Retirement plans and employee benefits
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The Edwards Case: RETIREMENT AND EMPLOYEE BENEFITS
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Chapter questions from The Case Approach to Financial Planning by John Grable. ISBN: 978-1-936362-99-8
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Solution Summary
Retirement plan options for a small business, corporation and life insurance tax considerations are examined. The approach to financial planning by John Grables are determined.
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How much must Emily James report in yearly § 79 income (rounded) for tax purposes, assuming she stays employed for the year?
a. $42
She only needs to declare as income the premium for coverage over $50,000.
2. Nick purchased a $100,000 participating whole-life insurance policy on his life. To date, he has paid $50,000 in total premiums and received $10,000 in dividends. The policy currently has a net cash value of $15,000 and is subject to a $30,000 outstanding loan. If Nick decides to surrender the policy, he would realize a gain of
d. $15,000
3. Currently, Nick's brother Tommy owns an auto repair shop across town. Tommy owns the shop as a sole proprietorship. Nick has suggested that Tommy think about converting the shop to a corporation. Advantages for incorporating the repair shop into a C corporation include which of the following?
I. Allowing the flow-through of corporate profits to shareholders that could be taxed at each owner's marginal tax bracket.
II. Withdrawing accumulated profits at capital gain rates.
III. Providing tax-favored fringe benefits to employee shareholders.
IV. Changing the form of business with ease once a corporation has been formed.
b. III only
C corporations do not pay income tax on fringe benefits such as health care. However none of the other statements are true. Accumulated profits will be taxed twice, once at the ...
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