Question 1

Which of the following statements regarding Coverdell Education Savings Accounts is incorrect, disregarding any AGI limits?

Accepted Answer

This statement is incorrect. Distributions from a Coverdell Education Savings Account can be used for elementary, secondary, and higher education expenses.

Question 2

Richard traveled from New Orleans to New York for both business and vacation. He spent 4 days conducting business and some days vacationing. He incurred the following expenses:
  What is his miscellaneous itemized deduction (before the floor), assuming Richard is an employee and is not reimbursed, under the following two circumstances?
a. He spends three days on vacation, in addition to the business days.
b. He spends six days on vacation, in addition to the business days.

Accepted Answer

The answer of Richard traveled from New Orleans to New...

Question 3

Sarah purchased a new car at the beginning of the year. She makes an adequate accounting to her employer and receives a $2,400 (12,000 miles × 20 cents per mile)reimbursement in 2014 for employment-related business miles. She incurs the following expenses related to both business and personal use:
  She also spent $200 on parking and tolls that were related to business. During the year she drove a total 20,000 miles.
What are the possible amounts of Sarah's deductible transportation expenses?

Accepted Answer

The answer of Sarah purchased a new car at the...

Question 4

Tyne is a 48-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions, her AGI is $63,000 in 2014. What is the maximum amount she may contribute to a tax deductible IRA?

Accepted Answer

Since Tyne is not an active participant in an employer-sponsored qualified retirement plan, she can contribute up to $5,500 to a tax deductible IRA for the year 2014.

Question 5

Feng, a single 40 year old lawyer, is covered by a qualified retirement at work. His salary is $109,000, and his total AGI is $123,000. The maximum contribution he can make to a Roth IRA in 2014 is

Accepted Answer

The answer of Feng, a single 40 year old lawyer,...

Question 6

H (age 50)and W (age 48)are married but only W is employed. She is not covered by a retirement plan at work. She earns $75,000 during the year and they have combined AGI of $78,000 before any IRA contribution. In 2014, the maximum amount together they may contribute to tax deductible IRAs is

Accepted Answer

The answer of H (age 50)and W (age 48)are married...

Question 7

Rita, a single employee with AGI of $100,000 before consideration of the items below, incurred the following expenses during the year, all of which were unreimbursed unless otherwise indicated:
  In addition, Rita paid $300 for dues to her professional business association. The company reimbursed her after she submitted the appropriate documentation. What is Rita's net miscellaneous itemized deduction for the year after application of all relevant limitations?

Accepted Answer

The answer of Rita, a single employee with AGI of...

Question 8

All of the following are true with regard to a Roth IRA except

Accepted Answer

Contributions to Roth IRAs do not have to stop at age 70 1/2. This is a difference between traditional IRAs and Roth IRAs, as traditional IRAs have required minimum distributions (RMDs) starting at age 70 1/2.

Question 9

Ellie, a CPA, incurred the following deductible education expenses to maintain or improve her skills:
  Ellie's AGI for the year is $60,000.
a. If Ellie is self-employed, what are the amount of and the nature of the deduction for these expenses?
b. If, instead, Ellie is an employee who is not reimbursed by his employer, what are the amount of and the nature of the deduction for these expenses (after limitations)?

Accepted Answer

The answer of Ellie, a CPA, incurred the following deductible...

Question 10

During 2014, Marcia, who is single and is covered under a pension plan at work, contributes $5,500 into a Roth IRA. If her AGI is $64,000, which of the following is true?

Accepted Answer

Since Marcia is covered under a pension plan at work, there are income limits for making deductible contributions to a traditional IRA. However, she can still contribute to a Roth IRA regardless of her income but the contributions are not tax-deductible. Therefore, none of the contribution is deductible. There is no requirement for her to withdraw any portion of the contribution immediately. The option for only 60% of the contribution being deductible is incorrect since it applies to traditional IRAs and not Roth IRAs.

Question 11

Tucker (age 52)and Elizabeth (age 48)are a married couple. Tucker is covered under a qualified retirement plan at his job and earned $90,000 in 2014. Elizabeth is employed as a lab technician and earned $30,000 but is not covered under a qualified retirement plan. They file a joint return; have interest and dividend income of $25,000. What is the maximum amount of tax deductible contributions may be made to a traditional IRA?

Accepted Answer

Since Tucker is covered under a qualified retirement plan at his job, the deduction for traditional IRA contributions is subject to income limits. For the 2014 tax year, the income limit for a married couple filing jointly is $96,000. Since Tucker earned $90,000, they are under the income limit. However, since Elizabeth is not covered by a qualified retirement plan at work, there is no income limit for her. Thus, they can each make a tax-deductible contribution of up to $5,500 ($6,500 if they are both over age 50) for a total of $11,000 into traditional IRAs. So, the correct answer is option (C) $5,500.

Question 12

Hannah is a 52-year-old an unmarried taxpayer who is not an active participant in an employer-sponsored qualified retirement plan. Before IRA contributions, her AGI is $63,000 in 2014. What is the maximum amount she may contribute to a tax deductible IRA?

Accepted Answer

The answer of Hannah is a 52-year-old an unmarried taxpayer...

Question 13

Ruby Corporation grants stock options to Iris on February 1, 2013. The options do not have a readily ascertainable value. The option price is $100, and the FMV of the Ruby stock is also $100 on the grant date. The option allows Iris to purchase 200 shares of Ruby stock. Iris exercises the option on August 1, 2014, when the stock's FMV is $150. Iris sells the stock on December 5, 2015 for $400. Determine the amount and character (i.e. ordinary, LTCG or STCG)of income recognized by Iris and the deduction allowed Ruby Corporation in 2013, 2014 and 2015 under the following assumptions:
a. The stock option is an incentive stock option.
b. The stock option is a nonqualified stock option.

Accepted Answer

The answer of Ruby Corporation grants stock options to Iris...

Question 14

Tyler (age 50)and Connie (age 48)are a married couple. Tyler is covered under a qualified retirement plan at his job and earned $175,000 in 2014. Connie is employed as a lab technician and earned $30,000 but is not covered under a qualified retirement plan. They file a joint return; have interest and dividend income of $30,000. What is their maximum for AGI deduction for contributions to a traditional IRA?

Accepted Answer

The answer of Tyler (age 50)and Connie (age 48)are a...

Question 15

Which of the following statements regarding Health Savings Accounts is incorrect?

Accepted Answer

Not all taxpayers are eligible to establish a health savings account. In order to be eligible, an individual must be covered by a high deductible health plan and cannot have any other health coverage (with certain exceptions).

Question 16

David acquired an automobile for $30,000 for use in his unincorporated business in 2011 and used the standard mileage rate method in 2012 and 2013. He switches to the actual expense method for 2014. The automobile was used 25,000 miles in 2012 and 20,000 miles in 2013. What is the amount of the adjusted basis of the automobile for purposes of computing depreciation in 2014?

Accepted Answer

The answer of David acquired an automobile for $30,000 for...

Question 17

Which of the following is true about future qualified distributions from a Roth IRA by a person who will be 65 years old at the time the distributions begin? Assume the individual opened the account before age 60.

Accepted Answer

As long as the account has been open for at least five years, qualified distributions from a Roth IRA are completely tax-free, regardless of the age at which they are taken. This includes both contributions and earnings. Since the individual in this scenario opened the account before age 60, it is likely that the account has been open for at least five years by the time they turn 65 and begin taking qualified distributions. Therefore, the entire amount of the distributions will be tax-free.

Question 18

Which of the following conditions would generally not favor the rollover of an untaxed retirement fund (e.g. traditional IRA or 401(k)plan)to a Roth account?

Accepted Answer

An advanced age of the taxpayer would generally not favor the rollover of an untaxed retirement fund to a Roth account, as there may not be enough time for the tax-free growth benefits of the Roth account to offset the taxes paid upfront on the rollover. Therefore, it may not make financial sense to pay the taxes now for a potentially small benefit in the future. A and B generally create favorable conditions for a rollover to a Roth. D is not the correct answer as it includes all options, including the one that would not favor a rollover.

Question 19

Dighi, an artist, uses a room in his home (250 square feet)as a studio exclusively to paint. The studio meets the requirements for a home office deduction. (Painting is considered his trade or business.)The following information appears in Dighi's records:
  Expenses related to home office:
  (a)What is the amount of Dighi's home office deduction if he is self-employed?
(b)If some amount is not allowed under the tax law, how is the disallowed amount treated?
(c)Assume all of Dighi's records of expenses relating to the room were destroyed in a major paint spill. How much of a home office deduction, if any, will he be allowed?

Accepted Answer

The answer of Dighi, an artist, uses a room in...

Question 20

Which statement is correct regarding SIMPLE retirement plans?

Accepted Answer

The answer of Which statement is correct regarding SIMPLE retirement...

Quiz 9: Employee Expenses and Deferred Compensation