Federal Income Tax Final Questions
True
Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.
False
A business provides $45,000 of group-term life insurance to all workers, including the partners who work in the business. All of the workers can exclude the value of this fringe benefit from their gross income.
False
A building used in a business is sold after five years of use for a gain. The gain will be treated as a long-term capital gain.
False
A building used in a trade or business is a capital asset.
True
A child credit is a partially refundable credit.
23,100
A corporation has revenue of $350,000 and deductible business expenses of $240,000. What is the federal income tax, before credits?
for AGI
A deduction for a loss incurred on the sale of a capital asset held for investment is a deduction
False
A deduction will be allowed for an expenditure unless the Internal Revenue Code specifically disallows it.
True
A married couple need not live together to file a joint return.
True
A nonbusiness bad debt is deductible only in the year in which the debt becomes totally worthless.
True
A nursing home maintains a cafeteria that is used by employees, patients, and visitors. The value of free meals provided to employees while on duty so that they may be available for emergency calls is not taxable.
True
A progressive tax rate structure is one where the rate of tax increases as the tax base increases.
False
A proportional tax rate is one where the rate of the tax increases when income levels
False
A single taxpayer has adjusted gross income of $325,000 and has total itemized deductions in various categories totaling $20,000. The taxpayer discovers some additional deductions for AGI. The extra deductions can not affect his itemized deductions.
False
A sole proprietor contributes to the election campaign of a state governor. The candidate has promised to change a law that severely limits the growth of the sole proprietor's business. Given the direct benefit, the sole proprietor can deduct the contribution.
True
A taxpayer has made substantial donations of both cash and capital gain property public charities. Due to lower income this year, the taxpayer could exceed the charitable contribution ceilings. The taxpayer will apply the 60% AGI ceiling before applying the 30% AGI ceiling.
False
A taxpayer may avoid tax on income by having the payment made to another taxpayer.
True
A widow or widower whose spouse passed away in the current year may file a joint tax return as long as the surviving spouse does not remarry before the end of the year.
False
Abra Corporation generated $100,000 of taxable income from operations this year and realized a $4,000 loss on the sale of Starbucks stock. Abra Corporation will pay taxes on $97,000 of taxable income.
True
Accelerated death benefits from a life insurance policy received by a terminally ill person may be excluded from taxable income.
True
Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.
True
Adjusted gross income (AGI) is the basis for a number of phase-outs of deductions.
True
Alimony received under the terms of a divorce agreement entered into in 2018 is taxable to the recipient while child support payments are not.
if paid in cash, must be less than $400
All of the following are requirements for excluding employee achievement awards except for
interest on corporate bonds
All of the following items are generally excluded from income except
B
All of the following statements are true except A. net investment income is the taxpayer's investment income in excess of investment expenses. B. investment interest expense includes interest expense to purchase or carry tax-exempt securities. Your answer is correct. C. short-term capital gains meet the definition of net investment income. D. investment interest expense is deductible to the extent of a taxpayer's net investment income.
False
All states impose a state income tax which is generally based on an individual's federal adjusted gross income (AGI) with minor adjustments.
0
American Healthcare (AH), an insurance company, is trying to persuade Congress to enact nationwide antiminus−smoking legislation. As part of this effort, AH paid $500,000 to hire a lobbying firm to discuss its concerns with members of Congress. AH also contributed $100,000 to candidates for political office who support limiting public smoking. What amount of these expenditures can AH deduct?
True
Amounts collected under accident and health insurance policies purchased by the taxpayer are excludible from income.
True
Amounts withdrawn from qualified tuition plans are tax-free if the amounts are used for qualified higher education expenses including tuition, fees, books, and room and board for students attending on at least a half-time basis.
0
An electronics store sold a home theater system to an employee for $300, even though the retail price was $500. The gross profit percentage is 40%. Such discounts are available to all employees. How much income should be recognized by the employee from these transactions?
Deductible expense
An expenditure that keeps a business asset in a normal operating condition and does not improve the asset.
True
An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.
False
An individual is considered terminally ill for purposes of the exclusion for accelerated death benefits if a physician certifies that he is reasonably likely to die within 36 months.
False
An individual makes substantial cash contributions to public charities. He will be able to deduct these contribution up to a ceiling of 50% of AGI.
False
An individual will be subject to gift tax on gifts made to a charity greater than $15,000.
True
An unmarried taxpayer may file as head of household if he maintains a home for his qualifying child.
expires with death
Andrea died with an unused capital loss carryover of $3,300. The carryover
D
Andy owns an appliance store where he has merchandise such as refrigerators for sale. Roger, a bachelor, owns a refrigerator, which he uses in his apartment for personal use. For which individual is the refrigerator a capital asset? A. Neither Roger's nor Andy's refrigerator is a capital asset and each refrigerator will be included in inventory. B. Andy's refrigerator is a capital asset since it is not included in the list of properties that are not capital assets. C. Roger's and Andy's refrigerators are both capital assets since neither are included in the list of properties that are not capital assets. D. Roger's refrigerator is a capital asset since it is not included in the list of properties that are not capital assets.
James or joseph
Anna is supported entirely by her three sons John, James, and Joseph who provide for her support in the following percentages: John: 10%, James: 40%, Joseph: 50% Assuming a multiple support declaration exists, which of the brothers may claim his mother as a dependent?
3,000
Antonio is single and has taxable income of $170,000 without considering the sale of a capital asset (land held for investment) in September of 2018 for $25,000. That asset was purchased six years earlier and has a tax basis of $5,000. The tax liability applicable to only the capital gain (without consideration of any additional Medicare tax) is
B
Are income distributions from a qualified state tuition program taxable? A. Income distributions from a qualified state tuition program are always fully taxable to a taxpayer. B. Income distributions from a qualified state tuition program are taxable only to the extent the income distributions exceed qualified education expenses. Your answer is correct. C. Income distributions from a qualified state tuition program are never taxable to a taxpayer. D. Income distributions from a qualified state tuition program are taxable when income distributions exceed 90% of all educational expenses for the year.
12,000
Artco Inc. is a C corporation. This year it earned $50,000 of taxable income and paid a $10,000 distribution (dividend) to Lily, its sole shareholder. Lily has a marginal tax rate of 24%. Due to the corporation's results and the distribution paid, the IRS will receive total taxes of
Proportional tax
Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a
40,000
As a result of a divorce agreement executed in 2018, Michael pays Judy $75,000 in year one and $25,000 per year in subsequent years. How much of the $75,000 in year one is properly characterized as alimony and will not be recaptured later?
True
Assessments or fees imposed by the government for specific privileges or services are not deductible as taxes.
deduction for AGI
Assume Congress wishes to encourage healthy eating and is considering a deduction for broccoli purchases. In order to maximize the value of this tax deduction for taxpayers, Congress should provide for a(n)
True
A $10,000 gain earned on stock held 13 months is taxed in a more favorable manner than a $10,000 gain earned on stock held 11 months.
False
A taxpayer's average tax rate is the tax rate applied to an incremental amount of taxable income that is added to the tax base.
52,000
Healthwise Ambulance requires its employees to be on 24-hour call and consequently gives them $800 per month housing allowance and a $200 per month food allowance. Ron, an employee of Healthwise, receives a salary of $40,000 per year (this does not include the allowances). Ron will be taxed each year on
False
Interest on the obligations of the U.S. government, states, territories, and U.S. possessions and their political subdivisions are tax-exempt.
False
Bad debt losses from nonbusiness debts are deductible as short-term or long-term capital losses depending on how long the debt was outstanding.
True
Becky wins a car and furniture on a television game show. The fair market value of these items is taxable to Becky.
400
Bridget owns 200 shares of common stock of Jones Corporation. During the current year, Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned. The stock has a fair market value of $10 per share. Bridget chooses to take the additional shares of stock. How much income does Bridget have from the stock dividend?
32,000
Brad suffers from congestive heart failure and has been admitted to a nursing home where he is expected to spend the remainder of his life. His doctor has certified him as chronically ill. In 2018, Brad receives $320 per day from his life insurance policy for 100 days ($32,000) as accelerated death benefits. Brad's nursing home care costs $300 per day ($30,000 for the 100 days of care). Brad will be allowed to exclude
800
Bret carries a $200,000 insurance policy on his life and has paid premiums of $10,000 over the years. Dividends on the policy have totaled $8,500. Each year Bret has left the dividends with the insurance company. In the current year, the insurance company credited $800 of interest on the accumulated dividends to Bret's account. In addition, $600 of dividends was added by the insurance company. In the current year, Bret must report income of
C
Business interest expense is limited for larger businesses. Which of the following statements is not correct with respect to this limitation? A. Businesses will add back depreciation and amortization deductions to the taxable income in order to calculate the maximum interest deduction. B. The interest expense deduction is limited to business interest income plus 30% of adjusted taxable income. C. Businesses with current year gross receipts exceeding $10 million are subject to this limitation. This is the correct answer. D. All of the above statements are accurate statements with respect to calculating the interest expense limitation.
True
Business investigation expenses incurred by a taxpayer who is already involved in a similar business and who enters the new business are deductible currently.
145,000
Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother. Cameron sells the policy to his brother, Parker, for $100,000. Parker subsequently pays premiums of $55,000. Upon his mother's death, how much of the insurance proceeds must Parker include in income?
True
Capital expenditures add to the value, substantially prolong the useful life, or restore the life of the property.
65,000
Carl filed his tax return, properly claiming the head of household filing status. Carl's employer paid or provided the following to Carl: Wages $65,000 Fair market value of qualified dependent care services 4,000 Premiums for $50,000 qualified group term life insurance 500 Medical insurance premiums 600 How much of this income should Carl report (assume benefits are provided on a nondiscriminatory basis)?
10,000
Carl purchased a machine for use in his trade or business two years ago for $30,000. During the current year, Carl donates the machine to the local community college. At the time of the contribution, the machine's adjusted basis is $10,000 and its FMV is $15,000. Carl's AGI for the year is $48,000. What is the amount of his charitable contribution deduction?
3,000
Carla redeemed EE bonds which qualify for the educational exclusion. The redemption consisted of $14,000 principal and $6,000 interest. The net qualifying educational expenses are $10,000. Her AGI is below the threshold for phase-out of the exclusion. The taxable interest is
18,000
Carol contributes a painting to a local museum for display. Her AGI is $60,000. Carol paid $22,000 for the painting in 2006, but its market value at the date of the contribution is $25,000. With no special elections, Carol's deductible contribution this year is
A
Carole owns 75% of Pet Foods, Inc. As CEO, Carole must travel extensively and does so on the company jet. In addition, she also uses the jet to take several personal vacations. Carole reports the value of the personal use of the jet, $40,000, as additional compensation. Which of the following is true in terms of the corporation? A. The corporation takes a deduction of $40,000 for compensation expense. Your answer is correct. B. The corporation includes $40,000 as miscellaneous income. C. The $40,000 has no impact on the corporation's income tax. D. The corporation takes a deduction of $40,000 for dividend expense.
9,500
Chad and Jaqueline are married and have AGI of $150,000. In 2018 they adopted a child, while taking advantage of their employer's written adoption assistance program. The adoption cost $9,500, all of which was paid by the employer in accordance with the adoption plan. How much of the employer-paid adoption costs may be excluded from their income?
False
Charitable contributions made to individuals are deductible if the individuals can show extreme financial need.
D
Charitable contributions that exceed the deduction limitation A. cannot be deducted in another year. B. may be carried back to a past year or may be carried over and deducted in the subsequent seven years. The carryovers are still subject to the limitations that apply in the subsequent years. C. may be carried back to a past year or may be carried over and deducted in the subsequent five years. The carryovers are still subject to the limitations that apply in the subsequent years. D. may be carried over and deducted in the subsequent five years. The carryovers are still subject to the limitations that apply in the subsequent years.
5,000
Charles is a single person, age 35, with no dependents. In 2018, Charles has gross income of $75,000 from his sole proprietorship. Charles also incurs $80,000 of deductible business expenses in connection with his proprietorship. He has interest and dividend income of $22,000. Charles has $7,000 of itemized deductions. Charles's taxable income is
$13,000
Charlie makes the following gifts in the current year: $40,000 to his spouse, $30,000 to his church, $18,000 to his nephew, and $25,000 to a friend. Assuming Charlie does not elect gift splitting with his wife, his taxable gifts in the current year will be
20,000
Clayton contributes land to the American Red Cross for use as a future site for a new building. His AGI is $50,000. Clayton paid $20,000 for the land eight months ago but its market value at the date of contribution is $25,000. With no special elections, Clayton's deductible contribution this year is
True
Distributions in excess of a corporation's current and accumulated earnings and profits are treated as a nontaxable recovery of capital unless they exceed the basis of the stock.
True
Divya is age 22 and a full-time student with $8,000 of income from part-time and summer jobs and $2,600 of interest and dividend income. The total cost of her support for the year is $15,000. Divya is not subject to the kiddie tax.
taxable
For a taxpayer who is not insolvent nor under bankruptcy proceedings, the discharge of debt is generally
28%
Darla sold an antique clock in 2018 for $3,000. She had purchased the clock in 2009 for $2,000. If she is otherwise in the 32% marginal tax bracket, what is the maximum tax rate on the capital gain on the sale of the clock?
For
Deductions _____ AGI may be located
D
Deductions for AGI may be located A. on the front page of Form 1040. B. on Schedule E as a deduction. C. on Schedule C as a deduction. D. All of the above are true.
95,000
Derrick was in an automobile accident while he was going to work. The doctor advised him to stay home for eight months due to his physical injuries. The resulting lawsuit was settled and Derrick received the following amounts: Compensatory damages for physical injury $80,000 Punitive damages 95,000 How much of the settlement must Derrick include in ordinary income on his tax return?
earnings and profits
Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation's
True
For charitable contribution purposes, capital gain property includes property which, if sold, would produce a long-term capital gain.
2,456
Don's records contain the following information: 1. Donated stock having a fair market value of $3,600 to a qualified charitable organization. He acquired the stock five months previously at a cost of $2,400. 2. Paid $700 to a church school as a requirement for the enrollment of his daughter. 3. Paid $200 for annual homeowner's association dues. 4. Drove 400 miles in his personal auto. The travel was directly related to volunteer services he performed for his church. How much can Don deduct as a charitable contribution?
False
During 2018 a company provides free meals to employees in its facility so that employees are available to help clients throughout the work hours. The employees can exclude the value of the meals eaten, and the company can fully deduct the meals provided to employees.
D
During 2018 and 2019, Danny pays property taxes of $3,500 each year on a piece of land. During 2018, the land is vacant and unproductive. In 2019, Danny uses the land as a parking lot and generates $16,000 in income. Which of the following is true regarding the property taxes? A. Capitalize $3,500 each year. B. Capitalize $3,500 in 2018 and deduct $3,500 in 2019. Your answer is not correct. C. Deduct $3,500 each year. D. Either B or C is acceptable.
4,200
During the current year, Martin purchases undeveloped land as an investment. Martin intends to rent the land as pastureland and hopefully sell it later for a profit. In the current year, Martin receives no rent but he does pay taxes of $2,800, mortgage interest of $900 and liability insurance of $500. How much of these expenses can Martin deduct (before any limitations) on his current tax return?
30,000
During the year, Cathy received the following: bullet• Dividends of $4,000 from Lindsay Corporation. Cathy's father owns the stock and directed the corporation to send the dividends to Cathy. bullet• A car worth $30,000 for being the 1,000th customer at a car dealership. bullet• $5,500 cash gift from her uncle. bullet• $10,000 inheritance from her grandmother. What amount must Cathy include in gross income?
600
During 2017, Christiana's employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2017 federal income tax return which included $9,000 of itemized deductions (the 2017 standard deduction was $6,350). Christiana is single. On her 2017 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 2018. What amount must Christiana include in income in 2018?
500,000
Elisa sued her former employer for discrimination. She was awarded $200,000 for lost wages, $30,000 for medical expenses related to emotional distress resulting from the discrimination, and $300,000 in punitive damages. The amount taxable is
9,000 from AGI
Emeril borrows $340,000 to finance taxable and tax-exempt investments. He incurs $18,000 investment interest expense, allocated equally between the taxable and tax-exempt investments. Ignore any possible investment interest expense limitation. How much of the interest expense is deductible, and where is it deductible?
$15,550,000
Eric dies in the current year and has a gross estate valued at $16,500,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Eric's debts which amount to $250,000. Eric bequeaths $600,000 to his wife. Eric made no taxable transfers during his life. Eric's taxable estate will be
5,100
Erin's records reflect the following information: 1. Paid $200 dues to a fraternal organization (such as the Elks Club). 2. Donated stock having a fair market value of $3,500 to a qualified charitable organization. She purchased the stock 2 years earlier for $3,000. 3. Paid $1,600 cash to qualified public charitable organizations. Erin's adjusted gross income for this year was $50,000. What is the amount of her charitable contribution deduction for the year?
True
Expenses incurred in a trade or business generally are deductions for AGI.
True
Expenses incurred in connection with conducting a trade or business activity or in connection with production of income are generally deductible, but personal expenses are generally not deductible.
1,000,000
FIFO Corporation, a public-traded corporation, pays its CFO a basic salary of $900,000 and a $500,000 bonus awarded for exceptional service. Her compensation package is considered reasonable compensation when compared to other similar corporations and her level of responsibilities. FIFO can deduct
True
Fees paid to prepare a taxpayer's Schedule C of the tax return (Profit or Loss from Business) are for AGI deductions.
False
Finance charges on personal credit cards are deductible interest expense.
True
For gift tax purposes, a $15,000 annual exclusion per donee is permitted.
True
For purposes of the dependency exemption, a qualifying child must be under age 19, a full-time student under age 24, or a permanently and totally disabled child.
False
Foreign real property taxes and foreign income taxes are not deductible as itemized deductions.
B
Four years ago, Susan loaned $7,000 to her friend Joe. During the current year, the $7,000 loan is considered worthless. Explain how Susan should treat the worthless debt for tax purposes. A. The debt is a nonbusiness bad debt; therefore, the loss is treated as a long-term capital loss. B. The debt is a nonbusiness bad debt; therefore, the loss is treated as a short-term capital loss. Your answer is correct. C. The debt is a nonbusiness bad debt; therefore, the loss is treated as a ordinary loss. D. The debt is a nonbusiness bad debt; therefore, it is nondeductible.
True
Gains realized from property transactions are included in gross income unless a nonrecognition rule applies.
False
Gift taxes are subject to 15,000 exclusion between spouses
True
Gifts made during a taxpayer's lifetime may affect the amount of estate tax paid by the taxpayer's estate.
0
Greg is the owner and beneficiary of a $100,000 policy on the life of his mother. Greg gives the policy to his brother, Don. Don subsequently pays premiums of $40,000. Upon his mother's death, how much of the insurance proceeds must Don include in income?
3,200
Hill is single, is considering purchasing a house that will give him a $16,000 tax deduction for property taxes and mortgage interest. If his marginal tax rate is 20% and his effective tax rate is 18%, what is Hill's tax savings if he purchases the residence?
150,000
Homer Corporation's office building was destroyed by fire. Homer collected insurance of $250,000, which equaled the building's basis, and $150,000 for profits lost during the time the company was rebuilding the office building. What is the amount taxable this year?
B
How might the current treatment of capital losses discourage an individual investor from purchasing stock of a high-risk, start-up company? A. If the individual taxpayer does not have capital gains, only $4,000 of capital losses may be deducted annually. Therefore, it may take many years before an investor with a large capital loss is allowed to deduct all of the losses. B. If the individual taxpayer does not have capital gains, only $3,000 of capital losses may be deducted annually. It may take many years before an investor with a large capital loss is allowed to deduct all of the losses. Your answer is correct. C. Capital losses are deductible only for investments that have been determined to meet the "reasonably safe" standard. High-risk, start-up companies do not meet this standard. D. If the individual taxpayer does not have capital gains, only 28% of capital losses may be deducted annually. It may take years before an investor with a large capital loss is allowed to deduct all of the losses.
750 income and 500 deduction
Hoyt rented office space two years ago to Harris, receiving the first and last months' rent plus a security deposit of $1,000. In early January of this year, Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250. How would this information be reflected on Hoyt's tax return this year?
16,000
Hugh contributes a painting to a local museum for display. His AGI is $35,000. Hugh paid $16,000 for the painting in 2000, but its market value at the date of the contribution is $22,000. If Hugh makes the election to maximize the current year deduction, his deductible contribution for this year will be
D
Hui pays self-employment tax on her sole proprietorship income, supplemental Medicare surtaxes on excess wages and self-employment income (the .09% tax), and supplemental Medicare taxes on investment income (the 3.8% tax). Which of the following statements is correct regarding the deductibility of these taxes? A. All three of the taxes are deductible as itemized deductions. B. None of the taxes are allowed as a deduction. C. One-half of the self-employment tax is deductible for AGI, and the .09% and 3.8% taxes are itemized deductions. D. One-half of the self-employment tax is deductible for AGI, but the .09% and 3.8% taxes are not allowed as deductions.
False
If a capital asset held for one year or more is sold at a gain, the gain is classified as long-term capital gain.
15%
If a single taxpayer with a marginal tax rate of 24% has a long-term capital gain, it is taxed at
A
If a tax is not specifically listed in Sec. 164, under what circumstances may it still be deductible? A. Certain taxes not specifically listed in Sec. 164 are still deductible as ordinary and necessary expenses if incurred in the taxpayer's business or income-producing activity. Taxes paid in connection with the acquisition of property (such as a sales tax) are treated as part of the cost of the property and are capitalized accordingly. Your answer is correct. B. Certain taxes not specifically listed in Sec. 164 are still deductible as itemized deductions when the total taxes paid exceed 10% of AGI. C. Certain taxes not specifically listed in Sec. 164 are deductible when the taxes were paid in connection with the acquisition of property. D. Certain taxes not specifically listed in Sec. 164 are still deductible when paid to a foreign government.
False
If an individual taxpayer's net long-term capital losses exceed the net short-term capital gains, the excess may be offset against ordinary income up to $3,000 per year. Any excess losses over $3,000 may be carried back three years and carried forward five years.
True
If an individual taxpayer's net long-term capital losses exceed the net short-term capital gains, the excess may be offset against ordinary income up to $3,000 per year. Any excess losses over $3,000 may be carried over indefinitely.
must agree to
If one spouse is a nonresident alien, then that spouse _______________ include all of his or her gross income on the return
taxable income in year of forgiveness
In 2016 Bonnie, a sole proprietor, loaned her employee, John, $10,000 to help him buy a car. In 2018, before he repaid the $10,000, Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance. How should John treat the amount forgiven?
2,250
In December of this year, Jake and Stockard, a married couple, redeemed qualified Series EE U.S. Savings Bonds. The proceeds were used to help pay for their daughter's college tuition. Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000. The qualified higher educational expenses they paid this year totaled $6,000. Their AGI is below the threshold for phase-out of the exclusion. What is the amount of interest income Jake and Stockard can exclude from their income this year?
1,800
In December 2018, Max, a cash-basis taxpayer, rents an apartment to Kadeem. Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400. The amount of income reported by Max as taxable in 2018 is
1,074
In February of the current year (assume a non-leap year), Ken and Kelsey received their property tax statement for last calendar-year taxes of $1,600, which they paid to the taxing authority on March 1 of the current year. They had purchased their home on May 1 last year. What amount of property tax on this statement may they claim as an itemized deduction this year?
5,100
In March of the current year, Marcus began investigating the possibility of opening a specialty clothing store. From March through June, he spent $2,300 on a market survey, $2,700 in consulting fees to find the best location and $3,600 in professional fees setting up an accounting and inventory system. Although he had never run his own business before, on August 1 he opened his doors for business. What is the maximum amount of deduction for the current year attributable to these expenditures?
married filing separately and hoh
In October 2018, Joy and Paul separated and have not lived with each other since, but they are still legally married. They do not file a joint return. Joy supports their children after the separation and pays the cost of maintaining their home. Joy's filing status in 2018 and 2019 is, respectively
300,000
In September of 2018, Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000. She had held the stock for 17 months. Forty-five days after the sale she purchased other qualified small business stock for $1,100,000. What is the basis in the new stock she purchased?
False
Investment interest expense is deductible when incurred to purchase tax-exempt securities.
True
In the case of foreign-earned income, U.S. citizens may avoid double taxation of income by both the United States and the host country by utilizing a foreign tax credit or by electing the foreign earned income exclusion.
144,000
In the current year, ABC Corporation had the following items of income, expense, gains, and losses: Sales $500,000 Cost of sales 270,000 Operating expenses 100,000 Interest on savings account 14,000 Gain on sale of AT&T stock 6,000 Loss on sale of IBM stock 15,000 What is taxable income for the year?
True
Income from illegal activities is taxable.
True
Individuals are generally allowed to deduct the greater of the standard deduction or itemized deductions.
True
Interest expense on debt incurred to purchase or carry tax-exempt securities is not tax deductible.
1550
In 2018, Carlos filed his 2017 state income tax return and paid taxes of $800. Also in 2018, Carlos's employer withheld state income tax of $750 from Carlos's salary. In 2019, Carlos filed his 2018 state income tax return and paid an additional $600 of state income tax due for 2018. How much state income tax can Carlos deduct on his 2018 federal income tax return for state income tax?
2,509
In 2018, Ross, a single taxpayer, has adjusted gross income of $39,000. His AGI includes $4,500 of qualified dividends. Ross does not itemize deductions. What is his 2018 federal income tax?
38,000
In 2018, Sean, who is single and age 44, received $55,000 of gross income and had $5,000 of deductions for AGI and $5,600 of itemized deductions. Sean's taxable income is
on the last day
In general, a couple must be married _____________ of the tax year in order to file joint return
True
In general, the deductibility of interest depends on the purpose for which the indebtedness is incurred.
Section 104 limits the exclusion to personal physical injury.
Is the personal injury exclusion found in Sec. 104 limited to physical injury? Explain.
False
Itemized deductions are deductions for AGI.
103,900
Jan has been assigned to the Rome office of ABC Corporation. She arrives in Rome on November 1, 2017 and does not return to the United States until March 5, 2019. During her stay in Rome, Jan earned $112,000 in 2018. Jan may exclude
report 1500 on this year's tax return
Jan purchased an antique desk at auction. For two years, the desk sat in Jan's garage until she decided to restore it. This year, while cleaning and restoring the desk, Jan discovered $1,500 in a hidden compartment inside one drawer. With respect to the $1,500, Jan must
$993
Jill is single. Her educational expenses was $17,000 in 2018. Jill redeemed Series EE bonds and received principal of $8,000 and interest of $2,000. Jill has other adjusted gross income of $85,000. The $2,000 exclusion must be reduced by
115,000
Jimmy owns a trucking business. During the current year he incurred the following: Gasoline and oil $100,000 Maintenance $15,000 Fines for speeding $8,000 Bribes to government inspection officials $21,000 The fines for speeding were a necessary cost because missing deadlines would cause lost business and are ordinary in the industry. What is the total amount of deductible expenses?
C
Joel has four transactions involving the sale of capital assets during the year resulting in a STCG of $5,000, a STCL of $12,000, a LTCG of $1,800 and a LTCL of $1,000. As a result of these transactions, Joel will A. deduct losses of $3,000 against ordinary income and carry $3,200 of LTCL forward. B. deduct net losses of $6,200 against ordinary income. C. deduct losses of $3,000 against ordinary income and carry $3,200 of STCL forward. Your answer is correct. D. deduct losses of $3,000 against ordinary income and carry $3,200 of losses back two years.
12,500,000
Jose dies in the current year and has a gross estate valued at $13,000,000 in 2018. Over the past ten years, Jose had made taxable gifts of $400,000. The estate incurs funeral and administrative expenses of $100,000 and also pays off Jose's debts which amount to $300,000. Jose bequeaths $500,000 to his wife. What is the amount of Jose's tax base, the amount on which the estate tax is computed?
2
Julia provides more than 50 percent of the support for three individuals: Theresa, an unrelated child who lives with Julia all year long; Margaret, Julia's cousin, who lives in another city; and Emma, Julia's daughter, who lives in her own home. Each of the potential dependents earned less than $4,150. How many dependents can Julia claim?
0
Julia suffered a severe stroke and has been admitted to a private hospital where she is expected to remain for the rest of her life. She is certified by a licensed health care practitioner as being a "chronically ill individual." Her hospital expenses amount to $350 per day. She will receive $340 per day from a $500,000 life insurance policy as an accelerated death benefit. In 2018, she was in the hospital for 10 days and received $3,400. How much of this amount is taxable?
0
Kate subdivides land held as an investment and Section 1237 is satisfied. The lots sell for $30,000 per lot (basis $10,000). Kate sells five lots in the first year. Kate's ordinary income is
False
Kelly is age 23 and a full-time student with interest and dividend income of $2,600 in the current year. The total cost of her support for the year is $19,000. She is not subject to the kiddie tax.
False
Kelly was sent by her employer to work on a special assignment in Paris for six months. Kelly will be able to exclude some of her income earned in Paris.
False
Kickbacks and bribes paid to federal officials are deductible only if related to the taxpayer's trade or business.
14,000
Leigh pays the following legal and accounting fees during the year: Legal fees in connection with a contract dispute in her trade or business $8,800 Legal fees related to resolving a tax deficiency related to business 4,000 Tax return preparation fees: Allocable to Schedules A and B 1,000 Tax return preparation fees: Allocable to Schedule C 1,200 Legal fees incident to a divorce 5,000 What is the total amount of her for AGI deduction for these fees?
40,000
Linda was injured in an automobile accident caused by another driver. Her son, Matthew, was in the automobile but not physically injured. The other driver's insurance company was required by a court to pay Linda $75,000 to cover medical bills relating to her injuries, $30,000 to compensate her for emotional distress attributable to the injuries and $40,000 of punitive damages. Matthew was paid $15,000 to compensate him for emotional distress attributable to his witnessing his mother's injuries. What is the amount taxable to Linda?
15,000
Lindsay Corporation made the following payments to the family of Luke Marshall, an employee who died during the year. $5,000 for Luke's final paycheck that he failed to collect $10,000 for accrued vacation days as required by the employment contract $25,000 in admiration of Luke's outstanding service to the community What is the total amount that Luke's family must include in income?
A
Mae Li is beneficiary of a $70,000 insurance policy on her father's life. Upon his death, she elects to receive the proceeds in installments from the insurance company that carries the policy. She will receive $16,000 per year for five years. What are the tax consequences each year? A. $2,000 of the $16,000 payment is taxable each year. Your answer is correct. B. There is no taxable income. C. All $16,000 each year is taxable. D. $10,000 interest is taxable in the first year.
True
Many exclusions exist due to the benevolence of Congress or as a result of the government's attempts to encourage particular social behavior.
6,000
Maria pays the following legal and accounting fees during the year: Legal fees in connection with ongoing operations of a trade or business $4,000 Legal fees related to purchase of personal residence 2,600 Legal fees related to tax deficiency related to Schedule A itemized deductions 500 Tax return preparation fees: Allocable to preparation of Schedule C 2,000 Tax return preparation fees: Allocable to preparation of remainder of return 2,100 What is the total amount of her for AGI deduction for these fees?
19,982
Martha is self-employed in 2018. Her self employment income is $140,000. What is her self-employment tax?
5,000
Matt paid the following taxes this year: Real estate taxes on his own residence $3,600 State income taxes 900 Local city income taxes 300 State sales taxes 1,400 What is the maximum amount Matt can deduct as an itemized deduction on his tax return?
119,000
Maya expects to report about $2 million of AGI and $1.7 million of taxable income. Her AGI is composed of $1.25 million of salary, and the balance is investment income. Maya is thinking about selling some stock before year-end. She purchased the stock three years ago and expects to recognize a $500,000 gain. How much federal tax will she pay in total on the stock gain?
0
Michael is an employee of StayHere Hotels, Inc. in Washington, DC. On his vacation, Michael travels to San Francisco and stays at a StayHere Hotel for six nights free of charge. The regular rate for a hotel room at StayHere in San Francisco is $300 a night. His ability to stay in the hotel without charge is based on the availability of empty rooms. How much income must Michael report due to the use of the San Francisco hotel room?
False
Mike won $700 in a football pool. This amount is not taxable.
1,080
Miranda is not a key employee of AB Corporation. AB provides Miranda with group term life insurance coverage of $140,000. The premiums attributable to the excess coverage are $1,300. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Miranda include in income?
reason for exclusions
Most exclusions exist for either reasons of benevolence or incentive. Exclusions for employee death benefits, life insurance benefits, and public assistance exist because of reasons of benevolence while the foreign earned income exclusions and the exclusions for certain employee benefits are intended to be economic incentives.
3,500
Nate and Nikki have two dependent children ages 12 and 15. Their modified AGI is $410,000. What is the amount of the child credit to which they are entitled?
True
Net long-term capital gains receive preferential tax treatment if they exceed net short-term capital losses.
True
Rocco Corporation, a C corporation, owns 60% of the stock of Bien Corporation. Bien Corporation is a French corporation which conducts all of its business in France. Bien pays a $100,000 dividend to Rocco Coorporation. Rocco Corporation will have a 100% dividend received deduction on these dividends, resulting no tax on these dividends.
home mortgage interest
On Form 1040, deductions for adjusted gross income include the amounts paid for all of the following except
13,600
On June 1, 2018, Ellen turned 65. Ellen has been a widow for five years and has no dependents. Her standard deduction is
True
One requirement for claiming a dependent as a qualifying relative is that the taxpayer provides more than 50 percent of the dependent's support (assuming it is not a multiple support agreement situation).
$205,000
Paul makes the following property transfers in the current year: bullet• $22,000 cash to his wife bullet• $34,000 cash to a qualified charity bullet• $220,000 house to his son bullet• $3,000 computer to an unrelated friend The total of Paul's taxable gifts, assuming he does not elect gift splitting with his spouse, subject to the unified transfer tax is
False
Payments from an annuity purchased from an insurance company are not taxable until the taxpayer has recovered the purchase price of the annuity.
False
Payments received from a workers' compensation plan funded by employer contributions are taxable.
Capital expenditure
Permanent improvements that increase the value of property, or restore property to its normal usage.
True
Premiums paid by an employer for employee disability coverage are excluded from the employee's gross income.
False
Progressive tax rate is one where the rate of the tax is the same for all taxpayers, regardless of income levels.
True
Property settlements made incident to a divorce have no immediate tax consequences; that is, the transfer from one spouse to another is not taxable.
False
Punitive damages are taxable unless they are awarded for physical injuries.
A
Roma Company pays for group term life insurance on a non-discriminatory basis for all 100 of its workers. Which of the following individuals, all of whom work in the business, will be allowed to exclude the value of the coverage from her gross income? A. Jamila is president and 51% shareholder of Roma Company which is a C corporation. Your answer is correct. B. Fran is a managing partner of Roma partnership; she owns 5% of the business. C. Sally is a department manager and owns 3% of Roma, an S corporation. D. Tabitha is sole owner of Roma, a sole proprietorship.
False
Qualified dividends received by individuals are taxed at the same rate as ordinary income.
4,000
Renee is single and has taxable income of $480,000 without considering the sale of a capital asset (land held for investment) in September of 2018 for $25,000. That asset was purchased six years earlier and has a tax basis of $5,000. The tax liability applicable to only the capital gain (without consideration of the additional Medicare tax) is
7,050
Reva is a single taxpayer with a taxable pension of $24,000, tax-exempt interest of $8,000, and Social Security benefits of $10,000. What is the amount of her taxable Social Security benefits?
1,600
Richard is a key employee of Winn Corporation. The corporation provides Richard with $120,000 of group-term life insurance coverage. Only company executives receive life insurance coverage. The premium attributable to the coverage is $1,600. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Richard include in income due to the policy?
150 cash per pay period
Rick chose the following fringe benefits under his employer's cafeteria plan. Which of his chosen benefits will be taxable?
True
"Working condition fringe benefits," such as memberships in professional organizations paid for by the employer, are generally excluded from the employee's gross income.
1410
Sachi is single and has taxable income of $33,000 without considering the sale of a capital asset in November of 2018 for $20,000. That asset was purchased six years earlier and has a tax basis of $5,000. The tax liability applicable to only the capital gain is
True
Sales tax is a propotional tax.
140,000
Sam gifted 4 trucks costing 50,000 each of his 4 friends. What is the amount of Sam's taxable gifts?
16,250
Sarah contributes $25,000 to a church. Sarah's marginal tax rate is 35% while her average tax rate is 25%. After considering her tax savings, Sarah's contribution costs
14,500
Sarah receives a $15,000 scholarship from City University. The university specifies that $8,000 is for tuition, books, supplies, and equipment for classes. The other $7,000 is for room and board. Sarah works ten hours per week as a grader, for which she is paid $7,500 for the year. Of the total amount received, Sarah must include the following amount in gross income
False
Section 1221 of the Code includes a comprehensive list of assets properly classified as capital assets.
True
Section 1221 specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.
$25,500
Sheryl is a single taxpayer with a taxable pension of $200,000, taxable interest and dividends of $600,000, capital gains of $400,000 and Social Security benefits of $30,000. What is the amount of her taxable Social Security benefits?
14,400
Silver Inc. is an S corporation. This year it earned $60,000 of taxable income and paid a $10,000 distribution to Daisy, its sole shareholder. Daisy has a marginal tax rate of 24%. Due to the corporation's results and the distribution paid, the IRS will receive total taxes of
False
Social Security benefits are excluded from taxation for all taxpayers.
B
Stella has two transactions involving the sale of capital assets during the year resulting in a STCL of $5,200 and LTCL of $2,400. As a result, Stella can offset A. $5,200 of ordinary income and have a LTCL carryforward of $2,400. B. $3,000 of ordinary income and have a $2,200 STCL carryforward and $2,400 LTCL carryforward. Your answer is correct. C. $3,000 of ordinary income and have a $4,600 STCL carryforward. D. $7,600 of ordinary income.
750,000
Steve and Marian purchase a new condominium in Manhattan on February 1, 2018 to use as their primary residence. The purchase price of the condominium is $1.5 million. The couple obtained a $1.0 million mortgage from the bank and paid the balance in cash. On their joint tax return the couple will be allowed an itemized deduction for interest expense on a principal balance of up to
False
Subject to net equity and dollar limitations, a taxpayer may deduct interest on a home equity loan, secured by the residence, used to purchase an automobile.
6,400
Takesha paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense, assuming Takesha does not make any elections?
False
Taxpayers have the choice of claiming either deductions for AGI or the standard deduction.
False
Taxpayers may deduct lobbying expenses incurred to influence legislation if the legislation is of direct interest to the taxpayer's trade or business.
True
Taxpayers may elect to include net capital gain as part of investment income.
850
Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest is
10,500
Teri pays the following interest expenses during the year: Home mortgage interest on personal residence $8,500 Credit card interest on personal purchases 550 Interest on loans used to purchase investments (Net investment income is $2,000) 2,400 Interest on loans used for a business conducted as a sole proprietorship 3,800 Interest on a credit card used exclusively in the business 470 What is the amount of interest expense that can be deducted as an itemized deduction?
4,100
Amanda, whose tax rate is 32%, has NSTCL of $25,000, a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years. By what amount will Amanda's tax liability increase?
False
The annual tax reporting form filed with the IRS by C corporations is the Schedule C.
proportional
The corporate tax rate is
the loan forgiveness is based on age
The discharge of certain student loans is excluded from income if all of the following are present except for
federal income taxes
The following taxes are deductible as itemized deductions with the exception of
True
The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.
23
The oldest age at which the "Kiddie Tax" could apply to a dependent child is
True
The only business entity that pays federal income taxes is the C corporation.
False
The person claiming a dependent under a multiple support declaration must provide more than 25% of the dependent's support.
True
The recipient of a taxable stock dividend includes the value of the stock received in gross income and that amount becomes the basis for the stock received.
be made in cash or property
The requirements for a payment to be considered as alimony include all of the following except
False
The standard deduction is the maximum amount of itemized deductions which may be claimed by a taxpayer and is based on an individual's filing status, age, and vision.
28%
The taxable portion of a gain from qualified small business stock is taxed at a top tax rate of
False
The terms "progressive tax" and "flat tax" are synonymous.
supplementary Medicare benefits
The term "Social Security benefits" does not include
True
The term "gross income" means the total of all income from any source, but after reduction for exclusions.
True
The unified transfer tax system imposes a single tax upon transfers of property during an individual's life and at death.
True
The unified transfer tax system, comprised of the gift and estate taxes, is based upon the total property transfers an individual makes during lifetime and at death.
reports entire FMV as income
While using a metal detector at the beach during spring break, Toni uncovered some rare coins with a current fair market value of $9,000. What are her tax consequences regarding this find?
150,000
This year, Jason sold some qualified small business stock that he acquired in 2008. His basis in the stock was $100,000 and he sold it for a $300,000 gain. How much of Jason's gain is taxable?
0
This year, Jonathan sold some qualified small business stock that he acquired in December 2010. His basis in the stock was $100,000 and he sold it for a $300,000 gain. How much of Jason's gain is taxable?
4,000
Thomas purchased an annuity for $20,000 that will pay him $500 per month for ten years. What amount should Thomas include in his income each year?
C
To be considered a Section 1202 gain, the stock being sold must meet all of the following characteristics except A. the stock must be held more than five years. B. the corporation which issued the stock must be a C corporation. C. at least 50% of the value of the corporation's assets must be used in the active conduct of one or more qualified trades or businesses. Your answer is correct. D. the stock must be issued after August 10, 1993.
paid in cash
To be tax deductible by an accrual-basis taxpayer, an expense must be all of the following except
C
Tobe is a 22-year-old college student with $5,000 of interest income and $6,000 of earned income. Kiddie tax will apply to him if A.he is a full-time student and the cost of his support is $12,000 or less. B.he is a part-time student and the cost of his support exceeds $12,000. C.he is a full-time student and the cost of his support exceeds $12,000. Your answer is correct. D.he is a part-time student and the cost of his support is $12,000 or less.
50,000
Topaz Corporation had the following income and expenses during the current year: Revenues $80,000 Expenses 30,000 Gains on sale of capital assets 5,000 Losses on sale of capital assets (25,000) What is Topaz's taxable income?
C
Under the terms of their divorce agreement, Humphrey transferred Corporation H stock to his former wife, Greta, as a property settlement. At the time of the transfer, the stock had a basis to Humphrey of $40,000 and a fair market value of $55,000. What is the tax consequence of this transaction to Humphrey, and what is Greta's basis in the Corporation H stock? A. Humphrey has no gain or loss; Greta's basis is $55,000. B. Humphrey has a gain of $15,000; Greta's basis is $55,000. C. Humphrey has no gain or loss; Greta's basis is $40,000. Your answer is correct. D. Humphrey has a gain of $15,000; Greta's basis is $40,000.
True
When an individual taxpayer has NSTCL and NLTCG, the loss is offset against NLTCG from the 28% group, then NLTCG from the 25% group, and finally against NLTCG from the 15% or 20% group.
for meals to be excluded from gross income
they must be furnished on the premises of the employer and for the convenience of the employer. For lodging to be excluded from an employee's gross income it must meet the same tests as meals and the employee must be required to accept the lodging as a condition of employment.
D
When is the gain on the sale or exchange of securities by a dealer in securities classified as capital gain? A. The security must not be held primarily for sale to customers in the ordinary course of the dealer's trade or business at any time after the day of purchase. B. The dealer must clearly identify that the security is held for investment. The identification of the security type must occur before the close of the day on which the security is acquired. C. The gain on the sale or exchange of securities by a dealer in securities is always classified as capital gain. D. Both A and B are correct.
earned income credit
Which of the following credits is considered a refundable credit?
D
Which of the following factors is important in distinguishing between capital and revenue expenditures? A. The expenditure restores the property. B. The expenditure provides a betterment, adding to the value of the property. C. The expenditure improves the property, adding to the value of the property. D. All of the above.
D
Which of the following is deductible as interest expense? A. interest to purchase tax-exempt bonds B. personal credit card interest C. bank service charges on personal account D. None of the above.
a sale of a corporation's asset to a shareholder at fair market value
Which of the following is least likely to result in a constructive dividend?
C
Which of the following is not considered support for the dependent support test? A.food B.clothing C.value of services rendered by the taxpayer for the dependent Your answer is correct. D.rental value of lodging
refundable security deposit
Which of the following is not included in gross income when received?
recurring in nature
Which of the following is not required for an expenditure to be deductible as a business or investment expense?
Municipal bond is taxable
Which of the following statements is false?
gift taxes are imposed on the recipient of a gift
Which of the following statements is incorrect?
B
Which of the following statements regarding qualified tuition programs is incorrect? A. Distributions from income earned by a qualified tuition program are tax-free if used for qualified higher education expenses. B. Distributions of income are taxed to the donor if the proceeds are not used for higher education expenses. Your answer is correct. C. A qualified tuition program may be established by parents or grandparents. D. Contributions to a qualified tuition program are distributed tax-free.
federal income tax
Which of the following taxes is progressive?
automobile used for personal purposes
Which one of the following is a capital asset?
True
While payments received because a person has been physically injured are excluded from gross income, payments on account of non-physical injury must be included in gross income.
D
With respect to property settlements in a divorce or separation, all of the following are true with the exception of A. the spouse receiving a property settlement has a basis equal to the basis of that property to the paying spouse prior to payment. B.a property settlement does not result in income to either spouse. C.no tax deduction is allowed for payment of a property settlement. D.All of the above statements are correct.
divorce final in december
You may choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. Which of the following facts would prevent you from being considered married for filing purposes?
deductions from AGI
are not beneficial unless their sum exceeds the standard deduction, in which case these deductions will be included as itemized deductions. Also, some deductions from AGI are decreased by a percentage of AGI.
proportional
corporate state franchise tax
progressive
federal estate tax
purpose of the multiple support agreement
is to allow one member of a group to claim a supported person as a dependent when the members together contribute more than 50% of the support of that person and each member of the group contributes over 10%. The multiple support agreement results in an exception to the requirement that the taxpayer alone must provide over one-half of the dependent's support.
to exclude an award under sec. 74
it must be made for religious, charitable, scientific, educational, artistic, literary, or civic achievement. The recipient must be selected without action on his or her part, and the recipient may not be required to perform any substantial future service. In addition, the recipient must contribute the proceeds to a charity.
maintain a household
means to pay over one-half of the costs of the household. These costs include property taxes, mortgage interest, rent, utility charges, upkeep and repairs, property insurance and food consumed on the premises.
proportional
property tax
deductions for AGI
reduce the taxpayer's taxable income by the full amount of the deduction even if the standard deduction is used.
proportional
state and local sales taxes
Progressive
state income taxes
must have the same tax year
to file jointly the spouses ______________.
A
Anita, who is divorced, maintains a home in which she and her 16-year-old daughter live. Anita provides the majority of the support for her daughter and for a son, age 23, who is enrolled part-time at the university and lives in the dorm. The son also works in the campus bookstore and earns spending money of $4,500. Which of the following statements is correct regarding the number of dependents Anita can claim? A. Anita can claim her daughter, but not her son, as a dependent. Your answer is correct. B.Anita can claim her son, but not her daughter, as a dependent. C.Both the son and daughter qualify as Anita's dependents. D.Neither the daughter nor the son qualify as Anita's dependent.
the couple can claim both twins as dependents
Ben, age 67, and Karla, age 58, have two children who live with them and for whom they provide total support. Their daughter is 21 years old, blind, is not a full-time student and has no income. Her twin brother is 21 years old, has good sight, is a full-time student and has income of $4,800. Which of the following statements is correct regarding Ben and Karla's ability to claim the twins as dependents?
16.79% and 13.37%
Briana, who is single, has taxable income for 2018 of $78,000, resulting in a total tax of $13,100. Her total economic income is $98,000. Briana's average tax rate and effective tax rate are, respectively,
25,000
Carma, who earns $400,000, is required to pay John, her ex-husband, $200,000 as part of the property settlement as a result of their divorce agreement which was executed in 2018. In turn, John transfers stock with basis $50,000 and fair market value of $70,000 to Carma. Carma sold the stock for $75,000 later this year. What is Carma capital gain for selling the stock?
False
Christopher, a cash-basis taxpayer, borrows $1,000 from ABC Bank by issuing a 3-month note on December 1, 2018. Christopher receives $940 but must repay $1,000 on the due date. The amount of interest expense deductible in 2018 is $20.
head of household
Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status is
9,000
David, age 62, retires and receives $1,000 per month annuity from his employer's qualified pension plan. David made $65,000 of after-tax contributions to the plan prior to his retirement. Under the simplified method, David's number of anticipated payments is 260. What is the amount includible in income in the first year of withdrawals assuming 12 monthly payments?
5,030
Derek, a single taxpayer, has AGI of $55,000 which includes $5,000 of qualified dividends. Derek does not itemize deductions. What is his 2018 federal income tax?
head of household
Edward, a widower whose wife died in 2015, maintains a household for himself and his 10-year-old daughter. Edward's most favorable filing status for 2018 is
2,200
Fatima's employer funds child care for all employees' children. She pays nothing for this service. The cost of Fatima's child care is $7,200 a year. How much of the child care benefits are taxable to Fatima?
incurred in gambling activities
Generally, deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those
False
Generally, expenses incurred in an investment activity other than those incurred to produce rent and royalties are deductions from AGI.
$11,566
Jillian, a single individual, earns $230,000 in 2018 through her job as an accounting manager. What is her FICA tax?
0
Julia, age 57, purchases an annuity for $33,600. Julia will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 88, the amount that Julia may exclude from income is
False
Katie, a self-employed CPA, purchased an accident & disability insurance policy. As the result of an auto accident, Katie was unable to work and received $3,000 of disability benefits per month for seven months. The benefits were based on her estimated monthly income and should be reported as gross income.
16,000 collectibles gain, 8,000 LTCG
Kendrick, whose tax rate is 32%, had the following results from transactions during the year: Collectibles gain $20,000 Short-term capital loss 4,000 Long-term capital gain 8,000 After offsetting the STCL, what is (are) the resulting gain(s)?
B
Laura, the controlling shareholder and an employee of Southtown Corporation, receives an annual salary of $750,000. Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparably sized corporations, the IRS contends that Laura's salary should be no higher than $600,000. The Court upheld the IRS's position. As a result, which of the following is true? A. $600,000 is deductible by the corporation; $600,000 is taxable to Laura. B. $600,000 is deductible by the corporation; $750,000 is taxable to Laura. Your answer is correct. C. $750,000 is deductible by the corporation; $750,000 is taxable to Laura. D. $750,000 is deductible by the corporation; $600,000 is taxable to Laura.
2500 for AGI
Leslie, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,800. What is the amount and classification of her student loan interest education deduction if her modified AGI is $40,000?
1,050
Lewis, who is single, is claimed as a dependent by his parents. He received $2,000 during the year in dividends, which was his only income. What is his standard deduction for 2018?
2000 for AGI
Marcia, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her AGI is $68,000?
False
Martina, who has been employed by the Smythe Corporation for ten years, receives a $400 watch as a length of service award in a meaningful presentation. The fair value of the watch is taxable.
111,276
Melanie, a U.S. citizen living in Paris, France, for the last three years, earns a salary of $125,000 in 2018. Melanie's housing costs are $24,000 per year, which is reasonable. How much can Melanie exclude from income?
760
Melanie, a single taxpayer, has AGI of $220,000 which includes $160,000 of salary and $60,000 of investment income. She will pay Medicare tax on the $60,000 of investment income of
350
Michelle, age 20, is a full-time college student with earned income from wages of $5,200 and interest income of $700. Michelle's parents provide more than half of Michelle's support. Michelle's 2018 taxable income is
D
Mike, a dealer in securities and calendar-year taxpayer, purchased a security for inventory on November 18, 2017 for $15,000. The FMV on December 31, 2017 was $16,000. The security was sold on December 19, 2018 for $16,500. These transactions result in A. $0 ordinary income in 2017; $1,500 LTCG in 2018. B. $1,000 ordinary income in 2017; $500 LTCG in 2018. C. $0 ordinary income in 2017; $1,500 ordinary income in 2018. D. $1,000 ordinary income in 2017; $500 ordinary income in 2018.
True
Ming, who has been employed by the Frostine Corporation for five years, receives a $400 Amazon.com gift card for his years of hard work. The employee service award is taxable.
2,280
Olivia, a single taxpayer, has AGI of $280,000 which includes $220,000 of salary and $60,000 of investment income. She will pay Medicare tax on the $60,000 of investment income of
0
Pat, an insurance executive, contributed $1,000,000 to the reelection campaign of Governor Stephens, in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance. How much of the contribution can Pat deduct?
False
Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction.
self-employment tax
Self-employed individuals may claim, as a deduction for adjusted gross income, 50 percent of their
6,800
Toby, owner of a cupcake shop in New York, had been considering opening a similar business (i.e., a cupcake shop) in Phoenix. After spending $6,800 investigating such possibilities in Phoenix, Toby decided against opening the store on July 1. What is the maximum amount of deduction for the current year attributable to these expenditures?
6,000
Tonya's employer pays the full premium on a disability income policy from an insurance company on behalf of all employees. After a skiing accident, Tonya was out of work for three months and collected $2,000 per month ($6,000 total) of disability benefits from this policy. In addition, Tonya received another $1,000 per month ($3,000 total) from a disability policy she had purchased herself. Tonya had paid a total of $1,300 in premiums on her policy. How much of the $9,000 total received is taxable?
