Fed Tax Exam 3
If an individual is classified as an employee, the employer is required to withhold the employee's share of the FICA tax and to provide a matching amount. True False
True
If personal−use property is converted to trade or business use, the basis for depreciation is the lesser of adjusted basis or FMV on the date of conversion. True False
True
The basis of an asset must be reduced by the depreciation allowable. True False
True
The installment method is not applicable to sales of inventory and marketable securities. True False
True
The earned income credit is available only to taxpayers with qualifying children. True False
False
The purpose of Sec. 1245 is to eliminate the advantage taxpayers would have if they were able to reduce ordinary income by depreciation deductions and also receive favorable Sec. 1231 treatment when the asset was sold. True False
True
The uniform capitalization rules (UNICAP) require the capitalization of some overhead costs that are expensed for financial accounting purposes. True False
True
Juan's business delivery truck is destroyed in an accident. He paid $40,000 for the truck, and $30,000 of depreciation has been deducted during its period of use. The insurance company pays Juan $32,000 due to the accident. What is the minimum amount that Juan must spend on a new truck to avoid any gain recognition? A. $32,000 B. $40,000 C. $10,000 D. $22,000
A. $32,000
In Year 1, a contractor agrees to build a building for $2,500,000 by the end of year 2. The builder's cost is estimated to be $1,800,000. The actual costs in Year 1 are $900,000 and Year 2's actual costs are $1,300,000. Under the completed contract method, the gross profit for Year 1 is A. $700,000. B. $300,000. C. $0. D. $350,000.
C. $0.
Tanya has net earnings from self−employment of $240,000, resulting in self−employment tax of $24,035 and Additional Medicare Tax of $360. Due to these taxes, Tanya will be allowed a deduction for AGI of A. $24,395. B. $12,198. C. $12,018. D. $24,035.
C. $12,018.
Daniella exchanges business land with a $100,000 adjusted basis for $10,000 cash and business land with a $96,000 FMV. What is the amount of gain recognized on the exchange? A. $4,000 B. $0 C. $6,000 D. $10,000
C. $6,000
A cash−basis lawyer purchases an office building to use in her legal practice. To acquire the mortgage, the taxpayer must pay $5,000 in points. The taxpayer will deduct the points in the year paid. True False
False
A cash−basis taxpayer pays a bill with a credit card. The underlying expenditure is not deductible until the credit card bill is paid. True False
False
A taxpayer sells a parcel of land on the installment sale basis and will recognize the gain over the five−year installment schedule. Form 6252 must be included with his tax return only in the year of sale. True False
False
Land, buildings, equipment, and common stock are examples of tangible property. True False
False
Under the MACRS rules, salvage value is not considered in the computation of the cost−recovery or depreciation amount. True False
True
Under the MACRS system, depreciation rates for real property must always use the mid−month convention in the year of acquisition. True False
True
When a husband and wife file a joint return and both have self−employment income, the self−employment tax must be computed separately. True False
True
Maria, a sole proprietor, has several items of office furniture and equipment which are depreciable. All were acquired before this year. She is not required to report her depreciation deduction on Form 4562. True False
True
The maximum amount of the American Opportunity Tax Credit for each qualified student is A. $2,500. B. $1,500. C. $2,000. D. $3,000.
A. $2,500.
Pierce sold his home this year. He had owned and lived in the house for 10 years. Pierce signed a contract on March 4 to sell his home. Sales price _____________________$600,000 Selling expenses _________________15,000 Replaced and paid for a broken window on March 2 _________________________________800 Basis of old home before repairs and improvements ____________________310,000 Based on these facts, what is the amount of his recognized gain? A. $25,000 B. $40,000 C. $0 D. $275,000
A. $25,000
Joan bought a business machine for $15,000. In a later year, she sold the machine for $12,800 when the total allowable depreciation is $8,500. The depreciation actually taken on the tax returns totaled $8,000. Joan must recognize a gain (or loss) of A. $6,300. B. no gain or loss. C. $6,800. D. ($3,200).
A. $6,300.
Which of the following statements is false regarding involuntary conversions? A. A taxpayer must replace the destroyed property within the same tax year in which the gain is realized. B. A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion. C. If deferral of gain is elected, the holding period of the converted property carries over to the replacement property. D. Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property.
A. A taxpayer must replace the destroyed property within the same tax year in which the gain is realized.
Kuda owns a parcel of land she acquired on June 1, 2012, as an investment. She exchanges the land on July 5, 2020, for a storage building to be used in her business and marketable securities to be held as an investment. On what date does the storage building's holding period begin? A. June 1, 2012 B. July 6, 2020 C. June 2, 2012 D. July 5, 2020
A. June 1, 2012
Which of the following statements is false with regard to the ownership and use tests under Sec. 121? A. The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply. B. If a principal residence is sold before satisfying the ownership and use tests, part of the gain may be excluded if the sale is due to a change in employment, health, or unforeseen circumstances. C. When a taxpayer receives a residence from a spouse or an ex−spouse incident to a divorce, the taxpayer's period of owning the property includes the time the residence was owned by the spouse or ex−spouse. D. For purposes of the two−year ownership rule, a taxpayer's period of ownership includes the period during which the taxpayer's deceased spouse owned the residence.
A. The taxpayer must be occupying the residence at the time of the sale in order for Sec. 121 to apply.
Which of the following companies whose business involves long−term contracts will be eligible to use the completed contract method? A. a home construction company averaging $30 million in gross revenues each year B. only companies whose contract price is collected upon completion of the contract C. A small specialized historic renovation company whose projects typically last three years. Revenues average $20 million per year. D. all of the above
A. a home construction company averaging $30 million in gross revenues each year
All of the following qualify as a like−kind exchange except A. a printer used in trade or business for a computer used in trade or business. B. an apartment building held for investment for a warehouse used in a trade or business. C. improved real estate held for investment for unimproved real estate held for investment. D. all of the exchanges qualify as like−kind exchanges.
A. a printer used in trade or business for a computer used in trade or business.
An installment sale is best defined as A. any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs. Your answer is correct. B. any disposition of publicly traded securities or inventory where at least one payment is received after the close of the taxable year in which disposition occurs. C. any disposition of property in which at least three payments are received. D. any disposition of property in which the installment method is elected by the taxpayer.
A. any disposition of property where at least one payment is received after the close of the taxable year in which disposition occurs.
A business uses the same inventory method for both financial reporting and tax reporting. Because of the UNICAP requirement, ending inventory is likely to be A. higher for tax reporting purposes than for financial reporting purposes. B. the same for both financial and tax reporting as UNICAP requires uniform inventory accounting methods. C. higher for financial reporting purposes than for tax reporting purposes. D. none of the above.
A. higher for tax reporting purposes than for financial reporting purposes.
Costs that qualify as research and experimental expenditures include all of the following except A. management studies. B. costs of obtaining a patent such as attorney fees. C. costs incurred in developing product improvements. D. depreciation of laboratory equipment.
A. management studies.
The installment method may be used for sales of all kinds of property with the exception of A. marketable securities. B. capital assets. C. personal property. D. real property.
A. marketable securities.
Bob and Elizabeth Brown, a married couple, sell their personal residence to Tamel. Tamel pays $660,000 and assumes their $90,000 mortgage. To make the sale, the Browns pay $20,000 in commissions and $10,000 in legal costs. The couple has owned and lived in the house for seven years and their tax basis is $200,000. What is the amount of gain recognized on the sale? A. $50,000 B. $20,000 C. $520,000 D. $0
B. $20,000
Risa exchanges an office building with a $600,000 adjusted basis for an apartment building with a $1,000,000 FMV and $200,000 of marketable securities. The other party indicates he had paid $175,000 for the securities a year earlier. What is Risa's basis for the securities? A. $0 B. $200,000 C. $175,000 D. none of the above.
B. $200,000
On January 1, 2020, Charlie Corporation acquires all of the net assets of Rocky Corporation for $2,000,000. The following intangible assets are included in the purchase agreement: Assets Acquisition Cost Goodwill and going concern value $105,000 Licenses $ 45,000 Patents $ 60,000 Covenant not to compete for five years $120,000 What is the total amount of amortization allowed in 2020? A. $15,000 B. $22,000 C. $31,000 D. $38,000
B. $22,000
Risa exchanges an office building with a $600,000 adjusted basis for an apartment building with a $1,000,000 FMV and $200,000 of marketable securities. What is Risa's basis for the apartment building? A. $800,000 B. $600,000 C. $400,000 D. $1,000,000
B. $600,000
Aamir has $25,000 of net Sec. 1231 gains this year on business assets. In addition, he incurred $18,000 of loss on the sale of stock held six months. Aamir will include in his AGI A. $7,000 short−term capital gain. B. $7,000 net capital gain. C. $3,000 short−term capital loss and $25,000 ordinary gain. D. $22,000 net capital gain.
B. $7,000 net capital gain.
Caitlyn purchases and places in service property costing $1,050,000 in 2020. She wants to elect the maximum Sec. 179 deduction allowed and does not plan to apply bonus depreciation. Her business income is $900,000. What is the amount of her allowable Sec. 179 deduction and carryover, if any? A. 179 deduction Carryover $900,000 0 B. 179 deduction Carryover $900,000 $140,000 C. 179 deduction Carryover $1,040,000 0 D. 179 deduction Carryover $900,000 $150,000
B. 179 deduction Carryover $900,000 $140,000
If there is a like−kind exchange of property between related parties, how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange? A. 6 months B. 2 years C. 1 year D. no waiting period
B. 2 years
Which of the following businesses is most likely to benefit from an election to account for its inventory under LIFO? A. A company producing the newest version of a tablet with ultra—long battery life. It believes it has a one−year lead over the competition. B. A company producing parts for the auto industry—costs in this field tend to steadily climb. C. A company producing products with copper as a key component—copper prices fluctuate widely. D. None of the above.
B. A company producing parts for the auto industry—costs in this field tend to steadily climb.
Which of the following statements with respect to a like−kind exchange is false? A. Real property used in a trade or business can be exchanged for real property to be held for investment. B. A sale of property and subsequent purchase of like−kind property will always qualify as a like−kind exchange. C. An exchange of inventory does not qualify as a like−kind exchange. D. An exchange of a hotel in the United States for a hotel in Canada will not qualify.
B. A sale of property and subsequent purchase of like−kind property will always qualify as a like−kind exchange.
Alex owns an office building which the state condemns on January 15, 2020. Alex receives the condemnation award on April 1, 2020. In order to qualify for nonrecognition of gain on this involuntary conversion, what is the last date for Alex to acquire qualified replacement property? A. April 1, 2022 B. December 31, 2023 C. December 31, 2022 D. April 1, 2023
B. December 31, 2023
A wage cap does not exist for which of the following self−employment taxes? A. FICA B. Medicare C. FUTA D. Social Security tax
B. Medicare
In computing AMTI, all of the following must be added back except A. state income taxes. B. home mortgage interest (on mortgage in effect since home was purchased). C. property taxes on an individual's home. D. All of the itemized deductions noted above must be added back.
B. home mortgage interest (on mortgage in effect since home was purchased).
Which statement is correct? A. The benefit of a tax credit depends on the taxpayer's marginal tax rate. B. Tax credits reduce tax liability on a dollar−for−dollar basis. C. Tax deductions are less valuable for high−income taxpayers than for low−income taxpayers. D. Tax deductions reduce tax liability on a dollar−for−dollar basis.
B. Tax credits reduce tax liability on a dollar−for−dollar basis.
Which of the following statements regarding UNICAP is incorrect? A. The UNICAP rules result in more costs being included in inventory for tax purposes than for financial accounting. B. UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales. C. Interest must be included in inventory if the property produced is real property or long−lived property. D. Taxpayers with gross receipts averaging more than $26,000,000 or more for the prior three years must apply the UNICAP provisions.
B. UNICAP requires that advertising and selling costs be allocated between inventory and cost of sales.
Which of the following partnerships can use the cash method of accounting? A. a chocolate manufacturer with average revenues of $30 million B. a CPA firm with average revenues of $30 million C. Both of the partnerships can elect the cash method of accounting. D. Neither of the partnerships can elect the cash method of accounting.
B. a CPA firm with average revenues of $30 million
A client placed three new business assets into service in 2020. The client has high taxable income and would like to maximize the deduction by using bonus depreciation. All of the following assets will qualify for bonus depreciation except A. manufacturing equipment. B. a garage for the service vans. C. computer software. D. All of the assets qualify for bonus depreciation.
B. a garage for the service vans.
According to Sec. 121, individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for A. at least five years immediately before the sale date. B. at least two years of the five−year period before the sale date. C. at least one year of the three−year period before the sale date. D. at least five years of the ten−year period before the sale date.
B. at least two years of the five−year period before the sale date.
The look−back interest adjustment involves the A. calculation of gross profit on an installment sale collection. B. calculation of interest on additional tax that would have been due if actual cost rather than estimated cost had been used on the percentage of completion method. C. calculation of additional tax due if actual cost rather than estimated cost had been used on the percentage of completion method. D. calculation of interest on an installment sale.
B. calculation of interest on additional tax that would have been due if actual cost rather than estimated cost had been used on the percentage of completion method.
All of the following conditions would encourage a taxpayer to avoid like−kind exchange treatment on the disposition of an otherwise qualifying asset except A. the availability of net operating loss carryovers. B. expected lower tax rates in the future. C. a realized loss on the asset disposed of. D. the disposition of a capital gain asset when the taxpayer has a capital loss carryover.
B. expected lower tax rates in the future.
Ella needs to move her business to a larger facility. She projects a large realized gain on the sale of the old building and prefers not to pay tax on the gain because the sales proceeds are needed to finance the purchase of the new building. In the circumstances, a direct two− or three−party like−kind exchange is not feasible. Ella's sale can still qualify for like−kind treatment if she arranges an appropriate nonsimultaneous exchange. Among other criteria, after the transfer of the old building, the replacement property must be A. identified within 45 days and received by year−end. B. identified within 45 days and received within 180 days. C. identified within 90 days and received by year−end. D. identified within 60 days and received within 180 days.
B. identified within 45 days and received within 180 days.
In calculating depletion of natural resources each period A. the smaller of cost depletion or percentage depletion must be used. B. the greater of cost depletion or percentage depletion must be used. C. percentage depletion must be used. D. cost depletion must be used.
B. the greater of cost depletion or percentage depletion must be used.
Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV. The acquired land is to be held for investment and the motorcycle is for personal use. What is the amount of recognized gain? A. $20,000 B. $0 C. $10,000 D. $30,000
C. $10,000
The building used in Terry's business was condemned by the city of St. Louis. Terry received a condemnation award of $125,000. He paid $1,200 in lawyer's fees and $800 for an appraisal of the property. Terry's adjusted basis in the building was $60,000. Terry reinvests in similar property costing $110,000, and Terry makes the proper election regarding the property. What is the amount of Terry's recognized gain on the condemnation? A. $15,000 B. $50,000 C. $13,000 D. $63,000
C. $13,000
Henri likes to invest in land. In a nontaxable exchange, Henri exchanges land having an adjusted basis of $8,500 and a FMV of $10,000, for a another parcel of land having a FMV of $15,000. In addition, Henri paid cash of $5,000. What is Henri's basis in the new land? A. $5,000 B. $8,500 C. $13,500 D. $15,000
C. $13,500
Evan and Barbara incurred qualified adoption expenses in 2019 of $6,000, and then incurred $9,000 more in 2020 when the adoption of their child became final. Their 2019 AGI was $110,000 and their 2020 AGI was $100,000. The allowable adoption credit is A. $15,000 in 2020. B. $6,000 in 2019 and $9,000 in 2020. C. $14,300 in 2020. D. $6,000 in 2019 and $8,300 in 2020.
C. $14,300 in 2020.
Dean exchanges a business storage facility with a $120,000 adjusted basis for $40,000 cash and a parking lot with a $140,000 FMV. What is the amount of gain which Dean recognizes on the exchange? A. $0 B. $20,000 C. $40,000 D. $60,000
C. $40,000
Which of the following statements regarding Sec. 179 is true? A. Sec. 179 carryforwards expire after five years. B. If a taxpayer places in service property costing more than the Sec. 179 ceiling on the amount of property placed in service, the excess can be carried over to subsequent years. C. Amounts of the Sec. 179 election in excess of the taxable income limitation are carried forward. D. All of the above statements are true.
C. Amounts of the Sec. 179 election in excess of the taxable income limitation are carried forward.
Kuda owns a parcel of land she acquired on June 1, 2012, as an investment. She exchanges the land on July 5, 2020, for a storage building to be used in her business and marketable securities to be held as an investment. The marketable securities' holding period begins on A. June 1, 2012 B. July 5, 2020 C. July 6, 2020 D. June 2, 2012
C. July 6, 2020
Mingming and Xavier, unrelated single taxpayers, have each incurred a $1,000 expenditure. Before considering this expenditure, Mingming has taxable income of $600,000 and Xavier has taxable income of $32,000. Assume the expenditure qualifies as either a tax deduction or a 25% credit. Which of the following statements is correct? A. Mingming will prefer the credit, but Xavier will prefer the deduction. B. Both taxpayers will prefer the deduction. C. Mingming will prefer the deduction, but Xavier will prefer the credit. D. Both taxpayers will prefer the credit.
C. Mingming will prefer the deduction, but Xavier will prefer the credit.
Pierce has a $16,000 Sec. 1231 loss, a $12,000 Sec. 1231 gain, and a salary of $50,000. What is the treatment of these items in Pierce's AGI? A. Pierce has net LTCG of $9,000 and $37,000 of net ordinary income. B. Pierce has a LTCG of $12,000 and a net ordinary income of $34,000. C. The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000. D. Pierce has a $3,000 LTCL which is deductible for AGI making AGI $47,000. He also has a $1,000 LTCL carryover.
C. The 1231 gains and losses are treated as ordinary gains and losses making Pierce's AGI for the year $46,000.
If an individual is liable for self−employment tax, a portion of the self−employment tax is A. from AGI as an itemized deduction. B. a Schedule C business expense. C. a for AGI deduction. D. nondeductible.
C. a for AGI deduction.
All of the following are true except A. nonrecognition of gains and losses is mandatory if the exchange is a like−kind exchange. B. the holding period of like−kind property received includes the holding period of the property exchanged. C. a nonsimultaneous exchange may never qualify as a like−kind exchange. D. a loss may be recognized on non−like−kind property (boot) if the taxpayer transfers the boot in an otherwise like−kind exchange.
C. a nonsimultaneous exchange may never qualify as a like−kind exchange.
In computing AMTI, tax preference items are A. subtracted only. B. either added or subtracted. C. added only. D. excluded.
C. added only.
If the business usage of listed property is less than or equal to 50% of its total usage, depreciation is calculated using the A. regular MACRS tables. B. regular MACRS tables and a mid−month convention. C. alternative depreciation system. D. It may not be depreciated.
C. alternative depreciation system.
Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her A. taxable income. B. alternative minimum taxable income. C. alternative minimum tax base. D. tentative alternative taxable income.
C. alternative minimum tax base.
Under the percentage of completion method, gross income is reported A. when the contract is completed. B. using a percentage that is determined by dividing current year costs by the expected total revenue. C. based on the portion of work that has been completed. D. based on the portion of work that is incomplete.
C. based on the portion of work that has been completed.
Which one of the following is a refundable credit? A. credit for the elderly and disabled B. lifetime learning credit C. earned income credit D. child and dependent care credit
C. earned income credit
For a business, Sec. 1231 property does not include A. an office building purchased five years ago. B. land used in the business that was purchased two years ago. C. inventory purchased 24 months ago. D. timber, coal, or domestic iron ore.
C. inventory purchased 24 months ago.
A purchaser of the assets of a business must allocate the purchase price to the individual assets in accordance with the written agreement between the purchaser and the seller. Which of the following assets would be least preferred for purposes of allocating value from the purchaser point of view? A. equipment B. inventory C. office building D. goodwill
C. office building
All of the following are allowable deductions under the alternative minimum tax except A. charitable contributions. B. qualified housing interest. C. state income taxes. D. medical expenses.
C. state income taxes.
Sec. 1231 property will generally have all the following characteristics except A. held for more than one year. B. real or depreciable property. C. used in trade or business. D. held for sale to customers.
D. held for sale to customers.
Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash. Landry held the original land for investment purposes and will do the same with the new parcel. Due to the exchange, Landry will recognize A. $5,000 loss. B. $10,000 gain. C. $5,000 gain. D. $0.
D. $0.
In the fall of 2020, James went back to school to earn a master of accountancy degree. He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000. His Lifetime Learning Credit is A. $1,000. B. $1,800. C. $2,500. D. $1,400.
D. $1,400.
A client placed $2,800,000 of five−year equipment into service in January 2020. Because taxable income is more than $10,000,000, she would like to maximize this year's depreciation deduction. The largest deduction allowed is A. $1,224,000. B. $560,000. C. $1,040,000. D. $2,800,000.
D. $2,800,000.
Stephanie's building, which was used in her business, was destroyed in a fire. Stephanie's adjusted basis in the building was $175,000, and its FMV was $210,000. Stephanie filed an insurance claim and was reimbursed $200,000. In that same year, Stephanie invested $180,000 of the insurance proceeds in another business building. If the proper election is made to defer gain, Stephanie will recognize gain of A. $25,000. B. $0. C. $15,000. D. $20,000.
D. $20,000.
William purchases nonresidential real property costing $300,000 and places it in service in March 2019. What is Lincoln's 2020 depreciation on the property? A. $6,099 B. $8,637 C. $10,908 D. $7,692
D. $7,692
When depreciating 5−year property, the final year of depreciation will be year A. 3. B. 4. C. 5. D. 6.
D. 6.
With respect to residential rental property A. 80% or more of the net rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. B. hotels are not included in this category if less than half of the units are used on a transient basis. C. gain is not subject to the depreciation recapture provisions if the property is held more than one year. D. 80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property.
D. 80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property.
Under what circumstances might a taxpayer elect the alternative depreciation system for new equipment acquired this year? A. A taxpayer has significant NOL carryovers. B. A taxpayer is undertaking a major R&E project which will result in an usually low marginal tax rate for the next few years. C. A taxpayer has significant charitable contribution carryovers that will expire after this year. D. All of the above
D. All of the above
For real property placed in service after 1986, depreciation under the MACRS system is calculated using the A. 200% DB method and a half−year convention in the year of acquisition and in the year of disposition. B. straight−line method and a half−year convention in the year of acquisition and in the year of disposition. C. 200% DB method and a mid−month convention in the year of acquisition and in the year of disposition. D. straight−line method and a mid−month convention in the year of acquisition and in the year of disposition.
D. straight−line method and a mid−month convention in the year of acquisition and in the year of disposition.
Do accounting rules determine the amount of income to be reported by a taxpayer? A. The accounting methods used by a taxpayer determine the exact amount of income to be reported by a taxpayer in any given year and over the life of the taxpayer. B. The accounting methods used by a taxpayer have no bearing on the amount of income to be reported by a taxpayer in any given year or over the life of the taxpayer. C. In the long run, the amount of income reported by a taxpayer will vary significantly depending on the accounting methods used by the taxpayer. In a given year the amount of income reported by a taxpayer generally be the same regardless of the accounting method used by the taxpayer. D. In the long run, the amount of income reported by a taxpayer will generally be the same regardless of the accounting methods used by the taxpayer. In a given year the amount of income reported by a taxpayer can vary significantly depending on the accounting method used by the taxpayer.
D. In the long run, the amount of income reported by a taxpayer will generally be the same regardless of the accounting methods used by the taxpayer. In a given year the amount of income reported by a taxpayer can vary significantly depending on the accounting method used by the taxpayer.
Self−employment taxes include components for A. FICA and FUTA. B. Medicare hospital insurance and SUTA. C. Social Security and FUTA. D. Social Security and Medicare hospital insurance.
D. Social Security and Medicare hospital insurance.
How does a taxpayer's tax accounting method affect the amount of tax paid? A. The accounting methods used by a taxpayer affect the amount of tax paid by allowing the taxpayer to pay its taxes by installment on a monthly basis. Interest accrues on the unpaid balance. B. The accounting methods used by a taxpayer dictate the taxpayer's capital gain tax rate. It is preferable to adopt an accounting method that will result in a lower tax rate. C. The accounting methods used by a taxpayer dictate the taxpayer's regular tax rate. It is preferable to adopt an accounting method that will result in a lower tax rate. D. The accounting methods used by a taxpayer can accelerate or defer the recognition of income, and, thereby, change when the tax must be paid. Also, because of the progressive tax rate structure, taxes can be saved by spreading income over several years, rather than having income bunched into one year, pushing the taxpayer into higher brackets.
D. The accounting methods used by a taxpayer can accelerate or defer the recognition of income, and, thereby, change when the tax must be paid. Also, because of the progressive tax rate structure, taxes can be saved by spreading income over several years, rather than having income bunched into one year, pushing the taxpayer into higher brackets
A new business is established. It is not a seasonal business. All of the following are acceptable accounting tax years with the exception of A. an S corporation year ending October 31. B. a C corporation (not a personal service corporation) tax year ending on April 30. C. a partnership tax year ending on October 31 with three equal partners whose tax years end on September 30, October 31, and November 30. D. a C corporation (not a personal service corporation) tax year ending on February 15.
D. a C corporation (not a personal service corporation) tax year ending on February 15.
Which of the following assets is 1231 property? A. an investment in corporate stock B. land held for investment C. items held for resale by a retailer D. a machine used in the company's manufacturing operations
D. a machine used in the company's manufacturing operations
Why did Congress establish favorable treatment for 1231 assets? A. to allow a larger deduction for losses B. to encourage the mobility of capital C. to help business owners replace assets which had declined in value D. all of the above
D. all of the above
All of the following are self−employment income except A. distributive share of partnership income from a partnership operating a business. B. fees received for serving as a director of a corporation. C. net income of a sole proprietorship. D. dividends received by a corporate shareholder.
D. dividends received by a corporate shareholder.
In computing AMTI, adjustments are A. subtracted only. B. limited. C. added only. D. either added or subtracted.
D. either added or subtracted.
Under the cash method of accounting, all of the following are true with the exception of A. to some extent, a taxpayer may control the year in which an expense is deductible by choosing when to make the payment. B. gross income includes the value of property received. C. income is reported in the tax year in which payments are actually or constructively received. D. fixed assets are always expensed as the taxpayer pays for the assets.
D. fixed assets are always expensed as the taxpayer pays for the assets.
The general business credit includes all of the following with the exception of A. research credit. B. disabled access credit. C. credit for rehabilitation expenditure. D. foreign tax credit.
D. foreign tax credit.
When accounting for long−term contracts (other than those for services), all of the following accounting methods may be acceptable with the exception of A. the completed contract method. B. the percentage of completion method. C. the modified percentage of completion method. D. the installment sale method.
D. the installment sale method.
For purposes of the accrual method of accounting, the economic performance test is met when A. all events have occurred that establish the fact of a liability. B. all events have occurred that fix the taxpayer's right to receive income. C. the amount of the item can be reasonably estimated. D. the property or services are actually provided.
D. the property or services are actually provided.
Generally, a full exclusion of gain under Sec. 121 upon the sale of a personal residence applies to only one sale or exchange every A. year. B. six months. C. five years. D. two years.
D. two years.
The client is a corporation which uses high−tech equipment to manufacture its product. Because of the high level of wear and tear due to long production runs and frequent technology changes, the client usually replaces the equipment every two years. According to IRS guidance, the MACRS life of the equipment is five years. In order to accelerate depreciation deductions, which tax depreciation option should the client elect? A. alternative depreciation system (ADS) B. MACRS with a straight−line election C. regular MACRS treatment D. units−of−production method
D. units−of−production method
A taxpayer who uses the LIFO method of inventory valuation may use the lower of cost or market method. True False
False
Assume a taxpayer projects that his total income tax for the year will $25,000. A taxpayer with savings should prefer to structure his tax prepayments so that he will receive a tax refund of $2,500 rather than a tax due of $2,500. True False
False
If an employee has more than one employer during the year, all employers must withhold federal income taxes but only one employer must withhold FICA tax. True False
False
On its tax return, a corporation will use the same depreciation, amortization and depletion methods used in its financial statements issued to shareholders. True False
False
The earned income credit is refundable only if a tax has been withheld. True False
False
A subsidiary corporation filing a consolidated return with its parent corporation must change its accounting period to conform with its parent's tax year. True False
True
In order for an asset to be depreciated in the year of purchase, it must be placed in service before year's end. True False
True
Intangible drilling and development costs (IDCs) may be deducted as an expense or may be capitalized. True False
True
In 2020, Thomas, a single taxpayer who has a marginal tax rate of 10%, sells land that is Sec. 1231 property at a gain of $4,000. This is the first time Thomas has ever sold a Sec. 1231 asset. If he has no other 1231 transactions or capital asset transactions, Thomas will pay no tax on the $4,000 gain. True False
True
Jay and Cara's daughter is starting her freshman year of college. Jay and Cara will be able to claim the American Opportunity Tax Credit for a percentage of the cost of tuition, required fees and course materials, but the room and board charges will not qualify for the credit. True False
True
Many taxpayers use the LIFO method of inventory valuation because during inflationary periods, LIFO normally results in the lowest valuation of ending inventory and, hence, the lowest taxable income. True False
True
One−half of the self−employment tax imposed is allowed as a for AGI deduction. True False
True
Points paid on a mortgage to buy a personal residence are deductible in the year paid. True False
True
Sec. 1231 property must satisfy a holding period of more than one year. True False
True
Taxpayers are entitled to a depletion deduction if they have an economic interest in the natural resource property. True False
True