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.

Accepted Answer

This is correct, employees receiving nonqualified stock options do recognize ordinary income at either the grant date or exercise date, depending on whether there is a readily ascertainable fair market value.

Question 2

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, the employer and/or employee contribute a fixed amount or percentage of pay to the employee's account, which is then invested. Retirement benefits are based on the value of the account at the time of retirement, rather than a predetermined formula.

Question 3

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

Accepted Answer

According to the Employee Retirement Income Security Act (ERISA), a qualified pension plan must fully vest employer-provided benefits after a maximum of five years of service.

Question 4

Assuming AGI below the threshold, a contributor may make a deductible contribution to a Coverdell Education Savings Account for a qualified designated beneficiary of up to $2,000.

Accepted Answer

The answer of Assuming AGI below the threshold, a contributor...

Question 5

In a contributory defined contribution pension plan, all of the following are true with the exception of

Accepted Answer

Retirement benefits are not a fixed amount based on the level of compensation earned by the employee during the working years in a contributory defined contribution pension plan. Instead, benefits are based on the amount of money that has been contributed to the plan, plus any investment earnings.

Question 6

Ross works for Houston Corporation, which has a contributory defined contribution pension plan. The employer's monthly contribution to the plan is 8 percent of each participating employee's monthly salary, while the employee contributes only 6 percent. Which of the following statements best describes the benefits of the plan?

Accepted Answer

The contributions and earnings in a defined contribution pension plan are typically tax-deferred, meaning they are not taxed until the employee retires or takes a distribution.

Question 7

Hunter retired last year and will receive annuity payments for life from his employer's qualified retirement plan of $30,000 per year starting this year. During his years of employment, Hunter contributed $130,000 to the plan. Based on IRS tables, his life expectancy is 260 months. All of the contributions were on a pre- tax basis. This year, Hunter will include what amount in income?

Accepted Answer

Hunter will include the entire $30,000 in income because his contributions were made on a pre-tax basis, meaning he has no basis to recover tax-free.

Question 8

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

Accepted Answer

The answer of SIMPLE retirement plans allow a higher level...

Question 9

The maximum tax deductible contribution to a traditional IRA in 2018 is $5,500 ($6,500 for a taxpayer age 50 or over).

Accepted Answer

The answer of The maximum tax deductible contribution to a...

Question 10

All taxpayers are allowed to contribute funds to Health Savings Accounts to supplement their health insurance.

Accepted Answer

The answer of All taxpayers are allowed to contribute funds...

Question 11

Characteristics of profit- sharing plans include all of the following with the exception of:

Accepted Answer

Profit-sharing plans do not require a company to make contributions only when it has profits; contributions can be made regardless of profits.

Question 12

When are home- office expenses deductible?

Accepted Answer

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

Question 13

Sam retired last year and will receive annuity payments for life from his employer's qualified retirement plan of $30,000 per year starting this year. During his years of employment, Sam contributed $130,000 to the plan on an after- tax basis. Based on IRS tables, his life expectancy is 260 months. This year, Sam will include what amount in income?

Accepted Answer

The answer of Sam retired last year and will receive...

Question 14

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

Accepted Answer

The answer of A company maintains a qualified pension plan...

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

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

Accepted Answer

The answer of Under a qualified pension plan, the employer's...

Question 17

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

Accepted Answer

The answer of A sole proprietor establishes a Keogh plan....

Question 18

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

Accepted Answer

Nonqualified deferred compensation plans are not subject to the same anti-discrimination rules as qualified retirement plans, which means they can discriminate in favor of highly compensated executives.

Question 19

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

Accepted Answer

The answer of Corporations issuing incentive stock options receive a...

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.

Accepted Answer

The answer of There are several different types of qualified...

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals