Gleim Final Study Guide

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Which of the following allows a taxpayer to legally avoid paying income tax?

Treating a portion of compensation as a tax-free fringe benefit.

For the current year, for purposes of the Earned Income Credit, all of the following qualify as earned income EXCEPT

Unemployment compensation.

Recasto owns a second residence that is used for both personal and rental purposes. During 2020, Recasto used the second residence for 50 days and rented the residence to Louis for 200 days. Which of the following statements is true?

Utilities and maintenance on the property must be divided between personal and rental use.

Al Oran bought a paved vacant lot adjacent to his retail store for use as a customers' parking lot at a cost of $15,000. In addition, Oran bought new store fixtures costing $8,000. What portion of these assets constitutes capital assets?

Alan Curtis, who is single, had an adjusted gross income of $40,000 in 2020, and he used the standard deduction in his 2020 return. During 2020, Alan contributed $300 to the building fund of State University. What amount was deductible for contributions in Alan's 2020 return?

Anthony and Cleo are married and file jointly for 2020. They received the following in 2020: Taxable pension $10,000 Interest income (taxable) 500 Anthony's Social Security benefits 6,600 Cleo's Social Security benefits 2,400 What is the amount of Anthony and Cleo's taxable Social Security benefits for 2020?

Baker, an unmarried individual, sold a personal residence, which has an adjusted basis of $70,000, for $165,000. Baker owned and lived in the residence for 7 years. Selling expenses were $10,000. Four weeks prior to the sale, Baker paid a handyman $1,000 to paint and fix-up the residence. What is the amount of Baker's recognized gain?

Barkley owns a vacation cabin that was rented to unrelated parties for 10 days during the year for $2,500. The cabin was used by Barkley for 3 months and left vacant for the rest of the year. Expenses for the cabin were as follows. Real estate taxes $1,000 Maintenance and utilities $2,000 How much real income (loss) is included in Barkley's adjusted gross income?

Bennet Hanover purchased a tract of land for $20,000 in Year 1 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $175,000. The highway project was abandoned in Year 3 and the value of the land fell to $15,000. Even though there has been no sale, Hanover can claim a loss in Year 3 of

During 2020, Vincent Tally gave to the municipal art museum title to his private collection of rare books that was appraised and valued at $60,000. However, he reserved the right to the collection's use and possession during his lifetime. For 2020, he reported an adjusted gross income of $100,000. Assuming that this was his only contribution during the year and that there were no carryovers from prior years, what amount can he deduct as contributions for 2020?

During a major sports event, a taxpayer rented his primary residence to spectators for 10 days. The taxpayer's rental income and expenses were as follows: Rental income $10,000 Prorated mortgage and taxes 1,000 Advertising 500 Commissions 1,000 How much net rental income must the taxpayer report on the tax return?

During an all-employee awards ceremony, Pedals Company gave Mollie a new bicycle for her outstanding safety record. This award was presented to Mollie for her services to the company and in accordance with Pedals's qualified employee achievement awards program. The bicycle cost Pedals $1,200 and has a fair market value of $1,700. What amount must Mollie include in income?

Fact Pattern: Conner purchased 300 shares of Zinco stock for $30,000 in 2000. On May 23, 2020, Conner sold all the stock to his daughter Alice for $20,000, its fair market value at the time. Conner realized no other gain or loss during 2020. On July 26, 2020, Alice sold the 300 shares of Zinco for $25,000. What amount of the loss from the sale of Zinco stock can Conner deduct in 2020?

In 2020, Smith paid $6,000 to the tax collector of Big City for realty taxes on a two-family house owned by Smith's mother. Of this amount, $2,800 covered back taxes for 2019, and $3,200 covered 2020 taxes. Smith resides on the second floor of the house, and his mother resides on the first floor. In Smith's itemized deductions on his 2020 return, what amount was Smith entitled to claim for realty taxes?

Bob sold securities in Year 1. The sales resulted in a capital loss of $7,000. He had no other capital transactions. He and his wife Gloria decide to file separate returns for Year 1. His taxable income was $26,000. What amount of capital loss can he deduct on his Year 1 return and what amount can he carry over to Year 2?

$1,500 in Year 1 and $5,500 carry over to Year 2.

On February 1, Year 5, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in Year 1. Fair market value of the stock on February 1, Year 5, the date of his father's death, was $4,000 and had increased to $5,500 6 months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, Year 5, the date that the executor distributed the stock to him. How much income should Hall include in his Year 5 individual income tax return for the inheritance of the 500 shares of stock that he received from his father's estate?

Ruth and Mark Cline are married and will file a joint 2020 income tax return. Among their expenditures during 2020 were the following discretionary costs that they incurred for the sole purpose of improving their physical appearance and self-esteem: Face lift for Ruth, performed by a licensed surgeon $5,000 Hair transplant for Mark, performed by a licensed surgeon 3,600 Disregarding the adjusted gross income percentage threshold, what total amount of the aforementioned doctors' bills may be claimed by the Clines in their 2020 return as qualifying medical expenses?

The following 2020 information pertains to Sam and Ann Hoyt, who filed a joint federal income tax return for the calendar year 2020: Adjusted gross income -- $34,000 $100 contribution to a recognized political party The Hoyts itemized their deductions. What amount of the $100 political contribution were the Hoyts entitled to claim as a credit against their 2020 tax?

Wynn, a 60-year old single individual, sold his personal residence for $450,000. Wynn had owned his residence, which had a basis of $250,000, for 6 years. Within 8 months of the sale, Wynn purchased a new residence for $400,000. What is Wynn's recognized gain from the sale of his personal residence?

Zippy worked at the Maxwell Hotel as a desk clerk. Since there was no one to replace him during the dinner hour, the Maxwell Hotel provided Zippy's meal out of the dining room free of charge. Zippy was allowed to go and eat elsewhere but was encouraged to eat at the hotel and mind the desk. The cost of the meals to the Maxwell Hotel was $450, and the fair market value of the meals was $800. How much must Zippy include in gross income?

Sand purchased 100 shares of Eastern Corp. stock for $18,000 on April 1 of the prior year. On February 1 of the current year, Sand sold 50 shares of Eastern for $7,000. Fifteen days later, Sand purchased 25 shares of Eastern for $3,750. What is the amount of Sand's recognized gain or loss?

$1,000

Pierre, a pizza delivery person, received tips totaling $1,000 in December Year 1. On January 5, Year 2, Pierre reported this tip income to his employer in the required written statement. At what amount, and in which year, should this tip income be included in Pierre's gross income?

$1,000 in Year 2.

Earl Cook, who worked as a machinist for Precision Corp., lent Precision $1,000 in Year 1. Cook did not own any of Precision's stock, and the loan was not a condition of employment. In Year 5, Precision declared bankruptcy, and Cook's note receivable from Precision became worthless. What loss can Cook claim on his Year 5 income tax return?

$1,000 short-term capital loss.

Basil Company, a cash-basis taxpayer, had the following activity during Year 1: Sales in Year 2, uncollected $ 40,000 Sales in Year 2, collected 1,000,000 Total sales in Year 2 1,040,000 Collections on Year 1 bad debt 50,000 What is the correct amount of income to be reported for Year 2?

$1,050,000

Baker, a sole proprietor CPA, has several clients that do business in Spain. While on a four week vacation in Spain, Baker took a five-day seminar on Spanish business practices that cost $700. Baker's round-trip airfare to Spain was $600. While in Spain, Baker spent an average of $100 per day on accommodations, local travel, and other incidental expenses, for total expenses or $2,800. What amount of total expense can Baker deduct on Form 1040 Schedule C, "Profit or Loss From Business", related to this situation?

$1,200

Roger Burrows, age 19, is a full-time student at Marshall College and a candidate for a bachelor's degree. His tuition and fees were $4,000 per year. During 2020, he received the following payments: State scholarship for 10 months $3,600 Loan from college financial aid office 1,500 Cash support from parents 3,000 Cash dividends on investments 700 Cash prize awarded in newspaper contest 500 Total $9,300 What is Burrows' gross income for 2020?

$1,200

Chris, age 5, has $3,600 of interest income and no earned income in 2020. Assuming the current applicable standard deduction is $1,100, how much of Chris's income will be subject to the Kiddie Tax?

$1,400

Jimet, an unmarried taxpayer, qualified to itemize 2020 deductions. Jimet's 2020 adjusted gross income was $30,000, and he made a $2,000 cash donation directly to a needy family. In 2020, Jimet also donated stock, valued at $3,000, to his church. Jimet had purchased the stock 4 months earlier for $1,500. What was the maximum amount of the charitable contribution allowable as an itemized deduction on Jimet's 2020 income tax return?

$1,500

Dr. Merry, a self-employed dentist, incurred the following expenses: Investment expenses: $ 700 Custodial fees related to Dr. Merry's Keogh plan 40 Work uniforms for Dr. Merry and Dr. Merry's employees 320 Subscriptions for periodicals used in the waiting room 110 Dental education seminar 1,300 What is the amount of expenses the doctor can deduct as business expenses on Schedule C, Profit or Loss from Business?

$1,730

Jensen reported the following items during the current year: Fair rent value of a condominium owned by Jensen's employer $1,400 Cash found in a desk purchased for $30 at a flea market 400 Inheritance 11,000 The employer allowed Jensen to use the condominium for free in recognition of outstanding achievement. Based on this information, what is Jensen's gross income for the year?

$1,800

Charles and Marcia are married cash-basis taxpayers. In 2020, they had interest income as follows: $500 interest on federal income tax refund $600 interest on state income tax refund $800 interest on federal government obligations $1,000 interest on state government obligations What amount of interest income is taxable on Charles and Marcia's 2020 joint income tax return?

$1,900

Matthews was a cash-basis taxpayer whose records showed the following: 2020 state and local income taxes withheld $1,500 2020 state estimated income taxes paid December 30, 2020 400 2020 federal income taxes withheld 2,500 2020 state and local income taxes paid April 16, 2021 300 What total amount was Matthews entitled to claim for taxes on her 2017 Schedule A of Form 1040?

$1,900

Clark filed Form 1040 for the 2019 taxable year and claimed the standard deduction. In July 2020, Clark received a state income tax refund of $900, plus interest of $10, for overpayment of 2019 state income tax. What amount of the state tax refund and interest is taxable in Clark's 2020 federal income tax return?

$10

In 2020, Joan accepted and received a $10,000 award for outstanding civic achievement. Joan was selected without any action on her part, and no future services are expected of her as a condition of receiving the award. What amount should Joan include in her 2020 gross income in connection with this award?

$10,000

Smith, a retired corporate executive, earned consulting fees of $8,000 and director's fees of $2,000 in 2020. Smith's gross earnings from self-employment in 2020 was

$10,000

Anna is a 22-year-old student with earned income of $10,000 from a summer job and dividend income of $1,100. Her parents claim her as a dependent on their tax return. What is Anna's basic standard deduction amount?

$10,350

On December 20, 2020, Mr. and Mrs. Garrison purchased four tickets for a New Year's Eve party at their church, a qualified charitable organization. Each ticket cost $75 and had a fair market value of $50. The Garrisons gave two of the tickets to a needy family in the community. Mr. Garrison tended bar at the party from 8 p.m. to 4 a.m. and was paid $40. The usual charge for such services is $80. Immediately before midnight, Mr. Garrison pledged $200 to the building fund and delivered a check for that amount on January 2, 2021. Of the amounts described above, the total amount that the Garrisons can include as a charitable contribution deduction for 2020 on a joint return is

$100

On New Year's Eve, Hal sent three bottles of champagne to the three owners of the Day & Night Cleaners to thank them for their business during the year. Each bottle of champagne cost $75. Each of the owners took the champagne home. Earlier in the year, Hal had given a video game to the 10 year old son of one of the owners. The value of the game was $50. To show his appreciation to another customer for his business, Hal took the customer to a football game. The value of the tickets was $100. What is the total amount Hal can deduct as business gifts?

$100

On December 1, 2019, Michael, a self-employed cash-basis taxpayer, borrowed $100,000 to use in his business. The loan was to be repaid on November 30, 2020. Michael paid the entire interest of $12,000 on December 1, 2019. What amount of interest was deductible on Michael's 2020 income tax return?

$11,000

Johnson, an accrual-method landlord, receives the following receipts during the current year associated with his rental of apartments: Lessees' refundable deposits $ 2,000 Payment for modifying a lease 50 Rent 10,000 Lessee improvements made in lieu of rent 1,500 Prepaid rent 500 Bonus for granting a lease 200 What amount should Johnson report as taxable income from his rental investment?

$12,250

Willie Coconut was injured during the year and was not able to work due to his injury and the associated emotional distress. Willie received the following payments during the year: Disability pay $3,500 Accident insurance proceeds(substitute for lost income) 7,000 Damages for emotional distress received by a lawsuit 2,000 Punitive damages 5,000 Willie has paid the premiums for all of his policies and has not taken any deductions for the medical expenses. The total amount of compensation for injury that Willie may exclude from gross income is

$12,500

ABC Corp. leases two buildings. The first lease started January 1, 2017, and was for 3 years at $10,000 per year rent. ABC paid $30,000 in January for the entire 3-year term. The second lease started July 1, 2020, and was for 5 years at $6,000 per year rent. ABC paid $30,000 in June for the entire 5-year term. What is the total rent expense ABC Corp. may deduct in 2020?

$13,000

On September 18, 2020, Dennis was killed in an automobile accident. In October 2020, his widow received a lump-sum death benefit from his employer in the amount of $15,000. Dennis had no right to the $15,000 prior to death. For 2020, what amount should his widow include in gross income, assuming a joint tax return was filed?

$15,000

Alan Kupper had the following transactions during 2018: Gain of $7,000 on sale of Sec. 1202 stock purchased on January 15, 2017, and sold on April 15, 2018. Gain of $5,000 on sale of common stock purchased on October 15, 2017 and sold on March 25, 2018. Receipt of a $10,000 installment payment on an installment contract created in 2010 when Kupper sold for $100,000 (exclusive of 6% interest on installments) land acquired in 1997 for $20,000. The contract provides for 10 equal annual principal payments of $10,000 beginning on July 1, 2010, and ending on July 1, 2019. What is the amount of Kupper's net capital gain and appropriate tax-rate basket(s) for 2018?

$15,000 ($7,000 - 28% basket, $8,000 - 15% basket).

During 2020, Ash had the following cash receipts: Wages $15,000 Interest income from U.S. Treasury bonds 350 Workers' compensation following a job-related injury 8,500 What is the total amount that must be included in gross income on Ash's 2020 income tax return?

$15,350

In 2020, Emil Gow won $16,000 in a state lottery and spent $800 for the purchase of lottery tickets. Emil elected the standard deduction on his 2020 income tax return. The amount of lottery winnings that should be included in Emil's 2020 gross income is

$16,000

Mr. T has been a night watchman at Y Company for 10 years. During the current year, he received the following payments from Y Company: Salary $15,000 Hospitalization insurance premiums 3,600 Required lodging on Y's premises for Y's convenience as a condition to T's employment 2,400 Reward for preventing a break-in 1,000 Christmas ham (value) 15 What amount is includible in Mr. T's gross income in the current year?

$16,000

On January 2, 2015, the Philips paid $50,000 cash and obtained a $200,000 mortgage to purchase a home. In 2020, they borrowed $15,000 secured by their home and used the cash to add a new room to their residence. That same year, they took out a $5,000 auto loan. The following pertains to interest paid in 2020: Mortgage interest $17,000 Interest on room construction loan 1,500 Auto loan interest 500 For 2020, how much interest is deductible prior to any itemized deduction limitations?

$18,500

Martha, filing single, purchased her home on July 7, Year 1, and lived in it continuously until its sale on January 7, Year 3, due to a qualified hardship. Her gain on the sale of the home is $300,000. She did not exclude any gain on any other home sale during this time. What is the maximum amount of gain she may exclude on this sale?

$187,500

Major, a candidate for a graduate degree, received the following scholarship awards from the university in 2020: $10,000 for tuition, fees, books, and supplies required for courses $2,000 stipend for research services required by the scholarship What amount of the scholarship awards should Major include as taxable income in 2020?

$2,000

Ms. Pear owned 1,000 shares of YZ Corporation which she had purchased in Year 1 at a cost of $12 per share. In Year 3, she received a nontaxable 20% stock dividend. The shares were identical to those she already held. She ended the year owning 1,200 shares. In Year 5, the stock split 2 for 1 which increased her holdings to 2,400 shares at the end of the year. In Year 8, she sold 400 shares. What was her basis in the 400 shares of stock sold?

$2,000

On December 1, 2020, Krest, a self-employed cash-basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30, 2021. Krest paid the entire interest amount of $24,000 on December 1, 2020. What amount of interest was deductible on Krest's 2020 income tax return?

$2,000

If 100 shares of stock are purchased February 14, Year 1, what is the earliest date on which the stock can be sold and the gain or loss qualify for the long-term holding period?

February 15, Year 2.

Paul Crane, age 25, is single with no dependents and had an adjusted gross income of $30,000 in 2020, exclusive of $2,000 in unemployment compensation benefits received in 2020. The amount of Crane's unemployment compensation benefits taxable for 2020 is

$2,000

During 2020, Jack and Mary Bronson paid the following taxes: Taxes on residence (for period January 1 to September 30, 2020) $2,700 State motor vehicle tax on value of the car 360 The Bronsons sold their house on June 30, 2020, under an agreement in which the real estate taxes were not prorated between the buyer and sellers. What amount should the Bronsons deduct as taxes in calculating itemized deductions for 2020?

$2,160

In 2020, Rusty paid $5,000 of interest on a qualified education loan. Rusty is not claimed as a dependent by another taxpayer. What is the maximum deduction available to him for the education loan interest?

$2,500

Winkler, a CPA, provided accounting services to a client, Thompson. On December 15 of the same year, Thompson gave Winkler 100 shares of Foster Corp. as compensation for services. The adjusted basis of the stock was $4,000, and its fair market value at the time of transfer was $5,000. The following year, Winkler sold the stock on February 15 for $7,500. What is the amount that Winkler should recognize as gain on the sale of stock?

$2,500

Christopher Scott is a self-employed computer consultant. He earned a net profit of $100,000 in 2020 from his business. During 2020, he paid $2,500 for health insurance coverage for himself and his wife. What is the amount and character of the deduction that the Scotts may claim on their 2020 individual tax return?

$2,500 deduction to arrive at adjusted gross income.

Which of the following fringe benefits is NOT excludable from an employee's wages?

$2,500 of group term life insurance covering the death of an employee's spouse or dependent.

Cole earned $3,000 in wages, incurred $1,000 in unreimbursed employee business expenses, paid $400 as interest on a student loan, and contributed $100 to a charity. What is Cole's adjusted gross income?

$2,600

Alayna is a voice and singing coach. She is a calendar-year taxpayer using the accrual method of accounting. On November 2, 2019, she received $3,200 for a 2-year contract for 64 one-hour voice and singing lessons beginning on that date. The contract provided that Alayna give 8 lessons in 2019 and 48 lessons in 2020, with the remaining lessons to be given in 2021. What is the amount that Alayna should report on her 2020 return?

$2,800

George Black is single and files Form 1040 for 2020. He received the following income in 2020: Fully taxable pension $18,600 Wages from part-time job 9,400 Interest income 990 Total $28,990 George also received Social Security benefits during 2020. Form SSA-1099 shows $5,980 in box 5, Net Benefits for 2020. How much of George's Social Security is taxable?

$2,990

Taylor owns 1,000 shares of Media Corporation common stock with a basis of $22,000 and a fair market value of $33,000. Media paid a nontaxable 10% common stock dividend. What is the basis for each share of Media common stock owned by Taylor after receipt of the dividend?

$20

Ruth Lewis has adjusted gross income of $100,000 for 2020 and itemizes her deductions. On September 1, 2020, she made a contribution to a private nonoperating foundation (not a 50% charity) of stock held for investment for 2 years that cost $25,000 and had a fair market value of $70,000. The foundation sold the stock for $70,000 on the same date. Assume that Lewis made no other contributions during 2020. How much should Lewis claim as a charitable contribution deduction for 2020?

$20,000

The following information pertains to Cole's personal residence, which sustained casualty fire damage in 2020: Adjusted basis $150,000 Fair market value immediately before the fire $200,000 Fair market value immediately after the fire $180,000 The house was uninsured. Before consideration of any "floor" or other limitation on tax deductibility, the amount of this 2020 casualty loss was

$20,000

Mr. L purchased stock in Corporation O in Year 1 for $500. In Year 2, Mr. L received a distribution of $200 at a time when Corporation O had no current or accumulated earnings and profits, so it was a nontaxable return of capital. Mr. L sold his Corporation O stock in Year 3 for $700. What is the amount of gain to be reported by Mr. L?

$400

William owns a four-unit apartment building for which he receives $500 per month per unit. Three of the units were rented for the entire 12 months. The fourth unit was occupied from January 1 to April 30, 2020. Upon vacating the unit the tenant was not refunded his security deposit of $500 due to damage to the unit. The unit was subsequently rented for 1 year beginning August 1, 2020. On August 1, 2020, the new tenant paid the first and last months' rent and a refundable security deposit of $500. What is William's rental income for 2020?

$23,500

Taylor, an unmarried taxpayer, had $90,000 in adjusted gross income for Year 12. During Year 12, Taylor donated land to a church and made no other contributions. Taylor purchased the land in Year 1 as an investment for $14,000. The land's fair market value was $25,000 on the day of the donation. What is the maximum amount of charitable contribution that Taylor may deduct as an itemized deduction for the land donation for Year 12?

$25,000

Trish Durwood works for a small retail-clothing store. She earned $26,000 in wages during the entire calendar year. Because of a cash flow problem in April, Trish did not receive her $500 weekly check but instead ws given a credit of $500 toward clothing purchased for her family. How much income should be shown on her Form W-2 and reported on her Form 1040?

$26,000

Joe Hall owns a limousine for use in his personal service business of transporting passengers to airports. The limousine's adjusted basis is $40,000. In addition, Hall owns his personal residence and furnishings, that together cost him $280,000. Hall's capital assets amount to

$280,000

An individual taxpayer's tax return included the following: Regular tax before tax credits $5,000 Current-year estimated tax payments 6,000 Amount paid with current-year extension 1,000 Federal income tax withheld 1,000 What amount, if any, is the taxpayer's overpayment?

$3,000

Lee qualified as head of a household for 2020 tax purposes. Lee's 2020 taxable income was $100,000, exclusive of capital gains and losses. Lee had a net long-term capital loss of $8,000 in 2020. What amount of this capital loss can Lee offset against 2020 ordinary income?

$3,000

John is a cash-basis taxpayer. He received the following items of income in December Year 2: 1. The loan on his truck was forgiven because he performed accounting work for the dealer. He owed $2,000 at the time.2. He received a retainer of $500 from a new client to guarantee that his services would be available in February when the client would need help preparing financial statements.3. He finally received the $800 for work he completed in November of Year 1. How much of this income must John include on his Year 2 tax return?

$3,300

The Rites are married, file a joint income tax return, and qualify to itemize their deductions in the current year. Their adjusted gross income for the year was $55,000, and during the year they paid the following taxes: Real estate tax on personal residence $2,000 Ad valorem tax on personal automobile 500 Current-year state and city income taxes withheld from paycheck 1,000 What total amount of the expense should the Rites claim as an itemized deduction on their current-year joint income tax return?

$3,500

Sam and Ann Jefferson filed a joint federal income tax return for the calendar year 2020. Among their cash expenditures during 2020 were the following: $3,000 real estate tax on residence; $400 state and city sales taxes; $900 state income tax. What is the maximum deduction for taxes on the Jeffersons' 2020 return?

$3,900

Moore, a single taxpayer, had $50,000 in adjusted gross income for 2020. During 2020, she contributed $23,000 to her church. She had a $10,000 charitable contribution carryover from her 2019 church contribution. What was the maximum amount of properly substantiated charitable contributions that Moore could claim as an itemized deduction for 2020?

$30,000

Justin Peter earned a salary of $30,000 during 2020. During the year, he was required by his employer to take several overnight business trips, and he received an expense allowance of $1,500 for travel and lodging. In the course of these trips, he incurred the following expenses which were either adjustments to income or deductions from adjusted gross income. Travel $1,100 Lodging 500 Entertainment of customers 400 What is Justin's adjusted gross income if he does not account to his employer for the expenses?

$31,500

Porter was unemployed for part of the year. Porter received $35,000 of wages, $4,000 from a state unemployment compensation plan, and $2,000 from his former employer's company-paid supplemental unemployment benefit plan. What is the amount of Porter's gross income?

$41,000

Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year: Wages$ 22,000 Unemployment compensation 6,000 Pension distribution (100% taxable) 4,000 A state tax refund from the previous year 425 What is Randolph's gross income?

$32,000

Employee Y, who is 44 years old, is provided with $120,000 of nondiscriminatory group term life insurance by his employer. Based on the IRS uniform premium cost table, the total annual cost of a policy of this type is $1.20 per $1,000 of coverage. Y's required contribution to the cost of the policy is $4.00 per month. Y was covered for the entire year. How much of the cost must Y include in his income?

$36

Mr. Cypress owned a small three-unit apartment building in Detroit, Michigan. The rent on each apartment was $1,000 per month. During 2018, he received the following payments: Apt. A - Timely rent payments were made for 12 months. Apt. B -The apartment was vacant in January and February. On 3/1/18, a new tenant entered into a 1-year lease from 3/1/18 through 2/28/19. The tenant paid first and last month's rent and a security deposit of $1,500. The security deposit is to be returned at the end of the lease if the tenant lives up to the terms of the lease. The tenant timely paid the rent for the next 9 months (April through December) on the first of each month. Apt. C -In December, after timely paying the rent for 12 months of the year, the tenant came to Mr. Cypress and told him that he had been transferred to a new job location in Tennessee. He asked to be released from his 2-year lease obligation, which was scheduled to expire on June 30, 2019. Mr. Cypress agreed to accept 3 months' rent to cancel the lease. The tenant paid Mr. Cypress $3,000 to cancel the lease in December. Assuming Mr. Cypress is a cash-basis taxpayer, what amount should Mr. Cypress include in his 2018 gross income from the apartment building?

$38,000

An individual taxpayer reported the following net long-term capital gains and losses: -Year -Gain (loss) -1 -($5,000) -2 -1,000 -3 -4,000 The amount of capital gain that the individual taxpayer should report in year 3 is

$4,000

Poole, 45 year old an single, is in the 12% tax bracket. He had 2020 adjusted gross income of $50,000. The following information applied to Poole: Medical expenses $18,000 Standard deduction 12,400 The relevant tax brackets are -Income -Tax <or equal to $9,875 -10% $9,875 to $40,125 -12% Poole wishes to minimize his income tax. What is Poole's 2020 total income tax rounded to the nearest dollar?

$4,093

On July 1, Year 1, Mel leased property for 2 years for $700 a month. On September 30, Year 1, the owner of the property told him that if he paid the total in advance for the remainder of the lease, the rent would be reduced to $675 a month. Mel accepted his offer and on October 1, Year 1, he paid the owner $14,175. How much can Mel deduct as rental expense in Year 1?

$4,125

Flowers, a married taxpayer, purchased an annuity for $64,400 that will pay $700 per month over the life of Flowers and Flowers's spouse. At the time of purchase, the couple's joint life expectancy was 23 years. Flowers received payment beginning April 1, Year 1, amounting to $6,300 in the first year of the annuity contract. How much is includible in Flowers's gross income in the first year?

$4,200

During 2020, Kay received interest income as follows: On U.S. Treasury certificates $4,000 On refund of 2019 federal income tax 500 The total amount of interest subject to tax in Kay's 2014 tax return is

$4,500

Cassidy, an individual, reported the following items of income and expense during the current year: Salary $50,000 Alimony paid to a former spouse 10,000 Inheritance from a grandparent 25,000 Proceeds of a lawsuit for physical injuries 50,000 What is the amount of Cassidy's adjusted gross income?

$40,000

Mr. and Mrs. Jones sold their principal residence for $750,000. They had lived in their residence for 20 years, and it had an adjusted basis of $210,000. The Joneses have decided not to purchase a new home and will instead rent a condominium on the beach. What amount of gain must they recognize on this transaction?

$40,000

Emil Gow owns a two-family house that has two identical apartments. Gow lives in one apartment and rents out the other. In 2020, the rental apartment was fully occupied, and Gow received $7,200 in rent. During the year ended December 31, 2020, Gow paid the following: Real estate taxes $6,400 Painting of rental apartment 800 Annual fire insurance premium 600 In 2020, depreciation for the entire house was determined to be $5,000. What amount should Gow include in his adjusted gross income for 2020?

$400

U Co. had cash purchases and payments on account during the current year totaling $455,000. U's beginning and ending accounts payable balances for the year were $64,000 and $50,000, respectively. What amount represents U's accrual basis purchases for the year?

$441,000

For the year ending December 31, 2020, David Roth, a married taxpayer filing a joint return, reported the following: Investment income from dividends and interest $24,000 Long-term capital gains on stock held for investment 25,000 Investment expenses 4,000 Interest expense on funds borrowed in 2020 to purchase investment property 70,000 What amount can Roth deduct in 2020 as investment interest expense if he elects to pay his capital gains on stock at an ordinary tax rate?

$45,000

Nare, an accrual-basis taxpayer, owns a building which was rented to Mott under a 10-year lease expiring August 31, Year 4. On January 2, Year 1, Mott paid $30,000 as consideration for canceling the lease. On November 1, Year 1, Nare leased the building to Pine under a 5-year lease. Pine paid Nare $10,000 rent for the 2 months of November and December, and an additional $5,000 for the last month's rent. What amount of rental income should Nare report in its Year 1 income tax return?

$45,000

Lite-Mart, a C corporation, had a beginning credit balance in its warranty reserve account of $120,000. During the year, Lite-Mart accrued estimated warranty expense of $16,000. At the end of the year, Lite-Mart's warranty reserve had a $90,000 credit balance. What amount of warranty expense should Lite-Mart deduct?

$46,000

Greller owns 100 shares of Arden Corp., a publicly traded company, which Greller purchased on January 1, Year 1, for $10,000. On January 1, Year 3, Arden declared a 2-for-1 stock split when the fair market value (FMV) of the stock was $120 per share. Immediately following the split, the FMV of Arden stock was $62 per share. On February 1, Year 3, Greller had his broker specifically sell the 100 shares of Arden stock received in the split when the FMV of the stock was $65 per share. What is the basis of the 100 shares of stock Greller sold?

$5,000

Klein, a master's degree candidate at Blair University, was awarded a $12,000 scholarship from Briar in Year 1. The scholarship was used to pay Klein's Year 1 university tuition and fees. Also in Year 1, Klein received $5,000 for teaching two courses at a nearby college. What amount must be included in Klein's Year 1 gross income?

$5,000

Sam and Ann Hoyt filed a joint federal income tax return for the calendar year 2014. Among the Hoyts' cash receipts during 2020 was the following: $6,000 first installment on a $75,000 life insurance policy payable to Ann in annual installments of $6,000 each over a 15-year period, as beneficiary of the policy on her uncle, who died in 2019. What portion of the $6,000 installment on the life insurance policy is excludable from 2020 gross income in arriving at the Hoyts' adjusted gross income?

$5,000

Spencer, who itemizes deductions, had adjusted gross income of $60,000 in 2020. The following additional information is available for 2020: Cash contribution to church $4,000 Purchase of art object at church bazaar (with afair market value of $800 on the date of purchase) 1,200 Donation of used clothing to Salvation Army (fairvalue evidenced by receipt received) 600 What is the maximum amount Spencer can claim as a deduction for charitable contributions in 2020?

$5,000

Jackson owns two residences. The second residence, which has never been used for rental purposes, is the only residence that is subject to a mortgage. The following expenses were incurred for the second residence in the current year: Mortgage interest $5,000 Utilities 1,200 Insurance 6,000 For regular income tax purposes, what is the maximum amount allowable as a deduction for Jackson's second residence in the current year?

$5,000 as an itemized deduction.

In 2020, Ada lived with her son, Robert, and wife, Barbara. Ada's only source of income was a $1,500 fully taxable pension, which spent on clothes and recreation. Robert and Barbara paid Ada's medical and drug expenses of $600 for the year. Robert and Barbara't total food expense for the household was $6,000. The fair rental value of the lodging provide Ada was $1,200 for the year, based on the cost of similar room facilities. What was Ada's total support for the year for purposes of determining whether Robert and Barbara can claim Ada as a dependent?

$5,300

Phil Armonic is actively engaged in the oil business and owns numerous oil leases in the Southwest. During 2017, he made several trips to inspect oil wells on the leases. As a result of these overnight trips, he paid the following: Plane fares $4,000 Hotels 1,000 Meals 800 Entertaining lessees 500 Of the $6,300 in expenses incurred, he can claim as deductible expenses

$5,400

Smith paid the following unreimbursed medical expenses: Dentist and eye doctor fees $ 5,000 Contact lenses 500 Facial cosmetic surgery to improve Smith's personal appearance (surgery is unrelated to personal injury or congenital deformity) 10,000 Premium on disability insurance policy to pay him if he is injured and unable to work 2,000 What is the total amount of Smith's tax-deductible medical expenses before the adjusted gross income limitation?

$5,500

Midwest Department Stores allows all its employees to purchase goods worth up to $1,000 in retail value each year at a 50% discount. Mark, an employee of Midwest, took full advantage of this policy one year and received a $500 discount. Midwest's gross profit percentage on sales to customers is 45%. The normal industry discount was only 30%. How much must Mark include in gross income?

$50

John Budd files a joint return with his wife. Budd's employer pays 100% of the cost of all employees' group term life insurance under a qualified plan. Under this plan, the maximum amount of tax-free coverage that may be provided for Budd by his employer is

$50,000

Ms. Orchard purchased a duplex in Year 1. She lived in one unit as her principal residence and rented out the other unit until she sold the duplex in February Year 15 (the current year). In April Year 15, she bought and lived in a small single home. She did not replace the rental property. Her records showed the following: DuplexOriginal cost $100,000 Capital improvements 30,000 Depreciation until date of sale (rental unit only) 40,000 Selling price 250,000 Selling expenses 20,000 What is the amount of gain that Ms. Orchard may exclude in Year 15?

$50,000

In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?

$50,000 ordinary loss and $18,000 capital loss.

On February 1, Year 1, a taxpayer purchased an option to buy 1,000 shares of XYZ Co. for $200 per share. The taxpayer purchased the option for $50,000, which was to remain in effect for 6 months. The market declined, and the taxpayer let the option lapse on August 1, Year 1. The taxpayer would report which of the following as a capital loss on the Year 1 income tax return?

$50,000 short term.

During the year, Barbra Carrey received an inheritance of $15,000 and a $500 gift from her employer. What amount of gifts received should Barbra include in her income tax return?

$500

Mitchell sold his Saratoga Bombers Corporation stock to his brother Sheldon for $7,000. Mitchell's cost basis in the stock was $10,000. Sheldon later sold this stock to Sonia, an unrelated party, for $10,500. What is Sheldon's recognized gain?

$500

Paul Bristol, a cash-basis taxpayer, owns an apartment building. The following information was available for Year 1: -An analysis of the bank deposit slips showed recurring monthly rents received totaling $50,000 for the year. -On March 1, Year 1, the tenant in apartment 2B paid Bristol $2,000 to cancel the lease expiring on December 31, Year 1. -The lease of the tenant in apt 3A expired on December 31, Year 1, and the tenant left improvements valued at $1,000. The improvements were NOT in lieu of any required rent. In computing net rental income for the current year, Bristol should report gross rents of

$52,000

Perle, a dentist and a cash-basis taxpayer, billed Wood $600 for dental services. Wood paid Perle $200 cash and built a bookcase for Perle's office in full settlement of the bill. Wood sells comparable bookcases for $350. What amount should Perle include in taxable income as a result of this transaction?

$550

A painter and an accountant agree to trade their services. The painter provides services valued at $550, and the accountant provides services worth $500. What amount should the accountant report as income or expense?

$550 income

In the current year Jensen had the following items: Salary $50,000 Inheritance 25,000 Alimony from a ex-spouse 12,000 Child support from an ex-spouse 9,000 Capital loss on investment stock sale (6,000) What is Jensen's AGI for the current year?

$59,000

Ms. Oak rented a small house to Mr. Acorn for $500 a month for all of 2020. The house was in serious need of rehabilitation. Mr. Acorn, an electrician, approached Ms. Oak with a proposal that he would rewire the house in lieu of payment of his January through April rent (4 months). Ms. Oak accepted Mr. Acorn's offer, and Mr. Acorn completed his work in July. In August, Ms. Oak notified Mr. Acorn that she would be out of town for 3 months starting at the beginning of September, and she asked him to "look after things." While she was away, he paid $200 to have the furnace repaired. When she returned at the end of November, he paid her $1,300 (3 months' rent for September, October, and November less the $200 he had paid for the furnace). Mr. Acorn timely paid his rent on the first of each month for May, June, July, August, and December. What amount should Ms. Oak include in her 2020 gross rental income?

$6,000

Mr. E, a sole proprietor, made the following payments in the current year. Which payment is NOT a capital expenditure?

A payment to have machinery moved from one location to another.

Phil and Joan Crawley made the following payments during 2020: Interest on bank loan (loan proceeds used to purchase U.S. Series HH savings bonds) $4,000 Credit card interest 500 Interest on home mortgage for period April 1 to December 31, 2020 2,700 Points paid to obtain conventional mortgage loan on April 1, 2020 900 The Crawleys had net investment income of $3,000 for the year. What is the maximum amount that the Crawleys can deduct as interest expense in calculating itemized deductions for 2020?

$6,600

During Year 3, Scott charged $4,000 on his credit card for his dependent son's medical expenses. Payment to the credit card company had not been made by the time Scott filed his income tax return in Year 4. However, in Year 3, Scott paid a physician $2,800 for the medical expenses of his wife who died in year 1. Disregarding the AGI percentage threshold, what amount could Scott claim in his Year 3 income tax return for medical expenses?

$6,800

Clyde operated a food distribution business. He leased a small warehouse in 2015 for $60,000 per year for a 3-year term. The lease was to start on July 1, 2018. Clyde paid the first 2 years' rent in advance in May 2018. Clyde then began to make monthly payments of $5,000 starting on July 1, 2020, and continuing on the first of the month for the balance of 2020. What rent expense may Clyde claim in 2020?

$60,000

Gulp Oil Company gives miniature souvenir oil rigs with its name imprinted on them to its suppliers and customers. Each costs the company $2 and is worth $5. Sometimes Gulp Oil gives large quantities of these oil rigs to major wholesalers to be given out to retail customers. Gulp Oil also furnishes display racks to dealers that can be used for both Gulp products and other products. These display racks cost the company $40 and are worth $50. In the current year, 20,000 oil rigs and 500 display racks were given away. How much can Gulp Oil deduct for

$60,000

On June 15, Year 2, Tim sold 100 shares of Y Corporation stock for $20 per share. Tim's records relating to the sale reflect the following information: -Date Purchased -Number of Shares -Adjusted Basis -June 1, Year 1 -40 -$25 -January 2, Year 2 -60 -$10 Determine the gain of loss from the stock sale.

$600 short-term capital gain and $200 long-term capital loss.

Mr. Hawk, a factory assembly line worker, received the following benefits from his employer: Medical insurance plan policy $250 Christmas bonus 125 Reimbursement for college undergraduate physics course during the current year under a nondiscriminatory written plan 450 $40,000 nondiscriminatory group term life insurance policy 475 Membership in a local health club 550 How much is includible in Mr. Hawk's income for the current year?

$675

Happy Lucky drove her car a total of 18,000 miles during 2020. Of this, 12,000 miles was related to business for JR Enterprises. Happy paid $4,500 for gas, $5,500 for repairs, and $500 for tires during the year. Happy accounted to JR for these actual expenses and received a reimbursement for the business portion. How much may JR deduct as travel and transportation expense?

$7,000

In Year 1, Betty Lane bought 100 shares of a listed corporation's stock for $8,000. In Year 4, Betty sold this stock for $15,000. Betty had no other capital gains or losses in Year 4. How much of the Year 4 long-term capital gain should be included in Betty's Year 4 gross income?

$7,000

In 2008, Danielson invested $2,000,000 in DEC, a qualified small business corporation. Six years later, Danielson sold all of the DEC stock for $16,000,000 and purchased an office building with the proceeds. Danielson had not previously excluded any gain on the sale of small business stock. What is Danielson's taxable gain after the exclusion?

$7,000,000

Blake, a single individual, age 67, had a 2020 adjusted gross income of $60,000 exclusive of Social Security benefits. Blake received Social Security benefits of $8,400 and interest of $1,000 on tax-exempt obligations during 2020. What amount of Social Security benefits must be included in Blake's 2020 taxable income?

$7,140

$75

A cash-basis taxpayer should report gross income

For the year in which income is either actually or constructively received, whether in cash or in property

Bobby is a sole proprietor. During 2020, he incurred the following expenses: Rental payments for the next 2 years (i.e., 2021 and 2022) $3,000 Country club dues (Bobby frequently entertains clients at the country club) 7,500 Meal expenses incurred while meeting with clients (costs of meals are reasonable) 1,500 What is the amount of Bobby's expenses that are deductible for 2020?

$750

Ruby Diaz is commissioned salesperson. She is a cash-method taxpayer. At the end of 2020, her earnings for the year were $75,000. During the year, she also received $10,000 in advances on future commissions and repaid $8,000. How much income should Ruby report for 2020?

$77,000

During the current year, Hal Leff sustained a serious injury in the course of his employment. As a result of this injury, Hal received the following payments during the year: Workers' compensation $2,400 Reimbursement from his employer's accident and health plan for medical expenses paid by Hal and not deducted by him 1,800 Punitive damages for personal physical injuries 8,000 The amount to be included in Hal's gross income for the current year should be

$8,000

Harold Crowe had the following capital transactions for Year 1: $3,000 long-term capital loss 9,000 long-term capital gain 2,000 net short-term capital gain What is the amount of Crowe's reportable capital gain net income in the Year 1 Schedule D summary?

$8,000

Tom and Sally White, married and filing joint income tax returns, derive their entire income from the operation of their retail stationery shop. Their 2020 adjusted gross income was $100,000. The Whites itemized their deductions on Schedule A for 2020. The following unreimbursed cash expenditures were among those made by the Whites during 2020: Repair and maintenance of motorized wheelchair for physically handicapped, dependent child $ 600 Tuition, meals, and lodging at special school for physically handicapped, dependent child in an institution primarily for the availability of medical care, with meals and lodging furnished as necessary incidents to that care 8,000 Without regard to the adjusted gross income percentage threshold, what amount may the Whites claim in their 2020 return as qualifying medical expenses?

$8,600

David sells depreciable real property held for more than 12 months in Year 1. It is his only capital transaction for the year, and he has no capital loss carryovers to Year 1. He has a net capital gain of $100,000 from the sale, $80,000 of which is attributed to prior depreciation deductions not recaptured as ordinary income. David is in the 35% income tax bracket. What is(are) the appropriate basket(s) for the net capital gain in Year 1?

$80,000 - 25% basket, $20,000 - 15% basket.

In 2020, Gail Judd received dividends from the following: Life Ins. Co., on Gail's life insurance policy (Total dividends received have not yet exceeded accumulated premiums paid.) $100 Safe National Bank, on bank's common stock 300 Roe Mfg. Corp., a Delaware corporation, on preferred stock 500 What amount of dividend income should Gail report in her 2020 income tax return?

$800

Oscar Cinema Studios rewards its retiring officers with miniature gold statuettes if the officers complete at least 10 years of service. Each statuette costs Oscar $400 and is worth $600. Rank-and-file employees receive plastic replicas of the studio's back lot when they retire and have completed 30 years of devoted service. These plastic replicas cost $50 a piece and are each worth $70. In the current year, Oscar gave two retiring officers each a miniature statuette during a meaningful presentation. How much can Oscar deduct for these gifts?

$800

In the current year, Drake, a disabled taxpayer, made the following home improvements: Pool installation, which qualified asa medical expense and increased thevalue of the home by $25,000- $100,000 Widening doorways to accommodateDrake's wheelchair. The improvement did not increase the value of his home.- 10,000 For regular income tax purposes and without regard to the adjusted gross income percentage threshold limitation, what maximum amount would be allowable as a medical expense deduction in the current year?

$85,000

Mr. and Mrs. Able are investors in a mutual fund that is not part of a qualified retirement plan. For the current year, the fund notified them that it had allocated a $9,500 long-term capital gain to their account. Of this total, only $4,500 was distributed in the current year. In addition, the fund paid $500 in federal income taxes on their behalf. What is the amount of long-term capital gain that the Ables should report on their current-year tax return?

$9,500

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on December 15, Year 1, and an additional 100 shares for $13,000 on December 30, Year 1. On January 3, Year 2, Smith sold the shares purchased on December 15, Year 1, for $13,000. What amount of loss from the sale of Core's stock is deductible on Smith's Year 1 and Year 2 income tax returns? -Year 1 -Year 2

-$0 -$0

Howard, an employee of Ogden Corporation, died on June 30, 2020. During July, Ogden made employee death payments of $10,000 to his widow and $10,000 to his 15-year-old son. What amounts should be included in gross income by the widow and son in their respective tax returns for 2020? -Widow -Son

-$10,000 -$10,000

Roberta Warner and Sally Roger formed the Acme Corporation on October 1, 2020. On the same date Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Roger received 100 shares of Acme's common stock for services rendered. How much should Roger include as taxable income for 2020, and what will be the basis of her stock? -Taxable Income -Basis of Stock

-$10,000 -$10,000

During 2017, Hall spent a total of $1,000 for state lottery tickets. Her lottery winnings for 2017 totaled $200. Hall's lottery transactions should be reported as follows: -Other Income on Page 1 -Schedule A - Itemized Deductions --Subject to 2% AGI Floor --Not Subject to 2% AGI Floor

-$200 --$0 --$200

In January Year 1, Joan Hill bought one share of Orban Corp. stock for $300. On March 1, Year 3, Orban distributed one share of preferred stock for each share of common stock held. This distribution was nontaxable. On March 1, Year 3, Joan's one share of common stock had a fair market value of $450, while the preferred stock had a fair market value of $150. After the distribution of the preferred stock, Joan's bases for her Orban stocks are -Common -Preferred

-$225 -$75

Mr. Smith, a single taxpayer, died in Year 4. His Year 4 taxable income of $40,000 included the following stock transactions: -Stock -Purchased -Sold -Adjusted Basis -Selling Price -Charlie -03/18/Yr 4 -5/20/Yr 4 -$3,000 -$4,500 -Edward -10/10/Yr 1 -7/11/Yr 4 -5,500 -1,100 -Diane -04/23/Yr 4 -7/29/Yr 4 -1,700 -1,600 -Meg -02/05/Yr 2 -9/16/Yr 4 -8,000 -6,000 What is the amount of the capital loss deduction for Year 4 and the amount of the capital loss carryover to the decedent's estate? -Capital Loss Deduction -Carryover

-$3,000 -$0

During Year 4 (the current year), Abby sold several shares of stock held for investment. Abby has $250,000 of ordinary income. The following is a summary of her capital transactions for the year: -Acquired -Sold -Selling Price -Cost -02/15/Year 4 -07/15/Year 5 -$2,100 -$1,400 -06/25/Year 2 -08/01/Year 4 -3,500 -2,300 -09/25/Year 3 -12/15/Year 4 -800 -1,000 -12/28/Year 1 -06/15/Year 4 -600 -900 The stock sold on December 15 of Year 4 was Sec. 1202 certain small business stock. What is the amount of Abby's capital gain (loss) for each tax-rate basket in Year 4, after offsetting? -Long-Term (15% Basket) -Long-Term (28% Basket) -Short-Term

-$700 -$0 -$700

For head of household filing status, which of the following costs are considered in determining whether the taxpayer has contributed more than one-half the cost of maintaining the household? -Food Consumed in the Home -Value of Services Rendered in the Home by the Taxpayer

-Yes -No

Which of the following requirements must be met in order for a single individual to qualify for an additional standard deduction? -Must Be Age 65 or Older or Blind -Must Support Dependent Child or Aged Parent

-Yes -No

Which of the following requirements must be met in order for a single individual to qualify for an additional standard deduction? -Must be age 65 or Older or Blind -Must support dependent child or aged parent

-Yes -No

In 2020, Smith, a divorced person, provided over one-half the support for his widowed mother, Ruth, and his son. Clay, both of whom are U.S. citizens. During 2020, Ruth did not live with Smith. She received $9,850 in Social Security benefits. Clay, a full-time graduate student, and his wife lived with Smith. Clay had no income but filed a joint return for 2020, owing an additional $500 in taxes on his wife's income. How many dependents was Smith entitled to claim on his 2020 tax return?

Jim and Kay Ross contributed to the support of their two children, Dale and Kim, and Jim's widowed parent, Grant. For 2020, Dale, a 19-year-old full-time college student, earned $6,450 as a babysitter. Kim, a 23-year-old bank teller, earned $13,950. Grant received $8,125 in dividend income and $7,125 in nontaxable Social Security benefits. Grant and Kim are U.S. citizens and were over one-half supported by Jim and Kay, but neither of the two currently reside with Jim and Kay. Dale's main place of residence is with Jim and Kay, and he is currently on a temporary absence to attend school. How many exemptions can Jim and Kay claim on their 2020 joint income tax return?

Jim Planter, who reached age 65 on January 1, 2020, filed a joint return for 2020 with his wife, Rita, who is 50 years old and legally blind. Mary, their 21-year-old daughter, was a full-time student at a college until her graduation on June 2, 2020. The daughter had $6,200 of income and provided 25% of her own support during 2020. In addition, during 2020, the Planters were the sole support for Rita's niece, who had no income. How many exemptions should the Planters claim on their 2020 tax return?

The maximum tax rate on net capital gains from individuals for 2020 is

28%

Luis and Rosa, citizens of Costa Rica, moved to the United States in Year 1 where they both lived and worked. In Year 3, they provided the total support for their four young children (all under the age of 10). Two children lived with Luis and Rosa in the U.S., one child lived with his aunt in Mexico, and one child lived with her grandmother in Costa Rica. None of the children earned any income. All of the children were citizens of Costa Rica. The child in Mexico was a resident of Mexico, and the child in Costa Rica was a resident of Costa Rica. How many total exemptions (personal exemptions plus exemptions for dependents) may Luis and Rosa claim on their Year 3 joint income tax return?

On January 3 of the current year, Wilson purchased 300 shares of common stock in Corporation Why for $120 per share. Four months later, he purchased 100 additional shares at $180 per share. On December 10 of the current year, Wilson received a 10% nontaxable stock dividend. The new and the old stock are identical. What is the amount of Wilson's basis in each share of stock of Corporation Why stock after the stock dividend?

330 shares at $109 a share and 110 shares at $164 a share.

Banks Corp., a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses. The employees are present at the meals, which are neither lavish nor extravagant, and the reimbursement is not treated as wages subject to withholdings. For 2020, what percentage of the meal expense may Banks deduct?

50%

With regard to the inclusion of Social Security benefits in gross income for the 2020 tax year, which of the following statements is true?

85% of the Social Security benefits is the maximum amount of benefits to be included in gross income.

Gary Judd is an individual proprietor trading as Lake Stores, an accrual basis enterprise that had been using the allowance method for determining bad debt expense for both book and tax purposes. At December 31, 2019, Lake's allowance for doubtful accounts ("bad debt reserve") was $20,000. In Lake's 2020 budget, it was estimated that $3,000 of trade accounts receivable would become worthless in 2020. However, actual bad debts amounted to $4,000 in 2020. In Lake's 2017 Schedule C of Form 1040, Lake is allowed

A $4,000 deduction for bad debts and does not have to include any portion of the "reserve" in taxable income.

All of the following individuals, who meet the income and residency requirements, qualify for the Earned Income Credit in 2020 EXCEPT

A 22-year-old married individual whose spouse is 18 years old.

All of the following statements are true EXCEPT

A brother-in-law must live with the taxpayer the entire year to be claimed as a dependent even if the other tests are met.

Shaney Corporation repurchased its own outstanding bonds in the open market for $258,000 on May 31, 2020. The bonds were originally issued on May 5, 2016, at face value of $250,000. For its tax year ending December 31, 2020, Shaney should report

A deduction of $8,000.

On March 10, Year 6, James Rogers sold 300 shares of Red Company common stock for $4,200. Rogers had acquired the stock in Year 1 at a cost of $5,000. On April 4, Year 6, he repurchased 300 shares of Red Company common stock for $3,600 and held them until July 18, Year 6, when he sold them for $6,000. How should Rogers report the above transactions for Year 6?

A long-term capital gain of $1,600.

Capital assets include

A manufacturing company's investment in U.S. Treasury bonds.

Which of the following statements is correct regarding the deductibility of an individual's medical expenses?

A medical expense deduction is allowed for payments made in the current year for medical services received in earlier years.

Which of the following is an evasion of tax?

A parent reporting his or her own taxable income on a child's tax return.

A 22-year-old full-time student earned $11,000 in salary and received $9,000 in interest from corporate bonds. The bonds were a gift from the student's grandparents. The student's parents pay more than half of the student's support, including $25,000 in tuition. Which of the following statements is correct regarding the student's current-year income tax?

A portion of the student's interest income and NO other income will be subject to the "kiddie tax."

Which one of the following will result in an accruable expense for an accrual-basis taxpayer?

A repair completed prior to year end but not invoiced.

Which one of the following is a capital asset when a business was built by the taxpayer?

Goodwill.

All of the following expenses incurred in the course of operating a business are deductible business expenses EXCEPT

Advertising in a convention program of a political party. The proceeds from the publication of the program are for the local use of the political party.

George owns a cabin in the Colorado mountains. Last year, the cabin was rented for 120 days at market value. Additionally, George and his family used the cabin for 45 days. Within parameters, George can deduct expenses related to the production of rental income. Which of the following statements is FALSE?

All deductions may be taken and a loss is allowed.

Which of the following is NOT considered part of keeping up a home for purposes of determining head-of-household filing status?

Allowance for depreciation

Which of the following items is a capital asset?

An automobile for personal use.

Which of the following is NOT a requirement that must be met in determining whether a taxpayer is considered unmarried for head-of-household filing status purposes?

For the entire year, an individual's home must be the main home of his or her child, stepchild, or adopted child, whom (s)he or the noncustodial parent can properly claim as a dependent.

Joe and Barb are married, but Barb refuses to sign a Year 1 joint return. On Joe's separate Year 1 return, an exemption may be claimed for Barb if

Barb had no gross income and was not claimed as another person's dependent in Year 1.

Sara Hance, who is single and lives alone is Idaho, has no income of her own and is supported in full by the following persons. -Amount of Support -Percent of Total Almo (unrelated friend)-$2,400 -48 Ben (Sara's brother)-2,150 -43 Carl (Sara's son)-450 -9 Total -$5,000 -100 Under a multiple support agreement, Sara can be claimed as a dependent by

Ben

DAC Foundation awarded Kent $75,000 in recognition of lifelong literary achievement. Kent was not required to render future services as a condition to receive the $75,000. What condition(s) must have been met for the award to be excluded from Kent's gross income? I. Kent was selected for the award by DAC without any action on Kent's part. II. Pursuant to Kent's designation, DAC paid the amount of the award either to a governmental unit or to a charitable organization.

Both I and II.

Which payment(s) is(are) included in a recipient's gross income? I. Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement toward obtaining the degree. II. A grant to a Ph.D. candidate for his participation in a university sponsored research project for the benefit of the university.

Both I and II.

Calvin and Gloria were divorced in a prior year. As part of the final pre-2019 divorce decree of the court, Calvin was ordered to pay $500 a month toward the support of his two children, Robert and Myra. During 2015, Calvin got 6 months behind in his child support payments. As a result of his delinquency, two things happened in 2020 to allow Calvin to catch up in his payments. -Gloria had Calvin's wages garnished for $1,000 to pay 2 delinquent months' child support. -Calvin, a cash-basis taxpayer, was due $2,000 for past work he had done for the XYZ Corp. He told the XYZ Corp. to pay the $2,000 directly to Gloria to make up 4 months' child support. The XYZ Corp. paid the money directly to Gloria. Which of the following statements is true?

Calvin constructively received both the $1,000 wages and the $2,000 income in 2020.

Charitable contributions subject to the 50% limit that are NOT fully deductible in the year may be

Carried forward 5 years.

In Year 2, Carson was hired as an employee of Barton Co. As part of his employment contract, Barton provided a company car for Carson's spouse, Mary, who is not employed. The value for the use of the automobile in Year 2 was $8,000. Carson does not use the automobile. Carson and Mary file separate individual income tax returns. What amounts, if any, should be reported as a taxable fringe value on Carson and Mary's Year 2 income tax returns for personal use of the automobile?

Carson $8,000; Mary $0

Chrisp, a freelance photographer, uses the cash method for business. The tax year ends on December 31. Which of the following should not be included in the determination of Chrisp's gross income for the current year?

Chrisp received a dividend check on January 4 of the following year. The dividends were declared payable on December 30 of the current year.

Which of the following sales should be reported as a capital gain?

Government bonds sold by an individual investor.

Maria Mordant acquired all of the original stock of The Diamond, Inc., a Sec. 1244 small business, on January 10, Year 1, for $10,000. She contributed another $9,000 to capital before selling all of her stock on June 30, Year 5, for $10,000. How much loss should Maria report on her Year 5 return, and is the loss capital or ordinary?

Deduct $4,737 as ordinary loss and $4,263 as capital loss subject to limitations.

Nan, a cash basis taxpayer, borrowed money from a bank and signed a 10-year interest-bearing note on business property on January 1 of the current year. The cash flow from Nan's business enabled Naan to prepay the first 3 years of interest attributable to the note on December 31 of the current year. How should Nan treat the prepayment of interest for tax purposes?

Deduct the current year's interest and amortize the balance over the next 2 years.

Dale received $1,000 in 2020 for jury duty. In exchange for regular compensation from her employer during the period of jury service, Dale was required to remit the entire $1,000 to her employer in 2020. In Dale's 2020 income tax return, the $1,000 jury duty fee should be

Deducted from gross income in arriving at adjusted gross income.

For the year ended December 31, 2020, Don Raff earned $1,000 interest at Ridge Savings Bank on a certificate of deposit scheduled to mature in 2022. In January 2021, before filing his 2020 income tax return, Raff incurred a forfeiture penalty of $500 for premature withdrawal of the funds. Raff should treat this $500 forfeiture penalty as a

Deduction from gross income in arriving at 2021 adjusted gross income.

An individual starts paying student loan interest in the current year. For how many years may the individual deduct a portion of the student loan interest?

Duration of time that interest is paid.

Which of the following credits can result in a refund even if the individual has NO income tax liability?

Earned Income Credit

Which of the following is NOT an itemized deduction?

Employee business expenses.

In Year 1, Farb, a cash-basis individual taxpayer, received an $8,000 invoice for personal property taxes. Believing the amount to be overstated by $5,000, Farb paid the invoiced amount under protest and immediately started legal action to recover the overstatement. In November Year 2, the matter was resolved in Farb's favor, and he received a $5,000 refund. Farb itemizes deductions on his tax returns. Which of the following statements is true regarding the deductibility of the property taxes?

Farb should deduct $8,000 in his Year 1 income tax return and report the $5,000 refund as income in his Year 2 income tax return.

Among which of the following relatives are losses from sales and exchanges recognized for tax purposes?

Father-in-law and son-in-law.

The fringe benefit that must be included in wages and reported on Form W-2 is

Group-term life insurance coverage in excess of $50,000.

Hanna's widowed mother collects $1,200 per month in Social Security benefits, which she spends on medicine, clothing, transportation, and her dogs. Hanna pays $1,500 per month for her mother's rent, utilities, and groceries. Hanna has been legally separated for 2 years and lives alone. Additionally, all of Hanna's children are adults and support themselves. Which of the following conditions must be satisfied for Hanna to both claim her mother as a dependent and herself as head of head of household?

Hanna must furnish more than 50% of the qualifying costs of maintaining her mother's household.

Peter is an auto mechanic. On November 25, Year 1, he made some major auto repairs on Harry's Mercedes. Harry is an attorney. In exchange for the service, Harry is going to draft Peter's will and represent him when he settles on his new house. Harry will perform all of these services in Year 2. The repair bill for the Mercedes came to $1,200. Both Peter and Harry are cash-basis taxpayers. How do they report this income?

Harry reports $1,200 in Year 1 and Peter reports $1,200 in Year 2.

Four years ago, when Cox's spouse died, Cox filed a joint tax return for that year. Cox did not remarry, but continued to provide full support for a minor child who has been living with Cox. What is Cox's most advantageous filing status for the current year?

Head of Household

During 2020, Robert Moore, who is 50 years old and unmarried, maintained his home in which he and his widowed father, age 75, resided. His father had $3,350 interest income from a savings account and also received $3,350 from Social Security during 2020. Robert provided 60% of his father's total support for 2020. What is Robert's filing status for 2020, and how many dependents should be claimed on his tax return?

Head of household and one dependent.

Ms. N, who is married, wants to file as head of household for the current year. Which of the following will prevent her from filing as head of household?

Her spouse lived in her home for the final 6 months of the current year.

Which of the following falls under the tax planning strategy of income shifting?

Hiring a family member in order to increase business expenses and increase family global net income.

Mock operates a retail business selling illegal narcotic substances. When Mock calculates business income, he may adjust for I. Cost of merchandise II. Business expenses other than the cost of merchandise.

I only.

Clark, quarterback for the Metropolis Superheroes, Inc., football team, is also the majority shareholder. He performs no services other than playing as quarterback for the team. His salary is twice that of the next highest-paid player in the league, even though his performance is below average for a quarterback. What is the most likely treatment of his salary upon audit of the Metropolis Superheroes by the IRS?

It is deductible to the amount of the reasonable value of Clark's services.

Ms. Birch purchased the following stocks: 300 shares of Music Corp. on 1/18/16 for $3,000 200 shares of Play Corp. on 2/11/16 for $2,000 600 shares of Fun Corp. on 4/27/16 for $16,000 100 shares of Book Corp. on 12/19/16 for $8,000 On April 27, 2017, Ms. Birch sold all of the above stock for the following amounts: Music Corp.$ 5,000 Play Corp.10,000 Fun Corp.4,000 Book Corp.14,000 What are Ms. Birch's net long-term capital gains or losses (LTCG/LTCL) and short-term capital gains or losses (STCG/STCL) on the above transactions?

LTCG, $10,000; STCL, $6,000.

The 2020 deduction by an individual taxpayer for interest on investment indebtness is

Limited to the taxpayer's 2020 net investment income.

In Year 4, Bach sold a painting for $50,000 purchased for his personal use in Year 1 at a cost of $20,000. In Bach's Year 4 income tax return, the sale of the painting should be treated as a transaction resulting in

Long-term capital gain.

An individual had the following capital gains and losses for the year: Short-term capital loss $70,000 Long-term gain (unrecaptured Section 1250 at 25%) 56,000 Collectibles gain (28% rate) 10,000 Long-term gain (15% rate) 20,000 What will be the net gain(loss) reported by the individual and at what applicable tax rate(s)?

Long-term gain of $16,000 at the 15% rate.

A taxpayer's spouse dies in August of the current year. Which of the following is the taxpayer's filing status for the current year?

Married filing jointly.

Mr. W died early in the current year. Mrs. W remarried in December of the same year and therefore was unable to file a joint return with Mr. W. What is the filing status of the decedent, Mr. W?

Married filing separate return.

The 50% limit on deductibility of business-related expenses applies to which of the following?

Meals while traveling away from home on business and meals provided to customers at your place of business.

Books of account or record sufficient to establish the amount of gross income, deductions, credit, or other matters required to be shown in any tax or information return

Must be maintained as long as the contents may be material in administration of any internal revenue law.

Which of the following, if any, are among the requirements to enable a taxpayer to be classified as a "qualifying widow(er)"? I. A dependent has lived with the taxpayer for 6 months II. The taxpayer has maintained the cost of the principal residence for 6 months.

Neither I nor II.

A nonresident alien divorced couple (Taxpayer A and Taxpayer B) lived together providing 100% of their costs of the household and have a dependent child living with them all year. Neither has remarried by year end. Taxpayer A provides of 1/2 of the cost of the household. Which taxpayer can file under head of household status?

Neither.

Which of the following statements about business meals is true?

No deduction is allowed for meals that are lavish or extravagant.

In 2020, the Brown borrowed $20,000, secure by their home, to pay their son's college tuition. At the time of the loan, the fair market value of their home was $400,000, and it was unencumbered by other debt. The interest on the loans qualifies as

Nondeductible interest.

A cash-basis taxpayer made a bona fide, nonbusiness loan to an acquaintance in Year 1. At the end of Year 2, it is determined that the taxpayer will likely be able to collect only 20% of the principal, and no interest has been or will be collected. How should the loss be treated for tax purposes in Year 2?

None of the loss is deductible in Year 2.

Hall paid the following expenses in 2017 pertaining to her home: realty taxes, $3,400; mortgage interest, $7,000; casualty insurance, $490; assessment by city for construction of a sewer system, $910; interest of $1,000 on a personal, unsecured bank loan, the proceeds of which were used for home improvements. Hall does not rent out any portion of the home. The casualty insurance premium of $490 is

Not deductible.

Which of the following statements about losses is federally declared disaster areas is FALSE?

Once made, the election to deduct the loss on the prior-year return cannot be revoked.

In 2020, Sam Dunn provided more than half the support for his wife, his father's brother, and his cousin. Sam's wife was the only relative who was a member of Sam's household. None of the relatives had any income, nor did any of them file an individual or a joint return. All of these relatives are U.S. citizens. Which of these relatives should be claimed as a dependent or dependents by Sam for the 2020 joint return?

Only his father's brother.

Concerning a pre-2019 divorce, which of the following items may be considered alimony?

Payment made to a third party on behalf of the former spouse for the former spouse's medical expenses.

With regard to tax recognition of alimony paid in 2020 per a 2018 divorce, which one of the following statements is true?

Payments must terminate at the death of the payee spouse.

Which of the following is NOT treated as prepayment of tax?

Penalty for prior year underpayment of tax.

All of the following expenses paid or incurred in the course of operating a business are deductible as business expenses EXCEPT

Political contributions.

Emil Gow's wife died in Year 1. Emil did not remarry and continued to maintain a home for himself and his dependent infant child during Year 2 and Year 3, providing full support for himself and his child. For Year 1, Emil properly filed a joint return. For Year 3, Emil's filing status is

Qualifying widower

Jerry, a general contractor by trade, is a tenant of Montgomery Apartments. In exchange for 4 months' rent ($500/month), Jerry provided the following items and services for Paul, the owner of the apartments: Paint and miscellaneous supplies for the apartments $ 300 Labor for painting and miscellaneous repairs 700 Labor and supplies for paving the apartment parking area 3,000 How should Paul treat this transaction on his Schedule E?

Rental income of $2,000, rental expenses of $1,000, and depreciation computed on the capital expenditures of $3,000.

Scholarships and fellowships awarded to degree candidates are NOT taxable UNLESS they are used for

Room and board.

Jim Domuch, a calendar-year taxpayer, operates a novelty shop as a sole proprietor. During the current year, he incurred the following expenses in his business. Which is NOT deductible in the current year?

Sales taxes on the purchase of $50,000 of equipment used in the business.

State X imposes a tax based upon the amount of fixed assets a business owns. An individual proprietor would deduct this tax on which schedule?

Schedule C.

Company A, a U.S. company, deducted costs from research and development of a product in the U.S., then licensed rights to the product to a foreign subsidiary in a lower tax jurisdiction. The subsidiary then manufactured the product and sold each unit back to Company A (the parent company). This is an example of which tax planning technique?

Shifting of income

Shifty borrowed $10,000 from Easy. When Easy tried to collect the debt, she discovered that Shifty had moved to another state. Easy tracked Shifty down and demanded payment. Knowing it would cost Easy a substantial amount of time and money to collect the debt, Shifty offered to pay $5,000 on the condition that Easy cancel the remainder of the debt. Easy agreed to accept the $5,000 and cancel the remaining $5,000 of the debt. Which of the following statements is correct?

Shifty has $5,000 of income when Easy cancels the debt.

A spouse died on December 31, Year 1. The couple had no dependents. What should be the filing status of the surviving spouse in Year 2?

Single.

Fred Harvey, a cash-basis taxpayer, elected to itemize his deductions on his 2019 income tax return. Harvey plans to itemize again in 2020, and the following information relating to his state income taxes is available: Taxes withheld in 2020 $2,500 Refund received in 2020 of 2019 tax 500 Assessment paid in 2020 of 2018 tax 700 The above information should be reported by Harvey in his 2018 tax return as

State and local income taxes of $3,200 and gross income from state and local income refund of $500.

George, a sole proprietor, may deduct various taxes imposed by federal, state, local, and foreign governments, if he incurs them in the ordinary course of his business. All of the following are deductible on Schedule C, Form 1040, EXCEPT

State and local income taxes on net income.

"Bear" Wall is a dealer in stocks. She sells them to customers in the ordinary course of business. "Bull" Street is in the business of trading stocks for his own benefit. He buys and sells stocks as his sole means of support and business activity. Which of the following statements is true?

Stocks held by "Bear" are not capital assets, but stocks held by "Bull" are capital assets.

In which of the following situations may taxpayers file as married filing jointly?

Taxpayers who are married but lived apart during the year.

In Year 1, Stewart Corp. properly accrued $5,000 for an income item on the basis of a reasonable estimate. In Year 2, after filing its Year 1 federal income tax return, Stewart determined that the exact amount was $6,000. Which of the following statements is true?

The $1,000 difference is includible in Stewart's Year 2 income tax return.

Which one of the following statements is true with regard to an individual taxpayer who has elected to amortize the premium on a bond that yields taxable interest?

The bond's basis is reduced by the amortization.

Darr, an employee of Source C corporation, is not a shareholder. Which of the following should be included in Darr's gross income?

The dividend income on shares of stock that the taxpayer received for services rendered.

An employee who has had Social Security tax withheld in an amount greater than the maximum for a particular year may claim

The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers.

Rachel Robinson, age 52, receives a $500 per month annuity from her pension plan. The annuity started January 1, 2020. Her contributions to the plan totaled $39,600. The number of anticipated monthly payments is 360. What is Rachel's nontaxable part of the annuity payment?

The investment in the contract divided by the number or anticipated monthly payments.

If a security becomes worthless in the current taxable year, it is treated as sold or exchanged on

The last day of the current taxable year.

An individual's losses on transactions entered into for personal purposes are deductible only if

The losses qualify as casualty or theft losses.

Which of the following elements is NOT part of the directly related test for business means?

The meal took place directly before or after a business discussion.

A husband and wife can file a joint return even if

The spouses have different accounting methods.

Which of the following disqualifies an individual from the Earned Income Credit?

The taxpayer has a filing status of married filing separately.

Utilizing MACRS depreciation (accelerating the depreciation deduction) instead of electing straight-line depreciation is an example of which tax planning technique?

Timing

All of the following payments made to employees would be currently deductible as business expenses EXCEPT

Wages paid to employees for constructing a new building to be used in the business.

When should a noncorporate taxpayer elect to forgo Sec. 179 or elect out of bonus depreciation deductions in the current year?

When the taxpayer has low marginal tax rates in the current year and expects to be in higher marginal rates in the future.

Capital losses incurred by a married couple filing a joint return

Will be allowed to the extent of capital gains, plus up to $3,000 of ordinary income.

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