Explain the tax similarities and differences between qualified defined contribution plans and nonqualified deferred compensation plans from an employer’s perspective.
> In 2016, Susan (44 years old) is a highly successful architect and is covered by an employee-sponsored plan. Her husband, Dan (47 years old), however, is a Ph.D. student and is unemployed. Compute the maximum deductible IRA contribution for each spouse i
> William is a single writer (age 35) who recently decided that he needs to save more for retirement. His 2016 AGI is $65,000 (all earned income). a. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution
> Describe the circumstances under which distributions from defined contribution plans are penalized. What are the penalties?
> John (age 51 and single) has earned income of $3,000. He has $30,000 of unearned (capital gain) income. a. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2016? b. If he does par
> XYZ Corporation has a deferred compensation plan under which it allows certain employees to defer up to 40 percent of their salary for five years. (For purposes of this problem, ignore payroll taxes in your computations). a. Assume XYZ has a marginal tax
> Leslie participates in IBO’s nonqualified deferred compensation plan. For 2016, she is deferring 10 percent of her $300,000 annual salary. Based on her deemed investment choice, Leslie expects to earn a 7 percent before-tax rate of return on her deferred
> Under what circumstances, if any, can a taxpayer fail to meet the ownership and use requirements but still be able to exclude all of the gain on the sale of a principal residence?
> Compare and contrast the characteristics of a deductible point from a nondeductible point on a first home mortgage.
> When a taxpayer has multiple loans secured by her residence that in total exceed the limits for deductibility, how does the taxpayer determine the amount of the deductible interest expense?
> In 2016, Nitai (age 40) contributes 10 percent of his $100,000 annual salary to a Roth 401(k) account sponsored by his employer, AY, Inc. AY, Inc., matches employee contributions dollar for dollar up to 10 percent of the employee’s salary to the employee
> Kathleen, age 56, works for MH, Inc. in Dallas, TX. Kathleen contributes to a Roth 401(k) and MH contributes to a traditional 401(k) on her behalf. Kathleen has contributed to $30,000 to her Roth 401(k) over the past six years. The current balance in her
> In 2016, Nina contributes 10 percent of her $100,000 annual salary to her 401(k) account. She expects to earn a 7 percent before-tax rate of return. Assuming she leaves this (and any employer contributions) in the account until she retires in 25 years, w
> In 2016, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees. According to the terms of the plan, YBU contributes 50 cents for every dollar the employee contributes. The maximum employer contribution under th
> Why might it be good advice from a tax perspective to think hard before deciding to quickly pay down mortgage debt?
> Matthew (48 at year-end) develops cutting-edge technology for SV, Inc. located in Silicon Valley. In 2016, Matthew participates in SV’s money purchase pension plan (a defined contribution plan) and in his company’s 401(k) plan. Under the money purchase p
> Kim has worked for one employer her entire career. While she was working, she participated in the employer’s defined contribution plan [traditional 401(k)]. At the end of 2016, Kim retires and the balance in her defined contribution plan was $2,000,000 a
> Alicia has been working for JMM Corp. for 32 years. Alicia participates in JMM’s defined benefit plan. Under the plan, for every year of service for JMM she is to receive 2 percent of the average salary of her three highest years of compensation from JMM
> Javier recently graduated and started his career with DNL Inc. DNL provides a defined benefit plan to all employees. According to the terms of the plan, for each full year of service working for the employer, employees receive a benefit of 1.5 percent of
> What are the nontax advantages and disadvantages of defined benefit plans relative to defined contribution plans?
> How is the saver’s credit computed?
> What is the maximum saver’s credit available to taxpayers? What taxpayer characteristics are relevant to the determination?
> What is the saver’s credit and who is eligible to receive it?
> What are the nontax considerations for self-employed taxpayers deciding whether to set up a SEP IRA or an individual 401(k)?
> Compare and contrast the annual limitations on deductible contributions for self-employed taxpayers to SEP IRAs, and individual 401(k) accounts.
> Cami (age 52 and married) was recently let go as part of her employer’s reduction in force program. Cami’s annual AGI was usually around $50,000. Shortly after Cami’s employment was terminated, her employer distributed the balance of her employer-sponsor
> Can portions of one loan secured by a residence consist of both acquisition indebtedness and home-equity indebtedness? Explain.
> When a taxpayer takes a nonqualified distribution from a Roth IRA, is the entire amount of the distribution treated as taxable income?
> Assume a taxpayer makes a nondeductible contribution to a traditional IRA. How does the taxpayer determine the taxability of distributions from the IRA on reaching retirement?
> Is a taxpayer who contributed to a traditional IRA able to transfer or “roll over” the money into a Roth IRA? If yes, explain the tax consequences of the transfer.
> Explain when a taxpayer will be subject to the 10 percent penalty when receiving distributions from a Roth IRA.
> Compare and contrast the minimum vesting requirements for defined benefit plans and defined contribution plans.
> How are qualified distributions from Roth IRAs taxed? How are nonqualified distributions taxed?
> Compare the minimum distribution requirements for traditional IRAs to those of Roth IRAs.
> What is the limitation on a deductible IRA contribution for 2016?
> What are the requirements for a taxpayer to make a deductible contribution to a traditional IRA? Why do the tax laws impose these restrictions?
> Is there a limit to how much an employer and/or employee may contribute to an employee’s defined contribution account(s) for the year? If so, describe the limit.
> Describe the circumstances in which it would be more favorable for a taxpayer to contribute to a traditional IRA rather than a Roth IRA and vice-versa.
> For taxpayers qualifying for home office deductions, what are considered to be indirect expenses of maintaining the home? How are these expenses allocated to personal and home office use? Can taxpayers choose to calculate home office expenses without reg
> How might the ultimate benefits to an employee who participates in a qualified retirement plan of a company differ from an employee who participates in a nonqualified deferred compensation plan of the company if the company experiences bankruptcy before
> Are employees or self-employed taxpayers more likely to qualify for the home office deduction? Explain.
> How can companies use deferred compensation to avoid the §162(m) limitation on salary deductibility?
> What are reasons why companies provide nonqualified deferred compensation plans for certain employees?
> When determining whether a dwelling unit is treated as a residence or nonresidence for tax purposes, what constitutes a day of personal use and what constitutes a day of rental use?
> From a nontax perspective, what issues does an employee need to consider in deciding whether to defer compensation under a nonqualified deferred compensation plan or to receive it immediately?
> From a tax perspective, what issues does an employee need to consider in deciding whether to defer compensation under a nonqualified deferred compensation plan or to receive it immediately?
> Explain the nontax similarities and differences between qualified defined contribution plans and nonqualified deferred compensation plans from an employee’s perspective.
> How are the tax issues associated with home offices and vacation homes used as rentals similar? How are the tax issues or requirements dissimilar?
> Explain the nontax similarities and differences between qualified defined contribution plans and nonqualified deferred compensation plans from an employer’s perspective.
> Explain the tax similarities and differences between qualified defined contribution plans and nonqualified deferred compensation plans from an employee’s perspective.
> Could a taxpayer contributing to a traditional 401(k) plan earn an after-tax return greater than the before-tax return? Explain.
> From a tax perspective, how would a taxpayer determine whether they should contribute to a traditional 401(k) or a Roth 401(k)?
> When a company is limited by the tax laws in the amount it can contribute to an employee’s 401(k) plan, what will it generally do to make the employee whole? Is this likely an issue for rank-and-file employees? Why or why not?
> Describe the annual limitation on employer and employee contributions to traditional 401(k) and Roth 401(k) plans.
> Describe how an employee’s benefit under a defined benefit plan is computed.
> Harry decides to finance his new home with a 30-year fixed mortgage. Because he figures he will be in this home for a long time, he decides to pay a fully deductible discount point on his mortgage to reduce the interest rate. Assuming Harry itemizes dedu
> Under what circumstances is it likely economically beneficial to pay points to reduce the interest rate on a home loan?
> Barbi really wants to acquire an expensive automobile (perhaps more expensive than she can really afford). She has two options. Option 1: finance the purchase with an automobile loan from her local bank at a 7 percent interest rate or Option 2: finance t
> How are defined benefit plans different from defined contribution plans? How are they similar?
> In year 0, Javens, Inc. sold machinery with a fair market value of $400,000 to Chris. The machinery’s original basis was $317,000 and Javens’s accumulated depreciation on the machinery was $50,000, so its adjusted basis to Javens was $267,000. Chris paid
> Russell Corporation sold a parcel of land valued at $400,000. Its basis in the land was $275,000. For the land, Russell received $50,000 in cash in year 0 and a note providing that Russell will receive $175,000 in year 1 and $175,000 in year 2 from the b
> Baker Corporation owned a building located in Kansas. Baker used the building for its business operations. Last year a tornado hit the property and completely destroyed it. This year, Baker received an insurance settlement. Baker had originally purchased
> Nicole’s employer, Poe Corporation, provides her with an automobile allowance of $20,000 every other year. Her marginal tax rate is 30 percent. Poe Corporation has a marginal tax rate of 35 percent. Answer the following questions relating to this fringe
> Prater Inc. enters into an exchange in which it gives up its warehouse on 10 acres of land and receives a tract of land. A summary of the exchange is as follows: What is Prater’s realized and recognized gain on the exchange and its basi
> Metro Corp. traded machine A for machine B. Metro originally purchased machine A for $50,000 and machine A’s adjusted basis was $25,000 at the time of the exchange. What is Metro’s realized gain or loss, recognized gain or loss, and adjusted basis in mac
> Woodley Park Corporation currently owns two parcels of land (parcel 1 and parcel 2). It owns a warehouse facility on parcel 1. Woodley needs to acquire a new and larger manufacturing facility. Woodley was approached by Blazing Fast Construction (who spec
> Kase, an individual, purchased some property in Potomac, Maryland, for $150,000 approximately 10 years ago. Kase is approached by a real estate agent representing a client who would like to exchange a parcel of land in North Carolina for Kase’s Maryland
> Independence Corporation needs to replace some of the assets used in its trade or business and is contemplating the following exchanges: Determine whether each exchange qualifies as a like-kind exchange. Also explain the rationale for why each qualifies
> Hans runs a sole proprietorship. Hans reported the following net §1231 gains and losses since he began business: a. What amount, if any, of the year 7 (current year) $50,000 net §1231 gain is treated as ordinary income? b. Assume
> Morgan’s Water World (MWW), an LLC, opened several years ago and reports the following net §1231 gains and losses since it began business. What amount, if any, of the year 7 $113,000 net §1231 gain is treated as
> Tonya Jefferson, a sole proprietor, runs a successful lobbying business in Washington, D.C. She doesn’t sell many business assets, but she is planning on retiring and selling her historic townhouse, from which she runs her business, in order to buy a pla
> Twinbrook Corporation needed to upgrade to a larger manufacturing facility. Twinbrook first acquired a new manufacturing facility for $2,100,000 cash, and then transferred the facility it was using (building and land) to White Flint Corporation for $2,00
> On January 1, year 1, Tyra works for Hatch Corporation. New employees must choose immediately between receiving seven NQOs (each NQO provides the right to purchase for $5 per share 10 shares of Hatch stock) or 50 restricted shares. Hatch’s stock price is
> Bourne Guitars, a corporation, reported a $157,000 net §1231 gain for year 6. a. Assuming Bourne reported $50,000 of non-recaptured net §1231 losses during years 1–5, what amount of Bourne’s net §1231 gain for year 6, if any, is treated as ordinary incom
> Moab, Inc. manufactures and distributes high-tech biking gadgets. It has decided to streamline some of its operations so that it will be able to be more productive and efficient. Because of this decision it has entered into several transactions during th
> Fontenot Corporation sold some machinery to its majority owner Gray (an individual who owns 60 percent of Fontenot). Fontenot purchased the machinery for $100,000 and has claimed a total of $40,000 of depreciation expense deductions against the property.
> Hauswirth Corporation sold (or exchanged) some manufacturing equipment in year 0. Hauswirth bought the machinery several years ago for $65,000 and it has claimed $23,000 of depreciation expense against the equipment. a. Assuming that Hauswirth receives
> Two years ago, Bethesda Corporation bought a delivery truck for $30,000 (not subject to the luxury auto depreciation limits). Bethesda used MACRS 200 percent declining balance and the half-year convention to recover the cost of the truck, but it did not
> Deirdre sold 100 shares of stock to her brother, James, for $2,400. Deirdre purchased the stock several years ago for $3,000. a. What gain or loss does Deirdre recognize on the sale? b. What amount of gain or loss does James recognize if he sells the st
> Hillary is in the leasing business and faces a marginal tax rate of 35 percent. She has leased equipment to Whitewater Corporation for several years. Hillary bought the equipment for $50,000 and claimed $20,000 of depreciation deductions against the asse
> Aruna, a sole proprietor, wants to sell two assets that she no longer needs for her business. Both assets qualify as §1231 assets. The first is machinery and will generate a $10,000 §1231 loss on the sale. The second is land that will generate a $7,000 §
> Ken sold a rental property for $500,000. He received $100,000 in the current year and $100,000 each year for the next four years. $400,000 of the sales price was allocated to the building and the remaining $100,000 was allocated to the land. Ken purchase
> Pratt is ready to graduate and leave College Park. His future employer offers the following four compensation packages from which Pratt may choose. Pratt will start working for Ferndale on January 1, year 1. Assume that the restricted stock is 1,000 shar
> Shimmer Inc. is a calendar-year end, accrual-method corporation. This year, it sells the following long-term assets: Shimmer does not sell any other assets during the year and its taxable income before these transactions is $800,000. What is Shimmer&acir
> Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. This year, she sells the following long-term assets used in her business: / Lily’s taxable income before these transactions is $160,500. What is Lilyâ&#
> Buckley, an individual, began a business two years ago and has never sold a §1231 asset. Buckley owned each of the assets since he began the business. In the current year, Buckley sold the following business assets: Assuming Buckleyâ
> Luke sold a building and the land on which the building sits to his wholly owned corporation, Studemont Corp. at fair market value. The fair market value of the building was determined to be $325,000; Luke built the building several years ago at a cost o
> Hart, an individual, bought an asset for $500,000 and has claimed $100,000 of depreciation deductions against the asset. Hart has a marginal tax rate of 30 percent. Answer the questions presented in the following alternative scenarios (assume Hart had no
> Moran owns a building he bought during year 0 for $150,000. He sold the building in year 6. During the time he held the building he depreciated it by $32,000. What is the amount and character of the gain or loss Moran will recognize on the sale in each o
> Rayburn Corporation has a building that it bought during year 0 for $850,000. It sold the building in year 5. During the time it held the building, Rayburn depreciated it by $100,000. What is the amount and character of the gain or loss Rayburn will reco
> On August 1 of year 0, Dirksen purchased a machine for $20,000 to use in its business. On December 4 of year 0, Dirksen sold the machine for $18,000. a. What is the amount and character of the gain or loss Dirksen will recognize on the sale? b. What is
> On May 1, year 1, Anna received 5,000 shares of restricted stock from her employer, Jarbal Corporation. On that date, the stock price was $5 per share. On receiving the restricted stock, Anna made the §83(b) election. Anna’s restricted shares will all ve
> In year 0, Longworth Partnership purchased a machine for $40,000 to use in its business. In year 3, Longworth sold the machine for $35,000. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $22,000. a. What
> In year 0, Canon purchased a machine to use in its business for $56,000. In year 3, Canon sold the machine for $42,000. Between the date of the purchase and the date of the sale, Canon depreciated the machine by $32,000. a. What is the amount and charac
> Identify each of White Corporation’s following assets as an ordinary, capital, or §1231 asset. a. Two years ago, White used its excess cash to purchase a piece of land as an investment. b. Two years ago, White purchased land and a warehouse. It uses the
> Franco converted a building from personal to business use in May 2014 when the fair market value was $55,000. He purchased the building in July 2011 for $80,000. On December 15 of this year, Franco sells the building for $40,000. On the date of the sale,
> On September 30 of last year, Rex received some investment land from Holly as a gift. Holly’s adjusted basis was $50,000 and the land was valued at $40,000 at the time of the gift. Holly acquired the land five years ago. What is the amount and character
> Hannah Tywin owns 100 shares of MM Inc. stock. She sells the stock on December 11 for $25 per share. She received the stock as a gift from her Aunt Pam on March 20 of this year when the fair market value of the stock was $18 per share. Aunt Pam originall
> Compare and contrast how employers record book and tax expense for stock options.
> What is a “disqualifying disposition” of incentive stock options, and how does it affect employees who have exercised incentive stock options?
> Alan Meer inherits a hotel from his grandmother, Mary, on February 11 of the current year. Mary bought the hotel for $730,000 three years ago. Mary deducted $27,000 of cost recovery on the hotel before her death. The fair market of the hotel in February
