AWMA Exam 3 Questions and Correct Detailed Answers (Already Graded A+) Newest Version
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AWMA Exam 3 Questions and Correct Detailed Answers (Already Graded A+) Newest Version
A taxpayer incurs withholding on a retirement plan distribution in September of the current year. For estimated tax purposes, the withholding is treated as
A) made during the third quarter of the year.
B) w...
AWMA Exam 3 Questions and Correct
Detailed Answers (Already Graded
A+) Newest Version
A taxpayer incurs withholding on a retirement plan distribution in September of the
current year. For estimated tax purposes, the withholding is treated as
A) made during the third quarter of the year.
B) withheld evenly throughout the tax year.
C) made evenly during the third and fourth quarters of the year.
D) applied to the next tax year. - Answer ✔ B) Withholding from IRAs, qualified plans,
and other income sources is treated as having been made evenly throughout the
current year for cash basis taxpayers, even if the withholding is a lump sum at year-end.
This may be very useful in avoiding an underpayment penalty, as the withholding late in
the year is treated as having been made evenly throughout the year. Mod 5
In order for a distribution to be treated as a qualified charitable distribution
A) the taxpayer may take the distribution, and then make the contribution to the
charitable organization.
B) amounts contributed to the charity can be used to satisfy the owner's required
minimum distribution (RMD) for the year in which it is withdrawn, up to $100,000.
C) the taxpayer must be over age 72.
D) the taxpayer must be over age 59½. - Answer ✔ B) The amounts contributed to the
charitable organization can be used to satisfy the owner's required minimum distribution
(RMD) for the year in which it is withdrawn, up to $100,000. Taxpayers age 70½ and up
are eligible to make qualified charitable distributions. Mod 5
Assume that a taxpayer has a self-employment tax liability of $21,000 and an additional
Medicare tax of $150. What is the amount of the adjustment to income as a result of
these additional taxes?
A) $10,500
B) $12,516
C) $21,000
D) $10,575 - Answer ✔ A) A taxpayer is allowed to deduct one-half of his or her self-
employment tax liability as an adjustment to income. The adjustment is computed
without regard to the additional Medicare tax. Mod 5
,PHD Inc. is a software engineering firm traded in the OTC market. The firm's stock has
been rising steadily over the last six months. The firm's president, Will Gaits, is leery of
being bought out by a competitor, since he has heard rumors about this. Because of
Will's value to the firm, the board of directors wants to provide additional incentive to
keep Will on board now. Which one of the following would best serve Will?
A) Incentive stock option
B) Stock appreciation right
C) Tin parachute
D) Golden parachute - Answer ✔ D) A golden parachute would be ideal for Will's
situation, given the probability of a takeover. His situation is the reason for such plans.
He may not be employed long enough to take full advantage of a stock appreciation
right or incentive stock option. Tin parachutes are for middle management. Mod 6
Which of the following is a tax preference item or adjustment for purposes of the
alternative minimum tax?
A) All medical expenses
B) Tax-exempt interest on all municipal bonds
C) Bargain element on exercise of an incentive stock option
D) Home mortgage interest - Answer ✔ C) The bargain element on the exercise of an
incentive stock option is an AMT preference item. (The bargain element is the difference
between the fair market value of the stock and the exercise price on the date that the
option is exercised. In essence, the bargain element or "spread" represents the amount
of compensation that is included as a preference item for AMT purposes.) Most medical
expenses that are deducted for regular tax purposes are allowed for AMT purposes. In
fact, for taxpayers 65 or older, the floor on medical expenses is the same for regular tax
and AMT purposes—10% of AGI. Only interest from private-activity municipal bonds is
a preference item. Note that interest from private-activity municipal bonds issued in
2009 and 2010 is not a preference item for AMT purposes. Home mortgage interest is
allowed for both regular tax and AMT.Mod 6
All of the following describe contrasting characteristics of qualified and nonqualified
plans except
A) the requirement that the plan must benefit a specific percentage of nonhighly
compensated employees.
B) the ability to defer the employee's tax liability until actual receipt of the funds at
retirement.
C) the availability of rollover provisions to preserve tax deferral after a distribution.
D) the timing of the tax deductibility of the employer's contribution to the plan. - Answer
✔ B) Both qualified and nonqualified plans enable the employee to defer taxation on the
plan funds until retirement. Mod 6
, Which of the following statements accurately describe limits that apply to qualified
defined contribution plans?
I. The employer contribution to a profit sharing plan is limited to 25% of covered payroll.
II. The employer's contributions to all defined contribution plans is a combined limit of
25% of covered payroll.
III. "Annual additions" are limited to the lesser of 25% of the participant's compensation
or $57,000 (for 2020).
IV. "Annual additions" are aggregated and limited to the lesser of 100% of the
participant's compensation or $57,000 (for 2020) for all defined contribution plans of the
employer or related employers.
A) II and IV
B) II, III, and IV
C) I, II, and IV
D) I and II - Answer ✔ C) The annual additions limit (the lesser of 100% of pay or
$57,000 for 2020) applies to additions to a participant's account in all types of defined
contribution plans. The employer deduction limit is a separate limit; it is 25% for profit
sharing plans, money purchase plans, target plans, and multiple defined contribution
plans. The annual additions limit for a participant in multiple defined contribution plans
of the employer or related employers must also be aggregated. Mod 6
Larry is an employee of the Binder Box Co. Larry began working for Binder in 1999 as
an executive in charge of the production department. As part of Larry's employment
contract, Binder contributes to a separate account for Larry's benefit an amount
equaling 10% of his salary each year. The terms of this nonqualified plan state that the
contribution of these amounts will cease and Larry will have no rights to the income if he
dies or becomes permanently disabled. Otherwise, Larry is given the right to receive the
deferred cash amounts upon termination of employment with Binder. This nonqualified
deferred compensation plan segregates property for the benefit of Larry.
Which one of the following is an income tax implication of this plan for Larry, and why?
A) The employer contributions to the plan are taxable to Larry currently because they
are not subject to a substantial risk of forfeiture.
B) The employer contribu - Answer ✔ A) The plan has not established substantial risk of
forfeiture conditions—Larry will receive the deferred amounts when he terminates with
the company. (Death and disability do not establish substantial risk of forfeiture.) Mod 6
Which of the following statements accurately describe characteristics of using life
insurance for the informal funding of a nonqualified deferred compensation plan?
I.It represents an asset that may be purchased to fund the employer's unsecured
promise to pay deferred amounts to the employee.
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