AGEC Week 12-14 Quizzes (test 3/final exam)

On January 12th of this year, Monique purchased 15 shares of stock for $1,500. On December 25 of the same year, when the stock was worth $2,000, she gifted all the stock to her brother, Joseph. Joseph sold the stock on the following July 15th, for its fair market value of $2,500. What is Joseph's tax consequence? a. $500 short-term capital gain. b. $500 long-term capital gain. c. $1,000 short-term capital gain. d. $1,000 long-term capital gain.

$1,000 long-term capital gain -Both Monique's holding period and her basis are carried over to Joseph. $2,500 - $1,500 = $1,000 LTCG

Bubba owns Bubba's Big Burritos (BBB) and works there every day as well. BBB is an S corporation and Bubba receives a W-2 and a K-1 every year. This year, Bubba sold the business to another company, Massive Mexican Meals. What type of income does Bubba have as a result of BBB this year? a. Portfolio income only. b. Active or Ordinary income only. c. Both portfolio and active income. d. Neither portfolio or active income

Both portfolio and active income. -Income on a W-2 and a K-1 are both ordinary. However the sale will be capital, which is portfolio income.

Which of the following is not one of the three types of income in the US? a. Passive income. b. Active or Ordinary income. c. Deferred income. d. Portfolio income

Deferred income. -Deferred income refers to income that is not currently taxed. It is not one of the three types of income.

Regarding the phrase, "above the line," the line refers to taxable income. T/F

False - The line refers to AGI or adjusted gross income.

All of the following statements regarding tax credits are correct EXCEPT: a. A tax credit is an amount that is subtracted from the calculated tax. b. The foreign tax credit is an example of a non-refundable tax credit. c. Both refundable and nonrefundable tax credits can reduce the tax on taxable income to zero. d. The benefit received by a taxpayer from a tax credit is dependent upon her marginal tax bracket.

The benefit received by a taxpayer from a tax credit is dependent upon her marginal tax bracket -The benefit received by a taxpayer from a tax credit is not dependent upon her marginal tax bracket. A tax credit of $1,000 provides the same $1,000 tax reduction for a taxpayer in the 12 percent tax bracket or the 37 percent tax bracket

Parker is a dog whisperer who has consulted with some of the most famous Hollywood stars and their canine friends. He was so successful that he sold his business to Dogs R Us, a publicly-traded company. To keep Parker committed to the business, Dogs R Us issued him restricted stock. Which of the following doctrines requires that the restricted stock be taxable? a. The doctrine of constructive receipt. b. The economic benefit doctrine. c. The doctrine of the fruit and the tree. d. All of the above are key tax principles underling personal income taxation.

The economic benefit doctrine. -The economic benefit doctrine states that if a taxpayer receives an economic benefit as income, the value of that benefit is subject to tax.

To avoid income shifting, the principle of the fruit and the tree requires that income is taxed to either the person who earns it or the person who owns the asset that produced the income. T/F

True

Chris, age 20, worked full time at a marketing firm last year. The money he earned as salary is considered what kind of income? a.Passive income. b.Active or Ordinary Income. c.Deferred Income. d.Portfolio Income

active or ordinary income -wages are considered ordinary income

Which of the following statements is / are correct? 1. Some tax credits are refundable. 2. Some tax credits are nonrefundable. a. 1only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.

both 1 and 2 -there are both refundable and nonrefundable credits

The 14th Amendment of the US Constitution grants Congress the authority to lay and collect taxes on income. True/False

false -16th amendment