ACCT408 Finals Notes

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Northern Virginia Community College *

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408

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Accounting

Date

Feb 20, 2024

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docx

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Transfer Taxes  38: Barry transfers $1,000,000 to an irrevocable trust with income to Robin for her life and the remainder to Maurice (or his estate). Calculate the value of the life estate and the remainder if Robin’s age and the prevailing interest rate result in a Table S discount factor of .27 for the remainder. o Value of life estate: $730,000 (1,000,000-(1,000,000*.27) o Remainder: $270,000 ((1,000,000*.27))  41: Sly is a widower and wants to make annual gifts of cash to each of his four children and six grandchildren. How much can Sly transfer to his children this year if he makes the maximum gifts eligible for the annual exclusion? What is the amount of the total transfer if Sly is married and elects gift-splitting, assuming his spouse makes no other gifts? o If widower: $170,000 (2023 gift tax limit is 17,000: 17,000*(6+4)=170,000) o If married: $340,000 (with spouse, limit is doubled (assuming spouse didn’t make other gifts)  46: This year Omar earned $850,000 and used it to purchase land in joint tenancy with a right of survivorship with Mary. Has Omar made a taxable gift to Mary and, if so, in what amount? What is your answer if Omar and Mary are married? o Not Married: $425,000 ( In Common Law state an amount of 50% i.e., $425000 is treated as taxable Gift o Married: Taxable gift is $0 ( If they are married then the taxable gift is zero.)  58: Banele had a taxable estate of $15.5 million when they died this year. Calculate the amount of estate tax due (if any) under the following alternatives. o A: Prior gift of 1mil in 2005: $1,432,000 (12,920,000-1,000,000=11,920,000; 15.5mil-11,920,000-3,580,000 taxable amount; 3.58mil*.40= 1,432,000 ) o B: Prior gift of 1.5 mil in 2005: $1,432,000 (exclusion remains the same) o C: prior gift of 1mil year before death: $1,432,000 (15.5+1mil=16.5mil-12.92mil=3.58mil*.4=1.432mil) Homeownership  16: . Is the break-even period generally longer for points paid to reduce the interest rate on initial home loans or points paid for the same purpose on a refinance? Explain o I think it depends on the amount of interest reduction, but I would say that the break-even period is shorter for initial home loans. This is mainly because from what I understand, if you refinance it leaves you less time to make up the costs from savings.  39: Leticia and Stephanie Sims purchased a home in Spokane, Washington, for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until June 30 of year 5, when they sold the home for $700,000 o A: Included in taxable income: $300,000 (700k-400k=300k gain) (500k is <gain) o B: $300,000 (No exclusion because it wasn’t main home for 2 years) o C: Taxable income if main home for >2 years: $0 (Qualify for 500k exclusion) o D: She excludes $50,000 gain on the sale on her individual year 3 tax return: $50,000  41: Steve Pratt, who is single, purchased a home in Riverside, California, for $400,000. He moved into the home on February 1 of year 1. He lived in the home as his primary residence until June 30 of year 5, when he sold the home for $700,000. o A: Gain from sale: $50,000 (700k-400k=300k-250k (single exclusion) =50,000 o B: Vacation (not primary home): $300,000 (no exclusion since not primary, (700k-400k) o C: Married and owned home for >2 years: $0 (up to 500k exclusion since married)  46: Javier and Anita Sanchez purchased a home on January 1 of year 1 for $1,000,000 by paying $200,000 down and borrowing the remaining $800,000 with a 6 percent loan secured by the home. The Sanchezes made interest-only payments on the loan in years 1 and 2. o A: interest deduction if year 1 is 2017: $48,000 (.06*800k<1mil=48k) o B: interest deduction if year 1 is 2023: $45,000 (.06*750k<800k=45k) o C: pay 300k and borrow another 100k with 7% interest, deduction on 100k?: $7,000 (100*0.07=7k) (since they paid off 300, the extra 100 is still within limit o D: What is 100k was for new car?: $0, not a home equity loan, it’s a personal loan.

Compensation and Retirement  25: . Lynette is the CEO of publicly traded TTT Corporation and earns a salary of $200,000 in the current year. What is TTT Corporation’s after-tax cost of paying Lynette’s salary excluding FICA taxes? o $158,000 (200k-(200k*.21(corporate tax rate))=158k  26: Marcus is the CEO of publicly traded ABC Corporation and earns a salary of $1,500,000. What is ABC’s after-tax cost of paying Marcus’s salary? o $1,290,000 (1.5mil-(1mil*.21)=1.29mil) ( The deduction for salary of CEO of publicly traded corporation is limited to 1mil.)  33: On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave’s restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4, when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $30 per share when his shares vest and will be $40 per share when he sells them. o A: If Dave’s stock price predictions are correct, what are the taxes due on these transactions to Dave if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?  Taxes due when vested: $9,600 (1000*30=30k*.32=9600)  Due when sold: $1,500 ((1000*40)-(1000*30)=10k*.15=1500)  Total tax: $11,100 (none due when granted) (9600+1500) o B: Taxes consequences when vested: $6,300 (none for grant or sale)  36: On May 1, year 1, Anna received 5,000 shares of restricted stock from her employer, Jarbal Corporation. On that date, the stock price was $5 per share. Anna’s restricted shares will all vest on May 1, year 3. After the shares vest, she intends to sell them immediately to purchase a condo. True to her plan, Anna sold the shares immediately after they vested. o A: Ordinary income in year 1: $25,000 (5000*5/share) o B: Loss is stock falls to 1/share?: $20,000 Loss (-4/share*5000) o C: Gain is stock rises to 9/share?: $20,000 Gain (+4/share*5000) o D: Gain/loss is stock stays at 5/share?: No gain/loss (5000*5)  42: JDD Corporation provides the following benefits to its employee, Ahmed (age 47); Salary Health insurance Dental insurance Life insurance Dependent care Professional dues Personal use of company jet $300,000 10,000 2,000 3,000 5,000 500 200,000 The life insurance is a group-term life insurance policy that provides $200,000 of coverage for Ahmed. Assuming Ahmed is subject to a marginal tax rate of 32 percent, what is his after-tax benefit of receiving each of these benefits? o $360,414 (300k+200k+270=500,270;) (fuck it, (200k+(200k*.80)=360k, just guess)  51: Santini’s new contract for 2023 indicates the following compensation and benefits: Santini is 54 years old at the end of 2023. o Taxable Income: $128,286 (130k (salary)+2500(Stock grant)+5k(bonus)+4k(trip)+276(((100k/1000)*.23)*12)+360(30(parking)*12)-StDed o Liability: $24,188.64 [($128,286 – $95,375) × 24%] + $16,290 = $25,752  1: How are defined benefit plans different from defined contribution plans? How are they similar? o Defined benefit plans has benefits that are already determined, which allow for ensured income, and the employer holds most of the investment risk. These are the inverse for the contribution plans. Both include contributions from employers/employees, both are veered toward retirement, and both off tax advantages.  23: From a tax perspective, how would taxpayers determine whether they should contribute to a traditional 401(k) or a Roth 401(k)? o Besides taking distributions and goals into account, the determination should be made weighing future benefits against current benefits. If one wants tax free withdrawals, then Roth might be a better choice, especially with no minimum distributions. Traditional might fit a taxpayer better if they know that they’ll be in a lower tax bracket after retirement which I believe is the majority of people.  50: What is the saver’s credit, and who is eligible to receive it? o Tax credit that is supposed to encourage those who make less to put money away for retirement. Those eligible cannot be a dependent, must be 18 or older, can’t be a student full-time, and must also have an income within the allowable limits.

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