Question

1. Alex paid $90,000 for a single-life annuity. He will receive $7,000 per year for 20 years, his life expectancy according to Treasury Department. How much taxable income from the annuity must he report each year? Show and label calculations.

2. All the following are true about nontaxable employee fringe benefits, except

		There are no dollar limits on the amount of nontaxable fringe benefits.
		They are deductible by the employer as business expenses.
		The fringe benefit plan must be nondiscriminatory.
		If the employee takes cash instead, the fringe benefit is taxable.

3. The U.S. income tax system is a

		Regressive Tax System
		Progressive Tax System
		Proportional Tax System
		None of the Above

4. The following statements are true about business expenses, except

		They must be necessary.
		They must be ordinary.
		They must be reasonable.
		They must be paid in U.S. dollars.

Answer 1

Q.1

1. total pension or annuity payments received this year $7000

2. cost in the plan (contract) at the annuity starting date: $ 90000

3. Annuity number given in IRS table    360    (Assumed that annuity start date after November 18, 1996 and age is under 55 Year)

4. Divide 2 by 3 (90000/360)    :   250

5. Multiply total month in current year to line 4    3000 (250*12)

6. Minimum of 3000 and 90000 is $3000

7. taxable amount for the Year is $ 4000

(7000-3000)

Q.2

This is not true about nontaxable employee fringe benefits There are no dollar limits on the amount of nontaxable fringe benefits (A)

Q.3

The U.S. income tax system is a Progressive Tax System because whenever the income is increased, tax rate will also be increased.

Q.4 It is not true that Business expenses   must be paid in U.S. dollars. It may be possible that business is in overseas countries and accordingly business transaction take place.