Question 1

Tom,a calendar-year taxpayer,worked in Kuwait from July 1,2012 through June 30,2013.He earned $80,000 in 2012 and $90,000 in 2013 while in Kuwait.Which of the following statements is true?

Accepted Answer

As Tom worked in Kuwait from July 1, 2012 through June 30, 2013, he meets both the physical presence test and the bona fide residence test for foreign earned income exclusion. However, since he earned $80,000 in 2012 and the maximum exclusion amount for that year is $48,800, he cannot exclude all of his income in 2012. 
Therefore, Option A is incorrect. 
For 2013, he earned $90,000, which is within the maximum exclusion limit ($97,600 for tax year 2013). Therefore, he can exclude up to $97,600 of his foreign earned income in 2013. Since he met the physical presence test for the entire period from July 1, 2012, through June 30, 2013, he can exclude up to the maximum limit for that year ($97,600). Thus, Option C is incorrect.
Therefore, the correct answer is Option D, as he can exclude up to $48,800 in 2013.

Question 2

Which one of the following employee benefits can a staff accountant exclude from income?

Accepted Answer

A single ticket to a Marlins game can be considered a de minimis fringe benefit, which may be excluded from income. This is because it is a small, occasional benefit provided by the employer that is difficult to account for.

Question 3

Five years ago,Devin Corporation granted Laura nonqualified stock options to buy 1,000 shares of Devin stock at $22 per share exercisable for six years.At the date of grant,the stock was selling for $19 per share.Laura exercised the options this year when the market price was $28 per share.How much income must Laura recognize from the exercise of the options?

Accepted Answer

To determine the income that Laura must recognize from the exercise of the options, we need to calculate the difference between the fair market value (FMV) of the stock at exercise and the exercise price:

FMV at exercise: $28 per share
Exercise price: $22 per share

Therefore, the difference is $28 - $22 = $6 per share.

Since Laura exercised the options to buy 1,000 shares, her total income from the exercise would be:

$6 per share x 1,000 shares = $6,000

This amount is considered ordinary income and must be reported on Laura's tax return.

Question 4

Which of the following are characteristics of a Roth IRA?

Accepted Answer

The answer of Which of the following are characteristics of...

Question 5

What is the maximum deductible contribution that Erick (age 32 and single)can make in 2013 to an Individual Retirement Account(s)if he earns $61,000 and is not covered by an employer-sponsored retirement plan?

Accepted Answer

The answer of What is the maximum deductible contribution that...

Question 6

Sara,a cash-basis,calendar-year taxpayer,worked overseas for the past three years and is eligible for the foreign earned income exclusion for the income earned from January 1 through January 31,2013 before she returned to the United States.She was paid $30,000 including bonuses for this month's work but she did not have to pay any foreign taxes on this income.What is her foreign earned income exclusion for 2013?

Accepted Answer

The foreign earned income exclusion limit for 2013 is $97,600. However, since Sara only worked for one month before returning to the United States, she is only eligible for a proportional limit based on the number of days in the year that she was physically present in a foreign country. Assuming she meets the requirements for the physical presence test for the remainder of the year, she would be eligible for a prorated exclusion of $8,255 ($97,600 / 365 days * 31 days). The fact that she did not pay any foreign taxes does not affect her eligibility for the exclusion.

Question 7

Henry,age 45,is an employee of Argus Corporation.His fringe benefits for the current year included: 
-$2,500 contributed by Argus to his qualified deferred compensation retirement plan.This year,the retirement plan earned $600 in interest and dividend income.Henry received no distributions from this plan
-A $100,000 face value group term life insurance policy for which Argus paid premiums of $650.Henry is a key employee and it is a discriminatory plan.
-The use of a company-owned automobile.The annual lease value of this car is $15,000.Henry used it 70% of the time (and miles)for personal use and 30% for business use.
-Free parking in the company parking lot (valued at $100 per month)
How much must Henry include in gross income?

Accepted Answer

Henry must include $11,150 in gross income. This includes the $2,500 contribution to his qualified deferred compensation retirement plan, the $650 premiums paid by Argus for his group term life insurance policy, and $10,500 (70% of $15,000) for the personal use of the company-owned automobile. The free parking in the company parking lot is not taxable.

Question 8

The contribution limit for a defined contribution plan is:

Accepted Answer

The contribution limit for a defined contribution plan is $17,500 for 2023.

Question 9

Manuel's employer provides him with $80,000 of group term life insurance coverage for the year at no cost.How much must Manuel include in income as a result of this benefit if he is 40 years old and is not considered a key employee?

Accepted Answer

The answer of Manuel's employer provides him with $80,000 of...

Question 10

Pablo earns $65,000 from his regular job as a salesman and an additional $60,000 from his sole proprietorship in 2013.What is his self-employment tax?

Accepted Answer

The self-employment tax is calculated on the net earnings from self-employment, which is $60,000 in this case. The self-employment tax rate is 15.3%, so $60,000 * 15.3% = $9,180. However, only 92.35% of the net earnings are subject to the tax, so $60,000 * 92.35% = $55,410. Then, $55,410 * 15.3% = $8,478.93. The correct answer is $7,646 after considering the deduction for the employer-equivalent portion of self-employment tax.

Question 11

Susie worked as a counselor at a wilderness camp for inner city children for six weeks during the summer.Her weekly benefits included a $200 salary,lodging in a private cabin valued at $60,and meals in the camp dining facilities worth $70.Susie was required to be available at all times during the 6 week period in case of emergencies by her employer.How much must Susie include in her gross income?

Accepted Answer

The answer of Susie worked as a counselor at a...

Question 12

Which of the following are characteristics of a traditional IRA?

Accepted Answer

Distributions from a traditional IRA before age 59½ generally incur a 10% penalty tax, making option A correct. The age by which a taxpayer must start taking distributions, known as the Required Minimum Distributions (RMDs), has been updated to 72 for those born after June 30, 1949, not 75½ as stated, making option B incorrect.

Question 13

A taxpayer who is a bona fide resident of a foreign country for an entire tax year may:

Accepted Answer

The answer of A taxpayer who is a bona fide...

Question 14

Elizabeth received the following benefits from her employer this year: 
-$5,000 year-end bonus for exceeding sales expectations
-$400 cash as a length-of-service award
-$2,400 for insurance premiums paid by her employer for a disability income policy
-$5,100 for tuition paid by her employer for courses not related to her job under an educational assistance plan
How much must Elizabeth include in gross income?

Accepted Answer

Elizabeth must include the year-end bonus of $5,000, the length-of-service award of $400, and the insurance premiums of $2,400 in her gross income, totaling $7,800. However, the tuition paid by her employer for courses not related to her job under an educational assistance plan is not taxable, so it does not need to be included in her gross income. Therefore, the correct answer is $7,800 + $0 = $7,800, which is answer choice B.

Question 15

Carl,age 44,wants to contribute the maximum allowed to a Roth IR a.He is single and his AGI is $116,000.How much can he contribute to the Roth IRA?

Accepted Answer

For 2023, the maximum contribution to a Roth IRA for someone under 50 is $6,500. However, since Carl's AGI is $116,000, he is in the phase-out range for single filers ($138,000 to $153,000). His contribution limit is reduced proportionally, allowing him to contribute $4,033.

Quiz 4: Employee Compensation