Comprehensive Test No. 8

27 Questions

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Comprehensive Test No. 8

Adjustments to Income:Publication 17; Chapters 17, 18 & 19;Supplement IV:Publication 969: Health Savings Accounts and Other Tax-Favored Health PlansPublication 521: Moving Expenses


Questions and Answers
  • 1. 
    True or False: A Traditional IRA is any IRA that is not a Roth IRA or a SIMPLE IRA.
    • A. 

      True

    • B. 

      False

  • 2. 
    CHECK ALL THAT APPLY: Check the statement(s) below that correctly describe a "TRADITIONAL IRA".
    • A. 

      A Traditional IRA may be opened with a mutual fund, insurance company or through your stockbroker.

    • B. 

      Any taxpayer receiving taxable compensation during the year and is age 70 1/2 or younger may open and make contributions to a Traditional IRA.

    • C. 

      A Traditional IRA can be opened at a bank or other financial institution.

    • D. 

      Some or all of your contributions to a Traditional IRA may be deductible, depending on your circumstances.

    • E. 

      Earnings and gains on a Traditional IRA are generally not taxed until they are distributed.

    • F. 

      ALL OF THE ABOVE

  • 3. 
    CHECK ALL THAT APPLY: Check the item(s) below that would be included when talking about compensation as it relates to setting up Traditional IRAs.
    • A. 

      Wages

    • B. 

      Salaries

    • C. 

      Interest Income

    • D. 

      Dividend Income

    • E. 

      Bonuses

    • F. 

      Deferred compensation received

    • G. 

      Foreign earned income (excluded)

    • H. 

      Rental income

    • I. 

      Commissions

    • J. 

      Professional fees

    • K. 

      Taxable alimony

  • 4. 
    CHECK ALL THAT APPLY: Choose the kind(s) of Traditional Ira(s) that a person may set up or have set up on his/her behalf.
    • A. 

      SEP IRA (Part of a Simplified Employee Pension)

    • B. 

      SIMPLE IRA (Savings Incentive Match Plans for Employees)

    • C. 

      Individual Retirement Account

    • D. 

      Individual Retirement Annuity

    • E. 

      ROTH IRA

    • F. 

      Part of an employer or employee association trust account.

  • 5. 
    Samantha is an unmarried, 22 year old college student. She worked part time during 2014 and earned $4,279. What is the maximum amount Samantha will be able to contribute to a Traditional IRA for tax year 2014?
    • A. 

      $5,500

    • B. 

      $6,500

    • C. 

      $4,279

  • 6. 
    Festus is 50 years old, single and earned $50,000 during 2014. What is the maximum contribution he will be able to make to a Traditional IRA for tax year 2014?
    • A. 

      $5,500

    • B. 

      $6,500

    • C. 

      $50,000

  • 7. 
    Julie is age 42, single and earned $38,000 during 2014. What is the maximum contribution she will be able to make to a Traditional IRA for tax year 2014?
    • A. 

      $5,500

    • B. 

      $6,500

    • C. 

      $38,000

  • 8. 
    True or False: In a community property state, one spouse working and earning $60,000 may be considered $30,000 earned by each. This means that both spouses are considered to have compensation for purposes of being able to set up an IRA. 
    • A. 

      True

    • B. 

      False

  • 9. 
    True or False: For tax year 2014, the combined total contribution to a taxpayer's Traditional IRA and his/her spouse's IRA on a joint return can be as much as $11,000 ($12,000 if only one of you is older than 50, $13,000 if both of you are 50 or older).
    • A. 

      True

    • B. 

      False

  • 10. 
    True or False: Contributions can be made to your Traditional IRA for 2014 anytime during 2014 or by the due date of the return (Aril 15, 2015), including extensions (October 15, 2015).
    • A. 

      True

    • B. 

      False

  • 11. 
    True or False: Today is February 1, 2015 and Sherman wishes to file his 2014 tax return. He asks for your help. When the return is finished you inform Sherman that he has a balance due to the IRS. Upon further review of the return, you inform Sherman that if he takes an IRA deduction on his return he will get a refund. He informs you that he did not make any contributions to his Traditional IRA during 2014. However, Sherman can take the deduction for a Traditional IRA on his return, get the refund and make the deposit into his Traditional IRA by April 15, 2015. 
    • A. 

      True

    • B. 

      False

  • 12. 
    Assuming you are married and have less compensation than your spouse, you file a joint return, that you and/or your spouse hade $50,000 in combined total compensation, that your spouse made no contributions to either a Traditional or Roth IRA for the year, that you made the maximum contribution (whatever it is) to a Traditional IRA, your spouse is age 48, you are age 51 and that you are allowed a full deduction for your contribution. What is the maximum deductible dollar amount of your "Kay Bailey Hutchinson Spousal IRA" for tax year 2014? (No contribution was made to a 501(c)(18) plan on your behalf.)
    • A. 

      $5,000

    • B. 

      $5,500

    • C. 

      $6,000

    • D. 

      $6,500

  • 13. 
    With the information provided below, identify the taxpayer(s) that would be entitled to a partial Traditional IRA deduction for tax year 2014. 
    • A. 

      A single taxpayer with a modified adjusted gross income (MAGI) of $62,925, covered by an employer plan.

    • B. 

      A married taxpayer filing a joint return with a MAGI of $97,000 who is covered by an employer plan.

    • C. 

      A qualifying widow(er) not covered by an employer plan whose MAGI is $250,000.

    • D. 

      A married taxpayer filing a separate return, with a MAGI of $9,997,who is not covered by an employer plan, but whose spouse is covered by one. (Did not live with spouse at all during 2014)

    • E. 

      A married taxpayer filing a joint return whose MAGI is $157,233, who is not covered by an employer plan, but whose spouse is covered by one.

    • F. 

      A married taxpayer filing a separate return with a MAGI of $9,826, who is not covered by an employer plan, but whose spouse is covered by one. (Lived with spouse for one week during 2014)

    • G. 

      A taxpayer filing as head of household with a MAGI of $69,384, who is covered by an employer plan.

  • 14. 
    CHECK ALL THAT APPLY: Check the correct statement(s) below.
    • A. 

      To designate IRA contributions as nondeductible, you must file Form 8606.

    • B. 

      Even if you do not have to file a tax return for the year, you must file Form 8606 to report nondeductible contributions.

    • C. 

      You will have to pay a $50 penalty for failure to file a required Form 8606, unless you can show it was due to reasonable cause.

    • D. 

      If you do not report nondeductible contributions, all of the contributions to your Traditional IRA will be treated as deductible and will be taxed when withdrawn unless you can show, with satisfactory evidence, that nondeductible contributions were made.

    • E. 

      Unless it is due to reasonable cause, you must pay a penalty of $100 for each overstatement if you overstate the amount of nondeductible contributions on your Form 8606 in any tax year.

    • F. 

      ALL OF THE ABOVE.

  • 15. 
    Assume you are filing Form 1040. Explain how you would report a distribution from one Traditional IRA that was totally "rolled over" into another Traditional IRA within the time limit permitted.
    • A. 

      Enter the total distribution amount on line 11a; enter zero on line 11b. Write "Rollover" next to line 11b.

    • B. 

      Enter the total distribution amount on line 12a; enter zero on line 12b. Write "Rollover" next to line 12b.

    • C. 

      Enter the total distribution amount on line 15a; enter zero on line 15b. Write "Rollover" next to line 15b.

    • D. 

      Enter the total distribution amount on line 16a; enter zero on line 16b. Write "Rollover" next to line 16b.

  • 16. 
    Assume you are filing Form 1040. Explain how you would report a distribution from an employer plan that was partially "rolled over" into a Traditional IRA within the time limit permitted.
    • A. 

      Enter the total distribution amount on line 11a; enter the taxable amount that was not rolled over on line 11b. Write "Rollover" next to line 11b.

    • B. 

      Enter the total distribution amount on line 12a; enter the taxable amount that was not rolled over on line 12b. Write "Rollover" next to line 12b.

    • C. 

      Enter the total distribution amount on line 15a; enter the taxable amount that was not rolled over on line 15b. Write "Rollover" next to line 15b.

    • D. 

      Enter the total distribution amount on line 16a; enter the taxable amount that was not rolled over on line 16b. Write "Rollover" next to line 16b.

  • 17. 
    Determine the additional tax  (penalty) that a taxpayer would have to pay on the Traditional IRA distribution given the following circumstances. The taxpayer had two such IRAs from which he received a distribution during 2014. On one, the total amount received was $13,214. Over the years, he made a total of $4,963 in nondeductible contributions to tis IRA. On the other, he received a total of 21,847. The total amount that was originally contributed to this IRA was done so in the form of a total rollover from a previous employer's pension plan. He had never included any part of this pension in his income. The taxpayer is age 52 and does not qualify for an exception to the additional tax for 2014. What is the amount of the additional tax (penalty) for 2014? (Please round off your final answer.)
    • A. 

      $3,100

    • B. 

      $3,001

    • C. 

      $3,010

  • 18. 
    If there are no IRA distributions, recharacterizations, or "Traditional IRA or SEP/SIMPLE IRA-TO-ROTH conversions", how would a taxpayer's return (specifically Form 8606) be affected if s/he simply made a contribution (not an excess contribution) to a Roth IRA for the year? (Examine Form 8606 included with your test material.)
    • A. 

      There are no reporting requirements.

    • B. 

      Because the taxpayer has a basis in the IRA in that the contributions made to a Roth IRA are never deductible, the contributions would have to reported on the taxpayers return using Form 8606 to avoid a potential $50 penalty.

  • 19. 
    CHECK ALL THAT APPLY: Check the correct statement(s) below.
    • A. 

      You may be able to deduct contributions to a Roth IRA on your tax return in the same manner as a Traditional IRA

    • B. 

      It is not possible for a taxpayer to contribute to both a Traditional IRA and a Roth IRA for the same year.

    • C. 

      To be a Roth IRA the account or annuity must be designated as a Roth IRA when it is opened.

    • D. 

      You may be able to establish and make nondeductible contributions to a Roth IRA regardless of your age.

    • E. 

      You can leave amounts in a Roth IRA as long as you live.

    • F. 

      Qualified distributions from a Roth IRA are tax free if certain requirements are met.

  • 20. 
    Check the correct statement(s) below.
    • A. 

      Alimony is a payment to or for a spouse or former spouse under a divorce or separation instrument.

    • B. 

      To be alimony the payment must meet certain requirements.

    • C. 

      Alimony is deductible by the payer and must be included in income by the recipient.

    • D. 

      To deduct alimony you paid enter the amount on line 31a of Form 1040. Enter your spouse's (or former spouse's) SSN or ITIN online 31b.

    • E. 

      If you are the recipient of alimony report it as income on line 11 of Form 1040. You cannot use Forms 1040-A or 10401-EZ

    • F. 

      ALL OF THE ABOVE.

  • 21. 
    Check the true statement(s) below that pertain to a Health Savings Account (HSA).
    • A. 

      A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of IRAs or Archer MSAs.

    • B. 

      You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize deductions on your Form 1040.

    • C. 

      You must get permission or authorization from the IRS to establish an HSA.

    • D. 

      A tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur is called a Health Savings Account (HSA).

    • E. 

      The HSA can be established through a trustee that is different from your health plan provider.

    • F. 

      An HSA is "portable", so it stays with you if you change employers or leave the work force.

    • G. 

      You must be an eligible individual to qualify for an HSA. (Everyone is considered an eligible individual.)

    • H. 

      Distributions from an HSA are tax free if used to pay qualified medical expenses.

    • I. 

      A medicine or drug will be a qualified medical expense for HSA purposes if the medicine or drug requires a prescription, is available without a prescription (over-the-counter medicine or drug) and you get a prescription for it or is insulin.

    • J. 

      To qualify for an HSA an eligible individual must be covered under a high deductible health plan (HDHP) on the first of the month, can have no other health coverage except what is permitted, cannot be enrolled in Medicare and cannot be claimed as a dependent on someone else's tax return.

  • 22. 
    Check the item(s) below that are characteristic of a high deductible health plan (HDHP).
    • A. 

      An HDHP has a higher annual deductible than a typical health plan.

    • B. 

      An HDHP has a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses.

    • C. 

      An HDHP may provide preventive care benefits without a deductible or with a deductible below the minimum annual deductible.

    • D. 

      Out-of-pocket expenses include copayments and other amounts, but do not include premiums.

    • E. 

      ALL OF THE ABOVE.

  • 23. 
    What form should you receive if you made contributions to a Health Savings Account (HSA) or Medical Savings Account (MSA) during the year?
    • A. 

      Form 5498-SA

    • B. 

      Form 1099-SA

    • C. 

      Form 8889

    • D. 

      Form 8853

  • 24. 
    What form should you receive if you made a distribution from a Health Savings Account (HSA) or Medical Savings Account (MSA) during the year?
    • A. 

      Form 5498-SA

    • B. 

      Form 1099-SA

    • C. 

      Form 8889

    • D. 

      Form 8853

  • 25. 
    What form should you use to report contributions to, and, distribution from a Health Savings Account (HSA)?
    • A. 

      Form 5498-SA

    • B. 

      Form 1099-SA

    • C. 

      Form 8889

    • D. 

      Form 8853

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