ACC 395 Quiz Questions

Which one of the following is not deductible when itemizing?

Cigarette Tax

Name the three types of Tax Return Examinations (Audits).

Correspondence Examinations, District Office Examinations and Field Examinations

Dealers in illegal drugs can deduct:

Cost of goods sold

Stock dividends are only taxable if they follow distributions in lieu of money, disproportionate distributions, distributions of common and preferred stock, distributions on preferred stock, and distributions of convertible preferred stock.

False

Independent contractors are self-employed individuals who perform services for another individual or business entity and are considered employees of the persons or businesses that hire them.

False

Interest on state and municipal bonds is included in gross income

False

Makayla, a cash basis saleswoman, receives commissions in February 2021 based on sales made in the last quarter of 2020. The commissions are includible in 2020 gross income.

False

The taxpayer may deduct the fair market value of the time spent in rendering services to a qualified charitable organization.

False

To alleviate an obesity problem, a doctor puts a patient on a special diet. The total cost of the patient's food for the special diet is a deductible medical expense.

False

Tuition paid to a private school for a third-grader qualifies for the dependent care credit.

False

Vitamin pills taken daily for general health are a qualified medical expense.

False

Which relative does not have to live in the same household as the taxpayer claiming head of household filing status?

Father

Which of the following types of taxes is not deductible?

Federal income taxes

Rent and royalty expenses are considered to be deductions:

For AGI

What is the URL for the IRS webpage?

www.irs.gov

A self-employed person is subject to the self-employment tax if self-employment taxable income is at least:

$400

Gross income many not include all the gain realized from the sale of a principal residence. The gain to be excluded is limited to a maximum of

$500,000

In some cases, 100 percent of social security benefits will be included in the recipient's gross income

False

List the 7 Material Participation tests.

1 - The individual participates in the activity for more than 500 hours during the tax year. 2. The individual's participation in the activity constitutes substantially all of the participation in such activity of all individuals for the tax year. 3 - The individual participates in the activity for more than 100 hours during the tax year, and such individual's participation for the tax year is not less than the participation in the activity of any other individual for the tax year. 4- The activity is a "significant participation" activity for the tax year, and the individual's aggregate participation in all significant participation activities during such year exceeds 500 hours. 5 - The individual materially participated in the activity for any five tax years, whether or not consecutive, during the 10 tax years that immediately preceded the tax year. 6 - The activity is a personal service activity and the individual materially participated in the activity for any three tax year, whether or not consecutive, preceding the tax year. 7 - Based on all of the facts and circumstances the individual participates in the activity on a regular, continuous, and substantial basis during the tax year.

List the five filing statuses.

1. Single 2. Married filing jointly 3. Married filing separately 4. Head of Household 5. Qualifying Widow(er) with Dependent Child

Research and experimentation expenditures connected with a trade or business can be capitalized and amortized for tax purposes over a period of not less than:

60 months

Briefly describe the difference between a tax deduction and a tax credit.

A tax deduction lowers your taxable income and the tax rate that is used to calculate your tax. While tax credit reduces your tax which gives you a larger refund of your withholding.

What are the three classes of income?

Active, passive and portfolio

When tentative minimum tax exceeds the taxpayer's regular tax liability, the excess represents the taxpayer's:

Alternative minimum tax (AMT)

Deductions for AGI are:

Always deductible

Federal income taxes paid are deductible as an itemized deduction on an individual's federal income tax return.

False

Organizationally, who does the Internal Revenue Service report to?

Department of Treasury

Which item listed below is not a capital asset?

Depreciable property

If a dependent died before the last day of the year, the dependency benefits may not be claimed since the status on December 31 determines entitlement to the deduction.

False

Under the cash method of tax accounting, tax deductions are taken when:

Expenditures are made

What are the two delinquency penalties?

Failure to file and failure to pay

All interest on United States savings bonds is tax-exempt.

False

An individual who pledged $500 to the church to be paid next year is allowed a charitable contribution deduction in the year pledged.

False

An interest deduction is allowable on mortgage payments made by the taxpayer for a sick friend.

False

Estate taxes, gift taxes, and state inheritance taxes are deductible for federal income tax purposes.

False

Exclusions from gross income are the same as deductions from gross income.

False

List four Community Property States.

Four community property states are Arizona, California, Idaho, and Louisiana.

How did The Tax Reform Act of 1986 affect tax shelters?

Generally, losses arising from a passive activity are not deductible, except against income from a passive activity. The unused portion of the loss, however, is not lost but suspended (carried over).

List the components of the Tax Formula

Gross income -Deductions for Adjusted Gross Income =Adjusted Gross Income -Greater of itemized Deductions or Standard Deduction -Qualified Business Income Deduction =Taxable Income *Tax Rate =Tax Liability -Tax Credits and Prepayments =Net Tax Due or Refund

Hobby expenditures are deductible to the extent of:

Hobby expenditures are not deductible

The legislative process of a tax bill begins with the:

House Ways and Means Committee

Which of the following individuals would most likely not qualify as a dependent?

Housekeeper employed by taxpayer

Which of the following statements is incorrect?

If an individual rents out a vacation home for more than 14 days and does not use it excessively for personal purposes, losses are allowed to be deducted from AGI.

The major source of federal tax revenue is:

Individual income tax

All of the following are included in gross income for federal tax purposes, except:

Interest from School District Bonds

Match the description to the most appropriate term.

Involved in an activity on a regular, continuous and substantial basis. → Material participation, Interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business. → Portfolio Income, Participates in activity for more than 100 hours during the year. → Significant participation, Can offset passive income, offset other income (under certain conditions) and/or be suspended. → Passive Loss, Disallows losses that are in excess of an investor's amount at risk. → At-risk Rules, Attributable to Direct efforts of taxpayer. → Active Income

The value-added tax has great appeal to politicians because:

It has the potential to raise large sums of money

Are any of the following items deductible on an individual's income tax return? If so, would the item be deductible "for" or "from" AGI?

Itemized Deductions → Deductible from AGI,Loss on sale of car used for personal purposes → Not deductible, Interest on money borrowed to purchase tax-exempt securities. → Not deductible, Educator expenses for books and supplies → Deductible for AGI, The cost of having a personal federal income tax return prepared by an accountant. → Not deductible, Contributions to an Individual Retirement Accounts → Deductible for AGI

When approving a tax bill and there are differences between the House and Senate versions, the differences are resolved by the:

Joint Conference Committee

All of the following income items are includible in an employee's gross income except:

Medical insurance premium paid by employer for employee and spouse

What is the applicable length of time for the statute of limitations on assessment of taxes if the taxpayer willfully evades taxes?

No limitation

The primary distinction between deductions for AGI and deductions from AGI is that the latter are primarily:

Nonbusiness deductions.

Employment-related expenses of employees are:

Nondeductible

Which of the following are taxable to the recipient for federal income tax purposes?

None of these is generally taxable to the recipient.

Fines and penalties paid to the government for the violation of a law are:

Not deductible for tax purposes

Name three major provisions of the Tax Cuts and Jobs Act?

One of the major provisions of the Tax Cuts and Jobs Act was a major corporate tax rate from 35 percent to 21 percent. Another was that changes to individual tax revisions are for 8 years only. Another is that it eliminated personal exemptions.

Which of the following is not a requirement to qualify as a surviving spouse?

Own your home

Based upon the organization of the Internal Revenue Code, what general topic would be covered in Code Sec. 731?

Partners and partnerships

Which of the following interest payments is not deductible for tax purposes:

Personal credit card interest

For individual taxpayers, deductible losses for tax purposes do not include:

Personal losses

A business tax deduction for business gifts is restricted to $25 per year per:

Recipient

The Tax Reform Act of 1986:

Replaced the Internal Revenue Code of 1954 with the Internal Revenue Code of 1986

The term "Practice before the IRS" refers to:

Representing a client before the IRS

All of the following would be excluded from income as a qualified scholarship by an individual who is a candidate for a degree at a qualified educational institution, except:

Room and board

What are the three primary "authority" sources of tax reference materials?

Statutory, Administrative and Judicial

Are stock dividends taxable?

Stock dividends are only taxable if they follow distributions in lieu of money, disproportionate distributions, distributions of common and preferred stock, distributions on preferred stock, and distributions of convertible preferred stock.

The American Taxpayer Relief Act of 2012 did all of the following except:

Sunset the Bush-era tax cuts

The Sixteenth Amendment granted Congress the right to:

Tax income from whatever source derived

Give three examples of Secondary Source Materials.

Tax research services, Tax periodicals, and Newsletters

Net capital gains are:

Taxed at a maximum rate of 20 percent

Briefly Explain the Assignment of Income Doctrine.

The Assignment of Income Doctrine is when income is taxed to the person who earned it, even when the right to the income has been transferred prior to the recognition. Also, courts have found that people should not reduce tax liability by voluntary assignment of income. Which means that income will be disregarded unless the source of income is assigned.

Briefly explain the Constructive Receipt Doctrine.

The Constructive Receipt Doctrine is a doctrine that only affects cash basis taxpayers since they received income prior to the receipt. The doctrine was conceived "in order to prevent the taxpayer from choosing the year in which to reduce it (income) to possession." The Doctrine is mostly to see when the item is included in the income. Usually, any compensation granted to the individual is regarded as constructively income.

Briefly explain the constructive receipt doctrine.

The constructive receipt doctrine is when an individual has the absolute right to income, they must recognize it. This is to stop taxpayers from choosing the year to recognize the income they received.

Indicate whether the following tax credits are refundable or nonrefundable.

The correct answer is: Child tax credit → Nonrefundable, Additional child tax credit → Refundable, Elderly and Disabled Persons Credit → Nonrefundable, Lifetime Learning Credit → Nonrefundable, American Opportunity Tax Credit → Nonrefundable, Earned Income Credit → Refundable

Name the two main education credits.

The two main education credits are the American opportunity tax credit and the lifetime learning credit.

What are the two main requirements to qualify for the Elderly and Disabled persons credit?

The two requirements are you are age 65 or older at the end of the year. And you retired on permanent and total disability and have taxable disability income.

Name three of the credits included in the General Business Credit.

Three credits that are included in the general business credit are investment credit, work opportunity credit, and low-income housing credit.

Expenses that are costs paid or incurred while traveling around town on business are known as:

Transportation expenses

A contribution made directly to a homeless person is not a deductible charitable contribution.

True

A person who is a member of the household and lives with the taxpayer for the entire year need not be related to the taxpayer to qualify the taxpayer for the dependency benefits.

True

A taxpayer may deduct the sales tax paid on the purchase of a boat. Assume the taxpayer's state has no income tax.

True

Advance rent must be included in rental income in the year received regardless of the period covered or the accounting method used.

True

An ad valorem tax is a tax in proportion to the value of personal property.

True

An annuity is a contract that pays a fixed income at set regular intervals for a specific period of time.

True

Cash method taxpayers have the choice of reporting interest income on Series EE U.S. Savings Bonds on a yearly basis as it accrues, or reporting all interest income when the bond finally matures.

True

Compensation for slander of professional or business reputation must be included in gross income.

True

Gifts and inheritances are excluded from gross income

True

Gross income is a taxpayer's total income less exclusions.

True

If both alimony and child support payments are required by the divorce decree or agreement, dated March 2015, and less than the required amount is paid, the payments apply first to child support and then to alimony.

True

If the taxpayer is divorced by a final decree on or before the last day of the tax year, the taxpayer is considered single for the entire year.

True

Individual taxpayers are allowed to deduct unreimbursed medical and dental expenses paid during the year for themselves, their spouse, and someone who would have qualified as a dependent under pre-2018 rules.

True

Itemized deductions only reduce taxable income if the taxpayer's itemized deductions exceed the standard deduction amount.

True

Mindy, a hotel manager, is required to reside in the hotel she manages as a condition of her employment. Mindy's hotel residence is provided free-of-charge because Mindy is on call 24 hours a day to handle hotel emergencies. The value of the hotel residence provided to Mindy is not taxable income.

True

Mortgage interest is only deductible on any mortgage up to the first $750,000 of mortgage balance.

True

Paul Penn, a cash basis taxpayer, received a desk in exchange for bookkeeping services. He should report the fair market value of the desk as income.

True

Payments received under an accident insurance policy and designated for hospitalization or medical care will reduce the amount deductible as medical expenses.

True

Practically all tax shelters were formed as limited partnerships.

True

Taxpayers are allowed to take the larger of their itemized deductions or the standard deduction.

True

The itemized deduction for state and local taxes is limited to $10,000 for married taxpayers who file jointly.

True

Unemployment compensation is always included in gross income.

True

Up to $5,000 of employer payments for dependent care assistance can be excluded from an employee's income per year.

True

Wagering losses are only allowed to be deducted to the extent of wagering winnings.

True

Give two examples of De Minimis Fringe Benefits.

Two examples of De Minimis Fringe Benefits are traditional holiday gifts or coffee and donuts furnished to employees.

Name two qualified expenses for the Adoption Assistance Credit.

Two qualified expenses are court fees and attorney fees. Along with reasonable and necessary adoption fees.

A decision of the Tax Court may be appealed to:

U.S. Court of Appeals

List the three trial courts that have jurisdiction over tax cases.

U.S. Tax Court, U.S. District Court, and U.S. Court of Federal Claims

What age must a dependent be to qualify the taxpayer for the Child Tax Credit?

Under Age 17

Unnecessary cosmetic surgery costs directed solely at improving the patient's physical appearance:

Will not qualify for a medical expense deduction

If another person cancels or pays your debts, but not as a loan or gift, must you include it in your gross income for the year?

Yes, according to the Economic Benefit Doctrine if any amount of compensation is granted to an individual must be included in gross income.

Which of the following is considered to be net earnings from self-employment?

a. Capital gains b. Wages received by an employee c. Winning lottery ticket d. Interest income from personal saving account e. None of these*

The IRS levies penalties for which of the following:

a. Late filing b. Bouncing checks c. All of the above* d. Fraud

To be deductible for tax purposes, trade or business expenses must be:

a. Ordinary and necessary b. Reasonable in amount c. Related to an activity which is deemed to be a trade or business d. All of these*

1. Major features of conduits are:

a. Pass through their income to owners b. Need not file income tax returns c. Need not pay taxes d. Both (a) and (c) above*

The process used to recover the cost of intangible assets over time is known as:

amortization

"Depletion" is defined as:

the method by which the cost of natural resources is recovered.