Accounting 1
Harriet and Arthur were divorced. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Arthur would receive the stocks and he would pay Harriet $100,000 each year for six years, or until Harriet's death, whichever should occur first. Harriet and Arthur lived apart when the payments were made by Arthur. Arthur paid the $600,000 to Harriet over the six-year period. The divorce agreement did not contain the word "alimony." Then, Arthur sold the stocks for $1,300,000. Arthur's recognized gain from the sale is:
$700,000 ($1,300,000 - $600,000).
On February 20, 2019, Lonnie purchased stock in Alloy Corporation (the stock is not small business stock) for $1,000. On May 1, 2020, the stock became worthless. During 2020, Lonnie also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Lonnie treat these items on his 2020 tax return?
$8,000 ordinary loss and $3,000 short-term capital loss
George, who is single, earns wages of $500,000 in 2019. How much will George have to pay in Medicare taxes?
$9,950
Connor is in the 32% tax bracket, and his taxable income is $130,000. He had the following capital asset transactions during 2019: Long-term gain from the sale of a stock investment$13,000Short-term gain from the sale of a stock investment4,000 Connor's tax consequences from these gains would be:
(32% × $4,000) + (0% × $13,000).
Raquel owns Pepper, Inc., stock (adjusted basis of $40,000) that she sells to Jacob, her brother, for its fair market value of $32,000. Fifteen months later, he sells it to Paula, a friend, for its fair market value of $39,000. Determine Raquel's recognized loss, Jacob's recognized gain or loss, and Paula's adjusted basis for the stock.
0 , 0 , 39,000
Abigail is an executive for Oak Furniture Manufacturing Company. Abigail purchased furniture from the company for $7,000. The price Oak ordinarily charges a wholesaler is $8,500. The retail price of the furniture was $12,000, and Oak's cost was $8,000. The company also paid for Abigail's parking space in a garage near the office. The parking fee was $1,200 for the year. All employees are allowed to buy furniture at a discounted price comparable to that charged to Abigail. However, the company does not pay other employees' parking fees. Abigail's gross income is:
1,000
Henry, age 70 and single, is claimed as a dependent on his daughter's tax return. During 2019, he had interest income of $4,000 and $800 of earned income from consulting. Henry's taxable income is:
1,200
James and Judy have one dependent child, John, who is 12. In 2019, John received $3,500 of interest income and has no earned income. John has net unearned income of:
1,300
If Miranda pays $1,200 tax on $12,000 worth of income, what is the tax rate?
10%
Borrowing to cover a deficit is also a revenue source. In recent years, borrowing has made up approximately how much of total government revenues?
10% to 40%
Andrew is single and has one dependent. He also owes self-employment taxes. To file his taxes, he must use which of the following forms?
1040 schedule 4
Jillian is employed as a systems analyst. For calendar year 2019, she had AGI of $120,000 and paid the following medical expenses: Medical insurance premiums$3,900Doctor and dentist bills for Carland Penny (Jillian's parents)8,250Doctor and dentist bills for Jillian6,750Prescribed medicines for Jillian300Nonprescribed insulin for Jillian825 Carl and Penny would qualify as Jillian's dependents except that they file a joint return. Jillian's medical insurance policy does not cover them. Jillian filed a claim for $3,150 of her own expenses with her insurance company in December 2019 and received the reimbursement in January 2020. What is Jillian's maximum allowable medical expense deduction for 2019?
11,025
Dave and Jan had $1,000 in home mortgage interest, $500 qualified student loan interest, $50 interest paid on car loan, and $500 in credit card interest. How much of the interest is deductible?
1500
The ratification of which amendment to the U.S. Constitution sanctioned both the Federal individual and corporate income taxes?
16th
All of the following are limitations on the QBI deduction, except:
2% of AGI.
On September 3, 2019, Willie purchased § 1244 stock in Brass Corporation for $6,000. On December 31, 2019, the stock was worth $8,500. On August 15, 2020, Willie was notified that the stock was worthless. How should Willie report this item on his 2019 and 2020 tax returns?
2019—$0; 2020—$6,000 ordinary loss
For 2019, a taxpayer has a net operating loss of $65,000. What is the maximum range of years through which the NOL can be carried over?
2020 and forward
Beginning in 2018, Congress suspended the deduction for exemptions through:
2025
During 2019, Bradley, a self-employed individual, paid the following amounts: State income tax$1,400State sales taxes1,950State occupational license fee250Personal property tax on value of his automobile200 What amount can Bradley claim as taxes in itemizing deductions from AGI?
2150
The maximum tax rate of long-term gains on depreciable property used in a trade or business and held for more than one year is:
25%
For tax years after 2019, corporations can use the cash method if average gross receipts for the prior how many years do not exceed $26 million?
3
In 2019, Raphael spends $30,000 per year on food, clothing, and other personal expenditures. On December 31, 2019, he has assets of $150,000 (fair market value) and liabilities of $5,000. The imputed rental value of the home he owns and occupies is $15,000. What is his total consumption for 2019?
45,000
How many unique tax filing statuses are there?
5
For failure to file a tax return by the due date, a penalty of _____ per month up to a maximum of _____ is imposed on the amount of tax shown as due on the return. Any fraction of a month counts as a full month.
5%; 25%
During 2019, Hayden had the following transactions: Salary$92,000Accident insurance proceeds4,000Inheritance from grandparent50,000Contribution to traditional IRA6,000Capital losses7,000 Hayden's AGI is:
79,000
Amy paid the following taxes during the year: Taxes on residence (for the period from March 1 through August 31)$6,250State motor vehicle tax (based on the value of the personal use automobile)630State income tax4,050State and local sales taxes4,500 Amy sold her personal residence on June 30, under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Amy?
9240
Five years ago, Randy loaned his son Neil $20,000 to start a business. A note was executed with an interest rate of 8%. The note required monthly payments of the interest with the $20,000 due at the end of 10 years. Neil always made the interest payments until last year. During the current year, Neil notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Randy is a cash basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is:
A $3000 deduction
Which of the following statements best describes the nature of a piece of property such as a dump truck?
A dump truck is personalty that could be used for business.
Taxpayers meeting the § 121 exclusion requirements are allowed to exclude up to $250,000 of realized gain on the sale of a principal residence. Any gain in excess of this amount normally qualifies as:
A long-term capital gain.
Some provisions of the Federal tax law, particularly those dealing with individuals, can be explained by social considerations. Which of the following is not an example of this?
A tax deduction is allowed for gambling losses at Native American-owned casinos.
Which of the following types of transactions qualifies for like-kind treatment?
A warehouse exchanged for land used in business
Economic considerations can be used to justify:
Allowing accelerated tax depreciation to encourage additional investments in depreciable property acquired for business use.
Which of the following organizations has issued enforceable pronouncements titled "Statements on Standards for Tax Services" as a part of its Code of Professional Conduct?
American Institute of CPAs
Walnut Company acquires a new machine for $35,000 and uses it in its manufacturing operations. A few months after Walnut places the machine in service, it discovers that the machine is not suitable for its business. Walnut fully expensed the machine in the year of acquisition using § 179. Walnut sells the machine for $5,000 in the tax year after it was acquired, but has held the machine only for a total of 10 months. What was the tax status of the machine when it was disposed of and the amount of the gain or loss?
An ordinary asset and $5,000 gain
Why hasn't the $1 million executive salary deduction limit had a significant impact on the income of the highest executives of publicly traded companies?
Because performance-based incentives were not subject to the limit prior to 2020
"Nothing is certain, except death and taxes" is a quote attributed to:
Benjamin Franklin.
Which of the following is a disadvantage of Roth IRAs?
Contributions provide no tax benefit.
Susan is a single parent who receives benefits under the Temporary Assistance to Needy Families program in the amount of $18,000 per year. She located a job that pays $19,000 and has found child care at no cost. Susan should:
Decline the paid position since it pays $1,453.50 less per year after Social Security and Medicare taxes.
During 2019, Fiona changed employers in the middle of the year and earned $70,000 (all of which was subject to FICA) from each job. The second employer withheld too much and Fiona must get a refund from that employer of $440.20 and can claim this as a tax credit when filing her 2019 income tax return.
F
During 2019, Mike and Michelle, a married couple, decided to sell their residence, which had a basis of $200,000. They had owned and occupied the residence for 20 years. To make it more attractive to prospective buyers, they had the inside painted in May at a cost of $6,000 and paid for the work immediately. They sold the house in May for $600,000. Broker's commissions and other selling expenses amounted to $50,000. They purchased a new residence in July for $375,000. The adjusted basis of the new residence is $381,000
F
During the current year, Randy sold his personal use automobile for a loss of $9,000. He also sold a personal coin collection for a gain of $10,000. As a result of these sales, $1,000 is subject to income tax.
F
Every year, ABC Corporation gives each employee a fruit basket and a box of chocolate at Christmas. These gifts are subject to the 50% rule.
F
Excess business loss limitation is applied before the application of the § 469 passive activity loss rules.
F
Expenses in connection with the acquisition of land may be research and experimental expenditures.
F
Gambling losses are subject to the 2%-of-AGI floor as a miscellaneous itemized deduction.
F
Generally, earned income includes employee compensation, net earnings from self-employment, interest, dividends, pension benefits, nontaxable employee compensation, and alimony.
F
If Barnes & Noble stock increases in value during the tax year by $4,500, the amount realized is a positive $4,500.
F
If there is a net § 1231 loss, it is treated as a long-term capital loss.
F
If § 1245 property is disposed of in a transaction other than a sale, exchange, or involuntary conversion, the minimum amount recaptured is the excess of the property's fair market value over its adjusted basis.
F
In 2019, Yule is 35 and single. If he has itemized deductions of $12,000, making an early, extra charitable contribution of $1,000 to his favorite charity before year-end would not provide any tax benefit to him, so he should claim the standard deduction alternative.
F
In December 2019, Bella collected the December 2019 and January 2020 rent from a tenant. Bella is a cash basis taxpayer. The amount collected in December 2019 for the 2020 rent should be included in her 2020 gross income.
F
In cases of doubt, courts have held that tax relief provisions should be broadly construed against the IRS.
F
In determining the percentage of business use of listed property other than automobiles, one employs the most appropriate unit of time for which the property is available for use.
F
LeeAnn has been teaching in a rural public school for five years. For her service in a high-needs area, her student loans in the amount of $15,000 are forgiven. LeeAnn must include the $15,000 as part of her gross income.
F
Margaret sells her personal use automobile for $18,000. She purchased the car five years ago for $32,000. Margaret's recognized loss is $14,000
F
Nonrefundable credits are those that reduce the taxpayer's tax liability and are paid when the amount of the credit (or credits) exceeds the taxpayer's tax liability.
F
One of the justifications for nontaxable exchange treatment is that the taxpayer has the wherewithal to pay.
F
Rufus owns and operates a real estate agency as a sole proprietor. On a full-time basis, he employs his 17-year-old daughter as a receptionist and his 22-year-old son as a bookkeeper. Both the son and daughter are subject to FICA withholding.
F
Sole proprietors engaged in a business do not deduct research and experimental expenditures on the Schedule C that accompanies Form 1040.
F
The Code contains two major depreciation recapture provisions—§§ 1245 and 1231.
F
The LIFO method is applied to the carrybacks, carryovers, and utilization of general business credits earned during a particular year.
F
The effect of the standard deduction is to subject more of a taxpayer's income to Federal income tax liability.
F
The employer usually is responsible for withholding the employee's share of FICA, FUTA, and appropriate amounts for income taxes.
F
The key date for calculating cost recovery is the date the asset is purchased.
F
The tax benefits resulting from a tax credit are affected by the tax rate of the taxpayer.
F
The § 179 expensing election is a semiannual election that applies to the acquisition cost of property placed in service that year.
F
Under the Affordable Care Act, individuals can only receive their tax credit in advance to help reduce the monthly insurance payments.
F
Unreimbursed employee business expense is treated as a miscellaneous itemized deduction and is deducted on Schedule A.
F
Unreimbursed employee business expenses are deductible as a miscellaneous itemized deduction.
F
When a business is being purchased, if possible, the purchaser should bargain for more of the purchase price being allocated to goodwill and covenants not to compete, rather than equipment.
F
Allowable itemized deductions are deductible for AGI in arriving at taxable income.
False
Individuals can elect to deduct their state income taxes, their local income taxes, and their sales/use taxes paid as an itemized deduction.
False
Most personal expenses like medical expenses, certain taxes, mortgage interest, investment interest, and charitable contributions are deductible for AGI.
False
Taxpayers may not include premiums paid on qualified long-term care insurance contracts in medical expenses, subject to limitations based on the age of the insured.
False
The maximum charitable contribution deduction may not exceed 20% of AGI for the tax year.
False
During 2019, Fiona changed employers in the middle of the year and earned $70,000 (all of which was subject to FICA) from each job. As a result, each employer withheld $5,355 for a total of $10,710. As a result:
Fiona is entitled to a refund of $440.20.
Which of the following events would produce a deductible loss?
Fire damage to an asset used in a rental activity
Michelle provides more than half the support of her son, Andrew, who does not live with her. Andrew is 26 and is a full-time student in graduate school. He earns $2,000 per year from his first part-time job and $500 from a second part-time job while receiving a scholarship of $10,000 to cover tuition. He also receives nontaxable interest from city bonds in the amount of $6,000. What is Andrew's gross income, and is he considered Michelle's dependent?
Gross income is $2,500, and he meets the dependency test.
Raoul is a widow, age 71, who lives with his son and is his dependent. During 2019, Raoul's sources of income are interest income of $725 from his bank savings account and interest income of $400 from tax-exempt municipal bonds. What is Raoul's gross income, and must he file a tax return?
Gross income is $725, and he does not need to file a tax return.
Henry, a recovering addict, embezzled $4,000 from his employer. In the same year that he embezzled the funds, his employer discovered the theft. His employer did not fire him and told him he did not have to repay the $2,000 if he would attend rehab. Henry met the conditions, and his employer canceled the debt. Which of the following statements is true?
Henry must include $2,000 in gross income from discharge of indebtedness.
At the end of the year, Jenny rented a home she owns for 150 days. She used the home for 16 personal days. Which of the following statements is false?
If Jenny is able to deduct a rental loss, it will not be subject to passive activity loss rules.
Joe, age 24, and Kelly, age 23, both of whom are students, live with Kelly's father, Richard. Richard provides more than half of the support for both Joe and Kelly. Joe has a part-time job in which he earns $8,000. The family lives in Texas, a common-law community property state. Which of the following statements is true?
If Joe and Kelly file married filing jointly, Richard can claim neither of them as dependents.
Lizzie is a cash basis taxpayer. In 2019, she paid state income taxes of $5,000. In early 2020, she filed her 2019 state income tax return and received a $500 refund. Which of the following statements is true?
If Lizzie itemized her deductions in 2019 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $500, she must include the $500 in her 2020 Federal gross income.
The plant union is negotiating with Eagle Company, which is on the verge of bankruptcy. Eagle has offered to pay for the employees' hospitalization insurance in exchange for a wage reduction. The employees each currently pay premiums of $4,000 a year for their insurance. Which of the following statements is false?
If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer.
The definition of a qualifying child applies to all of the following, except the:
Income Exclusion
Which of the following types of costs that generally have no salvage value and are a lost cost if the well is dry is incurred in making a property ready for drilling?
Intangible drilling and development costs
Creek Corporation sold machinery for $27,000 on December 31, 2019. The machinery had been purchased on January 2, 2016, for $30,000 and had an adjusted basis of $21,000 at the date of the sale. For 2018, what should Creek Corporation report?
Ordinary income of $6,000
Pistachio, Inc., has a 2019 net § 1231 loss of $64,000 and had a $32,000 net § 1231 gain in 2018. For 2019, Pistachio's net § 1231 loss is treated as a(n):
Ordinary loss.
Under the modified accelerated cost recovery system, the cost of an asset is recovered:
Over a time period that generally is shorter than the economic life of the asset.
Which of the following is not included in net earnings from self-employment?
Passive activity income
Which of the following is not a miscellaneous itemized deduction?
Personal meals while moving
If a higher rate of tax applies as the tax base increases, the tax is called:
Progressive
Which of the following statements regarding the QBI deduction is true?
QBI is the last deduction before taxable income.
A taxpayer's home was destroyed by a storm in the current year and the area was a Federally declared disaster area. If the taxpayer elects to treat the loss as having occurred in the prior year, it will still be subject to the 10%-of-AGI reduction based on the AGI of the prior year.
T
An insured dump truck that Harvey used in his business was destroyed in an accident. At the time of the accident, the adjusted basis was $10,000 and the market value was $7,500. Harvey receives insurance proceeds of $7,500. The amount of the casualty loss is $3,500.
T
Because there is a limit to the loss classified as ordinary loss on a yearly basis, a taxpayer might maximize the benefits by selling the stock in more than one taxable year.
T
Candy is a cash basis attorney. In 2019, she performed services in connection with the formation of a corporation and received stock with a value of $3,000 for her services. By the end of the year, the value of the stock had decreased to $1,000. She continued to hold the stock. Candy must recognize $3,000 of gross income from the stock for 2019.
T
Carol received a dining room table as a gift from her friend, Jan. Jan's adjusted basis was $3,200, and the fair market value on the date of the gift was $2,500. Carol decided she did not need the table and sold it to a neighbor six months later for $2,000. Her recognized loss is $0.
T
Christina sells a parcel of land for $18,000 in cash, and the buyer assumes Christina's mortgage of $12,000 on the land. Christina's amount realized is $30,000.
T
Congress generally uses tax credits to achieve social or economic objectives or to promote equity among different types of taxpayers.
T
Courts have held that tax relief provisions should be narrowly construed against the taxpayers and the taxpayer has the responsibility for demonstrating that the provisions apply.
T
Depreciable equipment held more than 12 months is an example of a § 1231 asset.
T
Each item excluded from income has its own specific reason for the exclusion.
T
Employers may reimburse employees with a per diem allowance, a flat dollar amount per day of business travel.
T
Evaluating a person's income via the economic concept of income is impractical.
T
Gary makes his living as a driver for Uber. For tax purposes, his car is not considered a passenger automobile.
T
If a client refuses to correct an error on a past return, it may still be possible for a practitioner to continue to prepare returns for the client.
T
If a taxpayer does not own a home but rents an apartment, the office in the home deduction is still available.
T
If a taxpayer has a new business with little income or a business with a net operating loss carryover, the taxpayer should elect to use straight-line depreciation.
T
In choosing between the actual cost method and the automatic mileage method, a taxpayer should consider the cost of insurance on the automobile.
T
In most cases, interest paid on a home mortgage is fully deductible.
T
In terms of timing as to any one year, the Tax Tables are available after the Tax Rate Schedules.
T
Jennifer has credit card debt in the amount of $9,000. She and the credit card agency negotiate a settlement that allows Jennifer to pay $4,500 to clear her debt. Jennifer must include the $4,500 forgiven as part of her gross income.
T
Jenny rents part of her personal residence in the summer for 10 days for $1,000. Shanika rents all of her personal residence for three weeks in December for $2,500. Shanika must include the $2,500 in her gross income, whereas Jenny is not required to include the $1,000 in her gross income.
T
Like-kind exchanges only apply to business and investment real property.
T
Many taxpayers who can't itemize deductions may start claiming itemized deductions when they purchase a home.
T
Most individual taxpayers use the cash receipts and disbursements method of accounting.
T
One of the justifications for nontaxable exchange treatment is that the taxpayer lacks the wherewithal to pay.
T
One-fourth of the estimated annual self-employment tax payment is due on April 15, June 15, and September 15 of the tax year and January 1 of the following year.
T
Personal exemptions are those granted to the taxpayer and spouse. Dependency exemptions are those allowed for a qualifying child or a qualifying relative.
T
Research and experimental expenditures do not include expenditures for testing of materials for quality control.
T
Section 139, Disaster Relief Payment, was enacted by Congress in 2001 to ensure that victims of a qualified disaster would not be required to include in gross income payments received for funeral expenses resulting from a terrorist attack.
T
Tax considerations should not be the controlling factor in most business decisions.
T
Taxpayers may elect to use the 150% declining-balance method of depreciation under ADS.
T
The impairment-related work expenses of a handicapped person are not subject to the 2%-of-AGI floor.
T
The kiddie tax applies to the unearned income of dependent children.
T
The maximum charitable contribution deduction may not exceed 60% of AGI for the tax year.
T
The primary purpose of the imputed interest rules is to prevent income shifting via interest-free loans.
T
The purchaser of a principal residence can deduct qualifying points in the year of payment.
T
The rules regarding § 1231 treatment do not apply to all business property.
T
The term qualifying child has the same meaning in the context of the earned income credit as it does for purposes of determining who qualifies as a dependent.
T
Travel expenses include transportation expenses, meals, lodging, and incidental expenses while working away from home.
T
Tyler, a practicing CPA, pays tuition to attend law school. Since a law degree involves education leading to a new trade or business, the tuition is not deductible.
T
Under the Affordable Care Act, individuals can choose to receive their tax credit in advance to help reduce the monthly insurance payments or as a refundable credit when they file their tax return.
T
Using his bank credit card, Manny, a cash method taxpayer, charged a business expense on December 5, 2019. He paid the credit card bill, which included the charge, on January 23, 2020. Manny can deduct the expense in 2019.
T
When a taxpayer acquires multiple assets in a lump-sum purchase, the total cost must be allocated among the individual assets.
T
Which of the following is a characteristic of the audit process?
Taxpayer audits rarely involve "special" agents.
In 2000, Dorothy bought Series EE U.S. savings bonds with face values of $2,500 for $1,250 each for each of her three grandchildren born in 2000: Josh, Ethan, and Brooklynn. The bonds purchased that year had a 19-year maturity rate. In 2019, each of the grandchildren cashed the bonds for college tuition down payments. Which of the following statements is true?
The interest earned from the bonds is not taxable.
The general rule for deducting casualty losses is:
The loss is deducted in the year in which it occurs.
Which of the following statements regarding excessive executive compensation is false?
The millionaires' provision limits the amount of compensation that can be paid to an employee.
Section 179 expensing is subject to which of the following limitations?
The property placed in service maximum is $2,550,000 for 2019.
The amortization election for startup expenditures allows the taxpayer to deduct the smaller of which of the following?
The startup expenditures related to the trade or business or $5,000
Deferring taxes into the future may not be a good idea because:
The tax rate for the year into which the income is shifted may be higher than the current year.
Julius is an electrician. Julius and his wife are cash basis taxpayers and file a joint return. Julius wired a new house for Coreen and billed her $15,000. Coreen paid Julius $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Julius took Coreen to small claims court for the unpaid amount and was awarded a $2,000 judgment. Julius was never able to collect the judgment or the remainder of the bill from Coreen. What amount of loss may Julius deduct in the current year?
$0
Ophelia donates $3,000 to Canada University's athletic department. The payment guarantees that she will have preferred seating at every curling match. Subsequently, Ophelia buys a hundred $30 curling match tickets. What deduction is Ophelia allowed for the current taxable year?
$0
Susan, married and filing a joint return, operates her business as a sole proprietorship during 2019. She has gross income of $290,000 and deductions of $630,000. Susan's excess business loss for 2019 is:
$0
On January 15, 2019, Dillon purchased the rights to a mineral interest for $3,500,000. At that time, it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Dillon incurred expenses during 2019 of $500,000. The percentage depletion rate is 22%. Dillon's depletion deduction for 2019 would be:
$175,000
During 2019, Daisy earns $130,000 in wages as an employee of an accounting firm. She also earns $26,000 in gross income from an outside consulting service she operates. Deductible expenses paid in connection with the consulting service amount to $6,000. Daisy also has a recognized long-term capital gain of $1,000 from the sale of a stock investment. She must pay a self-employment tax on:
$20,000
In 2019, Ramon owns 120 shares of Duke Company common stock with a cost of $19,000 and a fair market value of $25,000. If Ramon sells the stock for $25,000 this year when he has a marginal tax rate of 15%, how much will he net in cash after he pays tax on the gain?
$24,100
Chuck gives his daughter, Jenny, stock (basis of $50,000; fair market value of $44,000). No gift tax is paid. If Jenny subsequently sells the stock for $53,000, what is her recognized gain or loss?
$3,000
Chelsea owns 200 acres of farmland is southeastern Kentucky. Her adjusted basis for the land is $525,000, and there is a $390,000 mortgage on the land. She exchanges the land for an office building owned by Norbert in Albany, New York. The building has a fair market value of $450,000. Norbert assumes Chelsea's mortgage on the land. What is the amount of Chelsea's recognized gain or loss on the exchange?
$315,000
Mason owns an income-producing farm as his livelihood. During the year, one of the barns was destroyed by a tornado, and he suffered a total loss of the property. The adjusted basis of the barn was $100,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 90% of its fair market value, and Mason recovered this amount under the insurance policy. Mason has adjusted gross income for the year of $50,000 (before considering the casualty). The amount of loss he can deduct on his tax return for the current year is:
$32,500
Jordan is single and had taxable income of $168,000 in 2019. Her tax is:
$35,076.50
Daniel, who is single, had the following items for the current year: ·Salary of $90,000.·Gain of $30,000 on the sale of § 1244 stock acquired two years earlier.·Loss of $100,000 on the sale of § 1244 stock acquired three years earlier.·Worthless stock of $10,000. The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year. Daniel's AGI for the current year would be:
$37,000
Angela is single, had gross income of $38,000, and incurred the following expenses: Charitable contribution$2,500Taxes and interest on home9,000Legal fees incurred in a tax dispute1,000Medical expenses4,000Penalty on early withdrawal of savings200 Her AGI is:
$37,800
Wallace, who is single, had the following items for the current year: ·Salary of $90,000.·Gain of $30,000 on the sale of § 1244 stock acquired two years earlier.·Loss of $75,000 on the sale of § 1244 stock acquired three years earlier.·Worthless stock of $7,000. The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year. Wallace's AGI for the current year would be:
$38,000
In the current year, Emilio, a self-employed taxpayer, flies from Miami to Hong Kong primarily for business purposes. He spends three days vacationing and seven days (including two travel days) conducting business. His airfare is $3,000, his meals amount to $150 per day, and lodging and incidental expenses are $200 per day. His deductible expenses are:
$4,025.
Geoff underpaid his taxes in the amount of $2,500, of which $2,000 is attributable to negligence. Geoff's negligence penalty is:
$400
On December 31, 2018, Elena and Edgardo would like to give the maximum amount possible to their five married children, their spouses, and their six grandchildren. Under the Federal gift tax annual exclusion, and assuming that Elena and Edgardo elect gift splitting, how much can they give their family (in total) for 2018?
$480,000
John and Anne Riley are married, file a joint return, and qualify for the earned income credit. The Rileys have two qualifying children. Anne receives wages of $28,000, and she and her husband earn no other income. What is the couple's earned income credit?
$5,158
Jack purchased a new factory building on September 2, 2018, for $2,000,000. He elected the alternative depreciation system (ADS). The cost recovery deduction for 2019 would be:
$50,000
Last year, Raleigh Corporation incurred the following expenditures in the development of a new plant process: Salaries$200,000Materials80,000Utilities10,000Quality control testing costs30,000Management study costs5,000Depreciation of equipment15,000 During the current year, benefits from the project began being realized in March. If Raleigh Corporation elects a 60-month deferral and amortization period, the amount of the deduction for the current year is:
$50,833
Morris (self-employed) made the following business gifts during the year: To Quinton (a key client) at Christmas$50To Florence (Quinton's 8-year-old daughter) on her birthday20To Ramon (Morris's secretary) on his birthday ($3 was for gift wrapping)30 Presuming proper substantiation, Morris's deduction is:
$53
A taxpayer is not entitled to an immediate expensing of startup expenditures if he or she exceeds which of the following amounts?
$55,000
Mackenzie Corporation begins business on July 1, 2019. The corporation incurs startup expenditures of $35,000. If Mackenzie elects amortization under § 195, the total startup expenditures (rounded to the nearest dollar) deductible in 2019 are:
$6,000
Jaman drove his car a total of 25,000 miles in 2019, of which 17,500 were for business and 7,500 were personal use. He incurred $5,000 in lease payments, $2,500 in fuel, $2,000 in insurance, and $150 for license and registration of his vehicle. What is his actual cost method deduction for his vehicle use?
$6,755
Harvey purchased a corporate bond at its face amount of $20,000 on January 1, 2019. The bond pays 5% interest on each December 31. On April 31, 2019, Harvey sold the bond for $21,000. In 2019, Harvey must recognize a _____ capital gain from the sale of the bond.
$666.67
A rebate is generally a purchase price adjustment.
T
A recognized loss is the amount of a realized loss that is deductible for tax purposes.
T
A taxpayer contribution to a traditional IRA is a deduction for AGI.
T
Meredith was transferred from Detroit to Dallas. She sold her Detroit residence (adjusted basis of $180,000) for a realized loss of $40,000 and purchased a new residence in Dallas for $225,000. What is Meredith's recognized gain or loss on the sale of the Detroit residence and her basis for the residence in Dallas?
$0; $225,000
Edith is the CEO of Energize, a publicly held corporation. For the year, she receives a salary of $950,000, a bonus of $600,000, and contributions to her retirement plan of $35,000. The bonus was awarded at the December board meeting based on Edith's threat to accept a better paying job with a competitor. What amount may Energize deduct?
$1,035,000
Israel purchased a new passenger automobile on August 17, 2019, for $30,000. During the year, the car was used 40% for business and 60% for personal use. His cost recovery deduction for the car for 2019 would be:
$1,200
Chang, who is single, had the following items for 2019: Salary$ 40,000Interest income10,000Loss on theft of securities(60,000) Chang's NOL for 2019 is:
$10,000
Jacob is a farmer, and the state condemns land that belongs to him. The condemned land cost $150,000, but the state pays him $160,000. His farm as a whole is worth $300,000. Shortly after receiving the $160,000, Jacob buys more land for $160,000. What is Jacob's realized gain?
$10,000
Nancy, Inc. is an accrual basis taxpayer. Nancy uses the aging approach to calculate the reserve for bad debts. During 2020, the following occur associated with bad debts: Credit sales$300,000Collections on credit sales280,000Amount added to the reserve12,000Beginning balance in the reserve-0-Actual identifiable bad debts during 202010,000 The amount of the deduction for bad debt expense for Nancy for 2020 is:
$10,000
Visual Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($350 per year), or two years in advance ($680). In September 2019, the company collected the following amounts applicable to future services: October 2019-September 2021 services (two-year contracts)$ 72,000October 2019-September 2020 services (one-year contracts)64,000Total$136,000 As a result of the above, Visual Cable should report as gross income:
$111,000 in 2020.
Nicole is a sole proprietor who does not itemize deductions. She has business income of $150,000, deductible business expenses of $25,000, and interest income of $5,000 from her business accounts. What is her modified taxable income for 2019?
$117,800
Yancy purchased a new business asset (three-year personalty) on July 23, 2018, at a cost of $40,000. Yancy does not take additional first-year depreciation. The MACRS cost recovery deduction for 2019 would be:
$13,332.
Deductions for AGI result in a tax benefit only if, collectively, they exceed the taxpayer's standard deduction.
F
Depletion reported by a sole proprietor is reported on Schedule D.
F
In December 2019, Edward, a cash basis taxpayer, paid $3,200 property insurance for the calendar year 2020 on a building he used in his business. Edward deducted the $3,200 insurance premiums on his 2019 tax return. He had $250,000 of taxable income that year. On June 30, 2020, he sold the building and, as a result, received a $1,600 refund on his property insurance premiums. Which of the following statements is true?
Edward should include the $1,600 in 2019 gross income in accordance with the tax benefit rule.
Neal and Ella were divorced. Their only marital property was a personal residence with a value of $100,000 and cost of $40,000. Under the terms of the divorce agreement, Ella would receive the house and she would pay Neal $10,000 each year for five years, or until Neal's death, whichever should occur first. Neal and Ella lived apart when the payments were made to Neal. The divorce agreement did not contain the word "alimony." Which of the following statements is true?
Ella is allowed to deduct $10,000 each year for alimony paid.
Which of the following factors is a characteristic of employee status?
Employer has right to control the means and methods of accomplishing the work
FICA and FUTA are what type and category of tax?
Employment; proportional
Estelle is single, age 68, and retired. Her taxable income for 2019 is $1,500, and the tax on this amount is $150. Estelle's tax credit for the elderly is $225. Which of the following statements is true?
Estelle's net tax liability is $0 since the credit is nonrefundable and does not result in a refund.
Which of the following is a nondeductible travel expense?
Expenses related to commuting from home to one's principal place of employment
"Other casualty" does not include accidental loss of property.
F
A basis adjustment for depreciation is not required if the taxpayer changes from the automatic mileage method to the actual operation cost method for transportation expenses.
F
A taxpayer classified as a staff accountant who goes back to school to obtain a bachelor's degree in accounting is allowed to deduct the expenses.
F
ADS depreciation is always computed using the straight-line method.
F
According to the IRS, interest accrues monthly.
F
After purchasing a bankrupt business, Samara attempts to generate goodwill by paying off some of the debts that were canceled by the bankruptcy court. Because the payments are necessary, Samara can deduct them.
F
Because deferred taxes must be paid in full eventually, tax deferral is not a strategically valuable goal of tax planning.
F
Because there is a limit to the loss classified as ordinary loss under § 1244, single taxpayers need to be aware of the $100,000 ordinary loss threshold each year and plan their tax strategy accordingly.
F
By borrowing on a life insurance policy's accrued dividend value, the owner can actually receive the policy's increase in value in cash without recognizing income.
F
Casualty losses increase adjusted basis.
F
Changing jobs during the year or having multiple jobs at the same time will not result in the employee having paid excess FICA taxes during a tax year.
F
Child care payments to a relative are eligible for the credit unless the relative is a child (under age 18) of the taxpayer.
F
Commuting between home and one's place of employment is deductible.
F
Cost depletion is determined by multiplying the depletion cost per unit by the number of units produced.
F
Cost identification problems are not frequently encountered in securities transactions.
F
Currently, the top income tax rate in effect is the highest it has ever been.
F
Davin and Andrea are divorced in December of 2019. Since they were married for more than one-half of the year, they are considered as married for 2019.
F
On October 1, 2019, Bradley, a cash basis taxpayer, gave Ralph common stock that paid a dividend of $1,000 on December 15, 2019. On November 15, 2019, the corporation declared the dividend payable to shareholders of record as of November 22, 2019. The corporation has paid the $1,000 dividend once each year for the past 10 years, during which Bradley owned the stock. When Ralph collects the dividend on December 15, 2019:
Ralph must include all of the dividend in his gross income.
Majestic Vehicle Company manufactures automobiles. Employees of the company can buy a new automobile for Majestic's cost plus 2%. The automobiles are sold to dealers at cost plus 20%. Generally, employees of Regional Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost. Officers of Regional Dealer are allowed to use a company vehicle (for personal use) at no cost. Which of the following statements is true?
Regional Dealer officers must recognize gross income from the personal use of the company vehicles.
The modified accelerated cost recovery system (MACRS) provides:
Separate cost recovery systems for realty and personalty.
Which of the following factors is a characteristic of independent contractor status?
Services are performed for more than one party.
Which of the following is not a characteristic of ad valorem taxes on real property?
Some states provide for higher valuations on property used for agriculture.
A decrease in a taxpayer's AGI could increase the amount of medical expenses that can be claimed.
T
A loss from the sale of a personal use asset that would be disallowed cannot be recognized even if the taxpayer converts the asset to business use prior to its sale.
T
A loss is allowed for securities that become completely worthless during the year.
T
A net operating loss cannot be used to reduce self-employment income.
T
Cash basis taxpayers are entitled to deduct state income taxes in the year payment is made.
True
Excise taxes are nondeductible.
True
Fees are not deductible unless incurred as a business expense or as an expense in the production of income.
True
Landon resides in a nursing home primarily for medical reasons rather than personal reasons. Costs for meals and lodging can be included in determining his deductible medical expenses.
True
Medical expenses are generally rare because the threshold percentage is significant.
True
Personal IRA deductions are deductible for AGI.
True
A strategy taxpayers can use to maximize the use of the standard deduction is to:
Use the cash method to concentrate multiple years' deductions, such as charitable contributions, in a single year.
Ad valorem taxes are taxes based on:
Value
Effective tax planning includes carefully considering all of the following, except:
Whether or not salaries will be considered gross income.
Which of the following factors is not a consideration of the § 530 relief regarding the employment taxes that should have been paid by the employer?
Workplace fringe benefits are not available.
Tonya fostered, then adopted two children, ages 1 and 3. The children were placed in Tonya's home on September 8, and the adoption was final on December 17. In this scenario, are these qualifying children, meaning, are they Tonya's dependents?
Yes, the children were adopted before the end of the tax year.
Which of the following is not a reason why zero-coupon bonds are the best way for high-income taxpayers to extract maximum value from tax-exempt state and local government bonds?
Zero-coupon bonds are high-risk, high-reward bonds.
