Question 1

Employees receiving nonqualified stock options recognize ordinary income at the grant date or exercise date if there is a readily ascertainable fair market value.

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Question 2

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:
 $\begin{array}{llr}
  \text {Revenue from sale of paintings  } &\$4,000\
 \text { Expenses attributable to business of painting such as supplies } &1,800\
\end{array}$
 Expenses related to home office:
 $\begin{array}{llr}
  \text { Property taxes on portion of home where he paints } &900\
 \text {   Utilities, insulance, etc} &700\
 \text { Depreciation of portion of home } &800
\end{array}$
 (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 3

Alex is a self-employed dentist who operates a qualifying office in his home. Alex has $180,000 gross income from his practice and $160,000 of expenses directly related to the business, i.e., non-home office expenses. Alex's allocable home office expenses for mortgage interest expenses and property taxes are $14,000 and other home office expenses are $9,000. What is Alex's total allowable home office deduction?

Accepted Answer

The answer of Alex is a self-employed dentist who operates...

Question 4

In-home office expenses which are not deductible in the year in which the costs were incurred due to limitations may be carried forward to subsequent years.

Accepted Answer

In-home office expenses that are not fully deductible in the current year due to limitations, such as the cap on the home office deduction based on income, may be carried forward to future years as a deduction.

Question 5

When are home-office expenses deductible?

Accepted Answer

The answer of When are home-office expenses deductible?...

Question 6

Corporations issuing incentive stock options receive a tax deduction for compensation expense.

Accepted Answer

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Question 7

Under a qualified pension plan, the employer's deduction is usually deferred until the employee recognizes income.

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Question 8

A qualified pension plan requires that employer-provided benefits must be 100 percent vested after five years of service.

Accepted Answer

This statement is true. A qualified pension plan must follow vesting requirements set by the Employee Retirement Income Security Act (ERISA). According to ERISA, employer-provided benefits in a qualified pension plan must be 100 percent vested after five years of service or gradual vesting over a period of up to seven years.

Question 9

Charles is a self-employed CPA who maintains a qualifying office in his home. Charles has $110,000 gross income from his practice and incurs $88,000 in salaries, supplies, computer services, etc. Charles's mortgage interest and real estate taxes allocable to the office total $10,000. Other expenses total $14,000 and consist of depreciation, utilities, insurance, and maintenance. What is Charles' total home office expense deduction?

Accepted Answer

To calculate the home office expense deduction, we need to first calculate the percentage of the home that is used for the home office. In this case, we have insufficient information to calculate this percentage, but we are told that the home office expenses consist of mortgage interest and real estate taxes allocable to the office plus other expenses, so we can assume that the percentage used for the home office is significant.

Next, we can calculate the total home office expense deduction by multiplying the percentage of the home used for the home office by the total expenses.

Mortgage interest and real estate taxes allocable to the office = $10,000
Other expenses = $14,000

Total expenses = $10,000 + $14,000 = $24,000

Therefore, the total home office expense deduction is: 
Percentage of home used for office * Total expenses 
= Significant percentage * $24,000 
= $22,000

Therefore, the best choice is (C) $22,000.

Question 10

The following individuals maintained offices in their home: (1) Dr. Austin is a self-employed surgeon who performs surgery at four hospitals. He uses his home for administrative duties as he does not have an office in any of the hospitals.
(2) June, who is a self-employed plumber, earns her living in her customer's homes. She maintains an office at home where she bills clients and does other paperwork related to her plumbing business.
(3) Cassie, who is an employee of Montgomery Electrical, is provided an office at the work but does significant administrative work at home. Her employer does not require her to do extra work but she feels it is necessary in order to properly do her job.
Who is entitled to a home office deduction?

Accepted Answer

Both Dr. Austin and June are self-employed and use their home office regularly and exclusively for their business. They meet the requirements for a home office deduction. Cassie is not self-employed and does not use her home office exclusively for work, so she does not qualify for the deduction.

Question 11

A sole proprietor establishes a Keogh plan. The highest effective percentage of earned income she can contribute is 25 percent.

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Question 12

Fin is a self-employed tutor, regularly meeting with clients in a 100 square foot area of his home. Fin is terrible at keeping records. Without the records, he will be able to deduct $500 for a home office deduction for AGI.

Accepted Answer

The answer of Fin is a self-employed tutor, regularly meeting...

Question 13

In-home office expenses for an office used by the taxpayer for administrative or management activities of the taxpayer's trade or business are never deductible.

Accepted Answer

In-home office expenses for an office used by the taxpayer for administrative or management activities of the taxpayer's trade or business may be deductible under certain circumstances, such as if it is the taxpayer's principal place of business or if it is used exclusively and regularly for business purposes. It is important to consult with a tax professional to determine eligibility for this deduction.

Question 14

Nonqualified deferred compensation plans can discriminate in favor of highly compensated executives.

Accepted Answer

Nonqualified deferred compensation plans can be designed to benefit highly compensated executives more than other employees. This is because these plans are not subject to the same nondiscrimination rules as qualified plans, such as 401(k) plans. However, there are limits to how much executives can defer each year and restrictions on how withdrawals can be made.

Question 15

An employer contributing to a qualified retirement plan will be allowed a deduction when the employee recognizes the income at retirement or separation from service.

Accepted Answer

The answer of An employer contributing to a qualified retirement...

Question 16

A sole proprietor will not be allowed to deduct current home office expenses to the extent that they create or increase a loss from her business.

Accepted Answer

This is because the home office deduction for a sole proprietor can only be taken to the extent of the business's profit. If the deduction creates or increases a loss, it cannot be used in the current year but can be carried forward to future years.

Question 17

SIMPLE retirement plans allow a higher level of employer contributions than do SEP IRAs.

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Question 18

In a defined contribution pension plan, fixed amounts are contributed based upon a specific formula and retirement benefits are based on the value of a participant's account at the time of retirement.

Accepted Answer

In a defined contribution pension plan, contributions are made according to a formula and the retirement benefits received are based on the value of the account at the time of retirement.

Question 19

A company maintains a qualified pension plan for all of its employees. The company can also establish a qualified profit-sharing plan for its managment team.

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Question 20

There are several different types of qualified retirement plans. One common criteria across qualified retirement plans is that employers deduct the contributions and employees include the contributions in taxable income in the same period.

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Quiz 24: Employee Expenses and Deferred Compensation