Question 1

Joyce,age 40,and Sam,age 42,who have been married for seven years,are both active participants in qualified retirement plans.Their total AGI for 2013 is $120,000.Each is employed and earns a salary of $65,000.What are their combined deductible contributions to traditional IRAs?

Accepted Answer

Since both Joyce and Sam are active participants in qualified retirement plans and their AGI exceeds the phase-out limit for deductible IRA contributions for 2013, they are not eligible to make deductible contributions to traditional IRAs.

Question 2

Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years.The account is now worth $376,000.How much of these funds can Frank withdraw tax-free?

Accepted Answer

The answer of Frank established a Roth IRA at age...

Question 3

Juanita receives a $2,000 distribution from her Coverdell Education Savings Account (CESA).The distribution consists of $1,500 of contributions and $500 of earnings.Juanita pays $1,700 in qualified higher education expenses for the year.Calculate the amount to be included in Juanita's gross income.

Accepted Answer

Since Juanita paid $1,700 in qualified higher education expenses and only received a $1,500 distribution of contributions, only $1,500 of the distribution can be considered tax-free. The remaining $200 is the amount that needs to be included in Juanita's gross income. However, since $75 of that $200 is attributable to earnings, that portion is subject to income tax and a 10% penalty, resulting in a total tax liability of $15 ($75 x 0.10 x 1). Therefore, the amount to be included in Juanita's gross income is $200 - $75 + $15 = $140.

Question 4

Mary establishes a Roth IRA at age 50 and contributes the maximum amount per year to the Roth IRA for 15 years.The account is now worth $199,000,consisting of $75,000 in contributions plus $124,000 in accumulated earnings.How much can Mary withdraw tax-free?

Accepted Answer

The answer of Mary establishes a Roth IRA at age...

Question 5

Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2013.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:

Accepted Answer

In 2013, the maximum contribution limit for a traditional IRA for individuals under 50 was $5,500. Since Sammy is not an active participant in a qualified retirement plan and his modified AGI is below the phase-out range, he can deduct the full amount of $5,500.

Question 6

In 2015,Kathy receives a $4,000 distribution from her Coverdell Education Savings Account (CESA),which has a fair market value of $10,000.Total contributions to her CESA have been $7,000.Kathy's AGI is $25,000.If Kathy uses $3,000 of the $4,000 distribution for qualified education expenses,what amount should she include in her gross income?

Accepted Answer

The answer of In 2015,Kathy receives a $4,000 distribution from...

Question 7

Robert entertains several of his key clients on January 1 of the current year.Expenses paid by Robert are as follows:  Presuming proper substantiation,Robert's deduction is:

Accepted Answer

The answer of Robert entertains several of his key clients...

Question 8

Which,if any,of the following is subject to a cutback adjustment?

Accepted Answer

The answer of Which,if any,of the following is subject to...

Question 9

Ralph made the following business gifts during the year.  Presuming proper substantiation,Ralph's deduction is:

Accepted Answer

The answer of Ralph made the following business gifts during...

Question 10

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows:  Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

Accepted Answer

The answer of Priscella pursued a hobby of making bedspreads...

Question 11

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Accepted Answer

The answer of Which of the following is not relevant...

Question 12

Dana,age 31 and unmarried,is an active participant in a qualified retirement plan.Her AGI is $116,000.What amount,if any,may Dana contribute to a Roth IRA in 2013?

Accepted Answer

The maximum contribution to a Roth IRA in 2013 is $5,500 for individuals under age 50. However, there are income limitations for contributing to a Roth IRA. For a single taxpayer, the ability to make a full contribution begins to phase out at an AGI of $112,000 and is completely phased out at an AGI of $127,000. Since Dana's AGI is $116,000, her contribution limit is reduced. The reduction is calculated by taking the excess of her AGI over $112,000 and dividing it by $15,000. That figure is then multiplied by the maximum contribution limit of $5,500. In this case, the reduction is ($116,000-$112,000)/$15,000 = 0.27. Multiplying that by $5,500 gives a reduction of $1,485. Therefore, Dana can contribute up to $5,500 - $1,485 = $4,015 to a Roth IRA in 2013. However, since contributions must be made by April 15 of the following year, it's also possible that her AGI could be lower in 2014, which might increase her contribution limit.

Question 13

For an activity classified as a hobby,the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g.,depreciation,amortization,and depletion).
(2) Amounts deductible under other Code sections without regard to the nature of the activity,such as property taxes and home mortgage interest.
(3) Amounts deductible under other Code sections if the activity had been engaged in for profit,but only if those amounts do not affect adjusted basis (e.g.,maintenance,utilities,and supplies).
If these expenses exceed the gross income from the activity and are thus limited,the sequence in which they are deductible is:

Accepted Answer

The answer of For an activity classified as a hobby,the...

Question 14

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan).She has the following income items for the year:  What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2013,assuming the self-employment tax rate is 15.3%?

Accepted Answer

The calculation for the maximum amount that Susan can deduct as a contribution to her Keogh plan is based on her net self-employment income, which is calculated by subtracting her self-employment tax and her Keogh contribution from her total income.

Her net self-employment income for 2013 is:
$120,000 - ($120,000 x 0.5 x 0.153) - $17,500 = $91,932

The maximum Keogh contribution for 2013 is:
$51,000 or 25% of her net self-employment income, whichever is less.

25% of $91,932 is $22,983, which is less than $51,000. Therefore, the maximum Keogh contribution for Susan in 2013 is $22,983.

However, Susan can only deduct a portion of this contribution on her taxes due to limits imposed by the IRS. The maximum deductible Keogh contribution for Susan in 2013 is calculated as follows:

Step 1: Calculate Susan's deductible self-employment tax
$120,000 x 0.5 x 0.153 = $9,198

Step 2: Calculate Susan's deductible Keogh contribution
$22,983 - $9,198 = $13,785

Therefore, the maximum amount Susan can deduct as a contribution to her retirement plan in 2013 is $13,785, which is answer choice D.

Question 15

One of the tax advantages of being self-employed (rather than being an employee)is:

Accepted Answer

The answer of One of the tax advantages of being...

Question 16

Merrill is a participant in a SIMPLE § 401(k)plan,and he elects to contribute 4% of his $40,000 compensation to the account,while his employer contributes 3%.What amount will vest immediately,if any?

Accepted Answer

The answer of Merrill is a participant in a SIMPLE...

Question 17

The ceiling amounts and percentages for 2013 for the two portions of the self-employment tax are: Social Security portion Medicare portion

Accepted Answer

The ceiling amount for the Social Security portion is $113,700, and the percentage is 12.4%. There is no ceiling amount for the Medicare portion, and the percentage is 2.9%.

Question 18

Pat generated self-employment income in 2013 of $76,000.The self-employment tax is:

Accepted Answer

The self-employment tax is 15.3% of net income. Pat's self-employment tax is $76,000 x 0.153 = $11,628.

Question 19

Which of the following correctly reflects current rules regarding estimated tax payments for individuals?

Accepted Answer

The answer of Which of the following correctly reflects current...

Question 20

During 2013,Eleanor earns $120,000 in wages as an employee of an accounting firm.She also earns $13,000 in gross income from an outside consulting service she operates.Deductible expenses paid in connection with the consulting service amount to $3,000.Eleanor also has a recognized long-term capital gain of $1,000 from the sale of a stock investment.She must pay a self-employment tax on:

Accepted Answer

Eleanor's self-employment income is calculated as her outside consulting service gross income ($13,000) minus her deductible business expenses ($3,000), which equals $10,000. She must pay self-employment tax on this amount, which is currently 15.3%. Therefore, the self-employment tax owed would be $1,530 ($10,000 x 0.153), which makes choice B the correct answer.

Quiz 17: Individuals As Employees and Proprietors

Joyce,age 40,and Sam,age 42,who have been married for seven years,are both active participants in qualified retirement plans.Their total AGI for 2013 is $120,000.Each is employed and earns a salary of $65,000.What are their combined deductible contributions to traditional IRAs?

Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years.The account is now worth $376,000.How much of these funds can Frank withdraw tax-free?

Juanita receives a $2,000 distribution from her Coverdell Education Savings Account (CESA) .The distribution consists of $1,500 of contributions and $500 of earnings.Juanita pays $1,700 in qualified higher education expenses for the year.Calculate the amount to be included in Juanita's gross income.

Mary establishes a Roth IRA at age 50 and contributes the maximum amount per year to the Roth IRA for 15 years.The account is now worth $199,000,consisting of $75,000 in contributions plus $124,000 in accumulated earnings.How much can Mary withdraw tax-free?

Sammy,age 31,is unmarried and is not an active participant in a qualified retirement plan.His modified AGI is $55,000 in 2013.The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:

Robert entertains several of his key clients on January 1 of the current year.Expenses paid by Robert are as follows: Presuming proper substantiation,Robert's deduction is:

Which,if any,of the following is subject to a cutback adjustment?

Ralph made the following business gifts during the year. Presuming proper substantiation,Ralph's deduction is:

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

Which of the following is not relevant in determining whether an activity is profit-seeking or a hobby?

Dana,age 31 and unmarried,is an active participant in a qualified retirement plan.Her AGI is $116,000.What amount,if any,may Dana contribute to a Roth IRA in 2013?

Susan is a self-employed accountant with a qualified defined contribution plan (a Keogh plan) .She has the following income items for the year: What is the maximum amount Susan can deduct as a contribution to her retirement plan in 2013,assuming the self-employment tax rate is 15.3%?

One of the tax advantages of being self-employed (rather than being an employee) is:

Merrill is a participant in a SIMPLE § 401(k) plan,and he elects to contribute 4% of his $40,000 compensation to the account,while his employer contributes 3%.What amount will vest immediately,if any?

The ceiling amounts and percentages for 2013 for the two portions of the self-employment tax are: Social Security portion Medicare portion

Pat generated self-employment income in 2013 of $76,000.The self-employment tax is:

Which of the following correctly reflects current rules regarding estimated tax payments for individuals?