Question 1

Match each statement with the correct term below.
-Alternative minimum tax
A)A separate, parallel tax system designed to ensure a taxpayer pays some tax.
B)A compensation tool that is based on potential price increases of the company's stock.
C)An individual trust account maintained for the exclusive benefit of an individual or beneficiary.
D)A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan.
E)A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.

Accepted Answer

A

Question 2

Thelma can get the 10% penalty on the early withdrawal from her IRA waived if the money is used to pay her son's college tuition.

Accepted Answer

This is true under certain circumstances. The penalty can be waived if the money is used for qualified education expenses, which includes tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. However, the withdrawal will still be subject to income taxes.

Question 3

A nonqualified stock option is a right to buy a share of stock at a fixed price within a specified time period.If the employee recognizes income when the stock option is received then the employer can take a deduction of the same amount.

Accepted Answer

True

Question 4

Savings incentive match plan for employees (SIMPLE)were created to encourage small businesses to establish retirement plans for their employees.

Accepted Answer

SIMPLE plans were indeed created to encourage small businesses to establish retirement plans for their employees.

Question 5

Any structure over 100 years old is eligible for the rehabilitation tax credit.

Accepted Answer

The structure must be at least 50 years old to be eligible for the rehabilitation tax credit.

Question 6

Peter opened his IRA in 2003and withdrew money to purchase a house in 2012.Since the distribution qualified as a "qualified first-time-homebuyer expenses," it is not subject to the 10% early withdrawal penalty.

Accepted Answer

According to IRS rules, a "qualified first-time-homebuyer expenses" distribution from an IRA is exempt from the 10% early withdrawal penalty if it meets certain qualifications, such as being used to purchase or build a first home. As long as Peter meets these qualifications and properly reports the distribution on his taxes, he should not be subject to the penalty.

Question 7

A Keogh plan is administratively more convenient and economical than a simplified employee pension plan (SEP).

Accepted Answer

A simplified employee pension plan (SEP) generally has lower administrative fees and easier record-keeping requirements compared to a Keogh plan, which may involve more paperwork and additional costs for professional services. Therefore, a SEP is typically considered more convenient and economical for small businesses or self-employed individuals with relatively low incomes or fewer employees.

Question 8

Match each statement with the correct term below.
-IRA
A)A separate, parallel tax system designed to ensure a taxpayer pays some tax.
B)A compensation tool that is based on potential price increases of the company's stock.
C)An individual trust account maintained for the exclusive benefit of an individual or beneficiary.
D)A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan.
E)A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.

Accepted Answer

The answer of Match each statement with the correct term...

Question 9

Match each statement with the correct term below.
-Incentive stock option
A)A separate, parallel tax system designed to ensure a taxpayer pays some tax.
B)A compensation tool that is based on potential price increases of the company's stock.
C)An individual trust account maintained for the exclusive benefit of an individual or beneficiary.
D)A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan.
E)A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.

Accepted Answer

Incentive stock options are a form of compensation to employees in the form of the option to purchase company stock at a discounted price, which can become valuable if the company's stock price increases.

Question 10

The employee's contribution to a nonqualified pension plan cannot be deferred,and the employer is not allowed a tax deduction for the contribution even though the employee includes the contribution in their income.

Accepted Answer

Employee contributions to a nonqualified pension plan can indeed be deferred, and the employer's tax deduction for contributions is typically deferred until the employee recognizes the income. This means the employer does not get an immediate tax deduction at the time of contribution if the plan defers the taxation of the income for the employee.

Question 11

A Keogh plan must be established as a defined contribution plan,and the rules are similar to those of a qualified pension plan.

Accepted Answer

The answer of A Keogh plan must be established as...

Question 12

A taxpayer must begin withdrawals from any type of retirement plan (except a Roth IRA)no later than April 1 of the tax year after the taxpayer reaches age 70¹/₂ or,if later,the year they retire.

Accepted Answer

This is known as the required minimum distribution (RMD) rule enforced by the IRS.

Question 13

One of the benefits of an incentive stock option is that the employee can sell the option at any time.

Accepted Answer

An incentive stock option (ISO) cannot be sold at any time. There are specific holding periods that must be met in order to avoid certain tax consequences. The employee must hold the stock for at least two years from the grant date and one year from the exercise date in order to qualify for long-term capital gains tax treatment.

Question 14

Unmarried taxpayers who are not active participants in a pension plan are allowed to deduct their entire contribution to an IRA regardless of the amount of their adjusted gross income.

Accepted Answer

Unmarried taxpayers who are not active participants in a pension plan (or whose spouse is not an active participant) can deduct the full amount of their contribution to a traditional IRA, regardless of their income level. However, if the taxpayer or their spouse is an active participant in a pension plan, income limits apply for the deduction.

Question 15

Match each statement with the correct term below.
-Defined benefit plan
A)A separate, parallel tax system designed to ensure a taxpayer pays some tax.
B)A compensation tool that is based on potential price increases of the company's stock.
C)An individual trust account maintained for the exclusive benefit of an individual or beneficiary.
D)A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan.
E)A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.

Accepted Answer

Defined benefit plans are pension plans where the benefits are calculated based on factors such as the number of years of service and the employee's salary, not on the amount contributed to the plan.

Question 16

Match each statement with the correct term below.
-Defined contribution plan
A)A separate, parallel tax system designed to ensure a taxpayer pays some tax.
B)A compensation tool that is based on potential price increases of the company's stock.
C)An individual trust account maintained for the exclusive benefit of an individual or beneficiary.
D)A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan.
E)A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.

Accepted Answer

The answer of Match each statement with the correct term...

Question 17

Match each statement with the correct term below.
-Money purchase plan
A)A separate, parallel tax system designed to ensure a taxpayer pays some tax.
B)A compensation tool that is based on potential price increases of the company's stock.
C)An individual trust account maintained for the exclusive benefit of an individual or beneficiary.
D)A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan.
E)A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.

Accepted Answer

A money purchase plan is a type of defined contribution pension plan where both the company and the employee contribute a fixed percentage of the employee's salary.

Question 18

Tim has a 25% interest in Hill and Associates,a partnership.Tim is eligible for coverage as an employee under the firm's qualified pension plan.

Accepted Answer

As a partner with a 25% interest in the partnership, Tim is considered an owner, not an employee, and therefore his eligibility for coverage under the firm's qualified pension plan would be based on his status as a partner, not as an employee.

Question 19

The tax advantage of a Roth IRA is that although the contributions are not deductible,the distributions of contribution and income are tax-free.

Accepted Answer

This is correct. Roth IRA contributions are made with after-tax dollars, meaning they are not deductible on your tax return. However, the distributions of both contributions and any investment gains are tax-free as long as the account has been open for at least five years and you are age 59 1/2 or older.

Question 20

IRS scrutiny of reasonable compensation usually deals with excess compensation paid to the shareholders of closely held corporations and unreasonably low salaries to shareholders of an S corporation.

Accepted Answer

The statement is true. IRS scrutiny of reasonable compensation typically focuses on excessive salaries paid to shareholders of closely held corporations and unreasonably low salaries paid to shareholders of an S corporation.

Quiz 15: Choice of Business Entity - Other Considerations

Match each statement with the correct term below. -Alternative minimum tax