EXAM 1 TAX KAHOOT

Which of the following is NOT an itemized deduction? A. Alimony paid B. Real estate taxes C. Medical expenses

A. Alimony paid - Rather this is a FOR AGI DEDUCTION, and is considered a deductible individual expense.

If Lindley requests an extension to file her individual tax return, the latest she could pay her tax without penalty: A. April 15th B. October 15th C. August 15th

A. April 15th! - Even if you file an extension to FILE your tax return, your due date for PAYMENT remains the same.

Employers often withhold federal income taxes directly from workers' paycheck. Example of which principle in practice? A. Convenience B. Certainty C. Economy

A. Convenience!

Which legal entity is generally best suited for going public? A. Corporation B. LLC C. Limited liability partnership D. General partnership

A. Corporation

Which of the following audits is the most common and typically less comprehensive? A. Correspondence B. Random C. Office

A. Correspondence!

Which of the following series of inequalities is generally most accurate? A. Gross Income >= Adjusted Gross Income >= Taxable Income B. Adjusted Gross Income >= Gross Income >= Taxable Income C. Adjusted Gross Income >= Taxable Income >= Gross Income D. Gross Income >= Taxable Income >= Adjusted Gross Income

A. Gross Income >= Adjusted Gross Income >= Taxable Income

All of the following are tests for determining qualifying child status EXCEPT the _______________. A. Gross Income Test B. Age Test C. Support Test D. Residence Test

A. Gross Income test! - This gross income test only applies for the qualifying RELATIVE status test! hehe.

In June of Year 1, Edgar's wife, Cathy, died, and Edgar did NOT remarry during the year. Year 1 filing status (not dependent) is? A. MFJ B. Single C. Qualifying widower D. HOH

A. MFJ - So long as the taxpayer has not remarried, the widow or widower may file as MFJ in the year of their spouse's death. - For the next two years, so long as the widow/widower is unmarried and pays over 1/2 the cost of maintaining a household where a child who qualifies as the taxpayer's dependents lived for the entire year, he/she can claim surviving spouse filing status (QW), which provides these widows/widowersw/ tax relief :')

Which of the following statements is true? A. Municipal bond interest is subject to explicit federal tax. B. Municipal bond interest is subject to implicit tax. C. Municipal bonds typically pay a higher interest rate than corporate bonds. D. All of these statements are true.

B. Municipal bond interest is subject to IMPLICIT tax.

If Paula requests an extension to file her individual tax return, the latest she could file her return without penalty: A. September 15th B. October 15th C. August 15th D. November 15th

B. October 15th - Taxpayers who are unable to file a tax return by the original due date may request an extension to file -- which will last 6 months post the original April 15th due date!

For filing status purposes, the taxpayer's marital status is determined @ what point during the year? A. The beginning of the year B. The end of the year C. The middle of the year

B. The END of the year!

Which of the following is NOT a filing status? A. Head of household B. Unmarried C. Qualifying widow or widower

B. Unmarried! - Is NOT a filing status LOL.

What kind of deduction is the deduction for qualified business income? A. A for AGI deduction B. A from AGI deduction that is not an itemized deduction C. A from AGI deduction that is an itemized deduction D. None of the choices are correct

C. A FROM AGI deduction is NOT an itemized deduction!

Which of the following relationships does NOT pass the relationship test for a qualifying child? A. Stepsister's daughter B. Half-brother C. Cousin D. Stepsister

C. Cousin - Cousins DO NOT qualify under the relationship test! Rather, to pass the relationship test for QC, you must be either the sibling or child (or the sibling or child of a sibling or child) to qualify!

Which of the following taxes represents the largest portion of US federal tax revenues? A. Employment taxes B. Corporate income taxes C. Individual income taxes D. Estate and gift taxes

C. Individual income taxes

Which of the following shows the correct relationship among standard deduction amounts for the respective statuses? A. Single > HOH > MFJ B. MFJ > MFS > HOH C. MFJ > HOH > Single D. HOH > MFS > MFJ

C. MFJ > HOH > Single! - From largest standard deductions to smallest: MFJ, QW, HOH, MFS, (=) Single.

Which of the following statements regarding tax credits is true? A. Tax credits reduce taxable income dollar for dollar. B. Tax credits provide a greater benefit the greater the marginal tax rate. C. Tax credits reduce taxes due dollar for dollar. D. None of these statements are true.

C. Tax credits reduce taxes due dollar for dollar! Woo!

Sin taxes are: A. Taxes assessed by religious organizations B. Taxes assessed on certain illegal acts C. Taxes assessed to discourage less desirable behavior D. Taxes to fund a specific purpose

C. Taxes assessed to discourage less desirable behavior!

The difficulty in calculating a tax is typically in the determination of: A. The correct tax rate B. Where to file the tax return C. The tax base D. The due date for the return

C. The tax base

Which of the following courts is the only court that provides for a jury trial? A. Tax Court B. US Court of Federal Claims C. US District Court D. US Circuit Court of Appeals

C. US District Court - B/C! The US district court is the ONLY court that provides for a jury trial.

Which of the following is considered a tax? A. Tolls B. Annual licensing fees C. Parking meter fees D. A local surcharge paid on retail sales to fund public schools

D. A local surcharge paid on retail sales to fund public schools! - This payment meets the 3 requirements to be considered a tax: 1) Must be required 2) Must be imposed by the government 3) Must not be tied to any direct benefit received by the taxpayer

Which of the following is a true statement? A. Interest expense is NOT deductible if the loan is used to buy a municipal bond. B. Insurance premiums are NOT deductible if paid for "key-employee" life insurance. C. One-half of the cost of business meals is NOT deductible. D. All of the following are true.

D. All of the following are true!

Generally, which of the following flow-through entities can elect to be treated as a C corporation? A. Limited partnership B. Limited liability company C. General partnership D. All of these choices are correct.

D. All of these choices are correct! - In that: limited partnerships, general partnerships, AND LLCs can all elect to be treated as C-corporations!

Which of the following expenditures is MOST LIKELY to be deductible for a construction business? A. A fine for a zoning violation B. A tax underpayment penalty C. An "under the table" payment to a government rep. to get a better price D. An arm's length payment to a related party for emergency repairs of a line

D. An arm's length payment to a related party for an emergency repair of a line!

Bill filed his 2021 tax return on March 15th, 2021. The statute of limitations for IRS assessment on Bill's 2021 return: A. March 15th, 2023 B. April 15th, 2023 C. March 15th, 2024 D. April 15th, 2024

D. April 15th, 2024! - Remember that the SOL for tax returns are typically 3 years following the later date of either: 1) the day the tax return was filed or 2) the day the tax return was due!

The deduction for qualified business income applies to income of all but which of the following tax entity types? A. Sole proprietorship B. Entity taxed as a partnership C. S-Corporation D. C-corporation

D. C-corporation - Remember that QBI deductions ONLY apply to those flow-through entities -- AKA *not* C-corporations!

All of the following are for AGI deductions except: A. Contributions to qualified retirement accounts B. Rental and royalty expenses C. Business expenses for self-employed taxpayer D. Charitable contributions

D. Charitable contributions! - B/c remember that FOR AGI deductions include those business expenses and then those individual expenses (like alimony).

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor? A. Liability protection B. Legal flexibility in defining rights and responsibilities of owners C. Facilitation of initial public offerings D. Minimal time and cost to organize

D. Minimal time and cost to organize! Woo!

All of the following are tests for determining qualifying relative status except: A. Relationship test B. Gross Income test C. Support test D. Residence test

D. Residence test! - The residence test ONLY applies for the qualifying child test.

The IRC authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary." - True/False?

TRUE!

The standard deduction amount varies by filing status. - True/False?

TRUE!

Under the tax law, taxpayers may be subject to both civil and criminal penalties for underpaying their tax liability. True/False?

TRUE!

Sole proprietorships must use the SAME tax year as the proprietor of the business. - True/False?

TRUE! - B/c remember that with sole proprietorships, the proprietor and entity are ONE!

The effective tax rate, in general, provides a better depiction of a taxpayer's tax burden than the average tax rate. True/False?

TRUE! - B/c the effective tax rates takes into consideration both taxable AND nontaxable income, while the average tax rate only considers one's tax burden in relation to TAXABLE (& not non-taxable) income.

The 12-month rule allows taxpayers to deduct the entire amount of certain prepaid business expenses. - True/False?

TRUE! - The 12 month rule simplifies the process of determining whether to capitalize or immediately expense prepayments that create benefits for a relatively brief period of time. - The 12-month rule allows businesses to IMMEDIATELY deduct prepayments: if 1) the contract period does NOT last more tan a year & 2) if the contract period does NOT extend beyond the end of the taxable year following the tax year in which the taxpayer makes the payment. - If the prepaid expense does NOT meet both of these criteria, then the business MUST capitalize the prepaid amount and AMORTIZE it over the length of the contract whether the business uses the cash or accrual method of accounting.

The all-events test for income determines the period in which income will be recognized for tax purposes. - True/False?

TRUE! - The all-events test TELLS businesses when to recognize income. - It tells businesses to recognize income WHEN 1) all events have occurred which determine or fix their right to receive the income & 2) the amount of income can be determined with reasonable accuracy. - THEN, they can recognize the income at the EARLIEST of these 3 dates: 1) When the business has completed the task required to earn the income, 2) When the payment for the task is DUE from the customer, or 3) when the business has actually RECEIVED payment for the task!

One must consider the "economy" criterion in evaluating tax systems from both the taxpayer's and the government's perspective. TRUE/FALSE?

TRUE! - When it comes to evaluating tax systems, the "economy" criterion requires that a good tax system should MINIMIZE the compliance and administration costs associated with the tax system. - & we can view the economy from BOTH the taxpayer's AND the government's perspective.

Revenue rulings and revenue procedures are examples of primary authorities. - True/False?

TRUE! - When it comes to tax authorities, there are 2 broad categories: primary and secondary authorities. --> Primary authorities are those OFFICIAL SOURCES OF TAX LAW generated by the legislative branch (AKA the statutory authority issued by Congress), judicial branch (rulings by the US district courts, US Tax Court, US Court of Federal Claims, US circuit courts of appeals, or US Supreme Court), &&& executive/administrative branch (Treasury & IRS pronouncements). - & so, these revenue rulings & procedures fall under the ADMINISTRATIVE/EXECUTIVE branch! Thus, they are primary authorities.

An extension to file a tax return DOES NOT extend the due date for tax payments. True/False?

TRUE! - You gotta pay by April 15th EVEN IF you haven't filed. You pay your guessestimate and then file later. - But no matter WHEN you file, you HAVE to pay by the due date in April.

In terms of effective tax rates, the sales tax can be viewed as a regressive tax. TRUE/FALSE?

TRUE! - B/c as one makes more total income, the sales tax one pays makes up a smaller portion of our total income.

Due to recent tax law changes, C corporations are no longer subject to double taxation. - True/False?

- FALSE!

If an unmarried taxpayer is eligible to claim another as a dependent, the taxpayer is automatically eligible for HOH. - True/False?

- FALSE!

To be considered a qualifying CHILD of a taxpayer, the individual must be the son or daughter of the taxpayer. - True/False?

- FALSE! - A qualifying child may be the child OR the sibling of the taxpayer.

Only half the cost of a business meal is deductible EVEN IF the meal is extravagant. - True/False?

- FALSE! - If the meal is EXTRAVAGANT, then NO deduction is available.

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners. - True/False?

- FALSE! - QBI deductions apply to FLOW-THROUGH ENTITIES, *not* to C-corporations.

A single-member LLC is taxed as a partnership. - True/False?

- FALSE! - Single-member LLCs are taxed as sole proprietorships!

Tax evasion is a legal activity that forms the basis of the basic tax planning strategies. - True/False?

- FALSE! - Tax AVOIDANCE is a legal activity, whereas tax EVASION is not.

Tax credits reduce taxable income dollar for dollar. - True/False?

- FALSE! - Tax DEDUCTIONS reduce taxable income, whereas tax CREDIT reduce the tax liability/taxes payable DOLLAR FOR DOLLAR!

The IRS DIF system checks each tax return for mathematical mistakes and errors. True/False?

- FALSE! - The DIF system actually assigns a score to each tax return that represents the probability the tax liability on the return has been underreported. - & it's actually the DOCUMENT PERFECTION PROGRAM which checks all returns for mathematical errors and tax calculation errors!

C-corporations and S-corporations are SEPARATE taxpaying entities that pay tax on their OWN income. - True/False?

- FALSE! - While C-corporations are separate taxpaying entities who pay tax on their own income, S-corporations are FLOW-THROUGH entities whose income "flows through" to their owners who are responsible for paying tax on the income.

Office examinations are the most common type of IRS audit. - True/False?

- FALSE! Rather, the CORRESPONDENCE IRS audit is the most common of the 3.

Tax credits are generally more valuable than tax deductions. - True/False?

- TRUE!

The relationship requirement is more broadly defined for a qualifying relative than for a qualifying child. - True/False?

- TRUE!

The test for whether an expenditure is reasonable in amount is whether the expenditure was for an "arm's length" amount. - True/False?

- TRUE!

From AGI deductions are commonly referred to as deductions "below the line." - True/False?

- TRUE! - FROM AGI deductions are "below the line," whereas FOR AGI deduction are "above the line" deductions!

Sole proprietorships are NOT treated as legal entities separate from their individual owners. - True/False?

- TRUE! - Sole proprietorships and their owners are ONE AND THE SAME!

The character of income is a factor in determining the rate at which the income is taxed. - True/False?

- TRUE! - The "character of income" really just speaks to the TYPE of income. & the most common characters of income are --> Ordinary & Capital!

The constructive receipt doctrine is more of an issue for cash-basis taxpayers. - True/False?

- TRUE! - The Constructive Receipt Doctrine applies to those that use the CASH-basis method of accounting, which says that one can recognize revenue WHEN goods or services have been RECEIVED by the customers and once the business has RECEIVED payment receipts.

Taxes influence many types of business decisions, but generally do NOT influence personal decisions. True/False?

FALSE!

Corporations are legally formed by filing articles of organization with the state in which the corporation will be created. - True/False?

FALSE! - Corporations are legally formed by filing articles of INCORPORATION!

All taxpayers must account for taxable income using a calendar year. - True/False?

FALSE! - For EX, corporations may use different fiscal year ends!

George recently paid $50 to renew his driver's license. The $50 payment is considered a tax. TRUE/FALSE?

FALSE! - George directly benefits from paying this, and thus this payment is NOT considered a tax.

Qualified dividends are taxed at the same rate as ordinary income. - True/False?

FALSE! - Qualified dividends are taxed at PREFERENTIAL rates!

The 9th Amendment to the US Constitution removed all doubt that a federal income tax was allowed under the US Constitution. TRUE/FALSE?

FALSE! - The 16th Amendment created the income tax as we know it today!

Under the Statements on Standards for Tax Services, a CPA may recommend a position if it is frivolous and not disclosed. - True/False?

FALSE! - The AICPA's Statements on Standards for Tax Services recommend appropriate standards of practice for tax professionals and are intended to complement other provisions that govern tax practice.

The goal of tax planning is tax minimization. - True/False?

FALSE! - The goal of tax planning is to MAXIMIZE after-tax wealth!

The statute of limitations for IRS assessment generally ends 4 years after the date a tax return is filed. - True/False?

FALSE! - The state of limitations for IRS assessment generally ends after THREE years from the later date of 1) the date the tax return was actually filed OR 2) the tax return's original due date (April 15th).

If a taxpayer is due a refund, she DOES NOT have to file a tax return. True/False?

FALSE! - To receive a refund, one MUST file a tax return to be able to redeem it.

Both tax and nontax objectives should be considered when choosing the entity type for a new business. - True/False?

TRUE!

Corporations are required to file a tax return annually REGARDLESS of their taxable income. True/False?

TRUE!

If April 15 falls on a Saturday, the due date for individual tax returns will be on Monday, April 17 (not a holiday)? True/False?

TRUE!

In general, tax planners prefer to accelerate deductions. - True/False?

TRUE!