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Exam 12: Compensation

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Question 31

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Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,000 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense). Lina's employer has a 30 percent marginal tax rate. What is the maximum amount of before-tax salary Lina would give up to receive health insurance?

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Question 32

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Brandy graduated from Vanderbilt with her bachelor's degree recently. She works for Walton & Company CPAs. The firm pays her tuition ($8,000 per year) for her so that she can receive her MBA. How much of the $8,000 tuition benefit does Brandy need to include in her income?

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Question 33

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Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share) from his employer. At the time he started working, the stock price was $11 per share. Now that the share price is $25 per share, he intends to exercise all of the options. Two years later Bad Brad sells the stock for $27 per share. What is Bad Brad's basis in his stock for purposes of calculating the gain or loss?

Which of the following does not qualify as a "for the convenience of the employer" nontaxable fringe benefit?

An employee can indicate whether they want an additional amount withheld for payroll taxes on the Form W-4.

Annika's employer provides each employee with up to $200 of monthly vouchers for public transportation. What is the amount that Annika must include into income with respect to her benefit in 2014?

Which of the following statements is true regarding the $1,000,000 limit on covered employees?

An apartment manager can exclude the fair market value of free rent from his or her income.

Kevin is the financial manager of Levingston BMW. The shop allows employees to purchase up to two vehicles at a discount. Levingston's average gross profit percentage is 15%. This year Kevin purchased a 530 model and a new M3. $\begin{array} { | l | l | l | l | } \hline \text { Model } & \text { FMV } & \text { Dealer cost } & \text { Employee Price } \\\hline \mathbf { 5 3 0 } & \mathbf { \$ 6 3 , 0 0 0 } & \mathbf { \$ 5 0 , 0 0 0 } & \mathbf { \$ 5 4 , 0 0 0 } \\\hline \text { M3 } & \$ 65,000 & \$ 60,000 & \mathbf { \$ 5 7 , 0 0 0 } \\\hline\end{array}$ What amount must Kevin include in income?

A section 83(b) election freezes the value of restricted stock for compensation purposes on the vesting date.

Tasha receives reimbursement from her employer for dependent care expenses for up to $8,000. Tasha applies for and receives reimbursement of $6,000 for her 10 year old son. How much, if any, is includible in her income?

Francis works for a local fly fishing shop. The shop allows employees to purchase two fly rods per year at a discount. This year, Francis purchased one rod. The rod normally retails for $300, was purchased for $225, was sold to Francis for $250, and the employer's average gross profit percentage is 30 percent. What amount of the discount must be included in Francis' income?

Which of the following is a fringe benefit that employers can discriminate among employees?

Raja received 20 NQOs (each option gives him the right to purchase 15 shares of stock for $10 per share) from his employer at the time he started working when the stock price was $11 per share. Now that the share price is $20 per share, he intends to exercise all of the options using a same-day sale. What are Raja's after-tax proceeds from the sale if his marginal tax rate is 30 percent?

Which of the following benefits cannot be excluded as a no additional cost service fringe benefit?

An employee's income with respect to restricted stock is the fair market value on the vesting date.

Employers receive a deduction for compensation paid to and employment taxes paid on behalf of employees.

Employers computing taxable income under the accrual method may deduct wages accrued as compensation expense in one year and paid in the subsequent year, as long as the company makes the payment within 2½ months after the employer's year-end.

Flexible spending accounts allow employees to set aside before-tax dollars for medical and dependent care expenses.

Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share) at the time she started working when the stock price was $13 per share. Three years later, when the share price was $23 per share, she exercised all of her options. If Suzanne holds the shares for one additional year and sells them when the market price is $30, how much gain will Suzanne recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?