Exam 15: Choice of Business Entity-Other Considerations

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. ​

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

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?

Which of the following is (are) AMT tax preference item(s)? I.Net operating loss deduction. II.Exclusion of gain on qualified small business stock. ​

The Holden Corporation maintains a SIMPLE-IRA retirement plan for its employees. The company has notified its employees that for 2018 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 2018 is $50,000 and he contributed $2,000 to the plan. What amount must Holden contribute on Harrison's behalf?

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. ​

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.

Cisco and Carmen are both in their 30's and are married. Carmen earns $72,000 and Cisco earns $28,000. Their adjusted gross income is $107,000. Carmen is an active participant in her company's pension plan. Cisco's employer does not have a pension plan. What are Carmen and Cisco's maximum combined IRA contribution and deduction amounts? Contribution Deduction

On February 19, 2016, Woodbridge Corporation granted Harvey an option to acquire 200 shares of the company's stock for $10 per share. The fair market price of the stock on the date of grant was $16. The stock requires that Harvey remain with the company for one year after the date of exercise. The option did not have a readily ascertainable fair market value. Harvey exercises the option on September 23, 2017, when the fair market value of the stock is $19. He makes a Section 83(b) election at the exercise date. On September 23, 2018, the fair market value of the stock is $25 per share. How much must he report as income in 2018?

Peter opened his IRA in 2003 and withdrew money to purchase a house in 2018. Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.

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

Rodrigo and Raquel are married with no children and reported the following items on their 2018 tax return: ? Adjusted gross income \ 190,000 Less: Deductions from adjusted gross income Home mortgage interest \ 10,500 State income taxes 13,000 Property taxes 7,000 Charitable contributions 4,000 Determine Rodrigo and Raquel's regular tax liability and, if applicable, the amount of their alternative minimum tax.

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. ​

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 $63,000. II.If Alex is an active participant in the company's pension plan, and has adjusted gross income of $68,000, 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 $63,000 - $73,000. ​

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.

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

Mary determined her AMTI to be $120,000 for 2018. If her regular income tax liability is $27,000, what is the amount of the alternative minimum tax for 2018?

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. ​

On January 3, 2018, 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, 2018, 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.

Sergio is a 15% partner in the Hopkins Group and has net self-employment income of $100,000 in 2018. The maximum amount that Sergio can contribute to a Keogh money purchase plan is