DONE Income Tax - Test 1 - Chapters 1 - 4 and 5 (CH 4 5 PENDING)
Alice is an employee of Valley Company. She properly completed her Form 1040 tax return and received a refund from the IRS of $1,293. Alice had income tax withholding during the year of $4,881. Her tax liability for the year was
C) $3,588.
Peter and Penelope are married and have combined W-2 income of $76,861. They paid an additional $529 when they filed their taxes. How much income tax did their employers withhold during the year?
C) $5,380.
The tax liability for a married couple filing jointly with taxable income of $55,747 is
C) $6,299.
The tax liability for a single individual with taxable income of $58,312 is
C) $8,690.
Xavier is single and has taxable income of $59,175. His average tax rate is
C) 15%.
With respect to the income tax formula, which of the following statements is correct?
C) Certain deductions from income are permitted before calculating tax liability.
Paid tax preparers must comply with all of the following EXCEPT
C) Charge a contingent fee.
Taxpayers can file a Form 1040 if they file using which of the following
C) Married filing jointly.
Which of the following statements is correct?
C) Paid preparers must inform the client if the client has made an error in a document submitted to the IRS.
A tax rate that increases as the tax base decreases is an example of what kind of tax rate structure?
C) Regressive
Yvonne earned $75,000 and paid $4,500 of income tax; Jasmine earned $43,000 and paid $3,000 of income tax. The tax rate structure they are subject to is
C) Regressive.
On December 31, 2019, a taxpayer received the notification that he was legally divorced. However, he lived with his spouse for 8 months during 2019. He has no dependent children. What status should he select when filing his tax return for 2019?
C) Single.
To be a qualifying relative, the taxpayer must meet three general tests and four specific tests. Which one is not part of the three general tests?
C) Support test.
Victoria determined her tax liability was $6,451. Her employer withheld $6,145 from her paychecks during the year. Victoria's tax return would show
C) Tax due of $306.
Which of the following statements is correct?
C) Temporary Regulations expire three years after issuance.
Which of the following courts hears only tax cases?
C) U.S. Tax Court.
Elisa is 21 years of age and a full-time student living with her parents. She had wages of $680 ($75 of income tax withholding) for 2019. Can Elisa file a tax return even though her parents will claim her as a dependent on their tax return?
C) Yes, Elisa can file a tax return.
Ed's parents can claim him as a dependent on their tax return. In 2019, his only source of income was $1,100 of interest income received from Global Bank. What is Ed's standard deduction?
C)$1,100
When a taxpayer can be claimed as a dependent on the tax return of another individual, the basic standard deduction for the taxpayer is limited to the greater of (a) _______, or (b) the taxpayer's earned income plus $350, but not more than the amount of the basic standard deduction.
C)$1,100
Morris redeemed $6,000 (principal of $4,500 and interest of $1,500) of Series I Savings Bonds to pay qualified higher education expenses. His qualified expenses for the year totaled $6,500 and AGI consists of wages of $32,000. What is the amount of interest that Morris can exclude from income?
C)$1,500.
The tax liability for a single taxpayer with taxable income of $67,350 is: Use the appropriate Tax Tables and Tax Rate Schedules.
C)$10,681.
Ruth, who files as head of household, reported itemized deductions of $18,100 on her 2018 tax return. Her itemized deductions included $300 of state taxes paid. In 2019, she received a $175 refund of state taxes paid in 2018. What is the amount that Ruth needs to report on her 2019 tax return?
C)$100.
What is the amount of the tax liability for a head of household person having taxable income of $87,573? (All answers should be rounded to the nearest dollar.) Use the appropriate Tax Tables and Tax Rate Schedules.
C)$13,772.
Which of the following are permitted filing statuses for taxpayers filing a Form 1040?
D) All of the above are permitted MARRIED FILING JOINTLY SINGLE HEAD OF HOUSEHOLD
Which of the following is an administrative source of tax law?
D) All of these REVENUE RULING IRS REGULATION PRIVATE LETTER RULING
Which of the following are primary sources of tax authority?
D) All of these STATUTORY SOURCES ADMINISTRATIVE SOURCES JUDICIAL SOURCES
Which of the following trial courts hear tax cases?
D) All of these U.S. TAX COURT US DISTRICT COURT US COURT OF FED CLAIMS
Which of the following statements is true with respect to marginal and average tax rates under a progressive tax structure?
D) Average rates are never more than marginal rates.
Which of the following is correct with respect to Private Letter Rulings?
D) Both issued when a taxpayer wants to know the tax treatment of a specific tax situation and provides tax authority only to the taxpayer to whom it is issued.
To be a qualifying child, the taxpayer must meet three general tests and five specific tests. Which one is not part of the five specific tests?
D) Gross income test.
Federal tax legislation generally originates in which body?
D) House Ways and Means Committee.
Which type of interest received is taxable and must be reported on the tax return?
D) Interest on a savings account.
On Form 1040, the standard deduction from income for a married filing jointly taxpayer is
D) None of these 1500 12000 23000
A tax rate that increases as the tax base increases is an example of what kind of tax rate structure?
D) Progressive
The federal income tax is an example of a
D) Progressive rate structure.
The taxpayer's spouse died at the beginning of 2018. He has no qualifying child. Which status should the taxpayer select when filing his tax return for 2019?
D) Single.
The following court hears only tax cases
D) U.S. Tax Court.
Criminal penalties only apply to
D) Willful failure to collect or pay tax, willful failure to file a return and tax evasion.
What is the taxable amount of social security income reported on the tax return if a single taxpayer's income included only $9,400 in social security benefits and $150 in interest income?
D)$0.
What is the amount of the tax liability for a qualifying widow(er) with a dependent child and having taxable income of $18,355? (All answers should be rounded to the nearest dollar.) Use the appropriate Tax Tables and Tax Rate Schedules.
D)$1,838.
What is the amount of the tax liability for a married couplefiling jointly having taxable income of $96,843? (All answers should be rounded to the nearest dollar.) Use the appropriate Tax Tables and Tax Rate Schedules.
D)$13,019.
Luisa's parents can claim her as a dependent on their tax return. In 2019, her only source of income was a part-time job as a medical clerk where she earned $2,600 during the year. What is Luisa's standard deduction?
D)$2,950.
What is the tax liability for a single individual who has taxable income of $115,500, that includes a taxable qualified dividend of $2,000?Use the appropriate Tax Tables and Tax Rate Schedules. (All answers should be rounded to the nearest dollar.)
D)$21,715.
Employer-paid premiums on life insurance are not taxable to the employees, unless the coverage is in excess of
D)$50,000
Pedro agreed to repair a house for a client and started to work on December 30, 2017. On January 2, 2019, he completed the job and received payment from the client. Pedro must record the income in
D)2019.
On December 30, 2019, Robert agreed to repair a damaged house wall and started to work on that date. He will finish and get paid for the job in January of 2020. Robert needs to record the income received from his work in the year
D)2020.
To be a qualifying relative, the taxpayer must meet three general tests and four specific tests. Which one is not part of the four specific tests?
D)Age test.
Constructive receipt means the taxpayer has
D)Control of the income for his or her use.
Compensation for sickness or injury which is exempt from income includes
D)Damages (other than punitive damages) received as a result of personal physical injuries or sickness.
The following fringe benefit provided by the employer is not taxable to the employee
D)Employer-paid premiums on group-term life insurance with coverage of $40,000 per person.
The taxability of social security benefits depends on the provisional income and
D)Filing status of the taxpayer
An individual with an original issue discount (OID) instrument must report annually a portion of the OID as
D)Interest income.
The taxpayer's spouse died at the beginning of 2019. She has a qualifying child. Which status should the taxpayer select when filing her tax return for 2019?
D)Married Filing Jointly.
Mirtha is 21 years of age and a full-time student living by herself. She had wages of $25,000 for 2019and provided more than half of her own support. Can Mirtha be claimed as a dependent on her parent's tax return?
D)No, Mirtha cannot be claimed on her parents' tax return.
Working condition fringes include
D)Professional organization dues paid by the employer and the use of an employer-provided vehicle for business purposes.
Imputed interest rules do not apply to the following
D)Sale of property for $3,000 or less.
The early withdrawal penalty is a for AGI deduction. Which form can the taxpayer use to claim this benefit?
D)Schedule 1.
The following are not taxable to shareholders
D)Stock split.
For tax purposes, one of the requirements to recognize income is
D)There must be an economic benefit.
What item should not be included in income?
D)Worker's compensation payments.
For purposes of computing the amount of savings bond interest exempt from tax, Modified AGI is adjusted gross income plus
D)deduction for student loan interest.
Which of the following items would not be considered as support for a dependency exemption?
D)life insurance premiums.
The taxpayer's brother must live with the taxpayer for the entire year to meet the relationship or member of household test under qualifying relatives.
FALSE
There are two types of primary tax authority: statutory and judicial.
FALSE
To be eligible to file a Form 1040, the taxpayer can only have taxable wages.
FALSE
Typically, federal tax legislation is introduced in the Senate Finance Committee.
FALSE
Under a flat tax, the marginal tax rate and the average tax rate are different.
FALSE
Wages, salaries, and tips are compensation for services rendered. However, commissions, bonuses, and severance pay are not taxable.
FALSE
Welfare payments received by a taxpayer must be reported in income.
FALSE
When an individual's taxable income is less than $39,375, the tax rate on qualified dividends is 15%.
FALSE
With a progressive rate structure, the average tax rate is always smaller than the marginal tax rate.
FALSE
With a regressive tax, the tax rate increases as the tax base gets larger.
FALSE
To qualify for head of household status, a taxpayer must maintain a household that is the principal place of abode of a qualifying person for more than half the year.
TRUE
When a taxpayer's AGI exceeds certain levels, certain tax benefits are reduced or eliminated.
TRUE
Almost all individuals use the cash receipts and disbursements method of accounting.
TRUE An example of nontaxable income is A)Child support payment.
The interest charged by the IRS for the first three months of 2019 was
D) 6%.
The IRS can impose a _______ penalty on any portion of understatement of tax that is attributable to fraud.
D) 75%
A couple who is legally married on the last day of the tax year cannot file married filing separately.
FALSE
A married couple can file a joint return only if both have earned income.
FALSE
A married couple in the process of obtaining a divorce cannot file a joint tax return.
FALSE
A married taxpayer filing separately must show the name, address, and social security number of the spouse on the tax return.
FALSE
A paid tax preparer who violates the provisions of Circular 230 can be subject to civil, but not criminal, penalties.
FALSE
A qualifying child does not have to meet the support test in order to be claimed as a dependent.
FALSE
A single taxpayer cannot file a Form 1040 if she is age 65 or older.
FALSE
A stock dividend in which a shareholder has the option to receive cash is not taxable.
FALSE
A taxpayer does not have to report part of an original issue discount (OID) as income every year.
FALSE
A taxpayer may request an automatic seven-month extension of time to file his or her tax return.
FALSE
A taxpayer must be married to claim Head of Household status.
FALSE
A taxpayer who has income that is not subject to withholding is never required to make estimated payments during the year.
FALSE
All federal and state unemployment compensation benefits are not subject to income tax.
FALSE
An extension to file a tax return is an extension of time to file and an extension of time to pay.
FALSE
At high levels of taxable income, the average tax rate and the marginal tax rate will always be the same.
FALSE
Circular 230 applies only to Certified Public Accountants and Enrolled Agents.
FALSE
Employers report wage income to employees on a Form W-3.
FALSE
Even if the total of the itemized deductions is lower than the standard deduction, a taxpayer should choose to itemize on his or her tax return.
FALSE
Federal unemployment compensation benefits are not taxable.
FALSE
If Lucas, an accountant, agrees to provide tax services to a neighbor in exchange for the neighbor agreeing to fix his pool, Lucas but not his neighbor will have to report income on this transaction at fair market value.
FALSE
If a taxpayer's spouse dies during the tax year, the taxpayer must file as a qualifying widow(er).
FALSE
If an individual owns Series EE bonds, this person must report interest income, i.e., the increase in bond value on an annual basis.
FALSE
If the process of a transaction begins and ends with an economic benefit for the taxpayer, he or she must report it in income even though the income is specifically exempt from tax.
FALSE
In 2019, the additional standard deduction for a single taxpayer, who is 65 or older and not blind, is $1,300.
FALSE
In general, an individual must recognize income on his or her tax return if the transaction has economic benefit, the transaction has reached a conclusion and the income from the transaction is tax-exempt income.
FALSE
Income can only be realized in money or services.
FALSE
Individuals who file a Form 1040 should determine their tax liability with reference to a tax rate schedule.
FALSE
Interest on state bonds is tax-exempt if the bonds were issued for private activities, such as convention centers, industrial parks, or stadiums.
FALSE
Jeff owns 250 shares of Coca Cola common stock that have increased in value by $15 each. He must report the increase in income because a transaction has occurred.
FALSE
Joe is an employee of Adams Company. Joe properly completed his Form 1040 tax return and was required to pay the IRS $1,372 at the time of filing. Joe's tax liability for the year must be $1,372.
FALSE
Legislative regulations do not have the full effect of law.
FALSE
One major disadvantage the taxpayer has when filing a petition with the Tax Court is that the IRS's proposed tax assessment must be paid prior to trial.
FALSE
One of the criteria to file a Form 1040 is that the total taxable income of the taxpayer cannot exceed $100,000.
FALSE
Payments received by a taxpayer for unemployment compensation are not taxable.
FALSE
Payments received under workers' compensation acts are taxable to the recipient.
FALSE
Receipt of property or services does not trigger income recognition for tax purposes.
FALSE
Rev. Proc. 87-56 was the 87th Revenue Procedure issued in 1956.
FALSE
State and local taxes levied on either property or sales are examples of progressive taxes.
FALSE
Tax liability is calculated using taxable income. A standard deduction is then subtracted from the tax liability.
FALSE
Taxpayers are not required to "impute interest" on a deferred payment contract for which no interest, or a low rate of interest, is stated.
FALSE
Taxpayers normally pay almost all of their tax liability when they file their income tax return.
FALSE
The Affordable Care Act requires all individuals to have health care insurance coverage.
FALSE
The IRS can impose a 75% penalty on any portion of understatement of tax that is attributable to negligence.
FALSE
The U.S. individual income tax system is an example of a proportional tax rate structure.
FALSE
The amount of tax liability calculated using the tax tables will always be the same as the amount calculated using the tax rate schedules.
FALSE
The amount of the standard deduction increases for people who are age 62 and have retired.
FALSE
The average tax rate is the taxable income divided by the total tax liability.
FALSE
The cost of holiday turkeys distributed to employees is included in the employees' income.
FALSE
The courts issue Private Letter Rulings when a taxpayer requests a ruling on a certain tax situation.
FALSE
The marginal tax rate is the proportion of tax paid on the first dollar of taxable income.
FALSE
The marginal tax rate is the total tax liability divided by the taxable income.
FALSE
The simple tax formula only applies to a few taxpayers.
FALSE
The simplified tax formula can only be used by individuals with simple income tax returns.
FALSE
The tax tables stop at taxable income of $115,000.
FALSE
A Private Letter Ruling is considered to be tax authority only to the taxpayer to whom it is issued.
TRUE
A de minimis benefit is one whose benefit is so small that keeping track of the value which employees received is administratively impractical.
TRUE
A proportional tax rate structure is a tax where the tax rate remains at the same rate regardless of the tax base.
TRUE
A qualifying relative must be related to the taxpayer (as listed by the IRS), or be a member of the taxpayer's household for the entire year.
TRUE
A taxpayer can exclude from gross income any interest earned on bonds issued by any state, any possession of the United States, any political subdivision of either of the foregoing, or of the District of Columbia as long as these bonds are not issued for private activities.
TRUE
A taxpayer can qualify for head of household even though his or her parents are living in a separate household from that of the taxpayer (assume all other requirements are met).
TRUE
A taxpayer must file a Schedule B if he or she has received taxable interest of $1,550.
TRUE
A taxpayer must report in income imputed interest on a loan made below market interest rate.
TRUE
A taxpayer who either is 65 or older or blind can claim an additional standard deduction.
TRUE
All individual income tax returns follow the basic structure of the simplified tax formula.
TRUE
All paid tax preparers must follow the rules provided in Circular 230.
TRUE
Banks and credit unions report interest income to taxpayers on Form 1099-INT.
TRUE
Circular 230 applies only to paid tax preparers.
TRUE
Constructive receipt means the income is available to or in the control of the taxpayer regardless of whether the taxpayer chooses to utilize the income.
TRUE
Discounts provided to employees for food by a restaurant owner are not taxable if the discounts do not exceed the gross profit percentage of the business.
TRUE
Dividends are generally taxed at capital gains rates if they are made from the corporation's current earnings and profits or accumulated earnings and profits.
TRUE
For equivalent amounts of gross income, a single person will have a higher tax liability than will married persons filing jointly.
TRUE
For most individuals, interest income comes from interest-earning deposits at banks, savings and loans, or credit unions.
TRUE
For tax purposes, income is recognized if the transaction meets three conditions: economic benefit, occurrence and completion, and not exempt from tax.
TRUE
IRS Regulations are by far the strongest administrative authority.
TRUE
If Alex, an attorney, agrees to provide legal services to a friend in exchange for the friend agreeing to fix his car, Alex and his friend will have to report income on this transaction at fair market value.
TRUE
If a married couple files separate returns and one of them itemizes, the other spouse must also itemize.
TRUE
If a person sells his or her car to a friend for a note receivable, this person has income that needs to be reported.
TRUE
If a taxpayer is covered by Medicare, they are deemed to have qualifying health care insurance coverage.
TRUE
If a taxpayer is economically better off because of a transaction, the person must normally record income.
TRUE
If an employee receives a prize or award from his or her employer, the award is included in W-2 income.
TRUE
If the taxpayer still owes tax after April 15, the IRS assesses interest based on the remaining amount owed.
TRUE
In a multiple support agreement, the taxpayer who will claim the dependent must file all the Forms 2120 with his or her tax return.
TRUE
Individuals with taxable income of $50,000 who file a Form 1040 should determine their tax liability with reference to the tax tables.
TRUE
Jury duty pay is taxable income, but it can be deducted from gross income if the amount must be given to the employer.
TRUE
Lisa performed bookkeeping services for Donald charging him $650. Donald agreed that he would pay Lisa's credit card bill for the same amount. Lisa has received an economic benefit and must report $650 in income on her tax return.
TRUE
Many deductions and credits are determined with reference to adjusted gross income (AGI).
TRUE
Marital status of a taxpayer is determined on the last day of the tax year.
TRUE
Most taxpayers make payments to the IRS through income tax withholdings and quarterly estimated tax payments.
TRUE
Paid preparers must obtain a preparer tax identification number.
TRUE
Receipt of property or services will trigger income recognition.
TRUE
Robert received a tax refund in 2019 from his state, which he deducted on his prior year's return as an itemized deduction. He must report the refund in income in 2019, subject to certain computations to determine the amount that is taxable.
TRUE
Taxable income (TI) is computed after subtracting from adjusted gross income (AGI) the standard deduction or itemized deductions.
TRUE
The Sixteenth Amendment to the U.S. Constitution provides the legal and statutory authority for the administration and enforcement of income taxes.
TRUE
The U.S. individual income tax system is an example of a progressive tax rate structure.
TRUE
The accuracy-related penalty applies when negligence or any substantial understatement occurs.
TRUE
The amount of tax liability for a taxpayer depends on many factors, including the filing status of the taxpayer.
TRUE
The amount of tax liability is affected by the filing status of the taxpayer.
TRUE
The average tax rate is the total tax liability divided by the taxable income.
TRUE
The definition of wages includes tips received.
TRUE
The initial original issue discount (OID) on a bond is equal to the difference between the acquisition price and the maturity value.
TRUE
The maximum penalty for failure to file a tax return that is not due to fraud is 25%.
TRUE
The standard deduction in 2019 for a married couple filing jointly, under 65 and not blind, is $24,400.
TRUE
The tax code defines adjusted gross income (AGI) as gross income minus a list of permitted deductions.
TRUE
The tax liability of a single individual with taxable income of $89,542 is $15,661.
TRUE
The tax rate is applied against the tax base to determine the amount of tax liability.
TRUE
The taxability of social security benefits depends on the "provisional income" and filing status of the taxpayer.
TRUE
There are some instances where a cash-basis taxpayer can report income as though he or she is an accrual basis taxpayer.
TRUE
To be claimed as a dependent, a person must be a qualifying child or a qualifying relative.
TRUE
Employers report wage income to employees on a
A) Form W-2.
Describe the various situations where a taxpayer must file a Schedule B when receiving interest income.
A taxpayer must use Schedule B if any of the following conditions are true:Had over $1,500 of interest income.Received seller-financed mortgage interest.Received tax-exempt interest in any amount.Received interest as a nominee.Claimed an exclusion for interest on Series EE U.S. Savings Bonds issued after 1989 or Series I Bonds.Reported any adjustments for accrued interest, amortizable bond premium, or original issue discount.Had a foreign account, received a distribution from, was the grantor of, or a transferor to, a foreign trust.
For tax purposes, name the three conditions that a transaction must meet for income recognition.
A transaction is recognized as income on the taxpayer's tax return if it meets three conditions: economic benefit, existence from start to completion, and not exempt from income tax.
The basic standard deduction in 2019 for a single taxpayer who is 67 years old and not blind is
A) $13,850.
What is the amount of the social security wage limitation for 2019?
A) $132,900.
What is the amount of the tax liability for a qualifying widow(er) with a dependent child and having taxable income of $121,600? (All answers should be rounded to the nearest dollar.)Use the appropriate Tax Tables and Tax Rate Schedules.
A) $18,469.
What is the amount of the tax liability for a married couple filing jointly, having taxable income of $153,500? (All answers should be rounded to the nearest dollar.) Use the appropriate Tax Tables and Tax Rate Schedules.
A) $25,487.
Hamad is an employee of Mountain Company. He properly completed his Form 1040 tax return and was required to pay the IRS $1,374 at the time of filing. He had income tax withholding during the year of $4,429. His tax liability for the year was
A) $5,803.
Peter forgot to file his tax return by April 15. He did not file an extension. Peter finally filed his tax return on July 31 and had a remaining tax liability of $3,500. What is Peter's failure to file penalty? Assume he made all his payments on time.
A) $700.
What is the amount of the tax liability for a single person having taxable income of $55,300? (All answers should be rounded to the nearest dollar.) Use the appropriate Tax Tables and Tax Rate Schedules.
A) $8,030.
The tax liability for a married couple with taxable income of $73,209 is
A) $8,399.
What is the amount of the tax liability for a single person having taxable income of $59,200? (All answers should be rounded to the nearest dollar.) Use the appropriate Tax Tables and Tax Rate Schedules.
A) $8,888.
Victoria determined her tax liability was $6,145. Her employer withheld $6,451 from her paychecks during the year. Victoria's tax return would show
A) A refund of $306.
Which of the following statements is true?
A) Compensation for services includes bonuses and severance pay.
Which of the following courts has the highest tax validity?
A) Court of Appeals for the Fifth Circuit.
Circular 230
A) Establishes penalties for failure to comply with its provisions.
Which of the following is not an example of a proportional tax?
A) Federal income tax.
Which of the following statements is false with respect to marginal and average tax rates?
A) For most taxpayers, the average rate is larger than the marginal rate.
A legally divorced taxpayer maintains a household for himself and maintains a separate household that is the principal place of abode of his dependent widowed mother. What filing status should he use when filing his tax return?
A) Head of Household.
Which of the following is a statutory source of tax authority?
A) Internal Revenue Code.
Jake earned $15,000 and paid $1,500 of income tax, while Jill earned $40,000 and paid $6,000 of income tax. The tax rate structure they are subject to is
A) Progressive.
Sallie earned $25,000 and paid $2,000 of income tax; Theodore earned $35,000 and paid $2,900 of income tax. The tax rate structure they are subject to is
A) Progressive.
A tax rate that remains the same as the tax base increases is an example of what kind of tax rate structure?
A) Proportional.
Which of the following refers to an income tax regulation?
A) Reg. §1.162-1.
Which of the following refers to an income tax regulation?
A) Reg. §1.162-5.
Jake earned $15,000 and paid $1,500 of income tax, while Jill earned $40,000 and paid $3,000 of income tax. The structure of the tax their income is subject to is
A) Regressive.
Taxable income includes
A) Sick pay.
Which of the following is an example of a regressive tax?
A) Social security tax
With respect to the income tax formula, which of the following statements is incorrect?
A) The simplified income tax formula is only applicable to taxpayers with taxable income less than $100,000.
Which court hears most of the litigated tax disputes between the IRS and taxpayers?
A) U.S. Tax Court.
For equivalent amounts of taxable income, the total tax liability of a couple using the married filing jointly status
A) Will be less than single filing status.
Corporate distributions to shareholders that represent a nontaxable return of capital are those that are
A) made from the excess over earnings and profits of the corporation.
Tom and Betsy, who are married filing jointly, reported a standard deduction of $24,000 on their 2018 tax return. They paid $500 to the state for income taxes in 2018. In 2019, they received a $125 refund of state taxes paid in 2018. What is the amount that Tom and Betsy need to report on their 2019 tax return?
A)$0.
Joel purchased $125,000 of A and D Corporation's newly issued bonds for $114,500. The bonds carry an interest rate of 8% and mature in 5 years. What is the initial OID on these bonds?
A)$10,500.
The basic standard deduction in 2019for a taxpayer, 67 and not blind, filing head of household is
A)$20,000.
She also received $200 of tax- exempt interest. What is the amount of taxable social security benefits?
A)$3,350.
Marie is a graduate student at a state university. In 2019, she received a scholarship of $10,500 ($7,000 for tuition and fees and $3,500 for campus housing) and a graduate assistantship that pays $6,000. What is the amount that she must report on her tax return?
A)$9,500.
When an individual's taxable income tax rate is less than $39,475, the tax rate on qualified dividends is
A)0%.
Corporate and mutual fund payers are required to provide shareholders a Form ________ that indicates the amount of dividends in box 1a.
A)1099-DIV
When a taxpayer reports income when received, this is called the ________ method.
A)Cash receipts and disbursements
For a qualifying relative to be claimed as a dependent, a person must either be related to the taxpayer, or be a member of the taxpayer's household for the entire year. Select the relative who must be part of the taxpayer's household for the entire year.
A)Cousin.
To be a qualifying child, the taxpayer must meet three general tests and five specific tests. What are the three general tests?
A)Dependent taxpayer test, joint return test and citizen or resident test.
To be a qualifying relative, the taxpayer must meet three general tests and four specific tests. Which one is part of the four specific tests?
A)Gross income test.
A taxpayer is married with a qualifying child (dependent), but she has been living separate from her spouse for the last five months of the year. However, she paid for more than half of the cost of keeping up the household. Her spouse does not want to file jointly. What filing status must she use when filing her tax return? She wants to obtain the maximum legal benefit.
A)Married Filing Separately.
The imputed interest rules apply to the following
A)Sale of a personal residence.
A 36-year-old taxpayer with a dependent child and claiming head of household status has received $29,000 in alimony payments and earned wages of $44,000. Which Schedule is this person required to file?
A)Schedule 1.
To be a qualifying child, the taxpayer must meet three general tests and five specific tests. Which one is not part of the three general tests?
A)Support test.
When is an original issue discount (OID) created? How is the initial OID computed?
An original issue discount (OID) is created when someone purchases a debt instrument, such as a bond, from an issuer for an amount less than par. The initial OID is equal to the difference between the acquisition price and the maturity value.
Determine the amount of tax liability under the following two situations.Use the appropriate Tax Tables and Tax Rate Schedules. (Answers should be rounded to the nearest whole dollar).a. The taxpayer is single with taxable income of $54,690 that includes qualified dividends of $450.b. The taxpayer is married filing jointly with taxable income of $64,500 that includes qualified dividends of $300.
Answers are rounded to the nearest dollar.a. $7,856; the dividend of $450 is taxed at 15% and the difference of $54,240 is taxed at the regular rate from the tax table.b. $7,319; the dividend is not taxed since the taxpayer has taxable income of less than $78,750. The difference of $64,200 is taxed at the regular rate from the tax table.
The amount of savings bond interest exempt from tax is phased out completely when an individual is married filing jointly and his or her modified AGI reaches
B) $151,600.
Horace properly completed his Form 1040 tax return and received a refund from the IRS of $649. Horace had income tax withholding during the year of $2,985. His tax liability for the year was
B) $2,336
The basic standard deduction in 2019 for a taxpayer, 69 and not blind, filing head of household is:
B) $20,000.
What is the amount of the tax liability for a married person filing a separate return and having taxable income of $115,715? (All answers should be rounded to the nearest dollar.)
B) $21,946.
John forgot to file his tax return by April 15. He did not file an extension. John finally filed his tax return on June 30 and had a remaining tax liability of $1,500. What is John's failure to file penalty? Assume he made all his payments on time.
B) $225.
Alice is an employee of Valley Company. Alice properly completed her Form 1040 tax return and received a refund from the IRS of $1,244. Alice had income tax withholdings during the year of $4,782. Alice's tax liability for the year was
B) $3,538.
What is the tax liability for a taxpayer who is married filing jointly with taxable income of $67,500, that includes a taxable qualified dividend of $1,000? All answers should be rounded to the nearest dollar.Use the appropriate Tax Tables or Tax Rate Schedules.
B) $7,595.
Unemployment compensation income is reported to a taxpayer on a Form
B) 1099-G.
The failure to file penalty is ________ of the tax shown on the return for each month (or fraction of a month) the tax return is not filed, up to a maximum of 25%.
B) 5.0%
A tax rate structure where the tax rate remains at the same rate regardless of the tax base is
B) A proportional rate structure.
Which statement is correct with respect to marginal and average tax rates under a progressive tax structure?
B) At very low levels of taxable income, a taxpayer's marginal and average tax rates will be the same.
Interest payers (banks, savings and loans, insurance companies, etc.) report interest earnings to taxpayers on a
B) Form 1099-INT.
Imputed interest rules apply to term loans or demand loans in which the interest rate is less than the Applicable Federal Rate (AFR). Which of the following transaction does not fall under these rules? Assume in all situations that interest is below the AFR.
B) Gift loans of $15,000 in which interest foregone is in the form of a gift.
Under the provisions of Circular 230, paid tax preparers must
B) Inform the client if the client has made an error in a document submitted to the IRS.
With respect to the income tax formula, which of the following statements is correct?
B) It is almost always the case that the tax return will either show a tax refund or an additional tax liability.
Which of the following types of Regulations is the strongest tax authority?
B) Legislative.
Which of the following types of Regulations take the place of the Internal Revenue Code and have the full effect of law?
B) Legislative.
A taxpayer can exclude from income interest received from
B) Municipal bonds issued by the state.
A state or local sales tax is an example of a
B) Proportional rate structure.
Sallie earned $85,000 and paid $5,950 of income tax; Theodore earned $33,000 and paid $2,310 of income tax. The tax rate structure they are subject to is
B) Proportional.
A single taxpayer is 43 years old and has only wages of $16,000. Which Schedule is he required to file?
B) The taxpayer is not required to file a Schedule.
In terms of dollars, wage-earning taxpayers will normally pay the majority of their tax liability
B) Through withholding from their wages.
For equivalent amounts of taxable income, the total tax liability of a single individual
B) Will be more than married filing jointly.
Failure to make required estimated payments will subject the taxpayer to a potential underpayment penalty plus interest. However, if the difference between the tax shown on the return and the amount of tax withheld for wages is less than _______, the taxpayer will not be assessed a penalty.
B)$1,000
If an attorney performs some estate tax work for a client and the client agrees to pay $6,000 to him and $5,000 to a local financial institution for a debt the attorney owes, the attorney has income of
B)$11,000.
What is the limit on the social security amount for 2019?
B)$132,900.
What is the amount of the tax liability for a head of household person having taxable income of $122,500? (All answers should be rounded to the nearest dollar.)Use the appropriate Tax Tables and Tax Rate Schedules.
B)$22,154.
The tax liability for a head of household taxpayer with taxable income of $124,225 is:Use the appropriate Tax Tables and Tax Rate Schedules, determine the amount of tax liability in each of the following instances. (All answers should be rounded to the nearest dollar.)
B)$22,568.
Laura is a student at a state university. In 2019, she received a scholarship of $6,000 for tuition and fees and an assistantship for $3,000. What is the amount that Laura must report in income?
B)$3,000.
Severin, who is 20 years old and a full- time student, is claimed by his parent as a dependent. However, in 2019, he earned $3,350. What is his standard deduction?
B)$3,700.
Under a dependent care assistance plan, the exclusion for a head of household taxpayer cannot exceed his or her earned income and
B)$5,000.
When an individual's taxable income is $85,000, the tax rate on qualified dividends is
B)15%
Discounts offered to employees on services cannot exceed ________ of the normal selling price.
B)20%
A married, filing jointly taxpayer's lower limit of provisional income for social security purposes is
B)32,000.
The taxpayer must provide over ________ of the qualifying relative's support to be able to claim a dependency exemption.
B)50%
Income may be realized in the form of
B)All of these. Property, Money, Services
Life insurance proceeds because of the death of the insured are fully excludable from the gross income of the recipient if the payment is made
B)As a lump sum.
If Janelle, an accountant, agrees to provide accounting services to Fred, a friend, in exchange for Fred fixing Janelle's office floor, then
B)Both of them must report income on their tax returns.
Taxable income does not include
B)Child support payments.
The following income item is not taxable
B)Child support.
Provisional income is calculated by starting with Adjusted Gross Income (AGI) before social security benefits and adding back specific items. One of these items is
B)Deducted interest on educational loans.
Which one of the following items is not exempt under the umbrella of compensation for injuries or sickness?
B)Employer-provided adoption assistance.
With OID instruments, taxpayers report annually a portion of the OID as
B)Interest income.
Raphael, a roofer, decides to fix the roof of his neighbor, Angela, in exchange for Angela providing bookkeeping services for his business. Who must report income on their tax return?
B)Raphael and Angela
An individual must complete Schedule B if the following situation occurs
B)Received interest income of $1,750.
An individual must complete Schedule B if the following situation occurs
B)Received tax-exempt interest of $700.
Which condition listed below is not required for a taxpayer to qualify as a qualifying widow(er) with dependent child?
B)Taxpayer must remarry before the end of the tax year in question.
When filing their tax returns, almost all individuals use
B)The cash receipts and disbursements method.
The following items under compensation for sickness or injury are exempt from income and do not have to be reported on the taxpayer's tax return
B)Workers' compensation payments.
Interest income on Series EE and Series E U.S. Savings Bonds can be reported
B)either at the maturity date or on an annual basis.
The tax liability for a single individual with taxable income of $67,293 is
C) $10,659.
On Form 1040, the standard deduction from income for a single taxpayer is
C) $12,200.
Which amount represents the standard deduction for a taxpayer who is single and 68 years of age?
C) $13,850.
On Form 1040, the standard deduction from income for married taxpayers is
C) $24,400.
Martin redeemed $3,000 (principal of $2,000 and interest of $1,000) of Series I Savings Bonds to pay qualified higher education expenses. His qualified expenses for the year totaled $2,500 and AGI consists of wages of $20,000. What is the amount of interest that Martin must include in income? (Round interim calculations to three decimal places)
C)$167.
The basic standard deduction in 2019 for a Head of Household taxpayer who is 41 years old and not blind is
C)$18,350.
The exclusion for dependent care assistance plans cannot exceed __________ for a taxpayer who is married but filing as "married filing separately."
C)$2,500
The tax liability for a married couple with taxable income of $141,325 is:Use the appropriate Tax Tables and Tax Rate Schedules, determine the amount of tax liability in each of the following instances. (All answers should be rounded to the nearest dollar.)
C)$22,809.
The basic standard deduction in 2019 for a taxpayer, under 65 and not blind, filing married filing jointly is
C)$24,400.
Robin's parents can claim him as a dependent on their tax return. In 2019, his only source of income was a part-time job as a supermarket clerk where he earned $3,200 during the year. What is Robin's standard deduction?
C)$3,550.
A qualifying relative must earn less than _____ for the year 2019.
C)$4,200
Payments under written dependent care assistance plans are tax-free, except that the exclusion for a single person cannot exceed his or her earned income and cannot exceed
C)$5,000
Employer-paid premiums on life insurance are not taxable to employees if the coverage does not exceed
C)$50,000.
When an individual's taxable income is $70,000, the tax rate on qualified dividends is
C)15%.
Income may be realized in the form of
C)All of these. Services, Cash, Property
The original issue discount (OID) rules apply to all debt instruments with OID, except
C)All of these. U.S. Savings bonds, Tax-exempt debt,
Robert, Fred and Lucas are supporting their mother who lives in a separate apartment. Their contributions towards her support are 10%, 40% and 50%, respectively. In a multiple support agreement, who would be entitled to claim the mother as a dependent?
C)Fred or Lucas.
Under the cash receipts and disbursements method, the taxpayer reports income in the year
C)Income is received.
Jane, Joseph and John are supporting their father who lives in a separate apartment. Their contribution towards his support is 10%, 35% and 55%, respectively. In a multiple support agreement, who would be entitled to claim the father as a dependent?
C)Joseph or John.
Items that must be reported on line 8 (Other Income) of Schedule 1
C)Jury duty pay.
The taxpayer's spouse died at the beginning of 2019. He has no qualifying child. Which status should the taxpayer select when filing his tax return?
C)Married Filing Jointly.
For tax purposes, one of the requirements to recognize income is
C)The income cannot be tax-exempt.
If a student must perform certain services for the educational institution (e.g., graduate assistantships), the amount paid for services is considered
C)Wages.
George is 21 years of age and a full-time student living with his parents who are paying more than 50% of his support. He had wages of $1,375 ($140 of income tax withholding) for 2019. Can George's parents claim him on their tax return even though he will file a tax return to claim his refund of $140?
C)Yes, George's parents can claim him as a dependent.
Under the cash method, an individual reports income when
C)income is received or constructively received.
Tax-exempt interest includes the following items, except
C)interest on bonds issued by the local government to build a convention center.
Which of the following items would not be considered as support for a dependency exemption?
C)life insurance premiums.
Define constructive receipt.
Constructive receipt means that the income is available to or in the control of the taxpayer regardless of whether the taxpayer chooses to utilize the income. An example is when interest is credited to a taxpayer's savings account on the last day of the year. This income must be reported in the year credited, not the year withdrawn.
The basic standard deduction in 2019 for a single taxpayer, under 65 and not blind, is
D) $12,200.
On Form 1040, the standard deduction from income for a married taxpayer filing jointly is: rev: 02_18_2020_QC_CS-201077
D) $24,400.
Felix, a single taxpayer, claimed $180 of state tax as an itemized deduction on his 2018 tax return. The total itemized deductions on his tax return were $12,025. In 2019, he received a $25 refund from the state. What is the amount Felix must to report on his 2019 tax return?
D) $25.
The additional standard deduction amount for a taxpayer who is 65, single and blind is
D) $3,300.
The IRS can impose a ________ penalty on the tax due on a return where there is negligence.
D) 20%
Xavier is single and has taxable income of $47,375. His marginal tax rate is
D) 22%.
Name three types of nontaxable income (do not include items that are exempt under the umbrella of compensation for injuries or sickness).
Examples of nontaxable income are:Child support which is not taxable to the recipient.Public assistance payments, such as welfare payments.Life insurance proceeds payable as a lump sum payment.Most scholarships and fellowships.Employer-provided adoption assistance up to $14,080 provided the AGI limitation is met.Qualified Tuition Program (QTP) withdrawals if the money is used for qualified education expenses.
The imputed interest rules do not apply to certain transactions. Name three situations where this is a true statement.
Examples of situations when the rules of imputed interest do not apply are as follows:Debt subject to the original issue discount rules.Sales of property for $3,000 or less.Sales in which all payments are due in 6 months or less.Certain carrying charges.Any portion of the sales price of a patent that is contingent on the productivity, use, or disposition of the patent.
The average tax rate is the taxable income divided by the total tax liability.
FALS
What are cafeteria plans?
Flexible benefit plans, often called cafeteria plans, are written plans that permit employees to choose their own "menu" of benefits. The menu of options from which employees can choose usually includes several fringe benefits, such as health care insurance, education expenses, transportation benefits, just to name a few. In these types of plans, the value of the benefits received is not taxed to the employee. However, if the employee elects to receive cash, the cash is taxable.
Does forgiveness of debt result in taxable income to the taxpayer (borrower)?
Generally, if a lender fully or partially forgives a loan, the taxpayer has income to the extent of the forgiveness. However, he or she does not report income if payment of the debt would have given rise to a deduction.
Does the taxpayer have to report the state income tax refund of $350 in 2019?
If the taxpayer used the standard deduction in 2018, the refund of $350 does not have to be reported. However, if the taxpayer itemized in 2018, the refund must be reported. But the taxable amount is based on the lesser of (a) the amount received, or (b) the amount deducted on Schedule A, or (c) the amount by which the itemized deductions exceed the standard deduction.
Are life insurance proceeds taxable to the recipient?
Life insurance proceeds payable because of the death of the insured are fully excludable from the gross income of the recipient. However, if proceeds are paid over time, payments are tax-free except to the extent the payments exceed the amount payable at the time of death. In this situation, the proportion of each payment that is tax-free is the excludable amount divided by the expected number of payments.
Name three items that are exempt from income under the umbrella of compensation for injuries or sickness.
The following items are exempt from income under the umbrella of compensation for injuries or sickness:Payments received under workers' compensation acts.Damages (other than punitive damages) received as a result of personal physical injuries or sickness.Pensions or annuities received for personal injuries or sickness from active service in the armed forces, coast guard, public health service, or foreign service.Disability income resulting from a terrorist attack while in the employ of the United States engaged in official duties outside the United States.
How does the taxpayer report interest income on an original issue discount (OID) instrument?
The taxpayer must include part of the OID in interest income every year, regardless of the taxpayer's method of accounting. This imputed interest is calculated by using the effective interest method. Using this method, total interest income is equal to the carrying amount of the bond multiplied by the effective interest rate.
Use the appropriate Tax Tables and Tax Rate Schedules, determine the amount of tax liability in each of the following instances. (All answers should be rounded to the nearest dollar.) a. A single person with taxable income of $103,500. b. A married couple filing jointly with taxable income of $37,700. c. A head of household with taxable income of $87,925. d. A person filing married filing separately with taxable income of $64,000. e. A married couple filing jointly with taxable income of $144,600.
a. $19,015. ($103,500 − 84,200) × 24% plus $14,382.50. b. $4,139. Look up $37,700 under the tax tables for married filing jointly. c. $13,856. Look up $87,925 under the tax tables for head of household. d. $9,944. Look up $64,000 under the tax tables for married filing separately. e. $23,529. ($144,600 − $78,950) × 22% plus $9,086.
Determine the amount of the standard deduction for each of the following taxpayers for tax year 2019. a.Leo and Mary who are under age 65 and filing a joint return. They have no dependents. b.Sergio who is single under age 65. c.Peter who is over age 65 and single. d.Anna who is age 38 and filing as head of household with a dependent child. e.Frank who is age 45 and blind and is filing as married filing separately.
a. $24,400. b. $12,200. c. $13,850 ($12,200 plus the additional amount of $1,650). d. $18,350. e. $13,500 ($12,200 plus the additional amount of $1,300).
