exam 1

Which of the following self-employed taxpayers are most likely permitted to deduct the cost of their work apparel? a. A butcher who wears stainless steel safety gloves b. A furnace repairman who must wear overalls while on the job c. A nurse who can wear casual clothes while on duty d. A lawyer who wears a business suit

a. A butcher who wears stainless steel safety gloves

Which of the following sales results in a short-term gain/loss? a. A capital asset bought on May 30, 2022, and sold May 20, 2023 b. A capital asset bought on August 15, 2022, and sold August 16, 2023 c. A capital asset bought on April 25, 2022, and sold August 19, 2023 d. A capital asset bought on September 12, 2016, and sold August 19, 2023

a. A capital asset bought on May 30, 2022, and sold May 20, 2023 Assets must be held for more than 1 year for the gain or loss to be considered long-term.

Which of the following fringe benefits can be offered to only executives and remain excluded from employee gross income? a. Parking b. De minimis cafeteria provided meals c. Employee discounts d. Group term life insurance up to $50,000

a. Parking. As a transportation fringe, parking can be offered to only highly compensated employees.

Which of the following can be used to offset a passive loss? a. Passive income such as income from a limited partnership b. Pension income c. Dividend income from stock held as an investment d. Active income such as wages

a. Passive income such as income from a limited partnership

Heather drives her minivan 792 miles for business purposes in 2023. She elects to use the standard mileage rate for her auto expense deduction. Her deduction will be (Round to the nearest dollar.) a. $515 b. $519 c. $506 d. $560 e. $553

b. $519

Kyle is a self-employed accountant who pays $2,000 for business meals provided by a restaurant. How much of a deduction can he claim for the meals, and where should the deduction be claimed? a. 100%, miscellaneous itemized deduction b. 100%, Schedule C deduction c. 50%, miscellaneous itemized deduction d. 50%, Schedule C deduction

d. 50%, Schedule C deduction Business meals provided by a restaurant are 50% deductible in 2023.

Lupita dies in 2023 but has a $1 million life insurance policy that lists her spouse, M'Baku, as the beneficiary. M'Baku elects to receive all $1 million in a lump sum and spends $200,000 immediately on a new yacht. M'Baku's gross income from the life insurance is: a. $0. b. $200,000. c. $1,000,000. d. $800,000.

a. $0. Life insurance proceeds are generally not taxable to the beneficiary. Life insurance proceeds are excluded from gross income based on the premise that it would be inappropriate in a time of need to tax the proceeds from a life insurance policy. Therefore, a major exclusion from gross income is provided for life insurance proceeds. However, to be excluded certain requirements must be met.

Roshawn purchased a house 20 years ago for $100,000 and he has always lived in the house. Three years ago Roshawn married Karen, and she has lived in the house since their marriage. If they sell Roshawn's house in December 2023 for $425,000, what is their taxable gain on a joint tax return? a. $0 b. $75,000 c. $250,000 d. $125,000

a. $0

Acacia Company had inventory of $300,000 on December 31, 2023. Other information is as follows: Purchases $1,500,000 Sales 1,800,000 Inventory, 1/1/2023 500,000 What is the amount of Acacia's cost of goods sold for 2023? a. $1,700,000 b. $2,000,000 c. $1,800,000 d. $1,600,000

a. $1,700,000 $500,000 + $1,500,000 − $300,000

Martin sells a stock investment for $26,000 on August 2, 2023. Martin's adjusted basis in the stock is $15,000. a. If Martin acquired the stock on November 15, 2021, calculate the amount and the nature of the gain or loss. b. If Martin had acquired the stock on September 10, 2022, calculate the amount and nature of the gain or loss.

a. $11,000 ; long-term capital gain b. $11,000 ; short-term capital gain

In December 2023, Benjamin and Laila (married filing jointly) have a long-term capital gain of $55,000 on the sale of stock held for 4 years. They have no other capital gains and losses for the year. After the standard deduction, their ordinary income for the year, before the capital gain, is $70,000, making their total income for the year $125,000. In 2023, married taxpayers who file jointly pay tax of $7,989 on the first $70,000 of ordinary taxable income and 15% on long-term capital gains above $89,250. What is their total tax liability? a. $13,351.50 b. $18,750.00 c. $16,239.00 d. $7,989.00

a. $13,351.50 $7,989 + (15% × $35,750)

Makena has a net capital loss of $17,000 and other ordinary taxable income of $45,000 for the current year. What is the amount of Makena's capital loss carryforward? a. $14,000 b. $17,000 c. $0 d. $10,000

a. $14,000 $17,000 − $3,000

Jaye purchased a building for $100,000. After deducting depreciation of $12,000 through the date of sale, Jaye sells the building for $120,000. What is Jaye's adjusted basis for computing realized gain or loss? a. $88,000 b. $100,000 c. $108,000 d. $120,000

a. $88,000

Maylin has a net operating loss in 2023. What is the earliest year to which Maylin can carry back or carry forward the net operating loss? a. 2024 b. 2018 c. 2025 d. 2019

a. 2024 A 2023 net operating loss may not be carried back (only forward) but can be used the next year.

In 2023, what is the top tax rate for individual long-term capital gains and the top tax rate for long-term capital gains of collectible items assuming that the net investment income tax does not apply? a. 20; 28 b. 15; 25 c. 10; 20 d. 25; 28

a. 20; 28

Ned has active modified adjusted gross income before passive losses of $160,000. He has a loss of $15,000 on rental property he actively manages. How much of the loss is he allowed to deduct against his other income? a. None b. $15,000 c. $10,000 d. $5,000

a. None Ned's AGI is $160,000 which is over the phase-out maximum threshold of $150,000; thus, he may not deduct any of his passive loss against nonpassive income.

Demarcus and Becca file jointly. They have taxable income of $69,000 in 2023 (before considering any capital gains or losses). They have a long-term capital gain of $28,000 and a long-term capital loss of $17,000 on sales of stock during the current year. What will their capital gains tax be for the current year? a. $0 b. $2,200 c. $4,200 d. $1,650

a. $0 0% × ($28,000 − $17,000) Long-term capital gains rates are 0% up to $89,250 for taxpayers who are married and filing jointly in 2023.

Debbie bought her home 15 years ago for $60,000. Three years ago, Debbie married Nia, and she moved into the same house and has lived there since. If they sell their house in the current year for $340,000, what is their taxable gain on a joint tax return? a. $0 b. $280,000 c. $30,000 d. $155,000

a. $0 Realized gain of $280,000 ($340,000 − $60,000). Gain exclusion for married filing jointly is up to $500,000.

Tao, a single taxpayer, receives $500 of qualified dividends from Green Mobil in the current year. His taxable income before the dividends is $26,000. Tao's tax on the dividends will be _____. a. $0 b. $75 c. $100 d. $25

a. $0. In 2023, for single taxpayers with income below $44,625, the qualifying dividend rate is 0%.

Under the cash method, which of the following is one of the three options for treating inventory for a small business? a. Treat inventory as non-incidental materials and supplies. b. Treat inventory as a business investment. c. Treat inventory as a capitalized asset. d. Treat inventory as a deductible expense.

a. Treat inventory as non-incidental materials and supplies.

Ernest received the following distributions from Virginiana Mutual Fund for the calendar year 2023: Ordinary dividends ($320) Capital gain distributions (145) Nontaxable distributions (95) Emma, Ernest's wife, did not own any of the Virginiana Mutual Fund shares, but she did receive $1,475 in interest on a savings account at the Moss National Bank and $175 in interest on California municipal bonds. Ernest and Emma filed a joint income tax return for 2023. What amount is reportable as taxable interest income? a. $1,650 b. $1,475 c. $0 d. $175

b. $1,475

Sanjay died on January 15, 2014, and left his spouse, Piper, an insurance policy with a face value of $100,000. Piper elected to receive the proceeds over a 10-year period ($10,000 plus interest each year). This year, Piper receives $11,500 ($10,000 proceeds plus $1,500 interest) from the insurance company. How much income must Piper report from this payment? a. $0 b. $1,500 c. $500 d. $11,500

b. $1,500 The proceeds of the policy are tax-exempt, but the interest earned is taxable.

A 67-year-old taxpayer retires this year and receives the first payment on a qualified annuity that was purchased several years ago. The taxpayer's investment in the annuity is $94,500, and the annuity pays $1,000 per month for the remainder of the taxpayer's life. Based on IRS mortality tables, the taxpayer is expected to live another 20 years. If the taxpayer receives $4,000 in annuity payments in the current year, the nontaxable portion calculated using the simplified method is: a. $4,000. b. $1,800. c. $1,500. d. $0. e. Some other amount.

b. $1,800. When taxpayers consider retirement, they often purchase annuities. An annuity is a type of investment in which the taxpayer purchases the right to receive periodic payments for the remainder of his or her life. The amount of each periodic payment is based on the annuity purchase price and the life expectancy of the annuitant. Standard mortality tables, based on the current age of the annuitant, are used to calculate the annuity amount. Individual taxpayers must generally use the simplified method to calculate the taxable and nontaxable amount from an annuity starting after November 18, 1996. To calculate non-taxable portion of the payment, the simplified method is used. Please note the answer only requires completing the Simplified Worksheet to Line 5 as this is the non-taxable portion of the annuity payment. Continuing to Line 9 calculates the taxable portion.

Agnes passes away in 2023 and leaves her child, Sam, 100 shares of stock. Agnes purchased the stock for $1,000 over 25 years ago. It was worth $10,000 on the date of Agnes' death. Sam sells the stock a short time later for $10,500. What is the basis of the stock for computing Sam's realized gain or loss? a. $1,000 b. $10,000 c. $10,500 d. Some other amount

b. $10,000

Abran is a 19-year-old full-time student at Claremont College and is a candidate for a bachelor's degree. During 2023, he received the following amounts: Tuition scholarship ($2,400) Loan from college financial aid office (1,000) Cash support from parents (2,000) Ordinary cash dividend(200) Cash prize awarded from a contest (300) What is his adjusted gross income for 2023? a. $300 b. $500 c. $2,300 d. $2,500

b. $500

Which of the following expenses, incurred while on travel, does not qualify as a travel expense? a. Tips b. Gift purchased for a prospective customer ($20) c. Dinner at a steak house d. Dry cleaning of suit

b. Gift purchased for a prospective customer ($20)

Indicate which of the following statements is true. a. Public transportation may be covered by an employer-provided spending account, but parking cannot be covered. b. Health care flexible spending accounts can be used to cover dentist fees. c. Dependent care accounts may include day care but not preschool. d. Dependent care plans can only be used to cover the costs of caring for a dependent child.

b. Health care flexible spending accounts can be used to cover dentist fees.

Helen loans her son Ricky, $25,000 to help with the purchase of investments and personal expenses. Due to her affection for her son, Helen charges Ricky zero interest. Which of these statements best describes the result of this below-market loan? a. Ricky will have interest income since he is better off by not having to pay interest. b. Helen will have interest income and an offsetting gift to Ricky. c. Helen will have interest expense since she has out the interest she could have earned. d. Ricky will have interest income.

b. Helen will have interest income and an offsetting gift to Ricky. The below market loan creates deemed interest income for the lender.

In the current year, Mary started a profitable housekeeping business as a sole proprietor. She has 10 housekeepers working for her and spends her time selling their services and coordinating her employees' time. Mary made $50,000 in her first year of operations. In addition to filing a Schedule C to report her business earnings, Mary must also file: a. Schedule B. b. Schedule F. c. Schedule SE. d. Schedule A. e. None of these choices are correct.

c. Schedule SE.

In the current year, Jaslyn started a profitable bookkeeping business as a sole proprietor. Jaslyn made $38,000 in her first year of operation. What two forms must Jaslyn file for her business? a. Schedules B and C b. Schedules A and C c. Schedules SE and C d. Schedules D and E

c. Schedules SE and C

Which of the following expenses incurred while the taxpayer is away from home "overnight" is not included as a travel expense? a. Transportation expenses b. Lodging expenses c. Meal expenses d. Business gifts e. Laundry expenses

d. Business gifts

On September 22, 2023, Jerry purchases a corporate bond. The bond pays interest every six months on June 30 and December 31 of each year. On December 31, 2023, Jerry receives an interest payment of $400. The amount of interest Jerry will need to include in gross income is: a. None of the below. b. More than $400. c. Exactly $400. d. Less than $400.

d. Less than $400. Jerry can reduce the interest payment by interest accrued and paid to the seller.

Oscar, a single taxpayer, sells his residence of the last 10 years in January of 2023 for $190,000. Oscar's basis in the residence is $45,000, and his selling expenses are $11,000. If Oscar does not buy a new residence, what is the taxable gain on the sale of his residence? a. $134,000 b. $45,000 c. $145,000 d. $9,000 e. $0

e. $0

Which of the following is not deductible by the self-employed taxpayer? a. A subscription to Financial Management by a financial planner b. A subscription to The CPA Journal by a CPA c. A subscription to The Harvard Law Review by a lawyer d. A subscription to The Yale Medical Journal by a doctor e. All of these subscriptions listed are deductible

e. All of these subscriptions listed are deductible

Nomi is in the highest individual tax bracket (37 percent) and receives $375 in qualified dividends from Omega Corp. Nomi's tax liability (not including any net investment income tax) with respect to these dividends is: a. $0. b. $277.20. c. $50.00. d. $100.00. e. $75.00.

::e. $75.00. For years, experts have argued that corporate dividends are taxed twice, once when the corporation pays tax on profits, and once when the dividend is received by the shareholder. To provide some tax relief for individual taxpayers who receive corporate dividends, the tax rates on qualifying dividends are at reduced rates. Dividends are qualifying if the stock is held for a certain amount of time (generally 60 days) and the dividend is issued by a U.S. corporation. Dividends are a type of distribution paid to a shareholder by a corporation. Taxpayers may receive the following types of distributions from a corporation: 1. Ordinary dividends 2. Nontaxable distributions 3. Capital gain distributions Ordinary dividends are by far the most common type of corporate distribution. They are paid from the earnings and profits of the corporation. Dividends are qualifying (for the purpose of special tax rates) if the stock is held for a certain amount of time (generally 60 days) and the dividend is issued by a U.S. corporation. If the ordinary dividends are not qualifying dividends, then instead of being taxed at the lower capital gains rate, they will be taxed at the ordinary income rate. To provide some tax relief for individual taxpayers who receive corporate dividends, the tax rates on qualifying dividends are as follows: income level (qualified dividends and long-term capital gain rates) married filing jointly: $0-$89,250 (0%) $89,251-$553,850 (15%) > $553,850 (20%) single: $0-$44,625 (0%) $44,626-$492,300 (15%) > $492,300 (20%) Head of household: $0-$59,750 (0%) $59,751-$523,050 (15%) > $523,050 (20%) Married filing separately $0-$44,625 (0%) $44,626-$276,900 (15%) > $276,900 (20%)

Which of the following would result in life insurance proceeds that are taxable to the recipient? a. A life insurance policy in which the insured is the daughter of the taxpayer and the beneficiary is the taxpayer b. A life insurance policy transferred by a shareholder to a corporation c. A life insurance policy transferred to a creditor in payment of a debt d. A life insurance policy purchased by a taxpayer insuring their business partner

d. A life insurance policy purchased by a taxpayer insuring their business partner

Which of the following is correct regarding reporting and taxable entities? a. A corporation is a reporting entity but not a taxable entity. b. A partnership is a taxable entity and a reporting entity. c. An individual is a reporting entity but not a taxable entity. d. A partnership is a reporting entity but not a taxable entity.

d. A partnership is a reporting entity but not a taxable entity. Individuals and corporations must report and are taxed, whereas partnerships only report but are not taxed (the partners are taxed separately on their share of the partnership's income, gains, deductions, and losses).

Which of the following is a capital asset? a. Business inventory b. Copyright created by the taxpayer c. Accounts receivable d. A taxpayer's residence e. Copyright (held by the writer)

d. A taxpayer's residence

Which of the following would not result in a business expense deduction for a self-employed taxpayer's uniforms or special clothing? a. A mascot buys their costume. b. A scientist buys their hazmat suit. c. A clown buys their costume. d. A traveling salesperson buys a new coat.

d. A traveling salesperson buys a new coat.

Which of the following is accurate if an employer chooses a per diem method of substantiation for travel expenses? a. The high-low method averages the high-cost locality and low-cost locality per diem rates to arrive at an average rate. b. The employer does not need to use an accountable plan for reimbursing employees for travel expenses. c. The regular federal rate method allows employees the same per diem rate no matter where they travel in the United States. d. Any per diem method still requires the taxpayer to provide actual cost records for lodging expenses.

d. Any per diem method still requires the taxpayer to provide actual cost records for lodging expenses.

Which of the following expenses is generally deductible in the year incurred? a. Political contributions b. Illegal bribes or kickbacks c. Capital expenditures for land and buildings d. Continuing legal training for a practicing professional attorney

d. Continuing legal training for a practicing professional attorney

To calculate the number of days in the holding period, a taxpayer should: a. Exclude the date of disposition. b. Include the date of acquisition. c. Include the date of acquisition and disposition. d. Exclude the date of acquisition.

d. Exclude the date of acquisition.

Juan, 45 years old and unmarried, contributed $1,000 monthly in 2023 to the support of his parents' household. The parents lived alone, and their income for 2023 consisted of $500 from dividends and interest. What is Juan's filing status, and how many dependents should he claim on his 2023 tax return? a. Single and two dependents b. Single and no dependents c. Head of household and no dependents d. Head of household and two dependents

d. Head of household and two dependents Unlike other dependents, parents are not required to live with their children for the taxpayer to claim head of household status.

Angela's spouse died in 2020. She has two dependent children, and she pays the entire cost to maintain her home. What is Angela's most advantageous filing status in the current year? a. Surviving spouse b. Single c. Married filing jointly d. Head of household

d. Head of household. Death of spouse is more than 2 years ago; thus, surviving spouse is not available.

Anthony is a marine biologist who spends months living on a boat in the ocean studying the impact of runoff water a hundred miles off the coast as a part of his job. Which of the following sentences is the most accurate? a. The fuel used to power the boat is excluded from his income, but his meals are included. b. Lodging is included in his income, but meals may be excluded. c. He may exclude meals from his income, but not the fuel used to power the boat. d. His meals, lodging, and cost of fuel are all excluded from his income.

d. His meals, lodging, and cost of fuel are all excluded from his income. Meals and lodging were provided at the convenience of the employer. Additionally, Anthony could not reasonably return home each night. And the costs to operate the workplace (i.e., the fuel) are not taxable income.

Which of the following is not a capital asset to an individual taxpayer? a. A 48-foot sailboat b. Raw land held as an investment c. Stocks d. Inventory in the taxpayer's business e. All of these responses are capital assets

d. Inventory in the taxpayer's business. A capital gain or loss arises from the sale or exchange of a capital asset. In general, a capital asset is any property (either personal or investment) held by a taxpayer, with certain exceptions as listed in the tax law. Examples of capital assets include stocks, bonds, land, cars, boats, and other items held as investments or for personal use. Inventory and accounts receivable are not capital assets. When a taxpayer sells an asset, there is normally a gain or loss on the transaction. Depending on the type of asset sold, this gain or loss will have different tax consequences. Gains and losses can be either ordinary or capital. Ordinary gains and losses are treated for tax purposes just like other items of income such as salaries and interest, and they are taxed at ordinary rates. Capital gains and losses receive special tax treatment.

Employer-provided spending accounts ______. a. are not allowed for dependent care b. may be set up for tax-free vacation savings c. do not require that the employee provide receipts for the expenses incurred d. allow qualifying expenses to be treated as tax-free reductions in the employee salaries

d. allow qualifying expenses to be treated as tax-free reductions in the employee salaries

To arrive at adjusted gross income (AGI), deduct _________ from gross income. a. the qualified business income deduction b. from AGI deductions c. the greater of the standard deduction or itemized deductions d. for AGI deductions

d. for AGI deductions. For AGI adjustments are deducted to get to AGI.

Box 12 of Form W-2 is used for which of the following? a. State wages, tips, etc. b. Tax withheld from wages during the year c. Various amounts that may have affected Box 1 wages d. Taxpayer identification numbers for the employee's dependents

c. Various amounts that may have affected Box 1 wages Box 12 is used to provide additional information about the taxpayer's compensation, such as contributions to 401(k) plans, employer-provided health care, and contributions to a health savings account.

Which of the following is classified as nontaxable income in 2023? a. Unemployment compensation b. Dividend income c. Welfare payments d. Income from real estate rental property

c. Welfare payments

Juanita rents her vacation condo for 120 days and uses the condo for herself for 20 days. What allocation percentage will Juanita apply to the condo's operating expenses (for example, insurance, utilities, etc.) to compute the rental portion under the IRS allocation method? a. 32.8 percent (120/365) b. 5.4 percent (20/365) c. 38.4 percent (140/365) d. 85.7 percent (120/140)

d. 85.7 percent (120/140)

Which of the following fringe benefits is taxable to the employee receiving the benefit? a. Incidental use of the company's copier by an office worker b. A small discount on toys granted to the salesperson for a toy store c. A subscription to a tax journal provided by the employer to a corporation's tax accountant d. A 15% discount on investment real estate granted to the employee of a real estate developer

d. A 15% discount on investment real estate granted to the employee of a real estate developer

Of the following taxpayers, which may not deduct their educational expense? a. An independent real estate broker who attends a college course on real estate law b. A self-employed attorney who attends a course on computing legal damages c. An independent sales representative who attends a customer relations course at a local university d. A CPA who attends a course to review for the real estate agents' exam e. All of these choices are deductible

d. A CPA who attends a course to review for the real estate agents' exam

Jay works at the Springfield Nuclear Plant as a nuclear technician. The plant is located 15 miles from the town of Springfield. Jay eats his lunch at the plant's cafeteria because he is required to be available for nuclear emergencies during his shift. No other eating establishments are located near the plant. Jay estimates the value of the meals he was provided during the current year as $1,300. He estimates the cost for him to have prepared those lunches for himself as about $560. The cost of the meals to the power company was $470. How much income does Jay need to recognize from the meals? a. $470 b. $830 ($1,300 − $470) c. $560 d. $1,300 e. Some other amount

e. Some other amount. If certain tests are met, employers may exclude the value of meals from an employee's taxable income. The exclusion is granted for any meals furnished by the employer for the convenience of the employer, if the meals are furnished on the business premises of the employer during working hours because the taxpayer must be available for emergency calls or the employer limits the employee to short meal periods. The value of meals provided by the employer in other situations, and cash allowances for meals, must be included in the employee's gross income. Therefore, Jay recognizes no income from the meals.

During 2023, Tom sold GM stock for $10,000. The stock was purchased 4 years ago for $13,000. Tom also sold Ford Motor Company bonds for $35,000. The bonds were purchased 2 months ago for $30,000. Home Depot stock, purchased 2 years ago for $1,000, was sold by Tom for $2,500. Calculate Tom's net gain or loss, and indicate the nature of the gain or loss.

$3,500 ; net short-term capital gain

Wanda is a single 50-year-old taxpayer with no dependents. Her only 2023 income is $42,500 of wages. Calculate her taxable income and her tax liability assuming no tax credits. Table for the standard deduction Filing Status (Standard Deduction) Single ($13,850) Married, filing jointly (27,700) Married, filing separately (13,850) Head of household (20,800) Surviving spouse (27,700)

Taxable income: $28,650 Tax liability: $3,221 The calculation of taxable income begins with gross income then deductions to arrive at adjusted gross income (AGI). Understanding the formula is important since all tax determinations are based on the result.The formula is: Gross Income - Deductions for Adjusted Gross Income = Adjusted Gross Income - Greater of Itemized Deductions or the Standard Deduction - Qualified Business Income Deduction = Taxable Income x Tax Rate (using appropriate tax tables or rate schedules) = Gross Tax Liability -Tax credits and Prepayments =Tax Due or Refund Adjusted gross income: 42,500 Less: standard deduction: (13,850) = Taxable income: 28,650 = Tax liability: 3,221

Joyce purchased General Electric stock four years ago for $10,000. In the current year, she sells the stock for $25,000. What is Joyce's gain or loss? a. $15,000 long-term gain b. $15,000 ordinary loss c. $15,000 short-term gain d. $15,000 extraordinary gain e. No gain or loss is recognized on this transaction

a. $15,000 long-term gain. Gain of $15,000 ($25,000 amount realized less $10,000 adjusted basis) has been held for more than 12 months, thus is considered long-term. When a taxpayer sells an asset, there is normally a gain or loss on the transaction. Depending on the kind of asset sold and when it is sold, this gain or loss will have different tax consequences. Gains and losses can be either ordinary or capital. The amount of gain or loss realized by a taxpayer is determined by subtracting the adjusted basis of the asset from the amount realized.

If a taxpayer has beginning inventory of $45,000, purchases of $175,000, and ending inventory of $25,000, what is the amount of the cost of goods sold for the current year? a. $195,000 b. $175,000 c. $180,000 d. $155,000 e. None of these choices are correct.

a. $195,000

Roberto is a single taxpayer who has AGI of $145,000 in 2023; his taxable income is $122,000. What is his federal tax liability for 2023? a. $22,680 b. $16,290 c. $21,437 d. $29,280

a. $22,680 $16,290 + [($122,000 − $95,375) × 24%] = $22,680

For the current year, Sabrina has salary income of $20,000. In addition, she reported the following capital transactions during the year: Long-term capital gain $7,000 Short-term capital gain 3,000 Long-term capital loss (2,000) Short-term capital loss (5,000) No other items were included in her gross income. What is the amount of her adjusted gross income for the current year? a. $23,000 b. $19,000 c. $24,000 d. $25,000

a. $23,000 $20,000 + ($7,000 − $2,000 long-term) + ($3,000 − $5,000 short-term)

Stone Pine Corporation, a calendar year taxpayer, has ending inventory of $150,000 on December 31, 2023. During the year 2023, the corporation purchased additional inventory of $375,000. If cost of goods sold for 2023 is $470,000, what was the beginning inventory on January 1, 2023? a. $245,000 b. $255,000 c. $55,000 d. $310,000

a. $245,000 $470,000 − $375,000 + $150,000

Elliot and Karmen are married. For 2023, Elliot earned $35,000 and Karmen earned $40,000. They have decided to file separate returns. They have no deductions for adjusted gross income. Karmen's itemized deductions are $15,600 so she is going to itemize. Elliot's itemized deductions are $4,750. Assuming Elliot and Karmen do not live in a community property state, what is Elliot's taxable income? a. $30,250 b. $15,600 c. $24,400 d. $21,150

a. $30,250 ($35,000 − $4,750). When married filing separately, if one spouse itemizes, then both spouses must itemize (the same is true if using the standard deduction).

For the current tax year, Morgan had $25,000 of ordinary income. In addition, they had a $1,700 long-term capital loss and a $1,600 short-term capital loss. What will be the amount of Morgan's capital loss carryforward to the next year? a. $300 b. $3,300 c. $0 d. $1,700

a. $300 $1,700 + $1,600 − $3,000

In the current year, Marc, a single taxpayer, has ordinary income of $35,000. In addition, he has $3,000 in short-term capital gains, short-term capital losses of $8,000, and long-term capital gains of $1,000. What is Marc's adjusted gross income (AGI) for the current year? a. $32,000 b. $39,000 c. $34,000 d. $36,000

a. $32,000 $35,000 ordinary income − $3,000 [($3,000 − $8,000 + $1,000) limited to a $3,000 deduction]

Nia owns a small dress store. During the year, Nia gave business gifts to the following individuals, with the costs as indicated: Ms. Green (a customer) $37 plus $3 shipping Mr. Green (nonclient husband of Ms. Green) $10 Ms. Brown (a customer) $22 What is the amount of Nia's deduction for business gifts? a. $50 b. $53 c. $62 d. $0

a. $50 $25 limit + $3 + $22

In 2023, Alexandria is a single mother with a 17-year-old dependent child. Alexandria's adjusted gross income in 2023 is $78,000. What is the total amount of Alexandria's child tax credit and other dependent credit? a. $500 b. $2,500 c. $2,000 d. $0

a. $500. Must be age 16 or under for child tax credit.

Carey, a single taxpayer, purchased a rental house in 2023, which she actively manages. During 2023, Carey had a loss of $14,000 from the rental house. If Carey's adjusted gross income for 2023 is $138,000 before the rental loss, what is the amount of Carey's allowable deduction for the rental activity for 2023? a. $6,000 b. $12,000 c. $0 d. $3,000

a. $6,000 50% × ($150,000 − $138,000)

During the current year holiday season, Bob, a barber, gave business gifts to 34 customers. The values of the gifts, which were not of a promotional nature, were as follows: 10 at $10 each 8 at $25 each 8 at $50 each 8 at $100 each For the current year, what is the amount of Bob's business gift deduction? a. $700 b. $0 c. $1,500 d. $850

a. $700 (10 × $10) + (24 × $25 limit)

Which of the following gifts would probably be taxable to the person receiving the gift? a. A car given to a loyal employee by her supervisor when she retired to recognize her faithful service b. An acre of land given to a taxpayer by a friend c. An interest in a partnership given to a taxpayer by his or her uncle d. A Mercedes-Benz given to a taxpayer by his cousin e. One thousand dollars given to a taxpayer by his or her father

a. A car given to a loyal employee by her supervisor when she retired to recognize her faithful service. Transfers from employers to employees are almost always taxable. Taxpayers are allowed to exclude from income the fair market value of gifts and inheritances received, but income received from the property after such a transfer is generally taxable. Tax problems arise regarding the definition of what constitutes a gift. The courts define a gift as a voluntary transfer of property without adequate consideration.

Which of the following business gifts are fully deductible? a. A gift to an employee, for 10 years of continued service, that cost $250 b. A gift to an employee paid under a qualified plan, for not having an on-the-job injury for 25 years, that cost $1,650 c. A gift to a client and her nonclient spouse that cost $45 d. A gift to a client that cost $35 e. None of these choices are fully deductible

a. A gift to an employee, for 10 years of continued service, that cost $250

In which of the following cases may the employee exclude the meals and/or lodging from their taxable income? a. A headmaster at a boarding school is required to be on campus all night. b. A president of a major film studio receives a cash allowance to live in Beverly Hills. c. An employee has an option of dining in an all-expense paid employer-sponsored cafeteria or dining out of the office. d. A taxpayer lives rent-free at the property they manage even though the owner does not require the manager to live on site.

a. A headmaster at a boarding school is required to be on campus all night. Lodging or meals must be provided for the convenience of the employer in order to be excluded from gross income.

The definition of gross income in the tax law is: a. All income from whatever source derived. b. All items specifically listed as income in the tax law. c. All income from whatever source derived unless the income is earned illegally. d. All cash payments received for goods provided and services performed.

a. All income from whatever source derived. The definition of gross income as all income from whatever source derived is perhaps the most well-known definition in the tax law. Under this definition, unless there is an exception in the law, the U.S. government considers all income taxable. Therefore, prizes and awards, cash and noncash payments for goods and services, payments made in trade or "barter" (such as car repairs traded for tax preparation services), and illegal income not generally reported to the IRS are all still taxable income. Any noncash items must be included in gross income at the fair market value of the items received. The tax law provides that certain items of income are exempt from taxation; these items are referred to as exclusion.

Taxpayers who are blind get the benefit of: a. An additional amount added to their standard deduction. b. An additional amount added to their itemized deductions. c. An additional exemption. d. None of these choices are correct.

a. An additional amount added to their standard deduction. The TCJA eliminated the personal and dependency exemptions in lieu of a larger standard deduction. The standard deduction was placed in the tax law to provide relief for taxpayers with few itemized deductions. The following table provides the standard deduction amounts for 2023: Filing Status (Standard Deduction) Single ($13,850) Married, filing jointly (27,700) Married, filing separately (13,850) Head of household (20,800) Surviving spouse (27,700) Taxpayers who are 65 years of age or older or blind are entitled to an additional standard deduction amount. For 2023, the additional standard deduction amount is $1,850 for unmarried taxpayers and $1,500 for married taxpayers and qualifying widows or widowers. Taxpayers who are both at least 65 years old and blind are entitled to two additional standard deduction amounts. The additional standard deduction amounts are also available for the taxpayer's spouse, but not for dependents. An individual is considered blind for purposes of receiving an additional standard deduction if: - Central visual acuity does not exceed 20/200 in the better eye with correcting lenses, or - Visual acuity is greater than 20/200 but is limited to a field of vision not greater than 20 degrees.

ch 1 exam start Which of the following is a goal of the tax law? a. Encouraging certain social goals such as contributions to charity b. Supporting certain economic goals such as increasing unemployment c. Encouraging smaller families d. Promoting goodwill with other countries

a. Encouraging certain social goals such as contributions to charity

Which of the following forms may be filed by individual taxpayers? a. Form 1040 b. Form 1041 c. Form 1120 d. Form 1065

a. Form 1040 Form 1041 is for trusts, Form 1065 is for partnerships, and Form 1120 is for corporations.

On which of these would capital gain income be reported? a. Form 1040 b. Schedule 1 c. Schedule 2 d. Schedule 3

a. Form 1040. The most familiar taxable entity is the individual. Taxable income for individuals generally includes income from all sources such as wages, salaries, self-employment earnings, rents, interest, and dividends. Individual taxpayers file Form 1040. In previous years, Forms 1040EZ and 1040A were also available. The Form 1040 has been simplified. Capital gains and losses are transferred from Schedule D to line 7 of Form 1040. Some of the more complex lines of the old Form 1040 now appear on a series of Schedules (1-3) that are attached to Form 1040. The schedules are as follows: Schedule (Primary Purpose) 1 - Additional forms of income other than wages, interest, dividends, distributions from qualified retirement plans such as IRAs and pensions, and Social Security benefits. Schedule 1 also reports many of the deductions for adjusted gross income. 2 - Additional taxes beyond the basic income tax such as the alternative minimum tax, self-employment taxes, household employment taxes, and repayments of the advance premium tax credit. 3 - Credits and other payments other than withholding including educational credits, the credit for child and dependent care, excess Social Security taxes withheld, and the net premium tax credit. Note that wages are still reported on Form 1040, line 1.

State income tax withholding is reported on: a. Form W-2 in Box 17. b. Form W-4. c. Each state has a unique reporting form. d. Form W-2S.

a. Form W-2 in Box 17. State income tax withheld is reported in Box 17 of Form W-2.

ch 4 exam start Which of the following is true about capital assets? a. Gains and losses on capital assets are classified as either short-term or long-term. b. Section 1231 assets are also considered capital assets. c. Inventory and accounts receivable are examples of capital assets. d. Real property used in a trade or business is a capital asset.

a. Gains and losses on capital assets are classified as either short-term or long-term.

Which of the following is considered a capital asset? a. Inventory held by a manufacturer b. A townhouse owned by a taxpayer as a primary residence c. Accounts receivable held by a dentist d. Depreciable property and real estate used in a trade or business

b. A townhouse owned by a taxpayer as a primary residence

The expenses associated with the rental of a residence used for both personal and rental purposes are subject to three possible tax treatments. Which of the following is not included as one of the three? a. If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10% of the days rented, whichever is greater, the residence is treated as a personal residence for tax purposes. b. If the residence is rented for 15 days or more and is used for personal purposes for more than 14 days or 10% of the days rented, whichever is greater, allocable rental expenses are allowed only to the extent of rental income. c. *same as a*, the residence is treated as rental property. d. If a residence is rented for fewer than 15 days during the year, the rental period is disregarded and the residence is regarded as a personal residence for tax purposes.

a. If the residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10% of the days rented, whichever is greater, the residence is treated as a personal residence for tax purposes.

Which of the following statements is correct regarding deductions? a. In order to be deductible, dues and subscriptions must be related to the taxpayer's occupation. b. If a financial planner becomes certified, Certified Financial Planner (CFP) dues are not deductible because it is not necessary to be certified in order to engage in the business of being a financial planner. c. If a taxpayer does a lot of business travel, the taxpayer may deduct the amount paid for an airline club membership. d. Membership dues to a golf club are deductible as long as there is a business purpose.

a. In order to be deductible, dues and subscriptions must be related to the taxpayer's occupation.

In 2023, which of the following is excluded from taxable income to the recipient? a. Inheritances b. Salaries c. Estate and trust income d. Royalties

a. Inheritances

Which of the following is likely a deductible business educational expense? a. Leah is a self-employed tax preparer. The State Board of Taxation requires Leah to attend federal and state taxation training each year to maintain her tax preparation license. b. Mike is an auto mechanic. He decides he wants to be a high school math teacher, but the state Department of Education requires Mike to earn a bachelor's degree in education. c. John teaches European History at Ridgemont High School. In order to better understand the material he teaches, John takes a summer trip with American Geographic magazine to tour Western Europe. d. Becca is an auto mechanic. She sees that the local community college is offering courses in jet engine repair which would prepare her to work for one of the airlines. Becca would like to work for an airline because they let employees fly for free.

a. Leah is a self-employed tax preparer. The State Board of Taxation requires Leah to attend federal and state taxation training each year to maintain her tax preparation license.

Which of the following is generally excluded from gross income? a. Life insurance proceeds b. Dividends c. Retirement pay d. Rewards

a. Life insurance proceeds Life insurance proceeds paid to the beneficiary of the policy are generally tax free.

Air Suppliers Inc. provides group term insurance to all its employees for policies up to $250,000. Michelle, an Air Suppliers employee, has a $100,000 policy. The cost of the policy is $50 per month, all of which is paid by Air Suppliers. Which of the following best describes how much gross income Michelle will recognize for this employee benefit? a. Michelle will recognize gross income for the value of the life insurance above $50,000. b. Michelle must recognize the annual cost of the policy ($600) as gross income. c. Michelle will recognize no gross income. d. Michelle will recognize no gross income but if she dies, the beneficiary will pay taxes on the life insurance benefits paid.

a. Michelle will recognize gross income for the value of the life insurance above $50,000. Group-term life up to $50,000 is excluded.

Jim, a single taxpayer, bought his home 25 years ago for $25,000. He has lived in the home continuously since he purchased it. In 2023, he sells his home for $300,000. What is Jim's taxable gain on the sale? a. $125,000 b. $25,000 c. $275,000 d. $0

b. $25,000

Which of the following is excludable as an employee fringe benefit? a. Public transportation costs of $1,000 per year provided by the employer b. An employee discount that permits the sale of merchandise to employees for just under cost c. Employee deductions of $5,200 for dependent child care expenses d. Premiums for up to $75,000 of group term life insurance

a. Public transportation costs of $1,000 per year provided by the employer The excludable amount for transportation is $300 per month. The total amount of dependent care benefits may not exceed $5,000. Life insurance is limited to $50,000. For merchandise, the exclusion is limited to the employer's gross markup on the goods.

Which of the following is not a test for the deductibility of a business expense? a. Sales generation test b. Reasonableness test c. Ordinary and necessary test d. Business purpose test

a. Sales generation test

Maribel runs a small business from her home. She has expenses of $2,000 per year and uses the cash-basis method of accounting. Her only employee is her cousin who works for her part time. What form should she use to report her business income? a. Schedule C b. Schedule F c. Schedule D d. Schedule A

a. Schedule C Schedule C is used to report the net profit or loss from a sole proprietorship.

Which of the following is included in gross income? a. Scholarships for room and board b. Gifts c. Rental allowance received by clergy d. Health insurance proceeds e. Loans

a. Scholarships for room and board. Scholarships used to pay for room and board are not considered excludable.

Which of the following is considered a capital asset? a. Securities held for investment b. Depreciable property used in a business c. An invention patented by the inventor d. Copyright held by the author

a. Securities held for investment

Which of the following is true about capital gains? a. Short-term capital gains are offset first by short-term capital losses. b. Net long-term capital gains are offset by short-term capital gains. c. Long-term capital gains are never taxed. d. Short-term capital gains are subject to special tax treatment.

a. Short-term capital gains are offset first by short-term capital losses.

Which of the following is a test for deductibility of business expenses? a. The expense must have a legitimate business purpose. b. The expense must be pre-approved by the senior manager. c. The expense must be above what an employee would reasonably be expected to pay. d. The expense must be lavish and extravagant.

a. The expense must have a legitimate business purpose.

Under the high-low method, the federal per diem amount is a. The same for most cities but higher in certain locations. b. An average of the highest and lowest costs for that city. c. Different for every city in the U.S. d. The boundary for expenses incurred in a city (never higher than the high amount but never lower than the low amount). e. The same in every city in the U.S.

a. The same for most cities but higher in certain locations.

Which of the following would be considered a capital asset? a. A truck used in a taxpayer's business b. A taxpayer's principal residence c. Real estate held by a developer d. A literary work held by the author

b. A taxpayer's principal residence

Interest from which of the following types of bonds is included in federal taxable income? a. U.S. Treasury Bond b. City of New Orleans bond c. State of California bond d. Bond of the Commonwealth of Puerto Rico e. All of these bonds listed are excluded from income.

a. U.S. Treasury Bond. In 1913 when the Sixteenth Amendment was enacted, Congress questioned the constitutionality of taxing the interest earned on state and local government obligations. Congress provided an exclusion from taxpayers' income for the interest on such bonds. To qualify for the exclusion, the interest must be from an obligation of a state, territory, or possession of the United States, or a political subdivision of the foregoing or of the District of Columbia. For example, the State of California bonds, the City of New Orleans bonds, and bonds of the Commonwealth of Puerto Rico bonds qualify for the exclusion. Federal obligations, such as treasury bills and treasury bonds, do not qualify for the exclusion and therefore are taxable.

The current income tax system is: a. Used as a tool to promote social and economic policies as well as raise revenue. b. Not designed with social objectives in mind. c. Designed solely to raise money for the government. d. Authorized by the founding fathers when the government was formed. e. None of these choices are correct.

a. Used as a tool to promote social and economic policies as well as raise revenue. The income tax includes elements of social and economic policy.

An unmarried taxpayer who maintains a household for a dependent child and whose spouse died 4 years ago should file as _____. a. head of household b. single c. married filing separately d. surviving spouse

a. head of household

Warren invested in a limited partnership in 2015. During 2023, his losses from the partnership amount to $100,000. If Warren has no passive income, what is the amount of Warren's deduction for passive losses for 2023? a. $40,000 b. $0 c. $10,000 d. $20,000

b. $0 Passive losses may only be offset against passive income.

Donald and Michelle are divorced in the current year. As part of the divorce settlement, Michelle transfers a plot of land in Long Island, NY, to Donald. Michelle's basis in the property was $20,000 and the market value of the property was $250,000 when transferred. Donald holds the property through the end of the year in hopes of building a residence on it. How much income do Michelle and Donald recognize in the current year? a. $230,000 for Michelle and $20,000 for Donald b. $0 for both Michelle and Donald c. $230,000 for Michelle and $0 for Donald d. $0 for Michelle and $20,000 for Donald e. $0 for Michelle and $250,000 for Donald

b. $0 for both Michelle and Donald. The transfer of property in accordance with a divorce settlement does not trigger any immediate tax consequences to either party. The spouse who transfers property in settlement of a marital obligation is not required to recognize any gain as a result of the property's appreciation. However, the spouse who receives the property is required to assume the ex-spouse's basis in the property. This results in any gain or loss to be deferred until the receiving spouse disposes of the property.

Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2023. The gross rental income from the home is $43,500. For the entire year, real estate taxes are $2,200, interest is $3,000, and utilities and maintenance expenses are $2,500. What is Lester's allowable net loss from renting his vacation home? a. $4,200 loss b. $0 loss c. $3,850 loss d. $350 loss

b. $0 loss Lester's calculated loss is: Gross income $43,500 Real estate taxes (50% × $2,200) (1,100) Interest (50% × $3,000) (1,500) Utilities and maintenance (50% × $2,500) (1,250) Net rental loss (350) Because the home is classified as a vacation home that has both rental and personal use, expenses are only deductible to the extent of rental income. Therefore, there is no allowable net loss.

Serena, a married filing jointly taxpayer, has the following capital gains and losses in 2023: $4,000 short-term capital gain $2,000 short-term capital loss $2,000 long-term capital gains $8,000 long-term capital loss What is the amount and nature of Serena's net capital loss carryforward into 2024? a. $6,000 long-term loss carryforward b. $1,000 long-term loss carryforward c. $4,000 long-term loss carryforward d. $3,000 long-term loss carryforward

b. $1,000 long-term loss carryforward

Alex purchased a rental house four years ago for $270,000. Her depreciation at the time of the sale is $40,000. Due to a decrease in real estate prices, she sells the house for only $240,000 in 2023. What is her gain or loss for tax purposes? a. $10,000 loss b. $10,000 gain c. $0 d. $35,000 loss e. $25,000 gain

b. $10,000 gain. $10,000 = $240,000 - ($270,000 - $40,000). When a taxpayer sells an asset, there is normally a gain or loss on the transaction. Depending on the kind of asset sold and when it is sold, this gain or loss will have different tax consequences. Gains and losses can be either ordinary or capital. The amount of gain or loss realized by a taxpayer is determined by subtracting the adjusted basis of the asset from the amount realized.

Hannah purchased two rental properties 6 years ago. She actively participates in their management. During 2023, Hannah had income of $22,000 from one of the rentals. She had a loss from the other rental of $32,000, as well as salary income of $35,000, and dividend income of $2,000. What is Hannah's net passive income or loss deduction? a. $8,000 net loss b. $10,000 net loss c. $22,000 net loss d. $32,000 net loss

b. $10,000 net loss $22,000 − $32,000 Because Hannah actively participates and her AGI is less than $100,000, she can deduct a passive loss on her rental property up to $25,000.

Ren and Mina are divorced and under the terms of their written divorce agreement signed on December 30, 2016, Ren was required to pay Mina $1,500 per month of which $600 was designated as child support. He made 12 such payments in 2023. Additionally, Ren voluntarily paid Mina $1,200 per month for 12 months of 2023, no portion of which was designated as child support. Assuming that Mina has no other income, her tax return for 2023 should show gross income of _____. a. $7,200 b. $10,800 c. $0 d. $18,000

b. $10,800 12 × ($1,500 − $600)

Grady gives a watch to his nephew, Fred. Grady's original basis in the watch is $100 and the value of the watch on the date of the gift is $1,000. Fred keeps the watch for a year or two and then sells it for $1,200. What is Fred's basis in the watch for computing his realized gain or loss? a. $1,200. Fred's basis should result in no gain or loss on a gift property. b. $100. Grady's basis carries over to Fred. c. $0. It's a gift so Fred has no basis. d. $1,000. Fred takes basis as the market value on the date of the gift.

b. $100. Grady's basis carries over to Fred.

Kelly and Morgan have no dependents and file a joint income tax return for 2023. They have adjusted gross income (all wages) of $140,000 and itemized deductions of $30,000. What is the amount of taxable income that Kelly and Morgan must report on their 2023 income tax return? a. $119,200 b. $110,000 c. $112,300 d. $140,000

b. $110,000 Their itemized deductions are larger than the standard deduction, so they should itemize. ($140,000 − $30,000 = $110,000)

In November 2023, Ben and Betty (married, filing jointly) have a long-term capital gain of $54,000 on the sale of stock. They have no other capital gains and losses for the year. Their ordinary income for the year after the standard deduction is $72,500, making their total taxable income for the year $126,500 ($72,500 + $54,000). In 2023, married taxpayers pay 0 percent on long-term gains up to $89,250. What will be their 2023 total tax liability assuming a tax of $8,263 on the $72,500 of ordinary income? The tax rates on long-term capital gains are as follows: Income Level (Long-Term Capital Gains Rates) Married filing jointly $0-$89,250 (0%) $89,251-$553,850 (15%) > $553,850 (20%) a. $8,263 b. $13,851 c. $0 d. $16,363 e. $8,100

b. $13,851

Anthony purchased a tract of land for $35,000 in 2019 when he heard that a new shopping mall was going to be developed in the area and the land was projected to be worth $250,000. Anthony had been misinformed as a mall was never planned for that location. In 2023, Anthony sells the land for $15,000. Ignoring any limitations, Anthony can claim what loss in 2023? a. $215,000 b. $20,000 c. $200,000 d. $0

b. $20,000 $15,000 - $35,000 = $20,000 loss

Jessie purchased land as an investment on January 12, 2018, for $80,000. On January 31, 2023, Jessie sold the land for $33,000 cash. In addition, the purchaser assumed the mortgage of $70,000 on the land. What is the amount of the realized gain or loss on the sale? a. $47,000 loss b. $23,000 gain c. $15,000 gain d. $10,000 loss

b. $23,000 gain $33,000 + $70,000 − $80,000

In 2023, Paul, a single taxpayer, has taxable income of $30,000 exclusive of capital gains and losses. Paul incurred a $1,000 short-term capital loss and a $5,000 long-term capital loss. What is the amount of his long-term capital loss carryover to 2024? a. $5,000 b. $3,000 c. $0 d. $2,000

b. $3,000 $1,000 + $5,000 − $3,000

Zachary loaned a friend $4,000 to buy a used car. In the current year, Zachary's friend declares bankruptcy, and the debt is considered totally worthless. What amount may Zachary deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year? a. $2,000 short-term capital loss b. $3,000 short-term capital loss c. $4,000 ordinary loss d. $4,000 short-term capital loss

b. $3,000 short-term capital loss

In 2023, Values R Us, a real estate appraising firm, incurs the following meal expenses: $1,200 restaurant meals with business clients $1,600 for an end-of-year celebratory company dinner for all employees $400 for bagels once a month for all employees $300 for pre-packaged snacks offered to potential clients at a business fair $40 for non-restaurant travel snacks consumed by employees while on business travel $800 of restaurant meals consumed by employees while on business travel What is Values R Us' deductible meals expense in 2023? a. $4,340 b. $3,120 c. $2,770 d. $4,120

b. $3,120

John owns a second home in Palm Springs, CA. During the year, he rented the house for $5,000 for 56 days and used the house for 14 days during the summer. The house remained vacant during the remainder of the year. The expenses for the home included $5,000 in mortgage interest, $850 in property taxes, $900 for utilities and maintenance, and $3,500 of depreciation. What is John's deductible rental loss, before considering the passive loss limitations? a. $2,500 b. $3,200 c. $875 d. $200 e. $0

b. $3,200

In 2023, Hagos, a single taxpayer, has ordinary income of $33,000. In addition, he has $2,000 in short-term capital gains, long-term capital losses of $10,000, and long-term capital gains of $4,000. What is Hagos' AGI for 2023? a. $29,000 b. $30,000 c. $33,000 d. $27,000

b. $30,000

Huihana receives 4 tickets to the local professional football game for achieving 20 years of employment with her employer. The tickets cost the employer $390 and have a market value of the same on the date awarded. Huihana is in the highest tax bracket for single taxpayers. How much gross income will Huihana recognize on the receipt of the tickets? a. $25 b. $390 c. $200 d. $0 e. $50 or $59.50 including the net investment income tax

b. $390. Prizes and awards are taxable income to the recipient. Winnings from television or radio shows, door prizes, lotteries, and other contest winnings are income to taxpayers. In addition, all other awards are generally taxable, even if they are awards given for accomplishments and with no action on the part of the taxpayer. An exception is provided for certain employee achievement awards in the form of tangible personal property, such as a gold watch for 25 years of service. If the award is made in recognition of length of service or safety achievement, the value of the property may be excluded from income. Generally, the maximum amount excludable is $400. However, if the award is a "qualified plan award," the maximum exclusion is increased to $1,600. However, awards for superior performance on the job are not excluded. Although the tickets are given in recognition of length of service and the amount is less than $400, Huihana recognizes $390 income because the tickets are not considered tangible personal property.

Nicole is a student at USB Law School where she receives a $52,000 scholarship. Of the $52,000, $40,000 is used for tuition, $5,000 is used for books, and $7,000 is used for room and board. How much of the scholarship is excluded from taxable income for Nicole? a. $5,000 b. $45,000 c. $7,000 d. $47,000

b. $45,000 Scholarship amounts used for room and board are taxable to the recipient.

To pay for college, Harry received the following: $1,000 scholarship from the Thespian Club to pay for books $4,000 scholarship from the Elks Lodge for tuition $5,000 worth of room and board as a dorm supervisor through a work-study program How much income must Harry report on his tax return? a. $0 b. $5,000 c. $6,000 d. $4,000

b. $5,000

Veruca's employer offers both a dependent care flexible spending account (FSA) and a dependent care assistance program in which employees can receive occasional dependent care at no cost. In 2023, the maximum total amount Veruca can exclude from her gross income for both dependent care programs is: a. $2,850. b. $5,000. c. $10,000. d. $0.

b. $5,000. $5,000 limit in total.

Ramon, a single taxpayer with no dependents, has adjusted gross income for 2023 of $98,000 and his itemized deductions total $13,000. What taxable income will Ramon show in 2023? a. $89,000 b. $84,150 c. $74,950 d. $84,000 e. $85,000

b. $84,150. $84,150 = $98,000 - $13,850 (standard deduction is more than itemized deductions). Individual taxpayers calculate their tax in accordance with a tax formula. Understanding the formula is important, since all tax determinations are based on the result. In determining taxable income, take into consideration the greater of the standard deduction or itemized deductions as well as the qualified business income deduction.

Sheldon is 92 years old and in poor health. Clever investing earlier in his life has left him with a sizeable income. He therefore is able to support his son Paul. Paul is 67 years old and lives in a nursing home. Paul's income is less than $2,000. How many dependents should Sheldon claim on his tax return? a. 2 b. 1 c. 0 d. 3

b. 1

Which of the following tax forms are used by individuals in 2023? a. 1040A b. 1040-SR c. 1120 d. 1040-EZ

b. 1040-SR. The 1040A and 1040-EZ no longer exist and the 1120 is for corporations. The tax form for individuals underwent changes as part of the TCJA of 2017 (which took effect on January 1, 2018).

Which of the following prizes or awards is not taxable? a. A $100 gift card received as a prize in a raffle run by the local school parent-teacher organization b. Awards for superior performance on the job c. A crystal paperweight worth $125 given to an employee for achieving 10 years of service to the company. d. Prizes from a television game show e. All of these prizes or awards listed are taxable

b. A crystal paperweight worth $125 given to an employee for achieving 10 years of service to the company. Prizes and awards are taxable income to the recipient. Winnings from television or radio shows, door prizes, lotteries, and other contest winnings are income to taxpayers. In addition, all other awards are generally taxable, even if they are awards given for accomplishments and with no action on the part of the taxpayer. An exception is provided for certain employee achievement awards in the form of tangible personal property, such as a gold watch for 25 years of service. If the award is made in recognition of length of service or safety achievement, the value of the property may be excluded from income. Generally, the maximum amount excludable is $400. However, if the award is a "qualified plan award," the maximum exclusion is increased to $1,600. However, awards for superior performance on the job are not excluded. Therefore, a crystal paperweight worth $125 given to an employee for achieving 10 years of service to the company is not taxable.

Which of the following would be a business bad debt if it were uncollectible? a. A taxpayer loans the taxpayer's child $10,000 to purchase a rental house. b. A dentist, using the accrual basis of accounting, records income when it is earned and extends credit to a patient for services provided. c. A taxpayer loans the taxpayer's sibling $3,000 to purchase a truck for use in the sibling's business. d. A taxpayer loans the taxpayer's parent $1,000 to start a business.

b. A dentist, using the accrual basis of accounting, records income when it is earned and extends credit to a patient for services provided.

Which of the following taxpayers should use a method other than the standard mileage method of calculating transportation costs? a. A taxpayer who has a fleet of four business automobiles b. A financial manager who rents a $70,000 Mercedes to meet with clients c. An attorney who uses his Tesla for calling on clients d. A self-employed handyman who drives a truck with equipment to visit clients

b. A financial manager who rents a $70,000 Mercedes to meet with clients

Which of the following might result in life insurance proceeds that are taxable to the recipient? a. A life insurance policy purchased by a corporation insuring an officer b. A life insurance policy transferred to a creditor in payment of a debt c. A life insurance policy transferred by a partner to the partnership d. A life insurance policy in which the insured is the son of the taxpayer and the beneficiary is the taxpayer e. A life insurance policy purchased by a taxpayer insuring his or her spouse

b. A life insurance policy transferred to a creditor in payment of a debt. Life insurance proceeds are excluded from gross income based on the premise that it would be inappropriate in a time of need to tax the proceeds from a life insurance policy. Therefore, a major exclusion from gross income is provided for life insurance proceeds. To be excluded, the proceeds must be paid to the beneficiary by reason of the death of the insured. If the proceeds are taken over several years instead of a lump sum, the insurance company pays interest on the unpaid proceeds. The interest is generally taxable income. Early payouts of life insurance, also called accelerated death benefits or viatical settlements, are excluded from gross income for certain terminally or chronically ill taxpayers. The taxpayer may either collect an early payout from the insurance company or sell or assign the policy to a viatical settlement provider. If an insurance policy is transferred to another person for valuable consideration, all or a portion of the proceeds from the life insurance policy may be taxable to the recipient. For example, taxable proceeds result when a policy is transferred to a creditor in payment of a debt. When a transfer for value occurs, the proceeds at the death of the insured are taxable to the extent they exceed the cash surrender value of the policy at the time it was transferred, plus the amount of the insurance premiums paid by the purchaser.

Which of the following entities is not likely to be a tax-paying entity? a. A single taxpayer under the age of 65 b. A partnership c. A single taxpayer over the age of 65 d. A corporation

b. A partnership. A partnership is not generally a tax-paying entity.

Which of the following statements about business gift deductions is not true? a. Reasonable shipping costs do not count toward the $25 business gift limit. b. A taxpayer can provide two gifts to a client during the year and the maximum deduction is $50. c. A holiday gift from an employee to their supervisor is a non-deductible personal expense. d. Employee gifts for a significant number of years of service can exceed $25 and remain deductible.

b. A taxpayer can provide two gifts to a client during the year and the maximum deduction is $50.

Taxpayers who are 65 or older get the benefit of: a. An additional amount added to their itemized deductions. b. An additional amount added to their standard deduction. c. An additional exemption. d. None of these choices are correct.

b. An additional amount added to their standard deduction. The TCJA eliminated the personal and dependency exemptions in lieu of a larger standard deduction. The standard deduction was placed in the tax law to provide relief for taxpayers with few itemized deductions. The following table provides the standard deduction amounts for 2023: Filing Status (Standard Deduction) Single ($13,850) Married, filing jointly (27,700) Married, filing separately (13,850) Head of household (20,800) Surviving spouse (27,700) Taxpayers who are 65 years of age or older or blind are entitled to an additional standard deduction amount. For 2023, the additional standard deduction amount is $1,850 for unmarried taxpayers and $1,500 for married taxpayers and qualifying widows or widowers. Taxpayers who are both at least 65 years old and blind are entitled to two additional standard deduction amounts. The additional standard deduction amounts are also available for the taxpayer's spouse, but not for dependents.

Amir has a home office for his business as a literary agent. The business shows a loss of $2,000 before home office expenses. How should the home office expenses be treated? a. Because of the business loss, home office expenses cannot be deducted and are lost forever. b. Because of the business loss, home office expenses (other than mortgage interest and property taxes allocated to the office) cannot be deducted in the current year but can be carried forward to the next year. c. The home office expenses increase the business loss in the year they are incurred and are fully deductible in that year. d. The home office expenses increase the business loss in the year they are incurred and are 50% deductible in that year.

b. Because of the business loss, home office expenses (other than mortgage interest and property taxes allocated to the office) cannot be deducted in the current year but can be carried forward to the next year.

Which of the following is excluded from taxable income? a. Employee bonuses b. Child support payments c. Interest d. Notary fees

b. Child support payments Payments for child support are generally excluded from gross income.

Electronically-filed tax returns: a. Offer larger refunds than paper returns. b. Constitute over 90 percent of the returns filed with the IRS. c. Have error rates similar to paper returns. d. May not be transmitted from a taxpayer's home computer.

b. Constitute over 90 percent of the returns filed with the IRS. About 90% of returns are filed electronically. Electronic filing (e-filing) is the process of transmitting federal income tax return information to the IRS Service Center using a computer with Internet access.

Which of the following items incurred while on travel is not considered a travel expense? a. Cost of lodging b. Cost of entertaining clients c. Transportation costs d. Cost of meals

b. Cost of entertaining clients

In 2023, all of the following items are gross income to the taxpayer receiving them, except: a. Gains from illegal activities. b. Damages for personal injury. c. Gambling winnings. d. Hobby income. e. Embezzled funds.

b. Damages for personal injury. Damages paid for physical injury are not generally gross income. Gross income is the starting point for calculating a taxpayer's tax liability. The definition of gross income as "all income from whatever source derived" is perhaps the most well-known definition in the tax law. Under this definition, unless there is an exception in the law, the U.S. government considers all income taxable. Refer to Table 2.2, Exclusions from Gross Income, in the textbook.

All of the following are itemized deductions in 2023 except: a. Charitable contributions. b. Deductible IRA contributions. c. State and local taxes. d. Medical expenses. e. All of these choices are itemized deductions.

b. Deductible IRA contributions. The deduction for IRA contributions is a for AGI deduction.

Ellie is the sole proprietor of a small specialty store. The business records show that the cost of the store's individual inventory items has been steadily increasing. The cost of ending inventory is $125,000, and the cost of beginning inventory was $150,000. Ellie uses the LIFO method of inventory valuation. Which of the following statements is true? a. Since the cost of the store's inventory items is increasing, Ellie will have a smaller cost of goods sold amount on a LIFO basis than on a FIFO basis. b. Ellie would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method. c. Ellie purchased more inventory during the year than she sold during the same 1-year period. d. Ellie has apparently increased the volume of items in her ending inventory as compared to the number of items in her beginning inventory.

b. Ellie would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method.

Which of the following is correct regarding deductible expenses? a. The cost of a CPA exam review course is deductible by a bookkeeper on their Schedule C. b. Expenses for travel as a form of education are not deductible. c. Expenses required for education to maintain skills for the taxpayer's current business are not deductible. d. Education expenses are deductible on Schedule C even if the education qualifies the taxpayer for a new trade or business.

b. Expenses for travel as a form of education are not deductible.

In 2023, Wesley has a fairly simple tax situation with moderate wage income and a modest amount of interest income. Wesley, age 45, wishes to use the easiest possible tax form. He may file which of the following? a. Form 1065 b. Form 1040 c. Form 1040-EZ d. Form 1040-SR

b. Form 1040 Individual taxpayers under age 65 file a Form 1040, while those 65 or older file 1040-SR. Form 1040-EZ is no longer available.

Partnership income is reported on _____. a. Form 1040X b. Form 1065 c. Form 1120S d. Form 1040PTR

b. Form 1065

In which of the following situations may the taxpayer take an education expense on Schedule C? a. Brianna, a plumber by trade, is taking classes to qualify as an electrician so she may expand her business to take on more complex contractor jobs. b. Ivan, a self-employed administrative assistant, is taking an advanced computer skills class through an adult education program. c. Cari, a salesperson, is flying on numerous commercial airplanes in order to observe the flight attendants so that she may improve her public relations skills. d. Harrison, a host at a restaurant, is taking a review course in order to pass the certified financial planner examination.

b. Ivan, a self-employed administrative assistant, is taking an advanced computer skills class through an adult education program.

Yasmeen purchases stock on January 30, 2022. If she wishes to achieve a long-term holding period, what is the first date that she can sell the stock as a long-term gain? a. February 1, 2023 b. January 31, 2023 c. July 31, 2022 d. July 30, 2022 e. January 20, 2023

b. January 31, 2023

Which of the following will result in the recognition of gross income? a. Hannah purchases a new sofa from her employer, Sofas-R-Us, for $1,200. The cost of the sofa to the furniture store is $1,100 and the sofa normally sells for $1,700. b. Jayden's employer purchases his commuting pass for the subway at a cost of $325 per month. c. Gail's employer allows her to set aside $4,000 from her wages to cover the cost of daycare for Gail's 4-year-old daughter. Gail's daycare costs are $4,300 for the year. d. Havana is a lawyer. The law firm they work for pays their subscription to Lawyer's Weekly, a trade magazine for attorneys. e. None of these items listed will result in recognition of gross income.

b. Jayden's employer purchases his commuting pass for the subway at a cost of $325 per month. The tax law provides that all fringe benefits must be included in the employee's gross income, unless specifically excluded by law. The primary types of fringe benefits that may be excluded from gross income (assuming certain requirements are met and subject to limitations) include flexible spending accounts, group term life insurance, education assistance plans, no-additional-cost services, qualified employee discounts, working condition fringe benefits, de minimis fringe benefits, tuition reduction, athletic facilities, and retirement planning fringe benefit.

Sol purchased land as an investment on January 12, 2020, for $85,000. On January 31, 2023, Sol sold the land for $90,000 cash. What is the nature of the gain or loss? a. Short-term capital gain b. Long-term capital gain c. Short-term capital loss d. Long-term capital loss

b. Long-term capital gain A capital asset held for more than 12 months is considered long-term, and this property has a gain.

Angela's spouse died in 2023. She has no dependent children, but she pays the entire cost to maintain her home. What is Angela's most advantageous filing status in the current year? a. Head of household b. Married filing jointly c. Single d. Surviving spouse

b. Married filing jointly. Taxpayer may file married filing jointly in year of spouse's death.

During the current tax year, Anita was entirely supported by her four children, Dudley, Mel, Carlton, and Isidore, who provided support for her in the following percentages: Dudley 9% Mel 15% Carlton 25% Isidore 51% Which of the children may be allowed to claim Anita as a dependent, assuming a multiple support agreement exists? a. Dudley, Carlton, Mel, or Isidore b. Mel, Carlton, or Isidore c. Carlton or Isidore d. Only Isidore

b. Mel, Carlton, or Isidore If a dependent is supported by two or more individuals and a multiple support agreement is filed, any one member of the support group with over 10% support may claim to support the dependent.

ch 4 hw start Which of the following types of income is passive income? a. Dividends from domestic corporations b. Net rental income from real estate limited partnership investments c. Wages d. Interest income from certificates of deposit e. None of these choices are correct.

b. Net rental income from real estate limited partnership investments

Which of the following is not classified as portfolio income for tax purposes? a. Interest income on savings accounts b. Net rental income from real estate partnership c. Dividend income from stock d. Dividends paid from a credit union e. All of these choices are classified as portfolio income.

b. Net rental income from real estate partnership

Russell and Madalyn were divorced in 2014. Madalyn pays Russell alimony of $1,200 a month. The payment amount was agreed upon in the decree of divorce. To save money, Russell and Madalyn still live together. Are the alimony payments that Russell receives in 2023 included in his income? a. No, only some of it is tax-exempt because Madalyn pays Russell too much alimony. b. No, since Russell and Madalyn still live together, the payments are not considered alimony. c. Yes, alimony is always taxable. d. Yes, the payments meet all alimony payment requirements.

b. No, since Russell and Madalyn still live together, the payments are not considered alimony.

Which of the following transportation-related costs paid by an employer to or on behalf of an employee cannot be excluded from gross income? a. Providing bus passes to employees at a $20 discount b. Paying $10 per month for bicycle storage for employees that bike to work c. Paying the occasional ride-sharing fare for an employee that has worked overtime late into the evening d. Paying for the parking of only senior executives at a cost of $285 per month

b. Paying $10 per month for bicycle storage for employees that bike to work. The bicycle transportation fringe is suspended through 2025.

For an activity to be treated as a trade or business, which of the following is required? a. No more than intermittent effort toward the activity b. Regular and continual effort designed to seek profit c. Guaranteed generation of a profit d. Organization as a corporation or partnership

b. Regular and continual effort designed to seek profit

Which of the following is used to report capital gains and losses? a. Schedule A b. Schedule D c. Schedule B d. Schedule C

b. Schedule D Schedule A is used for itemized deductions, Schedule B is for interest and dividend income, Schedule C is for profit or loss from business, and Schedule D is used to report capital gains and losses.

Which of the following is excluded from gross income? a. Hobby income b. Scholarships for books c. Rents d. Clergy fees

b. Scholarships for books

Angel purchased property as an investment on May 11, 2022, for $63,000. On April 26, 2023, Angel sold the land for $97,000 cash. What is the nature of the gain or loss? a. Short-term capital loss b. Short-term capital gain c. Long-term capital gain d. Long-term capital loss

b. Short-term capital gain A capital asset held for 12 months or less is considered short-term.

Glenda, a single taxpayer from Kansas, paid for more than one-half of the support for her cousin, Dorothy. Dorothy did not live with Glenda in Kansas, but rather has lived in a nursing home in an adjacent state since Dorothy's husband died three years ago. Glenda's filing status should be: a. Married filing separately. b. Single. c. Surviving spouse. d. Head of household. e. Parental dependent.

b. Single. As a cousin, Dorothy must live with Glenda to be a qualifying person for head of household.

ch 3 exam start Splashy Fish allows qualified customers to purchase items on credit. During the current year, Sydney, the owner of the store, determines that $3,500 of accounts receivable are not collectible. Which of the following statements is true with respect to Splashy Fish's deduction for the uncollectible accounts receivable? a. Any deduction for the uncollectible accounts receivable will be treated as a short-term capital loss. b. Splashy Fish is not allowed a deduction for the uncollectible accounts if the income arising from the accounts has not been previously included in taxable income. c. Only $3,000 of the uncollectible accounts receivable may be deducted in the current year. d. None of the debit is deductible since Splashy Fish is not in the business of making loans, and this is considered a cost of doing business.

b. Splashy Fish is not allowed a deduction for the uncollectible accounts if the income arising from the accounts has not been previously included in taxable income.

During 2023, Howard maintained his home in which he and his 16-year-old son resided. The son qualifies as his dependent. Howard's wife died in 2022. What is his filing status for 2023? a. Head of household b. Surviving spouse c. Married filing separately d. Single

b. Surviving spouse

Joe is a self-employed information technology consultant from San Francisco. He takes a week-long trip to Chicago primarily for business. He takes 2 personal days to go to museums and see the sights of Chicago. How should he treat the expenses related to this trip? a. One hundred percent of the trip should be deducted as a business expense since the trip was primarily for business. b. The cost of all of the airfare and the business days should be deducted, while the cost of the personal days are not deductible. c. Half of the trip should be deducted as a business expense since the IRS limits such business expenses to 50 percent of the actual cost. d. None of the expenses are deductible since there was an element of personal enjoyment in the trip.

b. The cost of all of the airfare and the business days should be deducted, while the cost of the personal days are not deductible.

Mike is a self-employed computer game software designer. He takes a week-long trip to Maui, primarily for business. He takes 2 personal days at the beach. How should he treat the expenses related to this trip? a. None of the expenses are deductible since there was an element of personal enjoyment in the trip. b. The cost of all the airfare and the expenses related to the business days should be deducted, while the expenses related to the personal days are not deductible. c. One hundred percent of the trip should be deducted as a business expense since the trip was primarily for business. d. Fifty percent of the trip should be deducted as a business expense.

b. The cost of all the airfare and the expenses related to the business days should be deducted, while the expenses related to the personal days are not deductible.

If an individual taxpayer generates a net capital loss in excess of $3,000 in 2023: a. The loss can be carried back for three years and forward for five years. b. The loss can be carried forward indefinitely. c. The loss can be carried forward indefinitely but only offset 80 percent of a future year's capital gains. d. The loss can be carried back for two years and forward for 20 years.

b. The loss can be carried forward indefinitely.

Selma owns a beach cottage that she rents to tourists. In the current year, she rented the cottage for 90 days. What is the maximum number of days Selma can use the cottage before her expense deduction will be limited to her gross rental income? a. 0 days b. 18 days c. 14 days d. 9 days

c. 14 days

An investor is comparing the following two bonds: a bond from ABC Corp which pays an interest rate of 9% per year and a municipal bond which pays an interest rate of 7.9% per year. The investor is in the 22% tax bracket. Which bond will give the investor a higher after-tax interest rate and for which reason? a. The ABC bond because it pays an equivalent after-tax rate of 11.5%, while the municipal bond pays out an equivalent after-tax rate of 10.1% b. The municipal bond because it pays an equivalent after-tax rate of 7.9%, while the ABC bond pays out an after-tax 7.02% interest rate c. The municipal bond because it pays an equivalent after-tax rate of 7.9%, while the ABC bond pays out an equivalent after-tax rate of 2.0% d. The ABC bond because it pays a 9% interest rate, while the municipal bond only pays 7.9%

b. The municipal bond because it pays an equivalent after-tax rate of 7.9%, while the ABC bond pays out an after-tax 7.02% interest rate The equivalent after-tax rate on the ABC bond is 7.02% [9% × (1 − 0.22)]. The rate on the municipal bond is higher at 7.9%.

Which of the following is a true statement with respect to the gross income test for claiming a qualifying relative as a dependent? a. The gross income test does not have to be met provided the relative is under age 24 at the end of the tax year. b. The relative must receive less than $4,700 of gross income in order to qualify. c. The gross income test does not have to be met provided the relative is under age 19 at the end of the tax year. d. The gross income test does not have to be met provided the relative is a student.

b. The relative must receive less than $4,700 of gross income in order to qualify.

Which of the following is true regarding deductible transportation expenses? a. They include meals and lodging. b. They do not include the normal costs of commuting. c. They do not include transportation between the taxpayer's home and temporary work location. d. They include only costs incurred while out of town.

b. They do not include the normal costs of commuting.

Which of the following is true regarding passive losses? a. They are lost forever if not used in the year incurred. b. They often result from the rental of real estate. c. They may be used to offset portfolio income. d. They may not be used to offset passive income.

b. They often result from the rental of real estate.

In 2023, Schedule 1 of Form 1040 is used to report what? a. Withholding on wages b. Unemployment compensation c. Capital gains and losses d. Income from wages

b. Unemployment compensation

For the cost of special work clothing or uniforms to be deductible, _____. a. it must be required as a condition of the job, but can also be suitable for everyday use b. it must not be suitable for everyday use and must be required as a condition of the job c. it need not be required as a condition of the job, but must not be suitable for everyday use d. it need not be required as a condition of the job, but must be suitable for the job

b. it must not be suitable for everyday use and must be required as a condition of the job

Alec, whose wife died in 2021, filed a joint tax return for 2021. He did not remarry and continues to maintain his home in which his four dependent children live. In the preparation of his tax return for 2023, Alec should file as _____. a. head of household b. surviving spouse c. married filing separately d. single

b. surviving spouse Surviving spouse is available for 2 years after the year of death of the spouse.

Kemi, a single taxpayer, bought her home 25 years ago for $30,000. She has lived in the home continuously since she purchased it. In 2023, she sells her home for $200,000. What is Kemi's taxable gain on the sale? a. $250,000 b. $170,000 c. $0 d. $20,000

c. $0

Arnold purchased interests in two limited partnerships 6 years ago. During 2023, Arnold had income of $22,000 from one of the partnerships. He had a loss from the other partnership of $32,000, salary income of $35,000, and dividend income of $2,000. What amount of net passive losses may Arnold deduct for 2023? a. $10,000 b. $2,000 c. $0 d. $8,000

c. $0 Arnold may only offset his passive loss from one partnership with the passive income of the other partnership; thus, his taxable net loss is $0.

Daniel and Celia were divorced under an agreement executed on February 15, 2023. According to the agreement, Daniel must transfer his interest in a rental house, worth $250,000, to Celia. His tax basis in the house is $80,000. What amount of gain must Daniel recognize on the property transfer? After the transfer, what is Celia's tax basis in the property? a. $170,000 and $170,000 b. $0 and $250,000 c. $0 and $80,000 d. $170,000 and $250,000

c. $0 and $80,000

Jonathan rents his home for twelve days during the 2023 USA Cup of Soccer. Due to the popularity of the event, he earns $4,000 in rent. He spends $150 on a cleaning service immediately after the rental. He does not rent the home otherwise during the year. What is Jonathan's rental income and deductions from this short-term rental? a. $4,000 income and $5 (12/365 x $150) deduction b. $4,000 income and $150 deduction c. $0 income and $0 deduction d. $4,000 income and $0 deduction

c. $0 income and $0 deduction

Rebecca, a single taxpayer, owns a Series I U.S. Savings Bond that increased in value by $46 during the year. She makes no special election. How much income must Rebecca recognize this year? a. $46 b. $23 c. $0 d. $0 if in first 5 years or $46 thereafter

c. $0. Cash basis taxpayers report the increase in redemption value (interest) on a Series EE Bond or a Series I Bond using one of the following methods: 1. The interest may be reported in the year the bonds are cashed or in the year they mature, whichever is earlier (no election is required to use this method), or 2. The taxpayer may elect to report the increase in redemption value each year. If the taxpayer wants to change from method (1) to method (2), he or she may do so without the permission of the IRS. In the year of change, all interest earned to date and not previously reported must be reported on all Series EE Bonds and Series I Bonds held by the taxpayer. Once method (2) is selected, the taxpayer must continue to use it for all Series EE Bonds currently held or acquired in the future. Taxpayers cannot change back to method (1) without permission of the IRS. Since no election was made, interest is reported in the year the bonds are cashed or in the year they mature, whichever is earlier. Therefore, Rebecca recognizes no income this year.

In 2023, Jonah's employer pays $8,700 for health insurance premiums for Jonah, Jonah's spouse, and Jonah's three dependent children. Jonah has $100 per month withheld from his pay toward the cost as well. Jonah's employer covers the entire cost ($1,400 for the year) of Jonah's dental plan for his household. How much gross income will Jonah report from his employer's payments for his health and dental plan premiums? a. $10,100 b. $1,400 c. $0 d. $8,900

c. $0. Employer-paid health insurance (including dental) is excluded from gross income. The definition of gross income as "all income from whatever source derived" is perhaps the most well-known definition in the tax law. Under this definition, unless there is an exception in the law, the U.S. government considers all income taxable. Normally gifts, accident and health insurance, and meals and lodging are excludable from gross income if certain conditions are met.

Nancy has active modified adjusted gross income before passive losses of $120,000. She has a loss of $15,000 on a rental property she actively manages. How much of the loss is she allowed to deduct against the $120,000 of other income? a. None b. $5,000 c. $10,000 d. $2,500

c. $10,000 AGI = $120,000 − $100,000 = $20,000 excess over threshold; $20,000 × 50% = $10,000 of loss phased out leaving $10,000 of loss limitation. Actual loss of $15,000 is more than the $10,000 limit; thus, $10,000 of loss is permitted.

Helen, a single taxpayer, has modified adjusted gross income (before passive losses) of $126,000. During the tax year, Helen's rental house generated a loss of $15,000. Assuming Helen is actively involved in the management of the property, what is the amount of Helen's passive loss deduction from the rental house? a. $3,000 b. $0 c. $12,000 d. $10,000 e. $15,000

c. $12,000

Bob sells a stock investment for $35,000 cash, and the purchaser assumes Bob's $32,500 debt on the investment. The basis of Bob's stock investment is $55,000. What is the gain or loss realized on the sale? a. $10,000 gain b. $10,000 loss c. $12,500 gain d. $22,500 loss e. $22,500 gain

c. $12,500 gain

Ben is a single taxpayer with no dependents and is 32 years old. What is the minimum amount of income that he must have to be required to file a tax return for 2023? a. $1 b. $12,950 c. $13,850 d. $4,500 e. $1,250

c. $13,850. Ben's income would need to exceed the standard deduction to require filing a tax return. Several conditions must exist before a taxpayer is required to file a U.S. income tax return. These conditions primarily relate to the amount of the taxpayer's income and the taxpayer's filing status. If a taxpayer has any nontaxable income, the amount should be excluded in determining whether the taxpayer must file a return.

Marta, a single, 19-year-old, full-time student, is claimed as a dependent by her parents in 2023. She has earned income of $14,000 and unearned income of $130. What is Marta's 2023 standard deduction? a. $3,130 b. $0 c. $13,850 d. $3,400 e. $14,400

c. $13,850. Earned income plus $400, limited to the maximum standard deduction.

An asset has an original basis of $45,000, and depreciation has been claimed for the asset amounting to $20,000. If the asset's adjusted basis is $40,000, what is the amount of capital improvements that have been made to the asset? a. $5,000 b. $20,000 c. $15,000 d. $10,000

c. $15,000 $40,000 = $45,000 − $20,000 + X X = $15,000

Vijay sells land and receives $5,000 cash, a motorcycle worth $1,600, and two tickets to the Super Bowl with a total face value (cost) of $800 but worth $1,200. In addition, the buyer assumes the mortgage on the land of $12,000. What is Vijay's amount realized in this transaction? a. $20,200 b. $8,200 c. $19,800 d. $5,000 e. $7,800

c. $19,800

Hassan is the owner of a house with two identical apartments. He resides in one apartment and rents the other apartment to a tenant. The tenant made timely monthly rental payments of $550 per month for the months of January through December 2023. The following expenses were incurred on the entire building: Utilities $3,600 Maintenance and repairs 900 Insurance 500 In addition, depreciation allocable to the rented apartment is $1,500. What amount should Hassan report as net rental income for 2023? a. $100 b. $1,400 c. $2,600 d. $0

c. $2,600 (12 × $550) − [50% × ($3,600 + $900 + $500)] − $1,500 = $2,600

Harold, a single taxpayer, has $30,000 of ordinary income after the standard deduction, and $10,000 in long-term capital gains, for total taxable income of $40,000. For 2023, single taxpayers pay 0 percent on long-term gains up to $44,625. Assuming a tax of $3,383 on the $30,000 of ordinary income, what is Harold's total income tax? The tax rates on long-term capital gains are as follows: Income Level (Long-Term Capital Gains Rates) Married filing jointly $0-$89,250 (0%) $89,251-$553,850 (15%) > $553,850 (20%) a. $1,500 b. $4,094 c. $3,383 d. $4,898 e. $3,398

c. $3,383

Piper is a business owner who is trying to determine their cost of goods sold for the current year. They bought 20 units of inventory at $11, then 26 units at $10, and finally 18 units at $14. They sold 30 units at an average price of $16 per unit during the current year and used FIFO for their inventory valuation. What was their cost of goods sold in the current year, assuming that there was no inventory at the beginning of the year? a. $330 b. $732 c. $320 d. $480

c. $320 (20 × $11) + (10 × $10)

Mort is the owner of an apartment building containing 10 identical apartments. Mort resides in one apartment and rents out the remaining units. For 2023, the following information is available: Gross rents $110,600 Utilities for total building 25,000 Maintenance and repairs (rental apartments only) 10,500 Advertising for vacant apartments 3,000 Depreciation of building (all 10 units) 40,000 What amount should Mort report as net rental income for 2023? a. $32,100 b. $39,950 c. $38,600 d. $35,000

c. $38,600 Gross rents $110,600 Less direct expenses Advertising 3,000 Allocated Costs Maintenance 10,500 Utilities ($25,000 x 90%) 22,500 Depreciation ($40,000 x 90%) 36,000 = Net rental income $38,600

Ivy and Taio were granted a divorce in 2016. In accordance with the decree, Taio made the following payments to Ivy in 2023:Child support payments contingent on the age of the child$6,000Indefinite periodic payments terminating on Ivy's death4,000How much of the payments can Taio deduct as alimony in 2023? a. $6,000 b. $10,000 c. $4,000 d. $0

c. $4,000

Valary is single, 82 years old, and blind. She is claimed as a dependent by her daughter and spouse, who file jointly. Valary has no earned income but did receive $3,800 of investment (unearned) income in 2023. What is her filing threshold for the current year and is she required to file a tax return? a. $13,850 of earned income and thus not required to file b. $400 of self-employment income and thus required to file c. $4,950 of unearned income and thus not required to file d. $1,250 of unearned income and thus required to file

c. $4,950 of unearned income and thus not required to file. Single dependent over 65 and blind threshold is $4,950 for unearned income.

Dorit, a single taxpayer, has a long-term capital loss of $7,000 on the sale of bonds in 2023 and no other capital gains or losses. Her taxable income without this transaction is $43,000. What is her taxable income considering this capital loss? a. $55,000 b. $36,000 c. $40,000 d. $43,000 e. Some other amount

c. $40,000. $43,000 − $3,000. Net capital losses of up to $3,000 may be deducted from ordinary income per year for individual taxpayers. Any unused capital loss is carried forward. When a taxpayer sells an asset, there is normally a gain or loss on the transaction. Depending on the kind of asset sold, this gain or loss will have different tax consequences. When calculating capital gain or loss, the taxpayer must net all capital asset transactions to determine the nature of the final gain or loss. If an individual taxpayer ends up with a net capital loss, only a certain amount per year can be deducted against ordinary income.

Kelly receives a $40,000 scholarship to Ivy University. She uses $35,000 on tuition and books and $5,000 for rent while at school. How much gross income will Kelly recognize, if any? a. $0 b. $10,000 c. $5,000 d. $40,000 e. $30,000

c. $5,000. Scholarships used for room and board are not excludable.

Thelma works at a retail store in 2023 and makes $44,000. She also has dividend income of $12,000 and interest income of $1,000. She owns a beach house that gives her $11,000 in net rental income, and she owns a stake in a limited partnership that generates a $15,000 loss. What is her adjusted gross income in 2023? a. $45,000 b. $69,000 c. $57,000 d. $58,000

c. $57,000 $44,000 + $12,000 + $1,000 + $11,000 − $11,000 (partnership loss limited to rental income)

As a year-end thank you for being a good employee, A-One TV Repair gave 62-year-old Aneesha three shares of its stock worth $20 per share. Aneesha then received dividends of $1 per share related to the stock. How much should be included in Aneesha's gross income? a. $3 b. $60 c. $63 d. $0

c. $63 Gifts from an employer are almost always taxable income unless a service award meets certain requirements. The income earned from gifted assets is also income.

Carlos bought a building for $110,000 in 2019. He added an addition to the building for $26,000 in 2020. In 2023, he sold it for $209,000. What was his long-term capital gain (ignoring depreciation)? a. $26,000 b. $99,000 c. $73,000 d. $0

c. $73,000 $209,000 - ($110,000 + $26,000)

In 2023, Yui, a single mother, redeems Series EE bonds and uses the total proceeds ($6,700 par value and $1,300 interest) to pay for her daughter's college education. If Yui's 2023 AGI is $75,000, how much of the proceeds from the redemption of the EE bonds can she exclude? a. $1,300 b. $6,700 c. $8,000 d. $0

c. $8,000. None of the redemption value is taxable.

Sera is a small business owner who often gives gifts to clients. She gives a $40 gift to a client and their spouse. Sera spent $6 to wrap the gift. She also gave out 400 calendars with her company name on them. Each calendar costs $1. Sera also gave her secretary a $370 watch for their 10 years of service. How much of the above expenses may she deduct? a. $795 b. $446 c. $801 d. $816

c. $801 $25 limit + $6 + (400 × $1) + $370

Tiana owns a condo by the lake that she rents to tourists. In the current year, she rented the condo for 180 days. What is the maximum number of days Tiana can use the condo before her expense deduction will be limited to her gross rental income? a. 14 days b. 9 days c. 18 days d. 0 days

c. 18 days

Greg, a self-employed plumber, commutes from his home to his office which is 10 miles away. At his office, he loads his truck for the day with the parts that he needs. Then he is off to see his first customer of the day, the Smiths. The Smiths are 5 miles away from the office. After the job at the Smiths', Greg goes to his next plumbing client, Happy Dry Cleaning, which is 21 miles away from the Smiths' home. Greg spends the rest of the day at Happy Dry Cleaning. From Happy Dry Cleaning, Greg goes home which is now only 7 miles away. How much can Greg count as deductible transportation miles? a. None of it. b. 43 miles c. 26 miles d. 21 miles

c. 26 miles (5 miles + 21 miles). The trip to and from home is considered nondeductible commuting.

Which of the following taxpayers is exempt from having to file a tax return for 2023? a. Married taxpayers (ages 45 and 50 years), filing jointly, with income of $29,000 b. A 22-year-old student with unearned income of $2,500 who is claimed as a dependent by her parents c. A 67-year-old surviving spouse with a dependent child and income of $18,900 d. A single taxpayer who is under age 65, with income of $14,500

c. A 67-year-old surviving spouse with a dependent child and income of $18,900 a. Income is above the filing threshold of $13,850. b. Income is above the filing threshold of $27,700. c. Unearned income exceeds the $1,250 limit. d. Income is below the filing threshold of $29,200 ($27,700 + $1,500).

Which of the following gifts or prizes would be considered taxable income to the person receiving the gift? a. $5,000 given to the taxpayer by their friend b. A Mustang GT given to the taxpayer by their brother c. A ski boat won by the taxpayer on a game show d. A mobile home given to the taxpayer by their mother

c. A ski boat won by the taxpayer on a game show Gifts are generally not considered gross income.

Which of the following statements related to standard and itemized deductions is correct? a. A taxpayer may only deduct the lower of itemized deductions or the standard deduction. b. Itemized deductions are only available to corporate taxpayers. c. A taxpayer may deduct the greater of itemized deductions or the standard deduction. d. The standard deduction is the same for all tax filing statuses but itemized deductions may differ.

c. A taxpayer may deduct the greater of itemized deductions or the standard deduction. The larger of the two may be deducted.

Which taxpayer would benefit the most from a tax-free municipal bond compared to a taxable bond? a. The average low-income worker b. A taxpayer whose only income is from Social Security c. A taxpayer who won a mega-million-dollar lottery d. All taxpayers equally benefit from the tax-free municipal bond.

c. A taxpayer who won a mega-million-dollar lottery Higher income generally leads to higher tax rates which lowers the after-tax return on a taxable bond.

What is reported on Schedule 2? a. Adjustments to income b. Additional income c. Additional taxes d. Itemized deductions

c. Additional taxes Additional income and adjustments to income are reported on Schedule 1, additional taxes are reported on Schedule 2, and itemized deductions are reported on Schedule A.

Which of the following taxpayers may use the standard mileage method of calculating transportation costs? a. A taxi driver who owns a fleet of six cars for hire b. A taxpayer who used accelerated depreciation on their automobile c. An attorney who uses their European sports car for calling on clients d. A business executive who claimed bonus depreciation in the first year she used the car e. None of these choices are correct.

c. An attorney who uses their European sports car for calling on clients

Kayla owns a home on the beach in Daytona. She lives in the house for most of the year but leaves town during the popular motor sports race that comes through every year. During that time, she rents her home out for 14 days to race fans for $5,000. a. The house is designated as being used for rental/personal use, and Kayla can deduct rental expenses up to the amt of rental income. b. Kayla did not rent the house for a long enough period of time to deduct a percentage of expenses such as utilities and depreciation on the home. rental income is taxable. c. Because Kayla rents the house for such a short period of time, the rental income is not taxable and she may not deduct a percentage of expenses such as utilities and depreciation on the home. d. Because Kayla rented the home for more than 10 days, she must report the income. She is also allowed to deduct a percentage of expenses such as utilities and depreciation

c. Because Kayla rents the house for such a short period of time, the rental income is not taxable and she may not deduct a percentage of expenses such as utilities and depreciation on the home.

Which of the following is true when determining the adjusted basis of a capital asset at the time of its sale? a. Accumulated depreciation is added to the basis. b. The basis does not include the owner's title insurance related to the purchase. c. Capital improvements are added to the basis. d. Ordinary repairs reduce the adjusted basis.

c. Capital improvements are added to the basis.

Which of the following provisions was passed by Congress to meet a social goal of the tax law? a. Moving expense deduction for adjusted gross income b. Deduction for soil and water conservation costs available to farmers c. Child and dependent care credit d. Deduction for job hunting expenses

c. Child and dependent care credit Deductions for job hunting expenses, moving expenses, and soil and water conservation costs for farmers are related to economic goals.

When completing a tax return for a client claiming head of household filing status, a tax preparer must: a. Obtain and keep copies of the taxpayer and any dependents state issued ID or birth certificate. b. Observe the existence of the dependent either in-person or over a video-conferencing platform. c. Complete Form 8867 and attach to the tax return. d. Obtain and keep copies of the taxpayer and any dependents state issued ID or birth certificate AND Complete Form 8867 and attach to the tax return.

c. Complete Form 8867 and attach to the tax return. Form 8867 must be completed and filed.

If a per diem method is not used, which of the following items is required as substantiation for the deduction of a travel expense? a. Names of all clients met with b. Accumulated expenditure for airfare and lodging c. Departure and return dates d. Classification of the destination as high- or low-cost

c. Departure and return dates

Which of the following is correct? a. Employee discounts are always included in gross income. b. Tax-free employee discounts include discounts in lines of business in which the employee does not work. c. Employee discounts are not tax-free if they exceed the employer's gross markup for merchandise. d. Employee discounts of up to 20% may be taken on personal property held for investment.

c. Employee discounts are not tax-free if they exceed the employer's gross markup for merchandise.

Typically a partnership reports its taxable income or loss on: a. Form 1040. b. Form 1120. c. Form 1065. d. Form 1040X.

c. Form 1065. Partnerships use Form 1065 to report income tax information. A partner will report his or her share of income from a partnership on a Form 1040. Form 1040 and Form 1040X (amended tax return) are used for individual taxpayers. Generally, all income or loss of a partnership is included on the individual tax returns of the partners. However, a partnership must file Form 1065 to report the amount of income or loss and show the allocation of the income or loss to the partners. Under U.S. tax law, there are five basic taxable or reporting entities. They are individuals, corporations, partnerships, estates, and trusts. Each reporting entity has a specific form to file for income taxes.

Angela sold her personal auto in 2023 for $8,000. She purchased the car for $26,000 in 2016. She has long-term capital gains of $4,000 from the sale of stock in 2023. What is Angela's net recognized capital gain or loss in 2023? a. Loss of $14,000 b. Loss of $3,000 c. Gain of $4,000 d. Gain of $1,000

c. Gain of $4,000

Dalton is a divorced taxpayer who provides a home for their dependent child, Edward. What filing status should Dalton indicate on their tax return? a. Single b. Surviving spouse c. Head of household d. Married filing separately

c. Head of household

During 2023, Manfred, who is 60 years old and unmarried, provided all of the support of his elderly mother. His mother was a resident of a home for the aged for the entire year and had no income. What is Manfred's filing status for 2023, and how many dependents should he report on his tax return? a. Single and two dependents b. Head of household and two dependents c. Head of household and one dependent d. Single and one dependent

c. Head of household and one dependent Unlike other dependents, parents are not required to live with their children for the taxpayer to claim head of household status.

What income tax form does a self-employed sole proprietor usually use to report business income and expenses? a. Schedule B b. Schedule A, Miscellaneous Itemized Deductions c. Schedule C d. Form 2106, Vehicle/Employee Business Expenses

c. Schedule C

Which of the following is a fringe benefit excluded from income? a. Alfa-Bet, a high-tech corporation, pays for each employee's membership at the 24 Hour Biceps Gym closest to each Alfa-Bet office. b. Quickchat Inc. gives each employee a $10 giftcard to the local coffee shop on National Coffee Day. c. Hedaya, a doctoral student at Ivy University, receives a full tuition waiver while serving as research assistant. d. A mechanic at Denise's employer, a car rental company, provides $1,000 of repair services to Denise's personal car for free.

c. Hedaya, a doctoral student at Ivy University, receives a full tuition waiver while serving as research assistant. The tax law provides that all fringe benefits must be included in the employee's gross income, unless specifically excluded by law. The primary types of fringe benefits that may be excluded from gross income (assuming certain requirements are met and subject to limitations) include flexible spending accounts, group term life insurance, education assistance plans, no-additional-cost services, qualified employee discounts, working condition fringe benefits, de minimis fringe benefits, tuition reduction, athletic facilities, and retirement planning fringe benefit. The following is a tuition reduction and is excluded from income: Hedaya, a doctoral student at Ivy University, receives a full tuition waiver while serving as research assistant. All employees of educational institutions may exclude from their income the value of a tuition reduction, if the plan is for an undergraduate education and available to all employees. The exclusion applies to the employees, their spouses, and their dependents. The value of a graduate education tuition reduction plan can only be excluded by graduate students of the institution who are teaching or doing research at that institution. The following are included in income: Alfa-Bet, a high-tech corporation, pays for each employee's membership at the 24 Hour Biceps Gym closest to each Alfa-Bet office.The exclusion for an athletic facility only applies to the use of an athletic facility located on the premises of the employer and the facility must be used primarily by employees.

Which of the following is true if property is inherited by a taxpayer? a. To the recipient, the basis for the property is the same as the basis to the decedent. b. At sale date, the basis of the property to the recipient differs depending on whether the property was sold at a gain or a loss. c. In general, the basis to the recipient is the fair market value at the decedent's date of death. d. At sale date, the recipient will not have a gain or loss even if the recipient has held the property for more than a year.

c. In general, the basis to the recipient is the fair market value at the decedent's date of death.

Which of the following best describes the treatment of U.S. obligation interest income? a. Excluded from federal and state gross income b. Included in gross income for federal and state purposes c. Included in federal gross income but excluded for most states d. Excluded from federal gross income but included for most states

c. Included in federal gross income but excluded for most states. U.S. government interest is taxable federally but exempt for state income taxes.

Jamal owns a small retail store as a sole proprietor. The business records show that the cost of the store's inventory items has been steadily increasing. The cost of the ending inventory is $200,000, and the cost of the beginning inventory was $250,000. Jamal uses the FIFO method of inventory valuation. Which of the following statements is true? a. Jamal purchased more inventory during the year than he sold during the same 1-year period. b. Jamal has apparently decreased the volume of items in his ending inventory as compared to the number of items in his beginning inventory. c. Jamal would have a higher net income if he used the LIFO method of inventory valuation instead of the FIFO method. d. Since the cost of the store's inventory items is increasing, Jamal will have a greater cost of goods sold figure under FIFO than LIFO.

c. Jamal would have a higher net income if he used the LIFO method of inventory valuation instead of the FIFO method.

Which of the following is nontaxable income to the recipient for tax purposes? a. Income from tips b. Income from real estate rental property c. Municipal bond interest d. Salary income

c. Municipal bond interest Interest on state and local bonds is generally excluded from gross income.

Which of the following expenses is generally deductible in the year incurred? a. A speeding fine paid by an express delivery company for one of its drivers b. Rent for a retail store in which medical marijuana is sold c. Payments to remediate the contaminated ground water surrounding an oil refinery d. Interest expense associated with debt incurred to purchase municipal bonds

c. Payments to remediate the contaminated ground water surrounding an oil refinery

Which of the following is an economic goal of the tax law? a. Ensuring that all persons pay the same amount of tax b. Encouraging charitable contributions c. Reducing unemployment d. Lowering the cost of adoption

c. Reducing unemployment

Kardi, age 65, and Kanye, age 62, are married with a 23-year-old daughter who lives in their home. They provide over half of their daughter's support, and their daughter earned $4,900 this year from a part-time job. Their daughter is not a full-time student. With regard to their daughter's dependency status: a. She can be claimed because she is a qualifying relative. b. She can be claimed because she lived in their household for twelve months. c. She cannot be claimed because she fails the age and gross income test. d. She can be claimed because she is a qualifying child.

c. She cannot be claimed because she fails the age and gross income test. The daughter fails the age test to be a qualifying child and she fails the gross income test ($4,700 in 2023) to be a qualifying relative. A dependent is an individual who meets certain tests to be considered either a qualifying child or a qualifying relative for tax purposes. The importance of whether an individual qualifies as the taxpayer's dependent impacts filing status, medical expenses, and several tax credits. For a child to be a dependent, he or she must meet the Relationship Test, Domicile Test, Age Test, Joint Return Test, Citizenship Test, and Self-Support Test. A person who is not a qualifying child can be a qualifying relative if a separate 5-part test is met. A child of a taxpayer who does not meet the tests to be a qualifying child can still qualify as a dependent under the qualifying relative tests.

Kofi is a 25-year-old full-time student at a state university. Kofi lives with his unmarried sister, Abbey, who provides over half of his support. His only income is $4,900 of wages from a part-time job at the college bookstore. What is Abbey's filing status for 2023? a. Married filing separately b. Head of household c. Single d. Surviving spouse

c. Single Because Kofi's income exceeds $4,700, he does not qualify as a dependent.

Iris, widowed in 2022, pays all costs related to the home in which she and her unmarried child live. Her child does not qualify as her dependent. What is her filing status for 2023? a. Married filing separately b. Head of household c. Single d. Surviving spouse

c. Single Head of household and surviving spouse require her child to be a dependent.

The amendment to the United States Constitution that authorized the federal income tax is: a. Thirteenth Amendment in 1865. b. Twenty-first Amendment in 1933. c. Sixteenth Amendment in 1913. d. Fourteenth Amendment in 1868.

c. Sixteenth Amendment in 1913. The income tax was authorized by the Sixteenth Amendment in 1913.

Which of the following is not likely to be a deductible expense? a. The dues for Charles Coke to join the City Chamber of Commerce to generally improve the reputation of his business in the community b. The cost of a party for all of Dan's employees to celebrate a record-breaking profits year c. The cost of tickets to a stage play for a client and the taxpayer d. The cost for Rosa to take a potential customer to lunch to describe a new service Rosa's company is offering. Unfortunately, the customer explains that they are not interested in the service e. None of these choices are deductible expenses

c. The cost of tickets to a stage play for a client and the taxpayer

Which of the following statements regarding the sale of a personal residence is true? a. A one-time election is available to taxpayers 55 years of age or older, which allows them to sell their personal residence and exclude all of the realized gain. b. A taxpayer who sells a personal residence may always exclude the realized gain from taxable income. c. The exclusion amount for married taxpayers applies to spouses who sell their residence within 2 years of their spouse's death. d. A taxpayer's personal residence qualifies for a like-kind exchange.

c. The exclusion amount for married taxpayers applies to spouses who sell their residence within 2 years of their spouse's death.

Kay Nein is a dentist and provides Rusty Clutch with $800 of dental services in exchange for Rusty repairing Kay's car. Kay will recognize how much gross income on this exchange? a. The out-of-pocket costs for the dental work b. The out-of-pocket cost of the car repair (parts) c. The market value of the services exchanged ($800) d. $0

c. The market value of the services exchanged ($800). Barter income is gross income at the fair market value of the exchange.

An individual is a head of household. What is this individual's 2023 standard deduction? a. $13,850 b. $27,700 c. $1,850 d. $20,800

d. $20,800

In which of the following situations is the taxpayer excluded from having to file a 2023 income tax return? a. When an individual has a current year income tax refund and would like to obtain it b. When the taxpayer is a 69-year-old surviving spouse (spouse died 3 years ago) with wages of $16,500 and no dependents c. When the taxpayer is a single 67-year-old with wages of $9,800 d. When the taxpayer is a 35-year-old head of household with wages of $21,990

c. When the taxpayer is a single 67-year-old with wages of $9,800 a. A return must be filed to obtain a refund. b. Income is below the filing threshold of $15,700. c. Income is above the filing threshold of $20,800. d. Income is above the filing threshold of $15,700.

In the tax law, the definition of gross income is all _____. a. cash payments received unless excluded by the tax code b. cash payments received for services performed c. income from whatever source derived d. income of any kind unless the income is earned illegally

c. income from whatever source derived

A bond is issued in 2021 at its face value of $10,000 with an interest rate of 5 percent. In 2023, the bond is sold when prevailing interest rates have increased. When recognizing gross income from the interest on the bond, the buyer of the bond in 2023 will have to consider: a. In-kind dividends. b. Market bond premium. c. Market bond discount. d. Original issue discount.

c. market bond discount. The price of the bond will decrease creating discount.

Bennett purchased a tract of land for $20,000 in 2017 when he heard that a new highway was going to be constructed through the property and the land would soon be worth $200,000. The highway project was abandoned in 2023, and the value of the land fell to $15,000. Bennett can claim a loss in 2023 of how much? a. $165,000 b. $180,000 c. $5,000 d. $0

d. $0 At this point, Bennett has only an unrealized loss. Generally, a sale or exchange is required to generate a realized and perhaps recognized loss.

On August 8, 2023, Sam, single, age 62, sold for $210,000 his principal residence, which he has lived in for 10 years, and which had an adjusted basis of $60,000. On November 1, 2023, he purchased a new residence for $80,000. For 2023, how much gain should Sam recognize on the sale of his residence? a. $25,000 b. $130,000 c. $50,000 d. $0

d. $0 Realized gain of $150,000 ($210,000 - $60,000). Gain exclusion for single taxpayers is up to $250,000.

Hillary gets divorced in 2020 and is required to pay her ex-spouse $200 per month until her son reaches 18 years of age in 7 years and $120 per month thereafter. How much of her 2023 payments are deductible as alimony? a. $1,440 b. $960 c. $2,400 d. $0

d. $0. Alimony related to divorces after 2018 is not deductible or includable. The term alimony, for income tax purposes, includes separate maintenance payments or similar periodic payments made to a spouse or former spouse. Payments must meet certain requirements to be considered alimony. The TCJA changed the tax treatment regarding alimony pertaining to post-2018 divorce agreements. Therefore, it is important to consider the year the divorce decree was executed (or modified) in determining the proper tax treatment for the recipient and payor.

Binh is a self-employed attorney who traveled to New York on a business trip during 2023. Binh's expenses were as follows: Airfare $550 Taxis 40 Restaurant meals 150 Lodging 350 How much may Binh deduct as travel expenses for the trip? a. $0 b. $940 c. $1,090 d. $1,015

d. $1,015 $550 + $40 + $350 + $75 (Business restaurant meals are 50% deductible in 2023.)

Rashad, who retired on April 30, 2023, receives a monthly employee annuity benefit of $1,400 payable for life, beginning May 1, 2023. During his years of employment, Rashad contributed $29,400 to the company's plan. Rashad's age on May 1 is 66. Using the simplified method, how much of the $11,200 annuity payment received during 2023 may Rashad exclude from gross income? a. $427 b. $1,680 c. $11,200 d. $1,120

d. $1,120 Simplified method: $29,400 ÷ 210 (factor for age 66) = $140 × 8 months = $1,120

Milo named his wife, Khia, the beneficiary of a $100,000 insurance policy on his life. The policy provided that, upon his death, the proceeds would be paid at a rate of $4,000 per year plus interest over a 25-year period. Milo died June 25 of last year, and in the current year, Khia received a payment of $5,200 from the insurance company. What amount should she include in her gross income for the current year? a. $200 b. $4,000 c. $5,200 d. $1,200

d. $1,200 $5,200 − $4,000 (only the portion designated as interest income)

During 2023, Harry, a self-employed accountant, travels from Kansas City to Miami for a 7-day business trip. While in Miami, Harry decides to stay for an additional 5 days of vacation. Harry pays $600 for airfare, $200 for restaurant meals, and $500 for lodging while on business. The cost of meals and lodging while on vacation was $300 and $500, respectively. How much may Harry deduct as travel expenses for the trip? a. $1,100 b. $1,300 c. $600 d. $1,200

d. $1,200 $600 + $100 + $500 (Business restaurant meals are 50% deductible in 2023.)

Chad and Vivian are married. For 2023, Chad earned $25,000 and Vivian earned $30,000. They have decided to file separate returns. They have no deductions for adjusted gross income. Chad's itemized deductions are $14,200 and Vivian's are $4,000. Assuming Chad and Vivian do not live in a community property state and Chad deducts the greater of the standard deduction or itemized deductions, what is Chad's taxable income? a. $6,800 b. $21,000 c. $11,150 d. $10,800

d. $10,800 Chad's itemized deductions are larger than the standard deduction, so he should itemize. ($25,000 − $14,200 = $10,800)

Simone, a single taxpayer, bought her home in Orlando 25 years ago for $55,000. She has lived continuously in the home since she purchased it. In the current year, she sells her home for $405,000. What is Simone's taxable gain on the sale? a. $0 b. $90,000 c. $350,000 d. $100,000

d. $100,000 $405,000 − $55,000 − $250,000

Mariah had a good year. She received the following prizes and awards: An iPad from The Famous Daytime Talk Show with a fair market value of $500 Lottery winnings of $1,000 received in cash A plaque worth $25 plus $100 of Godiva chocolate in recognition for 100 days on the job without an accident A $10,000 cash prize from American Idol How much of her prizes and awards should Mariah report on her tax return? a. None, they are all excluded from income. b. $11,600; the plaque may be excluded. c. $11,000; only prizes and winnings received as cash are included. d. $11,500; the award from her job is excluded.

d. $11,500; the award from her job is excluded. $500 + $1,000 + $10,000

Peruth, a single taxpayer, purchased a house 18 months ago for $350,000. If Peruth sells their house due to unforeseen circumstances for $550,000 after living in it for a full 18 months, what is their taxable gain? a. $50,000 b. $0 c. $200,000 d. $12,500

d. $12,500

Grady operates a lawn maintenance business using the accrual method. He estimates that 5 percent, or about $2,500 of his 2023 year-end customers' invoices will never be paid. During 2023, he wrote off $13,500 of his receivables as uncollectible. Grady's bad debt expense deduction is: a. $2,500. b. $0. c. $16,000. d. $13,500.

d. $13,500.

In 2023, Matteo drove from his home in Los Angeles to Oregon to consult with a client. He worked for 1 day and spent 3 days enjoying Oregon since the consultation was right before a 3-day weekend. Matteo's expenses were $175 to drive to Oregon and back, $600 for lodging, $50 for food from a convenience store on the day that he worked, and $125 for restaurant food on the other 3 days. How much of his travel expenses are deductible? a. $200 b. $800 c. $350 d. $175

d. $175 ($600 ÷ 4 days) + (50% × $50); the auto expenses are not deductible because the trip was not primarily for business.

Jasmin loans Nikki $45,000 to start a hair salon. Unfortunately, the business fails in 2023 and she is unable to pay Jasmin back. In 2023, Jasmin also had $20,000 of income from her part-time job and $15,000 of capital gain from the sale of stock. How much of the $45,000 bad debt can Jasmin claim as a capital loss in 2023? a. $12,000, with $33,000 carried forward to 2024 b. $35,000 c. $15,000, with $30,000 carried forward to 2024 d. $18,000, with $27,000 carried forward to 2024

d. $18,000, with $27,000 carried forward to 2024 Nonbusiness bad debts are considered short-term capital losses. Short- and long-term capital gains may be offset by short-term capital losses. Jasmin may offset $15,000 of her $45,000 bad debt from Nikki against the $15,000 capital gain from the sale of stock. In addition, Jasmin may claim up to the annual limitation amount of $3,000 in short-term capital losses. In total, $18,000 of the bad debt can be claimed as a capital loss in the current year with $27,000 in unused short-term capital losses carried forward.

Yasmine and her spouse Carlos, who file married filing jointly with 2023 AGI of $130,000, provide all the support for their 16-year-old son, Miguel. If Miguel qualifies as a qualifying child under the dependent rules, Yasmine and Carlos will be able to claim a 2023 child tax credit (before any advance payments) of: a. $1,000. b. $0. c. $3,000. d. $2,000. e. $500.

d. $2,000. The child tax credit in 2023 is $2,000. A tax credit differs from a tax deduction. A tax deduction lowers the taxable income of a taxpayer, while a tax credit reduces the tax liability dollar for dollar. Some tax credits are refundable.

In 2023, Uriah received the following interest payments:Interest of $300 on an overpayment of 2012 Federal income taxesInterest of $400 from his bank certificate of depositInterest of $1,000 on municipal bondsInterest of $1,500 on U.S. savings bonds (Series HH)What amount, if any, should Uriah report as taxable interest income on his 2023 individual income tax return? a. $400 b. $700 c. $3,200 d. $2,200

d. $2,200 $300 + $400 + $1,500

In 2023, Lakota and Dominique file married filing jointly and have a 13-year-old daughter. They also provide 75 percent of the support for Lakota's 82-year-old mother, who lives in a nursing home nearby and has no taxable income. The amount of the combined child tax credit and other dependent credit for Lakota and Dominique is: a. $4,000. b. $2,000. c. $3,500. d. $2,500. e. $0.

d. $2,500. The child tax credit for the 13-year-old child is $2,000. The mother is eligible for the other dependent credit of $500.

Destiny received the following distributions from Greener Mutual Fund for the calendar year 2023: Ordinary dividends (nonqualifying) ($250) Capital gain distributions (170) Nontaxable distributions (80) Garrison, Destiny's husband, did not own any of the Greener Mutual Fund shares, but he did receive $1,600 in interest on a savings account at the Grassley National Bank. Garrison and Destiny filed a joint income tax return for 2023. What portion of the distributions from Greener Mutual Fund is taxable as ordinary income on their 2023 individual income tax return? a. $0 b. $420 c. $500 d. $250

d. $250

In 2023, the limit for contributions to a health care flexible spending account is: a. $2,850. b. $500. c. $5,000. d. $3,050

d. $3,050. 2023 limit is $3,050.

In 2023, Jason is a lawyer who is a member at Ocean Spray Country Club where he spends $7,200 in dues, $4,000 in business meals at the dining room and golf course bar, and $2,000 in green fees to entertain clients. He has separate invoices for the meals. He is also a member of the local Rotary club where he meets potential clients. The dues for the Rotary club are $1,200 a year. How much of the above expenses can Jason deduct as business expenses? a. $14,400 b. $5,200 c. $4,000 d. $3,200

d. $3,200 (50% × $4,000) + $1,200

Lina is self-employed and spends $600 on business meals at restaurants and $900 for business entertainment in the current year. What amount is Lina allowed to deduct in the current year for these expenses? a. $600 b. $750 c. $1,500 d. $300

d. $300 50% × $600 for restaurant meals and none for entertainment

Daniel owns a two-family home. He rents out the second floor and resides on the first floor. Daniel had the following expenses for the building for the year ended December 31, 2023: Real estate taxes $1,800 Mortgage interest 1,600 Utilities 1,200 Repairs (second floor) 1,400 Painting (first floor) 400 In addition, the depreciation attributable to the entire building would be $2,000. What is the total amount of the expenses that Daniel can deduct on Schedule E of Form 1040 (before any limitations)? a. $3,850 b. $4,000 c. $3,300 d. $4,700

d. $4,700 $1,400 + [50% × ($1,800 + $1,600 + $1,200 + $2,000)]

Haidy has a net capital loss of $20,000 and other ordinary taxable income of $48,000 for the current tax year. What is the amount of Haidy's taxable income after deducting the allowed capital loss? a. $42,000 b. $28,000 c. $38,000 d. $45,000

d. $45,000 $48,000 − $3,000 $45,000 − $3,000

Amara has an annuity and over time has recovered her entire investment but it continues to pay her $450 per month. Amara should recognize how much of each monthly payment as gross income? a. $0 b. Some amount greater than $450 c. Some amount between $0 and $450 d. $450

d. $450. When taxpayers consider retirement, they often purchase annuities. An annuity is a type of investment in which the taxpayer purchases the right to receive periodic payments for the remainder of his or her life. The amount of each periodic payment is based on the annuity purchase price and the life expectancy of the annuitant. Standard mortality tables, based on the current age of the annuitant, are used to calculate the annuity amount. Individual taxpayers must generally use the simplified method to calculate the taxable and nontaxable amount from an annuity starting after November 18, 1996. Formula for computing nontaxable amount: (Investment in the Contract / Amount from IRS mortality table) x number of payments received during the year. The exclusion ratio is calculated at the start of the annuity and remains constant. For annuities starting after 1986, the maximum amount excludable is limited to the taxpayer's investment in the annuity. After the taxpayer's investment is recovered, all additional amounts received are fully taxable. Because Amara has recovered her entire investment, all of the monthly proceeds are fully taxable.

Norm is a real estate professional with a real estate trade or business as defined in the tax law. He has $150,000 of business income and $50,000 of losses from actively managed real estate rentals. How much of the $50,000 in losses is he allowed to claim on his tax return? a. None b. $25,000 c. $20,000 d. $50,000

d. $50,000

Mary received the following items during 2023: Year-end bonus from her employer ($600) Birthday gift from her father (100) Unemployment compensation (35) What is the total amount from these items that must be included in Mary's current year gross income? a. $735 b. $600 c. $0 d. $635

d. $635 Gifts are not taxable. Unemployment compensation is taxable in 2023. year-end + unemployment

Caleb purchased land as an investment on January 12, 2020, for $80,000. On January 31, 2023, Caleb sold the land for $33,000 cash. In addition, the purchaser assumed the mortgage of $62,000 on the land. What is the amount realized (not gain realized) on the sale of the land? a. $23,000 b. $103,000 c. $10,000 d. $95,000

d. $95,000 Cash received ($33,000) + Liabilities transferred ($62,000)

Which of the following is excluded from gross income for income tax purposes in 2023? a. Qualified dividends b. Severance pay c. Commissions d. Life insurance proceeds e. Unemployment compensation

d. Life insurance proceeds. Proceeds from a life insurance policy paid to the beneficiary are generally excluded from gross income. Gross income is the starting point for calculating a taxpayer's tax liability. The definition of gross income as "all income from whatever source derived" is perhaps the most well-known definition in the tax law. Under this definition, unless there is an exception in the law, the U.S. government considers all income taxable. Refer to Table 2.2, Exclusions from Gross Income, in the textbook.

Faisal works for American Motors. American Motors paid a $1,200 premium on Faisal's health insurance in 2023. Faisal had an operation on his foot in 2023 that cost $7,200. The insurance company paid for $6,800 of it. Which of the following statements is true for 2023? a. Faisal must claim the $1,200 premium paid by his employer as income. b. Faisal must claim the $6,800 paid by the insurance company for the operation as income. c. Faisal must claim the $1,200 premium and the $6,800 insurance payment as income. d. None of these events are taxable on his 2023 return.

d. None of these events are taxable on his 2023 return. Heath care insurance provided by an employer is not included in gross income nor are the insurance payments to cover medical expenses.

Annual wages subject to income tax are reported: a. On Form W-4. b. On Form 1099-W in Box 1. c. On Form W-2 in Boxes 1, 3, and 5. d. On Form W-2 in Box 1.

d. On Form W-2 in Box 1. Box 1 of Form W-2 is used to report wages for income tax.

How is an asset's adjusted basis computed? a. Original basis + Capital improvements + Gain or loss realized b. Original basis + Capital improvements + Accumulated depreciation c. Original basis − Capital improvements + Accumulated depreciation d. Original basis + Capital improvements − Accumulated depreciation

d. Original basis + Capital improvements − Accumulated depreciation

Which of the following is among the fees and costs included in the basis of real property? a. Casualty insurance premiums b. Loan assumption fees c. Rent for occupancy of the property prior to closing d. Owner's title insurance

d. Owner's title insurance

ch 2 hw start In 2023, which of the following types of income is excluded from gross income? a. Corporate bond interest income. b. Unemployment compensation. c. Dividends from foreign corporations. d. Qualified Medicare waiver payments. e. Income earned illegally.

d. Qualified Medicare waiver payments. Medicare waiver payments are excluded from gross income.

The distinction between qualified dividends and ordinary dividends is: a. Qualified dividends are excluded from gross income. b. Ordinary dividends are taxed at preferential rates. c. There is no distinction. d. Qualified dividends are taxed at preferential rates and are a subset of ordinary dividends.

d. Qualified dividends are taxed at preferential rates and are a subset of ordinary dividends. Qualified dividends enjoy preferential rates.

Savion has a business net operating loss of $70,000 in 2023. Savion's business started in 2021 and generated significant taxable profits in 2021 and in 2022. Which of the following is true? a. Savion may elect to offset the income he generated in 2021 and 2022 with 2023's net operating loss, with the remainder used to offset future annual taxable income. b. Savion may use the net operating loss to offset income from any year he chooses. c. Net operating losses can offset 100% of the income in future years. d. Savion must carry forward the net operating loss (no carryback is available).

d. Savion must carry forward the net operating loss (no carryback is available). NOLs generated in 2023 may only be carried forward and will be limited to 80%.

Which of the following is a deduction for adjusted gross income in 2023? a. Personal casualty losses b. Medical expenses c. Mortgage interest d. Student loan interest

d. Student loan interest. Student loan interest is a for AGI deduction. The other responses are all itemized (from AGI) deductions. There are two categories of deductions for individuals. The first category of deductions includes the deductions for adjusted gross income. The second category is deductions from adjusted gross income which includes itemized deductions.

Which of the following is deductible as dues, subscriptions, or publications? a. Subscription to Vogue magazine for a corporate president b. Dues to the drama club for a student c. Dues to a health club for a doctor d. Subscription to the Journal of Taxation for a tax attorney

d. Subscription to the Journal of Taxation for a tax attorney

Which of the following is not considered commuting miles? a. The miles to a taxpayer's home from a regular second job b. The miles from a taxpayer's home to their regular place of work c. The miles from a temporary work location to a taxpayer's home (and the taxpayer has a main work location) d. The miles from a taxpayer's main job to a temporary work location

d. The miles from a taxpayer's main job to a temporary work location

Which of the following is a from AGI deduction? a. The exclusion of an item of gross income b. Moving expenses c. One-half of self-employment taxes d. The qualified business income deduction

d. The qualified business income deduction. The QBI deduction is a from AGI deduction.

Pastor Ize is a minister at a local church. Which of the following payments made to her by the church will be excluded from income? a. Compensation paid by other churches when she serves as a visiting pastor b. Fees she receives for performing marriages c. Her monthly salary/wages d. The rental allowance that covers reasonable rent

d. The rental allowance that covers reasonable rent. Reasonable rental allowance for clergy is excluded.

If a tax preparer provides a PIN for the taxpayer: a. Preparers may not provide PINs, only taxpayers. b. The taxpayer must also provide prior year AGI. c. The e-filing must go directly to the IRS. d. The tax preparer must obtain a signed Form 8878 or 8879.

d. The tax preparer must obtain a signed Form 8878 or 8879. Preparers must get a signed authorization to e-file from the taxpayer. Electronic filing (e-filing) is the process of transmitting federal income tax return information to the IRS Service Center using a computer with Internet access.

Which of the following factors are important in determining whether an individual is required to file an income tax return? a. The taxpayer's total itemized deductions and filing status b. The taxpayer's total itemized deductions and number of dependents c. The taxpayer's gross income and total itemized deductions d. The taxpayer's filing status and gross income

d. The taxpayer's filing status and gross income

Which of the following is true of partnerships? a. They file tax returns on Form 1120. b. They are taxed in the same manner as individuals. c. They file tax returns on Form 1041. d. They are not taxable entities.

d. They are not taxable entities. Partnerships file Form 1065 and are reporting entities but not taxable entities. The income flows through and is taxed to the partners separately.

Which of the following is true for taxpayers who make a combined business and pleasure trip? a. They can deduct the cost of meals, lodging, local transportation, and incidental expenses in full if the travel is outside the United States. b. They can deduct the cost of meals, lodging, local transportation, and incidental expenses in full if the travel is within the United States. c. They must allocate the travel cost between the business and pleasure parts of the trip if the travel is within the United States. d. They must allocate the travel cost between the business and pleasure parts of the trip if the travel is outside the United States.

d. They must allocate the travel cost between the business and pleasure parts of the trip if the travel is outside the United States.

Which of the following amounts is included in gross income? a. Scholarship grants for tuition b. Veterans' benefits c. Child support payments d. Tips and gratuities

d. Tips and gratuities

ch 2 exam start Which of the following must be included in the gross income of the recipient in 2023? a. Child support payments b. Gifts c. Welfare payments d. Unemployment compensation

d. Unemployment compensation

All of the following assets are capital assets, except: a. A personal automobile. b. A child's bicycle. c. Personal furniture. d. Used car inventory held by a car dealer. e. IBM stock.

d. Used car inventory held by a car dealer.

Which of the following is excluded from gross income? a. Gambling winnings b. Partnership income c. Jury duty fees d. Workers' compensation

d. Workers' compensation Workers' compensation is not taxable to the recipient.

Taylor's 2023 health insurance premiums of $7,800 are paid by her employer. During 2023, Taylor requires surgery on her vocal chords. The cost of the surgery is $10,000 and Taylor's insurance covers all but $500, which Taylor pays herself. How much is Taylor's gross income from these health-related transactions? a. $7,800 b. $10,000 c. $9,500 d. $17,800 e. $0

e. $0. Payments for health care are generally excludable. Many taxpayers are covered by accident and health insurance plans. These plans pay for the cost of medical care of the taxpayer and any dependents who are insured under the plan. The taxpayer may pay the total premiums of the plan, or his or her employer may pay part or all of the premiums. Taxpayers are allowed liberal exclusions for payments received from these accident and health plans. This exclusion applies to the taxpayer, his or her spouse, or dependents.

ch 1 hw start Morgan is 65 years old and single. He supports his father, who is 90 years old, blind, and has no income. What is Morgan's standard deduction? a. $19,400 b. $18,800 c. $20,800 d. $22,300 e. $22,650

e. $22,650 Head of household standard deduction plus additional standard deduction for age 65 ($20,800 + $1,850) = $22,650. The standard deduction was placed in the tax law to provide relief for taxpayers with few itemized deductions. The amount of the standard deduction is subtracted from adjusted gross income by taxpayers who do not itemize their deductions. If a taxpayer's gross income is less than the standard deduction amount, the taxpayer has no taxable income. Taxpayers who are 65 years of age or older or blind are entitled to an additional standard deduction amount. For 2023, the additional standard deduction amount is $1,850 for unmarried taxpayer and $1,500 for married taxpayers and qualifying widows or widowers. The standard deduction is limited for the tax return of a dependent. The total standard deduction may not exceed the greater of $1,250 or the sum of $400 plus the dependent's earned income up to the basic standard deduction amount in total, plus any additional standard deduction amount for old age or blindness.

Abed and Anahita are married filing jointly. Abed is 65 and Anahita is 63, and they also care for Anahita's mother and claim her as a dependent. What is the 2023 filing threshold for Abed and Anahita? a. $19,400 b. $0 c. $27,300 d. $27,700 e. $29,200

e. $29,200. $29,200 = $27,700 + $1,500.

Myrtle, a single, 19-year-old, full-time student, is claimed as a dependent by her parents in 2023. She has earned income of $3,000 and unearned income of $130. What is Myrtle's 2023 standard deduction? a. $0 b. $1,250 c. $13,800 d. $14,400 e. $3,400

e. $3,400. Earned income plus $400.

In which of the following cases is the employer entitled to a travel expense deduction? a. An employee who resigns from his current job and accepts a new job in a city 500 miles away from his current residence b. An employee, who worked in the Salt Lake City plant of a company, who is assigned to the Denver plant of the company for four years c. A bank employee who travels to a branch office for a couple of hours of work and decides to stay overnight to attend a play d. An employee who travels between several business locations within the same city each day e. A manager of a chain of department stores who works in the main store three weeks out of every month and visits distant branch locations on overnight trips during the remainder of the month

e. A manager of a chain of department stores who works in the main store three weeks out of every month and visits distant branch locations on overnight trips during the remainder of the month

Which of the following is true about the rental of real estate? a. The expense deductions for a home rented for 100 days and used for personal use for 17 days will be limited to the gross rental income. b. Repairs on rental property are deductible by the taxpayer. c. Depreciation and maintenance expenses for an apartment complex are deductible. d. If a home is rented for less than 15 days a year, the rent is not taxable. e. All of these choices are correct.

e. All of these choices are correct.

A small business that qualifies for the cash method may use which method to account for inventory? a. Under the accrual method. b. Treat the same as books and records if no applicable financial statements exist. c. Treat the same as in the applicable financial statements. d. Treat as non-incidental materials and supplies. e. All of these choices are suitable for accounting for inventory.

e. All of these choices are suitable for accounting for inventory.

Kade just became a self-employed consultant. Prior to this year, Kade had always worked as an employee. He comes to discuss his new business with you. As his tax accountant, you should: a. Discuss setting up a good record-keeping system for his new business. b. Discuss the rules for deducting automobile expenses. c. Discuss the self-employment tax, as well as the income tax, on business earnings in order to help Daniel estimate what he might owe in taxes for the year. d. Discuss the substantiation requirements for meals. e. Discuss all of these choices.

e. Discuss all of these choices.

Margaret and her sister support their mother and together provide 85 percent of their mother's support. If Margaret provides 40 percent of her mother's support: a. Both Margaret and her sister will claim their mother as a dependent. b. Her sister is the only one who can claim their mother as a dependent. c. Neither Margaret nor her sister may claim their mother as a dependent. d. Margaret and her sister may split the dependency exemption. e. Margaret may claim her mother as a dependent if her sister agrees in a multiple support agreement.

e. Margaret may claim her mother as a dependent if her sister agrees in a multiple support agreement. Either Margaret or her sister (but not both) may claim the mother as a dependent under a multiple support agreement. A dependent is an individual who meets certain tests to be considered either a qualifying child or a qualifying relative for tax purposes. The importance of whether an individual qualifies as the taxpayer's dependent impacts filing status, medical expenses, and several tax credits. For a child to be a dependent, he or she must meet the Relationship Test, Domicile Test, Age Test, Joint Return Test, Citizenship Test, and Self-Support Test. A person who is not a qualifying child can be a qualifying relative if a separate 5-part test is met. A child of a taxpayer who does not meet the tests to be a qualifying child can still qualify as a dependent under the qualifying relative tests.

Which of the following expenses is deductible as an entertainment expense? a. The cost of a paintball party for clients paid for by a computer salesman at a computer fair b. The cost of a hunting camp used to entertain customers c. The depreciation on an airplane used to entertain customers d. The dues of a racquet club used to keep in shape e. None of these choices are deductible.

e. None of these choices are deductible.

In which of the following situations is the value of employer-provided meals included in gross income? a. An employee that eats two to three doughnuts on Doughnut Day (the third Friday of each month) while most employees eat one or none b. An employee that is not required to eat at the company cafeteria but often does. The majority of other employees at this location are required to eat in the cafeteria for business reasons. c. An employee of a quick-service restaurant that eats a meal at the end of his work shift each day d. An employee who occasionally receives a free meal when working overtime e. None of these meals are included in gross income.

e. None of these meals are included in gross income. All of these meals are either for the convenience or de minimis.

Access the Internet and go to www.irs.gov. Click the Forms & Instructions link. Enter "1040" into the search box. What is Line 13 of the 2023 Form 1040? a. Other income b. Earned income credit c. Capital gain or (loss) d. Multiply Line 6 by $500 e. Qualified business income deduction

e. Qualified business income deduction. Line 13 is the qualified business income deduction. Taxpayers and tax practitioners can find a substantial amount of useful information on the Internet. One of the most useful websites containing tax information is the one maintained by the IRS. The IRS site has a search function to assist users in locating information. The Forms and Publications search function is particularly useful and allows the user to locate and download almost any tax form, instructions, or publication available from the IRS.