Question 1

Kerry became a bona fide resident of Spain in 2017. She worked in Spain for 180 days in 2017 earning $110,000. Due to a death in the family, Kerry had to leave her position in Spain in December of 2018 and return to the states. She was in Spain for 345 days and earned $125,000 in 2018. If the maximum foreign earned income exclusion amount is $102,100 for 2017 and $103,900 for 2018, how much of Kerry's income in 2017 and 2018 is eligible for the foreign earned income exclusions?

Accepted Answer

The answer of Kerry became a bona fide resident of...

Question 2

Howard is a cash-basis, calendar-year taxpayer. He works for Clyde Corporation, an accrual-basis, calendar-year corporation. Clyde authorizes a $10,000 bonus for Howard on December 20, year 1. It pays the bonus on March 31 of year 2. Which of the following is correct?

Accepted Answer

Howard, being a cash-basis taxpayer, recognizes income when it is actually or constructively received. Since he receives the bonus in year 2, he will recognize it in year 2. Clyde Corporation, being an accrual-basis taxpayer, would typically recognize expenses when they are incurred. However, for tax purposes, the IRS requires that the payment must also meet the "all events test" and economic performance has occurred. Since the bonus is paid in year 2, this is when Clyde can take the deduction, aligning the deduction with the year of payment.

Question 3

During 2018, Lee Corporation paid Nicole a salary of $118,000 and a bonus of $20,000. How much (rounded to the nearest dollar) is Lee Corporation required to withhold from Nicole's compensation for her share of FICA taxes?

Accepted Answer

FICA taxes consist of Social Security and Medicare taxes. For 2018, the Social Security tax rate is 6.2% on the first $128,400 of wages, and the Medicare tax rate is 1.45% on all wages. Therefore, the total FICA tax rate on Nicole's salary and bonus is 7.65% (6.2% + 1.45%). The amount of FICA taxes that Lee Corporation is required to withhold from Nicole's compensation is calculated as follows:

FICA taxes = (salary + bonus) x FICA tax rate
FICA taxes = ($118,000 + $20,000) x 0.0765
FICA taxes = $9,962.50

Rounding to the nearest dollar, the answer is C: $9,962.

Question 4

George's flexible spending plan allows him to select fringe benefits equal to 10 percent of his annual salary of $75,000. Which of the following would be taxable if selected?

Accepted Answer

A country club membership is considered a personal expense and is taxable as a fringe benefit.

Question 5

Which of the following is a reason a person would prefer to be an independent contractor?

Accepted Answer

The answer of Which of the following is a reason...

Question 6

James owns a sole proprietorship. James pays his son Albert, age 17, $8,000 and his daughter Chloe, age 19, $11,000 for their work in the business. Both wages are reasonable for the work they perform. How much FICA tax must the sole proprietorship pay on the wages?

Accepted Answer

The answer of James owns a sole proprietorship. James pays...

Question 7

Which of the following statements is correct?

Accepted Answer

FICA taxes are split between the employer and employee, but the FUTA tax is solely paid by the employer. Therefore, the correct statement is that the employer pays the FUTA tax and the employer's share of the FICA tax.

Question 8

Which of the following is not a reason for a business to prefer to hire an independent contractor rather than an employee?

Accepted Answer

The reason given for preferring an independent contractor over an employee is taxation and cost savings for the company. However, FUTA taxes still have to be paid on independent contractor's wages, so this is not a reason for preferring a contractor over an employee.

Question 9

Wilma is CEO of and owns 100 percent of WT Enterprises, a cash-basis, calendar-year corporation. The company has always been profitable but over the last five years Wilma's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends. Which of the following will not occur if the IRS determines that $500,000 of her salary is unreasonable?

Accepted Answer

The answer of Wilma is CEO of and owns 100...

Question 10

Which of the following is not taxable to an employee when paid for by the employer?

Accepted Answer

Payments for business-related expenses, such as seminars, that are for the employer's benefit are not considered taxable income to the employee.

Question 11

Carol owns a small curio shop that is incorporated as an S corporation. Her three children, Sara, age 16, Mark, age 19, and Corey, age 22, all help in the shop. Which of the children's wages are subject to FICA taxes?

Accepted Answer

All wages paid to employees by a corporation, including an S corporation, are subject to FICA taxes, regardless of the relationship of the employees to the owner. This includes wages paid to the owner's children, regardless of their ages.

Question 12

Carole, age 38, is single and works as a physical therapist. She is covered by her employer's retirement plan. What is the maximum deductible contribution she can make to a traditional IRA in 2018 if her AGI is $65,000?
AGI Phase-Out Ranges for 2018 IRAs

Accepted Answer

The answer of Carole, age 38, is single and works...

Question 13

Bill was awarded 3,000 options; each option allows him to purchase one share of BK's stock for $15. The stock is currently selling for $12 per share. Three years later, Bill exercises the options when the stock's selling price is $21 per share. Two years later, Bill sells the stock for $20 per share. What are Bill's and BK's tax consequences for these transactions if the options are:
a. Incentive stock options
b. Nonqualified stock options

Accepted Answer

The answer of Bill was awarded 3,000 options; each option...

Question 14

Warren has $62,400 of net income from his sole proprietorship. How much is his self-employment tax on this income in 2018?

Accepted Answer

The answer of Warren has $62,400 of net income from...

Question 15

Which of the following is a taxable fringe benefit when paid by the employer?

Accepted Answer

Whole life insurance policy premiums paid by an employer are considered a taxable fringe benefit to the employee, unlike certain other benefits that may be tax-exempt under specific conditions.

Question 16

During 2018, Jackson Corporation paid Brittany a salary of $110,000. How much is Jackson Corporation's deduction (rounded to the nearest dollar) for its share of FICA taxes paid on Brittany's compensation?

Accepted Answer

FICA taxes consist of Social Security and Medicare taxes. For 2018, the Social Security tax rate is 6.2% and the Medicare tax rate is 1.45%. Thus, the total FICA tax rate is 7.65%. Jackson Corporation would be responsible for paying 50% of the FICA taxes on Brittany's compensation, since the employer's portion of FICA taxes is equal to the employee's portion.

To calculate the deduction for Jackson Corporation's share of FICA taxes paid on Brittany's compensation, we first need to determine her FICA wages, which are the portion of her salary subject to FICA taxes. For Social Security, the wage base limit for 2018 is $128,400, which means that only the first $128,400 of an employee's wages are subject to the Social Security tax.

In this case, since Brittany's salary of $110,000 is less than the wage base limit, all of her wages are subject to both Social Security and Medicare taxes. Therefore, the deduction for Jackson Corporation's share of FICA taxes paid on Brittany's compensation would be:

FICA wages = $110,000
Social Security tax = 6.2% x $110,000 = $6,820
Medicare tax = 1.45% x $110,000 = $1,595
Total FICA tax = $6,820 + $1,595 = $8,415
Employer's share = 50% x $8,415 = $4,207.50

Rounding to the nearest dollar, the deduction for Jackson Corporation's share of FICA taxes paid on Brittany's compensation is $4,208, which corresponds to answer choice B.

Question 17

Which of the following would not be considered a de minimis fringe benefit?

Accepted Answer

A $10 Christmas bonus would not be considered a de minimis fringe benefit because it is not occasional or unusual in frequency, nor is it small in value compared to the employee's overall compensation.

Question 18

Jose worked at an architectural firm as an employee for the first four months of 2018 before he established his own business. He earned $53,300 at the architectural firm. His net income from his sole proprietorship was $78,000. Determine Jose's self-employment tax for 2018.

Accepted Answer

The answer of Jose worked at an architectural firm as...

Question 19

Taxable compensation received from a business does not include:

Accepted Answer

The employer's share of FICA taxes is not considered taxable compensation to the employee, as it is a tax paid by the employer on behalf of the employee.

Question 20

During 2018, Jones Corporation paid Joshua a salary of $100,000 and a bonus of $30,000. What is Jones Corporation's deduction (rounded to the nearest dollar) for its share of FICA taxes paid on Joshua's compensation for 2018?

Accepted Answer

The answer of During 2018, Jones Corporation paid Joshua a...

Quiz 4: Employee Compensation