1. Gary is a calendar-year eligible small employer and wishes to take advantage of the Credit for Small Employer Pension Plan Startup Costs. He incurred $2,000 in qualified startup cost in 2008 for an eligible plan that will become effective on January 1, 2009. What is Gary's Pension Startup Costs credit amount for calendar year 2008?
A. $500.
B.
$0 (he gets the credit in 2009).
C.
Either A or B above.
D.
$1,000.
2. In 2008, Colleen started a SIMPLE plan for all five of her employees and herself. It cost her $400 in fees to administer the plan. She never had a pension plan prior to starting this plan. Her tax credit is:
A.
$200.
B. $400.
C. $0.
D.
$100.
3. Robert transferred an office building that has an adjusted basis of $60,000 and a fair market value of $105,000 to the Wargo Corporation in exchange for 100% of Wargo Corporation stock and $10,000 cash. The building was subject to a mortgage of $25,000, which Wargo Corporation assumed. The fair market value of the stock was $75,000. Which is the amount of Robert's realized gain and recognized gain?
A. Realized $55,000 Recognized $30,000.
B.
Realized $50,000 Recognized $30,000.
C.
Realized $50,000 Recognized $10,000.
D.
Realized $35,000 Recognized $10,000.
4. Bob and Sam transfer a building with a basis of $100,000 to the Redwood Corporation in exchange for 75% of each class of stock with a fair market value of $300,000. The other 25% of the stock was already issued to Betty. What is the gain, if any, that Bob, Sam, or the Redwood Corporation must recognize?
A. Bob and Sam, none; Redwood Corporation none.
B. Bob
and Sam, none; Redwood Corporation $300,000.
C.
Bob and Sam, $200,000; Redwood Corporation none.
D. Bob
and Sam, none; Redwood Corporation $200,000.
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1. This is a person who performs services for an employer who has the right to control and direct the results of the work and the way in which it is done. The employer provides the employee's tools, materials and workplace. In addition, the employer can fire the employee.
A. Self-employed person.
B. A
common-law employee.
C. A
leased employee.
D. An
employee.
2. Under a SEP, you make the contributions to a traditional individual retirement arrangement (called a SEP-IRA) set up by or for each eligible employee. A SEP-IRA is owned and controlled by the employee, and you make contributions to the financial institution where the SEP-IRA is maintained. SEP-IRAs are set up for, at a minimum, each eligible employee. An eligible employee is an individual who
A. Has reached age 21.
B. Has
worked for you in at least 3 of the last 5 years.
C. Has
received at least $500 in compensation from you in 2008.
D. All
of the above.
3. You cannot consider the part of an employee's compensation over $230,000 when figuring your contribution limit to a SEP-IRA for a common-law employee. The maximum contribution for an eligible employee is
A.
$5,250.
B.
$21,000.
C.
$46,000.
D.
$49,000.
4. Excess contributions are your contribution to an employee's SEP-IRA (or to your own SEP-IRA) for 2008 that exceed
A. 25%
of the employee's compensation (or for you, 20% of your net earnings from
self-employment).
B.
$46,000.
C.
The lesser of A or B above.
D.
The greater of A or B above.
5. When you can deduct contributions made for a year depends on the tax year on which the SEP is maintained. If you file your tax return and main the SEP using a fiscal year or short tax year,
A. You
deduct contributions made for a year on your tax return for that year.
B. You
deduct the yearly contributions on your tax return for the year within which the
calendar year ends.
C.
You deduct the contribution for the year after the year ends.
D.
You deduct contributions made for a year on your tax return for a prior year.
6. If you contribute to your own SEP-IRA, you must make a special compensation to figure your maximum deduction for these contributions. When figuring the deduction for contributions made to your own SEP-IRA, compensation is your net earnings from self-employment, which takes in to account the deduction for one-half of your self-employment tax and
A. Your contributions.
B. 25%
of the compensation paid to the participants.
C.
Trade or business under common control described in section 414(c).
D.
The deduction for contributions to your own SEP-IRA.
7. Deduct the contributions you make for your common-law employees on your own tax return. Sole proprietors and partners deduct contributions for themselves on
A.
Schedule C (Form 1040).
B.
Schedule F (Form 1040).
C.
Line 28 of form 1040.
D.
Form 1065.
8. The tax advantages of using SEP-IRAs for retirement savings can be offset by additional taxes that may be imposed for
A.
Making excess contributions.
B.
Making early withdrawals.
C.
Not making required withdrawals.
D.
Any of the above.
9. You can set up a SIMPLE IRA plan if you meet the employer limit and
A. You
maintain another qualified plan.
B. You
do not maintain another qualified plan unless the other plan is for collective
bargaining employees.
C.
You do not maintain a plan for collective bargaining employees.
D.
Coverage under the plan has not significantly changed during the grace period.
10. You can set up a SIMPLE IRA plan only if you had
A. 200 or fewer employees who received $10,000 or more in compensation.
B. 100 or fewer employees who received $5,000 or more in compensation.
C. 50 or fewer employees who received $3,000 or more in compensation.
D. 2
or more employees who received $100 or more in compensation.
11. A SIMPLE IRA plan can permit participants who are 50 or over at the end of the calendar year to also make catch-up contributions. The catch-up contribution limit for 2008 for SIMPLE IRA plans is
A.
$2,500.
B.
$3,500.
C.
$10,500.
D.
$5,000.
12. To be a qualified plan, a defined benefit plan must benefit a least
A. 50 employees.
B. The greater of 40% of all employees or two employees.
C. At least the lesser of A or B above.
D.
The greater of A or B above.
13. For qualified plans, contributions or benefits to be provided can be in favor of highly compensated employees.
True False
14. In setting up a qualified plan, you must adopt a written plan. The plan can be an IRS-approved master or prototype plan offered by a sponsoring organization. The following organization generally can provide IRS-approved master or prototype plans.
A. Banks and insurance companies.
B. Trade or professional organizations.
C. Mutual funds.
D.
Any of the above.
15. The deductions limit for your contributions to a qualified plan depends on the kind of plan you have. The deduction for contributions to a defined contribution plan cannot be more than 25% of the compensation paid or accrued during the year to your eligible employees participating in the plan. When figuring the deduction limit, the following applies.
A. Elective deferrals are not subject to the limits.
B. Compensation includes elective deferrals.
C. The maximum compensation that can be taken into account for each employee is
$230,000.
D. All of the above.
16. A 401(k) plan can permit participants who are age 50 or older at the end of the calendar year to also make catch up contributions. The catch-up contribution limit for 2008 is
A. $2,500.
B. $3,500.
C. $10,500.
D. $5,000.
17. Generally, each participant must receive his or her entire benefits in the plan or begin to receive periodic distributions of benefits from the the plan by the required beginning date. A participant must begin to receive distributions from his or her qualified retirement plan by April 1 of the first year after the later of the calendar year in which he or she retires from employment with the employer maintaining the plan or
A. The calendar year in which he or she reaches age 55 1/2.
B. The calendar year in which he or she reaches age 65 1/2.
C. The calendar year in which he or she reaches age 70 1/2.
D. The calendar year in which he or she reaches age 59 1/2.
18. If the plan covers only you (or you and your spouse) and you (or your spouse) own the entire business (whether incorporated or unincorporated), your plan is a one-participant plan.
True False
19. If a distribution is made to an employee under the plan before he or she reaches age 59 1/2, the employee may have to pay a 10% additional tax on the distribution. This tax applies to the amount received that the employee must include in income. The 10% tax applies if distributions are made before age 59 1/2 and
A. Made to an
employee after separation from service if the separation occurred during or
after the calendar year in which the employee reached age 55.
B. Made to a
beneficiary (or to the estate of the employee) on or after the death of the
employee.
C. Made due to the
employee having a qualifying disability.
D. None of the
above.
20. The initial tax on a prohibited transaction is 15% of the amount involved for each year (or part of a year) in the taxable period. If the transaction is not corrected within the taxable period, an additional tax will be imposed of
A. 10% of the
amount involved.
B. 5% of the amount
involved.
C. 100% of the
amount involved.
D. 50% of the
amount involved.