Deck 4: Employee Compensation

Question 1

In a defined benefit retirement plan, the employee bears the financial risk for the plan investments.

Answer 1

False

Question 2

Joe is president and 75 percent owner of JS Corporation. He takes a salary of $825,000 this year. Presidents of comparable companies are generally paid no more than $500,000. What are the income and FICA tax consequences if $325,000 is determined to be excessive wages by the IRS? Assume Joe is in the 35 percent marginal tax bracket and JS Corporation is in the 34 percent marginal tax bracket.

Answer 2

Refund of Medicare taxes for both Joe and JS Corporation: $325,000 x .0145 = $4,713 each. Joe's income tax liability will be $65,000 [(35% - 15%) x $325,000] less because the reclassified amount will be taxed as a dividend. JS Corporation will pay $112,102 [.34 x ($325,000 + $4,713)] more in income taxes due to the loss of the $325,000 salary and related Medicare tax deductions.

Question 3

Carole, age 38, is single and works as a physical therapist. She is covered by her employer's retirement plan. How much can she contribute with before-tax income to a traditional IRA in 2011 if her AGI is $59,000?

Answer 3

30% [($59,000 - $56,000)/$10,000] is the nondeductible percentage; 70 percent is deductible. Thus, $3,500 (.70 x $5,000) can be contributed with before-tax income for 2011.

Question 4

Jose worked at an architectural firm as an employee for the first four months of 2011 before he established his own business. He earned $50,000 at the architectural firm. His net income from his sole proprietorship was $68,000. Determine Jose's self-employment tax.

Question 5

Barry's firm purchases a $31,000 automobile for his business and personal use. Barry uses the auto 80 percent for business and 20 percent for personal use in 2011. If the company takes full depreciation deductions for the auto, how much income must Barry recognize?

Question 6

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-Keogh plan (defined contribution)

A) No limit
B) $5,000
C) $6,000
D) $16,500
E) $49,000
F) $195,000

Question 7

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-401(k) plan (age 38)

A) No limit
B) $5,001
C) $6,001
D) $16,501
E) $49,000
F) $195,001

Question 8

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-Defined benefit retirement plan

A) No limit
B) $5,002
C) $6,002
D) $16,502
E) $49,000
F) $195,002

Question 9

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-Defined contribution retirement plan

A) No limit
B) $5,003
C) $6,003
D) $16,503
E) $49,000
F) $195,003

Question 10

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-Nonqualified deferred compensation plan

A) No limit
B) $5,004
C) $6,004
D) $16,504
E) $49,000
F) $195,004

Question 11

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-IRA (taxpayer over age 50)

A) No limit
B) $5,005
C) $6,005
D) $16,505
E) $49,000
F) $195,005

Question 12

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-Spousal IRA (age 46)

A) No limit
B) $5,006
C) $6,006
D) $16,506
E) $49,000
F) $195,006

Question 13

Match the limitation on contributions to the retirement plans for 2011 with the retirement plan. Limitations may be used more than once. Assume all taxpayers are under age 50, unless stated otherwise.

-Roth IRA (age 42)

A) No limit
B) $5,007
C) $6,007
D) $16,507
E) $49,000
F) $195,007

Question 14

What are Susie's deductible moving expenses for 2011 if she spends $4,000 for packing and moving household goods, $1,200 to break the lease on her apartment, and $1,500 to store the household goods for 45 days? In April she drove her car 1,400 miles to her new home and spent $250 for motels and $80 for meals while traveling to the new home.

A) $4,561
B) $5,516
C) $6,006
D) $7,216

Question 15

The contribution limit for a defined contribution plan is:

A) $5,000
B) $16,500
C) $49,000
D) $195,000

Question 16

Pablo earns $65,000 from his regular job as a salesman and an additional $50,000 from his sole proprietorship in 2011. What is his self-employment tax?

A) $5,686
B) $5,755
C) $6,584
D) $6,473

Question 17

What is the maximum deductible contribution that Erick (age 32 and single) can make in 2011 to an Individual Retirement Account(s) if he earns $61,000 and is not covered by an employer-sponsored retirement plan?

A) $6,000 ($5,000 plus an extra $1000 catch-up contribution) to a traditional IRA and zero to a Roth IRA.
B) $5,000 to a traditional IRA but only $2,000 additional to a Roth IRA
C) $5,000 to a traditional IRA
D) $2,500 to a traditional IRA due to the income limitation