Question 1

Jack takes a $7,000 distribution from his Health Savings Account. $2,000 is used to pay for X- rays and dental surgery. The other $5,000 is used to make a down payment on a new car. What are the tax consequences to Jack?

Accepted Answer

The answer of Jack takes a $7,000 distribution from his...

Question 2

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

Accepted Answer

The answer of Which of the following statements regarding Coverdell...

Question 3

Ruby Corporation grants stock options to Iris on February 1, 2017. 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, 2018, when the stock's FMV is $150. Iris sells the stock on December 5, 2019 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 2017, 20 2019 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 4

At her employer's request, Kim moves from Albany to Chicago. She incurs $20,000 of costs to move her household goods and to travel to the new location, plus $8,000 of temporary living expenses because the new home was not ready when she needed to start work. Her employer reimburses her the full $28,000 cost associated with the move. She cannot deduct the moving costs, but she is not economically impacted because she is fully reimbursed.

Accepted Answer

The answer of At her employer's request, Kim moves from...

Question 5

Feng, a single 40- year- old lawyer, is covered by a qualified retirement plan at work. His salary is $115,000, and his total AGI is $129,000. The maximum contribution he can make to a Roth IRA in 2018 is

Accepted Answer

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

Question 6

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

Qualified distributions from a Roth IRA are tax-free if the account has been open for at least five years and the account holder is over 59½ years old. Since the individual is 65 and opened the account before age 60, the entire distribution is tax-free.

Question 7

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 generally does not favor a rollover to a Roth account because the individual may not have enough time to benefit from the tax-free growth and withdrawals that a Roth account offers, especially considering the immediate tax liability incurred during the rollover.

Question 8

Raul and Jenna are married and are both working. They are both over age 50. Jenna participates in her employer's Sec. 401(k) plan and makes the maximum contribution and enjoys a company matching contribution. Raul's employer does not maintain a retirement plan so he would like to save as much as possible in a tax- advantaged manner for retirement. They expect to report $193,000 of AGI for 2018.
a. What is the maximum amount that Raul can contribute to a traditional IRA and how much can he deduct?
b. What is the maximum amount that Raul can contribute to a Roth IRA and how much can he deduct?
c. How could Raul contribute to both the traditional IRA and Roth IRA to maximize current and future tax savi

Accepted Answer

The answer of Raul and Jenna are married and are...

Question 9

Angie starts a new job on July 1 and becomes covered under the employer's health insurance plan which has an annual deductible of $2,400. Angie contributes the maximum amount into a Health Savings Account. Which of the following statements regarding Angie's Health Savings Account is correct?

Accepted Answer

Angie can contribute and deduct the full amount allowed for a Health Savings Account (HSA) for the year, which is not limited to $1,200. Contributions to an HSA are deductible for AGI, regardless of whether she itemizes deductions.

Question 10

Daniel has accepted a new job and is reviewing the retirement plan information. He has a choice of participating in the company's conventional Sec. 401(k) plan or a Roth 401(k) plan. Explain the difference between the two plans in terms of employee contributions and retirement distributions from the plan.

Accepted Answer

The answer of Daniel has accepted a new job and...

Question 11

Tanya is considering whether to rollover her traditional IRA to a Roth IRA. Factors important to consider include all of the following except

Accepted Answer

The $100,000 AGI limit for converting a traditional IRA to a Roth IRA was eliminated in 2010, so it is no longer a factor to consider.

Question 12

Avantra Inc. is a professional firm with the professional employee group generally in the top tax bracket and the support staff generally in the 12% tax bracket. Due to rising costs and administrative burden, the company is considering discontinuing its dental and eye care insurance plan and instead giving all employees a $600 raise. Based on insurance records the average employee incurs about $400 of dental and eye care expense per year. Which of the following statements is correct?

Accepted Answer

The answer of Avantra Inc. is a professional firm with...

Question 13

Tia is a 52- year- old, unmarried taxpayer who is an active participant in an employer- sponsored qualified retirement plan. Before IRA contributions, her AGI is $67,000 in 2018.
a. What is the maximum amount she can contribute and the maximum deduction she can receive for a contribu a traditional IRA?
b. What is the maximum amount she can contribute and the maximum deduction she can receive for a contribu a Roth IRA?

Accepted Answer

The answer of Tia is a 52- year- old, unmarried...

Question 14

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

Accepted Answer

Contributions to Roth IRAs can be made at any age, as long as the individual has earned income, unlike traditional IRAs which require contributions to cease after age 70 1/2.

Question 15

Discuss the tax treatment of a nonqualified stock option plan.

Accepted Answer

The answer of Discuss the tax treatment of a nonqualified...

Question 16

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 2018. 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 that may be made to a traditional IRA?

Accepted Answer

Tucker can contribute up to $5,500 to a traditional IRA, and Elizabeth can contribute up to $11,000 because she is not covered by a qualified retirement plan.

Question 17

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

Accepted Answer

Not all taxpayers are eligible to establish a health savings account; only those with a high-deductible health plan can do so.

Question 18

Why did Congress establish Health Savings Accounts (HSAs)? How do HSAs operate?

Accepted Answer

The answer of Why did Congress establish Health Savings Accounts...

Question 19

During 2018, Marcia, who is single and is covered under a pension plan at work, contributes $5,500 into a Roth IRA. If her AGI is $67,000, which of the following is true?

Accepted Answer

The answer of During 2018, Marcia, who is single and...

Question 20

Johanna is single and self- employed as a technology consultant. She wants to set money aside for her retirement. What tax and financial issues should she consider?

Accepted Answer

The answer of Johanna is single and self- employed as...

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