Question 1

Which of the following taxpayers qualifies for the maximum individual retirement account deduction for 2016?

Accepted Answer

Married taxpayers who are not covered by a qualified retirement plan and have total adjusted gross income of $85,000 or less can qualify for the maximum IRA deduction for 2016. Option B is not eligible for the maximum deduction as the taxpayer is covered by a qualified retirement plan. Option C does not have any earned income and therefore, cannot contribute to an IRA. Option D is not eligible for the maximum deduction as only one taxpayer is not covered by a qualified retirement plan.

Question 2

Jim lives in California. What is Jim's deadline for making a contribution to traditional IRA or a Roth IRA for 2016?

Accepted Answer

The deadline for making a contribution to a traditional IRA or a Roth IRA for tax year 2016 is April 17, 2017, instead of the usual April 15 deadline. This is because April 15 falls on a weekend, and the following Monday, April 17, is a legal holiday in Washington D.C. (Emancipation Day), which pushes the deadline to the next business day. Therefore, Jim's deadline is April 17, 2017.

Question 3

John is a single 40-year-old landscape architect earning $125,000 a year and is not covered by a pension plan at work. How much can he put into a Traditional IRA in 2016?

Accepted Answer

The answer of John is a single 40-year-old landscape architect...

Question 4

Under the SEP plan provisions, deductible contributions to a qualified retirement plan on behalf of an employee whose net earned income is $20,000 are limited to:

Accepted Answer

The maximum deductible contribution limit for a SEP plan in 2022 is 25% of compensation, up to a maximum of $61,000. In this case, the employee's compensation is $20,000, so the maximum deductible contribution limit would be $5,000 (25% x $20,000 = $5,000). Therefore, Choice D is the correct answer.

Question 5

Jody is a physician (not covered by a retirement plan) with a salary of $40,000 from the hospital where she is employed. She supports her husband, Andre, who sells art work and has no earned income. Both are in their twenties. What is the maximum total amount that Jody and Andre may contribute to their IRAs and deduct for the 2016 tax year?

Accepted Answer

Jody and Andre may each contribute up to $5,500 ($6,500 if they are over age 50) to their IRA accounts for a total of $11,000. Since Jody does not have a retirement plan through her employer, her contributions are fully tax-deductible. Andre's contributions are not tax-deductible since he has no earned income, but he can still contribute to a traditional IRA.

Question 6

What is the maximum amount a 55-year-old taxpayer and a 48-year-old spouse can put into a Traditional or Roth IRA for 2016, assuming they earn $85,000 in total and are not participants in pension plans?

Accepted Answer

The answer of What is the maximum amount a 55-year-old...

Question 7

Jeremy, age 38, has $25,000 in a traditional IRA account and is considering taking the money out to buy himself a new car. What will be the tax consequences to Jeremy if he withdraws the $25,000 from his IRA in 2016 for this purpose? Explain.

Accepted Answer

The answer of Jeremy, age 38, has $25,000 in a...

Question 8

Which of the following is not an exception to the 10% early withdrawal penalty of a traditional IRA: ​

Accepted Answer

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

Question 9

What is the maximum amount a 30-year-old taxpayer and a 35-year-old spouse can put into a Traditional or Roth IRA for 2016, assuming they earn $50,000 in total and are not covered by pension plans?

Accepted Answer

The answer of What is the maximum amount a 30-year-old...

Question 10

Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000. He is an active participant in his employer's pension plan. What is the maximum amount Donald can contribute to a Roth IRA in 2016?

Accepted Answer

The maximum amount a taxpayer can contribute to a Roth IRA in 2016 is $5,500 or their taxable compensation for the year, whichever is less. Since Donald's taxable compensation is $55,000, he can contribute the full maximum amount of $5,500.

Question 11

Barrett is a 45-year-old political commentator who has self-employed net earned income of $170,000 in 2016. What is the maximum amount he can deduct for contributions to his simplified employee pension (SEP) for the year?

Accepted Answer

The answer of Barrett is a 45-year-old political commentator who...

Question 12

Debbie is 63 years old and retired in 2014. She receives Social Security payments of $12,000 a year and interest income of $30,000. She wishes to put the maximum allowed into an IRA. How much can she contribute to her IRA?

Accepted Answer

The answer of Debbie is 63 years old and retired...

Question 13

Ben is a 19-year-old single software inventor earning $200,000 a year and is not covered by a pension plan at work. How much can he put into a Roth IRA in 2016?

Accepted Answer

The answer of Ben is a 19-year-old single software inventor...

Question 14

Contributions by a self-employed individual to a SEP plan for 2016 are limited to the lesser of a percent of net earned income or:

Accepted Answer

For 2016, the contribution limit for a SEP plan is the lesser of 25% of net earned income or $53,000.

Question 15

What is the difference between the tax treatment of contributions and distributions from a traditional IRA and a Roth IRA?

Accepted Answer

The answer of What is the difference between the tax...

Question 16

Which of the following statements is correct?

Accepted Answer

According to the Internal Revenue Service (IRS), the correct contribution limits for SEPs for self-employed taxpayers are the lesser of 25 percent of net self-employment income or $53,000. Option A is incorrect because the contribution limit is calculated based on net self-employment income, not net earned income. Option C is incorrect because it refers to 401(k) plans, not SEP plans. Option D is incorrect because it refers to the contribution limit for 401(k) plans, not SEPs.

Question 17

Rob and Julie, both in their 30s, file a joint income tax return for 2016. Rob's wages are $25,000 and Julie's wages are $33,000 for the year. Their total adjusted gross income is $58,000, and Julie is covered by a qualified pension plan at work but Rob is not.
a.What is the maximum amount that Rob and Julie may each contribute to their Roth IRAs?
b.​
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If Julie's wages are $110,000 for 2016, instead of $33,000, and their adjusted gross income is $135,000, (1) what is the maximum amount that Rob and Julie may each deduct for contributions to their individual retirement accounts, and (2) what is the maximum amount they could each contribute to Roth IRAs instead?

Accepted Answer

The answer of Rob and Julie, both in their 30s,...

Question 18

Wilson and Joan, both in their 30s, file a joint income tax return for 2016. Wilson's wages are $15,000 and Joan's wages are $23,000 for the year. Their total adjusted gross income is $38,000, and Joan is covered by a qualified pension plan at work but Wilson is not.
a.​
What is the maximum amount that Wilson and Joan may each deduct for contributions to their individual retirement accounts?
b.​
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If Joan's wages are $88,000 for 2016, instead of $23,000, and their adjusted gross income is $103,000, what is the maximum amount that Wilson and Joan may each deduct for contributions to their individual retirement accounts?

Accepted Answer

The answer of Wilson and Joan, both in their 30s,...

Question 19

Christine is a self-employed graphics artist who has net earned income of $160,000 from her business. Christine has a defined contribution SEP Plan and plans to contribute the amount that provides the maximum deduction allowable. How much can Christine contribute?

Accepted Answer

The answer of Christine is a self-employed graphics artist who...

Question 20

Steven is 27 years old and has a total AGI of $110,000 in 2016. He contracts pneumonia in 2016 and incurs a medical bill that totals $7,500. He withdraws $7,500 from his traditional IRA to pay the bill. Which of the following is true?

Accepted Answer

The penalty-free withdrawal from an IRA for medical expenses is only allowed for the amount that exceeds 10% of the AGI. In this case, 10% of $110,000 is $11,000, and the medical bill is $7,500, which does not exceed this threshold.

Quiz 4: Business Income and Expenses Part II