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31. 32. 33. 34. 35. 36. ' 1
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Libra“! Use or“? ’1 Hour 1 can EC’f Deferred Compensation 1911 a. The limitation is the smaller of $185,000 in 2008 (indexed each year) or 100% of the average of the three highest annual salaries. $80 000 + g9 000 i 108 000 = $92,333 maximum allowable beneﬁt p. 19.14 b. Smaller of $185,000 in 2008 (indexed each year) or 100% times highest three years El. average. or $196,200. Thus, $185,000 is Heather’s maximum allowable beneﬁt. p. 194
14 $123,300 in 2008. The maximum annual beneﬁt payable to Frank from a deﬁned
beneﬁt plan is the smaller of $185,000 in 2008 (indexed each year) or 100% of his
average compensation for his highest three years of employment $123,300. p. 19—14 $102,600 in 2008. The deﬁned beneﬁt plan must reduce Ellen’s maximum annual
beneﬁt payable [e.g., $185,000 in 2008 (indexed each year)] by onetenth for each year
of participation under 10 years (e.g., $185,000 x 9110 = $166,500). Thus, the $102,600
average compensation amount is below the $166,500 ceiling. p. l9~14 The limitation on Magenta Corporation is $1 1,325 (25% of $45,300). b. The contribution carryover to 2009 and subsequent years is $1,875 ($13,200 $11,325). p. 19—15 a. The maximum amount for which Amber can elect § 401(k) plan salary deferral for C. 2008 is $15,500. Her tax liability for 2008 would be reduced by $5,115 ($15,500 x 33%) as a result of
the salary deferral election. $15,500 maximum amount. The election ofthe maximum amount reduces Amber’s tax
liability and also max1mizes her contribution to her retirement fund. p. 1915 The deduction limitation for 3 SIMPLE § 401(k) plan in 2008 is $10,500. Sally contributes $5,550 ($111,000 X 5%). Thus, her salary included in her gross income is $105,450
($111.000— $5,550). p. 1917 An owneremployee owns the entire interest in an unincorporated business. § 401(c)(3)(A) a. $46,000, which is less than $48,000 (20% >< $240,000). pp. 1919, 1920, and Example
1'? Contributions in excess of the allowable amount under § 415 are not deductible, and
may be subject to a 10% excise tax p. 1919 No, Susan may not begin receiving payments unti] age 59.5 without incurring a
10% penalty. §?2(m)(5). p. 1926 1912 2009 Individual Volume/Solutions Manual 3?. Adam can contribute $24,000 to his proﬁt sharing plan, which can be calculated as 20% of
$120,000, or 25% ($120,000 — $24,000) in 2008. pp. 1919 and 1920 38. a. 39. a. 40. a. Only $2,500 can be deducted due to the phaseout provision for active participants in other retirement plans. Molly’s excess AG] is $5,000 ($58,000 — $53,000).Therefore,
her IRA deduction phaseout of $2,500 is calculated as follows: $5,000
$10,000 Although Molly can deduct only $2.500 ($5,000 — $2,500), she still can contribute
$5,000 to her traditional IRA. Example 19 and Table 193 Molly has elected to contribute $2,320 to her SIMPLE IRA account (4% x $58,000). Her employer will contribute $1,740 (3% >< $58,000). Both amounts will vest
immediately. pp. 1917 and 1918 X $5,000 = $2,500 phaseout Govind may contribute a total of $10000 to his IRA and a spousal IRA, with a maximum of $5,000 to either account. The $10,000 is deductible on theirjoint return. p.
1925 and Examples 28 and 29 Danos may contribute $1,860 of elective deferrals (6% X $31,000) and his employer
will contribute $930 (3% X $31,000). The amounts will vest immediately p. 1917 $10,000. A homemaker may take a full $5,000 deduction to a traditional IRA. Juan and
Agnes may each contribute $5,000. 1;}. 1925 $10,000. Their combined earned income exceeds $10,000. Thus, each may contribute
$5,000. p. 1925 Leo is allowed a deduction for an amount that is equal to the smaller of $5,000 or 100%
of his compensation for the year, regardless of employer contributions to the SEP, became his A61 is less than $53,000. Thus, Leo may contribute $5,000 to a traditional
IRA. p. 1920 and Table 193 4!. $193,200. Assuming that Stuart met the AGI limitations at the time of his contributions, all
of the funds may be withdrawn taxfree. He satisﬁes the ﬁveyear holding period requirement for a Roth IRA and is over age 59 U2 at the time of the distribution. pp. 1922
and 1923 42. The entire amount of $224,300 is included in Dana’s gross income in 2008. Dana’s
adjusted basis of her traditional deductible IRA is zero, because she has deducted the
$160,400 ofcontributions. p. 1928 and Concept Summary 19—3 43. a.
b. Karli and Jacob can each contribute $5,000 to their traditional IRA. Neither Karli nor Jacob can deduct their contributioris to a traditional IRA because their
AGI exceeds the phascout ceiling of $95,000. Karli and Jacob may each contribute $1,500 to a Roth IRA, calculated as follows: $166,000 AGI F $159,000 threshold = $2,000 excess AGl %% X $1000 : $3,500 phaseout $5,000 ceiling + $3,500 phaseout = $1,500 contribution ceiling Deferred Compensation 19—13 d. No deduction is available for a contribution to a Roth IRA. e. They can contribute $2,000 for each child or a total of $4,000.
p. 1924 44. The vested amount is calculated as follows: Heather’s contribution ($52,000 X 9%) $4,680
Employer’s contribution ($52,000 X 3%) 1,5 60
Total contributions $6,240 pp. 1917 and 1918 45. a. Since the entire $4,000 is used by Joyce to pay for qualified education expenses, $0 is included in Joyce’s gross income b. Since Only $2,500 of the $4,000 is used by Joyce to pay for qualiﬁed education expenses, only 62.5% ($2,500r’$4,000) of the earnings received in the $4,000
distribution is excludible from Joyce‘s gross income. The $4,000 distribution is allocated between contributions and earnings as follows: $7,000 ContrIbutions: $10,000 x $4,000 = $2,800 Earnings: %% >< $4,000 = $1,200 The $2,800 is excluded from Joyce’s gross income because it represents a return of her
contributions. Of the $1,200 representing earnings, $250 ($1,200 X 62.5%) is excluded from Joyce’s gross income and $450 ($1,200 X 37.5%) is included in Joyce‘s gross
income. pp. 1923 and 1924 46 a. and b. Both Gene and Beth may each contribute $5,000 for a total of $10,000. Gene will use the spousal IRA prevision to enable a $5,000 contribution rather than a $1,500
contribution. pp. 1920 and 1925 4?. a. Samuel is treated as having received a $25,000 distribution (i.e., the $20,000 received
and the $5,000 withheld). The $25,000 is included in his gross income. Therefore, his
tax liability on the distribution is $7,000 ($25,000 X 28%). b. Investing the $20,000 in a traditional lRA within 60 days of the distribution will result
in partial rollover treatment. Therefore, only the $5,000 not reinvested is included in
Samuel’s gr055 income. The related tax liability is $1,400 ($5,000 X 28%). 0. Investing the $20,000 in a Roth IRA within 60 days of the distribution also will result
in partial rollover treatment. However, in this case, the entire $25,000 is included in
Samuel’s gross income. His basis for his Roth IRA is $25,000. The related tax 1iability 19—14 2009 Individual Volume/Solutions Manual is $7,000 ($25,000 >< 28%). If he satisﬁes the ﬁveyear rule, all of the subsequent
distributions from the Roth IRA can be excluded from Samuel’s gross income. d. Samuel could have received better tax consequences in two different ways. First, if he had contributed $25,000 (rather than only $20,000) to the traditional IRA, the
transaction would be a complete rollover. Therefore, the amount included in his gross
income would have been $0. Second, he could have used the direct rollover approach
rather than the indirect rollover approach. Then, there would have been no
withholdings, and he would not have had to fund the $5,000 (until he ﬁles his tax return
and receives a refund of the $5,000 tax prepayment) as he did in the first option above. pp. l927 to 19—29 48. a. Since the $70,000 was paid within 2 1X2 months after the end of 2008, only $400,000 is
deferred compensation. b. The entire $420,000 may be deducted by the company only in the year ending
December 31, 2009, when the employee receives the cash and recognizes the income. p. 1931 and Example 36 49. a. Elba needs to ascertain if the $680,000 is subject to the golden parachute rules as
deﬁned in § 280G. The payment is associated with a change of ownership of the
company through a stock or asset acquisition. However, the $680,000 payment does not
equal or exceed $690,000; that is, three times her base amount of $230,000. Therefore,
the entire $680,000 payment to Elba is deductible by the company (assuming the
amount is reasonable). Elba includes the $680,000 in her gross income. Since the payment is not classiﬁed as a golden parachute payment, Elba is not liable for a 20%
excise tax. b. [n this case, the $420,000 payment is treated as a golden parachute payment because
the amount received by Elba equals or exceeds $390,000; that is, three times her base
amount of $130,000. Thus, $290,000 of the payment ($420,000 —$l30,000) is not
deductible by the employer, and Elba will incur a nondeductible excise tax of $58,000
($290,000 X 20%). In addition, Elba must include the $420,000 in her gross income. p. 1932 and Example 37 50. a. Because a § 83(b) election has not been made, there is no gross income for 2008, as the
resell feature qualifies as a SRF. pp. 1934 and 1935 b. 100 shares X ($40 — $10) = $3,000 [ordinary income). pp. 1934, l935, and Example
38 0. Same as b., $3,000. p. 1936 and Example 41 d. Tim should no! make the § 83(b) special election in 2008 unless (I) the bargain element
is small, (2) substantial appreciation is expected in the future, and (3) there 15 high
probability that the restrictions will be met. 100 shares x ($20 — $10) = $1,000
(ordinary income). pp. 1934, 1935, and Examples 39 and 40 c. $0. p. 1936 and Examples 41 and 42 1". $6,500 — $2,000 (basis) = $4,500 LTCG. pp. 1934, 1935, and Examples 39 and 40 ...
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This note was uploaded on 12/03/2008 for the course ACG 352 taught by Professor B during the Fall '08 term at Bryant.
 Fall '08
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