

Accepted Answer

A) $ -0- 
B) $ 600 
C) $1,500 
D) $2,000 
E) $4,600 
A) $ -0- 
B) $ 600 
C) $1,500 
D) $2,000 
E) $4,600

Question 20

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

Accepted Answer

A) A separate, parallel tax system designed to ensure a taxpayer pays some tax. 
B) A compensation tool that is based on potential price increases of the company's stock. 
C) An individual trust account maintained for the exclusive benefit of an individual or beneficiary. 
D) A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan. 
E) A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan. 
A) A separate, parallel tax system designed to ensure a taxpayer pays some tax. 
B) A compensation tool that is based on potential price increases of the company's stock. 
C) An individual trust account maintained for the exclusive benefit of an individual or beneficiary. 
D) A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan. 
E) A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.

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

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

Peter opened his IRA in 2003and withdrew money to purchase a house in 2012.Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.

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.

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

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.

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?

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.

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

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity - General Tax and Nontax Factorsformation

Choice of Business Entity - Operations and Distributions

Tax Research

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Exam 15: Choice of Business Entity - Other Considerations

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

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

Peter opened his IRA in 2003and withdrew money to purchase a house in 2012.Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.

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.

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

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.

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?

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.

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

Federal Income Taxation - an Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Losses: Deductions and Limitations

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Nonrecognition Transactions

Choice of Business Entity - General Tax and Nontax Factorsformation

Choice of Business Entity - Operations and Distributions

Tax Research

Filters