EMPLOYEE COMPENSATION AND BENEFITS TAX GUIDE 2015 (BOOK) Part II: True or False:

ID: 2427581 • Letter: E

Question

EMPLOYEE COMPENSATION AND BENEFITS TAX GUIDE 2015 (BOOK)

Part II: True or False: Fully explain your response. No Credit will be given if there is no detailed explanation.

a) One purpose of a well-designed retirement plan is to discourage collective bargaining.

b) An employee cannot contribute to a profit sharing plan.

c) Nonqualified plans can provide benefits to executives beyond the limits allowed in qualified plans

d) The amount that a client has invested in real estate is not included in an assessment of retirement income need.

e) Retirement planning must consider current or future alimony and child support payments.

f) When helping a client plan for retirement, it is far more important to use an estimation process that is accurate as opposed to one that the client understands.

g) Compensation, to be deducted currently, must always be paid in cash.

H) A taxpayer who is on the cash basis of accounting can only deduct compensation.

i) A taxpayer should not have to report income when a debt is forgiven because the taxpayer receives nothing.

Explanation / Answer

a) True - Employees who are represented by unions and covered by bargaining

agreement with their employer are most likely to have pension plan coverage

b) False- As the name suggests employesse contributions are not necessarily tied to business profits , thus it allows employees ti share ub those profits

c)True - Plans allows flexibility , so addittional retirement benefits

d)False- Generally invest in real estates to avoid risks

e) True - because payment of liabiltiies reduces the amount of funds available for retirement so these must be considered when estimating funds avoidable for retirement savings

f)False - Though it is of utmost importance to be accurate but there is no perfect method . Therefore one should use simple approach understandable to client which makes it more likely to be implemented

g)True - becuase they refer to cash compensation

h) False - though exact amount cannot be determined as long as compensation is known and liability is fixed accrual is proper

i)False - if you have debt cancelled for less than you owe it is considered income unless the law specifically allows you to exclude it from gross income