Module 35: Individual Tax
116. All of the following taxes are deductible as itemized deductions by a self-employed taxpayer EXCEPT: a. Foreign real estate taxes. b. Foreign income taxes. c. Personal property taxes. d. One-half of self-employment taxes.
d
122. George Granger sold a plot of land to Albert King on July 1, 2015. Granger had not paid any realty taxes on the land since 2013. Delinquent 2014 taxes amounted to $600, and 2015 taxes amounted to $700. King paid the 2014 and 2015 taxes in full in 2015, when he bought the land. What portion of the $1,300 is deductible by King in 2015? a. $353 b. $700 c. $952 d. $1,300
a
124. Alex and Myra Burg, married and filing joint income tax returns, derived their entire income from the operation of their retail candy shop. Their 2015 adjusted gross income was $54,142. The Burgs itemized their deductions on Schedule A for 2015. The following unreimbursed cash expenditures were among those made by the Burg during 2015: - State income tax: $1,200 - Self-employment tax: $7,650 What amount should the Burgs deduct for taxes in their itemized deductions on Schedule A for 2015? a. $1,200 b. $3,825 c. $5,025 d. $7,650
a
157. Al and Mary Lew are married and filed a joint 2015 income tax return in which they validly claimed the $4,000 personal exemption for their dependent seventeen-year-old daughter, Doris. Since Doris earned $5,400 in 2015 from a part-time job at the college she attended full-time, Doris was also required to file a 2015 income tax return. What amount was Doris entitled to claim as a personal exemption in her 2015 individual income tax return? a. $0 b. $1,000 c. $3,900 d. $5,400
a
182. Rich is a cash-basis self-employed air-conditioning repairman with current year gross business receipts of $20,000. Rich's cash disbursements were as follows: - Air conditioning parts: $2,500 - Yellow Pages listing : $2,000 - Estimated federal income taxes on self-employment income: $1,000 - Business long-distance telephone calls: $400 - Charitable contributions: $200 What amount should Rich report as net self-employment income? a. $15,100 b. $14,900 c. $14,100 d. $13,900
a
195. Foreign income taxes paid by a corporation a. May be claimed either as a deduction or as a credit, at the option of the corporation. b. May be claimed only as a deduction. c. May be claimed only as a credit. d. Do NOT qualify either as a deduction or as a credit.
a
204. Christ Baker's adjusted gross income on her 2014 tax return was $160,000. The amount covered a twelve month period. For the 2015 tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of I. 90% of the tax on the return for the current year, paid in four equal installments. II. 100% of prior year's tax liability, paid in four equal installments. a. I only. b. II only. c. Both I and II. d. Neither I nor II.
a
213. If an individual paid income tax in 2014 but did NOT file a 2014 return because his income was insufficient to require the filing of a return, the deadline for filing a refund claim is a. Two years from the date the tax was paid. b. Two years from the date a return would have been due. c. Three years from the date the tax was paid. d. Three years from the date a return would have been due.
a
25. In July 1996, Dan Farley leased a building to Robert Shelter for a period of fifteen years at a monthly rental of $1,000 with no option to renew. At that time the building had a remaining estimated useful life of twenty years. Prior to taking possession of the building, shelter made improvements at a cost of $18,000. These improvements had an estimated useful life of twenty years at the commencement of the lease period. The lease expired on June 30, 2015, at which point the improvement had a fair market value of $2,000. The amount that Farley, the landlord, should include in his gross income for 2015 is a. $6,000 b. $8,000 c. $10,000 d. $18,500
a
36. Ed and Ann Ross were divorced in January of the current year. In accordance with the divorce decree, Ed transferred the title in their home to Ann. The home, which had a fair market value of $150,000, was subject to a $50,000 mortgage that had twenty more years to run. Monthly mortgage payments amount to $1,000. Under the terms of settlement, Ed is obligated to make the mortgage payments on the home for the full remaining twenty-year term of the indebtedness, regardless of how long Ann lives. Ed made twelve mortgage payments during the current year. What amount is taxable as alimony in Ann's current year return? a. $0 b. $12,000 c. $100,000 d. $112,000
a
39. Mr. and Mrs. Alvin Charak took a foster child, Robert, into their home in 2015. A state welfare agency paid the Charaks $3,900 during the year for related expenses. Actual expenses incurred by the Charaks during 2015 in caring for Robert amounted to $3,000. The remaining $900 was spent by the Charaks in 2015 towards their own personal expenses. How much of the foster child payments is taxable income to the Charaks in 2015? a. $0 b. $900 c. $2,900 d. $3,900
a
47. Amy Finch had the following cash receipts during 2015: - Net rent on vacant lot used by a car dealer (lessee pays all taxes, insurance, and other expenses on the lot) - $6,000 - Advance rent from lessee of above vacant lot, such advance to be applied against rent for the last two months of the five-year lease in 2019. - $1,000 How much should Amy include in her 2015 taxable income for rent? a. $7,000 b. $6,800 c. $6,200 d. $6,000
a
48. Royce Rentals, Inc., an accrual-basis taxpayer, reported rent receivable of $25,000 and $35,000 in its 2015 and 2014. balance sheets, respectively. During 2015, Royce received $50,000 in rent payments and $5,000 in nonrefundable rent deposits. In Royce's 2015 corporate income tax return, what amount should Royce include as rent revenue? a. $45,000 b. $5,000 c. $55,000 d. $65,000
a
5. David Autrey was covered by an $80,000 group-term life insurance policy of which his life was the beneficiary. Autrey's employer paid the entire cost of the policy, for which the uniform annual premium was $8 per 1,000 of coverage. Autrey died during 2015, and his wife was paid $80,000 proceeds of the insurance policy. What amount of group-term life insurance proceeds must be included in gross income by Autrey's widow? a. $0 b. $30,000 c. $50,000 d. $80,000
a
60. The uniform capitalization method must be used by I. Manufacturers of tangible personal property. II. Retailers of personal property with $2 million dollars in average annual gross receipts for the three preceding years. a. I only. b. II only. c. Both I and II. d. Neither I nor II.
a
67. Jason Budd, CPA, reports on the cash basis. In April 2014, Budd billed a client $3,5000 for the following professional services: - Personal estate planning : $2,000 - Personal tax return preparation: $1,000 - Compilation of business financial statements: $500 No part of the $3,500 was ever paid. In April 2015, the client declared bankruptcy, and the $3,500 obligation became totally uncollectible. What loss can Budd deduct on his 2015 tax return for this bad debt? a. $0 b. $500 c. $1,500 d. $3,500
a
73. Cobb, an unmarried individual, had an adjusted gross income of $200,000 in 2015 before any IRA deduction, taxable social security benefits, or passive activity losses. Cobb incurred a loss of $30,000 in 2015 from rental real estate in which he actively participated what amount of loss attributable to this rental real estate can be used in 2015 as an offset against income from non passive sources? a. $0 b. $12,500 c. $25,000 d. $30,000
a
80. Krol Corp., a calendar-year taxpayer, purchased used furniture and fixtures for use in its business and placed the property in service on November 1, 2014. The furniture and fixtures cost $56,000 and represented Krol's only acquisition of depreciable property during the year. Krol did NOT elect to expense any part of the cost of the property under Sec 179. What is the amount of Krol Corp.'s depreciation deduction for the furniture and fixtures under the Modified Accelerated Cost Recovery System (MACRS) for 2014? a. $2,000 b. $2,667 c. $8,000 d. $16,000
a
192. To qualify for the child care credit on a joint return, at least one spouse must Have an adjusted gross income of $10,000 or less / Be gainfully employed when related expenses are incurred a. Yes / Yes b. No / No c. Yes / No d. No / Yes
b
108. Tom and Sally White, married and filing joint income tax returns, derived their entire income from the operation of their retail stationary shop. Their 2015 adjusted gross income was $100,000. The Whites itemized their deductions on Schedule A for 2015. The following unreimbursed cash expenditures were among those made by the Whites during 2015: - Repair and maintenance of motorized wheelchair for physically handicapped dependent child: $600 - Tuition, meals, 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 2015 return as qualifying medical expenses? a. $8,600 b. $8,000 c. $600 d. $0
a.
102. Which one of the following statements concerning the deduction for interest on qualified education loans is NOT correct? a. The deduction is available even if the taxpayer does not itemize deductions. b. The deduction only applies to the first sixty months of interest payments. c. Qualified education expenses include tuition fees, room, and board. d. The educational expense must relate to a period when the student was enrolled on at least a half-time basis.
b
104. During 2015, George (age nine and claimed as a dependency exemption by his parents) received dividend income of $3,700, and had wages from an after-school job of $1,700. What is the amount hat will be reported as George's taxable income for 2015? a. $250 b. $3,350 c. $3,450 d. $5,400
b
121. During 2015, Jack and Mary Bronson paid the following taxes: - Taxes on residence (for period January 1 to December 31, 2015) : $2,700 - State motor vehicle tax on value of the car : $360 The Bronson sold their house on June 30, 2015, under an agreement in which the real estate taxes were not prorated between the buyer and sellers. What mount should the Bronsons deduct as taxes in calculating itemized deductions for 2015? a. $1,350 b. $1,692 c. $2,160 d. $3,070
b
126. The Browns borrowed $20,000 secured by their home, to purchase a new automobile. 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 loan qualifies as a. Deductible personal interest. b. Deductible qualified residence interest. c. Nondeductible interest. d. Investment interest expense.
b
132. Smith, a single individual, made the following charitable contributions during the current year. Smith's adjusted gross income is $60,000. - Donation to Smith's church: $5,000 - Artwork donated to the local art museum. Smith purchased it for $2,000 four months ago. A local art dealer appraised it for: $3,000 - Contribution to a needy family : $1,000 What amount should Smith deduct as a charitable contribution? a. $5,000 b. $7,000 c. $8,000 d. $9,000
b
136. Ruth Lewis has adjusted gross income of $100,000 for 2015 and itemizes her deductions. On September 1, 2015, she made a contribution to her church of stock held for investment for two years that cost $10,000 and had a fair market value of $70,000. The church sold the stock for $700,000 on the same date. Assume that Lewis made no other contribution during 2015 and made no special election in regard to this contribution on her 2015 tax return. How much should Lewis claim as a charitable contribution deduction for 2015? a. $50,000 b. $30,000 c. $20,000 d. $10,000
b
138. Under a written agreement between Mrs. Normal Lowe and an approved religious exempt organization, a ten-year-old girl from Vietnam came to live in Mrs. Lowe's home on August 1, 2015, in order to be able to start school in the US on September 3, 2015. Mrs. Lowe actually spent $500 for food, clothing, and school supplies for the student during 2015, without receiving any compensation or reimbursement of costs. What portion of the $500 may Mrs. Lowe deduct on her 2015 income tax return as a charitable contribution? a. $0 b. $200 c. $250 d. $500
b
140. Jimet, an unmarried taxpayer, qualified to itemize 2015 deductions. Jimet's 2015 adjusted gross income was $30,000 and he made a $2,000 cash donation directly to a needy family. In 2015, Jimet also donated stock, valued at $3,000, to his church. Jimet had purchased the stock four months earlier for $1,500. What was the maximum amount of the charitable contribution allowable as an itemized deduction on Jimet's 2015 income tax return? a. $0 b. $1,500 c. $2,000 d. $5,000
b
146. The appraisal fee to determine the amount of the Hoyst's fire loss was a. Deductible from gross income in arriving at adjusted gross income. b. Subject to the 2% of adjusted gross income floor for miscellaneous itemized deductions. c. Deductible after reducing the amount by $100 c. Not deductible.
b
155. Jim and Kay Ross contributed to the support of their two children, Dale and Kim, and Jim's widowed parent, Grant. For 205, Dale, a twenty-year-old full-time college student, earned $4,500 from a part-time job. Kim, a twenty-three- year-old bank teller, earned $18,000. Grant received $5,000 in dividend income and $4,000 in nontaxable social security benefits. Grant, Dale. and Kim are US citizens and were over one-half supported by Jim and Kay. How many exemptions can Jim and Kay claim on their 2015 joint income tax return? a. Two b. Three c. Four d. Five
b
162. In 1015, 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 US citizens. Which of these relatives should be claimed as a dependent or dependents on Sam's 2015 return? a. Only his wife. b. Only his father's brother. c. Only his cousin. d. His wife, his father's brother, and his cousin.
b
163. In 2015, Alan Kott provided more than half the support for his following relatives, none of whom qualified as a member of Alan's household: Cousin Niece Foster parent None of these relatives had any income, nor did any of these relatives file an individual or joint return. All of these relatives are US citizens. Which of these relatives could be claimed as a dependent on Alan's 2015 return? a. No one b. Niece. c. Cousin. d. Foster parent
b
180. The following information pertains to Joe Diamond, a cash-method sole proprietor for the current year: - Gross receipts from business: $150,000 - Interest income from personal investments: $10,000 - Cost of goods sold: $80,000 - Other business operating expenses: $40,000 What amount of net earnings from self-employment would be multiplied by the applicable self-employment tax rate to compute Diamond's self-employment tax for the current year? a. $25,410 b. $27,705 c. $30,000 d. $40,000
b
194. The following information pertains to Wald Corp's operations for the current year: World wide taxable income : $300,000 US source taxable income: $180,000 US income tax before foreign tax credit: $96,000 Foreign non-business-related interest earned: $30,000 Foreign income taxes paid on non-business-related interest earned: $12,000 Other foreign source taxable income: $90,000 Foreign income taxes paid on other foreign source taxable income: $27,000 What amount of foreign tax credit may Wald claim for the current year? a. $28,800 b. $36,600 c. $38,400 d. $39,000
b
40. Pierre, a headwaiter, received tips totaling $2,000 in December 2014. On January 5, 2015, 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? a. $2,000 in 2014. b. $2,000 in 2015. c. $1,000 in 2014, and $1,000 in 2015. d. $167 in 2014, and $1,833 in 2015.
b
51. Which of the following taxpayers may use the cash method of accounting? a. A tax shelter. b. A qualified personal service corporation. c. A C corporation with annual gross receipts of $50,000,000. d. A manufacturer with annual gross receipts of $3,000,000
b
53. Axis Corp. is an accrual-basis calendar-year corporation. On December 13, 2014, the Board of Directors declared a 2% of profits bonus to all employees for services rendered during 2014 and notified them in writing. None of the employees own stock in Axis. The mount represents reasonable compensation for services rendered and was paid on March 13, 2015. Axis' bonus expense may a. Not be deducted on Axis' 2014 tax return because the per share employee amount CANNOT be determined with reasonable accuracy at the time of the declaration of the bonus. b. Be deducted on Axis' 2014 tax return. c. Be deducted on Axis' 2015 tax return. d. Not be deducted on Axis' tax return because payment is a disguised dividend.
b
54. On December 1, 2014, Michaels, a self-employed cash-basic calendar-year taxpayer, borrowed $100,000 to use in her business. The loan was to be repaid on November 30, 2015. Michaels paid the entire interest of $12,000 on December 1, 2014. What amount of interest is deductible on Michael's 2015 income tax return? a. $12,000 b. $11,000 c. $1,000 d. $0
b
69. During the current year holiday season, Palo Corp. gave business gifts to seventeen customers. These gifts, which were not of an advertising nature, had he following fair market values: - 4 at $10 - 4 at $25 - 4 at $50 - 5 at $100 How much of these gifts was deductible as a business expense for the current year? a. $840 b. $365 c. $140 d. $0
b
107. Charlene and Gene Blair, age 51, are married and filed a joint return for 2015. Their medical related expenditures for 2015 included the following: - Medical insurance premium: $1,550 - Medicines prescribed by doctors: $450 - Aspirin and over-the-counter cold capsules: $80 - Unreimbursed doctor fees: $1,000 - Transportation to and from doctors: $150 - Emergency room fee: $500 The emergency room fee related to an injury incurred by the Blairs' adult son, Eric, during a visit to their home. The Blairs graciously paid the bill; however, they provided no other support for Eric during the year. For 2015, Eric earned $18,000 as a self-employed house painter. Assuming the Blairs' adjusted gross income was $30,000, what amount of medical expenses can the Blairs deduct as an itemized deduction for 2015? a. $0 b. $150 c. $650 d. $1,750
b.
100. In 2015, contributions to a defined contribution qualified retirement plan on behalf of a self-employed individual whose income from self-employment is $55,000 are limited to a. $5,500 b. $52,000 c. $53,000 d. $55,000
c
105. Which of the following requirements must be met in order for a single individual to qualify for the additional standard deduction? Must be age 65 or older or blind / Must support dependent child or aged parent. a. Yes / Yes b. No / No c. Yes / No d. No / Yes
c
109. In 2015, Wells paid the following expenses: - Premiums on an insurance policy against loss of earnings due to sickness or accident: $3,000 - Physical therapy after spinal surgery: $2,000 Premium on an insurance policy that covers reimbursement for the cost of prescription drugs: $500 In 2015, Wells recovered $1,500 of the $2,000 that she paid for physical therapy through insurance reimbursement from a group medical policy paid for by her employer. Disregarding the adjusted gross income percentage threshold, what amount could be claimed on Wells' 2015 income tax return for medical expenses? a. $4,000 b. $3,500 c. $1,000 4. $500
c
117. Matthew was a cash-basis taxpayer whose records showed the following: - 2014 state and local income taxes withheld: $1,500 - 2014 state estimated income taxes paid December 30, 2014: $400 - 2014 Federal income taxes withheld: $2,500 - 2014 state and local income taxes paid April 17, 2015: 300 What total amount was Matthews entitled to claim for taxes on her 2014 Schedule A of Form 1040? a. $4,700 b. $2,200 c. $1,900 d. $1,500
c
125. The 2015 deduction by an individual taxpayer for interest on investment indebtedness is a. Limited to the invest interest paid in 2015. b. Limited to the taxpayer's 2015 interest income. c. Limited to the taxpayer's 2015 net investment income. d. Not limited.
c
128. 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 during 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 for the current year? a. $6,200 in determining adjusted gross income. b. $11,000 in determining adjusted gross income. c. $5,000 as an itemized deduction. d. $12,200 as an itemized deduction.
c
133. Stein, an unmarried taxpayer, had adjusted gross income of $80,000 for the year and qualified to itemize deductions. Stein had no charitable contribution carryovers and only made one contribution during the year. Stein donated stock, purchased seven years earlier for $17,000, to a tax-exempt educational organization. The stock was valued at $25,000 when it was contributed. What is the amount of charitable contributions deductible on Stein's current year income tax return? a. $17,000 b. $21,000 c. $24,000 d. $25,000
c
164. Sara Hance, who is single and lives alone in Idaho, has no income of her own and is supported in full by the following persons: Alma (an unrelated friend) $2,400 (48%) Ben (Sara's brother) $2,150 (43%) Carl (Sara's son) $450 (9%) Under a multiple support agreement, Sara's dependency exemption can be claimed by a. No one. b. Alma. c. Ben. d. Carl.
c
175. In 2014, Karen Miller had an alternative minimum tax liability of $20,000. This was the first year that she paid an alternative minimum tax. When she recomputed her 2014 alternative minimum tax using only exclusion preferences and adjustments, her alternative minimum tax was $9,000. For 2015, Karen had a regular tax liability of $50,000 and a tentative minimum tax of $45,000. What is the amount of Karen'ts unused minimum tax credit from 2015 that will carry over 2016? a. $0 b. $4,000 c. $5,000 d. $6,000
c
176 In 2015, Don Mills, a single taxpayer had $70,000 in taxable income before personal exemptions. Mills had no tax preferences. His itemized deductions were as follows: - State and local income taxes - $5,000 - Home mortgage interest on loan to acquire residence: $6,000 - Miscellaneous deduction that exceed 2% of adjusted gross income: $2,000 What amount did Mills report as alternative minimum taxable income before the AMT exemption? a. $72,000 b. $75,000 c. $77,000 d. $83,000
c
18. Charles and Marcia are married cash-basis taxpayers. In 2015, 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 2015 joint income tax return? a. $500 b. $1,100 c. $1,900 d. $2,900
c
181. Freeman, a single individual, reported the following income in the current year: - Guaranteed payment from services rendered to a partnership: $50,000 - Ordinary income from an S corporation $20,000 What amount of Freeman's income is subject to self-employment tax? a. $0 b. $20,000 c. $50,000 d. $70,000
c
184. An employee who has had social security tax withheld in an amount greater than the maximum for a particular year, may claim a. Such excess as either a credit or an itemized deduction, at the election of the employee, if that excess resulted from correct withholding by two or more employers. b. Reimbursement of such excess from his employer, if that excess resulted from correct withholding by two or more employers. c. The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers d. The excess as a credit against income tax, if that excess was withheld by one employer.
c
217. An accuracy-related penalty applies to the portion of tax underpayment attributable to I Any substantial gift or estate tax valuation understatement. II. Any substantial income tax valuation overstatement. a. I only. b. II only. c. Both I and II. b. Neither I nor II.
c
35. In 2010, Ross was granted an incentive stock option (ISO) by her employer as part of an executive compensation package. Ross exercised the ISO in 2013 and sold the stock in 2015 at a gain. Ross was subject to regular tax for the year in which the a. ISO was granted. b. ISO was exercised. c. Stock was sold. d. Employer claimed a compensation deduction for the ISO.
c
37. Income in respect of a cash-basis decedent a. Covers income earned and collected after a decedent's death. b. Receives a stepped-up basis in the decedent's estate. c. Includes a bonus earned before the taxpayer's death but not collected until after death. d. Must be included in the decedent's final income tax return.
c
4. Under a "cafeteria plan" maintained by an employer a. Participation must be restricted to employees, and their spouses and minor children. b. At least three years old service are required before an employee can participate in the plan. c. Participants may select their own menu of benefits. d. Provision may be made for deferred compensation other than 401 (k) plan.
c
46. Emil Gow owns a two-family house that has two identical apartments. Gow lives in one apartment and rents out the other. In 2015, the rental apartment was fully occupied and Gow received $7,200 in rent. During the year ended December 31, 2015, Gow paid the following. - Real estate taxes - $6,400 - Painting of rental apartment - $800 Annual fire insurance premium - $600 In 2015, depreciation for the entire house was determined to be $5,000. What amount should Gow include in his adjusted gross income for 2015? a. $2,900 b. $800 c. $400 d. $100
c
59. Which of the following taxpayers may use the cash method of accounting for tax purposes? a. Partnership that is designated as a tax shelter. b. Retail store with $2 million inventory, and $9 million average annual gross receipts. c. An international accounting firm. d. C corporation manufacturing exercise equipment with average annual gross receipts of $8 million.
c
68. Earl Cook, who worked as a machinist for Precision Corp., loaned precision $1,000 in 2012. Cook did not own any of Precision's stock, and the loan was not a condition of Cook's employment by Precision. In 2015, Precision declared bankruptcy, and Cook's note receivable from Precision became worthless. What loss can Cook claim on his 2015 income tax return? a. $0 b. $500 long-term capital loss. c. $1,000 short-term capital loss. d. $1,000 business bad debt.
c
71. Robin Moore, a self-employed taxpayer, reported the following information for 2015: Income : Dividends from investments : $500 Net short-term capital gain on sales of investment: 1,000 Deductions: Net loss from business: (6,000) Personal exemption: (4,000) Standard deduction (6,300) What is the amount of Moore's net operating loss for 2015? a. $4,500 b. $5,000 c. $6,000 d. $10,700
c
74. The rule limiting the deductibility of passive activity losses and credit applies to a. Partnerships b. S corporations. c. Personal service corporations. d. Widely held C corporations.
c
75. Don Wolf became a general partner in Gata Associates on January 1, 2015, with a 5% interest in Gata's profits, losses, and capital. Gata is a distributor of auto parts. Wolf does not materially participate in the partnership business .For the year ended December 31, 2015, Gata had an operating loss of $100,000. In addition, Gata earned interest of $20,000 on a temporary investment. Gata has kept the principal temporarily invested while awaiting delivery of equipment that is presently on order. The principal will be used to pay for this equipment. Wolf's passive loss for 2015 is a. $0 b. $4,000 c. $5,000 d. $6,000
c
79. Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under Internal Revenue Code Section 179, the cost of new or used tangible depreciable personal property? I The property must be purchased for use in the taxpayer's active trade or business. II. The property must be purchased from an unrelated party. a. I only. b. II only. c. Both I and II. d. Neither I nor II.
c
82. Data Corp., a calendar-year corporation, purchased and placed into service used office equipment during October 2014. No other equipment was placed into service during 2014. Under the general MACRS depreciation system, what convention must Data use? a. Full-year. b. Half-year. c. Mid-quarter. d. Mid-month
c
98. Sol and Julia Crane (both age 43) are married and will file a joint return for 2015. Sol earned a salary of $140,000 in 2015 from his job at Troy Corp., where sol is covered by his employer's pension plan. In addition, Sol and Julia earned interest of $3,000 in 2015 on their joint savings account. Julia is not employed. and the couple had no other income. On July 15, 2015, Sol contributed $5,500 to an IRA for himself, and $5,500 to an IRA for his spouse. The allowable IRA deduction in the Cranes' 2015 joint return is a. $0 b. $3,000 c. $5,500 d. $11,000
c
119. In 2015, Burg paid $8,000 to the tax collector of Sun City for realty taxes on a two-family house owned in joint tenancy between Burg and his mother. Of this amount, $3,800 covered back taxes for 2014, and $4,200 covered 2015 taxes. Burg resides on the second floor of the house, and his mother resides on the first floor. In Burg's itemized deduction on his 2015 return, what amount was Burg entitled to claim for realty taxes? a. $0 b. $4,000 c. $4,200 d. $8,000
d
158. During 2015 Robert Moore, who is fifty years old and unmarried, maintained his home in which he and his widower father, age seventy-five, resided. His father had $4,700 interest income from a savings account and also received $2,400 from social security during 2015. Robert provided 60% of his father's total support for 2015. What is Robert's filling status for 2015, and how many exemptions should he claim on his tax return? a. Head of household and two exemptions. b. Single and two exemptions. c. Head of household and one exemption. d. Single and one exemption.
d
166. Which of the following is(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 six months. II. The taxpayer has maintained the cost of the principal residence for six months. a. I only b. II only c. Both I and II. d. Neither I nor II.
d
178. the credit for prior year alternative minimum tax liability may be carried a. Forward for maximum of five years. b. Back to the three preceding years or carried forward for a maximum of five years. c. Back to the three preceding years. d. Forward indefinitely.
d
20. Daniel Kelly received interest income from the following sources during the current year - New York Port Authority Bonds : $1,000 - Puerto Rico Commonwealth bonds : $1,800 What portion of such interest is tax exempt? a. $0 b. $1,000 c. $1,800 d. $2,800
d
210. Harold Thompson, a self-employed individual, had income transactions for 2014 (duly reported on his return filed in April 2015) as follows: - Gross receipts: $400,000 - Less cost of goods sold and deductions : $320,000 - Net business income: $80,000 - Capital gains: $36,000 - Gross income 0 $116,000 In November 2015, Thompson discovers that he had inadvertently omitted some income on his 2014 return and retains Mann, CPA, to determine his position under the statute of limitations. Mann should advise Thompson that the six-year statute of limitations would apply to his 2014 return only if he omitted from gross income an amount in excess of a. $20,000 b. $29,000 c. $100,000 d. $109,000
d
215. Richard Baker filed his 2014 individual income tax return on April 15, 2015. On December 31, 2015, he learned that 100 shares of stock that he owned had become worthless in 2014. Since he did not deduct this loss on his 2014 return, Baker intends to file a claim for refund. This refund claim must be filed not later than April 15, a. 2016 b. 2018 c. 2021 d. 2022
d
26. Bob and Sue Stewart were divorced in 2013. Under the term of their divorce decree, Bob paid alimony to Sue at the rate of $50,000 in 2013, $20,000 in 2014, and nothing in 2015. What amount of alimony recapture must be included in Bob's gross income for 2015? a. $0 b. $23,283 c. $30,000 d. $32,500
d
28. Darr. an employee of Sorce C corporation, is not a shareholder. Which of the following would be included in a taxpayer's gross income? a. Employer-provided medical insurance coverage under a health plan. b. A $10,000 gift from the taxpayer's grandparents. c. The fair market value of land that the taxpayer inherited from an uncle. d. The dividend income on shares of stock that the taxpayer received for services rendered.
d
43. In 2015, Emil Gow won $5,000 in a state lottery. Also in 2015, Emil spent $400 for the purchase of lottery tickets. Emil elected the standard deduction on his 2015 income tax return. The amount of lottery winning that should be included in Emil's 2015 taxable income is a. $0 b. $2,000 c. $4,600 d. $5,000
d
44. Lake Corp., an accrual basis calendar-year corporation, had the following 2015 receipts. Advanced Rental payments where the lease ends in 2017 : $125,000 Lease cancellation payment from a five-year lease tenant $50, 000 Lake had no restrictions on the use of the advanced rental payments and renders no services. What amount of income should Lake report on its 2015 tax return? a. $0 b. $50,000 c. $125,000 d. $175,000
d
56. Unless the Internal Revenue Service consents to a change of method, the accrual method of tax reporting is generally mandatory for a sole proprietor when they are Accounts receivable for services rendered / Year-end merchandise inventories. a. Yes / Yes b. Yes / No c. No / No d. No / Yes
d
57. Alex Burg, a cash-basis taxpayer, earned an annual salary of $80,000 at Ace Corp. In 2014, but elected to take only $50,000. Ace, which was financially able to pay Burg's full salary, credited the unpaid balance of $30,000 to Burg's account on the corporate books in 2014, and actually paid this $30,000 to Burg on January 30, 2015. How much of the salary is taxable to Burg in 2014? a. $50,000 b. $60,000 c. $65,000 d. $80,000
d
58. Dr. Berger, a physician, reports on the cash basis. The following items pertain to Dr. Berger's medical practice in 2014: - Cash received from patients in 2014: $200,000 - Cash received in 2014 from third-party reimburser for services provided by Dr. Berger in 2013: $30,000 - Salaries paid to employees in 2014 : $20,000 - Year-end 2014 bonuses paid to employees in 2015: $1,000 - Other expenses paid in 2014: $24,000 What is Dr. Berger's net inocme for 2014 from his medical practice? a. $155,000 b. $156,000 c. $185,000 d. $186,000
d
6. Howard O'Brien, an employee of Ogden Corporation, died on June 30, 2015. During July, Ogden made employee death payments (which do not represent the proceeds of life insurance) of $10,000 to his widow, and $10,000 to his fifteen-year-old son. What amounts should be included in gross income by the widow and son in their respective tax returns for 2015? Widow / Son a. $5,000 / $5,000 b. $5,000 / $10,000 c. $7,500 / $7,500 d. $10,000 / $10,000
d
65. In the case of a corporation that is NOT a financial institution, which of the following statements is correct with regard to the deduction for bad debts? a. Either the reserve method or the direct charge-off method may be used, if the election is made in the corporation's first taxable year. b. On approval from the IRS, a corporation may change its method from direct charge-off to reserve. c. If the reserve method was consistently used in prior years, the corporation may take a deduction for a reasonable addition to the reserve for bad debts. d. A corporation is required to use the direct charge-off method rather than the reserve method.
d
77. If an individual taxpayer's passive losses relating to rental real estate activities cannot be used in the current year, then they may be carried a. Back two years, but they cannot be carried forward. b. Forward up to a maximum period of twenty years, but they cannot be carried back. c. Back two years or forward up to twenty years, at the taxpayer's election. d. Forward indefinitely or until the property is disposed of in a taxable transaction.
d
8. 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: Worker's 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 Damages for physical injuries ----------------------$8,000 The amount to be included in Hal's gross income for the current year should be a. $12,200 b. $8,000 c. $1,800 d. $0
d
86. Easel Co. has elected to reimburse employees for business expenses under a non-accountable plan. Easel does not require employees to provide proof of expense and allows employees to keep any amount not spent. Under the plan, Mel, and Easel employee for a full year , gets $400 per month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 8,000 at a rate of 56.5 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $280 to refund the overpayment to Easel. What amount should be reported in Mel's gross income for the year? a. $0 b. $280 c. $4,520 d. $4,800
d
93. What is the maximum amount of adjusted gross income that taxpayer may have for 2015 and still qualify to roll over the balance from a traditional individual retirement account (IRA) into a Roth IRA? a. $50,000 b. $80,000 c. $100,000 d. There is no maximum AGI limitation
d
94. Which one of the following statements concerning an education IRA (Coverdell Education Savings Account) is NOT correct? a. Contributions to an education IRA are not deductible. b. A taxpayer may contribute up to $2,000 in 2015 to an education IRA to pay the costs of the designated beneficiary's higher education. c. Eligibility for an education IRA is phased out if adjusted gross income exceeds certain threshold levels. d. Contributions can be made to an education IRA on behalf of a beneficiary until the beneficiary reaches age twenty-one.
d
96. Davis, a sole proprietor with no employees, has a Keogh profit-sharing plan to which he may contribute 15% of his annual earned income. For this purpose, "earned income" is defined as net self-employment earnings reduced by the a. Deductible Keogh contribution. b. Self-employment tax. c. Self-employment tax and one-half of the deductible Keogh contribution. d. Deductible Keogh contribution and one-half of the self-employment tax.
d
97. Ronald Birch, who is single and age 28, earned a salary of $80,000 in 2015 as a plumber employed by Lupo Company. Birch was covered for the entire year 2015 under Lupo's qualified pension plan for employees. In addition, Birch had a net income of $15,000 from self-employment in 2015. What is the maximum amount that Birch can deduct in 2015 for contributions to an individual retirement account? (IRA) a. $5,500 b. $4,000 c. $3,000 d. $0
d
