ACCT 2001 Lecture Notes - Lecture 13: Earned Income Tax Credit, Federal Insurance Contributions Act Tax, Tax Rate

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ACCT 2001 Full Course Notes

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Because rashaun has made both deductible and nondeductible contributions to his ira, he needs to allocate the distribution between taxable amounts and amounts that are a return of his nondeductible contribution. To do this, he first has to determine the ratio of nondeductible contributions to the value of the ira at the time of the distribution. In this case the ratio is ,000/,000 or 18. 75%. Consequently, ,750 (20,000 18. 75%) is not taxable and the remaining ,250 is taxed at rashaun"s marginal tax rate of 20%. Thus, rashaun must pay ,250 in taxes and the overall amount he receives after taxes is ,750 [3,750 + (16,250 (1 0. 2)]. Because sherry has made a withdrawal from her roth ira within five years of opening it, she has received a nonqualified distribution. In this instance, sherry has withdrawn ,500 of earnings (19,900 withdrawal 14,400 contributions) and will pay taxes of ,375 (25% . 5,500) and a penalty of (10% 5,500).

Related Questions

1. Wendy is a sole proprietor with one employee. She maintains aSimple IRA in which she matches salary reduction contributions atthe rate of 3% of the employee's compensation. Where on her taxreturn does she report her own contribution, and where does shereport the contribution she makes on behalf of her employee?

a. Wendy's own salary reduction contribution and employermatches are reported on schedule C because she has an employee

b. Wendyâs own salary reduction contribution and her ownemployer match are reported on Form 1040; the matching contributionshe makes on behalf of herself and employee, as well as theemployeeâs elective deferrals, and all reported on Schedule C.

c. Wendyâs own salary reduction contribution and her ownemployer match are both reported on Form 1040: the matchingcontribution she makes to her employeeâs SIMPLE is reported onSchedule C.

d. Wendyâs own salary reduction contribution is reported on Form1040; the matching contributions for herself and on behalf of heremployee are both reported on Schedule C.

2. Leo, is 34 years old. He contributed 3,000 to a Roth IRS in2012 and 2,000 in 2013. In 2015 he withdrew the entire 5,466balance. How much of Leoâs withdrawal is taxable and subject topenalty?

a. Zero table and $466 subject to penalty

b. 466 taxable and 466 subject to penalty

c. 5,466 taxable and 466 subject to penalty

d. Zero taxable and 5,466 subject to penalty

3. At age 55, Lisa was separated from service. She rolled over19,000, the entire balance of her 401(k), into an IRA. ThenDecember of the same year, Lisa had to take 2150 out of this newIRA in order to pay her bills. How much of distributions aresubject to the early distribution penalty?

a. zero

b. 1900

c. 2150

d. 19000

4. A trustee-to-trustee rollover is the preferred way totransfer one retirement account to another. All of these arepotential problems when taxpayers take the distribution and handlethe rollover themselves:

a. The taxpayer must complete the entire rollover process with 60days or the distribution and will be taxable

b. The taxpayer is subject to a penalty if they try to do arollover from the same IRA more than once per year.

c. The distribution is subject to 20% withholding, and thetaxpayer must come up with the amount themselves or it will betaxable

d. The taxpayer cannot claim an expectation to the 10%penalty

tealtoad562

11. Bread Corporation is a C corporation with earnings of $150,000. It paid $60,000 of dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter, an S Corporation. Butter had net taxable income of $40,000 and made a $30,000 distribution to Gerald. What total income will Gerald report from Bread and Butterâs activities?

$90,000

$190,000

$150,000

$100,000

12. At the first of the year, Arch and Bean contribute cash equally to form the JK partnership. Arch and Bean share profits and losses in a ratio of 75% to 25% respectively. For the current year, the partnership's ordinary income was $40,000. A distribution of $5,000 was made to Arch during the current year. What amount of ordinary income should Bean report from the JK partnership?

$5,000

$20,000

$10,000

$40,000

13. Identify which of the following statements is true.
All cash distributions from a partnership require the partners to pay taxes on those distributions.

Distribution of partnership income in the form of cash to partners is generally taxable to the

partners as long as there is sufficient basis.

If property distributions exceed the partner's basis in the partnership interest, a partner would not have to recognize gain on a distribution from the partnership.

All of the above are true.

14. Stan had a basis in his 50% partnership interest at the beginning of this year of $20,000 in a partnership in which he actively participates. There was no change in partnership liabilities during the year. The partnership's ordinary loss this year was $60,000 and the partnership had no separately stated items. The deductible loss from the partnership reported on Stan's personal income tax return this year is

$20,000

$0

$60,000

$30,000

15. The Qualified Business Income Deduction applies to individuals who own an interest in a:

C Corporation

Both a Partnership and an S Corporation

A partnership

S Corporation

Question: Reading Federal Income Taxation of Corporations andShareholders Text: Study Chapters 7 & 8 o...

Reading

Federal Income Taxation of Corporations andShareholders

Text: Study Chapters 7 & 8of the Bittker & Eustice text.

Penalty Taxes on Undistributed CorporateIncome, Dividends and Other NonliquidatingDistributions

LESSON 6, PROBLEM #1

In not less than 1,000 words discuss "earnings and profits".Your discussion should include major differences between computingcurrent earnings and profits and current taxable income as well aswhy earnings and profits should be calculated before a corporationdecides to make a distribution to its shareholders.

LESSON 6, PROBLEM #2

Allan owns all of the stock of CadyCo. The stockâs basis is$100,000. CadyCo has a total of current and accumulated earningsand profits of $50,000. CadyCo distributes $200,000 cash to Allanâwith respect to his stockâ (i.e., as a state law âdividendâ). Howis the $200,000 taxed? What is Allanâs stock basis after thedistribution? Alternatively, CadyCo distributes to Allan his noteto CadyCo for $200,000 borrowed from CadyCo.

LESSON 6, PROBLEM #3

Assumptions: The stock of ChadCo is owned equally bytwo shareholders: SecondCo (a corporation) and Arnold (anindividual). ChadCo and SecondCo use the accrual method, Arnolduses the cash method. All use a calendar taxable year. Assume Â§1059 does not apply. Use a 34 percent corporate tax rate in thisproblem. During the current year, ChadCo accrued income andexpenses as follows:

Gross income from business	$500,000
Dividends on AT&T stock (consider Â§ 243)	100,000
Interest on municipal bonds (Â§ 103)	100,000
Capital gain	100,000
Total	$800,000
Deductible Â§ 162(a)(l) business expenses	$430,000
Noncapital expenses not deductible under Â§ 162(e)	90,000
Capital losses (see Â§ 1211(a))	146,000
Total	$666,000
Net	$134,000

(1) On December 24 of the preceding year, SecondCo and Arnoldincorporated ChadCo and capitalized ChadCo with cash of $100,000each. On December 31 of that preceding year, SecondCo and Arnoldreceived distributions from ChadCo of $5,000 each; ChadCo did notearn any income for that year. In addition, SecondCo and Arnoldreceived distributions of $5,000 each, in the current year.

Which distributions should be gross income to SecondCo andArnold, in what amounts, and why? What does E&P have to do withthis?

(2) Alternative: Arnold just bought the ChadCo shares onDecember 30 of the current year from another shareholder for FMV of$145,000, before the declaration and payment of a

$5,000 distribution to Arnold on December 31 of the currentyear.

Should the distribution be taxable income to Arnold?Why?

(3) Now assume that SecondCoâs basis in its ChadCo stock is$100,000 and Arnoldâs basis in his ChadCo stock is $40,000. OnJanuary 2 of the current taxable year, ChadCo distributes $100,000in cash to SecondCo and $100,000 in cash to Arnold. As of the endof the preceding taxable year, ChadCoâs accumulated E&P waszero.

What are the tax consequences of this distribution toChadCo, SecondCo, and Arnold? [Hint: First compute ChadCoâscurrent-year taxable income and then compute current- year E&Pbefore reducing the E&P for the distribution (âinterimE&Pâ); after reducing for the distribution, compute finalaccumulated E&P.]

(4) Variation: Assume Arnoldâs shares were owned by a differentshareholder every quarter and $50,000 was distributed ratably toall shareholders quarterly?

How much dividend would SecondCo and the holders of Arnoldâsshares receive?

(5) Suppose under the basic facts in (3) above that ChadCo hadan accumulated de?cit of

$100,000 in its E&P account as of December 31 of thepreceding taxable year.

(6) If, on December 1 of the current year (the declarationdate), ChadCoâs board of directors voted to pay the $200,000distribution by mailing the checks on December 31 of the currenttaxable year (the payment date, the identi?cation of which is apractice generally used only by widely held corporations) toshareholders of record on December l5 of the current taxable year(the record date), such checks actually being received by SecondCoand Arnold in the mail on January 2 of the next year? Assume thatSecondCo and Arnold are the public and that they are the onlyshareholders (as in the basic facts).

How would your answer to (3) above change?

(7) Suppose that SecondCo is an individual and that ChadCo hasalways been an S corporation.

What is ChadCoâs E&Pâ? How is each shareholderâspersonal income tax return affected for the current year by the taxitems ofChadCo? How will ChadCo distribution of

$100,000 to each shareholder in the current year affectshareholders?

ACCT 2001 Lecture Notes - Lecture 13: Earned Income Tax Credit, Federal Insurance Contributions Act Tax, Tax Rate

ACCT 2001 Full Course Notes

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