ACCT 3350 Final Exam (2021 Tax Year) ALL

Katie sells her personal use automobile for $12,000. She purchased the car three years ago for $25,000. What is Katie's recognized gain or loss? a.($13,000) b.$0 c.$12,000 d.($25,000)

$0

In 2021, Kendra has taxable income before the QBI deduction of $274,000. Kendra is single and has income from her law firm (a sole proprietorship operating as an LLC) of $200,000. Her law firm paid wages of $82,000 and has qualified property of $20,000. What is Kendra's QBI deduction? a.$54,800. b.$0. c.$40,000. d.$41,000.

$0.

Hans purchased a new passenger automobile on August 17, 2021, for $30,000. During the year, the car was used 40% for business and 60% for personal use. Determine his cost recovery deduction for the car for 2021. a.$1,333 b.$500 c.$1,000 d.$1,200

$1,200

Pat generated self-employment income in 2021 of $76,000. The self-employment tax is: a.$5,369.23. b.$10,738.46. c.$0. d.$11,628.00.

$10,738.46.

Question Content Area This year, Carol, a single taxpayer, purchased a vacation home for $400,000 using a home equity loan of $350,000 on her principal residence. She has no other debt on her principal residence. Carol paid $16,000 of interest on the debt this year. How much of this interest is deductible assuming that Carol itemizes her deductions? a.$0 b.$16,000 c.$10,000 d.$125,000

A) 0

Adam repairs power lines for the Egret Utilities Company. He is generally working on a power line during the lunch hour. He must eat when and where he can and still get his work done. He usually purchases something at a convenience store and eats in his truck. Egret reimburses Adam for the cost of his meals. a.Adam may exclude from his gross income the difference between what he paid for the meals and what it would have cost him to eat at home. b.Adam can exclude the reimbursement from his gross income because he eats the meals on the employer's business premises (the truck). c.Adam can exclude the reimbursement from his gross income since the meals are provided for the convenience of the employer. d.Adam must include the reimbursement in his gross income.

Adam must include the reimbursement in his gross income.

Aiden performs services for Lucas. Which of the following factors indicates that Aiden is an employee rather than an independent contractor? a.Aiden makes his services available to others. b.Aiden obtained his training (i.e., job skills) from his father. c.Aiden provides his own support services (e.g., work assistants). d.Aiden is paid based on hours worked.

Aiden is paid based on hours worked.

CHAPTERS 1-4

CHAPTERS 1-4

CHAPTERS 9-15

CHAPTERS 9-15

The de minimis fringe benefit: a.Exclusion applies to employee discounts. b.Exclusion is limited to $250 per year. c.Exclusion applies only to property received by the employee. d.Can be provided on a discriminatory basis.

Can be provided on a discriminatory basis.

Which of the following is deductible in 2021? a.Allowable hobby expenses in excess of hobby income. b.Tax return preparation fees of an individual. c.Moving expenses in excess of reimbursement. d.Cash contribution to the Salvation Army, a qualified charity.

Cash contribution to the Salvation Army, a qualified charity.

Chapters 9-15

Chapters 9-15

Which of the following expenses, if any, qualify as deductible? a.Contribution to a traditional IRA. b.Contributions to a Coverdell Education Savings Account (CESA). c.Contributions to a qualified tuition program (§ 529 plan). d.Job-hunting expense of FBI agent who applies for the job of city manager of Beaumont, TX.

Contribution to a traditional IRA.

Trade or business expenses of a self-employed taxpayer should be treated as: a.Deductible for AGI on Schedule C. b.A deduction from AGI. c.An itemized deduction if not reimbursed. d.Deductible for AGI on Schedule E.

Deductible for AGI on Schedule C.

In January, Maurice sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions? a.Disallowed loss to Maurice of $2,000; gain to James of $1,000. b.Disallowed loss to James of $2,000; gain to Maurice of $1,000. c.Deductible loss to Maurice of $2,000; gain to James of $3,000. d.Disallowed loss to Maurice of $2,000; gain to James of $3,000.

Disallowed loss to Maurice of $2,000; gain to James of $1,000.

Refundable tax credits include the: a.Tax credit for rehabilitation expenses. b.Work opportunity tax credit. c.Credit for certain retirement plan contributions. d.Earned income credit.

Earned income credit.

The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes, provided the privilege is not abused. Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings. The copies made during the year would have cost $150 at a local office supply. a.Ed may exclude the cost of the copies as a de minimis fringe benefit. b.Ed may exclude the cost of the copies only if the organization is a client of Mauve. c.Ed must include $150 in his gross income. d.Ed may exclude the cost of the copies as a no-additional-cost fringe benefit.

Ed may exclude the cost of the copies as a de minimis fringe benefit.

Which of the following may be deductible? a.Expenses associated with monitoring legislation. b.Fines paid for violations of the law. c.Illegal bribes that relate to a U.S. business. d.Campaign contribution to a candidate for mayor.

Expenses associated with monitoring legislation.

Which of the following can be claimed as a deduction for AGI? a.Investment interest expenses. b.Property taxes on personal use real estate. c.Personal casualty losses. d.Expenses associated with royalty income.

Expenses associated with royalty income.

An employer calculates the amount of income tax withheld from salary or wages based on the information an employee provides on the: a.Form W-4. b.Form W-2. c.Form W-3. d.Form 941.

Form W-4.

Harold bought land from Jewel for $150,000. Harold paid $50,000 cash and gave Jewel an 8% note for $100,000. The note was to be paid over a five-year period. When the balance on the note was $80,000, Jewel began having financial difficulties. To accelerate her cash inflows, Jewel agreed to accept $60,000 cash from Harold in final payment of the note principal. a.Harold is not required to recognize gross income but must reduce his cost basis in the land to $130,000. b.Harold is not required to recognize gross income since he paid the debt before it was due. c.Harold must recognize $20,000 ($80,000 - $60,000) of gross income. d.Jewel must recognize gross income of $20,000 ($80,000 - $60,000) from discharge of the debt.

Harold is not required to recognize gross income but must reduce his cost basis in the land to $130,000.

Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during the current year. The machine was placed in service in January of the following year. No assets were purchased in the following year. Grape's cost recovery would begin: a.In the current year using a half-year convention. b.In the current year using a mid-quarter convention. c.In the following year using a half-year convention. d.In the following year using a mid-quarter convention.

In the following year using a half-year convention.

Priscella pursued a hobby of making bedspreads in her spare time. Her AGI before considering the hobby is $40,000. During 2021 she sold the bedspreads for $10,000. She incurred expenses as follows: Supplies; $4,000 Interest on loan to get business started; 500 Advertising; 6,500 Assuming that the activity is deemed a hobby, how should she report these items on her tax return? a.Include $10,000 in income and deduct nothing. b.Ignore both income and expenses since hobby losses are disallowed. c.Include $10,000 in income, deduct nothing for AGI, and claim $11,000 of the expenses as itemized deductions. d.Include $10,000 in income and deduct $11,000 for AGI.

Include $10,000 in income and deduct nothing.

Under the actual cost method, which of the following expenses, if any, will not be allowed? a.Interest expense on a car loan (taxpayer is an employee). b.Car registration fees. c.Auto insurance. d.Dues to auto clubs.

Interest expense on a car loan (taxpayer is an employee).

Which of the following, if any, correctly describes the earned income credit? a.Would be available regardless of the amount of the taxpayer's adjusted gross income. b.Requires a taxpayer to have a qualifying child to take advantage of the credit. c.Is not available to a surviving spouse. d.Is a refundable credit.

Is a refundable credit.

Where is the § 199A deduction taken on Form 1040? a.It is a deduction that reduces self-employment income and is taken on Schedule SE (Form 1040). b.It is a business deduction and is taken on Schedule C (Form 1040). c.It is a deduction from AGI, much like the standard deduction or itemized deductions, and is the last deduction taken in determining taxable income. d.It is an itemized deduction taken on Schedule A (Form 1040).

It is a deduction from AGI, much like the standard deduction or itemized deductions, and is the last deduction taken in determining taxable income.

Which of the following assets would be subject to cost recovery? a.An antique vase in a doctor's waiting room. b.Landscaping around the doctor's office. c.A painting by Picasso hanging on a physician's office wall. d."A painting by Picasso hanging on a physician's office wall", "An antique vase in a doctor's waiting room", and "Landscaping around the doctor's office".

Landscaping around the doctor's office.

Luis is the sole shareholder of a regular C corporation, and Eduardo owns a proprietorship. In the current year, both businesses make a profit of $80,000, and each owner withdraws $50,000 from his business. With respect to this information, which of the following statements is incorrect? a.Luis must report $80,000 of income on his return. b.Luis's corporation must pay income tax on $80,000. c.Eduardo's proprietorship is not required to pay income tax on $80,000. d.Eduardo must report $80,000 of income on his return.

Luis must report $80,000 of income on his return.

Which of the following is not a characteristic of MACRS for property other than real estate? a.MACRS increases taxable income in the early years of the asset's life. b.MACRS uses shorter asset lives. c.MACRS decreases taxable income in the early years of the asset's life. d.MACRS accelerates cost recovery.

MACRS increases taxable income in the early years of the asset's life.

Which of the following are deductions for AGI? a.Property taxes on a personal residence. b.Mortgage interest on a building used in a business. c.Fines and penalties incurred in a trade or business. d.Mortgage interest on a personal residence.

Mortgage interest on a building used in a business.

Karen, a salesperson employed by an auto dealership, is considering opening a fast-food franchise. If Karen decides not to acquire the fast-food franchise, any investigation expenses are: a.Not deductible. b.A deduction from AGI. c.Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period. d.A deduction for AGI.

Not deductible.

The taxpayer is a Ph.D. student in accounting at City University. The student is paid $1,500 per month for teaching two classes. The total amount received for the year is $13,500. a.The $13,500 is excluded because the total amount received for the year is less than her standard deduction and personal exemption. b.The $13,500 is taxable compensation. c.The $13,500 is excludible if the money is used to pay for tuition and books. d.The $13,500 is considered a scholarship and, therefore, is excluded.

The $13,500 is taxable compensation.

Which of the following is incorrect? a.Property taxes on taxpayer's personal residence are a deduction from AGI b.The expenses associated with royalty property are a deduction from AGI. c.Alimony, if deductible, is a deduction for AGI. d.Contributions to a traditional IRA are a deduction for AGI.

The expenses associated with royalty property are a deduction from AGI.

The Royal Motor Company manufactures automobiles. Nonmanagement employees of the company can buy a new automobile for Royal's cost plus 2%. The automobiles are sold to dealers at cost plus 20%. Generally, management employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost. Which of the following statements is correct? a.None of the employees who take advantage of the fringe benefits described above are required to recognize income. b.The nonmanagement employees who buy automobiles at a discount are not required to recognize income from the purchase. c.Employees of Royal are required to recognize as gross income 18% (20% - 2%) of the cost of the automobile purchased. d.All of these choices are correct.

The nonmanagement employees who buy automobiles at a discount are not required to recognize income from the purchase.

Which of the following taxpayers is eligible for a qualified business income deduction regarding the activity noted? (circle all that apply) a.Tom's Burger Place, a sole proprietorship. b.A partner of a Big 4 firm. c.An employee working for Apple, Inc. d.A driver for Uber or Lyft.

Tom's Burger Place, a sole proprietorship. A partner of a Big 4 firm. A driver for Uber or Lyft.

A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for: a.Tuition only. b.Tuition, books, supplies, meals, and lodging. c.Tuition, books, and supplies. d.Meals and lodging.

Tuition, books, and supplies.

Which of the following is not a required test for the deduction of a business expense? a.Necessary b.Ordinary c.Unavoidable d.Reasonable

Unavoidable

Which of the following factors, if any, is not a characteristic of independent contractor status? a.Services are performed for more than one party. b.Receipt of a Form 1099 reporting payments received. c.Workplace fringe benefits are not available. d.Work-related expenses are reported on Schedule A (Form 1040).

Work-related expenses are reported on Schedule A (Form 1040).

Jermaine and Kesha are married, file a joint tax return, have AGI of $82,500, and have two children. Devona is beginning her freshman year at State University during fall 2021, and Arethia is beginning her senior year at Northeast University during fall 2021 after having completed her junior year during the spring of that year. Both Devona and Arethia are claimed as dependents on their parents' tax return.Devona's qualifying tuition expenses and fees total $4,000 for the fall semester and Arethia's qualifying tuition expenses and fees total $6,200 for each semester during 2021. Full payment is made for the tuition and related expenses for both children during each semester. The American Opportunity credit available to Jermaine and Kesha for 2021 is: a.$5,000. b.$6,000. c.$3,000. d.$2,500.

a.$5,000.

Which of the following is not allowed as an itemized deduction? a.A subscription to the Wall Street Journal to help with personal investment decisions. b.Cash donation to a church. c.Interest expense on a $800,000 loan incurred in 2016 to buy a principal residence. d.Gambling losses to the extent of gambling winnings.

a.A subscription to the Wall Street Journal to help with personal investment decisions.

Which of the following expenses, if any, are deductible? a.Bottled water purchased by a gig driver for passengers. b.Unreimbursed employee expenses. c.Safety shoes purchased by a plumber employed by a company. d.Tax return preparation fee paid by a nonemployed retiree.

a.Bottled water purchased by a gig driver for passengers.

An employer calculates the amount of income tax withheld from salary or wages based on the information an employee provides on the: a.Form W-4. b.Form W-3. c.Form 941. d.Form W-2.

a.Form W-4.

Charles owns a business with two separate departments. Department A produces $100,000 of income and Department B incurs a $60,000 loss. Charles participates for 550 hours in Department A and 100 hours in Department B. He has full-time employees in both departments. a.If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income. b.If Charles elects to treat the two departments as separate activities, he can offset the $60,000 loss against the $100,000 income. c.Charles may not treat Department A and Department B as separate activities because they are parts of one business. d.If Charles elects to treat both departments as a single activity, he cannot offset the $60,000 loss against the $100,000 income.

a.If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income.

Which of the following statements is true regarding the education tax credits? a.The American Opportunity credit is calculated per eligible student and the lifetime learning credit is available per taxpayer. b.The American Opportunity credit permits a maximum credit of 20% of qualified expenses up to $10,000 per year. c.The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only graduate degrees. d.Continuing education expenses do not qualify for either education credit.

a.The American Opportunity credit is calculated per eligible student and the lifetime learning credit is available per taxpayer.

A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons: a.To avoid the self-employment tax. b.To avoid the limitations on unreimbursed work-related expenses. c.To avoid the overall limitation (50%) on unreimbursed business entertainment expenses. d.To claim unreimbursed work-related expenses as a deduction for AGI.

a.To avoid the self-employment tax.

Question Content Area Darnell, age 50, is employed as an actuary. For calendar year 2021, he had AGI of $130,000 and paid the following medical expenses:Medical insurance premiums$5,300Doctor and dentist bills for Derrick and Jane (Darnell's parents)7,900Doctor and dentist bills for Darnell5,100Prescribed medicines for Darnell830Nonprescribed insulin for Darnell960Derrick and Jane would qualify as Darnell's dependents except that they file a joint return. Darnell's medical insurance policy does not cover them. Darnell filed a claim for $4,800 of his own expenses with his insurance company in November 2021 and received the reimbursement in January 2022. What is Darnell's maximum allowable medical expense deduction for 2021? a.$0 b.$10,340 c.$7,090 d.$20,090

b.$10,340

Pat generated self-employment income in 2021 of $76,000. The self-employment tax is: a.$5,369.23. b.$11,628.00. c.$10,738.46. d.$0.

b.$11,628.00.

Sang-hoon, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2021, he files his state return for 2020, paying an additional $600 in state income taxes. During 2021, his withholdings for state income tax purposes amount to $3,550. On April 13, 2022, he files his state return for 2021 claiming a refund of $800. Sang-hoon receives the refund on June 3, 2022. If he itemizes deductions, how much may Sang-hoon claim as a deduction for state income taxes on his Federal income tax return for calendar year 2021 (filed in April 2022)? a.$3,550 b.$4,150 c.$3,350 d.$5,150

b.$4,150

Which of the following taxpayers is potentially eligible for a qualified business income deduction based on the noted activity? (circle all that apply) a.A shareholder of General Electric. b.A self-employed doctor. c.Jennifer, owner of a winery operated as an S corporation. d.A sole proprietor operating a restaurant.

b.A self-employed doctor. c.Jennifer, owner of a winery operated as an S corporation. d.A sole proprietor operating a restaurant.

Corey is the city sales manager for RIBS, a national fast food franchise. Every working day, Corey drives his car as follows:MilesHome to office20Office to RIBS No. 115RIBS No. 1 to No. 218RIBS No. 2 to No. 313RIBS No. 3 to home30Corey renders an adequate accounting to his employer. As a result, Corey's reimburseable mileage is: a.66 miles. b.0 miles. c.46 miles. d.76 miles.

c.46 miles.

Regarding the tax formula and its relationship to Form 1040, which of the following statements, if any, is correct? a.A "Schedule 1 deduction" refers to a deduction for AGI. b.An above-the-line deduction refers to a deduction from AGI. c.A taxpayer's AGI amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040. d.Most exclusions from gross income are reported on Schedule 2 of Form 1040.

A "Schedule 1 deduction" refers to a deduction for AGI.

Which of the following is correct? a.A personal casualty loss incurred from a presidentially declared disaster is classified as a deduction from AGI. b.An expense associated with rental property is classified as a deduction for AGI. c.Real estate taxes on a taxpayer's personal residence are classified as deductions from AGI. d."A personal casualty loss incurred from a presidentially declared disaster is classified as a deduction from AGI", "Real estate taxes on a taxpayer's personal residence are classified as deductions from AGI", and "An expense associated with rental property is classified as a deduction for AGI", are correct.

"A personal casualty loss incurred from a presidentially declared disaster is classified as a deduction from AGI", "Real estate taxes on a taxpayer's personal residence are classified as deductions from AGI", and "An expense associated with rental property is classified as a deduction for AGI", are correct.

The plant union is negotiating with the Eagle Company, which is on the verge of bankruptcy. Eagle has offered to pay for the employees' hospitalization insurance in exchange for a wage reduction. Each employee currently pays premiums of $4,000 a year for their insurance. Which of the following is correct: a.If an employee's wages are reduced by $4,000 and the employee is in the 12% marginal tax bracket, the employee would benefit from the offer. b.If an employee's wages are reduced by $5,000 and the employee is in the 24% marginal tax bracket, the employee would benefit from the offer. c.If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer. d."If an employee's wages are reduced by $5,000 and the employee is in the 24% marginal tax bracket, the employee would benefit from the offer", "If an employee's wages are reduced by $4,000 and the employee is in the 12% marginal tax bracket, the employee would benefit from the offer", and "If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer".

"If an employee's wages are reduced by $5,000 and the employee is in the 24% marginal tax bracket, the employee would benefit from the offer", "If an employee's wages are reduced by $4,000 and the employee is in the 12% marginal tax bracket, the employee would benefit from the offer", and "If an employee's wages are reduced by $6,000 and the employee is in the 35% marginal tax bracket, the employee would benefit from the offer".

Albert purchased a tract of land for $140,000 in 2018 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2021 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2021? a.$100,000 b.$-0- c.$80,000 d.$40,000

$-0-

Taylor, a single taxpayer, has taxable income before the QBI deduction of $194,900 in 2021. Taylor, a CPA, operates an accounting practice as a single-member LLC (which he reports as a sole proprietorship). During 2021, his proprietorship reports net income of $150,000, W-2 wages of $125,000, and $10,000 of qualified property. What is Taylor's qualified business income deduction? a.$12,000. b.$30,000. c.$-0-. d.$31,500.

$12,000.

Peggy is an executive for the Tan Furniture Manufacturing Company. She purchased furniture from the company for $9,500, the price Tan ordinarily would charge a wholesaler for the same items. The retail price of the furniture was $12,500, and Tan's cost was $9,000. The company also paid for Peggy's parking space in a garage near the office. The parking fee was $600 for the year. All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy. However, the company does not pay other employees' parking fees. Peggy's gross income from the above is: a.$3,500. b.$-0-. c.$600. d.$4,100.

$-0-.

Randy is the manager of a motel. As a condition of his employment, Randy is required to live in a room on the premises so that he would be there in case of emergencies. Randy considered this a fringe benefit since he would otherwise be required to pay $800 per month rent. The room that Randy occupied normally rented for $70 per night, or $2,100 per month. On the average, 90% of the motel rooms were occupied. As a result of this rent-free use of a room, what amount is Randy is required to include in gross income? a.$-0-. b.$2,100 per month. c.$800 per month. d.$1,890 ($2,100 × 0.90).

$-0-.

Tanuja Singh is a CPA and operates her own accounting firm (Singh CPA, LLC). As a single-member LLC, she reports her accounting firm operations as a sole proprietor. Tanuja has QBI from her accounting firm of $540,000, reports W-2 wages of $156,000, and the unadjusted basis of property used in the LLC is $425,000. Tanuja is married and will file a joint tax return with her spouse. Their taxable income before the QBI deduction is $475,000, and their modified taxable income is $448,000. What is Tanuja's QBI deduction for 2021. a.$78,000. b.$49,625. c.$89,600. d.$-0-.

$-0-.

In the current year, Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council. The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games. Also this year, Jerry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution? a.$8,000 b.$6,400 c.$10,200 d.$0

$0

This year, Carol, a single taxpayer, purchased a vacation home for $400,000 using a home equity loan of $350,000 on her principal residence. She has no other debt on her principal residence. Carol paid $16,000 of interest on the debt this year. How much of this interest is deductible assuming that Carol itemizes her deductions? a.$125,000 b.$10,000 c.$16,000 d.$0

$0

Francisco was transferred from Phoenix to Atlanta. He sold his Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000. Francisco had owned and lived in the Phoenix residence for six years. What is his recognized gain or loss on the sale of the Phoenix residence and his basis for the residence in Atlanta? a.($50,000) and $375,000. b.$0 and $375,000. c.$0 and $425,000. d.($50,000) and $325,000.

$0 and $375,000.

In 2021, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2021 and $100,000 in 2022, Kipp's share being $60,000 in 2021 and $30,000 in 2022. How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership's operations? a.$60,000 in 2021; $0 in 2022. b.$0 in 2021; $0 in 2022. c.$60,000 in 2021; $30,000 in 2022. d.$60,000 in 2021; $5,000 in 2022.

$0 in 2021; $0 in 2022.

Andrew, who operates a laundry business, incurred the following expenses during the year.∙Parking ticket of $250 for one of his delivery vans that parked illegally.∙Parking ticket of $75 when he parked illegally while attending a rock concert in Tulsa.∙DUI ticket of $500 while returning from the rock concert.∙Attorney's fee of $600 associated with the DUI ticket.What amount can Andrew deduct for these expenses? a.$600. b.$250. c.$0. d.$1,425.

$0.

Early in the year, Marlon was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year: Reimbursement of medical expenses Marlon paid by a medical insurance policy he purchased; $10,000 Damage settlement to replace his lost salary; 15,000 What is the amount that Marlon must include in gross income for the current year? a.$15,000. b.$25,000. c.$0. d.$10,000.

$0.

Matilda works for a company with 1,000 employees. The company has a hospitalization insurance plan that covers all employees. However, the employee must pay the first $3,000 of their medical expenses each year. Each year, the employer contributes $1,500 to each employee's health savings account (HSA). Matilda's employer made the contributions in 2020 and 2021, and the account earned $100 interest in 2021. At the end of 2021, Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy. As a result, Matilda must include in her 2021 gross income: a.$1,600. b.$100. c.$3,100. d.$0.

$0.

Melba incurred the following expenses for her dependent daughter during the current year: Payment of principal on daughter's automobile loan; $3,600 Payment of interest on daughter's automobile loan; 2,900 Payment of daughter's property taxes; 1,800 Payment of principal on daughter's personal residence loan; 2,800 Payment of interest on daughter's personal residence loan; 7,000 How much may Melba deduct in computing her itemized deductions? a.$8,800. b.$18,100. c.$11,700. d.$0.

$0.

Robert entertains several of his key clients on January 1 of the current year; total expenses were $1,220 ($60 cab fare and $1,160 club charges). The charges at the club are combined into a single charge of $1,160. Robert estimates that if charged separately, the costs would be as follows: Cover charge at supper club; $200 Dinner at club; 800 Tips to waiter; 160 Presuming proper substantiation, Robert's deduction is: a.$640. b.$0. c.$740. d.$1,220.

$0.

Velma and Bud divorced. Velma's attorney fee of $5,000 is allocated as follows: General representation in obtaining the divorce; $1,500 Services in obtaining custody of the child; 900 Services in settlement of martial property; 600 Determining the tax consequences of: -Dependency deduction for child; 700 -Tax consequences of property settlement; 1,300 Of the $5,000 Velma pays to her attorney in 2021, the amount she may deduct as an itemized deduction is: a.$2,000. b.$0. c.$5,000. d.$700.

$0.

Simpson Company, a calendar year taxpayer, acquires an apartment building on March 22, 2021 for $900,000. What is the maximum cost recovery deduction it may take for 2021? a.$31,365. b.$22,617. c.$18,297. d.$25,911.

$25,911.

Margarita's interest and gains on investments for the current year are as follows: Interest on Madison County school bonds; $600 Interest on U.S. government bonds; 700 Interest on a Federal income tax refund; 200 Gain on the sale of Madison County school bonds; 500 Margarita must report gross income in the amount of: a.$2,000. b.$1,300. c.$1,400. d.$1,800.

$1,400.

Carlton purchases land for $550,000. He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase. He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential. He subdivides the land and installs streets and sewers at a cost of $800,000. What is Carlton's basis for the land and the improvements? a.$1,378,000 b.$1,350,000 c.$1,385,000 d.$1,413,000

$1,413,000

Cory, a college professor, incurred and paid the following expenses in 2021: Tax return preparation fee; $600 Moving expenses; 2,000 Investment expenses; 500 Expenses associated with rental property; 1,500 Interest expense associated with loan to finance tax-exempt bonds; 400 Calculate the amount that Cory can deduct (before any percentage limitations). a.$5,000. b.$1,500. c.$3,000. d.$4,600.

$1,500.

Bayarmaa owns land with an adjusted basis of $610,000 subject to a mortgage of $350,000. On April 1, Bayarmaa sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000. What is the amount realized? a.$1,820,000 b.$1,250,000 c.$1,720,000 d.$1,370,000

$1,720,000

The taxpayer's marginal federal and state tax rate is 25%. Which would the taxpayer prefer? a.$1.25 taxable income rather than $1.00 tax-exempt income. b.$1.00 taxable income rather than $.75 tax-exempt income. c.$1.40 taxable income rather than $1.00 tax-exempt income. d.$1.00 taxable income rather than $1.25 tax-exempt income.

$1.40 taxable income rather than $1.00 tax-exempt income.

During the current year, Eleanor earns $120,000 in wages as an employee of an accounting firm. She also earns $13,000 in gross income from a consulting service she operates. Deductible expenses paid in connection with the consulting work amount to $3,000. Eleanor also incurs a recognized long-term capital gain of $1,000 from the sale of a stock investment. She must pay a self-employment tax on: a.$10,000. b.$0. c.$14,000. d.$13,000.

$10,000.

Olaf was injured in an automobile accident and received $25,000 for his physical injury, $50,000 for his loss of income, and $10,000 for punitive damages. As a result of the award, the amount Olaf must include in gross income is: a.$50,000. b.$85,000. c.$60,000. d.$10,000.

$10,000.

Darnell, age 50, is employed as an actuary. For calendar year 2021, he had AGI of $130,000 and paid the following medical expenses: Medical insurance premiums; $5,300 Doctor and dentist bills for Derrick and Jane (Darnell's parents); 7,900 Doctor and dentist bills for Darnell; 5,100 Prescribed medicines for Darnell; 830 Nonprescribed insulin for Darnell; 960 Derrick and Jane would qualify as Darnell's dependents except that they file a joint return. Darnell's medical insurance policy does not cover them. Darnell filed a claim for $4,800 of his own expenses with his insurance company in November 2021 and received the reimbursement in January 2022. What is Darnell's maximum allowable medical expense deduction for 2021? a.$20,090 b.$10,340 c.$7,090 d.$0

$10,340

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation? a.$13,800 b.$3,300 c.$10,500 d.$12,150

$10,500

Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows. Cost Recovery Allowed: Year 1; $16,000 Year 2; 9,600 Year 3; 5,760 Cost Recovery Allowable Year 1; $ 8,000 Year 2; 12,800 Year 3; 7,680 If Tara sells the machine after three years for $15,000, how much gain should she recognize? a.$6,360 b.$3,480 c.$11,480 d.$9,240

$11,480

On June 1, 2021, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2021 for the patent. a.$0 b.$35,000 c.$1,667 d.$11,667

$11,667

Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year. The rental income is $6,000 and the expenses are as follows: Mortgage interest; $9,000 Real estate taxes; 3,000 Utilities; 2,000 Maintenance; 1,000 Insurance; 500 Depreciation (rental part); 4,000 Using the IRS approach, total expenses that Robyn can deduct on her tax return associated with the beach house are: a.$8,000. b.$0. c.$6,000. d.$12,000.

$12,000.

Chen incurred $58,500 of interest expense this year related to his investments. His investment income includes $15,000 of interest, $9,000 of qualified dividends, and a $22,500 net capital gain on the sale of securities. The maximum amount of Chen's investment interest expense deduction for the year is: a.$24,000. b.$37,500. c.$15,000. d.$46,500.

$46,500.

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses in 2021: Cataract operation for Brad; $5,400 Brad's prescribed contact lenses; 1,800 Faye's doctor and dentist bills; 12,600 Prescribed drugs for Faye; 2,550 Total; $22,350 Faye has a medical expense deduction of: a.$6,150 b.$13,350 c.$22,350 d.$10,350

$13,350

Carlos purchased an apartment building on November 16, 2021, for $3,000,000. Determine the cost recovery deduction for 2021. a.$11,910 b.$13,650 c.$9,630 d.$22,740

$13,650

On January 1, 2021, SymboNet Company completed its acquisition of NetOpen. As part of the acquisition, $2 million was allocated to goodwill. What is SymboNet's amortization deduction related to the goodwill for 2021? a.$200,000. b.$100,000. c.$133,333. d.$0.

$133,333.

In 2020, Mei had a § 179 deduction carryover of $30,000. In 2021, she elected § 179 for an asset acquired at a cost of $115,000. Mei's § 179 business income limitation for 2021 is $140,000. Determine Mei's § 179 deduction for 2021. a.$130,000 b.$140,000 c.$115,000 d.$25,000

$140,000

Ellie (a single taxpayer) is the owner of ABC, LLC. The LLC (a sole proprietorship) reports QBI of $900,000 and is not a specified services business. ABC paid total W-2 wages of $300,000, and the total unadjusted basis of property held by ABC is $30,000. Ellie's taxable income before the QBI deduction is $740,000 (this is also her modified taxable income). What is Ellie's QBI deduction for 2021? a.$75,750. b.$150,000. c.$180,000. d.$148,000.

$148,000.

Paul, a calendar year single taxpayer, has the following information for 2021: AGI; $175,000 State income taxes; 13,500 State sales tax; 3,000 Real estate taxes; 18,900 Gambling losses (gambling gains were $12,000); 6,800 Paul's allowable itemized deductions for 2021 are: a.$16,800. b.$39,200. c.$10,000. d.$42,200.

$16,800.

Matilda, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year: Cash donation to State University; Basis: $30,000 FMV: $30,000 Unimproved land to the City of Terre Haute, IN; Basis: 70,000 FMV: 210,000 The land had been held as an investment and was acquired four years ago. Shortly after receipt, the City of Terre Haute sold the land for $210,000. Matilda's AGI is $450,000. The allowable charitable contribution deduction this year is: a.$240,000. b.$165,000. c.$225,000. d.$100,000.

$165,000.

Christie sued her former employer for a back injury she suffered on the job in 2021. As a result of the injury, she was partially disabled. In 2022, she received $240,000 for her loss of future income, $160,000 in punitive damages because of the employer's flagrant disregard for the employee's safety, and $15,000 for medical expenses. The medical expenses were deducted on her 2021 return, reducing her taxable income by $12,000. Christie's 2022 gross income from the above is: a.$412,000. b.$172,000. c.$415,000. d.$255,000.

$172,000.

Danielle is a partner in and sales manager for DG Partners, a domestic business that is not a specified service trade or business. During the tax year, she receives guaranteed payments of $250,000 from DG Partners for her services to the partnership as its sales manager. In addition, her distributive share of DG Partners' ordinary income (its only item of income or loss) was $175,000. What is Danielle's qualified business income? a.$425,000. b.$250,000. c.$-0-. d.$175,000.

$175,000.

Diane purchased a factory building on April 15, 1993, for $5,000,000. She sells the factory building on February 2, 2021. Determine the cost recovery deduction for the year of the sale. a.$26,458 b.$19,838 c.$16,025 d.$158,750

$19,838

Realizing that providing for a comfortable retirement is up to them, Jim and Julie commit to regular contributions to traditional IRAs, beginning this year. Consequently, each makes a $2,000 contribution to his or her traditional IRA. If their AGI is $35,000 on their joint return, what is the amount of any "saver's credit" for retirement plan contributions? a.$2,000 b.$1,000 c.$400 d.$200

$2,000

Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for transportation, $1,200 for lodging, and $400 for meals. What is Emily's deduction associated with this charitable activity? a.$1,800 b.$600 c.$2,200 d.$1,200

$2,200

Carin, a widow, elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each. Her husband had paid premiums of $60,000 on the policy. In the first year, Carin collected $17,500 from the insurance company. She must include in gross income: a.$10,000. b.$0. c.$2,500. d.$25,000.

$2,500.

Fran is a CPA who has a small tax practice in addition to working as the controller for a local manufacturing business. Fran runs her tax practice out of a 150-square foot office in her home where she meets clients and works on their tax returns and researches their tax issues. She meets the exclusive use test for this space. The gross income from her tax practice amounts to $7,500 for the year. Business expenses amount to $1,000. Based on square footage, $4,000 of Fran's mortgage interest and real estate taxes are allocable to the home office. The allocable portion of maintenance, utilities, and depreciation is $4,500. Assuming no other expenses related to the business were incurred, what amount of the maintenance, utilities, and depreciation is deductible by Fran? a.$3,500. b.$2,500. c.$4,500. d.$0.

$2,500.

In Lawrence County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume that this year is not a leap year). The tax is payable on June 1. On May 1, Reggie sells his house to Dana for $350,000. On June 1, Dana pays the entire real estate tax of $7,950 for the year ending December 31. Assuming that Reggie itemizes his deductions and the $10,000 limit on state and local taxes does not apply, how much of the property taxes may Reggie deduct? a.$7,950 b.$2,625 c.$0 d.$2,614

$2,614

On May 30, 2020, Jane purchased a factory building to use for her business. In August 2021, Jane paid $300,000 for improvements to the building. Determine Jane's total deduction with respect to the building improvements for 2021. a.$2,889 b.$4,815 c.$25,000 d.$4,173

$2,889

During the year, Sophie (a self-employed marketing consultant) went from Omaha to Lima, Peru, on business. She spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Sophie's expenses are: Airfare; $3,000 Lodging; 800 Meals; 600 Entertainment; 400 Sophie's deductible expenses are: a.$2,900. b.$2,800. c.$4,300. d.$2,500.

$2,900.

Josh has investments in two passive activities. Activity A (acquired three years ago) produces income of $30,000 this year, while Activity B (acquired two years ago) produces a loss of $50,000. What is the amount of Josh's suspended loss for the year? a.$18,000 b.$50,000 c.$0 d.$20,000

$20,000

Julie was suffering from a viral infection that caused her to miss work for 90 days. During the first 30 days of her absence, she received her regular salary of $8,000 from her employer. For the next 60 days, she received $12,000 under an accident and health insurance policy purchased by her employer. The premiums on the health insurance policy were excluded from her gross income. During the last 30 days, Julie received $6,000 on an income replacement policy she had purchased. Of the $26,000 she received, Julie must include in gross income: a.$8,000. b.$6,000. c.$20,000. d.$14,000.

$20,000.

Jason and Paula are married. They file a joint return for 2021 on which they report taxable income before the QBI deduction of $200,000. Jason operates a sole proprietorship, and Paula is a partner in the PQRS Partnership. Both are a qualified trade or business and neither is a specified services business. Jason's sole proprietorship reports $150,000 of net income, W-2 wages of $45,000, and has qualified property of $50,000. Paula's partnership reports a loss for the year, and her allocable share of the loss is $40,000. The partnership reports no W-2 wages and Paula's share of the partnership's qualified property is $20,000. What is their qualified business income deduction for the year? a.$30,000. b.$-0-. c.$22,000. d.$11,750. e.None of these choices are correct.

$22,000.

Alicia is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $325,000 after deducting Alicia's $100,000 salary. In addition to her compensation, ABC pays Alicia dividends of $250,000. After reviewing comparable companies, you determine that reasonable compensation for someone with her experience and responsibilities is $200,000. What is Alicia's qualified business income? a.$225,000. b.$200,000. c.$-0-. d.$325,000.

$225,000.

Phillip, age 66, developed hip problems and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $32,000. The increase in the value of the residence as a result of the room addition was determined to be $17,000. In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair. Phillip's AGI for 2021 was $75,000. What is the amount of Phillip's medical expense deduction in 2021? a.$0 b.$29,000 c.$21,500 d.$23,375

$23,375

Hazel purchased a new business asset (five-year asset) on September 30, 2021, at a cost of $100,000. On October 4, 2021, she placed the asset in service. This was the only asset she placed in service in 2021. Hazel did not elect § 179 or additional first-year depreciation. On August 20, 2022, Hazel sold the asset. Determine the cost recovery for 2022 for the asset. a.$19,000 b.$23,750 c.$38,000 d.$14,250

$23,750

Kenji purchased a used business asset (seven-year property) on September 30, 2021, at a cost of $200,000. This is the only asset he purchased during the year. Kenji did not elect to expense any of the asset under § 179, did not claim additional first-year depreciation, and did not elect straight-line cost recovery. Kenji sold the asset on July 17, 2022. Determine the cost recovery deduction for 2022. a.$19,133 b.$55,100 c.$24,490 d.$34,438

$24,490

Carl, a physician, earns $200,000 from his medical practice in the current year. He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity. In addition, he incurs a loss of $50,000 from an investment in a passive activity. What is Carl's AGI for the current year after considering the passive investment? a.$245,000 b.$195,000 c.$240,000 d.$200,000

$245,000

Rex, a cash basis calendar year taxpayer, runs a bingo operation that is illegal under state law. During the current year, a bill designated H.R. 9 is introduced into the state legislature, which, if enacted, would legitimize bingo games. In the current year, Rex had the following expenses: Operating expenses in conducting bingo games; $247,000 Payoff money to state and local police; 24,000 Newspaper ads supporting H.R. 9; 3,000 Political contributions to legislators who support H.R. 9' 8,000 Of these expenditures, Rex may deduct: a.$258,000. b.$282,000. c.$247,000. d.$250,000.

$247,000.

Tan Company acquires a new machine (10-year property) on January 15, 2021, at a cost of $200,000. Tan also acquires another new machine (7-year property) on November 5, 2021, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2021. a.$132,858 b.$25,716 c.$24,000 d.$102,000

$25,716

Indigo Company acquires a new machine (5-year MACRS property) on February 2, 2021 at a cost of $100,000. On November 18, 2021, Indigo also acquires office equipment (7-year MACRS property) at a cost of $50,000. Indigo does not make a § 179 expense election and chooses not to take additional first-year depreciation. What is Indigo's total MACRS deduction for 2021? a.$27,145. b.$150,000. c.$30,000. d.$36,785.

$27,145.

Jack received a court award in a civil libel and slander suit against National Gossip. He received $120,000 for damages to his professional reputation, $100,000 for damages to his personal reputation, and $50,000 in punitive damages. Jack must include in his gross income as a damage award: a.$100,000. b.$120,000. c.$0. d.$270,000.

$270,000.

Jena is a full-time undergraduate student at State University and qualifies as a dependent of her parents. Her only source of income is a $10,000 athletic scholarship ($1,000, books; $5,500, tuition; $500, student activity fee; and $3,000, room and board). Jena's gross income for the year is: a.$500. b.$4,000. c.$10,000. d.$3,000.

$3,000.

Harry and Wei are married and file a joint income tax return. On their 2021 tax return, they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wei) and report two dependent children. During the year, they pay the following amounts to care for their four-year old son and six-year old daughter while they work. ABC Day Care Center; $3,200 Blue Ridge Housekeeping Services; 2,000 Mindy Mason (Harry's mother); 1,000 Harry and Wei may claim a credit for child and dependent care expenses of: a.$2,100. b.$2,600. c.$1,600. d.$3,100.

$3,100.

George, an unmarried cash basis taxpayer, received the following amounts this year: Interest on savings accounts; $2,000 Interest on a state tax refund; 600 Interest on City of Salem school bonds; 350 Interest portion of proceeds of a 5% bank certificate of deposit purchased last year on July 1 and matured on June 30 of this year; 250 Dividends on USG common stock; 300 What amount should George report as gross income from dividends and interest this year? a.$3,150. b.$2,550. c.$2,300. d.$3,500.

$3,150.

Mauve Corporation begins business on April 2, 2021. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Mauve can elect to deduct in 2021. a.$0 b.$4,267 c.$3,200 d.$7,950

$3,200

Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2021. They have four dependents and file a joint return. They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses, and $3,000 for prescribed medicine and drugs. In October 2021, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2022. Determine the maximum itemized deduction allowable for medical expenses in 2021. a.$800 b.$9,200 c.$3,800 d.$12,800

$3,800

Carlos, age 19, is a full-time graduate student at City University. During 2021, he received the following payments: Cash award for being the outstanding resident adviser; $ 1,500 Resident adviser housing; 2,500 State scholarship for ten months (tuition and books); 6,000 State scholarship (meals allowance); 2,400 Loan from college financial aid office; 3,000 Cash support from parents; 2,000 Total: $17,400 Carlos served as a resident adviser in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Carlos's adjusted gross income for 2021? a.$15,400. b.$1,500. c.$9,000. d.$3,900.

$3,900.

Alice purchased office furniture on September 20, 2020, for $100,000. On October 10, 2020, she purchased business computers for $80,000. Alice placed all of the assets in service on January 15, 2021. She did not elect to expense any of the assets under § 179, did not elect straight-line cost recovery, and did not take additional first-year depreciation. Determine the cost recovery deduction for the business assets for 2021. a.$14,710 b.$6,426 c.$25,722 d.$30,290

$30,290

Quinn, who is single and lives alone, is physically disabled as a result of a diving accident. To live independently, he modifies his personal residence at a cost of $30,000. The modifications included widening halls and doorways for a wheelchair, installing support bars in the bathroom and kitchen, installing a stairway lift, and rewiring so he could reach electrical outlets and appliances. Quinn pays $200 for an appraisal that places the value of the residence at $129,000 before the improvements and $140,000 after. As a result of the operation of the stairway lift, Quinn experienced an increase of $680 in his utility bills for the current year. Disregarding the AGI floor for medical expenses, how much of these expenditures qualify as medical expense deductions? a.$11,680 b.$30,680 c.$34,880 d.$30,880

$30,680

Aaron is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $325,000 after deducting Aaron's $100,000 salary. In addition to his compensation, ABC pays Aaron dividends of $250,000. What is Aaron's qualified business income? a.$100,000. b.$250,000. c.$-0-. d.$325,000.

$325,000.

Janice bought her house years ago for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. She sells the house on July 1, this year. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Don buys the house for $500,000 in cash and assumes her mortgage of $194,000. What is Janice's adjusted basis at the date of the sale and the amount realized? a.$370,000 adjusted basis; $665,200 amount realized. b.$325,000 adjusted basis; $663,200 amount realized. c.$370,000 adjusted basis; $659,000 amount realized. d.$370,000 adjusted basis; $661,400 amount realized.

$370,000 adjusted basis; $659,000 amount realized.

Todd converts his house into a rental property. Todd's basis in the house is $400,000, and its fair market value on the date of conversion is $376,000. What is Todd's basis for purposes of MACRS cost recovery? a.$388,000. b.$376,000. c.$0; because it was converted from personal use, it cannot be depreciated. d.$400,000.

$376,000.

Yolanda buys a house in the mountains for $450,000 that she uses as her personal vacation home. She builds an additional room on the house for $40,000. She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house? a.$110,000 b.$70,000 c.$0 d.$38,000

$38,000

Kevin and Shuang have two children, ages 8 and 14. In 2021 they spend $16,200 on eligible employment related expenses for the care of their children after school. Kevin earned a salary of $15,200 and Shuang earned a salary of $68,000. What is the amount of the couple's credit for child and dependent care expenses for 2021? a.$8,000 b.$7,600 c.$8,100 d.$4,000

$4,000

In 2022, George and Martha are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents. Assuming their AGI is $119,650, George and Martha's child tax credit is: a.$0. b.$3,000. c.$2,000. d.$4,000.

$4,000.

Sang-hoon, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2021, he files his state return for 2020, paying an additional $600 in state income taxes. During 2021, his withholdings for state income tax purposes amount to $3,550. On April 13, 2022, he files his state return for 2021 claiming a refund of $800. Sang-hoon receives the refund on June 3, 2022. If he itemizes deductions, how much may Sang-hoon claim as a deduction for state income taxes on his Federal income tax return for calendar year 2021 (filed in April 2022)? a.$5,150 b.$3,550 c.$3,350 d.$4,150

$4,150

During the year, John (a self-employed management consultant) went from Milwaukee to Hawaii on business. Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are: Airfare; $3,200 Lodging; 900 Meals; 800 Entertainment; 600 Presuming no reimbursement, deductible expenses are: a.$5,500. b.$3,200. c.$4,500. d.$3,900.

$4,500.

Doug and Manuel received the following interest income in the current year: Savings account opened at Greenbacks Bank; $4,000 U.S.Treasury bonds; 250 Interest on State of Iowa bonds; 200 Interest on Federal tax refund; 150 Interest on state income tax refund; 75 Greenbacks Bank also gave Doug and Manuel a cellular phone (worth $100) for opening the savings account. What amount of interest income should they report on their joint income tax return? a.$4,300. b.$4,675. c.$4,775. d.$4,575.

$4,575.

On June 1, 2020, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) She does not take additional first-year depreciation. Determine the cost recovery deduction for 2021. a.$10,100 b.$4,704 c.$3,570 d.$3,290

$4,704

On June 1, 2021, Nico places in service a new automobile that cost $40,000. The car is used 60% for business and 40% for personal use. (Assume this percentage is maintained for the life of the car.) Nico does not take additional first-year depreciation. Determine the cost recovery deduction for 2021. a.$6,000 b.$1,776 c.$1,896 d.$4,800

$4,800

James purchased a new business asset (three-year personalty) on July 23, 2021, at a cost of $40,000. James takes additional first-year depreciation but does not elect § 179 expense on the asset. Determine the cost recovery deduction for 2021. a.$40,000 b.$33,333 c.$8,333 d.$26,666

$40,000

Layla has $200,000 of QBI from her neighborhood clothing store (a sole proprietorship). Her proprietorship paid $30,000 in W-2 wages and has $20,000 of qualified property. Layla's spouse earned $50,000 of wages as an employee, and the couple earned $20,000 of interest income during the year. They will be filing jointly and take the standard deduction of $25,100.What is their QBI deduction for 2021? a.$40,000. b.$-0-. c.$54,000. d.$48,980.

$40,000.

During 2021, Jack and LaTonya, a married couple, decided to sell their residence. The residence has a basis of $162,000 and has been owned and occupied by them for 11 years. The house was sold in May for $395,000 with broker's commissions and other selling expenses totaling $24,000. They purchased a new residence in June for $400,000. What is the adjusted basis of the new residence? a.$0 b.$162,000 c.$191,000 d.$400,000

$400,000

Bonnie purchased a new business asset (five-year property) on March 10, 2021, at a cost of $30,000. She also purchased a new business asset (seven-year property) on November 20, 2021, at a cost of $13,000. Bonnie did not elect to expense either of the assets under § 179, nor did she elect straight-line cost recovery. Bonnie takes additional first-year depreciation. Determine the cost recovery deduction for 2021 for these assets. a.$43,000 b.$21,915 c.$9,586 d.$7,858

$43,000

Green, Inc., provides group term life insurance for all of its employees. The coverage equals twice the employee's annual salary. Sam, a vice president, worked all year for Green, Inc., and received $200,000 of coverage for the year at a cost to Green of $1,500. The Uniform Premiums (based on Sam's age) are $0.25 per month for $1,000 of protection. How much must Sam include in gross income this year? a.$0. b.$375. c.$450. d.$600.

$450.

Hannah is single, had gross income of $50,000, and incurred the following expenses: Charitable contribution; $2,000 Taxes and interest on home; 7,000 Legal fees incurred in a tax dispute; 1,000 Medical expenses; 3,000 Penalty on early withdrawal of savings; 250 Her AGI is: a.$39,750. b.$40,000. c.$39,000. d.$49,750.

$49,750.

Tom, age 48, is advised by his family physician that he needs back surgery to correct a problem from his last back surgery. Since Tom is in a wheel chair, he needs his wife, Jean, to accompany him on his trip to Rochester, MN, for in-patient treatment at the Mayo Clinic, which specializes in this type of surgery. Tom incurred the following costs in 2021: Round-trip airfare ($350 each); $700 Jean's hotel in Rochester for four nights ($95 per night); 380 Jean's meals while in Rochester; 105 Tom's medical treatment; 3,500 Tom's prescription medicine; 600 Compute Tom's allowable medical expenses for the trip (before application of the AGI floor). a.$5,285 b.$4,000 c.$5,000 d.$5,180

$5,000

Jermaine and Kesha are married, file a joint tax return, have AGI of $82,500, and have two children. Devona is beginning her freshman year at State University during fall 2021, and Arethia is beginning her senior year at Northeast University during fall 2021 after having completed her junior year during the spring of that year. Both Devona and Arethia are claimed as dependents on their parents' tax return. Devona's qualifying tuition expenses and fees total $4,000 for the fall semester and Arethia's qualifying tuition expenses and fees total $6,200 for each semester during 2021. Full payment is made for the tuition and related expenses for both children during each semester. The American Opportunity credit available to Jermaine and Kesha for 2021 is: a.$3,000. b.$6,000. c.$5,000. d.$2,500.

$5,000.

During the year, Walt who is self-employed travels from Seattle to Tokyo, Japan, on business. His time was spent as follows: two days travel (one day each way), two days business, and two days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion): Airfare; $3,000 Lodging; 2,000 Meals; 1,000 Presuming no reimbursement, Walt's deductible expenses are: a.$4,500. b.$5,500. c.$6,000. d.$3,500.

$5,500.

Hannah makes the following charitable donations in the current year: Inventory held for resale in Hannah's business (a sole proprietorship); Basis: $ 8,000 FMV: $ 7,200 Stock in HBM, Inc., held as an investment (acquired four years ago); Basis: 16,000 FMV: 40,000 Baseball card collection held as an investment (acquired six years ago); Basis: 4,000 FMV: 20,000 The HBM stock and the inventory were given to Hannah's church, and the baseball card collection was given to the United Way. Both donees promptly sold the property for the stated fair market value. Disregarding percentage limitations, Hannah's current charitable contribution deduction is: a.$28,000. b.$51,200. c.$52,000. d.$67,200.

$51,200.

Ralph made the following business gifts during the year. To Robert (a key client) at Christmas; $50 To Angel (Robert's 8-year old daughter) on her birthday; 20 To Art (Ralph's secretary) on his birthday ($3 was for gift wrapping); 30 To Paige (Ralph's boss) at Christmas; 40 Presuming proper substantiation, Ralph's deduction is: a.$73. b.$53. c.$0. d.$78.

$53.

Zeke made the following donations to qualified charitable organizations during the year: Used clothing of taxpayer and his family (all acquired more than a year ago); Basis: $ 1,350 FMV: $ 375 Stock in ABC, Inc., held as an investment for 15 months; Basis: 12,000 FMV: 10,875 Stock in MNO, Inc., held as an investment for 11 months; Basis: 15,000 FMV: 18,000 Real estate held as an investment for two years; Basis: 15,000 FMV: 30,000 The used clothing was donated to the Salvation Army; the other items of property were donated to Eastern State University. Both are qualified charitable organizations. Disregarding percentage limitations, Zeke's charitable contribution deduction for the year is: a.$56,250. b.$60,375. c.$59,250. d.$43,350.

$56,250.

Jenna owns and manages her single-member LLC, which provides a wide variety of financial services to her clients. She is married and will file a joint tax return with her spouse, Paul. Her LLC reports $300,000 of net income, W-2 wages of $120,000, and assets with an unadjusted basis of $75,000. Their taxable income before the QBI deduction is $285.000 (this is also their modified taxable income). What is their QBI deduction for 2021? a.$-0-. b.$60,000. c.$70,000. d.$57,000.

$57,000.

Sandra is single and does considerable business entertaining at home. Because Arthur, Sandra's 80-year-old dependent grandfather who lived with Sandra, needs medical and nursing care, he moved to Twilight Nursing Home. During the year, Sandra made the following payments on behalf of Arthur: Room at Twilight; $4,500 Meals for Arthur at Twilight; 850 Doctor and nurse fees; 700 Cable TV service for Arthur's room; 107 Total; $6,157 Twilight has medical staff in residence. Disregarding the AGI floor, how much, if any, of these expenses qualify for a medical deduction by Sandra? a.$5,200 b.$6,050 c.$1,550 d.$6,157

$6,050

Barney is a full-time graduate student at State University. He serves as a teaching assistant for which he is paid $700 per month for nine months and his $5,000 tuition is waived. The university waives tuition for all of its employees. In addition, Barney receives a $1,500 research grant to pursue his own research and studies. Barney's gross income from the above is: a.$0. b.$12,800. c.$11,300. d.$6,300.

$6,300.

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this property total $45,000. The total gain and the taxable gain are: a.$60,000 total gain; $105,000 taxable gain. b.$60,000 total gain; $0 taxable gain. c.$60,000 total gain; $15,000 taxable gain. d.$10,000 total gain; $15,000 taxable gain.

$60,000 total gain; $15,000 taxable gain.

White Company acquires a new machine (seven-year property) on January 10, 2021, at a cost of $620,000. White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed. No election is made to use the straight-line method. Determine the total deductions in calculating taxable income related to the machine for 2021, assuming that White reports taxable income of $800,000. a.$568,574 b.$88,598 c.$301,159 d.$620,000

$620,000

Angie purchased one new asset during the year (five-year property) on November 10, 2021, at a cost of $660,000. She would like to use the § 179 election and will also take additional first-year depreciation. The income from the business before the cost recovery deduction and the § 179 deduction was $600,000. Determine the maximum cost recovery deduction available on this asset for 2021. a.$660,000 b.$30,500 c.$600,000 d.$580,200

$660,000

In 2021, Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant. The LLC reported losses of $340,000 in 2021 and $180,000 in 2022. Joanne's share of the LLC's losses was $68,000 in 2021 and $36,000 in 2022. How much of these losses can Joanne deduct? a.$68,000 in 2021; $0 in 2022. b.$0 in 2021; $0 in 2022. c.$68,000 in 2021; $22,000 in 2022. d.$68,000 in 2021; $36,000 in 2022.

$68,000 in 2021; $22,000 in 2022.

Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss? a.$6,130 b.$0 c.$69,130 d.$37,630

$69,130

Nancy paid the following taxes during the year: Tax on residence (for the period from March 1 through August 31); $5,250 State motor vehicle tax (based on the value of the personal use automobile); 430 State sales tax; 3,500 State income tax; 3,050 Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy? a.$9,130 b.$5,382 c.$9,180 d.$7,382

$7,382

Hugh, a self-employed individual, paid the following amounts during the year: Real estate tax on Iowa residence; $3,800 State income tax; 1,700 Real estate taxes on a vacation home; 2,100 Gift tax paid on gift to daughter; 1,200 State sales taxes; 1,750 State occupational license fee; 300 Property tax on value of his automobile (used 100% for business); 475 What is the maximum amount Hugh can claim as taxes in itemizing deductions from AGI? a.$8,850 b.$9,625 c.$7,650 d.$10,000

$7,650

Theresa sued her former employer for age, race, and gender discrimination. She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages. She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income: a.$700,000. b.$500,000. c.$490,000 [($700,000/$1,000,000) × $700,000]. d.$0.

$700,000.

James, a cash basis taxpayer, received the following compensation and fringe benefits in the current year: Salary; $66,000 Disability income protection premiums; 3,000 Long-term care insurance premiums; 4,000 His actual salary was $72,000. He received only $66,000 because his salary was garnished and the employer paid the $6,000 owed on James's credit card. The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled. The long-term care insurance is available to all employees and pays $150 per day toward a nursing home or similar facility. What is James's gross income from the above? a.$75,000. b.$73,000. c.$72,000. d.$66,000.

$72,000.

Maple Company purchases new equipment (7-year MACRS property) on January 10, 2021, at a cost of $430,000. Maple also purchases new machines (5-year MACRS property) on July 19, 2021 at a cost of $290,000. Maple wants to maximize its MACRS deductions; assume no taxable income limitations apply. What is Maple's total MACRS deduction for 2021? a.$720,000. b.$560,000. c.$119,447. d.$617,148.

$720,000.

Cora purchased a hotel building on May 17, 2021, for $3,000,000. Determine the cost recovery deduction for 2022. a.$69,000 b.$48,150 c.$76,920 d.$59,520

$76,920

Pedro's child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro's charitable contribution? a.$800 b.$0 c.$6,800 d.$1,000

$800

Anya owns land with an adjusted basis of $305,000, subject to a mortgage of $175,000. Anya sells her land subject to the mortgage for $325,000 in cash, a note for $300,000, and property with a fair market value of $60,000. What is Anya's amount realized on this sale? a.$860,000. b.$840,000. c.$685,000. d.$800,000.

$860,000.

Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000. How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the 7.5%-of-AGI floor)? a.$15,000 b.$9,000 c.$6,000 d.$0

$9,000

On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible. The cost of the patent was $207,000 and Byrne is a calendar year taxpayer. In the current tax year, how much of the patent's cost may Byrne amortize? a.$9,200. b.$1,150. c.$4,600. d.$13,800.

$9,200.

On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago, Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery? a.$140,000 b.$90,000 c.$70,000 d.$120,000

$90,000

For an activity classified as a hobby, the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g., depreciation, amortization, and depletion). (2) Amounts deductible under other Code sections without regard to the nature of the activity, such as property taxes and home mortgage interest. (3) Amounts deductible under other Code sections if the activity had been engaged in for profit, but only if those amounts do not affect adjusted basis (e.g., maintenance, utilities, and supplies). For tax years before 2018, if these expenses exceed the gross income from the activity and are thus limited, the sequence in which they are deductible is: a.(1), (3), (2). b.(2), (3), (1). c.(1), (2), (3). d.(3), (2), (1).

(2), (3), (1).

Chang is a self-employed practical nurse who works from his home. He provides nursing care for disabled persons living in their residences. During the day, he drives his car as follows. Chang's home to patient Louise; 12 miles Patient Louise to patient Car; l4 miles Patient Carl to patient Betty; 6 miles Patient Betty to Chang's home; 10 miles Chang's deductible mileage for each workday is: a.20 miles. b.22 miles. c.12 miles. d.32 miles.

32 miles.

Corey is the city sales manager for RIBS, a national fast food franchise. Every working day, Corey drives his car as follows: Home to office; 20 miles Office to RIBS No. 1; 15 miles RIBS No. 1 to No. 2; 18 miles RIBS No. 2 to No. 3; 13 miles RIBS No. 3 to home; 30 miles Corey renders an adequate accounting to his employer. As a result, Corey's reimburseable mileage is: a.76 miles. b.66 miles. c.0 miles. d.46 miles.

46 miles.

Bob and April own a house at the beach. The house was rented to unrelated parties for eight weeks during the year. April and the children used the house 12 days for their vacation during the year. After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows: Gross rental income; $4,000 Less: Mortgage interest and property taxes; $3,500 Other allocated expenses; 2,000 Net rental loss; ($1,500) [4,000 - 3,500 - 2,000] What is the correct treatment of the rental income and expenses on Bob and April's joint income tax return for the current year assuming the IRS approach is used if applicable? a.Bob and April should include none of the rental income or expenses related to the beach house in their current year income tax return. b.Since the house was used more than 10 days personally by Bob and April, the rental expenses (other than mortgage interest and property taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. c.A $1,500 loss should be reported. d.Only the mortgage interest and property taxes should be deducted.

A $1,500 loss should be reported.

Which of the following would constitute an employer-employee relationship? a.A gardener who takes care of individual lawns for a monthly fee. b.A physician who hires a nurse to help her with patient screening and preliminary tests in the office. c.A CPA who prepares a client's tax return. d.A plumber who comes to your home to fix a leaking faucet.

A physician who hires a nurse to help her with patient screening and preliminary tests in the office.

Which of the following is not allowed as an itemized deduction? a.Gambling losses to the extent of gambling winnings. b.Interest expense on a $800,000 loan incurred in 2016 to buy a principal residence. c.Cash donation to a church. d.A subscription to the Wall Street Journal to help with personal investment decisions.

A subscription to the Wall Street Journal to help with personal investment decisions.

Luis is the sole shareholder of a regular C corporation, and Eduardo owns a proprietorship. In the current year, both businesses make a profit of $80,000, and each owner withdraws $50,000 from his business. With respect to this information, which of the following statements is incorrect? a.Luis must report $80,000 of income on his return. b.Eduardo must report $80,000 of income on his return. c.Eduardo's proprietorship is not required to pay income tax on $80,000. d.Luis's corporation must pay income tax on $80,000.

A) Luis Must report $80,000 of income on his return

Albert had a terminal illness that would require almost constant nursing care for the remaining two years of his estimated life, according to his doctor. Albert had a life insurance policy with a face amount of $100,000. He had paid $25,000 of premiums on the policy. The insurance company has offered to pay him $80,000 to cancel the policy, although its cash surrender value was only $55,000. He accepted the $80,000. Albert used $15,000 to pay his medical expenses. Albert made a miraculous recovery and lived another 20 years. As a result of cashing in the policy: a.Albert must recognize $40,000 ($80,000 - $25,000 - $15,000) of gross income. b.Albert must recognize $65,000 ($80,000 - $15,000) of gross income. c.Albert must recognize $55,000 of gross income, but he has $15,000 of deductible medical expenses. d.Albert is not required to recognize any gross income because of his terminal illness.

Albert is not required to recognize any gross income because of his terminal illness.

The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel. All employees are allowed to obtain food from the restaurant at no charge during working hours. In the case of the employees who operate the gambling facilities, bar, and restaurant (60% of all of Casino's employees), the meals are provided for the convenience of the Casino. However, the hotel workers demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work. Which of the following is correct? a.All of the employees may exclude the value of the meals from gross income. b.All the employees are required to include the value of the meals in their gross income. c.Only the restaurant employees may exclude the value of their meals from gross income. d.Only the employees who work in gambling, the bar, and the restaurant may exclude the meals from gross income.

All of the employees may exclude the value of the meals from gross income.

Which of the following factors, if any, is a characteristic of independent contractor status? a.Receipt of a Form 1099 reporting payments received. b.Services are performed for more than one business. c.Workplace fringe benefits are not available. d.All of these choices are characteristic of independent contractor status.

All of these choices are characteristic of independent contractor status.

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit? a.The geographic location. b.The similarities and differences in types of business. c.The extent of common ownership. d.All of these choices are correct.

All of these choices are correct.

Which of the following is not relevant in determining whether an activity is profit seeking or a hobby? a.The relationship of profits earned and losses incurred. b.The expertise of the taxpayers and time and effort expended. c.Whether the activity is enjoyed by the taxpayer. d.All of these choices are relevant factors.

All of these choices are relevant factors.

In which of the following plans is this statement true: A deduction is allowed for contributions to the plan, and no income tax consequences result from distributions to the participant at retirement. a.Traditional IRAs. b.Roth IRAs. c.None of the above. d.Keogh (H.R. 10) plans.

c.None of the above.

During the current year, Khalid was in an automobile accident and suffered physical injuries. The accident was caused by Rashad's negligence. Khalid threatened to file a lawsuit against Amber Trucking Company, Rashad's employer, claiming $50,000 for pain and suffering, $90,000 for loss of income, and $70,000 in punitive damages. Amber's insurance company will not pay punitive damages; therefore, Amber has offered to settle the case for $100,000 for pain and suffering, $90,000 for loss of income, and nothing for punitive damages. Khalid is in the 35% marginal tax bracket. What is the after-tax difference to Khalid between Khalid's original claim and Amber's offer? a.Amber's offer is $22,000 more. [($190,000 - $210,000) + ($120,000 × 0.35)]. b.Amber's offer is $4,500 more. {$190,000 - ($50,000 + $90,000) + [$70,000 × (1.00 - 0.35)]}. c.Amber's offer is $7,000 less. [($50,000 + $90,000 + $70,000 - $100,000 - $90,000) × 0.35)]. d.Amber's offer is $20,000 less. ($50,000 + $90,000 + $70,000 - $100,000 - $90,000).

Amber's offer is $4,500 more. {$190,000 - ($50,000 + $90,000) + [$70,000 × (1.00 - 0.35)]}.

Which of the following must be capitalized by a business? a.Replacement of a windshield of a business truck that was broken in an accident. b.Amount paid for a covenant not to compete. c.Repair of a roof of a building used in business. d.Only "Repair of a roof of a building used in business" and "Amount paid for a covenant not to compete" must be capitalized.

Amount paid for a covenant not to compete.

Danielle, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2021, enters into a contract to sell on July 12, 2021, and sells (i.e., the closing date) the residence on August 1, 2021. The realized gain on the sale is $225,000. Which date is the appropriate ending date in determining if the residence has been owned and used by the Danielle as the principal residence for at least two years during the prior five-year period? a.August 1, 2021. b.December 31, 2021. c.February 7, 2021. d.July 12, 2021.

August 1, 2021.

Which of the following expenses, if any, are deductible? a.Bottled water purchased by a gig driver for passengers. b.Safety shoes purchased by a plumber employed by a company. c.Tax return preparation fee paid by a nonemployed retiree. d.Unreimbursed employee expenses.

Bottled water purchased by a gig driver for passengers.

Which of the following self-employed individuals are in a specified service trade or business? (circle all that apply) a.CPA. b.Dentist. c.Architect. d.Consultant.

CPA Dentist Consultant

Weston sells his residence to Joanne on October 15, 2021. Indicate which of the following statements is correctly associated with § 121 (exclusion of gain on sale of principal residence). a.Capital expenditures made by the seller prior to the sale increase the seller's adjusted basis and have no effect on the buyer's adjusted basis. b.Selling expenses decrease the seller's amount realized and increase the buyer's adjusted basis. c.Repair expenses of the seller decrease the seller's amount realized and have no effect on the buyer's adjusted basis. d.Only "Selling expenses decrease the seller's amount realized and increase the buyer's adjusted basis" and "Capital expenditures made by the seller prior to the sale increase the seller's adjusted basis and have no effect on the buyer's adjusted basis".

Capital expenditures made by the seller prior to the sale increase the seller's adjusted basis and have no effect on the buyer's adjusted basis.

Statutory employees: a.Report their expenses as miscellaneous itemized deductions. b.Are subject to income tax withholdings. c.Claim their expenses as deductions for AGI. d.Include common law employees.

Claim their expenses as deductions for AGI.

Which of the following is a deduction for AGI? a.Roof repairs to a personal use home. b.Property tax on personal residence. c.Safe deposit box rental fee in which stock certificates are stored. d.Contribution to a traditional IRA.

Contribution to a traditional IRA.

Which of the following expenses, if any, is/are deductible? a.Cost of moving to first job location. Taxpayer just graduated from college. b.Job-hunting expenses of a fishing guide to become an insurance salesman. c.Contribution to an IRA. d.Costs involved in maintaining an office in the home by a self-employed insurance adjuster. Taxpayer's wife also uses the office as a meeting place for her bridge club.

Contribution to an IRA.

Cristiano performs services for Ryan. Which of the following factors, if any, indicates that Cristiano is an independent contractor rather than an employee? a.Ryan provides the tools used. b.Ryan sets the work schedule. c.Cristiano is paid based on tasks performed. d.Cristiano follows a specific set of instructions from Ryan to complete tasks.

Cristiano is paid based on tasks performed.

The exclusion for health insurance premiums paid by an employer applies to: a.Only current employees and their disabled spouses. b.Only current employees and their spouses and dependents. c.Only current employees and their spouses. d.Current employees, retired former employees, and their spouses and dependents.

Current employees, retired former employees, and their spouses and dependents.

Which of the following correctly reflects current rules regarding estimated tax payments for individuals? a.Any penalty imposed for underpayment is deductible for income tax purposes. b.Married taxpayers may not make joint estimated tax payments unless they file a joint income tax return. c.Employees are not subject to the estimated tax payment provisions. d.No quarterly payments are required if the taxpayer's estimated tax is under $1,000.

D) No quarterly payments are required if the taxpayer's estimated tax is under $1,000

Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions in 2021: Salary from job; $90,000 Alimony received from ex-wife (pre-2019 divorce); 10,000 Medical expenses; 7,000 Based on this information, Sammy has: a.AGI of $95,000. b.AGI of $90,000. c.AGI of $99,500. d.Deduction for medical expenses of $0.

Deduction for medical expenses of $0.

Which of the following trips, if any, will qualify for the travel expense deduction? a.Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving his language skills. b.Myrna went on a two-week vacation in Boston. While there, she visited her employer's home office to have lunch with former coworkers. c.Dr. Brown, a self-employed surgeon, attends a two-day seminar on financial planning. d.Dr. Jones, a self-employed general dentist, attends a two-day seminar on developing a dental practice.

Dr. Jones, a self-employed general dentist, attends a two-day seminar on developing a dental practice.

Iris, a calendar year cash basis taxpayer, owns and operates several TV rental outlets in Florida and wants to expand to other states. During the current year, she spends $14,000 to investigate TV rental stores in South Carolina and $9,000 to investigate TV rental stores in Georgia. She acquires the South Carolina operations but not the outlets in Georgia. As to these expenses, Iris should: a.Capitalize $23,000. b.Capitalize $14,000 and not deduct $9,000. c.Expense $23,000 in the current year. d.Expense $9,000 in the current year and capitalize $14,000.

Expense $23,000 in the current year.

Which of the following statements is correct in connection with the investigation of a business? a.If the taxpayer is not already engaged in the trade or business, the expenses incurred are deductible if the project is abandoned. b.That business must be related to the taxpayer's present business for any expense ever to be deductible. c.Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired. d.Regardless of whether the taxpayer is already engaged in the trade or business, the expenses must be capitalized and amortized.

Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired.

Which of the following depreciation conventions are not used under MACRS? a.Mid-month. b.Half-year. c.Full-month. d.Mid-quarter.

Full-month.

Which of the following items would be an itemized deduction on Schedule A of Form 1040? a.Subscription to the Wall Street Journal. b.Gambling losses to the extent of gambling winnings. c.Professional dues paid by an accountant (employed by Ford Motor Co.) to the National Association of Accountants. d.Job-hunting costs.

Gambling losses to the extent of gambling winnings.

Heather is a full-time employee of Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct? a.Heather reduced her salary by $1,200 and received only $900 as reimbursement for her medical expenses. She forfeits the $300. Her gross income is reduced by $300. b.Heather reduced her salary by $1,200, actually spent $1,500, and received only $1,200 as reimbursement for her medical expenses. Heather's gross income will be reduced by $1,500. c.Heather reduced her salary by $1,200 and received only $900 as reimbursement for her actual medical expenses. She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200. d.Heather reduced her salary by $1,200 and received only $800 as reimbursement for her medical expenses. She is not refunded the $400. Her gross income is reduced by $800.

Heather reduced her salary by $1,200 and received only $900 as reimbursement for her actual medical expenses. She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200.

A major objective of MACRS is to: a.Reduce the amount of the cost recovery deduction on businesses tax returns. b.Help companies achieve a faster write-off of their capital assets. c.Require companies to use the actual economic lives of assets in calculating cost recovery for tax purposes. d.Ensure that the amount of cost recovery for tax purposes will be the same as book depreciation.

Help companies achieve a faster write-off of their capital assets.

Ben was diagnosed with a terminal illness. His physician estimated that Ben would live no more than 18 months. After he received the doctor's diagnosis, Ben cashed in his life insurance policy and used the proceeds to take a trip to see relatives and friends before he died. Ben had paid $12,000 in premiums on the policy, and he collected $50,000, the cash surrender value of the policy. Henry enjoys excellent health, but he cashed in his life insurance policy to purchase a new home. He had paid premiums of $12,000 and collected $50,000 from the insurance company. a.Ben must recognize $38,000 ($50,000 - $12,000) of gross income, but Henry does not recognize any gross income. b.Neither Ben nor Henry is required to recognize gross income. c.Both Ben and Henry must recognize $38,000 ($50,000 - $12,000) of gross income. d.Henry must recognize $38,000 ($50,000 - $12,000) of gross income, but Ben does not recognize any gross income.

Henry must recognize $38,000 ($50,000 - $12,000) of gross income, but Ben does not recognize any gross income.

Benita incurred a business expense on December 10, 2021, which she charged on her bank credit card. She paid the credit card statement that included the charge on January 5, 2022. Which of the following is correct? a.If Benita is an accrual method taxpayer, she can deduct the expense in 2021. b.If Benita is a cash method taxpayer, she cannot deduct the expense until 2022. c.If Benita uses the accrual method, she can choose to deduct the expense in either 2021 or 2022. d.Only "If Benita is an accrual method taxpayer, she can deduct the expense in 2021" and "If Benita uses the accrual method, she can choose to deduct the expense in either 2021 or 2022" are correct.

If Benita is an accrual method taxpayer, she can deduct the expense in 2021.

In 2021, Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family. In addition, he contributes $3,400 to a Health Savings Account. Which of the following statements is true? a.If Boris is an employee, he may include $7,200 when calculating his itemized medical expense deduction. b.If Boris is self-employed, he may deduct $7,200 as a deduction for AGI. c.If Boris is an employee, he may deduct $7,200 as a deduction for AGI. d.If Boris is self-employed, he may deduct $3,400 as a deduction for AGI and may include the $3,800 premium when calculating his itemized medical expense deduction.

If Boris is self-employed, he may deduct $7,200 as a deduction for AGI.

Charles owns a business with two separate departments. Department A produces $100,000 of income and Department B incurs a $60,000 loss. Charles participates for 550 hours in Department A and 100 hours in Department B. He has full-time employees in both departments. a.If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income. b.If Charles elects to treat the two departments as separate activities, he can offset the $60,000 loss against the $100,000 income. c.If Charles elects to treat both departments as a single activity, he cannot offset the $60,000 loss against the $100,000 income. d.Charles may not treat Department A and Department B as separate activities because they are parts of one business.

If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income.

Louise works in a foreign branch of her employer's business. She earned $5,000 per month throughout the relevant period. Which of the following is correct? a.If Louise began work in the foreign country on May 1, 2020, she must work through November 30, 2021 in order to exclude $55,000 from gross income in 2021 but none in 2020. b.If Louise worked in the foreign branch from May 1, 2020 until October 31, 2021, she cannot exclude anything from gross income because she was not present in the country for 330 days in either year. c.Louise will not be allowed to exclude any foreign earned income because she made less than $108,700. d.If Louise worked in the foreign branch from May 1, 2020 until October 31, 2021, she may exclude $40,000 from gross income in 2020 and exclude $50,000 in 2021.

If Louise worked in the foreign branch from May 1, 2020 until October 31, 2021, she may exclude $40,000 from gross income in 2020 and exclude $50,000 in 2021.

Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct? a.Nikeya's recognized loss is $25,000 ($95,000 amount realized - $120,000 adjusted basis). b.If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss. c.Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya). d.Only "Nikeya's recognized loss is $25,000 ($95,000 amount realized - $120,000 adjusted basis)" and "Shamed's adjusted basis for the land is $120,000 ($95,000 cost + $25,000 disallowed loss for Nikeya)" are correct.

If Shamed subsequently sells the land for $112,000, he has no recognized gain or loss.

During 2020, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2021. What is the amount of the deduction for salary expense? a.If Silver uses the cash method, $175,000 in 2020 and $0 in 2021. b.If Silver uses the accrual method, $195,000 in 2020 and $0 in 2021. c.If Silver uses the cash method, $0 in 2020 and $195,000 in 2021. d.If Silver uses the accrual method, $175,000 in 2020 and $20,000 in 2021.

If Silver uses the accrual method, $195,000 in 2020 and $0 in 2021.

Tonya is a cash basis taxpayer. In 2021, she paid state income taxes of $8,000 and property taxes of $5,500. In early 2022, she filed her 2021 state income tax return and received a $900 refund. a.If Tonya itemized her deductions in 2021 on her Federal income tax return and her itemized deductions exceeded the standard deduction by more than $900, she must recognize $900 income in 2022 under the tax benefit rule. b.If Tonya itemized her deductions in 2021 on her Federal income tax return, she must amend her 2021 Federal income tax return and use the standard deduction. c.If Tonya itemized her deductions in 2021 on her Federal income tax return, the refund will not affect her 2022 tax return. d.If Tonya itemized her deductions in 2021 on her Federal income tax return, she should amend her 2021 return and reduce her itemized deductions by $900.

If Tonya itemized her deductions in 2021 on her Federal income tax return, the refund will not affect her 2022 tax return.

Which of the following statements concerning the credit for child and dependent care expenses is not correct for 2021? a.A taxpayer is not allowed both a deduction as a medical expense and the credit for child and dependent care expenses on the same amount. b.A taxpayer is not allowed both an exclusion from income and the credit for child and dependent care expenses on the same amount. c.If a taxpayer's adjusted gross income is $123,000, the rate for the credit for child and dependent care expenses is 50%. d.If a taxpayer is a full-time student with no earned income, no credit for child and dependent care expenses can be claimed.

If a taxpayer is a full-time student with no earned income, no credit for child and dependent care expenses can be claimed.

What happens to the § 199A deduction if a qualified trade or business generates a loss? a.If the net amount of income, gain, deduction, and loss is less than zero, the net amount is treated as a loss in the succeeding year. b.If the net amount of income, gain, deduction, and loss is less than zero, the net amount of the deduction is lost and is not available to carryforward or carryback. c.If the net amount of income, gain, deduction, and loss is less than zero, the net amount of the deduction can be carried back to a previous year or the taxpayer can elect to carry it forward. d.None of these choices are correct.

If the net amount of income, gain, deduction, and loss is less than zero, the net amount is treated as a loss in the succeeding year.

Which of the following types of income are included in qualified business income (QBI)? a.Wages paid to an employee. b.Income generated from a qualified trade or business. c.Income earned from foreign business operations. d.Guaranteed payments made in compensation for services performed by a partner to a partnership.

Income generated from a qualified trade or business.

All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee). None of the employees has sufficient medical expenses to deduct the premiums. Instead of giving raises next year, United is considering paying the employee's hospitalization insurance premiums. If the change is made, the employee's after-tax and insurance pay will: a.Decrease by the same amount for all employees. b.Increase by the same amount for all employees. c.Increase more for the lower-paid employees (10% and 12% marginal tax bracket). d.Increase more for the higher income (35% marginal tax bracket) employees.

Increase more for the higher income (35% marginal tax bracket) employees.

In the case of interest income from state and Federal bonds: a.Interest on U.S. government bonds is subject to Federal income tax. b.Interest on bonds issued by State A received by a resident of State B cannot be subject to income tax in State B. c.Interest on U.S. government bonds received by a state resident can be subject to that state's income tax. d.All of these choices are correct.

Interest on U.S. government bonds is subject to Federal income tax.

Assuming a taxpayer qualifies for the exclusion treatment, the interest income on educational savings bonds: a.Is not included in anyone's gross income if the proceeds are used to pay college tuition. b.Is gross income to the person who purchased the bond in the year the interest is earned. c.Is included in the student's gross income in the year the savings bonds are sold or redeemed to pay educational expenses. d.Is gross income to the student in the year the interest is earned.

Is not included in anyone's gross income if the proceeds are used to pay college tuition.

Which of the following taxpayers is potentially eligible for a qualified business income deduction based on the noted activity? (circle all that apply) a.Jennifer, owner of a winery operated as an S corporation. b.A sole proprietor operating a restaurant. c.A shareholder of General Electric. d.A self-employed doctor.

Jennifer, owner of a winery operated as an S corporation. A sole proprietor operating a restaurant. A self-employed doctor.

Tax advantages of being self-employed (rather than being an employee) include: a.The overall limitation (50%) on meals does not apply. b.Job-related expenses are deductions for AGI. c.An office in the home deduction (from AGI) is available. d.The self-employment tax is lower than the Social Security tax.

Job-related expenses are deductions for AGI.

For which of the following situations, if any, is the automatic mileage available? a.One of seven cars used to deliver pizzas. b.An auto that belongs to the taxpayer's mother. c.A limousine the owner rents out for special occasions (e.g., weddings, high school proms). d.None of these choices are correct.

None of these choices are correct.

Martha invested $6,000 in a qualified tuition program for the benefit of her son. Four years later her son withdrew $8,000, the entire balance in the program, to pay his college tuition. a.Martha's son must include the $2,000 ($8,000 - $6,000) in his gross income when the funds are used to pay the tuition. b.Martha's son must include $8,000 in his gross income. c.Martha is not required to include the $2,000 ($8,000 - $6,000) in her gross income when the funds are used to pay the tuition. d.Martha must include $8,000 in her gross income.

Martha is not required to include the $2,000 ($8,000 - $6,000) in her gross income when the funds are used to pay the tuition.

Cash received by an employee from an employer: a.May be included in gross income although the payor is not legally obligated to make the payment. b.Is not taxable unless the payor is legally obligated to make the payment. c.Is not included in gross income if it was not earned. d.Must always be included in gross income.

May be included in gross income although the payor is not legally obligated to make the payment.

Which of the following, if any, is subject to an overall limitation on meals? a.A Fourth of July company picnic for employees. b.Meals provided to employees during a business meeting. c.Meals provided at cost to employees at a cafeteria funded by the employer. d.Meals provided to employees during a training event or retreat at an off-site location.

Meals provided at cost to employees at a cafeteria funded by the employer.

Payments by a cash basis taxpayer of capital expenditures: a.Can be deducted in the year the taxpayer chooses. b.Must be expensed at the time of payment. c.Must be expensed by the end of the first year after the asset is acquired. d.Must be deducted over the actual or statutory life of the asset.

Must be deducted over the actual or statutory life of the asset.

Kristen's employer owns its building and provides parking space for its employees. The value of the free parking is $150 per month. Karen's employer does not have parking facilities but reimburses its employees for the cost of parking in a nearby garage up to $150 per month. a.Kristen must include the value of the employer-provided parking from her gross income, but Karen can exclude her reimbursement from gross income. b.Kristen can exclude the employer-provided parking from gross income, but Karen must include her reimbursement in gross income. c.Kristen and Karen must recognize gross income from the parking services. d.Neither Kristen nor Karen is required to include the cost of parking in gross income.

Neither Kristen nor Karen is required to include the cost of parking in gross income.

In 2021, Sam and Betty, each single, both generate sole proprietor income of $240,000. Sam's income is generated from a wholesale business whereas Betty's is earned from her law practice. Neither has any employees or qualified assets. Both claim the standard deduction and have other income equal to the standard deduction amount. a.Sam can obtain a QBI deduction, but Betty cannot because of the taxable income level and law practice is a specified service business. b.Neither Sam nor Betty will generate a QBI deduction due to their taxable income levels. c.Both Sam and Betty will have a QBI deduction of $48,000. d.None of these choices are correct.

Neither Sam nor Betty will generate a QBI deduction due to their taxable income levels.

Which of the following, if any, is an advantage of using the simplified method for determining the office in the home deduction? a.No depreciation on the personal residence has to be computed. b.It allows the expense to be classified as a deduction for AGI. c.The exclusive use requirement does not have to be met. d.It can also be used for a residence that is rented (not owned) by the taxpayer.

No depreciation on the personal residence has to be computed.

If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct? a.No income is included in AGI. b.No expenses are deductible. c.Expenses must be allocated between rental and personal use. d.Only "No income is included in AGI" and "No expenses are deductible" are correct.

No income is included in AGI.

Which of the following correctly reflects current rules regarding estimated tax payments for individuals? a.Married taxpayers may not make joint estimated tax payments unless they file a joint income tax return. b.Employees are not subject to the estimated tax payment provisions. c.Any penalty imposed for underpayment is deductible for income tax purposes. d.No quarterly payments are required if the taxpayer's estimated tax is under $1,000.

No quarterly payments are required if the taxpayer's estimated tax is under $1,000.

In which of the following plans is this statement true: A deduction is allowed for contributions to the plan, and no income tax consequences result from distributions to the participant at retirement. a.None of the above. b.Roth IRAs. c.Traditional IRAs. d.Keogh (H.R. 10) plans.

None of the above.

An individual in a specified service business, such as accounting, with taxable income over the threshold amounts ($214,900 for single or head-of-household taxpayers, or $429,800 if married filing jointly in 2021), will not lose the QBI deduction on such income if: a.Taxable income exceeds the thresholds due to income of a spouse. b.Taxable income did not exceed the thresholds in the prior three years. c.Taxable income exceeds the thresholds because of net capital gain income. d.None of these choices are correct.

None of these choices are correct.

Last year, Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant. The partnership incurred a loss, and Ted's share was $150,000. Which of the following statements is incorrect? a.Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at-risk provisions). b.Since Ted has only $100,000 of capital at risk, he cannot deduct more than $100,000 against his other income. c.If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount, he can use all of the $50,000 loss carried over. d.None of these choices is incorrect.

None of these choices is incorrect.

If a vacation home is determined to be a personal/rental use residence, which of the following statements is correct? a.Expenses must be allocated between rental and personal use. b.All rental income is included in gross income. c.All rental related expenses that are deductible are classified as deductions from AGI. d.Only "All rental income is included in gross income" and "Expenses must be allocated between rental and personal use" are correct.

Only "All rental income is included in gross income" and "Expenses must be allocated between rental and personal use" are correct.

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct? a.If Scott receives the money from Jeanette and pays the mortgage company, Jeanette can deduct the interest part. b.If Jeanette pays the mortgage company directly, she cannot deduct the interest part. c.If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part. d.Only "If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part" and "If Jeanette pays the mortgage company directly, she cannot deduct the interest part" are correct.

Only "If Jeanette pays the mortgage company directly, neither Scott nor Jeanette can deduct the interest part" and "If Jeanette pays the mortgage company directly, she cannot deduct the interest part" are correct.

Which of the following legal expenses are deductible for AGI in 2021? a.Incurred in connection with a trade or business. b.Incurred for tax advice relative to the preparation of an individual's income tax return. c.Incurred in connection with rental or royalty property held for the production of income. d.Only "Incurred in connection with a trade or business" and "Incurred in connection with rental or royalty property held for the production of income" qualify.

Only "Incurred in connection with a trade or business" and "Incurred in connection with rental or royalty property held for the production of income" qualify.

Evaluate the following statements: I.De minimis fringe benefits are those that are so immaterial that accounting for them is impractical. II.De minimis fringe benefits are subject to strict antidiscrimination requirements. III.Generally, a fringe benefit of less than $50 is considered de minimis and can be excluded from gross income. a.I, II, and III are true. b.Only III is true. c.Only I is true. d.Only I and III are true.

Only I is true.

Under the actual expense method, which of the following expenses, if any, will not be allowed? a.Parking fines incurred during business use of a car. b.Auto club dues. c.Auto insurance. d.Interest expense on a car loan (taxpayer is self-employed).

Parking fines incurred during business use of a car.

Which of the following is not a "trade or business" expense? a.Interest on business indebtedness. b.Parking ticket paid on business auto. c.Depreciation on business property. d.Property taxes on business property.

Parking ticket paid on business auto.

When using the automatic mileage method, which of the following expenses, if any, also can be claimed? a.Interest on automobile loan. b.Parking. c.Engine tune-up. d.MACRS depreciation.

Parking.

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes? a.Property recovery class. b.Half-year convention. c.Salvage (or residual) value. d.Cost of asset.

Salvage (or residual) value.

Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss? a.$6,130 b.$69,130 c.$0 d.$37,630

b.$69,130

Under Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the following benefits, but the total received by each employee cannot exceed $8,000 a year. I. Group medical and hospitalization insurance for the employee, $3,600 a year. II. Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III. Child care payments, actual cost but not more than $4,800 a year. IV. Cash required to bring the total of benefits and cash to $8,000. Which of the following statements is true? a.Sue, a full-time employee, elects to receive choices I, II, and $3,200 for III. Sue is required to include $3,200 in gross income. b.Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000. c.Haruto, a full-time employee, elects to receive $8,000 cash because his wife's employer provides these same insurance benefits, which would cover him (II). Haruto is not required to include the $8,000 in gross income. d.All of these choices are correct.

Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000.

In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions, which of the following items involve people who are self-employed? a.Schedule A (Form 1040). b.Schedule C (Form 1040). c.Form W-2. d.Form W-4.

Schedule C (Form 1040).

Your friend Scotty informs you that in 2021 he received a tax-free reimbursement of some medical expenses he paid in 2020. Which of the following statements best explains why Scotty is not required to report the reimbursement in gross income? a.Scotty did not itemize deductions in 2020. b.Scotty itemized deductions in 2021. c.Scotty itemized deductions in 2020. d.Scotty did not itemize deductions in 2021.

Scotty did not itemize deductions in 2020.

Which of the following is considered qualified property in the calculation of the deduction for qualified business income (§ 199A)? a.All business property (both tangible and intangible). b.Tangible property placed in service during the year, but not used in the production of qualified business income. c.Tangible business property subject to depreciation. d.Fully depreciated tangible business property.

Tangible business property subject to depreciation.

Which of the following statements is true regarding the education tax credits? a.The American Opportunity credit is calculated per eligible student and the lifetime learning credit is available per taxpayer. b.The lifetime learning credit is available for qualifying tuition and related expenses incurred by students pursuing only graduate degrees. c.Continuing education expenses do not qualify for either education credit. d.The American Opportunity credit permits a maximum credit of 20% of qualified expenses up to $10,000 per year.

The American Opportunity credit is calculated per eligible student and the lifetime learning credit is available per taxpayer.

Under the deemed substantiation method of accounting for expenses, what is the maximum amount taxpayers are allowed as a deduction without being required to substantiate the amount of the expenses? a.$75 per day. b.The appropriate Federal per diem amount. c.The per diem rate established by the state in which they live. d.All expenses up to $25 per day.

The appropriate Federal per diem amount.

In describing FICA taxes, which (if any) of the following statements is incorrect? a.The base amounts for 2022 probably will increase from the 2021 amounts. b.If both spouses work, excess FICA taxes need not result. c.The base amounts for the Social Security and Medicare portions are the same. d.Excess FICA taxes can be claimed as an income tax credit.

The base amounts for the Social Security and Medicare portions are the same.

under the actual cost method, which of the following expenses, if any, will not be allowed? a.Dues to auto clubs. b.Interest expense on a car loan (taxpayer is an employee). c.Auto insurance. d.Car registration fees.

b.Interest expense on a car loan (taxpayer is an employee).

An employee can exclude from gross income the value of meals provided by their employer whenever: a.The meals are provided on the employer's premises for the employer's convenience. b.There are no places to eat near the work location. c.The meal is not extravagant. d.The meals are provided for the convenience of the employee.

The meals are provided on the employer's premises for the employer's convenience.

A company has a medical reimbursement plan for officers that covers all costs that the company's insurer will not pay. However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from their own funds. An officer incurred $1,500 in medical expenses and was reimbursed for that amount. An hourly worker also incurred $1,500 in medical expense and was reimbursed $500. a.The officer must include $500 in gross income. b.The hourly employee must include $1,000 in gross income. c.Both employees must include all benefits received in gross income. d.The officer must include $1,500 in gross income.

The officer must include $1,500 in gross income.

A U.S. citizen worked in a foreign country for the period July 1, 2020 through August 1, 2021. Her salary was $10,000 per month. Also, in 2020 she received $5,000 in dividends from foreign corporations (not qualified dividends). No dividends were received in 2021. Which of the following is correct? a.The taxpayer can exclude a portion of the salary from U.S. gross income in 2020 and 2021, and all of the dividend income. b.The taxpayer can exclude from U.S. gross income $60,000 salary in 2020, but in 2021 she will exceed the 12-month limitation and, therefore, all of the 2021 compensation must be included in gross income. All of the dividends must be included in 2020 gross income. c.The taxpayer must include the dividend income of $5,000 in 2020 gross income, but she can exclude a portion of the compensation income from U.S. gross income in 2020 and 2021. d.The taxpayer cannot exclude any of the income because she was not present in the foreign country more than 330 days in either 2020 or 2021.

The taxpayer must include the dividend income of $5,000 in 2020 gross income, but she can exclude a portion of the compensation income from U.S. gross income in 2020 and 2021.

Which of the following is not a related party for constructive ownership purposes under § 267? a.The taxpayer's grandmother. b.The taxpayer's brother. c.The taxpayer's aunt. d.A corporation owned more than 50% by the taxpayer.

The taxpayer's aunt.

As an executive of Cherry, Inc., Ollie receives a fringe benefit in the form of annual tuition scholarships of $10,000 to each of his three children. The scholarships are paid by the company on behalf of the children of key employees directly to each child's educational institution and are payable only if the student maintains a B average. a.The tuition payments of $30,000 must be included in Ollie's gross income. b.The tuition payments of $10,000 each must be included in each child's gross income. c.The tuition payments of $30,000 may be excluded from Ollie's gross income as a scholarship. d.The tuition payments of $30,000 may be excluded from Ollie's gross income because the payments are for the academic achievements of the children.

The tuition payments of $30,000 must be included in Ollie's gross income.

When using the automatic mileage method, which of the following expenses, if any, also can be claimed? a.MACRS depreciation. b.Parking. c.Interest on automobile loan. d.Engine tune-up.

b.Parking.

A worker may prefer to be classified as an employee (rather than an independent contractor) for which of the following reasons: a.To avoid the self-employment tax. b.To avoid the overall limitation (50%) on unreimbursed business entertainment expenses. c.To claim unreimbursed work-related expenses as a deduction for AGI. d.To avoid the limitations on unreimbursed work-related expenses.

To avoid the self-employment tax.

In December 2021, Todd, a cash basis taxpayer, paid $1,200 of fire insurance premiums for the calendar year 2022 on a building he held for rental income. Todd deducted the $1,200 of insurance premiums on his 2021 tax return. He had $150,000 of taxable income that year. On June 30, 2022, he sold the building and, as a result, received a $500 refund on his fire insurance premiums. As a result of the above: a.Todd should include the $500 in 2022 gross income in accordance with the claim of right doctrine. b.Todd should include the $500 in 2022 gross income in accordance with the tax benefit rule. c.Todd should amend his 2021 return and claim $500 less insurance expense. d.Todd should add the $500 to his sales proceeds from the building.

Todd should include the $500 in 2022 gross income in accordance with the tax benefit rule.

Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays when the number of players on the course is at its lowest. Tom, an employee of the country club, played 40 rounds of golf during the year at no charge when the nonemployee charge was $20 per round. a.Tom is not required to include anything in gross income because it is a de minimis fringe benefit. b.Tom is not required to include the $800 in gross income because the use of the course was a gift. c.Tom must include $800 in gross income. d.Tom is not required to include anything in gross income because this is a no-additional-cost service fringe benefit.

Tom is not required to include anything in gross income because this is a no-additional-cost service fringe benefit.

Turquoise Company purchased a life insurance policy on the company's chief executive officer, Joe. After the company had paid $400,000 in premiums, Joe died, and the company collected the $1.5 million face amount of the policy. The company also purchased group term life insurance on all its employees. Joe had included $16,000 in gross income for the group term life insurance premiums. Joe's widow, Rebecca, received the $100,000 proceeds from the group term life insurance policy. a.Turquoise can exclude $1,100,000 ($1,500,000 - $400,000) from gross income, but Rebecca must include $84,000 in gross income. b.Turquoise and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000, respectively, from gross income. c.Rebecca can exclude the life insurance proceeds of $100,000, but Turquoise must include $1,100,000 ($1,500,000 - $400,000) in gross income. d.Turquoise must include $1,100,000 ($1,500,000 - $400,000) in gross income and Rebecca must include $100,000 in gross income.

Turquoise and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000, respectively, from gross income.

Which of the following factors, if any, is not a characteristic of independent contractor status? a.Services are performed for more than one party. b.Work-related expenses are reported on Schedule A (Form 1040). c.Workplace fringe benefits are not available. d.Receipt of a Form 1099 reporting payments received.

b.Work-related expenses are reported on Schedule A (Form 1040).

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year. His current loss from the activity is $80,000. Vic had no passive activity income during the year. At the end of the current year: a.Vic has an at-risk amount in the activity of $120,000 and no suspended passive activity loss. b.Vic has an at-risk amount in the activity of $120,000 and a suspended passive activity loss of $80,000. c.Vic has an at-risk amount in the activity of $200,000 and a suspended passive activity loss of $80,000. d.Vic has an at-risk amount in the activity of $200,000 and no suspended passive activity loss.

Vic has an at-risk amount in the activity of $120,000 and a suspended passive activity loss of $80,000.

Eric and Mario, who are married, jointly own a house in which they have resided for the past 17 years. They sell the house for $375,000 with realtor's fees of $10,000. Their adjusted basis for the house is $80,000. Since they are in their retirement years, they plan on moving around the country and renting. What is their recognized gain on the sale of the residence if they use the § 121 exclusion? What is it if they elect to forgo the § 121 exclusion? With exclusion : Elect to forgo a.$0 : $0 b.$35,000 : $35,000 c.$0 : $285,000 d.$35,000 : $285,000

With exclusion : Elect to forgo $0 : $285,000

A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons: a.A Schedule C does not have to be filed. b.Avoids the overall limitation (50%) as to business meals. c.All of the self-employment tax is deductible for income tax purposes. d.Work-related expenses of an independent contractor are deductible for AGI.

Work-related expenses of an independent contractor are deductible for AGI.

Albert purchased a tract of land for $140,000 in 2018 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2021 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2021? a.$-0- b.$80,000 c.$100,000 d.$40,000

a.$-0-

In Lawrence County, the real property tax year is the calendar year. The real property tax becomes a personal liability of the owner of real property on January 1 in the current real property tax year (assume that this year is not a leap year). The tax is payable on June 1. On May 1, Reggie sells his house to Dana for $350,000. On June 1, Dana pays the entire real estate tax of $7,950 for the year ending December 31. Assuming that Reggie itemizes his deductions and the $10,000 limit on state and local taxes does not apply, how much of the property taxes may Reggie deduct? a.$2,614 b.$0 c.$7,950 d.$2,625

a.$2,614

Jenna owns and manages her single-member LLC, which provides a wide variety of financial services to her clients. She is married and will file a joint tax return with her spouse, Paul. Her LLC reports $300,000 of net income, W-2 wages of $120,000, and assets with an unadjusted basis of $75,000. Their taxable income before the QBI deduction is $285.000 (this is also their modified taxable income). What is their QBI deduction for 2021? a.$57,000. b.$60,000. c.$-0-. d.$70,000.

a.$57,000.

Robert entertains several of his key clients on January 1 of the current year; total expenses were $1,220 ($60 cab fare and $1,160 club charges). The charges at the club are combined into a single charge of $1,160. Robert estimates that if charged separately, the costs would be as follows:Cover charge at supper club$200Dinner at club800Tips to waiter160Presuming proper substantiation, Robert's deduction is: a.$640. b.$740. c.$0. d.$1,220.

a.$640.

Question Content Area Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000. How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the 7.5%-of-AGI floor)? a.$9,000 b.$15,000 c.$0 d.$6,000

a.$9,000

Question Content Area Paul, a calendar year single taxpayer, has the following information for 2021:AGI$175,000State income taxes13,500State sales tax3,000Real estate taxes18,900Gambling losses (gambling gains were $12,000)6,800Paul's allowable itemized deductions for 2021 are: a.$42,200. b.$16,800. c.$10,000. d.$39,200.

b.$16,800.

Emily, who lives in Indiana, volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization). She was in Louisiana for three weeks. She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution. In addition, she incurred the following costs in connection with the trip: $600 for transportation, $1,200 for lodging, and $400 for meals. What is Emily's deduction associated with this charitable activity? a.$1,200 b.$2,200 c.$600 d.$1,800

b.$2,200

During the year, Sophie (a self-employed marketing consultant) went from Omaha to Lima, Peru, on business. She spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Sophie's expenses are: Airfare$3,000Lodging800Meals600Entertainment400 Sophie's deductible expenses are: a.$2,800. b.$2,900. c.$4,300. d.$2,500.

b.$2,900.

Layla has $200,000 of QBI from her neighborhood clothing store (a sole proprietorship). Her proprietorship paid $30,000 in W-2 wages and has $20,000 of qualified property. Layla's spouse earned $50,000 of wages as an employee, and the couple earned $20,000 of interest income during the year. They will be filing jointly and take the standard deduction of $25,100.What is their QBI deduction for 2021? a.$54,000. b.$40,000. c.$48,980. d.$-0-.

b.$40,000.

During the year, Walt who is self-employed travels from Seattle to Tokyo, Japan, on business. His time was spent as follows: two days travel (one day each way), two days business, and two days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion):Airfare$3,000Lodging2,000Meals1,000Presuming no reimbursement, Walt's deductible expenses are: a.$3,500. b.$5,500. c.$6,000. d.$4,500.

b.$5,500.

Question Content Area Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this property total $45,000. The total gain and the taxable gain are: a.$10,000 total gain; $15,000 taxable gain. b.$60,000 total gain; $15,000 taxable gain. c.$60,000 total gain; $0 taxable gain. d.$60,000 total gain; $105,000 taxable gain.

b.$60,000 total gain; $15,000 taxable gain.

Tanuja Singh is a CPA and operates her own accounting firm (Singh CPA, LLC). As a single-member LLC, she reports her accounting firm operations as a sole proprietor. Tanuja has QBI from her accounting firm of $540,000, reports W-2 wages of $156,000, and the unadjusted basis of property used in the LLC is $425,000. Tanuja is married and will file a joint tax return with her spouse. Their taxable income before the QBI deduction is $475,000, and their modified taxable income is $448,000. What is Tanuja's QBI deduction for 2021. a.$89,600. b.$49,625. c.$-0-. d.$78,000.

c.$-0-.

Francisco was transferred from Phoenix to Atlanta. He sold his Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000. Francisco had owned and lived in the Phoenix residence for six years. What is his recognized gain or loss on the sale of the Phoenix residence and his basis for the residence in Atlanta? a.($50,000) and $375,000. b.($50,000) and $325,000. c.$0 and $375,000. d.$0 and $425,000.

c.$0 and $375,000.

In 2021, Kendra has taxable income before the QBI deduction of $274,000. Kendra is single and has income from her law firm (a sole proprietorship operating as an LLC) of $200,000. Her law firm paid wages of $82,000 and has qualified property of $20,000. What is Kendra's QBI deduction? a.$40,000. b.$41,000. c.$0. d.$54,800.

c.$0.

Realizing that providing for a comfortable retirement is up to them, Jim and Julie commit to regular contributions to traditional IRAs, beginning this year. Consequently, each makes a $2,000 contribution to his or her traditional IRA. If their AGI is $35,000 on their joint return, what is the amount of any "saver's credit" for retirement plan contributions? a.$1,000 b.$400 c.$2,000 d.$200

c.$2,000

Question Content Area Matilda, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year:BasisFair Market ValueCash donation to State University$30,000$ 30,000Unimproved land to the City of Terre Haute, IN70,000 210,000The land had been held as an investment and was acquired four years ago. Shortly after receipt, the City of Terre Haute sold the land for $210,000. Matilda's AGI is $450,000. The allowable charitable contribution deduction this year is: a.$225,000. b.$165,000. c.$240,000. d.$100,000.

c.$240,000.

In 2021, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2021 and $100,000 in 2022, Kipp's share being $60,000 in 2021 and $30,000 in 2022. How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership's operations? a.$60,000 in 2021; $0 in 2022. b.$60,000 in 2021; $30,000 in 2022. c.$60,000 in 2021; $5,000 in 2022. d.$0 in 2021; $0 in 2022.

c.$60,000 in 2021; $5,000 in 2022.

In 2021, Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant. The LLC reported losses of $340,000 in 2021 and $180,000 in 2022. Joanne's share of the LLC's losses was $68,000 in 2021 and $36,000 in 2022. How much of these losses can Joanne deduct? a.$68,000 in 2021; $36,000 in 2022. b.$0 in 2021; $0 in 2022. c.$68,000 in 2021; $22,000 in 2022. d.$68,000 in 2021; $0 in 2022.

c.$68,000 in 2021; $22,000 in 2022.

Pedro's child attends a school operated by the church the family attends. Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200. In addition, Pedro paid the regular tuition of $6,000 to the school. Based on this information, what is Pedro's charitable contribution? a.$6,800 b.$1,000 c.$800 d.$0

c.$800

Statutory employees: a.Are subject to income tax withholdings. b.Report their expenses as miscellaneous itemized deductions. c.Claim their expenses as deductions for AGI. d.Include common law employees.

c.Claim their expenses as deductions for AGI.

Cristiano performs services for Ryan. Which of the following factors, if any, indicates that Cristiano is an independent contractor rather than an employee? a.Ryan provides the tools used. b.Ryan sets the work schedule. c.Cristiano is paid based on tasks performed. d.Cristiano follows a specific set of instructions from Ryan to complete tasks.

c.Cristiano is paid based on tasks performed.

Which of the following trips, if any, will qualify for the travel expense deduction? a.Myrna went on a two-week vacation in Boston. While there, she visited her employer's home office to have lunch with former coworkers. b.Dr. Brown, a self-employed surgeon, attends a two-day seminar on financial planning. c.Dr. Jones, a self-employed general dentist, attends a two-day seminar on developing a dental practice. d.Paul, a romance language high school teacher, spends summer break in France, Portugal, and Spain improving his language skills.

c.Dr. Jones, a self-employed general dentist, attends a two-day seminar on developing a dental practice.

Which of the following, if any, is subject to an overall limitation on meals? a.Meals provided to employees during a training event or retreat at an off-site location. b.Meals provided to employees during a business meeting. c.Meals provided at cost to employees at a cafeteria funded by the employer. d.A Fourth of July company picnic for employees.

c.Meals provided at cost to employees at a cafeteria funded by the employer.

In 2021, Sam and Betty, each single, both generate sole proprietor income of $240,000. Sam's income is generated from a wholesale business whereas Betty's is earned from her law practice. Neither has any employees or qualified assets. Both claim the standard deduction and have other income equal to the standard deduction amount. a.Sam can obtain a QBI deduction, but Betty cannot because of the taxable income level and law practice is a specified service business. b.Both Sam and Betty will have a QBI deduction of $48,000. c.Neither Sam nor Betty will generate a QBI deduction due to their taxable income levels. d.None of these choices are correct.

c.Neither Sam nor Betty will generate a QBI deduction due to their taxable income levels.

Which of the following, if any, is an advantage of using the simplified method for determining the office in the home deduction? a.The exclusive use requirement does not have to be met. b.It allows the expense to be classified as a deduction for AGI. c.No depreciation on the personal residence has to be computed. d.It can also be used for a residence that is rented (not owned) by the taxpayer.

c.No depreciation on the personal residence has to be computed.

Which of the following is considered qualified property in the calculation of the deduction for qualified business income (§ 199A)? a.Fully depreciated tangible business property. b.All business property (both tangible and intangible). c.Tangible business property subject to depreciation. d.Tangible property placed in service during the year, but not used in the production of qualified business income.

c.Tangible business property subject to depreciation.

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year. His current loss from the activity is $80,000. Vic had no passive activity income during the year. At the end of the current year: a.Vic has an at-risk amount in the activity of $120,000 and no suspended passive activity loss. b.Vic has an at-risk amount in the activity of $120,000 and a suspended passive activity loss of $80,000. c.Vic has an at-risk amount in the activity of $200,000 and a suspended passive activity loss of $80,000. d.Vic has an at-risk amount in the activity of $200,000 and no suspended passive activity loss.

c.Vic has an at-risk amount in the activity of $200,000 and a suspended passive activity loss of $80,000.

A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons: a.All of the self-employment tax is deductible for income tax purposes. b.Avoids the overall limitation (50%) as to business meals. c.Work-related expenses of an independent contractor are deductible for AGI. d.A Schedule C does not have to be filed.

c.Work-related expenses of an independent contractor are deductible for AGI.

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation? a.$3,300 b.$12,150 c.$13,800 d.$10,500

d.$10,500

Danielle is a partner in and sales manager for DG Partners, a domestic business that is not a specified service trade or business. During the tax year, she receives guaranteed payments of $250,000 from DG Partners for her services to the partnership as its sales manager. In addition, her distributive share of DG Partners' ordinary income (its only item of income or loss) was $175,000. What is Danielle's qualified business income? a.$250,000. b.$-0-. c.$425,000. d.$175,000.

d.$175,000.

Fran is a CPA who has a small tax practice in addition to working as the controller for a local manufacturing business. Fran runs her tax practice out of a 150-square foot office in her home where she meets clients and works on their tax returns and researches their tax issues. She meets the exclusive use test for this space. The gross income from her tax practice amounts to $7,500 for the year. Business expenses amount to $1,000. Based on square footage, $4,000 of Fran's mortgage interest and real estate taxes are allocable to the home office. The allocable portion of maintenance, utilities, and depreciation is $4,500. Assuming no other expenses related to the business were incurred, what amount of the maintenance, utilities, and depreciation is deductible by Fran? a.$4,500. b.$0. c.$3,500. d.$2,500.

d.$2,500.

Alicia is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $325,000 after deducting Alicia's $100,000 salary. In addition to her compensation, ABC pays Alicia dividends of $250,000. After reviewing comparable companies, you determine that reasonable compensation for someone with her experience and responsibilities is $200,000. What is Alicia's qualified business income? a.$200,000. b.$-0-. c.$325,000. d.$225,000.

d.$225,000.

Phillip, age 66, developed hip problems and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $32,000. The increase in the value of the residence as a result of the room addition was determined to be $17,000. In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair. Phillip's AGI for 2021 was $75,000. What is the amount of Phillip's medical expense deduction in 2021? a.$29,000 b.$21,500 c.$0 d.$23,375

d.$23,375

Carl, a physician, earns $200,000 from his medical practice in the current year. He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity. In addition, he incurs a loss of $50,000 from an investment in a passive activity. What is Carl's AGI for the current year after considering the passive investment? a.$200,000 b.$195,000 c.$240,000 d.$245,000

d.$245,000

In 2022, George and Martha are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents. Assuming their AGI is $119,650, George and Martha's child tax credit is: a.$2,000. b.$3,000. c.$0. d.$4,000.

d.$4,000.

Hannah makes the following charitable donations in the current year: Basis Fair Market ValueInventory held for resale in Hannah's business (a sole proprietorship)$ 8,000$ 7,200Stock in HBM, Inc., held as an investment (acquired four years ago)16,00040,000Baseball card collection held as an investment (acquired six years ago)4,00020,000The HBM stock and the inventory were given to Hannah's church, and the baseball card collection was given to the United Way. Both donees promptly sold the property for the stated fair market value. Disregarding percentage limitations, Hannah's current charitable contribution deduction is: a.$52,000. b.$28,000. c.$67,200. d.$51,200.

d.$51,200.

Ralph made the following business gifts during the year.To Robert (a key client) at Christmas$50To Angel (Robert's 8-year old daughter) on her birthday20To Art (Ralph's secretary) on his birthday ($3 was for gift wrapping)30To Paige (Ralph's boss) at Christmas40Presuming proper substantiation, Ralph's deduction is: a.$78. b.$0. c.$73. d.$53.

d.$53.

In the current year, Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council. The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games. Also this year, Jerry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution? a.$10,200 b.$8,000 c.$0 d.$6,400

d.$6,400

Question Content Area Nancy paid the following taxes during the year:Tax on residence (for the period from March 1 through August 31)$5,250State motor vehicle tax (based on the value of the personal use automobile)430State sales tax3,500State income tax3,050Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy? a.$5,382 b.$9,180 c.$9,130 d.$7,382

d.$7,382

Aiden performs services for Lucas. Which of the following factors indicates that Aiden is an employee rather than an independent contractor? a.Aiden makes his services available to others. b.Aiden provides his own support services (e.g., work assistants). c.Aiden obtained his training (i.e., job skills) from his father. d.Aiden is paid based on hours worked.

d.Aiden is paid based on hours worked.

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit? a.The geographic location. b.The extent of common ownership. c.The similarities and differences in types of business. d.All of these choices are correct.

d.All of these choices are correct.

Tax advantages of being self-employed (rather than being an employee) include: a.Job-related expenses are deductions for AGI. b.The self-employment tax is lower than the Social Security tax. c.The overall limitation (50%) on meals does not apply. d.An office in the home deduction (from AGI) is available.

d.An office in the home deduction (from AGI) is available.

Which of the following expenses, if any, is/are deductible? a.Cost of moving to first job location. Taxpayer just graduated from college. b.Job-hunting expenses of a fishing guide to become an insurance salesman. c.Costs involved in maintaining an office in the home by a self-employed insurance adjuster. Taxpayer's wife also uses the office as a meeting place for her bridge club. d.Contribution to an IRA.

d.Contribution to an IRA.

Refundable tax credits include the: a.Work opportunity tax credit. b.Credit for certain retirement plan contributions. c.Tax credit for rehabilitation expenses. d.Earned income credit.

d.Earned income credit.

Which of the following, if any, correctly describes the earned income credit? a.Requires a taxpayer to have a qualifying child to take advantage of the credit. b.Would be available regardless of the amount of the taxpayer's adjusted gross income. c.Is not available to a surviving spouse. d.Is a refundable credit.

d.Is a refundable credit.

Where is the § 199A deduction taken on Form 1040? a.It is an itemized deduction taken on Schedule A (Form 1040). b.It is a deduction that reduces self-employment income and is taken on Schedule SE (Form 1040). c.It is a business deduction and is taken on Schedule C (Form 1040). d.It is a deduction from AGI, much like the standard deduction or itemized deductions, and is the last deduction taken in determining taxable income.

d.It is a deduction from AGI, much like the standard deduction or itemized deductions, and is the last deduction taken in determining taxable income.

Last year, Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant. The partnership incurred a loss, and Ted's share was $150,000. Which of the following statements is incorrect? a.If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount, he can use all of the $50,000 loss carried over. b.Since Ted has only $100,000 of capital at risk, he cannot deduct more than $100,000 against his other income. c.Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at-risk provisions). d.None of these choices is incorrect

d.None of these choices is incorrect

In describing FICA taxes, which (if any) of the following statements is incorrect? a.The base amounts for 2022 probably will increase from the 2021 amounts. b.Excess FICA taxes can be claimed as an income tax credit. c.If both spouses work, excess FICA taxes need not result. d.The base amounts for the Social Security and Medicare portions are the same.

d.The base amounts for the Social Security and Medicare portions are the same.

A qualifying child cannot include: a.A married son who files a joint return. b.A grandmother. c.A daughter who is away at college. d.A brother who is 28 years of age and disabled.

A grandmother.

Jeremy is married to Amy, who abandoned him in 2020. He has not seen or communicated with her since April of that year. He maintains a household in which their son, Evan, lives. Evan is age 25 and earns over $6,000 each year. For tax year 2021, Jeremy's filing status is: a.Married, filing separately. b.Head of household. c.Married, filing jointly. d.Surviving spouse.

Married, filing separately.

The amount of Social Security benefits received by an individual that they must include in gross income: a.May not exceed 50% of the Social Security benefits received. b.May not exceed the portion contributed by the employer. c.Is computed in the same manner as an annuity [exclusion = (cost/expected return) × amount received]. d.May be zero or as much as 85% of the Social Security benefits received, depending upon the taxpayer's Social Security benefits and other income.

May be zero or as much as 85% of the Social Security benefits received, depending upon the taxpayer's Social Security benefits and other income.

What are the effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company? a.The corporation has imputed interest income and the employee is deemed to have received a gift. b.The employee has no income unless the funds are invested and produce investment income for the year. c.The employee has imputed compensation income and the corporation has imputed interest income. d.The corporation has imputed interest income and dividends paid.

The employee has imputed compensation income and the corporation has imputed interest income.

Maroon Corporation expects its employees' income tax rates to increase next year. The employees use the cash method. The company presently pays on the last day of each month. The company is considering changing its policy so that the December salaries will be paid on the first day of the following year. What would be the effect on an employee of the proposed change in company policy beginning December 2021? a.The employee will not be required to recognize the December 2021 salary until it is received, in 2022. b.The employee can elect to either include the December 2021 salary in 2021 or 2022. c.The employee would be required to recognize the December 2021 salary in December 2021 because the employee has a claim of right to the income when it is earned. d.The employee would be required to recognize the December 2021 salary in December 2021 because it is constructively received at the end of the month.

The employee will not be required to recognize the December 2021 salary until it is received, in 2022.

Assume a cash basis taxpayer purchased a three-year certificate of deposit on January 1 of the current year. Under the original issue discount (OID) rules which of the following is true? a.All of the income must be recognized in the year of maturity. b.The interest income will be recognized over three years but will be greater in the third year than in the first year. c.The interest income will be recognized equally over three years. d.The OID will be included in gross income for the year of purchase.

The interest income will be recognized over three years but will be greater in the third year than in the first year.

Debbie is age 67 and unmarried. Her only sources of income are $200,000 in taxable interest and $20,000 of Social Security benefits. Debbie's adjusted gross income for the year is: a.$217,000. b.$200,000. c.$220,000. d.$203,000.

$217,000

Ayla, age 17, is claimed by her parents as a dependent. During 2021, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200. Ayla's taxable income is: a.$6,200 - $4,200 = $2,000. b.$6,200 - $12,550 = $0. c.$4,200 - $4,550 = $0. d.$6,200 - $4,550 = $1,650.

$6,200 - $4,550 = $1,650.

During 2021, Enrique had the following transactions: Salary; $70,000 Interest income on Xerox bonds; 2,000 Inheritance from uncle; 40,000 Contribution to traditional IRA; 5,500 Capital losses; 2,500 Enrique's AGI is: a.$64,000. b.$102,000. c.$67,000. d.$62,000.

$64,000

In 2021, Nai-Yu had the following transactions: Salary; $90,000 Short-term capital gain from a stock investment; 4,000 Moving expense to change jobs; (11,000) Receipt of repayment of $20,000 loan she made to her sister in 2015 (includes no interest); 20,000 State income taxes; (5,000) Nai-Yu's AGI is: a.$98,000. b.$94,000. c.$103,000. d.$83,000.

$94,000

Kirby, a single taxpayer, has taxable income of $40,000 and is in the 12% tax bracket. During 2021, she had the following capital asset transactions: Long-term gain from the sale of a coin collection; $11,000 Long-term gain from the sale of a land investment; 10,000 Short-term gain from the sale of a stock investment; 2,000 Kirby's tax consequences from these gains are as follows: a.(0% × $10,000) + (12% × $13,000). b.(5% × $10,000) + (12% × $13,000). c.(12% × $23,000). d.(12% × $13,000) + (28% × $11,000).

(0% × $10,000) + (12% × $13,000).

Perry, a single taxpayer, has taxable income of $198,000 and is in the 32% tax bracket. During 2021, he had the following capital asset transactions: Gain from the sale of a stamp collection (held for 10 years); $30,000 Gain from the sale of an investment in land (held for 4 years); 10,000 Gain from the sale of stock investment (held for 8 months); 4,000 Perry's tax consequences from these gains are as follows: a.(15% × $10,000) + (28% × $30,000) + (32% × $4,000). b.(0% × $10,000) + (28% × $30,000) + (32% × $4,000). c.(15% × $40,000) + (32% × $4,000). d.(15% × $30,000) + (32% × $4,000).

(15% × $10,000) + (28% × $30,000) + (32% × $4,000).

In which of the following situations, if any, may the individual not be claimed as a dependent of the taxpayer? a.A half-brother who does not live with the taxpayer and is a citizen and resident of Honduras. b.A former spouse who lives with the taxpayer (divorce took place last year). c.A stepmother who does not live with the taxpayer. d.A married daughter who lives with the taxpayer.

A half-brother who does not live with the taxpayer and is a citizen and resident of Honduras.

Regarding the Tax Tables related to the Federal income tax, which of the following statements is correct? a.The Tax Tables will always yield the same amount of tax as the Tax Rate Schedules. b.For any one year, the Tax Tables are issued by the IRS after the Tax Rate Schedules. c.The Tax Tables can be used by an estate but not by a trust. d.Taxpayers can elect as to whether they use the Tax Tables or the Tax Rate Schedules.

For any one year, the Tax Tables are issued by the IRS after the Tax Rate Schedules.

Barry, a solvent individual but a recovering alcoholic, embezzled $6,000 from his employer. In the same year that he embezzled the funds, his employer discovered the theft. His employer did not fire him and told him he did not have to repay the $6,000 if he would attend Alcoholics Anonymous. Barry met the conditions and his employer canceled the debt. a.Barry did not realize any income because his employer made a gift to him. b.Barry may exclude the $6,000 from gross income because the debt never existed. c.Barry must include $6,000 in gross income under the tax benefit rule. d.Barry must include $6,000 in gross income from discharge of indebtedness.

Barry must include $6,000 in gross income from discharge of indebtedness.

The annual increase in the cash surrender value of a life insurance policy: a.Is taxed according to the original issue discount rules. b.Is exempt because it is life insurance proceeds. c.Is not included in gross income because the policy must be surrendered to receive the cash surrender value. d.Reduces the deduction for life insurance expense.

Is not included in gross income because the policy must be surrendered to receive the cash surrender value.

CHAPTERS 5-8

CHAPTERS 5-8

Which of the following taxes is paid only by the employer? a.FUTA b.Social Security tax c.Medicare tax d.FICA

FUTA

Tax functions that accounting and finance professionals may assist clients with include all but the following: a.Tax planning. b.Tax evasion. c.Tax compliance. d.Cash management to ensure timely payment of taxes.

Tax evasion

The quote engraved on the IRS building in Washington, DC, at the entrance states: a.Taxes are what we pay for civilized society. b.Nothing is certain, except death and taxes. c.Taxes are the most difficult thing in the world to understand. d.Everyone welcome.

Taxes are what we pay for civilized society.

In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS? a.Taxpayer is an employed electrician. b.Taxpayer just won a $1 million slot machine jackpot at a Las Vegas casino. c.Taxpayer owns and operates a check-cashing service. d.Taxpayer just received a $3 million personal injury award as a result of a lawsuit.

Taxpayer is an employed electrician.

In which of the following situations, if any, will the kiddie tax not apply? a.The child is under age 24 and a full-time student. b.The child has unearned income of $2,200 or less. c.The child has unearned income that exceeds more than half of his (or her) support. d.The child is married but does not file a joint return.

The child has unearned income of $2,200 or less.

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2021. Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years. Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, 2021 payable on October 15th, to stockholders of record as of October 10th. The daughter received the $2,000 dividend on October 18, 2021. a.Darryl must recognize $1,500 of the dividend because he owned the stock for three-fourths of the year. b.The daughter must recognize the income because she owned the stock on October 10th. c.Darryl must recognize the $2,000 dividend as his income because he constructively received the dividend. d.Darryl must recognize the income of $2,000 because the purpose of the gift was to avoid taxes.

The daughter must recognize the income because she owned the stock on October 10th.

Which of the following is not a requirement for a payment between former spouses to be considered alimony? a.The payments must be in cash. b.The payor and payee must not live in the same household at the time of the payments. c.The payments must cease upon the death of the payee. d.The payments must extend over at least three years.

The payments must extend over at least three years.

Kyle and Liza are married and under 65 years of age. During 2021, they furnish more than half of the support of their 19-year old daughter, Kendra, who lives with them. She graduated from high school in May 2020. Kendra earns $15,000 from a part-time job, most of which she sets aside for future college expenses. Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them. Liza's father, who died on January 3, 2021, at age 90, has for many years qualified as their dependent. How many dependents can Kyle and Liza claim? a.One b.Three c.None d.Two

Two

The Hutters filed a joint return for 2021. They provide more than 50% of the support of Carla, Ellie, and Aaron. Carla (age 18) is a cousin and earns $2,800 from a part-time job. Ellie (age 25) is their daughter and is a full-time law student. She received a $7,500 scholarship for tuition from her law school. Aaron is a brother who is a citizen of Israel but resides in France. Carla and Ellie live with the Hutters. How many dependents can the Hutters claim? a.None b.One c.Two d.Three

Two

Which of the following, if any, is a deduction for AGI? a.Charitable contributions. b.Interest on home mortgage. c.State and local sales taxes. d.Unreimbursed moving expenses of an employee (who is in the military).

Unreimbursed moving expenses of an employee (who is in the military).

Both economic and social considerations can be used to justify: a.Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education. b.Allowance of a deduction for state and local income taxes paid. c.Disallowance of any deduction for expenditures deemed to be contrary to public policy (e.g., fines, penalties, illegal kickbacks, bribes to government officials). d.Favorable tax treatment for accident and health plans provided for employees and financed by employers.

Various tax credits, deductions, and exclusions that are designed to encourage taxpayers to obtain additional education.

Millie, age 80, is supported during the current year as follows: Percent of Support... Weston (a son); 20% Faith (a daughter); 35% Jake (a cousin); 25% Brayden (unrelated close family friend); 20% During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent. a.Weston and Faith. b.Faith. c.Faith, Jake, and Brayden. d.Weston, Faith, Jake, and Brayden.

Weston and Faith.

During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim? a.$2,000. b.$3,000. c.$0. d.$1,000.

$2,000

Under the terms of a divorce agreement entered into in 2017, Kim was to pay her husband Tom $7,000 per month in alimony. Kim's payments will be reduced to $3,000 per month when their 9 year-old son becomes 21. Tom has custody of their son. For a 12 month period, Kim can deduct from gross income (and Tom must include in gross income): a.$36,000. b.$60,000. c.$0. d.$48,000.

$36,000

For the current year, David has wages of $80,000 and the following property transactions: Stock investment sales— Long-term capital gain; $ 9,000 Short-term capital loss; (12,000) Loss on sale of camper (purchased four years ago and used for family vacations); (2,000) What is David's AGI for the current year? a.$78,000. b.$77,000. c.$76,000. d.$89,000.

$77,000

Maroon & Orange Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $480 ($480/12 = $40 per month); a two-year membership costs $720 ($720/24 = $30 per month). Cash payment is required at the beginning of the membership period. On July 1, 2021, the company sold a one-year membership and a two-year membership. For financial reporting purposes, Maroon reports the membership income ratably over the number of months involved. How much gross income should the company report as gross income from the two contracts in 2022, the year following payment? a.$600. b.$780. c.$1,200. d.$-0-.

$780

Social considerations can be used to justify: a.Allowing accelerated amortization for the cost of installing pollution control facilities. b.Allowing excess capital losses to be carried over to other years. c.Allowing a Federal income tax deduction for state and local sales taxes. d.Allowance of a credit for child care expenses.

Allowance of a credit for child care expenses.

On November 1, 2021, Bob, a cash basis taxpayer, gave Dave common stock. On October 30, 2021, the corporation had declared a dividend payable to shareholders of record as of November 22, 2021. The dividend was paid on December 15, 2021. The corporation has paid the $1,200 dividend once each year for the past ten years, during which Bob owned the stock. When Dave collected the dividend on December 15, 2021: a.Dave must include all of the dividend in his gross income. b.Bob must include all of the dividend in his gross income. c.Dave should treat the $1,200 as a recovery of capital. d.Bob must include $1,000 (10/12 x $1,200) of the dividend in his gross income.

Bob must include all of the dividend in his gross income.

Which of the following, if any, is a deduction for AGI? a.Medical expenses. b.Contributions to a traditional Individual Retirement Account. c.Child support payments. d.Loss on the sale of a personal residence.

Contributions to a traditional Individual Retirement Account.

With respect to unearned income from services, which of the following is true? a.If an accrual basis taxpayer sells a 24-month service contract on July 1, 2021, one-half (12/24) the income is recognized in 2022. b.An accrual basis taxpayer will always recognize the income over the period the services will be rendered. c.A cash basis taxpayer can spread the income from a 24-month service contract over the contract period. d.If an accrual basis taxpayer sells a 36-month service contract on July 1, 2021 for $3,600, the taxpayer's 2021 gross income from the contract is $600.

If an accrual basis taxpayer sells a 36-month service contract on July 1, 2021 for $3,600, the taxpayer's 2021 gross income from the contract is $600.

On January 2, 2021, Tim purchased a bond paying interest at 6% for $30,000. On March 31, 2021, he gave the bond to Jane. The bond pays $1,800 interest on December 31. Tim and Jane are cash basis taxpayers. When Jane collects the interest in December 2021: a.Jane reports $1,350 of interest income, and Tim reports $450 of interest income. b.Jane must report $1,800 gross income. c.Tim must include all of the interest in his gross income. d.Jane reports $450 of interest income, and Tim reports $1,350 of interest income.

Jane reports $1,350 of interest income, and Tim reports $450 of interest income.

The tax concept and economic concept of income are in agreement on which of the following: a.Rent income for 2021 collected in 2020 is income for 2020. b.The increase in value of assets held for the entire year should be included in income for the year. c.Income includes the value of things grown or produced by the taxpayer for the taxpayer's own consumption. d.The fair rental value of an owner-occupied home should be included in income.

Rent income for 2021 collected in 2020 is income for 2020.

Office Palace, Inc., leased an all-in-one printer to a new customer, Ashley, on December 27, 2021. The printer was to rent for $600 per month for a period of 36 months beginning January 1, 2022. Ashley was required to pay the first and last month's rent at the time the lease was signed. Ashley was also required to pay a $1,500 damage deposit. Office Palace must recognize as income for the lease: a.$2,700 in 2021, if Office Palace is a cash or accrual basis taxpayer. b.$0 in 2021, if Office Palace is an accrual basis taxpayer. c.$1,200 in 2021. d.$7,800 in 2022, if Office Palace is a cash basis taxpayer.

$1,200 in 2021.

Tony, age 15, is claimed as a dependent by his grandmother. During 2021, he had interest income from Boeing Corporation bonds of $1,000 and earnings from a part-time job of $800. Tony's taxable income is: a.$1,800 - $1,150 = $650. b.$1,800. c.$1,800 - $1,100 = $700. d.$1,800 - $12,550 = $0.

$1,800 - $1,150 = $650.

Al is single, age 60, and has gross income of $140,000. His deductible expenses are as follows: Alimony(divorce finalized in 2017); $20,000 Charitable contributions; 4,000 Contribution to a traditional IRA; 5,500 Expenses paid on rental property; 7,500 Interest on home mortgage and property taxes on personal residence; 7,200 State income tax; 2,200 What is Al's AGI? a.$94,100. b.$107,000. c.$127,000. d.$103,000.

$107,000.

On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day. If Tom works, he must hire a painter for $120. Assuming Tom is in the 24% marginal tax bracket, what is the least amount he must get paid to be able to pay the painter and still have a positive cash flow from working? a.$120. b.$0. c.$500. d.$158.

$158

Orange Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the year in advance ($600 per year) or two years in advance ($960). In September 2021, the company collected the following amounts applicable to future services: October 2021-September 2023 services (200 two-year contracts); $192,000 October 2021-September 2022 services (200 one-year contracts) ; $120,000 Total; $312,000 (192,000 + 120,000) As a result of this, Orange Cable should report as gross income for 2022, the year following receipt: a.$258,000. b.$78,000. c.$312,000. d.$54,000.

$258,000

During 2021, Sandeep had the following transactions: Salary; $ 80,000 Interest income on City of Baltimore bonds; 1,000 Damages for personal injury (car accident); 100,000 Punitive damages (same car accident); 200,000 Cash dividends from Chevron Corporation stock; 7,000 Sandeep's AGI is: a.$287,000. b.$387,000. c.$187,000. d.$285,000.

$287,000

During 2021, Hiroto had the following transactions: Salary; $50,000 Bank loan (proceeds used to buy personal auto); 10,000 Alimony paid (divorce was finalized in 2010).; 12,000 Child support paid; 6,000 Gift from aunt; 20,000 Hiroto's AGI is: a.$44,000. b.$38,000. c.$56,000. d.$32,000.

$38,000

Green Company, an accrual basis taxpayer, provides business-consulting services. Clients generally pay a retainer at the beginning of a 12-month period. This entitles the client to no more than 40 hours of services. Once the client has received 40 hours of services, Green charges $500 per hour. Green Company allocates the retainer to income based on the number of hours worked on the contract. At the end of 2021, the company reported as a liability in its financial statements $50,000 of unearned revenues from these contracts. The company also reported $10,000 in unearned rent income received in 2021 from excess office space leased to other companies. Considering only this information, how much gross income must Green report in 2022 for tax purposes? a.$-0-. b.$60,000. c.$10,000. d.$50,000.

$50,000

Hannah, age 70 and single, is claimed as a dependent by her daughter. During 2021, Hannah had interest income of $2,550 and $850 of earned income from babysitting. Hannah's taxable income is: a.$2,250. b.$500. c.$900. d.$2,550.

$500

Thelma and Mitch were divorced in 2020. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for six years, or until Thelma's death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. He paid the $600,000 to Thelma over the six-year period. The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000. Mitch's recognized gain from the sale is: a.$300,000 ($1,300,000 - $1,000,000). b.$1,000,000 ($1,300,000 - $300,000). c.$700,000 ($1,300,000 - $600,000). d.$-0-.

$700,000 ($1,300,000 - $600,000).

Abhijeet owns a 30% interest in the capital and profits of Emerald Company (a calendar year partnership). For tax year 2021, the partnership earned revenue of $900,000 and had operating expenses of $660,000. During the year, Abhijeet withdrew from the partnership a total of $90,000. He also invested an additional $30,000 in the partnership. For 2021, Abhijeet's gross income from the partnership is: a.$132,000. b.$90,000. c.$72,000. d.$162,000.

$72,000

Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate? a.A tax holiday is granted to an out-of-state business that is searching for a new factory site. b.A public school is razed and turned into a city park. c.An abandoned church is converted to a restaurant. d.A local university sells a dormitory that will be converted for use as an apartment building.

A tax holiday is granted to an out-of-state business that is searching for a new factory site.

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate? a.A large property owner issues a conservation easement as to some of her land. b.A resident dies and leaves his farm to his church. c.A tax holiday issued 10 years ago has expired. d.A bankrupt motel is acquired by the Red Cross and is to be used to provide housing for homeless persons. e.None of these choices are correct. Feedback Area

A tax holiday issued 10 years ago has expired.

For purposes of determining gross income, which of the following is true? a.A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money. b.A mechanic completed repairs on an automobile during the year and collected money from the customer. The customer was not satisfied with the repairs and sued the mechanic for a refund. The mechanic can defer recognition of the income until the suit has been settled. c.An employee receives stock worth $1,000 from her employer as compensation for her services. The employee cannot sell the stock for three years and must forfeit the stock if she leaves her job before she is able to sell it. The employee must include $1,000 in her gross income in the year she receives the stock. d.All of these choices are false.

A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money.

"Bracket creep" is avoided by: a.The statute of limitations. b.Providing special tax rules for small businesses. c.Using sunset provisions. d.Adjusting the rate brackets for inflation annually.

Adjusting the rate brackets for inflation annually.

Under the alimony rules: a.Alimony paid per a 2015 divorce agreement is included in the gross income of the recipient of the payments. b.A person who earns $90,000 and pays $20,000 in alimony per a divorce agreement entered into in 2020, is allowed to deduct the $20,000. c.To determine whether a cash payment is alimony, one must consult the state laws that define alimony. d.A person who receives a property division has experienced an increase in wealth and thus should be subject to tax.

Alimony paid per a 2015 divorce agreement is included in the gross income of the recipient of the payments.

Jay, a single taxpayer, purchased an annuity to help provide income during his retirement. He paid $36,000 for the annuity that provided a monthly benefit starting at his retirement date for the rest of Jay's life. His life expectancy at the time of his retirement was 180 months. Jay collected 192 payments before he died. Which of the following is true? a.If Jay's income is below $25,000, none of the payments he receives are taxable. b.Since Jay is no longer working, none of the payments must be included in his gross income. c.The first $36,000 received is a nontaxable recovery of capital, and all subsequent annuity payments are taxable. d.All of the last 12 payments he received are taxable.

All of the last 12 payments he received are taxable.

Ellen, age 12, lives in the same household with her father, grandfather, and uncle. The cost of maintaining the household is provided by her grandfather (40%) and her uncle (60%). Disregarding tie-breaker rules, Ellen is a qualifying child as to: a.Only her father. b.Only her uncle. c.All parties involved (i.e., father, grandfather, and uncle). d.Only her grandfather and uncle.

All parties involved (i.e., father, grandfather, and uncle).

The exclusion of interest on educational savings bonds: a.Applies only to savings bonds owned by the child. b.Means that the child must include the interest in income if the bond is owned by the parent. c.Applies to parents who purchase bonds for which the proceeds are used for their child's education. d.Does apply even if used to pay for room and board.

Applies to parents who purchase bonds for which the proceeds are used for their child's education.

Daniel purchased a bond on July 1, 2021, at par of $10,000 plus accrued interest of $300. On December 31, 2021, Daniel collected the $600 interest for the year. On January 1, 2022, Daniel sold the bond for $10,200. a.Daniel must recognize $300 interest income for 2021 and a $200 gain on the sale of the bond in 2022. b.Daniel must recognize $300 interest income for 2021 and a $100 loss on the sale of the bond in 2022. c.Daniel must recognize $600 interest income for 2021 and a $200 gain on the sale of the bond in 2022. d.Daniel must recognize $600 interest income for 2021 and a $100 loss on the sale of the bond in 2022.

Daniel must recognize $300 interest income for 2021 and a $200 gain on the sale of the bond in 2022.

Swan Finance Company, an accrual method taxpayer, requires all of its customers to carry credit life insurance. If a customer dies, the company receives from the insurance company the balance due on the customer's loan. Ali, a customer, died owing Swan $1,500. The balance due included $200 accrued interest that Swan has included in income. When Swan collects $1,500 from the insurance company, Swan: a.Must recognize $1,300 income from the life insurance proceeds. b.Does not recognize income because life insurance proceeds are tax-exempt. c.Does not recognize income from the life insurance because the entire amount is a recovery of capital. d.Must recognize $1,500 income from the life insurance proceeds.

Does not recognize income from the life insurance because the entire amount is a recovery of capital.

Iris collected $150,000 on her deceased husband's life insurance policy. The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer. She elected to collect the policy in 10 equal annual payments of $18,000 each. a.The amount she receives in the first year is a nontaxable return of capital. b.For each $18,000 payment that Iris receives, she can exclude $500 ($5,000/$180,000 × $18,000) from gross income. c.None of the payments must be included in Iris's gross income. d.For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income.

For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income.

In 2020 Todd purchased an annuity for $150,000. The annuity is to pay him $2,500 per month for the rest of his life. His life expectancy is 100 months. Which of the following is correct? a.For each $2,500 payment received in the first year, Todd must include $1,000 in gross income. b.Todd is not required to recognize any income until he has collected 60 payments (60 × $2,500 = $150,000). c.If Todd collects 20 payments and then dies in 2022, Todd's estate should amend his tax returns for 2020 and 2021 and eliminate all of the reported income from the annuity for those years. d.For each $2,500 payment received in the first year, Todd must include $1,500 in gross income.

For each $2,500 payment received in the first year, Todd must include $1,000 in gross income.

Freddy purchased a certificate of deposit for $20,000 on July 1, 2021. The certificate's maturity value in two years (June 30, 2023) is $21,218, yielding 3% before-tax interest. a.Freddy must recognize $1,218 gross income in 2023. b.Freddy must recognize $1,218 gross income in 2021. c.Freddy must recognize $300 (0.03 × $20,000 × 0.5) gross income in 2021. d.Freddy must recognize $600 (0.03 × $20,000) gross income in 2023.

Freddy must recognize $300 (0.03 × $20,000 × 0.5) gross income in 2021.

Harpreet, whose spouse died in December 2020, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2021? (Note: Harpreet is the executor of her spouse's estate.) a.Surviving spouse b.Single c.Married, filing separately d.Head of household

Head of household

Kyle, whose spouse died in December 2018, filed a joint tax return for 2018. He did not remarry but has continued to maintain his home in which his two dependent children live. What is Kyle's filing status in 2021? a.Surviving spouse b.Single c.Head of household d.Married filing separately

Head of household

Betty purchased an annuity for $24,000 in 2021. Under the contract, she will receive $300 each month for the rest of her life. According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment. a.If Betty collects $3,000 in 2021, her gross income is $630 (0.03 × $21,000). b.Betty has no gross income until she has collected $24,000. c.If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income. d.If Betty lives to collect only 60 payments before her death, she will report a $6,000 loss from the annuity [$24,000 - (60 × $300) = $6,000] on her final return.

If Betty lives to collect more than 96 payments, all of the amounts collected after the 96th payment must be included in taxable income.

On January 1, Dave loaned his daughter, Debra, $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year. a.Debra must recognize $6,090 of imputed interest income. b.If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income. c.Debra must recognize $6,090 of imputed interest income if Dave has at least $6,090 of investment income. d.Dave must recognize $6,090 of imputed interest income regardless of the amount of Debra's investment income.

If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income.

Mark, a calendar year taxpayer, purchased an annuity for $50,000 in 2020. The annuity was to pay him $3,000 on the first day of each year, beginning in 2020, for the remainder of his life. Mark's life expectancy at the time he purchased the annuity was 20 years. In 2022 Mark developed a deadly disease, and doctors estimated that he would live for no more than 24 months. a.If Mark dies in 2023, his returns for the two previous years can be amended to allocate the entire cost of the annuity to the years in which he received payments and reported gross income. b.If Mark is still alive in 2042, his recovery of capital for that year is $500. c.If Mark dies in 2023, a loss can be claimed on his final return for his unrecovered cost of the annuity. d.If Mark is still alive at the end of 2022, he is not required to recognize any gross income because of his terminal illness.

If Mark dies in 2023, a loss can be claimed on his final return for his unrecovered cost of the annuity.

Which of the following statements relating to the standard deduction, if any, is correct? a.If a taxpayer dies during the year, the standard deduction must be prorated. b.If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed. c.If a taxpayer is claimed as a dependent of another, the additional standard deduction is allowed in full (i.e., no adjustment is necessary). d.If spouses file separate returns, both must claim the standard deduction (rather than itemize their deductions from AGI).

If a taxpayer is claimed as a dependent of another, the additional standard deduction is allowed in full (i.e., no adjustment is necessary).

Asia, a successful executive, is negotiating a compensation plan with her potential employer. The employer has offered to pay Asia a $600,000 annual salary, payable at the rate of $50,000 per month. Asia counteroffers to receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in five years when Asia will be age 65. a.If the employer accepts Asia's counteroffer, Asia will recognize as gross income $55,000 per month [($480,000 + $180,000)/12]. b.If the employer accepts Asia's counteroffer, Asia will recognize $660,000 at the time the offer is accepted. c.If the employer accepts Asia's counteroffer, Asia must recognize imputed interest income on the $180,000 to be received in five years. d.If the employer accepts Asia's counteroffer, Asia will recognize $40,000 income each month for the year and $180,000 in year 5.

If the employer accepts Asia's counteroffer, Asia will recognize $40,000 income each month for the year and $180,000 in year 5.

In terms of the tax formula applicable to individual taxpayers, which of the following statements, if any, is correct? a.In arriving at taxable income, a taxpayer must choose between the standard deduction and the deduction for qualified business income. b.In arriving at taxable income, a taxpayer must choose between the standard deduction and itemized deductions. c.The tax formula does not apply if a taxpayer elects to claim the standard deduction. d.In arriving at AGI, personal and dependency exemptions are subtracted from gross income.

In arriving at taxable income, a taxpayer must choose between the standard deduction and itemized deductions.

The proposed flat tax: a.Would increase the number of deductions available to individuals b.Would not require individuals to file returns. c.Is a type of consumption tax. d.Would tax the increment in value as goods move through the production and manufacturing stages to the marketplace.

Is a type of consumption tax.

The annual increase in the cash surrender value of a life insurance policy: a.Is taxed when the individual dies and the heirs collect the insurance proceeds. b.Must be included in gross income each year under the original issue discount rules. c.Reduces the deduction for life insurance expense. d.Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.

Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.

Jasmine made a $60,000 interest-free loan to her son, Farhad, who used the money to start a new business. Farhad's only sources of income were $25,000 from the business and $490 of interest on his checking account. The relevant Federal interest rate was 5%. Based on this information: a.Jasmine must recognize $3,000 (0.05 × $60,000) of imputed interest income on the below-market loan. b.Farhad's business net profit will be reduced by $3,000 (0.05 × $60,000) of interest expense. c.Farhad's gross income must be increased by the $3,000 (0.05 × $60,000) imputed interest income on the below-market loan. d.Jasmine does not recognize any imputed interest income and Farhad does not recognize any imputed interest expense.

Jasmine does not recognize any imputed interest income and Farhad does not recognize any imputed interest expense.

Jerry purchased a U.S. Series EE savings bond for $744. The bond has a maturity value in 10 years of $1,000 and yields 3% interest. This is the first Series EE bond that Jerry has ever owned. a.Jerry can defer the interest income until the bond matures in 10 years. b.Jerry must report $25.60[($1,000 - $744)/10] interest income each year he owns the bond. c.Jerry can report all of the $256 as a capital gain in the year it matures. d.The interest on the bonds is exempt from Federal income tax.

Jerry can defer the interest income until the bond matures in 10 years.

During 2021, Trevor has the following capital transactions: LTCG; $ 6,000 Long-term collectible gain; 2,000 STCG; 4,000 STCL; 10,000 After the netting process, the following results: a.LTCG of $6,000, long-term collectible gain of $2,000, and a STCL carryover to 2022 of $3,000. b.Long-term collectible gain of $2,000. c.LTCG of $6,000, long-term collectible gain of $2,000, and a STCL of $6,000. d.LTCG of $2,000.

LTCG of $2,000

Which of the following is a characteristic of the audit process? a.Self-employed taxpayers are less likely to be selected for audit than employed taxpayers. b.Less important issues are handled by means of a correspondence audit. c.If a taxpayer disagrees with the IRS auditor's finding, the only resort is to the courts. d.Most taxpayer audits involve "special" agents.

Less important issues are handled by means of a correspondence audit.

Which of the following taxpayers may file as a head of household in 2021? -Marco provides all of the support for his mother, Sienna, who lives by herself in an apartment in Fort Lauderdale. Marco pays the rent and other expenses for the apartment and properly claims his mother as a dependent. -Tammy provides over one-half the support for her 18-year old brother, Dan. He earned $4,500 in 2021 working at a fast-food restaurant and is saving his money to attend college in 2022. Dan lives in Tammy's home. -Juan's spouse left him late in December of 2020. No legal action was taken and Juan has not heard from his spouse in 2021. Juan supported his 6-year-old son, who lived with him throughout 2021. a.Marco and Juan only b.Marco, Tammy, and Juan c.Marco only d.Tammy only

Marco, Tammy, and Juan

Natalie is married to Chad, who abandoned her in early June of 2021. She has not seen or communicated with him since then. She maintains a household in which she and her two dependent children live. Which of the following statements about Natalie's filing status in 2021 is correct? a.Natalie can file as a head of household. b.Natalie can use the rates for single taxpayers. c.Natalie can file as a surviving spouse. d.Natalie can file a joint return with Chad.

Natalie can file as a head of household.

Which, if any, of the following taxes are regressive (rather than progressive)? a.State general sales tax b.Federal individual income tax c.Federal estate tax d.Federal gift tax

State general sales tax

As a general rule: I.Income from property is taxed to the person who owns the property. II.Income from services is taxed to the person who earns the income. III.The assignee of income from property must pay tax on the income. IV.The person who receives the benefit of the income must pay the tax on the income. a.Only III and IV are true. b.Only I and II are true. c.I, II, III, and IV are true. d.I, II, and III are true, but IV is false.

Only I and II are true.

Travis and Andrea were divorced in 2017. Their only marital property consisted of a personal residence (fair market value of $400,000, cost of $200,000), and publicly traded stocks (fair market value of $800,000, cost basis of $500,000). Under the terms of the divorce agreement, Andrea received the personal residence and Travis received the stocks. In addition, Andrea was to receive $50,000 for eight years. I.If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years), the payments will qualify as alimony. II.Andrea has a taxable gain from an exchange of her one-half interest in the stocks for Travis' one-half interest in the house and cash. III.If Travis sells the stocks for $900,000, he must recognize a $400,000 gain. a.Only I and II are true. b.I, II, and III are true. c.Only III is true. d.Only I and III are true.

Only III is true.

The purpose of the tax rules that apply to below-market loans between family members is to: a.Prevent shifting of income among family members. b.Prevent gifts from being disguised as bad debt expenses. c.Discourage loans between related parties. d.Prevent the artificial deferral of income recognition.

Prevent shifting of income among family members.

Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation. Sarah is not an employee of the corporation. a.Sarah must recognize imputed dividend income and the corporation may recognize imputed interest expense. b.Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense. c.Sarah must recognize imputed interest expense and the corporation must recognize imputed interest income. d.Neither Sarah's nor the corporation's gross income is affected by the loans because no interest was charged.

Sarah must recognize imputed interest income and the corporation must recognize imputed interest expense.

Which of the statements regarding the standard deduction, if any, is correct? a.The standard deduction may be taken as a for AGI deduction. b.The basic standard deduction is indexed for inflation but the additional standard deduction is not. c.Some taxpayers may qualify for two types of standard deductions. d.The standard deduction is not available to taxpayers who are dependents.

Some taxpayers may qualify for two types of standard deductions.

Which of the following items, if any, is deductible? a.Premiums paid on personal life insurance policy. b.Substantiated gambling losses (not in excess of gambling winnings) from state lottery. c.Speeding ticket incurred while on business. d.Contributions to mayor's reelection campaign.

Substantiated gambling losses (not in excess of gambling winnings) from state lottery.

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future. a.Sue must recognize $2,000 gross income in the current year, and when the cable is installed, she must reduce her cost basis in the land by $2,000. b.Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year. c.Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year. d.Sue is not required to recognize gross income from the receipt of the funds.

Sue is not required to recognize gross income from the receipt of the funds.

The taxable portion of Social Security benefits may be affected by: a.The number of quarters the individual worked. b.The individual's standard deduction. c.The individual's tax-exempt interest income. d.The taxpayer's itemized deductions.

The individual's tax-exempt interest income.

Which the following, if any, of is a correct statement relating to the kiddie tax in 2021? a.If the kiddie tax applies, the parents must include the income of the child on their own income tax return. b.The components for the application of the kiddie tax are not subject to adjustment for inflation. c.The kiddie tax does not apply if both parents of the child are deceased. d.If the parents are divorced, the income of the noncustodial parent is used to determine the allocable parental tax.

The kiddie tax does not apply if both parents of the child are deceased.

Tommy, a senior at State College, receives free room and board as full compensation for working as a resident adviser at the university dormitory. The regular housing contract is $2,000 a year in total, $1,200 for lodging, and $800 for meals in the dormitory. He had the option of receiving the meals or $800 in cash and accepted the meals. What must Tommy include in gross income from working as a resident adviser? a.The meals may be excluded because he did not receive cash. b.The meals must be included in gross income. c.All items can be excluded from gross income as a scholarship. d.The lodging must be included in gross income because it was compensation for services.

The meals must be included in gross income.

Regarding proper ethical accounting guidelines, which, if any, of the following is correct? a.If a client has made a mistake in a prior year's return and refuses to correct it, the accountant should withdraw from the engagement. b.The use of client estimates in preparing a return may be acceptable. c.If the exact amount of a deduction is not certain (e.g., around mid-$600s), it should be recorded as an odd amount (i.e., $649) so as to increase the appearance of greater certainty. d.Under no circumstances should a question on a tax return be left unanswered.

The use of client estimates in preparing a return may be acceptable.

Regarding the rules applicable to filing of income tax returns, which of the following, if any, is an incorrect statement: a.The usual test as to when a taxpayer must file a return is based on the total of the following: personal exemption + basic standard deduction + both additional standard deductions. b.Special filing requirement rules exist for taxpayers who are claimed as dependents of another. c.Married persons who file joint returns cannot later (after the due date of the return) substitute separate returns. d.Married persons who file separate returns can later (after the due date of the return) substitute a joint return.

The usual test as to when a taxpayer must file a return is based on the total of the following: personal exemption + basic standard deduction + both additional standard deductions.

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2016, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2021, she sold the bond for $9,800, which included $200 of accrued interest. a.Theresa's loss on the sale of the bond is $600. b.Theresa has $200 interest income and a $400 loss from the bond in 2021. c.Theresa has $200 interest income and a $200 gain from the bond in 2021. d.Theresa has a $100 loss from the sale of the bond and no interest income.

Theresa has $200 interest income and a $400 loss from the bond in 2021.

Evan and Eileen Carter are married and file a joint return for 2021. Both are under 65 years of age. They provide more than half of the support of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship covering her tuition at college. Evan and Eileen furnish all of the support of Belinda (Evan's grandmother), who is age 80 and lives in a nursing home. They also support Peggy (age 66), who is a friend of the family and lives with them. How many dependents may the Carters claim? a.Two b.Three c.One d.None

Three

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: a.To avoid a future decline in value of the property transferred. b.To shift income to higher bracket donees. c.To take advantage of the higher unified transfer tax credit available under the gift tax. d.To take advantage of the per donee annual exclusion.

To take advantage of the per donee annual exclusion.

The alimony rules applicable to divorces entered into before 2019: a.Treat child support payments and alimony differently. b.Are based on the principle that the person who earns the income should pay the tax. c.Look to state law to determine the definition of alimony. d.Permit tax deductions for property divisions.

Treat child support payments and alimony differently.

With respect to the unearned income from services, which of the following is true? a.An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed within three years following the year of receipt. b.An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less. c.A cash basis taxpayer must report all of the income in the year received. d.The treatment of unearned income is the same for tax and financial accounting for accrual basis taxpayers.

c.A cash basis taxpayer must report all of the income in the year received.

Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value. a.sell; keep. b.keep; sell. c.sell; sell. d.keep; keep.

keep; sell