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taxation of individuals

Questions and Answers of Taxation of Individuals

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
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
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
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.
What types of retirement plans are available to self-employed taxpayers?
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.
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?
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.
What are the primary tax differences between traditional IRAs and Roth IRAs?
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
Are companies allowed to decide who can and who cannot participate in nonqualified deferred compensation plans? Briefly 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?
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.
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.
Explain the tax similarities and differences between qualified defined contribution plans and nonqualified deferred compensation plans from an employer’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 taxpayers 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
Describe the annual limitation on employer and employee contributions to traditional 401(k) and Roth 401(k) plans.
Can employers match employee contributions to Roth 401(k) plans? Explain.
What are the differences between a traditional 401(k) and Roth 401(k) plan?
What nontax factor(s) should an employee consider when deciding whether and to what extent to participate in an employer’s 401(k) plan?
What does it mean if an employer “matches” employee contributions to 401(k)plans?
Brady Corporation has a profit-sharing plan that allocates 10 percent of all after-tax income to employees. The profit sharing is allocated to individual employees based on relative employee
Describe the circumstances under which distributions from defined contribution plans are penalized. What are the penalties?
When may employees begin to receive defined contribution plan distributions without penalty?
Cami (age 52 and married) was recently laid off 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
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 how an employee’s benefit under a defined contribution plan is determined.
Compare and contrast the employer’s responsibilities for providing a defined benefit plan to employees relative to providing a defined contribution plan.
Describe the minimum distribution requirements for defined benefit plans. Are these requirements typically an item of concern for taxpayers?
Describe the distribution or payout options available to taxpayers participating in qualified defined benefit plans. How are defined benefit plan distributions to recipients taxed?
Describe the maximum annual benefit that taxpayers may receive under defined benefit plans.
What are the nontax advantages and disadvantages of defined benefit plans relative to defined contribution plans?
Compare and contrast the minimum vesting requirements for defined benefit plans and defined contribution plans.
What does it mean to vest in a defined benefit or defined contribution plan?
Describe how an employee’s benefit under a defined benefit plan is computed.
How are defined benefit plans different from defined contribution plans? How are they similar?
In 2016, Jill, age 35, received a job offer with two alternative compensation packages to choose from. The first package offers her $90,000 annual salary with no qualified fringe benefits, requires
Sylvana is given a job offer with two alternative compensation packages to choose from. The first package offers her $250,000 annual salary with no qualified fringe benefits. The second package
Santini’s new contract for 2016 indicates the following compensation and benefits:Benefit Description Amount Salary $130,000 Health insurance 9,000 Restricted stock grant 2,500 Bonus 5,000 Hawaii
Pratt is ready to graduate and leave College Park. His future employer (Ferndale Corp.) offers the following four compensation packages from which Pratt may choose. Pratt will start working for
Matt works for Fresh Corporation. Fresh offers a cafeteria plan that allows each employee to receive $15,000 worth of benefits each year. The menu of benefits is as follows:Benefit Cost Health
Jarvie loves to bike. In fact, he has always turned down better paying jobs to work in bicycle shops where he gets an employee discount. At Jarvie’s current shop, Bad Dog Cycles, each employee is
Jasmine works in Washington, D.C. She accepts a new position with her current firm in Los Angeles. Her employer provides the following moving benefits:• Temporary housing for one month—$3,000.•
LaMont works for a company in downtown Chicago. The firm encourages employees to use public transportation (to save the environment) by providing them with transit passes at a cost of $260 per
Sharmilla works for Shasta Lumber, a local lumber supplier. The company annually provides each employee with a Shasta Lumber shirt so that employees look branded and advertise for the business while
Meg works for Freedom Airlines in the accounts payable department. Meg and all other employees receive free flight benefits (for the employee, family, and 10 free buddy passes for friends per year)
Brady graduated from SUNY New Paltz with his bachelor’s degree recently. He works for Makarov & Company CPAs. The firm pays his tuition ($10,000 per year) for him so that he can receive his Master
JDD Corporation provides the following benefits to its employee, Ahmed (age 47):Salary $300,000 Health insurance 10,000 Dental insurance 2,000 Life insurance 3,000 Dependent care 5,000 Professional
Seiko’s current salary is $85,000. Her marginal tax rate is 30 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an office equipment
Lars Osberg, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lars $8,500 to purchase if he pays for it himself (Lars’s AGI is too
Bills Corporation runs a defense contracting business that requires security clearance. To prevent unauthorized access to its materials, Bills requires its security personnel to be on duty except for
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
On January 1, year 1, Tyra started working for Hatch Corporation. New employees must choose immediately between receiving seven NQOs (each NQO provides the right to purchase for $5 per share 10
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
On January 1, year 1, Jessica received 10,000 shares of restricted stock from her employer, Rocket Corporation. On that date, the stock price was $10 per share.On receiving the restricted stock,
On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share.On receiving the restricted stock, Dave made
On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave’s restricted shares will vest at the
Harmer Inc. is now a successful company. In the early days (before it became profitable), it issued ISOs to its employees. Now Harmer is trying to decide whether to issue NQOs or ISOs to its
Antonio received 40 ISOs (each option gives him the right to purchase 20 shares of Zorro stock for $3 per share) at the time he started working for Zorro Corporation six years ago. Zorro’s stock
Mark received 10 ISOs (each option gives him the right to purchase 10 shares of Hendricks Corporation stock for $5 per share) at the time he started working for Hendricks Corporation five years ago
Haven received 200 NQOs (each option gives him the right to purchase 20 shares of Barlow Corporation stock for $7 per share) at the time he started working for Barlow Corporation three years ago when
Yost received 300 NQOs (each option gives Yost the right to purchase 10 shares of Cutter Corporation stock for $15 per share) at the time he started working for Cutter Corporation three years ago.
Cammie received 100 NQOs (each option provides a right to purchase 10 shares of MNL stock for $10 per share) at the time she started working for MNL Corporation (5/1/Y1) four years ago when MNL’s
Ramon has finally arrived. He has interviewed for the CEO position with MMM Corporation. They have presented him with two alternative compensation offers. Alternative 1 is for a straight salary of
Marcus is the CEO of publicly traded ABC Corporation and earns a salary of$1,500,000. Assume ABC has a 35 percent marginal tax rate.a) What is ABC’s after-tax cost of paying Marcus’s salary?b)
Lynette is the CEO of publicly traded TTT Corporation and earns a salary of$200,000 in the current year. Assume TTT has a 35 percent marginal tax rate.a) What is TTT Corporation’s after-tax cost of
Jorgensen High Tech Inc. is a calendar-year, accrual-method taxpayer. At the end of year 1, Jorgensen accrued and deducted the following bonuses for certain employees for financial accounting
North Inc. is a calendar-year C corporation, accrual-basis taxpayer. At the end of year 1, North accrued and deducted the following bonuses for certain employees for financial accounting purposes.•
Describe the circumstances in which an employee may not value a nontaxable fringe benefit.
Explain the policy reason for including the value of country club memberships provided to an executive as a taxable fringe benefit.
Explain why Congress allows employees to receive certain fringe benefits tax-free but others are taxable.
Describe a cafeteria plan and discuss why an employer would provide a cafeteria plan for its employees.
Explain why an employee might accept a lower salary to receive a nontaxable fringe benefit. Why might an employee not accept a lower salary to receive a nontaxable fringe benefit?
Assume that your friend has accepted a position working as an accountant for a large automaker. As a signing bonus, the employer provides the traditional cash incentive but also provides the employee
Mike is working his way through college and trying to make ends meet. Tara, a friend, is graduating soon and tells Mike about a really great job opportunity.She is the onsite manager for an apartment
Compare and contrast the employer’s tax consequences of providing taxable versus nontaxable fringe benefits.
When an employer provides group-term life insurance to an employee, what are the tax consequences to the employee? What are the tax consequences for the employer?
Explain the differences and similarities between fringe benefits and salary as forms of compensation.
What risks do employees making an §83(b) election on a restricted stock grant assume?
Matt just started work with Boom Zoom Inc., a manufacturer of credit-card-sized devices for storing and playing back music. Due to the popularity of its devices, analysts expect Boom Zoom’s stock
How is the tax treatment of restricted stock different from that of NQOs? How is it similar?
Compare and contrast how employers record book and tax expense for stock options.
What is a “disqualifying disposition” of ISOs, and how does it affect employees who have exercised ISOs?
Why do employers use stock options in addition to salary to compensate their employees? For employers, are stock options treated more favorably than salary for tax purposes? Explain.

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