CFP Book 4 - QBank Questions

B

All of the following statements regarding above-the-line deductions are CORRECT except A) these deductions are subtracted from gross income in determining adjusted gross income. B) these deductions are subtracted from adjusted gross income in determining taxable income. C) these deductions are allowable regardless of whether the taxpayer claims itemized deductions. D) some above-the-line deductions include deductible contributions to IRAs.

D

Abby, age 16, has earned income of $8,605 and interest income of $750 in 2022. She is claimed as a dependent on her parents' income tax return. What is Abby's taxable unearned income in 2022? A) $1,150 B) $2,300 C) $750 D) $0

A

Alex established a 2503(c) trust for his daughter, Julie, when she entered college four years ago. Alex decided to name his attorney as trustee and give Julie the right to revoke the trust at age 23, when she finished college. Julie did not revoke the trust and chose to allow the trust to continue until she is age 30. Which of the following correctly identifies the taxpayer, if any, who must pay tax on the trust income? A) Julie, because she allowed the trust to continue past age 23 B) The attorney as trustee C) The trust, because it is irrevocable and a separate taxable entity D) Alex, because this is required by law

B

Alicia is age 16 and she received $6,000 in municipal bond interest income and $900 in other interest income in 2022. Her parents' marginal tax rate is 24%. What is the total federal income tax due on her income in 2022? A) $1,472 B) $0 C) $90 D) $735

D

Amanda Elder, a single taxpayer, has the following itemized deductions: Home mortgage interest (first mortgage): $10,925 State income taxes: $17,000 Property taxes: $6,000 Charitable contributions: $3,000 Gambling losses: $3,055 Amanda's AGI for 2022 is $376,800. Included in the AGI are gambling winnings of $1,500. What is the amount of allowable itemized deductions? A) $36,925 B) $38,425 C) $39,980 D) $25,425

D

Amy, age 12, is claimed as a dependent on her parents' income tax return. During 2022, she earned $2,300 from a summer job. She also earned $2,600 in interest and dividends from investments that were given to her by her grandfather five years ago. How much of Amy's income, if any, will be taxed to her in 2022 using her grandfather's marginal tax rate of 32%? A) $2,700 B) $300 C) $2,300 D) $0

C

Assume that married taxpayers filing jointly have a taxable income of $200,000. Using the tax rate schedule provided in your course references, what is the amount of federal income tax? Round your answer to the nearest dollar. A) $47,367 B) $42,750 C) $35,671 D) $37,466

B

Beth's husband died in Year 1. Assume that Beth does not remarry and continues to maintain a home for herself and her dependent child during Year 2, Year 3, and Year 4, providing full support for her child throughout those years. For Year 4, Beth's filing status will be A) qualifying widow. B) head of household. C) married filing jointly. D) single.

D

Carol, age 50, received a salary of $35,000 this year. In addition, she received a gift of $1,000 from her brother. She also made a contribution of $3,500 to her traditional IRA. She files as single, and in addition to her itemized deductions of $4,500, she had unreimbursed medical expenses from major surgery on her knees of $7,600. Which of the following best defines Carol's taxable income? A) Gross income less adjustments to income, less long-term capital losses B) All cash compensation received during the tax year less medical expenses in excess of 10% of AGI C) Adjusted gross income less the standard deduction and itemized deductions D) Adjusted gross income less the greater of the standard deduction or the amount of itemized deductions

D

Charley lent his friend, Richard, $17,000 for a down payment on a home in a no-interest loan early in the current year. Charley had investment income of $750, and Richard had investment income of $1,200 in the same year. The federal interest rate is 3.5%. Richard has been making payments each month. What recommendations do you make for accounting for the loan made to Richard by Charley? A) Because Charley's investment income is less than $1,000 this year, no interest is imputed to the loan. B) Because this is a gift loan greater than $10,000 but less than or equal to $100,000, no interest will be imputed to the loan. C) Charley must develop an amortization schedule using the federal rate of 3.5% to account for Richard's payments of principal and interest. D) Imputed interest is calculated on the loan to Richard and is considered a gift to Richard from Charley.

B

Chris Burdick anticipates adjusted gross income of $200,000 for the current tax year. He contributed appreciated stock to a public charity. Chris's adjusted basis in this stock is $50,000. The stock has a current fair market value of $140,000. Chris has owned the stock for 12 years. If Chris does gift the stock to the United Way, what is the maximum allowable charitable deduction he can receive in the current tax year? A) $100,000 B) $60,000 C) $50,000 D) $140,000

B

Claudia makes $5,000 a month, and has a disability policy that pays 60% of her salary. Her employer pays 60% of the premium and she pays the remaining 40%. She needed surgery last year and received disability benefits for 60 days. What amount of taxable disability benefits did she receive? A) $6,000 B) $3,600 C) $0 D) $2,400

B

Claudia, who has an AGI of $40,000, wants to donate a painting of an ancestor who served in the American Revolution to the museum in her town that houses a collection of Revolution Era items. Her basis in the painting is $1,750, and it has a fair market value of $2,000. How much can she potentially deduct as a charitable contribution this year, assuming it is her only donation? A) $1,750 (It is related-use capital gain property, so she must use basis.) B) $2,000 (It is related-use capital gain property.) C) $600 (The museum is a 30% organization, so she must use FMV.) D) None (It is the portrait of a relative.)

C

Courtney and Della are considering obtaining a home equity line of credit of $50,000. They will use some of the proceeds to make needed improvements to their personal residence. Della is concerned about the deductibility of the interest. Which of the following statements is(are) CORRECT? I. Home equity interest is not deductible to the extent used for other than home acquisition or improvements. II. All of the home equity loan interest will be deductible for the couple. A) II only B) Both I and II C) I only D) Neither I nor II

B

Danielle created a revocable trust for her two minor sons. She named her bank as trustee. The trust property earned $30,000 in the first year and had taxable income of $28,000 after deducting expenses. This income was left to accumulate for future distributions to be made to each son equally when the youngest son attains age 18. To which of the following will the income of the trust be taxable? A) Both sons equally B) Danielle C) The trust D) The oldest son after attaining age 18, then the sons equally after the youngest son attains age 18

B

Don and Paul are married. They adopted an infant daughter in December of last year. They have consulted you, a CFP® professional, for advice on how to proceed when filing their federal income tax return this year. What should you recommend as their filing status this year for their federal return? A) Married filing separately B) Married filing jointly C) Head of household D) Single

C

Five years ago, Tom bought 10,000 shares at $10 per share in an intermediate-term bond fund. Today, the shares are worth $200,000 and are paying a nonqualified dividend of $8,000 per year. Tom feels that the stock will continue to appreciate at a rate of 5% per year, including the dividend. Tom wants to establish a college education fund for his two daughters, ages 18 and 9. Neither child has any earned income. Which of the following statements is true? I. If Tom gives 2,500 shares to his 18-year-old daughter, all income from the 2,500 shares will be taxed in her income tax bracket. II. If Tom gives 2,500 shares to his 9-year-old daughter, all dividends from the 2,500 shares will be taxed at her marginal rate. III. Two years from now, if Tom's older daughter sells her 2,500 shares at $30 per share, Tom will need to report the gain as a long-term capital gain on his personal income tax return. IV. All interest income received by his 9-year-old daughter that exceeds $2,200 in 2021 will be taxed at the parents' marginal tax rate. A) I and II B) I and IV C) IV only D) II and III

B

Francine and Marshall have three children: Bill, Curt, and Rachel. For 2022 - Bill, age 11, has $1,250 of interest income. - Curt, age 13, has $2,950 of salary from a part-time job. - Rachel, age 19 and not a full-time student, has $5,100 of dividends and capital gains. Whose income is subject to application of the parents' marginal rate? A) Bill and Rachel B) None of the children C) Bill D) Curt

A

Francine and Marshall have three children: Bill, Curt, and Rachel. For 2022 - Bill, age 11, has $1,250 of interest income. - Curt, age 13, has $2,950 of salary from a part-time job. - Rachel, age 19, a part-time student for four months of the year, has $5,100 of dividends and capital gains. Whose income is subject to income tax at the parents' tax brackets? A) None of the children B) Curt C) Bill and Rachel D) Bill

A

Frank Swanson anticipates adjusted gross income of $80,000 during the current tax year. He is considering making a gift of real estate to the public university he attended. Frank's adjusted basis in this real estate is $50,000. The real estate has a current fair market value of $70,000. Frank has owned the real estate for 19 months. If Frank donates the real estate, what is the maximum allowable charitable deduction Frank can receive for the current tax year? A) $40,000 B) $50,000 C) $24,000 D) $70,000

D

George, whose wife died last November, filed a joint tax return for last year. He did not remarry after his wife's death and has continued to maintain his home for his two dependent children. In the preparation of his tax return for this year, what is George's filing status? A) Head of household B) Single C) Married filing separately D) Qualifying widower

C

If Jason files single with gross income of $110,000 and taxable income of $91,000, what is his effective tax rate based on the tax rate schedule provided in your course references? A) 24.0% B) 22.0% C) 17.2% D) 14.4%

C

If Leslie and Armando file as married filing jointly, with gross income of $176,000 and taxable income of $158,000, what is their marginal tax rate based on the following tax information? Refer to the 2022 tax table provided in your course references. A) 14.97% B) 16.67% C) 22.00% D) 24.00%

C

If Maria and Herman use married filing jointly, with gross income of $330,000 and taxable income of $303,000, what is their effective tax rate? Refer to the 2022 tax table provided in your course references. A) 32.00% B) 22.45% C) 19.93% D) 24.00%

D

If Parker, who files as Single, was paid $7,200 in 2022 for working in a jewelry store and this is his only income for the year, what are the tax effects for him? A) Parker will be taxed at the estates and trusts tax rate for all amounts in excess of $2,300. B) Parker will be taxed on $4,900 at the 10% tax rate. C) Parker will be taxed on $7,200 at the 10% tax rate. D) Because of Parker's standard deduction for earned income, he will pay no taxes on the income this year.

D

If Phoebe files single with gross income of $86,000 and taxable income of $75,000, what is her marginal tax rate? Refer to the 2022 tax table provided in your course references. A) 14.47% B) 17.49% C) 24.00% D) 22.00%

D

Imputed interest on a below-market loan (with the IRS providing accepted loan rates) will be paid, unless the gift loan is A) between friends. B) from a corporation to a shareholder. C) less than $5,000 and the loan recipient has no interest income. D) less than $10,000 and the gift loan recipient has less than $1,000 in interest income.

C

Imputed loan interest is usually taxable and occurs when A) the loan is secured by specific real property. B) a company loan is provided to an employee. C) a loan is provided by a related person at below-market terms. D) bonds are gifted by an employer.

A

In 2022, Floyd, age 15, is a dependent on his parents' income tax return. When Floyd was born, his parents established an UGMA with corporate bonds and have contributed a little to it every year since. This year, the account generated $5,000 of interest income. There were no distributions from the account this year. Floyd's parents file jointly and have taxable income of $175,000 and are in the 24% MFJ tax bracket. What is Floyd's income tax liability for the current year? A) $763 B) $275 C) $1,200 D) $115

C

In the current year, Jeff makes the following charitable donations: Inventory used in Jeff's business (sole proprietor): Basis- $8,000 FMV- $6,000 Stock in ABC Co. (acquired 2 years ago): Basis- $10,000, FMV- $40,000 Personal coin collection (acquired 10 years ago): Basis- $1,000 FMV- $7,000 The ABC stock was given to Jeff's church, and the coin collection was given to the a private orphanage. Both donees promptly sold the property for the stated FMV. Ignoring percentage limitations on AGI, Jeff's maximum charitable contribution valuation for deduction purposes available for the current year is A) $55,000. B) $53,000. C) $47,000. D) $19,000.

D

Jack bought publicly traded stock seven years ago for $6,000. Its current value on the securities market is $11,000. He has donated this appreciated stock to a charity that provides housing for the homeless. What must Jack do to take the donation as a charitable deduction? I. Jack must have documentation from the charity substantiating the amount of the donation, the date donated, and the name of the charity. II. All donations of stock must have a qualified appraisal of the stock attached to the donor's income tax return. A) Both I and II B) II only C) Neither I nor II D) I only

C

Jack bought publicly traded stock seven years ago for $6,000. Its current value on the securities market is $11,000. He has donated this appreciated stock to a charity that provides housing for the homeless. What must Jack do to take the donation as a charitable deduction? I. Jack must have documentation from the charity substantiating the amount of the donation, the date donated, and the name of the charity. II. All donations of stock must have a qualified appraisal of the stock attached to the donor's income tax return. A) Neither I nor II B) Both I and II C) I only D) II only

C

Jack was divorced on March 30 of the current year and has not remarried as of the last day of the tax year. He lives alone in his condo. His ex-wife, Mary, has custody of their son Jack Jr. What is Jack's filing status for the current tax year? A) Married filing separately B) Head of household C) Single D) Married filing jointly

B

Jane, age 35, whose filing status is single, earned a salary of $55,000 in 2022. She also made a $2,000 contribution to her Roth IRA for 2022. Jane had a capital loss of $3,000 during the year. Her uncle, Charles, gave her $100,000 in municipal bonds for which she earned interest of $3,500. In her employment as a sales representative for her company, Jane incurred $650 of unreimbursed business expenses. What is Jane's adjusted gross income (AGI)? A) $56,800 B) $52,000 C) $53,800 D) $53,300

B

Janet and Bruce Robinson, both age 43, are married taxpayers filing jointly. They have itemized deductions consisting of the following: Home mortgage interest: $19,500 State income taxes: $8,700 Property taxes: $5,200 Charitable contributions: $6,200 Tax return preparation fee: $895 Unreimbursed employee business expenses: $2,100 Unreimbursed medical expenses: $18,460 Their AGI for 2022 is $466,000. What is the amount of their allowable itemized deductions? A) $37,800 B) $35,700 C) $42,595 D) $39,600

B

Jeff Munroe has an annual salary of $140,000 and is not an active participant in a company-maintained retirement plan. He had the following financial transactions during the current tax year: - Received a $100,000 cash inheritance due to the death of his brother - Received unemployment compensation of $2,000 - Had a Schedule C loss of $10,000 (assume material participation) - Made an IRA contribution of $6,000 - Paid qualified student loan interest of $2,000 What is Jeff's total income for the current tax year? A) $124,500 B) $132,000 C) $142,000 D) $126,500

D

Jeffrey and Karen have given cash gifts to their children over the years. In addition, in 2022 - Mark, age 13, earns $2,500 in salary. - Jennifer, age 19, who attends community college for approximately three months per year, earns $2,300 in dividends and capital gains. - Nancy, age 12, earns $2,950 in dividends and interest. - Steven, age 10, earns $900 in dividends and interest. Whose income is subject to the tax at the parents' marginal rate? A) Jennifer's and Nancy's B) Nancy's and Mark's C) Steven's D) Nancy's

C

Jim is planning to make a charitable contribution to a local university, a qualifying charitable organization. He is going to contribute a piece of real estate that he has owned for six years. The fair market value of the property is $80,000, and his basis in it is $55,000. He has an AGI of $120,000. Jim wants to maximize the amount of charitable contribution deductions from the donation of the real estate. What is the amount of charitable contribution deduction that Jim may claim in the current year? A) $55,000 B) $60,000 C) $36,000 D) $40,000

A

John and Karen Postman will spend a total of $5,000 on day care for their two children (ages 9 and 10) in the current tax year. These expenses were incurred to allow both John and Karen to work outside the home. Their adjusted gross income is estimated at $138,000. What is the amount of child and dependent care credit, if any, to which they are entitled? A) $1,000 B) $0 C) $600 D) $1,750

B

John and Mary West, married taxpayers filing jointly, have itemized deductions consisting of the following: Home mortgage interest: $12,000 State income taxes: $18,000 Property taxes: $5,150 Charitable contributions: $2,250 Unreimbursed employee business expenses: $3,200 Medical expenses: $14,000 Sales taxes paid: $2,650 The Wests' AGI for 2022 is $400,000. What is the amount of allowable itemized deductions? A) $54,600 B) $24,250 C) $37,400 D) $14,250

C

Kelly established an irrevocable trust for the benefit of her two young grandsons. She named her attorney as the trustee. The trust documents stipulate that the income from the trust be accumulated within the trust for distribution to each grandchild when the youngest reaches age 21. Which of the following parties will be currently taxed on the income from the trust? A) The attorney B) Kelly C) The trust D) The grandsons

C

Kevin Riley anticipates adjusted gross income of $120,000 for the current tax year. He has made no charitable gifts during the year, but now he wants to give his church a stamp collection with a fair market value of $70,000. Kevin paid $38,000 for the collection five years ago. The collection is appreciated tangible personal property that is unrelated to the church's exempt function. What is the maximum allowable charitable deduction Kevin can receive during the current year if he makes an immediate gift of the stamp collection? A) $60,000 B) $24,000 C) $38,000 D) $36,000

C

Kris Swenson anticipates adjusted gross income of $100,000 for the current tax year. She is considering making a gift of a painting to the American Red Cross in the current tax year. Kris's basis in the painting is $35,000. The painting has a current fair market value of $50,000. Kris has owned the painting for 15 years. If Kris does gift the painting to the American Red Cross this year, what is the maximum allowable charitable deduction she can receive in the current tax year? A) $30,000 B) $20,000 C) $35,000 D) $50,000

D

Kurt and Allison Long are married and file a joint income tax return. Their adjusted gross income (AGI) is $180,000 per year. On last year's tax return, the Longs claimed a $1,200 credit for child care expenses. The Longs are in the 22% marginal income tax bracket. What amount of deductions for AGI would be required to equal the tax benefit of the $1,200 child care credit? A) $264 B) $1,538 C) $936 D) $5,455

D

Larry and Paula are a married couple who file their federal income tax returns separately. They are both over 65 and still provide full support for a son who has been blind since birth. They live together and do not itemize. They alternate listing their son as a dependent, and it is Paula's turn this year. Paula will be required to file a federal income tax return if her gross income is at least which of the following amounts in 2022? A) $12,950 B) $20,800 C) $19,400 D) $14,350

D

Lindsey is age 2 and she received $6,000 in municipal bond interest income and $900 in other interest income in 2022. What is the total federal income tax due on her income in 2022? A) $1,495 B) $1,400 C) $90 D) $0

C

Marco had an individual AMT credit two years ago and has not yet used it. Which of the following is correct regarding Marco's AMT credit? A) The credit can be carried forward indefinitely to be applied against a future alternative minimum tax liability. B) The credit must be applied against the regular income tax liability in the year the credit is created. C) The credit can be carried forward indefinitely to be applied against a regular income tax liability. D) The credit must be applied against the AMT liability in the next year there is AMT to be paid.

D

Marion donated a truck to the local food bank to use for picking up food donations. Marion had purchased the truck several years ago for $15,000, and it currently has a value of $3,400. Which of the following statements regarding the documentation Marion must have to support his charitable contribution of the truck is CORRECT? A) A letter from the food bank thanking him for the donation of the truck is sufficient documentation. B) An appraisal must be attached to Marion's income tax return for the year of the donation. C) A noncash contribution under $5,000 needs no documentation to support the donation. D) The documentation must have the description of the property, the name of the receiving charitable organization, the date of the contribution, and the amount of the donation.

A

Marvin has all of the following items. All of them are AMT preference items except A) tax-exempt income from a State of Iowa municipal revenue bond. B) tax-exempt interest on certain private-activity bonds. C) exclusion of gain on the sale of certain qualified small business corporation stock. D) percentage depletion in excess of adjusted basis on a mining property.

A

Mira is a single taxpayer, age 67. She has the following itemized deductions: Home mortgage interest (first mortgage): $15,950 State income taxes: $3,000 Property taxes: $1,500 Charitable contributions: $2,000 Gambling losses: $1,500 Unreimbursed employee business expenses: $4,600 Tax return preparation fee: $400 Medical expenses: $26,000 Mira's AGI for 2022 is $250,000. Included in the AGI is $500 of gambling winnings. What amount of Mira's itemized deductions would be allowed for purposes of the alternative minimum tax (AMT)? A) $25,700 B) $18,950 C) $17,950 D) $34,950

C

Molly's grandparents gifted her with substantial securities at her birth eight years ago. In 2022, she has dividends of $10,000 and brokers' fees of $800 on the activity in the account her parents manage for her. What is her net unearned income taxed at her parents' rate? A) $9,100 B) $10,000 C) $7,700 D) $8,850

B

Nancy is a single taxpayer and 67 years old. She has the following itemized deductions: Home mortgage interest (first mortgage): $15,950 State income taxes: $3,120 Property taxes: $1,480 Charitable contributions: $2,000 Gambling losses: $1,500 Unreimbursed employee business expenses: $4,600 Tax return preparation fee: $400 Medical expenses: $18,980 Nancy's AGI for 2022 is $250,000. Included in the AGI is $500 of gambling winnings. What amount of Nancy's itemized deductions would be allowed for purposes of the AMT? A) $18,950 B) $18,680 C) $34,950 D) $17,950

D

Neil McElroy is an engineer for Causley Computer Inc. In addition, Neil operates a janitorial service that cleans several local office buildings. Neil was divorced in 2019, and his wife received custody of their two children. He has assembled the following information for preparation of his tax return for the current tax year. Neil's salary: $71,500 Interest income: $9,500 Monthly alimony paid to ex-spouse: $1,500 Monthly child support: $500 Purchase of equipment for use in janitorial service: $10,000 IRA contribution: $6,000 Based on the information given, which of the following are fundamental methods of managing Neil's tax liability? I. Tax credit: Neil could take an investment tax credit for purchases of qualifying business equipment. II. Deductions for AGI: Neil may deduct alimony payments of $18,000 made to ex-spouse. III. Deductions for AGI: Neil may deduct child support payments of $6,000. IV. Exclusions: Neil could have invested in municipal bonds to receive tax-free income. A) II, III, and IV B) I, II, and IV C) I and II D) IV only

A

Paul, age 16, is listed as a dependent on his parents' income tax return. During 2022, he earned $2,700 from a summer job. He also earned $2,700 in interest and dividends from investments that were given to him by his uncle five years ago. How much of Paul's income, if any, will be taxed to him in 2022 using his uncle's marginal tax rate of 32%? A) $0 B) $400 C) $2,700 D) $2,000

C

Personal expenses deductible from adjusted gross income most accurately describes which one of the following? A) Standard deduction B) Adjustments to income C) Itemized deductions D) Schedule C expenses

B

Steve and Allison Parker, a married couple in their 40s, file a joint return. - They earned combined salaries of $185,000. - They received dividend and interest income of $860 from mutual funds. - They have allowable itemized deductions of $14,000. - They have net capital losses of $5,200. - They have two children, ages 12 and 14. What is their taxable income for the 2022 tax year? A) $168,860 B) $156,960 C) $156,660 D) $182,860

C

Ron Phillips, age 43, and Sandy Phillips, age 41, are married with 2 children, Michael, age 12, and Victoria, age 8, who has been blind since her birth. Ron is an architect and general partner with XYZ partnership. Sandy is self-employed as an attorney and works out of a home office. Her home office is exclusively and regularly used for business, and the home office is her principal place of business. Their information for the tax year 2022 is as follows: - Adjusted gross income $217,300 - Itemized deductions (including qualified residential mortgage interest, taxes paid, and charitable contributions) $33,000 Early in the current year, Sandy's father died. Sandy is the sole beneficiary of her father's entire estate. The estate is presently in probate. Sandy's mother, Lisa, age 68, has moved in with them but provides her own support. She was married to Sandy's father when he died earlier this year. This is Ron's second marriage. He makes monthly support payments to his former wife and his daughter. Because both Ron and Sandy are considered self-employed, they make quarterly estimated tax payments each year to cover both their income tax and self-employment tax obligations. Based on the information provided in the case scenario, which of the following statements regarding Lisa's income tax filing status for 2022 is CORRECT? A) Lisa may file as head of household for 2022. B) Lisa must file married filing separately for 2022. C) Lisa may file married filing jointly for 2022. D) Lisa must file a single return for 2022.

B

Sally Franklin has AGI of $300,000. In addition, she currently has passive income of $150,000 and passive losses of $175,000—$150,000 of which she uses to offset the passive income and $25,000 of which is subject to disallowance. Which one of the following investments has the greatest potential for reducing Sally's tax liability? A) An equipment-leasing limited partnership producing passive losses B) A working interest in an oil and gas general partnership C) A limited partnership involved in a historic rehabilitation project that is producing passive losses and credits D) "Active participation" rental real estate that is producing a loss

C

Teddy, age 12, has interest income of $1,275. He also has earned income from an after-school job that totals $13,000. Teddy is eligible to be treated as a dependent on his parents' return. What is the amount of Teddy's standard deduction for 2022? A) $1,150 B) $1,275 C) $12,950 D) $13,400

A

The Kimble Family Trust has among its investments a 20% interest in a nonpublicly traded partnership, which generated income this year of $25,000. The trust also had a loss of $15,000 generated by its ownership interest in a real estate limited partnership (RELP). The trust also has portfolio income of $30,000. Which of the following statements is CORRECT? A) The trust can net the RELP loss against its $25,000 nonpublicly traded partnership income. B) The passive activity loss rules do not apply to trust entities. C) The trust may not own nonpublicly traded passive activity investments. D) The trust can use the RELP loss to offset portfolio income.

A

The effective tax rate is calculated by dividing the calculated tax by A) taxable income. B) total (gross) income. C) AGI. D) effective tax rate.

B

The effective tax rate is obtained by A) finding the tax bracket of the taxable income amount. B) dividing the calculated tax by taxable income. C) dividing taxable income by the marginal tax rate. D) finding the tax bracket of total income.

B

The effective tax rate is obtained by dividing amount of tax by A) the marginal tax rate uses. B) the taxable income. C) the amount of tax and taxable income. D) the amount of tax and total income.

D

The effective tax rate is obtained by dividing the amount of tax paid by A) the amount of deductions and credits. B) the average tax rate. C) the correct tax bracket. D) taxable income

B

The marginal tax rate is obtained by A) dividing the calculated tax by total income. B) finding the tax bracket of the taxable income amount. C) dividing the calculated tax by taxable income. D) finding the tax bracket of total income.

D

Tony made a $10,000 pledge to his church building fund that he would like to fulfill before the end of the year. He owns stock with a basis to Tony of $15,000 that currently has a FMV of $10,000. He is meeting with his planner to discuss year-end planning and tells the planner about the stock he wants to use as payment of the donation to the church building fund. What should the planner tell Tony? A) Tony should donate the stock with the stipulation that the church sells it immediately and take advantage of the capital loss. B) Tony should hold on to the stock and gift other property or cash instead. C) Tony cannot donate loss property. D) Tony should sell the stock and make a cash donation to his church.

C

Which of the following are adjustments to gross income (above-the-line deductions)? I. Medical expenses II. Capital losses III. Deductible IRA contributions A) II only B) I and III C) II and III D) I and II

C

Which of the following are allowable itemized deductions for purposes of computing the alternative minimum tax? I. Charitable deductions II. Qualified housing interest III. Gambling losses to the extent of gambling winnings IV. Property taxes A) I and II B) II, III, and IV C) I, II, and III D) I and III

A

Which of the following are includible in an individual's gross income for income tax purposes? I. Gambling winnings II. Inheritances III. Interest collected by the taxpayer on federal obligations IV. Scholarships and fellowships in degree programs A) I and III B) III and IV C) I, III, and IV D) I only

D

Which of the following are items of tax adjustments for the individual alternative minimum tax? I. Medical expenses in excess of 7.5% of adjusted gross income II. Percentage depletion deduction in excess of adjusted basis III. Deduction for gambling losses to the extent of gambling income IV. Tax-exempt interest on qualified private-activity bonds issued in 2011 A) I and III B) II, III, and IV C) I, III, and IV D) II and IV

A

Which of the following are preference items or adjustments for purposes of the individual alternative minimum tax? I. Interest on qualified private-activity municipal bonds issued in 2008 II. Excess of percentage depletion over the property's adjusted basis III. Investment interest expense in excess of net investment income IV. Qualified housing interest A) I and II B) I, II, III, and IV C) II and III D) I only

A

Which of the following children have income subject to federal income tax at the parent's marginal tax rate 2022? - Brittney, age 16, earned $5,000 in salary. - Kate, age 14, received $2,800 in mutual fund dividends. - Tony, age 5, received $951 in savings account interest. - Amanda, age 19, a part-time college student, received $2,400 in dividends and interest. A) Kate B) Kate and Tony C) Kate, Tony, and Amanda D) Brittney

C

Which of the following is CORRECT with respect to the alternative minimum tax? A) Net capital gains are subject to the AMT rates of 26% or 28%. B) The exercise of an incentive stock option always causes an AMT preference item to be added into the AMT calculation. C) Charitable contributions, investment interest expense, and casualty losses are allowable itemized deductions for AMT purposes. D) All itemized deductions except home mortgage interest and property taxes are added back in the AMT computation.

A

Which of the following is NOT a step in the tax calculation process? A) Calculate federal tax on total income. B) Deduct the greater of itemized deductions or the standard deduction from AGI to arrive at taxable income. C) Claim allowable tax credits. D) Subtract adjustments to income from total income to get adjusted gross income.

C

Which of the following is NOT a step in the tax calculation process? A) Subtract adjustments to income from total income to get adjusted gross income. B) Calculate federal tax on federal taxable income. C) Subtract exclusions from AGI. D) Deduct the greater of itemized deductions or the standard deduction.

A

Which of the following is a tax preference item for the purpose of calculating individual AMT? I. Tax-exempt interest from a private-activity bond issued in 2006 II. Cash contributions to charitable organizations III. Cash flows from limited partnerships IV. Capital losses A) I only B) II, III, and IV C) III and IV D) II only

B

Which of the following is a tax preference item for the purpose of calculating the alternative minimum tax? I. Tax-exempt interest from a private-activity bond issued in 2008 II. Cash contributions to charitable organizations III. Cash flows from limited partnerships IV. Personal-service income in excess of tax losses A) II only B) I only C) I and II D) I, III, and IV

A

Which of the following itemized deductions would be adjustments to regular taxable income in arriving at alternative minimum taxable income (AMTI)? I. Casualty losses II. State income taxes paid III. Standard deduction IV. Charitable donation made to the local university A) II and III B) I and III C) I and IV D) II, III, and IV

D

Which of the following statements regarding charitable deductions by corporations is CORRECT? I. The corporate statutes of most states permit corporations to make charitable contributions, and the Tax Code permits a charitable deduction for contributions by a corporation. II. The charitable deduction is limited to a maximum of 20% of the corporation's adjusted taxable income. In the event the contribution is in excess of 20% of the corporation's adjusted taxable income, the balance can be carried forward for up to five years. A) II only B) Both I and II C) Neither I nor II D) I only

A

Which of the following statements regarding home equity loan interest paid by a couple who files an income tax return as married filing jointly is NOT correct? A) Home equity loan interest is not deductible. B) Interest paid on up to $750,000 of a loan amount may be deductible depending on the indebtedness satisfying certain rules. C) Interest paid on all debt secured by the residence, to the extent it does not exceed the fair market value of the residence minus any acquisition indebtedness, is deductible but limited to a maximum nonacquisition debt amount of $750,000 when used for either acquisition of the home or its substantial improvement. D) The home equity loan must be secured by a residence mortgage.

B

Which of the following statements regarding the alternative minimum tax (AMT) or AMT planning are CORRECT? I. The AMT reduces the tax benefits from certain types of deductions and tax preferences allowable for regular income tax purposes. II. The starting point for determining alternative minimum taxable income (AMTI) is AGI as reported for regular income tax purposes. III. It is generally advantageous to defer the payment of real estate taxes to a future year when AMT will be paid in the current year. IV. It is generally advantageous to accelerate ordinary income into years when AMT will be paid. A) III and IV B) I, III, and IV C) I, II, and IV D) I and III

D

Which of the following statements regarding the alternative minimum tax is CORRECT? I. If the regular income tax after credits equals or exceeds the individual AMT, then no individual AMT payment is required. II. If the regular income tax after credits is less than the individual AMT, then the AMT is not due. A) II only B) Both I and II C) Neither I nor II D) I only

A

Which of the following statements regarding the kiddie tax is CORRECT? I. The kiddie tax provision limits income shifting by preventing families from transferring large amounts of unearned income to children and making the shift effective for income tax purposes. II. If a child under the age of 19 has unearned income above a specified amount, the excess is taxed at the parents' marginal tax rates for the year, rather than at the child's marginal rate. A) Both I and II B) I only C) II only D) Neither I nor II

D

Which of the following tax preference items are used in calculating the alternative minimum tax (AMT) for an individual? I. Tax-exempt income from a State of Louisiana general obligation municipal bond II. Percentage depletion in excess of basis on a mining property III. Tax-exempt interest on a private-activity bond issued in 2012 IV. Exclusion of gain on the sale of certain qualified small business corporation stock A) I, II, III, and IV B) I, II, and III C) I only D) II, III, and IV

C

Which of the following who do not maintain a household for a dependent must use the single filing status? A) Legally separated taxpayer B) Unmarried taxpayer C) All of these D) Divorced taxpayer

A

Which of the following would be a planning strategy to limit the imposition of the alternative minimum tax in a given tax year? I. Avoid purchasing most private-activity bonds. II. Move deductions into an AMT year. III. Move income into a non-AMT year. A) I only B) II only C) I and III D) II and III

A

Which of these charitable contributions is NOT deductible on Mary's 2022 income tax return? A) A pledge made on December 31, 2022, to pay the United Way $50 before April 15, 2023. B) A contribution charged to her credit card October 10, 2022, which she did not pay until the end of 2022. C) A contribution charged to her credit card on December 10, 2022, even though she did not pay the bill until January 2023. D) All of these are not deductible.

B

Which one of the following can be a qualifying relative? A) Only lineal descendants living in the taxpayer's principal home during the year, and the taxpayer provided at least 50% of their income B) Only related persons living in the taxpayer's principal home during the year, and the taxpayer provided at least 50% of their income C) Anyone who lived in the taxpayer's principal home during the year, and the taxpayer provided at least 50% of their income D) Only a qualifying child

A

Which one of the following is NOT an adjustment to income? A) Qualified adoption expenses B) Alimony payments applicable to pre-12/31/18 decrees C) Qualified education interest D) Self-employed health insurance deductions

B

Which one of the following is allowable in the computation of total income? A) Net capital losses of up to $5,000 B) Loss from a sole proprietorship C) Tax credits D) Charitable contributions

A

Which one of the following is not a social objective of the federal taxation system? A) Revenue raising B) Support of charitable organizations C) Preservation of our nation's historical buildings D) Relief for certain child care expenses

D

Which one of the following reflects the CORRECT sequence of steps in the tax calculation process? A) AGI minus standard or itemized deduction(s) equals total income. B) AGI minus adjustments to income equals federal taxable income. C) Add tax credits to tax liability to get total tax liability. D) Total income minus adjustments to income and standard or itemized deduction(s) equals federal taxable income.

B

Which one of the following reflects the CORRECT sequence of steps in the tax calculation process? A) Total income minus standard or itemized deduction(s) equals AGI. B) Total income minus adjustments to income equals AGI. C) AGI minus adjustments to income equals federal taxable income. D) Calculate federal tax on total income.

B

Which one of the following statements is true regarding self-employment taxes? A) Self-employed taxpayers are subject to employer withholding. B) A taxpayer is allowed to deduct one-half of his self-employment tax liability as an adjustment to income. C) The wage base is not adjusted annually for cost of living increases. D) Net earnings from self-employment must be calculated under the accrual method of accounting.

A

Which one of the following steps is CORRECT concerning the tax calculation process? A) Total tax liability minus withholding and/or estimated tax payments equals refund or tax owed. B) Employment eligibility is submitted via Form W4. C) Tax liability plus tax credits equals refund or tax owed. D) Total tax liability plus additional taxes owed equals total tax liability.

B

Which one of the following steps occur in the tax calculation process? A) Total tax liability equals refund or tax owed B) Tax liability minus tax credits equals refund or tax owed C) Total withholding is adjusted on Form I-9 D) Total tax liability minus tax credits and plus additional taxes owed, equals total tax liability

D

Which one of the following steps occurs in the tax calculation process? A) Total withholding is adjusted on Form I-9 B) Total tax liability minus itemized deductions plus additional taxes owed, equals total tax liability C) Total tax liability equals refund or tax owed D) Tax liability minus tax credits equals refund or tax owed

A

Your client has a small business that is operated as a sole proprietorship. He is considering employing his 15-year-old son in the family business. The child, who has no other income, will provide services such as dusting, sweeping, and vacuuming. Which of the following is CORRECT with respect to the wages paid to the son? I. Because there is no valid business purpose for the son's employment, the wages would not be deductible. II. Because the wages are paid to a family member under the age of 18, they are not subject to FICA. III. Any wages paid to the son in excess of $2,300 annually are subject to tax at the parental rate. IV. Up to $12,950 of wages could be received free of income taxes by the son. A) II and IV B) I and III C) I only D) II and III

C

Your client, Hal Meyer, will receive a deductible loss of $15,100 from a working oil and gas interest. Hal is in a 35% marginal income tax bracket and has asked you the approximate amount of tax savings that this will generate. What is the approximate amount, if any, of tax savings generated by this loss? A) $15,600 B) $0 C) $5,200 D) $10,400

D

Your clients, Joseph and Jane, have read many articles in financial publications about the alternative minimum tax (AMT) and are concerned that some of their investments and activities may cause AMT problems. Which of the following are preference items or adjustments for purposes of the individual AMT? I. Interest from qualified private-activity municipal bonds issued in 2008 II. Bargain element on the exercise of an incentive stock option III. Excess of percentage depletion over the property's adjusted basis IV. Cost depletion deductions A) I, II, III, and IV B) II, III, and IV C) I and IV D) I, II, and III