Part 1 Workbook: Sample Exam 1
b
85. Judd is 52 and owns several investments that generate interest income throughout the year. He also has a traditional IRA to which he makes contributions each year. At the end of the year, he gets statements listing the income earned on each investment. Which of the following types of interest income will have to be reported on his 2022 tax return? A. Interest earned inside his traditional IRA. B. Interest received on tax-exempt municipal bonds. C. Interest on insurance dividends left on deposit with the U.S. Department of Veterans Affairs. D. Interest on HSA funds (none of the funds in his HSA were withdrawn).
c
86. Shannon claimed the Earned Income Tax Credit in a prior year. The IRS audited her return and determined that she was not eligible to claim the credit and that her EITC claim was fraudulent because she claimed dependents that were not related to her. How many years must she wait before claiming the credit again? A. One year. B. Two years. C. Ten years. D. A taxpayer who is found guilty of fraud related to the EITC can never claim the credit again.
d
96. Kathleen is 80 years old. She is a wealthy widow who likes to donate to several of her favorite charities throughout the year. She has a traditional IRA and is required to take an RMD (required minimum distribution) during the year. She decides to make a tax-free gift directly from her IRA to her church. Her AGI in 2022 is $80,000, and all her income is from passive investments. What is the maximum amount that Kathleen can withdraw from her traditional IRA tax-free as a qualified charitable contribution (QCD)? A. $0 B. $40,000 C. $80,000 D. $100,000
c
97. Stacey earns $79,000 in wages in 2022. She is single and has no other taxable income for the year. She pays $14,500 in mortgage interest on her primary residence. She also pays an additional $3,000 in mortgage interest on her second home, a vacation cottage in Utah. She also incurs $12,000 in loan interest on a plot of land that she purchased during the year and intends to build another vacation home on. How much interest can she potentially deduct as an itemized deduction on her Schedule A? A. $14,500 B. $15,800 C. $17,500 D. $29,500
c
98. Kiyoshi is single and works as a self-employed web designer. He files a Schedule C. In 2021 (the prior year), his AGI was $175,000. In 2022, he expects to earn $250,000. In order to avoid paying an estimated tax penalty, Kiyoshi can rely on the safe harbor rule for higher-income taxpayers by paying: A. 90% of the tax liability on his prior-year tax return. B. 100% of the tax liability on his prior-year tax return. C. 110% of the tax liability on his prior-year tax return. D. 150% of the tax liability on his prior-year tax return.
d
99. Which of the following expenses is NOT allowable as an itemized deduction on Schedule A? A. Motor vehicle registration fees based on the vehicle's value B. Mortgage interest on a primary residence. C. Investment interest expense. D. Funeral expenses.
c
12. Which of the following is NOT a requirement for a foreign tax to be considered creditable and thus allowable to be used to compute the Foreign Tax Credit? A. The tax must be imposed on the taxpayer. B. The taxpayer must have paid or accrued the tax. C. The tax must be incurred while the taxpayer has a foreign tax home. D. The tax must be the legal and actual foreign tax liability.
b
13. Camilla is a self-employed accountant. She took her best client to a hockey game. The event was sold out, so Camilla paid $200 for both tickets through a ticket scalper, which was almost double the $60 face value of each ticket. After the game, Camilla and her client went to dinner at a local restaurant and discussed business. The total meal cost was $60, and the taxi ride to the restaurant cost $20. Based on this information, how much can Camilla deduct as a business expense? A. $60 B. $80 C. $140 D. $260
b
29. In 2022, for purposes of the Child Tax Credit, a "qualifying child" is a child who: A. Is under the age of 18 (or disabled of any age). B. Is under the age of 17 and claimed as a dependent on the taxpayer's return. C. Lived with the taxpayer for the entire year, regardless of age. D. Is either under the age of 19 or a full-time student under the age of 24.
d
3. Personal, non-business tax preparation fees are deductible as: A. A miscellaneous itemized deduction subject to the 2% limit. B. An investment expense on Schedule A. C. An investment expense on Form 4592. D. Tax preparation fees are generally not deductible.
c
31. Interest received on a municipal bond is generally: A. Fully taxable. B. Partially taxable. C. Tax-exempt. D. Taxable when earned.
a
32. Broderick is a U.S. Airman serving overseas in Europe. He received several items of income during the year related to his military duty. Which of the following types of income would not be taxable to Broderick? A. Qualified hazardous duty pay. B. A reenlistment bonus. C. Pay for accrued leave. D. Differential wage payments.
c
33. Vienna is single and just finished her accounting degree. She takes a full-time job at an accounting firm on June 10, 2022, and immediately starts paying down her student loans. She earns $69,000 in wages during the year and pays $3,800 in student loan interest. She has no other income or losses for the year. How much of Vienna's student loan interest is deductible in 2022? A. $0. B. $2,000 C. $2,500 D. $3,800
b
42. Which of the following income may be subject to the Net Investment Income Tax (NIIT)? A. Notary fees. B. Taxable mutual fund distributions. C. Tax-exempt municipal bond interest. D. Traditional IRA distributions.
b
43. Frank owns several types of investment and custodial accounts. Frank files as Head of Household and claims his 12-year-old daughter, Marybeth, on his tax return. Frank has an AGI of $46,000 from wages and has a high deductible health plan (HDHP). Which of the following contributions would not be tax-deductible? A. A $4,000 contribution to a traditional IRA account. B. A $2,000 contribution to his daughter's Coverdell ESA. C. A $1,600 contribution to his Health Savings Account. D. All of the above contributions are deductible.
d
44. Which of the following miscellaneous itemized deductions are still allowable in 2022? A. Safety deposit box rental. B. Tax preparation fees. C. Union dues. D. Impairment-related work expenses of a disabled employee.
d
45. Sebastian, age 61, and Ruby, age 49, are married and file jointly. They both want to contribute to their retirement accounts this year. Sebastian has $69,000 in wages. Ruby has only $2,000 in wages from a part-time job. Based on this information, what is the maximum that they can contribute to their individual retirement accounts in 2022? A. They can each contribute $6,000. B. They can each contribute $7,000. C. Sebastian can contribute $6,000, and Ruby can contribute $2,000. D. Sebastian can contribute $7,000, and Ruby can contribute $6,000.
c
46. Jasper is a U.S. citizen who lives and works in South America. He works online and does not remain in any one country for more than 60 days. Instead, he travels around a lot and visits multiple foreign nations throughout the year. In order for him to qualify for the Foreign Earned Income Exclusion, he must be physically present in a foreign country (or multiple foreign countries) for at least______________ full days during a period of 12 consecutive months. A. 180 B. 246 C. 330 D. 365
c
47. On March 3, 2022, Kenneth, age 42, was involved in a serious automobile accident, leaving him permanently disabled. On August 10, 2022, Kenneth withdrew $24,000 from his traditional IRA account. He provided proof of his permanent disability to his IRA trustee when he made the withdrawal. What are the consequences of this distribution? A. The IRA withdrawal will be subject to income tax and a 10% early withdrawal penalty because Kenneth is not 59% years of age. B. The IRA withdrawal will be subject to income tax and a 25% early withdrawal penalty because Kenneth is not 59% years of age. C. The IRA withdrawal will be subject to income tax but will not be subject to an early withdrawal penalty because Kenneth is permanently disabled. D. The IRA withdrawal will not be subject to income tax or an early withdrawal penalty because Kenneth is permanently disabled.
b
48. Dharma incurs the following medical expenses during the year. She earns $40,500 in wages and has no other income for the year. What is the total amount of her qualified medical expenses before the application of any income limitations? Medical expenses Amount Teeth Whitening - $500 Prescription medicines shipped from other countries - $1,200 Insulin - $300 Health Club Dues - $500 Life insurance premiums - $400 Vision correction surgery (LASIK) - $6,700 Dental insurance premiums - $2,000 Smoking-cessation program - $450 A. $9,000 B. $9,450 C. $10,200 D. $10,650
b
56. Bertrand is a U.S. citizen who lives and works overseas in Austria. His wife, Eliana, is a nonresident alien and a citizen of Austria. Bertrand and Eliana file a joint return, to which they attach a statement declaring an election to treat Eliana as a U.S. resident for tax purposes. Which of the following events would end the election in a later year? A. Bertrand becomes self-employed. B. Bertrand dies. C. Bertrand and Eliana fail to attach a statement to their tax return in future years. D. Bertrand and Eliana file separate returns the next year.
b
57. Courtney is employed full-time as a nurse. She is 35 and files MFS. She had been separated from her spouse for three years, but has not filed for divorce or legal separation. Her AGI for 2022 was $48,200. Of this amount, $3,000 was from gambling winnings. She had the following itemized deductions in 2022: Mortgage interest paid on a main home - $6,700 Property tax on a main home - $5,300 Employee-related business expenses -$ 5,200 Charitable donation to a church - $2,600 Gambling losses - $6,600 What amount is deductible on her Schedule A? A. $11,136 B. $17,300 C. $17,600 D. $26,400
d
58. Mabel is a self-employed farmer who owns a large almond orchard in $2,000,000 from her farming business in 2022. During the year, she purchases use in her business. Which of these assets is eligible for Bonus Depreciation? A. A building that she will use to store materials and sell farm products. B. A trademarked custom logo for use on her website. C. An empty plot of land that she plans to use for growing. D. Fruit and nut-bearing trees for her farm.
d
59. Which of the following is not an AMT "preference item" for figuring out the Alternative Minimum Tax for individuals? A. Capital gains from the exercise of stock options. B. The qualifying exclusion for small business stock. C. Interest from muni bonds exempt from regular tax. D. Qualified charitable contributions.
d
6. Tammy is 27 years old and single. She is also legally blind. In 2022, Tammy has interest income of $1,900 from an investment that she inherited from her grandfather. She also has wages of $12,900. She does not plan to itemize. What is her standard deduction amount? A. $4,400 B. $12,950 C. $13,950 D. $14,700
a
60. Irene owns a residential rental property in Montana with an adjusted basis of $17,000 and a fair market value of $40,000. During the year, she trades her existing rental property for a new condo in Wyoming with an FMV of $68,000. As part of the exchange, Irene pays $20,000 to the owner of the other property. This is a qualified section 1031 exchange. After the exchange is complete, what is Irene's basis in her new rental property? A. $37,000 B. $51,000 C. $68,000 D. $70,000
a
61. Which form is used by individual taxpayers to change their income tax withholding with their employer? A. Form W-4 B. Form W-7 C. Form W-2 D. Form I-9
b
62. Everly is single. She plans to itemize her deductions. Which of the following expenses would not be deductible on Schedule A? A. A personal casualty loss on her home that occurred in a federally declared disaster area. B. Qualified medical expenses that were paid with a distribution from her HSA. C. A charitable contribution to a veteran's organization. D. Sales tax on the purchase of a vehicle.
a
74. Orlando is a self-employed architect. During the tax year, he pays the following fines and penalties. Which of these are deductible as a business expense? A. Penalties paid to a client for the late performance on a construction contract when the project was not completed by the agreed-upon due date. B. Parking ticket incurred while he was visiting a client's work location. C. Penalties for paying his federal income tax late. D. Penalties for filing his state tax return late.
c
75. Danny incurred the following losses during the year. Which of the following would be a deductible loss on his tax return in 2022? A. A $2,000 property loss due to progressive deterioration on a shed behind his home. B. A $3,000 theft loss of personal jewelry from a burglary. C. A $10,000 loss on stock from a recognized Ponzi scheme. D. A $5,000 gambling loss from purchasing lottery tickets.
c
76. Which of the following types of income would be "qualifying income" for the purposes of the Earned Income Tax Credit? A. Taxable alimony. B. Worker's Compensation. C. Nontaxable combat pay. D. Unemployment compensation.
d
77. Paulo is age 65 and widowed. He has a 17-year-old son named Kayden. Paulo's wife died two years ago, and he has not remarried. Kayden is a full-time high school student and has lived with his father all year. Paulo will file as a Qualifying Surviving Spouse (QSS) in 2022, claiming his son as a dependent. Paulo does not plan to itemize. What is his standard deduction amount? A. $12,950 B. $19,400 C. $25,900 D. $27,300
a
78. Christopher and Patty are married and file jointly. They live and work in Vermont, but they own some foreign investments. Their Form 1099-DIV shows foreign tax paid of $590. They want to claim the Foreign Tax Credit for the foreign income tax that they paid. Are they required to file Form 1116? A. No, they are not required to file Form 1116. B. Yes, they are required to complete Form 1116 because foreign taxes must always be reported. C. Yes, they are required because their foreign taxes have a special reporting requirement. D. No, they are not required to complete Form 1116 because their foreign taxes are not deductible on their U.S. tax return.
b
79. What is the maximum amount that can be claimed for the "Credit for Other Dependents"? A. $500 per tax return. B. $500 per qualifying dependent. C. $500 per taxpayer. D. $2,500 per tax return.
a
8. Personal home mortgage interest is only deductible on Schedule A if the mortgage loan is: A. Secured by the home. B. Less than $750,000. C. On a primary residence. D. Based on a taxpayer's gross income.
a
80. Monica, age 32, is single. Her AGI in 2022 is $93,600. Monica incurs $6,200 of qualified out-ofpocket medical expenses during the year. What amount can she deduct as a medical expense on Schedule A (after the application of the 7.5% AGI limit)? A. $0 B. $410 C. $620 D. $6,200
d
81. Which of the following will not disqualify a taxpayer from claiming the Lifetime Learning Credit? A. The taxpayer is claimed as a dependent on someone else's tax return. B. The taxpayer files as married filing separately. C. The taxpayer's adjusted gross income (AGI) is above the limit for the taxpayer's filing status. D. The taxpayer's spouse is a nonresident alien who elects to be treated as a resident alien for tax purposes.
d
82. Carter is married but files separately from his wife. In 2022, Carter has the following income and losses: Income type Amount Wages from employment - $79,000 Long-term capital LOSS from the sale of stock - ($14,000) Long-term capital GAIN from the sale of land - $7,400 Based on the information above, what is his AGI and capital loss carryover for the year? A. AGI: $72,400, capital loss carryover, $0. B. AGI: $75,400, capital loss carryover $3,100. C. AGI: $75,400, capital loss carryover $3,600. D. AGI: $77,500, capital loss carryover $5,100.
c
83. Tarah is a full-time college student in her second year of school. She incurs various educational expenses during the year. Which of the following is NOT a qualifying educational expense for the American Opportunity Tax Credit? A. $200 for a required textbook she bought online. B. $300 in required supplies for a medical course. C. $125 in required student health fees. D. $120 in sports equipment for a physical education course required for her degree.
b
84. Ana likes to collect antique figurines. She purchased an old figurine at a garage sale two years ago. The figurine cost $25. Later, Ana discovers that the figurine is a valuable collectible. Ana lists the toy on U-Bid, an online auction website. Buyers immediately start bidding on the figurine, and it eventually sells for $9,700. U-Bid kept a 10% auction commission on the sale ($970). Ana is not a professional toy dealer and has never sold a toy online before. How should Ana report this sale on her tax return? A. Ana should report the $9,700 on Schedule C and deduct $970 as a business expense. B. Ana should report $8,705 as a long-term capital gain on Schedule D (Form 1040). C. Ana should report $9,700 as a portfolio income on Schedule E (Form 1040). D. Ana should report $9,675 as a short-term capital gain on Schedule D (Form 1040).
c
19. Which of the following forms is used to report gambling income to a taxpayer? A. Form 1099-G B. Form 1099-NEC C. Form W-2G D. Form W-2
B
1. Harold lost his job in 2022, and had financial difficulties paying his home mortgage. He contacted his lender and negotiated a workout agreement on October 1, 2022, thereby reducing the amount he owed on the mortgage and staying in the home. Harold's lender agreed to reduce his mortgage debt from $195,000 to $175,000. The lender issued a Form 1099-C showing $20,000 of canceled debt. Harold was not insolvent or in bankruptcy at the time of the cancellation, and the mortgage is a recourse loan. Is this amount taxable to Harold, and if so, how should it be reported on his tax return? A. The $20,000 in canceled debt is not taxable and does not have to be reported on his return. B. The $20,000 in canceled debt is not taxable, but must be reported on Form 982. C. The $20,000 in canceled debt is taxable and needs to be reported on Schedule D. D. The $20,000 in canceled debt is taxable and needs to be reported on Schedule D and Form 8949.
b
10. Enrique and Anita divorced six years ago. They have one child together, Juana, who lives with Anita. All are U.S. citizens and have valid Social Security numbers that are valid for employment. Anita's AGI is $29,000. Enrique's AGI is $59,000. Juana is 13 years old and has no income. Juana stays with her father two days a week. Although Anita is the custodial parent, Anita signed Form 8332 to give the dependency exemption to Enrique. Which of the following statements is correct? A. Enrique can claim his daughter Juana as a dependent and claim the Earned Income Credit. B. Enrique can claim his daughter Juana as a dependent and also claim the Child Tax Credit. C. Neither Enrique nor Anita can claim Juana as a dependent or any of the other benefits. D. Only Anita can claim her daughter Juana as a dependent since she is the custodial parent.
a
100. A noncustodial parent may claim a child as a dependent only if the custodial parent releases a claim to exemption using which form? A. Form 8332. B. Form 2848. C. Schedule EIC. D. Form 1065.
d
11. Five years ago, Penelope's employer, the Burnside Corporation, offered Penelope 100 shares of its stock at a discounted price of $10 a share. At the time of the sale, the fair market value of the stock was $100 a share. Under the terms of the sale, the stock is not vested until Penelope completes a mandatory 5-year employment period (if she does not stay the required 5-year period, she must forfeit the stock). In 2022, at the end of the 5-year period, the stock is fully vested, and the fair market value of the stock has increased to $200 a share. How much income would Penelope report in 2022? A. $0 B. $1,000 C. $10,000 D. $19,000
a
14. Kirby bought his home on May 30, 2018. He originally purchased the home for $220,000. After he lost his job, he was not able to make the mortgage payments. The bank foreclosed on the home on January 10, 2022, and Kirby moved out. On the date of the foreclosure, the fair market value of the home had dropped to $185,000 because of flood damage that had occurred the year before. The principal balance of the mortgage, which happened to be a recourse debt in the state he was in, was $195,000. All of the debt was incurred to purchase the home. Kirby received Form 1099-C for the amount of debt canceled by his bank. Is this a taxable event, and how should he report this on his tax return? A. The cancellation of debt is not taxable. He should file Form 8949 and Schedule D to report the disposition of the home and Form 982 to exclude the debt cancellation. B. The cancellation of debt is taxable. He should file Form 8949 and Schedule D to report the disposition of the home. C. The cancellation of debt is not taxable. He only needs to file Form 982 to exclude the debt cancellation. D. Since the mortgage is recourse debt, the cancellation of debt is taxable. Kirby should file Schedule D to report the disposition of the home.
c
15.Jennifer and Colton adopted twin boys from China during the year. The adoption was final on December 10, 2022. They incurred the following fees related to the adoption. • $20,000 in legal fees, • $15,000 in travel expenses • $13,000 in adoption agency fees Their joint AGI is $210,000. What is the maximum adoption credit that they can claim on their 2022 tax return? A. $0 B. $14,890 C. $29,780 D. $48,000
b
16. Thor, age 46, is single and covered by a retirement plan at work. He has maxed out his contributions to his 401(k) plan at work. His AGI in 2022 is $179,000. Can Thor also contribute to a traditional IRA? A. He can make a $7,000 deductible contribution to his traditional IRA. B. He can make a $6,000 non-deductible contribution to his traditional IRA. C. He is not allowed to make a contribution to a traditional IRA because he is covered by a retirement plan at work and has already contributed to his 401(k). D. He cannot contribute to a traditional IRA, but he can contribute to a Roth IRA.
b
17. Murray is an elementary school teacher who works full-time in a private Christian school. He had 1,900 hours of documented employment during the tax year. Murray spent $295 on school supplies for his students. Of that amount, $200 was for educational software. The other $95 was for supplies for a course he teaches on reproductive health. What expenses can he deduct as an adjustment to income? A. $0 B. $200 C. $250 D. $295
d
18. Which of the following is NOT a requirement for a taxpayer to claim the foreign earned income exclusion (FEIE)? A. Have foreign earned income. B. Have a tax home in a foreign country. C. Meet either the bona fide residence or the physical presence test. D. Be a United States citizen.
b
2. Jiro is unmarried. He dies on July 1, 2022. At the time of his death, he owned several rental properties that continued to earn revenue after he died. How should the income from the rental properties be reported after the date of his death? A. All the rental income should be reported on his final Form 1040. B. The rental income received after Jiro's death should be reported on Form 1041. C. The rental income earned after his death should be reported on the beneficiary's tax return. D. The income from the rentals should be reported on Form 706.
d
20. Holton is single and age 51. On January 13, 2022, he withdrew $30,000 from his traditional IRA to pay off some credit card debt, but changed his mind almost immediately and redeposited the entire sum back into a different traditional IRA account on February 13, 2022. Will he be subject to a penalty? A. He will have to pay a 10% penalty on the amount withdrawn. B. He has made an excess contribution to his IRA, and he will be subject to a 6% excise tax. C. He will pay income tax and penalties on the amount in excess of $5,500. D. He will not have to pay a penalty because he returned the money to the IRA within 60 days.
a
21. Abram and Dawn file a joint return. They are both U.S. citizens, and they have valid SSNs. Their tax liability is $2,000. They have three dependents that lived in their household all year. None of the dependents earned any taxable income during the year. 1. Abel is their 21-year-old son and has an SSN. He is not a student or disabled. 2. Imelda is their 16-year-old niece, and she has an ITIN. 3. Martina is Abram's mother. She is 75 years old, has a valid SSN and meets the qualifying relative test. Imelda, Abel, and Martina are all U.S. residents for tax purposes. Which of them is a qualifying dependent for the Credit for Other Dependents? A. Abel, Imelda, and Martina. B. Abel and Martina only. C. Abel only. D. Martina only.
a
22. Benito, age 36, made a $6,000 contribution to his traditional IRA on February 1, 2022. He forgot that he had made the contribution, and on December 26, 2022, he deposited another $6,000 into a Roth IRA account. What is the consequence of these transactions? A. Benito has made an excess contribution of $6,000. He must withdraw the excess contribution from either one of his IRA accounts by the filing deadline or face a penalty. B. The second contribution is a prohibited transaction. His Roth IRA is disqualified and he must pay tax on the entire balance in the account. C. As long as he designates his traditional IRA contribution as nondeductible, he can leave both contributions in his IRA accounts. D. There are no tax consequences since Benito deposited the funds into different types of IRA accounts (a traditional IRA and a Roth IRA).
c
23. Beckett is a self-employed paralegal. Beckett attends a legal conference in Los Angeles, CA, on July 10, 2022. His expenses related to the trip were as follows: Hotel lodging - $300 Airfare to the event - $245 Restaurant meals- $40 Registration fees for the legal conference - $450 A golf outing with a vendor the following day (business was discussed) - $230 What amount is Beckett's deductible business expense for the trip on his Schedule C? A. $885 B. $1,015 C. $1,035 D. $1,245
d
24. What is the Premium Tax Credit? A. A credit based on a qualifying child. B. A credit for higher education. C. A credit for employers who offer health insurance to their employees. D. A credit to make health insurance premiums more affordable.
c
25. Arlene is single and has a regular full-time job as a bank manager. She also trades virtual currency as a casual trader. She is not a professional broker and only trades virtual currency as an investment. Her cryptocurrency exchange does not issue an information statement to her at the end of the year. How should Arlene report the income she received selling virtual currency? A. "Other income" on Form 1040. B. Schedule D and Schedule B. C. Schedule D and Form 8949. D. Schedule D only.
b
26. Samuel works as an independent contractor for Herder Construction Company. He does private safety consulting. Herder Construction Company sent Samuel a Form 1099-NEC that shows he received $12,500 for the work he did for them. He also received cash payments of $6,200 from several different individuals for private jobs that he completed. He did not receive Forms 1099-NEC for this additional $6,200. Which of the following is true? A. The $12,500 is taxable income and should be reported on Schedule C. The other income is not taxable because Samuel did not get a Form 1099-NEC for it. B. Samuel must include the $6,200 in cash payments as self-employment income along with the $12,500 on Form 1099-NEC. All the income should be reported on Schedule C. C. Samuel must report all the income on Form 1040 as regular wages. D. Samuel must include the $6,200 in cash payments as self-employment income along with the $12,500 on Form 1099-NEC. The 1099 income should be reported on Schedule C. The other $6,200 in income should be reported as "Other Income" on Form 1040.
a
27. Waverly is a self-employed veterinarian. She is unmarried and does not have any dependents. She has $275,500 of taxable income on Schedule C. Waverly paid $14,000 in self-employed health insurance premiums during the year, and her total self-employment tax was $24,784. Her only income is from her business, which is a Specified Service Trade or Business (SSTB). What is the amount of her section 199A qualified business deduction in 2022? A. $0 B. $49,721 C. $52,200 D. $55,000
d
28. Sampson is single and 73 years old. He works full-time, and he earns $179,000 in wages during the year. He is not covered by a workplace retirement plan, so he wants to make a contribution to an IRA. What is the maximum amount that he can contribute to an IRA in 2022? A. He cannot contribute to an IRA because he is over age 70%. B. He can contribute a maximum of $7,000 to a Roth IRA. C. He can contribute a maximum of $6,000 to a traditional IRA or a Roth IRA. D. He can contribute a maximum of $7,000 to a traditional IRA.
b
34. On July 1, 2022, Heidi received a condo as a gift from her mother, Serena. Her mother had owned and lived in the condo for a decade, and the property was completely paid off. On the date of the gift, the condo had a fair market value of $94,000 and an original cost basis of $60,000. Heidi didn't use the condo as a residence, and she ends up selling it quickly for $91,000 on November 20, 2022. What is the amount and character of her gain (or loss) on this transaction? A. Heidi has a short-term capital loss of $3,000. B. Heidi has a long-term capital gain of $31,000. C. Heidi has a short-term capital gain of $31,000. D. Heidi has a short-term capital gain of $34,000.
c
35. Which of the following statements is correct regarding Form 1095-A, Health Insurance Marketplace Statement? A. Taxpayers do not need Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the premium tax credit or claim the premium tax credit on their tax return. B. Taxpayers will receive Form 1095-A if they have been covered by an employer insurance plan. C. Taxpayers must use Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the premium tax credit or claim the premium tax credit on their tax return. D. Taxpayers who purchase insurance from the Marketplace must attach Form 1095-A to their individual tax return to prove their insurance coverage.
d
36. Rebecca works as a real estate agent for Beemer Realty Services. She visits the company's real estate offices at least once a day to check her mail. She manages dozens of listings and splits her real estate commissions with Beemer Realty, her sole source of income. How should Rebecca be classified by Beemer Realty? A. Employee. B. Statutory employee. C. Corporate shareholder. D. Statutory nonemployee.
d
37. Debbie wants to file her 2022 tax return. However, on March 3, 2023, she still had not received her Form W-2 from her employer. What is the first thing she should do? A. Contact the Taxpayer Advocate for assistance. B. File her tax return using her last paystub. C. File her tax return without Form W-2 using Form 4852, Substitute W-2. D. Contact her employer to get the Form W-2.
a
38. Emiko works as a self-employed bookkeeper. During the year, she receives a Form 1099-NEC from one of her bookkeeping clients that shows an incorrect amount. What should she do? A. Contact the payor for a corrected Form 1099-NEC. B. Contact IRS for a corrected Form 1099-NEC. C. Report the amount stated on Form 1099-NEC as income, and then adjust off the incorrect amount as an expense. D. Disregard Form 1099-NEC since it is incorrect.
d
39. Ximena is 26 and single. She received a Form W-2 for $14,000 in wages from her part-time job. She also received a $4,000 college scholarship. However, she dropped out of college three days before the Spring semester began. She did not attend any classes in 2022. She used the $4,000 in scholarship funds to buy a used car instead. What is the correct treatment of these income amounts? A. Ximena's wages are taxable, but the scholarship is not. B. Ximena does not have to file a return because her income is below the filing requirement. C. Ximena should report only her wage income and write "EXEMPT" next to the scholarship amount on Schedule 1, Form 1040. D. Ximena must report both the wages and the scholarship as taxable income. She should write "SCH" next to the taxable scholarship amount on Schedule 1 (Form 1040).
c
4. On February 22, 2022, Roland was awarded $159,000 for compensatory damages due to physical injury from a serious auto accident. Roland was also awarded $625,000 in punitive damages from the same lawsuit. He paid $55,000 in legal fees during the year. He had no other income or expenses during the year. What is Roland's reportable gross income for the year? A. $0 B. $570,000 C. $625,000 D. $784,000
b
40. Which of the following types of debt cancellation must be reported as taxable income? A. $35,000 of credit card debt canceled in a Title 11 bankruptcy case. B. $50,000 of canceled mortgage debt on a vacation home for a solvent taxpayer. C. $65,000 of canceled credit card debt for an insolvent taxpayer (the taxpayer is insolvent by $97,000). D. $90,000 of canceled debt on a primary residence.
a
41. For IRS purposes, how many months does a child have to be enrolled in school in order to be considered a "full-time student"? A. A full-time student for IRS purposes is one enrolled for some part of five calendar months. B. The student must have over six months of full-time enrollment. C. The student must be enrolled for at least nine months. D. The student must have twelve consecutive months of full-time enrollment.
c
49. In 2022, which of the following types of interest is not deductible on Schedule A? A. Investment interest for loans used to purchase taxable investments. B. Mortgage interest on a primary residence. C. Home equity loan interest incurred to buy a personal car. D. Mortgage interest incurred on a vacation home.
b
5. What is the difference between "U.S.-source income" and "foreign source" income? A. There is no difference between the two for a U.S. citizen that has a filing requirement. B. Foreign source income originates from a foreign country, whereas U.S.-source income originates from the U.S. C. Foreign source income originates only from foreign entities. D. U.S.-source income is determined by tax treaties; foreign source income is only determined by internal tax laws of various countries.
d
50. Which of the following types of income would be reported on Form 1099-MISC? A. Nonemployee compensation. B. Canceled debt income. C. Interest income. D. Crop insurance proceeds of $600 or more.
a
51. The requirement to file the FinCEN Form 114 (FBAR) is triggered if a U.S. person has a financial interest or signature authority over any foreign financial account, but only if the aggregate value of these accounts exceeds__________________ anytime during the year. A. $10,000 B. $50,000 C. $75,000 D. $100,000
b
52. Pearl is 65 and a self-employed loan-signing agent and notary. She had $12,000 in Social Security income during the year, as well as other types of income from various sources. In order to calculate if her Social Security benefits are taxable, all of the following are included except: A. Tax-exempt muni bond interest. B. Life insurance proceeds. C. Notary fees received. D. Self-employment income.
c
53. Egbert is 71 and married but files separately from his wife. He has lived apart from his spouse for the entire year. What is Egbert's "base amount" for computing the taxable portion of his Social Security benefits? A. $0 B. $10,000 C. $25,000 D. $32,000
a
54. In 2008, Ashton and Moana claimed the $7,500 First-Time Homebuyer Credit. The couple has used their home as a primary residence since then. In 2022, they converted the home into a rental property. What, if any, is their tax obligation regarding the First-Time Homebuyer Credit? A. Ashton and Moana must pay the entire unpaid balance of the credit. B. They must pro-rate the credit received over 15 years and repay 50% of the original credit. C. They must reduce their depreciable basis in the property by the unpaid balance of the credit. D. Since they used this home as a primary residence for two of the last five years, there is no requirement to repay.
a
55. Jada is unmarried and lives in San Diego, CA. In 2022, Jada earned $45,000 in wages and sold her principal residence for $1 million. She has owned and lived in the home continuously for the last ten years. Jada's cost basis in the home is $600,000, so her realized gain on the sale is $400,000. She is eligible for the Section 121 exclusion, so the amount subject to income taxes is $150,000 ($400,000 realized gain less the $250,000 exclusion). She has no other gain or loss during the year. What is Jada's modified adjusted gross income (MAGI), and how much of her income is subject to the Net Investment Income Tax (the threshold amount is $200,000 for single filers)? A. Jada's modified adjusted gross income is $195,000. None of her income is subject to the Net Investment Income Tax. B. Jada's modified adjusted gross income is $445,000. And $150,000 is subject to the Net Investment Income Tax. C. Jada's modified adjusted gross income is $195,000. And $150,000 of her income is subject to the Net Investment Income Tax. D. Jada's modified adjusted gross income is $195,000. And $45,000 of her income is subject to the Net Investment Income Tax.
b
63. Lynne is employed as a part-time secretary for a clothing manufacturer. She has the following mileage expenses in 2022 (all the mileage was incurred between January 1, 2022 and June 30, 2022). On July 1, 2022, Lynne quits her job and moves to another state for a new job. Ignoring any AGI limitations, what dollar amount would be deductible on her Schedule A as an itemized deduction? Type of Mileage Miles Mileage while volunteering at various charities 700 Unreimbursed mileage incurred running errands for her employer 125 Commuting mileage from her home to her regular workplace 2,900 Mileage incurred while moving due to a new job (over 50 miles away) 1,200 A. $0 B. $98 C. $476 D. $544
c
64. Della is 23 and divorced. She and her 4-year-old daughter, Geraldine, lived with Della's father, Layton, all year. Layton paid all the costs of keeping up the home. Della provides the majority of her own support, but Layton helps support Geraldine, his granddaughter. Della's AGI is $19,000. Layton's AGI is $45,000. Based on these facts, which of the following statements is correct? A. Della can file as Head of Household, claim her daughter as a dependent and claim the EITC. B. Della can file as Head of Household and claim her daughter as a dependent, but she can't claim EITC. C. Della can file as single, claim her daughter as a dependent, and claim the EITC. D. Della cannot claim her daughter as a dependent.
b
65. Ursula owns several investments. During the year, she receives a Form-1099-DIV showing $3,200 in ordinary dividends. How will these dividends be taxed on her individual tax return? A. Reported on Schedule B as long-term capital gains. B. Reported on Schedule B as ordinary income. C. Reported on Schedule D as a long-term capital gain. D. Reported on Schedule D as ordinary income.
d
66. Which of the following taxpayers would not be eligible for the Premium T ax Credit? A. A married individual who is a victim of domestic abuse and files a separate tax return. B. A taxpayer who was enrolled in a qualified health plan for six months during the taxable year. C. An individual who received 16 weeks of unemployment compensation during the year. D. An individual who is not lawfully present in the United States.
a
67. Dominic is a self-employed professional athlete with several employees. In 2022, his personal assistant sued Dominic for sexual harassment. Rather than risk a public court battle, Dominic paid a confidential settlement to his former employee. The settlement was $20,000 and subject to a nondisclosure agreement. The legal fees Dominic incurred to negotiate the settlement totaled $9,000. How much of the settlement is deductible, and how should Dominic's legal expenses be reported? A. $0 (none of the amounts are deductible). B. $20,000 is deductible as a business expense on Schedule C. C. $29,000 is deductible as a business expense on Schedule C. D. $20,000 is deductible as a business expense on Schedule C. $9,000 is deductible as an adjustment to income on his Form 1040.
a
68. Hamilton is 26, unmarried, and still living with his parents. Hamilton worked a regular job and was not a student. He earned $14,950 in wages and provided more than half of his own support. Hamilton does not have any children or other dependents. Based on this information, which credit would Hamilton likely qualify for? A. Earned Income Tax Credit. B. Child Tax Credit. C. American Opportunity Credit. D. Foreign Tax Credit.
d
69. Eduardo is a self-employed farmer who started a goat farm on 7/1/2022. He will report his business activity on Schedule F. He uses a diesel truck on his farm for hauling animal feed and fresh water to his goats. He incurred 6,000 business-related miles during the year, all of which were after 7/1/2022. Eduardo kept a mileage log and has good records. What is his deductible dollar amount for mileage on Schedule F? A. $1,080 B. $1,740 C. $3,510 D. $3,750
c
7. Which of the following personal casualty and theft losses would be deductible as an itemized deduction on Schedule A? A. Theft of personal jewelry. B. Destruction of a personal-use vehicle in an auto accident. C. Flood damage to a main home in a federal disaster area. D. Decline in value of a home due to graffiti.
b
70. Stefan and Delilah are divorced. They have one child together, named Kaylee. Kaylee is 9 years old and lives with Delilah most of the year. She only visits her father on weekends. Stefan provides over half of his child's overall support and also obtains a signed Form 8332 from Delilah. Stefan will claim his daughter on his tax return this year. Which of the following credits is Stefan eligible for as a noncustodial parent? A. Earned Income Tax Credit. B. Child Tax Credit. C. Child and Dependent Care Credit. D. Other Dependent Credit.
d
71. Which of the following tests is not applicable when determining whether a child is a qualifying child for the purposes of the Earned Income Tax Credit? A. Age test. B. Relationship test. C. Joint return test. D. Disability test.
b
72. Allie converted her home to a residential rental five years ago. On the date she converted the property, her cost basis was $375,000, and the fair market value of the house was $230,000. She had claimed $18,000 of depreciation when she sold the property for $205,000 on February 2, 2022. What is the amount of Allie's deductible loss? A. $0 B. $7,000 C. $25,000 D. $43,000
a
73. Ivan and Irina are married and file jointly. They live together in Arkansas, a common law property state. They run a small car wash together, with each working 2,000 hours in the business during the year. The business is not incorporated, not an LLC, and there are no other owners. What are their options for reporting their income and loss from the business? A. Either as a qualified joint venture or partnership. B. Sole proprietorship. C. Corporation. D. A joint real estate activity.
d
87. Henrietta adopted a child this year through a private adoption agency. The child was born in the U.S. and is a U.S. citizen. The child is determined by the state to have special needs. Once the adoption is complete, she determines that she has $4,000 in qualifying adoption expenses. Her income tax liability is $5,000 for the year before the application of the adoption credit. How should she apply for the adoption credit? A. Henrietta is allowed to deduct $4,000 in adoption expenses on her tax return. B. Henrietta is allowed to take the full adoption credit of $14,890 in 2022; the remaining credit is refundable. C. Henrietta is not allowed to take the adoption credit because children adopted from private adoption agencies are not eligible for the credit. D. Henrietta is allowed to take an adoption credit of $5,000 in 2022, and she may carryover her unused adoption credit to future tax years.
a
88. Nicole's AGI is $50,000. All her income is from wages. She donated $2,000 cash to her local church as well as appreciated stock with a fair market value of $28,000. Her cost basis in the stock was $22,000. She had held the stock for five years before deciding to donate it. Nicole plans to itemize this year. What is her allowable deduction for charitable gifts on Schedule A? A. $17,000 B. $24,000 C. $25,000 D. $30,000
b
89. Rodney and Crystal are married and have always filed jointly. They do not live in a community property state. Crystal dies on February 27, 2022. Before her death, Crystal had earned $17,500 in wages. Crystal also leaves her husband a $125,000 life insurance policy. Rodney chooses to receive the life insurance proceeds as an annuity. In 2022, he receives $11,100 associated with the life insurance policy ($11,000 policy payout plus $100 in interest). He also earned $32,000 in wages during the year. On December 29, 2022, Rodney remarries. Rodney will file his 2022 return with his new wife, Laura. Laura does not work and does not receive any income during the year. Based on these facts, how much gross income must Rodney include on his 2022 tax return? A. $32,000 B. $32,100 C. $43,500 D. $58,000
c
9. Jason is 52 and unmarried. He has an AGI of $62,000 in 2022. Jason's two daughters, Ginger and Taylor, lived with him the entire year. Ginger is 23 and a full-time college student, studying for her first bachelor's degree. Taylor is 16 and a full-time high-school student. Both children have valid social security numbers. Jason provides all the financial support for his two daughters. He also provided all the costs of keeping up the home for the year. Can Jason claim the Child Tax Credit (CTC) or the Credit for Other Dependents (ODC) for his daughters? A. Both daughters are qualifying children for the Credit for Other Dependents. B. Both daughters are qualifying children for the Child Tax Credit. C. Taylor qualifies for the Child Tax Credit, and Ginger qualifies for the Credit for Other Dependents. D. Neither Ginger nor Taylor are qualifying children for either credit.
b
90. Rodolfo is an alcoholic. He enters a treatment facility for alcohol abuse. The treatment costs $24,000. Which of the following statements is true? A. Rodolfo cannot deduct any of the alcohol treatment costs as a medical expense. B. Rodolfo can deduct the cost of the alcohol treatment center, including meals and lodging, as a qualified medical expense. C. Rodolfo can only deduct the cost of alcohol treatment if it is done in a hospital setting. D. Alcoholism is not recognized by the IRS as a medical condition, and therefore related expenses are not deductible.
a
91. Which of the following types of income are not subject to the Additional Medicare Tax? A. Distributions from qualified retirement plans. B. Tips. C. Self-employment income. D. Wages.
b
92. Rupert is a full-time college student. He is in his second year of college in an undergraduate degree program. He had the following expenses in 2022. What are his total qualifying education expenses for the purposes of the American Opportunity Tax Credit? College tuition - $4,000 Required textbooks purchased from a friend - $400 Student health fees paid to the college - $125 Room and board - $4,500 A. $4,000 B. $4,400 C. $4,525 D. $9,025
b
93. Janessa is single. She is a self-employed jazz musician who operates her business as a sole proprietorship. After applying applicable deductions, she has $80,000 in qualified business income during the year. She also has $40,000 in interest income from various investments. Her total taxable income for the year (before the QBI deduction) is $107,000. What is her maximum qualified business income deduction? A. $8,000 B. $16,000 C. $18,000 D. $20,000
c
94. Angelica is a wealthy investor. She gives a $60,000 cash gift to her favorite nephew at the beginning of the year. On December 1, 2022, Angelica dies. In this scenario, who is responsible for filing the gift tax return and paying the gift tax (if any is due)? A. No one, because Angelica died. B. Her nephew, the gift recipient. C. The executor of Angelica's estate. D. Whoever is named in Angelica's will as her primary beneficiary.
d
95. Gerry changed employers on January 3, 2022, and his new employer does not offer health insurance. Gerry plans to apply for insurance through the Healthcare Marketplace, and he wants to know if he qualifies for a subsidy. For the purposes of the Premium Tax Credit, the calculation of Gerry's household income would include which of the following? A. Supplemental Security Income (SSI). B. Child support payments. C. Federal disaster relief assistance payments. D. Tax-exempt interest.
