Federal Tax Exam 2 UPDATED Exam
Questions and CORRECT Answers
Nontaxable Fringe Benefits - CORRECT ANSWER - - Specifically identified in the code
- Employee excludes benefit from taxable income
- employer deducts cost when benefit is paid
Group Term life insurance - CORRECT ANSWER - - Fringe Benefit
- employer paid premiums on up to $50,000 group term life insurance policy are excluded from
employees' income
Health Benefits - CORRECT ANSWER - - Fringe Benefit
- Employer paid premiums covering health, medical, dental insurance and the benefits provided
through the insurance
Meals or lodging - CORRECT ANSWER - - Fringe Benefit
- meals provided on employer's premises and lodging provided by the employer as a condition of
employment
Employee educational assistance - CORRECT ANSWER - - Fringe Benefits
- up to $5,250 exclusion for tuition, books, and fees
Dependent Care benefits - CORRECT ANSWER - - Fringe Benefits
- up to $5000 exclusion for cost of providing care for a dependent who is under 13 years old or a
dependent who is disabled
No additional cost services - CORRECT ANSWER - - Fringe Benefits
- Benefits that don't cost the employer a material amount
, Qualified employee discount - CORRECT ANSWER - - Fringe Benefit
- Reduced prices on employer's product within certain limits
Working condition Fringe benefits - CORRECT ANSWER - - Fringe Benefit
- A benefit provided by an employer that would be deductible as an ordinary and necessary
business expense by the employee if the employee rather than the employer paid the expense
De minims fringe benefits - CORRECT ANSWER - - Fringe benefit
- relatively small and infrequently provided benefits
Qualified transportation fringe benefits - CORRECT ANSWER - - Fringe Benefit
- Mass transit passes up to monthly limit of $130, qualified parking up to monthly limit of $250,
or use of company owned car pool vehicles
Qualified moving expense reimbursement - CORRECT ANSWER - - Fringe Benefit
- reimbursement for allowable moving expenses such as moving household goods and travel
Cafeteria Plans - CORRECT ANSWER - - A plan where employees can choose from among
various nontaxable fringe benefits or cash. Taxable to the extent employees receive cash
Basic Planning Strategies - CORRECT ANSWER - timing, income shifting, and conversion
Timing Strategy - CORRECT ANSWER - - when income is taxed or an expense is deducted
affects the associated "real tax costs or savings for 2 reasons
1. the time that income is taxed or an expense is deducted affects the present value of the taxes
paid on income or the tax savings on deductions
2. the tax costs of income and tax savings income vary as tax rates change
Two basic tax related timing strategies - CORRECT ANSWER - 1. accelerating deductions
Questions and CORRECT Answers
Nontaxable Fringe Benefits - CORRECT ANSWER - - Specifically identified in the code
- Employee excludes benefit from taxable income
- employer deducts cost when benefit is paid
Group Term life insurance - CORRECT ANSWER - - Fringe Benefit
- employer paid premiums on up to $50,000 group term life insurance policy are excluded from
employees' income
Health Benefits - CORRECT ANSWER - - Fringe Benefit
- Employer paid premiums covering health, medical, dental insurance and the benefits provided
through the insurance
Meals or lodging - CORRECT ANSWER - - Fringe Benefit
- meals provided on employer's premises and lodging provided by the employer as a condition of
employment
Employee educational assistance - CORRECT ANSWER - - Fringe Benefits
- up to $5,250 exclusion for tuition, books, and fees
Dependent Care benefits - CORRECT ANSWER - - Fringe Benefits
- up to $5000 exclusion for cost of providing care for a dependent who is under 13 years old or a
dependent who is disabled
No additional cost services - CORRECT ANSWER - - Fringe Benefits
- Benefits that don't cost the employer a material amount
, Qualified employee discount - CORRECT ANSWER - - Fringe Benefit
- Reduced prices on employer's product within certain limits
Working condition Fringe benefits - CORRECT ANSWER - - Fringe Benefit
- A benefit provided by an employer that would be deductible as an ordinary and necessary
business expense by the employee if the employee rather than the employer paid the expense
De minims fringe benefits - CORRECT ANSWER - - Fringe benefit
- relatively small and infrequently provided benefits
Qualified transportation fringe benefits - CORRECT ANSWER - - Fringe Benefit
- Mass transit passes up to monthly limit of $130, qualified parking up to monthly limit of $250,
or use of company owned car pool vehicles
Qualified moving expense reimbursement - CORRECT ANSWER - - Fringe Benefit
- reimbursement for allowable moving expenses such as moving household goods and travel
Cafeteria Plans - CORRECT ANSWER - - A plan where employees can choose from among
various nontaxable fringe benefits or cash. Taxable to the extent employees receive cash
Basic Planning Strategies - CORRECT ANSWER - timing, income shifting, and conversion
Timing Strategy - CORRECT ANSWER - - when income is taxed or an expense is deducted
affects the associated "real tax costs or savings for 2 reasons
1. the time that income is taxed or an expense is deducted affects the present value of the taxes
paid on income or the tax savings on deductions
2. the tax costs of income and tax savings income vary as tax rates change
Two basic tax related timing strategies - CORRECT ANSWER - 1. accelerating deductions
