Individual 1-6

During an all-employee awards ceremony, Exercycle Company gave Mollie a new bicycle for her outstanding safety record. This award was presented to Mollie for her services to the company and in accordance with Exercycle's qualified employee achievement awards program. The bicycle cost Exercycle $1,200 and has a fair market value of $1,700. What amount must Mollie include in income? A. $500 B. $0 C. $1,700 D. $1,200

$0 Sec. 274(j) allows a deduction of up to $400 per award (or up to $1,600 under a qualified plan) provided the average awards do not exceed $400. Since the award was a qualified plan award, the limitation is $1,600. Because the cost of the bicycle does not exceed the $1,600 limit, Mollie will not have to recognize income.

For the current year, Mr. Reid had adjusted gross income of $50,000. During the year, he contributed $5,000 to his church and $2,000 to qualified public charities. He also contributed land with a fair market value of $25,000 and a basis of $20,000 to his church. If Reid itemizes his deductions and does not make the 50% election, what is the amount of his deduction for charitable contributions? A. $27,000 B. $25,000 C. $32,000 D. $22,000

$22,000 The $5,000 contribution to his church and the $2,000 contribution are deductible but are subject to the maximum deduction of 50% of the taxpayer's contribution base for the taxable year. Since $7,000 is below the limitation of $25,000 ($50,000 AGI × 50%), the entire amount of these contributions may be deducted. The gift of appreciated property to the church is also deductible but subject to the maximum deduction of 30% of the taxpayer's contribution base for the taxable year since the land is unrelated to the church's charitable purpose. Generally, gifts of capital gain property are deductible at their fair market value on the date of contribution (Publication 17). However, the gain is limited to $15,000 ($50,000 AGI × 30%). Therefore, the total amount is $22,000 ($15,000 + $7,000).

Personel exemption amount

$4050

Andre, an accrual-basis taxpayer, rents a house for $1,000 per month. The house was rented from January through October, Year 1, when the tenant moved out and left substantial damages. Andre did not refund the $600 security deposit. Andre hired Jerry, a carpenter, to repair the house for $2,400, which included all labor and materials. Jerry completed the work on November 30, Year 1. Instead of paying Jerry for the work, Andre rented the house to Jerry beginning December 1, Year 1. They agreed the work would be in exchange for December of Year 1 and January of Year 2 rent. Jerry will begin paying rent of $1,000 per month on February 1, Year 2. Jerry was not required to pay a security deposit. What amount should Andre include in gross rent on his income tax return for Year 1? -. $10,000 - $13,000 - $12,400 - $10,600

- $13,000 Therefore, Andre must recognize $10,000 ($1,000 × 10 months) and $600 as rental income from the previous tenant. In this case, the improvements made by Jerry are made in lieu of 2 months' rent; thus, Andre must recognize the $2,400 fair market value

Mr. and Mrs. X plan to file a joint return for 2016. Neither is over 65 or blind, nor do they have any dependents. What is the amount of gross income required before they must file a return? -$16,650 -$12,600 -$21,950 -$20,700

-$20,700 $20,700 ($12,600 + $4,050 + $4,050).

Joan owned stock in W Corporation, which has a dividend reinvestment plan. Joan decided to participate in the plan, and during the current year the corporation paid dividends. The plan allowed Joan to use her $3,000 dividend to buy 30 additional shares of stock at $100 per share when the fair market value of the stock was $130 per share. How much dividend income must Joan report on her current-year income tax return? -$3,000 -$3,900 -$0 -$900

-$3,900 Because Joan was able to buy 30 additional shares when the fair market value of the stock was $130 per share, she must report $3,900 (30 × $130) of dividend income.

As a result of a fire, Sam had to vacate his apartment for a month and move to a motel. His rent for the apartment had been $600 per month. No rent was charged for the month the apartment was vacated. His motel rent for this month was $1,000. He normally pays $200 a month for food, but food expenses for the month he lived in the motel were $500. He received $1,100 from his insurance company to cover his living expenses. Based on this information, determine the amount, if any, he must include in income. -$300 -$0 -$400 -$700

-$400 This exclusion is limited to the excess of actual living expenses incurred by the taxpayer, $1,500 ($1,000 rent + $500 food), over the normal living expenses of $800 ($600 rent + $200 food) the taxpayer would have incurred during the period, or $700 ($1,500 - $800). The exclusion covers additional costs incurred in renting suitable housing and any extraordinary expenses for transportation, food, and miscellaneous items. The amount of the reimbursement included in income is $400 ($1,100 reimbursement - $700 exclusion).

Rev. Jones, an ordained minister, received $8,400 designated as a housing allowance. Rev. Jones used the full amount to pay his mortgage principal of $1,000, mortgage interest of $6,300, and property taxes of $1,200. Rev. Jones itemized his deductions and deducted the home mortgage interest and property taxes. What is the amount Rev. Jones may exclude from income? -$0 -$1,000 -$7,300 -$8,400

-$8,400 A housing allowance, to the extent that the allowance is used to rent or provide a home, is excluded from gross income. A minister is also entitled to deduct mortgage interest and real property taxes paid on a personal residence even if the amounts expended are derived from a rental allowance that is excludable from the minister's gross income

Which items from the prior-year return may be needed to complete the current-year return? State income tax refund AMT for credit AGI Gain (loss) carryover -I, II, and IV. -II and IV only. -I and II only. -I, II, III, and IV.

-I, II, and IV. Certain items from the prior year return may be needed to complete the current-year return [state income tax refund, AMT for credit, gain (loss) carryover, charitable gift carryover, etc.].

During 2016, Hanya was a nonresident alien engaged in a business in the United States. All of her income was from self-employment. Hanya is a calendar-year taxpayer. When is Hanya's income tax return due if she does not apply for an extension of time to file (ignoring weekends and holidays)? -August 15, 2017. -April 15, 2017. -June 15, 2017. -October 15, 2017.

-June 15, 2017 A nonresident alien not subject to wage withholding generally may file a return as late as the 15th day of the 6th month after the close of the tax year

Midshipman Mike, a calendar-year taxpayer, was assigned a post of duty on the U.S.S. Enterprise. The ship went on a 6-month cruise of the Mediterranean Sea, leaving February 15, Year 2. Mike did not file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Mike is automatically granted an extension of time to file his Year 1 income tax return and pay any tax due until -No automatic extension is granted. Mike must file and pay tax due by April 15, Year 2. -June 15, Year 2. -October 15, Year 2. -August 15, Year 2.

-June 15, Year 2. A U.S. citizen or resident who, on April 15, is in military or naval service on duty outside the U.S. and Puerto Rico is given an automatic 2-month extension without the necessity of filing Form 4868 (Publication 17).

Ms. Maple, a single woman age 65, retired in 2016. Prior to her retirement, she received a $3,000 bonus plus $2,300 in wages. After her retirement, she received $9,000 in Social Security benefits. Which of the following is true? -Ms. Maple does not have to file a 2016 income tax return. -Ms. Maple has to file a 2016 income tax return but may exclude the $9,000 in Social Security benefits from income. -Ms. Maple has to file a 2016 income tax return. -Ms. Maple has to file a 2016 income tax return but may exclude the $3,000.

-Ms. Maple does not have to file a 2016 income tax return. In general, a taxpayer does not have to file a return if his or her gross income is less than the sum of his or her personal exemption and the standard deduction [Publication 501 and Sec. 6012(a)]. For single individuals who are 65 or over, the standard deduction increases by $1,550. Therefore, the filing threshold will be $11,900 ($7,850 standard deduction + $4,050 personal exemption). Ms. Maple's income does not qualify her Social Security benefits for gross income inclusion in determining her filing requirement.

All of the following are nondeductible expenses except -Rent and insurance premiums paid for the taxpayer's own dwelling. -Payments for food. -Life insurance premiums paid by the insured. -Ordinary and necessary business expenses.

-Ordinary and necessary business expenses.

Mrs. W's husband died in Year 1. She has not remarried and has maintained a home for herself and her dependent son, whose personal exemption she can claim. In the summer of Year 3, the son was killed in an automobile accident. What is Mrs. W's filing status for Year 3? -Married filing separate return. -Single. -Head of household. -Qualifying widow.

-Qualifying widow. A qualifying widow(er) is a taxpayer whose spouse died in either of the 2 preceding taxable years and who maintains a household that constitutes the principal place of abode of a dependent who is a child or stepchild of the taxpayer and with respect to whom the taxpayer is entitled to a dependency deduction [Sec. 2(a)]. Reg. 1.2-2(c)(1) provides that a dependent's death during the year will not prevent the taxpayer from qualifying as a surviving spouse (Publication 17). Mrs. W is a qualifying widow and can file as such.

When will a minor's income be taxed at his or her parent's rate? -When a child has any income and is under age 18. -When a child has net unearned income regardless of his or her age. -When a child has unearned income and is under age 18. -When a child has net unearned income and is under age 18 with at least one living parent.

-When a child has net unearned income and is under age 18 with at least one living parent.

On January 1, Ms. C lent $10,000 to her son to pay tuition expenses for college. Her son repaid $2,000 on July 1 and Ms. C forgave the balance upon her son's agreement to enter her business. What is the amount and character of the loss that Ms. C may deduct on her individual income tax return? A. $4,000 long-term capital loss. B. $4,000 short-term capital loss. C. $8,000 nonbusiness bad debt. D. $0

0 A bad debt deduction may be taken only for a bona fide debt arising from a valid debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money (Publication 550). The taxpayer either made a gift to her son of the balance of the debt owed, or released the debt in consideration of her son's agreement to enter the business. Therefore, no bad debt exists, and no deduction is available.

A nonresident alien received a $50,000 scholarship from a U.S. corporation to go to a gymnastic camp in the individual's resident country, which has a 20% flat tax. How much U.S. tax must be paid on the scholarship? -$10,000 -$0 -$15,000 -$7,650

0 A scholarship, fellowship, grant, etc. received by a nonresident alien for activities conducted outside of the U.S. is treated as foreign source income (Publication 515). Because the scholarship will not be treated as U.S. source income, there is no U.S. tax.

In determining if a taxpayer qualifies for head of household filing status, the taxpayer is considered unmarried if the following requirements are met:

1) The taxpayer filed a separate return. 2)The taxpayer paid more than half the cost of keeping up the home for the tax year. 3)The taxpayer's spouse did not live in the home during the last 6 months of the tax year. 4)The home was, for more than half the year, the main home of the taxpayer's child, stepchild, or adopted child whom the taxpayer or the noncustodial parent can properly claim as a dependent.

In the current year, Murray earned $10,000 teaching college accounting classes while working on his doctoral degree. Also in the current year, he received a fellowship grant of $2,500. Murray incurred the following expenses during the current year: Room and board $1,500 Tuition and required fees 1,750 Books 250 What income must Murray report on his current-year income tax return? A. $12,500 B. $10,500 C. $11,500 D. $10,000

10500

Tammy owns a house at the beach, which she rented out from May 1 through October 31 of the current year. During April of the current year, she spent 10 days there on vacation. In November, she spent 5 days at Dionne's mountain home and paid Dionne fair rental value. Dionne also paid Tammy a fair rental price for using her beach house for 9 days in December of the current year. Also, during November, Tammy's grandson stayed at the beach house for 3 days without any charge. How many days would the beach house be considered to have been used for personal purposes when applying the rules to vacation homes and dwellings? A. 13 B. 22 C. 10 D. 0

22 9 days Tammy spent at a beach house under a reciprocal arrangement.

Most types of U.S. source income received by a foreign person are subject to -U.S. tax at a 30% rate. -No U.S. tax. -U.S. tax at a 15.3% rate. -U.S. tax at a rate equal to the rate applied by the taxpayer's country of residence.

30%

In December 2016, Jim and Tina, a married couple with $50,000 in gross income, cashed qualified Series EE U.S. Savings Bonds, which they had purchased in January 2013. The proceeds were used to help pay for their son's 2016 college tuition. They received gross proceeds of $3,500, representing principal of $3,000 and interest of $500. The qualified higher educational expenses they paid during 2016 totaled $2,100. Their modified adjusted gross income for 2016 was $80,000. How much of the $500 interest can Jim and Tina exclude from income for 2016? A. $225 B. $200 C. $300 D. $500

300 The applicable fraction is determined by dividing the total qualified educational expenses by the gross proceeds of the bond redemption ($2,100 ÷ $3,500). This percentage is then multiplied by the amount of interest to obtain the exclusion amount ($500 × 60%). Therefore, Jim and Tina can exclude $300 of interest from income. The exclusion is reduced when AGI exceeds a threshold of $77,500 ($116,300 for a joint return) in 2016. The benefit is completely phased out at $92,550 ($146,300 for a joint return).

Jim Planter, who reached age 65 on January 1 of the current year, filed a joint return for the year with his wife, Rita, age 50. Mary, their 21-year-old daughter, was a full-time student at a college until her graduation on June 2 of the current year. The daughter had $8,100 of income and provided 25% of her own support during the year. In addition, during the year the Planters were the sole support for Rita's niece, who had no income. How many exemptions should the Planters claim on their current-year tax return? -2 -5 -3 -4

4 The Planters are entitled to an exemption for both Mary and the niece because Sec. 151(c) provides an exemption for each dependent whose gross income for the taxable year is less than the exemption amount ($4,050 in 2016), or who is a child of the taxpayer and is a full-time student (under age 24) at an educational organization during at least 5 months of the taxable year. Thus, the Planters are entitled to four exemptions, one for each spouse, and one for each dependent.

Luis and Rosa, citizens of Costa Rica, moved in 2014 to the United States, where they both lived and worked. In 2016, they provided the total support for their four young children (all under the age of 10). Two children lived with Luis and Rosa in the U.S., one child lived with his aunt in Mexico, and one child lived with her grandmother in Costa Rica. None of the children earned any income. All of the children were citizens of Costa Rica. The child in Mexico was a resident of Mexico, and the child in Costa Rica was a resident of Costa Rica. How many total exemptions (personal exemptions plus exemptions for dependents) may Luis and Rosa claim on their 2016 joint income tax return? -4 -6 -2 -5

5 In order to qualify as a dependent, an individual must be a citizen, national, or resident of the United States or a resident of Canada or Mexico at some time during the calendar year in which the tax year of the taxpayer begins (Publication 501). Therefore, Luis and Rosa may claim themselves, the two children living in the United States, and the child living in Mexico as dependents for a total of five exemptions.

For 2016, Mr. and Mrs. Garcia filed a joint return. During 2016, they provided more than 50% of the support for the following individuals, all of whom are U.S. citizens. Mr. Garcia's Aunt Maria, age 63, lived with them all year and had no income. Aunt Maria's single daughter, Julia, lived with the Garcias all year. Julia worked and earned $2,000, her only income for the year. The Garcias' son, age 21, was a full-time student for 9 months. During the summer, he worked and earned $4,350. How many exemptions may Mr. and Mrs. Garcia claim on their 2016 tax return? -5 -2 -3 -4

5 Mr. and Mrs. Garcia are entitled to one exemption each for themselves. They are also entitled to one exemption each for Aunt Maria; Julia, because she did not earn more than the exemption amount; and their son, because he is a full-time student under 24 years of age. (Publication 501.)

Marcy, age 12, earned $400 from babysitting during 2016. Her parents claim her as a dependent. She also had interest and dividends of $2,600 during the year. She did not itemize deductions. What is her net unearned income for 2016? -$2,600 -$500 -$1,550 -$3,000

500 Dependent is allowed a 2100 deduction in unearned income

For 2016, Mr. and Mrs. White filed a joint return. During 2016, they provided more than 50% of the support for the following individuals, all of whom are U.S. citizens: -The Whites' single daughter, age 22, was a full-time student for 8 months. During the summer, she earned $5,200, which was spent on her support. -Mr. White's cousin, age 15, lived with them from May to December. -Mr. White's widowed mother, age 70, lived with them and had no income. -The Whites' single daughter, age 20, lived with them the full year. She had gross income of $5,400. -Mrs. White's widowed father, age 64, lived alone, and his sole source of income was Social Security of $5,300. -The Whites' legally adopted son, age 10, lived with them from February to December. How many exemptions may Mr. and Mrs. White claim on their 2016 tax return? a) 7 b) 8 c) 6 d) 5

6 Mr. and Mrs. White are entitled to one exemption each for themselves. They are also entitled to one exemption each for their single daughter who is a full-time student, their legally adopted son, Mr. White's widowed mother, and Mrs. White's widowed father, for a total of six. Each qualifies as a dependent by passing all the dependency tests. Social Security is not included in gross income at his level of income, so Mrs. White's father does not fail the gross income test. The Whites are not entitled to a dependency exemption for their 20-year-old single daughter, since she earned more income during the year than the exemption amount ($4,050 in 2016), or for Mr. White's cousin, who fails to qualify as a member of the extended family and did not meet the residence requirement of an entire tax year (and is not a dependent).

For 2016, Mr. and Mrs. Taxpayer filed a joint return. During 2016, they provided more than 50% of the support for the following individuals, all of whom are U.S. citizens: The Taxpayers' single daughter, age 22, was a full-time student for 8 months. During the summer, she earned $4,200, which was spent on her support. Mr. Taxpayer's cousin, age 16, lived with them from May to December. Mr. Taxpayer's widowed mother, age 72, lived with them and had no income. The Taxpayers' single daughter, age 19, lived with them the full year. She had gross income of $3,500. Mrs. Taxpayer's widowed father, age 64, lived alone, and his sole source of income was Social Security of $5,500. The Taxpayers' legally adopted son, age 10, lived with them from February to December. How many exemptions may Mr. and Mrs. Taxpayer claim on their 2016 tax return? -6 -5 -8 -7

7 Mr. and Mrs. Taxpayer are entitled to one exemption each for themselves. They are also entitled to one exemption each for their single daughter who is a full-time student, their legally adopted son, their single daughter who lived with them, Mr. Taxpayer's widowed mother, and Mrs. Taxpayer's widowed father, for a total of seven. Each qualifies as a dependent by passing all the dependency tests. Social Security is not included in gross income at his level of income, so Mrs. Taxpayer's father does not fail the gross income test. The Taxpayers are entitled to a dependency exemption for their 19-year-old daughter because she earned less income during the year than the exemption amount ($4,050 in 2016). Since she is 19 (i.e., over 18) and not a student, she does not qualify as a child but does as a relative. The Taxpayers are not entitled to an exemption for Mr. Taxpayer's cousin, who fails to qualify as a member of the extended family (and is not a dependent).

Mr. Brown is a college student working on a degree in accounting. He received the following in 2016: A $4,000 scholarship used for tuition at State University A $1,000 scholarship used for fees and books An $8,000 fellowship used for his room and board Compute the amount Mr. Brown must include in income for 2016. A. $9,000 B. $5,000 C. $8,000 D. $13,000

8000 amounts received by an individual as scholarships or fellowships are excluded from gross income to the extent that the individual is a candidate for a degree from a qualified education institution and the amounts are used for required tuition or fees, books, supplies or equipment (not personal expenses, such as room and board).

Which of the following expenses would not meet the directly related test for entertainment? A. Entertainment of out-of-town business associates the day before the business discussion. B. Entertainment in a hospitality room at a convention where business goodwill is created through the display of business products. C. Entertainment of civic and business leaders at the opening of a new hotel for the purpose of getting business publicity. D. Restaurant owner providing an occasional free meal to a loyal customer.

A Any entertainment that is conducted the day before a business discussion does not meet the directly related test. The expense must be incurred in a clear business setting with some anticipation of business benefit in order to be directly related. Entertainment conducted the day before a business discussion may meet the "associated with" test for entertainment

Ernest, a self-employed watchmaker, traveled to Germany in September of 2016. During his 5-day stay in Germany, he attended a 10-hour watchmaking seminar in the city of Berlin on a Monday and took a 12-hour tour of a watch manufacturing facility in Dresden on a Wednesday. The rest of the time Ernest spent hiking and touring the countryside. Ernest incurred the following costs for this trip: -Round-trip airfare of $500 -Lodging of $1,000 -Meals of $300 -Seminar and tour registration fees of $200 In 2016, what is the amount that Ernest can deduct for travel, meals, and entertainment for this trip? A. $1,160 B. $0 C. $200 D. $2,000

A. $1,160 Ernest will be able to deduct the entire cost of the airfare, 2/5 of the lodging, a portion of the meals, and all of the seminar and registration fees (Publication 463). The total deduction equals $1,160 [$500 + ($1,000 × 2/5) + ($300 × 1/2 × 2/5) + $200]. If the time spent at the seminar and tour were only 2 hours and 4 hours (significantly less than a full day for each), respectively, then the travel would be considered "primarily for personal reasons" and only the seminar and tour registrations for $200 would be deductible.

During the current year, Mr. Tripper, who is self-employed, paid $10,000 in membership dues to a local country club. His records reflected that he used the club as follows: Personal use 25% Directly related entertainment 40% Associated with entertainment 35% His records also show that he paid $3,000 for meals and entertainment that were either directly related to or associated with his trade or business. How much of the dues, meals, and entertainment can Mr. Tripper deduct in the current year? A. $1,500 B. $6,500 C. $5,250 D. $3,000

A. $1,500 Memberships to country cub not a deductible expense

Mr. and Mrs. Storm's adjusted gross income for the current year was $75,000. During the current year, they incurred and paid the following expenses: Investment fees and expenses $ 750 Tax return preparation fee 250 Union dues 1,500 Gambling losses 3,000 Employment agency fees paid while looking for a new job 2,500 IRA trustee's fees 100 Assuming they itemize, how much can Mr. and Mrs. Storm deduct as itemized expenses? A. $3,600 B. $3,500 C. $6,600 D. $4,100

A. $3,600 Gambling losses are deductible to the extent of winnings (Reg. 1.165-10). They are first-tier deductions without further limitation. Investment fees and expenses, employment agency fees, IRA trustee fees, union dues, and tax return preparation fees are second-tier itemized deductions. However, they are deductible only to the extent that they exceed 2% of adjusted gross income (Publication 17). The computation is shown below. First-tier deduction Gambling losses (limited to winnings) $ 0 Second-tier deductions Investment fees and expenses $ 750 Tax return preparation fee 250 Union dues 1,500 Employment agency fees 2,500 IRA trustee's fees 100 =$ 5,100 Less 2% of AGI (1,500) =3,600 Total deductible expenses $3,600

Alex started his own welding business this year. He paid $8,000 for a truck, contributed $15,000 cash and paid $20,000 for tools for the business. His bank loaned $50,000 to buy a building for the business. The building secures the loan. What is Alex's at-risk amount for this activity? A. $43,000 B. $93,000 C. $53,000 D. $103,000

A. $43,000 Sec. 465 generally limits losses from an activity for each year to the amount the taxpayer has at-risk in the activity at year end. A taxpayer is generally considered at-risk for money and the adjusted basis of property contributed to the activity and amounts borrowed for use in the activity. However, if amounts borrowed for use in the activity are secured by property used in the activity, those amounts are not considered at-risk. The at-risk amounts result only from amounts the taxpayer is personally liable for (Publication 925).

Monte operates a landscaping business. He drives a pick-up to various work sites and to get materials. His employees use three other pick-ups plus a truck to deliver materials and to travel to work sites. His mileage on the five vehicles for the year totaled 200,000 miles. The mileage is incurred ratably throughout the year and is supported by mileage logs. The actual expense of operating all five vehicles was $90,000 for fuel, repairs, etc. He also spent $600 on tolls. During the year, Monte paid $4,000 in interest on vehicle loans. All five vehicles are parked at the business site when not in use in the business. They are not available for personal use. Ignoring any possible depreciation deduction and knowing the mileage rate for the year is $.54, how much of Monte's vehicle-related expense is currently deductible? A. $94,600 B. $108,600 C. $112,600 D. $108,000

A. $94,600 If the taxpayer owns five or more cars that are used for business at the same time (i.e., a fleet), (s)he cannot use the standard mileage rate of $.54 for the business use of any car. Therefore, Monte must use actual automobile expenses for his deduction.

Which of the following is not a tax preference item or an adjustment to taxable income for alternative minimum tax purposes? A. Addition of all itemized deductions (if claimed). B. Subtraction of any refund of state and local taxes included in gross income. C. Addition of the standard deduction (if claimed). D. Addition of personal exemptions.

A. Addition of all itemized deductions (if claimed).

Which of the following would not be a part of the computation of alternative minimum tax? A. Self-employment tax. B. Personal exemptions. C. Certain itemized deductions. D. Tax-exempt private activity bond interest.

A. Self-employment tax. Tax-exempt private activity bond interest is a tax preference item. Self-employment tax is not a part of the computation of alternative minimum tax. Personal exemptions and certain itemized deductions also are included in the computation of tentative minimum tax (Publication 17).

All of the following statements relating to net operating losses and the at-risk limits are true except A. You are considered at-risk for the amount of money you borrow to contribute to an activity, other than activities involving the holding of real property, if the lender's recourse is only to your interest in the activity. B. In applying at-risk limits to individuals, each item of leased Sec. 1245 equipment, farm, or oil and gas property is treated as a separate activity. C. If you have a loss in excess of your at-risk investment, the loss disallowed will not be allowed in subsequent years unless you increase your at-risk investment. D. If the amounts that you borrow for use in the activity are secured by property not used in the activity, the amount considered at-risk is limited to the net fair market value (the fair market value on the date the property is pledged less any prior or superior claims to which it is subject) of your interest in the property.

A. You are considered at-risk for the amount of money you borrow to contribute to an activity, other than activities involving the holding of real property, if the lender's recourse is only to your interest in the activity.

Under which situation below is a deduction allowable for an office in your home? A. Your home is the only fixed location of your business of selling mechanics' tools at retail. You regularly use your walk-in closet for storage of inventory and product samples. You also use this area occasionally for personal purposes. B. You use part of your home exclusively and regularly to read financial periodicals and reports, clip bond coupons, and carry out similar activities to monitor personal investments. C. You use your walk-in closet at home exclusively and regularly to bill customers, clients, or patients; to set up appointments; and to order supplies. You also rent office space downtown where you also conduct those same activities. You use the home office three days a week and the rented office space two days a week. D. You are an attorney and use a den in your home to write legal briefs. Your family also uses the den for recreation.

A. Your home is the only fixed location of your business of selling mechanics' tools at retail. You regularly use your walk-in closet for storage of inventory and product samples. You also use this area occasionally for personal purposes. A deduction for depreciation is allowed if the home office is connected with a trade or business, used exclusively to conduct that business, and no other facility or location is used by the taxpayer (Publication 334). However, there are exceptions to the general rule with respect to the "exclusivity" condition. In short, the taxpayer is allowed a deduction for depreciation when the home office is also used for personal purposes provided the taxpayer is a wholesale or retail seller, and the dwelling unit is used as a storage unit for inventory or product samples, and is the taxpayer's sole location of business. Thus, only the answer concerning the business of selling mechanics' tools at retail is correct.

In the current year, Heidi, a self-employed individual, had net profits from her Schedule C business of $125,000. Besides her Schedule C deductions, Heidi took an $8,831 deduction for her Social Security taxes, and her deduction for self-employed health insurance was $650. Heidi also realized a $30,000 loss from her rental real estate activity in which she actively participated. What is Heidi's deductible rental real estate loss for the current year? A. $12,175 B. $12,825 C. $25,000 D. $12,500

B. $12,825 The $25,000 allowance of losses from active participation in rental real estate activities against nonpassive income is reduced by 50% of the amount by which adjusted gross income (determined without regard to Social Security benefits, IRA contributions, and passive losses) exceeds $100,000 [Sec. 469(i)(3)]. The health insurance, however, must be subtracted from her net profits, for a total of $124,350 ($125,000 - $650). Heidi's adjusted gross income exceeds $100,000 by $24,350. Therefore, the $25,000 allowance is reduced by $12,175 ($24,350 × 50%). This leaves $12,825 of losses that can be deducted (Publication 925).

Cecilia, employed as a nurse, incurred the following expenses during 2016: $2,000 in attorney fees related to the collection of alimony payments $8,000 in gambling losses $1,000 in uniform purchase costs $900 in union dues Cecilia also had stereo equipment valued at $3,000 stolen from her home in 2016. Cecilia's adjusted gross income (AGI) for 2016 was $90,000, included in which were gambling winnings of $2,000. For 2016, what is the amount of miscellaneous itemized deductions subject to the 2%-of-AGI limitation that Cecilia can report after deducting the 2%-of-AGI limitation? A. $5,900 B. $2,100 C. $8,900 D. $3,100

B. $2,100

Erica received $40,000 in wages, and her husband Paul had a net loss of $2,000 on his Schedule C. Paul materially participated in his Schedule C activity. They had interest income of $500. Paul also had a $28,000 loss from a rental real estate activity in which he actively participates. How much of the rental loss can they deduct on their current-year joint income tax return? A. $28,000 B. $25,000 C. $25,500 D. $500

B. $25,000 Since Paul is deemed to actively participate in the rental real estate activity and Paul and Erica's adjusted gross income is less than $100,000, they are allowed to deduct $25,000 against other income (Publication 925).

Kathy rented out her summer home for 80 days and used it personally for 20 days. She paid $1,000 for repairs and $2,000 for utilities. Rental income was $8,000. What was Kathy's net rental income? A. $8,000 B. $5,600 C. $5,000 D. $0

B. $5,600

John divorced Lisa in Year 1. During Year 2, per the divorce decree, John made the following payments: The entire mortgage payment on house (jointly owned) $10,800 Tuition for their child 6,000 Child support 4,500 Life insurance premiums on policy owned by Lisa 3,000 What is the amount John can deduct as alimony on his Year 2 tax return? A. $10,800 B. $8,400 C. $3,000 D. $5,400

B. $8,400 The mortgage payment attributable to Lisa's ownership, or $5,400, is deductible as alimony. The life insurance premium payment is deductible as well. Therefore, the total alimony deduction is $8,400. Child support includes the child's tuition payments and is not deductible.

For 2015 and 2016, Malcom and Julie, husband and wife, paid health insurance premiums of $3,000 each year ($1,500 for each person). Malcom was self-employed, and his net profit was $70,000 in 2015 and $80,000 in 2016. Julie was unemployed in 2015 then took a job in January 2016. She had the option to join a subsidized health plan for the family with her employer but declined. Since this expense is not deductible on Schedule C, what amount can they deduct elsewhere as a business expense on their 2015 and 2016 joint tax returns? A. 2015: $0; 2016: $3,000. B. 2015: $3,000; 2016: $0. C. 2015: $0; 2016: $0. D. 2015: $3,000; 2016: $3,000.

B. 2015: $3,000; 2016: $0. Self-employed persons may deduct from gross incomes 100% of amounts paid during 2016 for health insurance for themselves, their spouses, and their dependents and 100% of amounts paid during 2015. The couple cannot take a deduction for 2016 since Julie was eligible for an employer health plan even though she declined to participate (Publication 17).

A taxpayer who materially participates in rental real estate activities in the current year may offset some losses and credits from the activity against nonpassive income (salary, self-employment earnings, etc.) provided that the taxpayer performs more than 50% of his or her personal services for the year in real property trades or businesses in which (s)he materially participates and the number of service hours performed in those real property trades or businesses in which (s)he materially participates is more than A. 450 B. 750 C. 1,000 D. 500

B. 750

Which of the following is not disqualified income for purposes of the Earned Income Credit? A. Net capital gain income. B. Income earned from part-time employment. C. Net rent and royalty income. D. Tax-exempt interest income.

B. Income earned from part-time employment. part time work is not disqualified income

Susan, a single filer, started a home-based dress business on March 1, Year 2. She was an employee and paid income taxes of $6,000 for Year 1. Susan's business had net income of $0, $9,000, $11,000, and $15,000 respectively for each of the calendar quarters in Year 2. Susan's total tax liability for the year was $5,500. Her first payment of estimated taxes is due A. Susan's tax liability for Year 1 exceeds 90% of her Year 2 tax liability so no estimates are required to be paid. B. June 15. C. No estimates due if Susan files by January 31, Year 3. D. April 15.

B. June 15. no income in the first quarter

Jerry, a general contractor by trade, is a tenant of Montgomery Apartments. In exchange for 4 months' rent ($900/month), Jerry provided the following items and services for Paul, the owner of the apartments: Paint and miscellaneous supplies for the apartments $ 700 Labor for painting and miscellaneous repairs 1,000 Labor and supplies for paving the apartment parking area 1,900 How should Paul treat this transaction on his current-year Schedule E? A. Rental income of $3,600 and rental expenses of $3,600. B. Rental income of $3,600, rental expenses of $1,700, and depreciation computed on the capital expenditures of $1,900. C. Rental income of $3,600 and depreciation computed on the capital expenditures of $3,600. D. No rental income or rental expenses to be reflected on the Schedule E because the net effect is zero.

B. Rental income of $3,600, rental expenses of $1,700, and depreciation computed on the capital expenditures of $1,900. The $1,700 cost of painting and miscellaneous repairs is for routine maintenance costs and can be deducted as rental expenses. The $1,900 cost of paving the parking area should be capitalized and properly depreciated

Jack's antique car caught fire and was totally destroyed. The car was appraised for $22,500. Jack only had it insured for $15,000 since this was more than enough to cover his adjusted basis of $9,000. He decided not to replace the car. What should Jack report on his tax return? A. None of the answers are correct. B. Report income of $6,000. C. Deduct a loss of $7,500. D. Deduct a loss of $6,000.

B. Report income of $6,000.

In Year 1, Laura lent Pat $2,000. At that time, Pat signed an enforceable note agreeing to repay the $2,000. The loan was not made in the course of Laura's business. The loan had not been repaid in Year 3 when Pat died insolvent. For Year 3, Laura should report the nonpayment of the loan as a(n) A. Ordinary loss. B. Short-term capital loss. C. Miscellaneous itemized deduction. D. Long-term capital loss.

B. Short-term capital loss. A loss from a business debt is an ordinary loss, while a loss from a nonbusiness debt is treated as a short-term capital loss. A nonbusiness bad debt is a debt other than one incurred or acquired in connection with the trade or business of the taxpayer. Therefore, when Pat died in Year 3, Laura cannot be assumed to have forgiven the loan, and the amount is not considered a gift. A short-term capital loss results

Larry purchased 100 shares of ABC stock on May 31, Year 1, for $100 per share. On October 28, Year 1, he sold the 100 shares for $90 per share. On November 22, Year 1, his wife, Vickie, purchased 100 shares of ABC stock for $80 per share. Vickie held the stock until September 30, Year 2. On that date, she sold the stock for $110 per share. They filed married filing separately on all returns. A. Vickie has short-term gain of $3,000 on her Year 2 tax return. B. Vickie will have a long-term gain of $2,000 on her Year 2 tax return and Larry will not have any capital loss on his Year 1 tax return. C. Vickie will have a short-term gain of $3,000 on her Year 2 tax return, and Larry takes the short-term loss of $1,000 on his Year 1 tax return. D. Larry has a short-term loss of $1,000 on his Year 1 tax return.

B. Vickie will have a long-term gain of $2,000 on her Year 2 tax return and Larry will not have any capital loss on his Year 1 tax return. If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.

Joseph died on November 2 of the current year. Joseph left all of his assets, including an IRA, to his two sons equally. From the information below, determine if Joseph's sons qualify to claim an estate tax deduction on their returns when they report the taxable IRA distributions. Assets and Deductions House (no mortgage) $4,908,000 Stocks 30,000 IRA-distributed 400,000 Administrative expenses 60,000 A. Yes, because the gross estate exceeds $5,450,000. B. Yes, because the amount of the income in respect of a decedent (the IRA) exceeds the estate's deductions. C. No, because the amount of the taxable estate is less than $5,450,000. D. No, because the amount of the income in respect of a decedent (the IRA) is less than $5,450,000.

B. Yes, because the amount of the income in respect of a decedent (the IRA) exceeds the estate's deductions.

Randi, a flight attendant, received wages of $30,000 in the current year. The airline provided transportation on a stand-by basis, at no charge, from her home in Detroit to the airline's hub in Chicago. The fair market value of the commuting flights was $5,000. Also in the current year, Randi received reimbursements under an accountable plan of $10,000 for overnight travel, but only spent $6,000. The excess was returned. Randi became disabled in November of the current year and received workers' compensation of $4,000. What amount must Randi include in gross income on her current-year tax return? A. $34,000 B. $37,000 C. $30,000 D. $35,000

C The commuting flights paid for by the employer are excluded from gross income since they are no-additional-cost fringe benefits. The reimbursed overnight travel expenses are not included in gross income because they could have been deducted by Randi as qualified business expenses and the excess reimbursements were returned. Workers' compensation is excluded from gross income under Sec. 104(a) (Publications 17 and 463). Therefore, only Randi's salary of $30,000 is included in gross income as compensation for services rendered

James works in sales and does not receive any reimbursement for his entertainment expenses from his employer. In May, he had the following expenses: -$500 for use of a yacht for a day's fishing with two clients -$50 lunch with a client with whom he discusses a new product line -$200 for dues to the country club where he plays golf with a client who provides James with 40% of his commissions -$50 for a cheese package given to one of his clients on the client's birthday Before the consideration of any limitations, what is the total of his deductible expenses for May? A. $800 B. $600 C. $100 D. $75

C. $100

Mr. and Mrs. Wilson's 5-year-old son, Dennis, goes to kindergarten in the morning. In the afternoon, he attends a day care center. The cost of sending Dennis to the day care center for 2016 was $3,400. Mr. Wilson's earned income was $40,000, and Mrs. Wilson's earned income was $2,100. Based on the above information, the amount of the Wilson's work-related expenses used to figure the Child and Dependent Care Credit for 2016 cannot be more than A. $4,800 B. $2,400 C. $2,100 D. $3,400

C. $2,100 Amount can't exceed one of the taxpayers income

Bethany is single and has adjusted gross income of $40,000. Bethany works full-time and keeps up a home for herself and her dependent father, who is not able to care for himself. She pays a housekeeper $1,100 per month to care for and provide meals to her father. What is the maximum amount of annual housekeeper expenses that Bethany can use to compute her Dependent Care Credit? A. $6,000 B. $1,320 C. $3,000 D. $3,600

C. $3,000

Unemployment compensation generally includes any amount received under an unemployment compensation law of the United States or of a state. Which of the following statements is false? A. Benefits received from a company-financed fund, to which you did not contribute, are taxable wages. B. Payments you receive from your employer during periods of unemployment, under a union agreement that guarantees you full pay during the year, are taxable as wages. C. Benefits paid to you as an unemployed member of a union out of regular union dues are not included in your gross income. D. You may be liable for estimated taxes if you receive unemployment compensation.

C. Benefits paid to you as an unemployed member of a union out of regular union dues are not included in your gross income.

Some contributions may be limited to 50% of the taxpayer's adjusted gross income. Deductions to the following organizations are subject to the 50% limitation on deductible contributions: A. Hospitals and certain medical research organizations associated with them. B. Churches; church organizations; conventions; and educational organizations with regular faculty, curriculum, and regularly enrolled students. C. Churches; church organizations; conventions; educational organizations with regular faculty, curriculum, and regularly enrolled students; and hospitals and certain medical research organizations associated with them. D. Kiwanis, Rotary, and Lions Clubs who raise money for public causes.

C. Churches; church organizations; conventions; educational organizations with regular faculty, curriculum, and regularly enrolled students; and hospitals and certain medical research organizations associated with them. Code Sec. 170 describes eight organizations that qualify as a charitable organization in which contributions are limited to 50% of adjusted gross income (AGI). Included in this list are Churches or conventions or associations of churches; Educational organizations that normally maintain a regular faculty, curriculum, and have regularly enrolled students in attendance at a place where educational activities are regularly carried on; and Organizations whose principal purpose or function is to provide medical or hospital care, medical education, or medical research. Fundraising activities, in which tickets to an event are purchased and the proceeds are donated to a charitable organization, are not deductible. The exception is when the taxpayer can prove a difference between the purchase price and the fair market value, in which case, the difference is deductible (Publication 17).

If the taxpayer makes a contribution by cash, check, credit card, or payroll deduction to a qualified organization, what record of the contribution is the taxpayer required to obtain from the organization? A. If the amount is for some item or service, like a charity dinner, and over $100, the taxpayer must have a separate acknowledgment for each contribution. B. For annual payroll deductions over $250, the taxpayer must have a separate acknowledgment for each contribution. C. For contributions under $250, the taxpayer must keep an account, statement, receipt or other reliable written record. D. Weekly contributions of $50 to the taxpayer's church must have a separate acknowledgment for each contribution.

C. For contributions under $250, the taxpayer must keep an account, statement, receipt or other reliable written record.

When funds from an Archer MSA are distributed for qualified medical expenses, these funds are A. Always included in the income of the taxpayer. B. Allocated between contributions made by the employer and the employee, and only the amount attributed to the contributions of the employee are included in income of the taxpayer. C. Generally excluded from the income of the taxpayer. D. Generally included in the income of the taxpayer.

C. Generally excluded from the income of the taxpayer.

David and Carmen were divorced in 2013. Under the final divorce decree, David was ordered to pay Carmen $800 a month for the support of their two children, who remained in the custody of Carmen. Over the next 2 years, David was very inconsistent in making child support payments to Carmen. In 2015, he missed three payments. In 2016, he made up one of the 2015 payments and missed five more payments. Assuming Carmen is a cash-basis taxpayer, what amount of nonbusiness bad debt may she claim in 2015 and 2016? A. $1,600 in 2015 and $4,000 in 2016. B. $2,400 in 2015 and $3,200 in 2016. C. None in either year. D. $2,400 in 2015 and $4,000 in 2016.

C. None in either year. A nonbusiness bad debt is any debt other than a debt that is created or acquired in the course of a trade or business of the taxpayer. Nonbusiness debt cannot be a bad debt for tax purposes unless it becomes completely worthless. Unpaid child support and alimony cannot be deducted as bad debt. The taxpayer has no basis in the obligation

What are the limits for the rate specified by the mortgage credit certificates (MCCs)? A. Not less than 10% and not greater than 30%. B. Not less than 10% and not greater than 60%. C. Not less than 10% and not greater than 50%. D. Not less than 10% and not greater than 40%.

C. Not less than 10% and not greater than 50%. State and local governments can elect to issue qualified mortgage bonds (QMBs) in lieu of certain tax-exempt bonds. The QMBs finance mortgage credit certificates (MCCs) issued to qualified individuals who use the MCCs when privately financing their first purchase of a principal residence. The MCC specifies a rate that may not be less than 10% or greater than 50% (25% for an assumption).

A taxpayer does not have to pay estimated taxes for the current year if A. The taxpayer's withholding covers 90% of the tax liability for the previous year. B. The taxpayer's tax liability for the previous year was less than $1,000. C. The taxpayer's Earned Income Credit will exceed his or her tax liability for the current year. D. All of the answers are correct.

C. The taxpayer's Earned Income Credit will exceed his or her tax liability for the current year.

Cathy, a single mother, has modified AGI of $86,000. In 2016, her daughter began work on her bachelor's degree. Cathy pays $6,000 in qualified tuition for her daughter's first semester. What is the amount of AOC Cathy is allowed on her return? A. $1,500 B. $2,500 C. $0 D. $1,000

D. $1,000 (86000-80000)/10000 = .6 .6*2500 = 1500 2500-1500=1000 In 2016, the AOC provides an allowable credit of $2,500 for qualified tuition, fee, and book expenses (Sec. 25A). However, a credit phaseout begins for most taxpayers when modified AGI reaches $80,000 and is completely phased out when modified AGI reaches $90,000

Matt paid interest in 2016 as follows: $100 on his personal credit card $200 on funds borrowed in order to purchase $6,000 in tax-exempt securities $500 interest on his personal car loan since he does not use his car for business $10,000 on his home mortgage What is the amount of Matt's deductible interest in 2016? A. $17,400 B. $10,600 C. $10,800 D. $10,000

D. $10,000 General rule is that personal interest is not deductible. Includes car/credit cards

Heathcliff and Gertrude file a joint income tax return for the current year. During the current year, Heathcliff received wages of $120,000 and taxable Social Security benefits of $5,000. Gertrude actively participated in a rental real estate activity in which she had a $30,000 loss. They had no other income during the current year. How much of the rental loss may they deduct on their current-year income tax return? A. $0 B. $25,000 C. $12,500 D. $15,000

D. $15,000 $100,000 by $20,000. Therefore, the $25,000 allowance is reduced by $10,000 ($20,000 × 50%). This leaves $15,000 of losses that can be deducted

When considering a taxpayer's Retirement Savings Contribution Credit, what is the AGI limit for a taxpayer who is married and filing jointly? A. $61,500 B. $46,125 C. $2,000 D. $30,750

Correct SubmitA. $61,500 Unlike most other tax topics allowing a credit or deduction, this credit is in addition to the exclusion or deduction from GI for qualified contributions. In general, a taxpayer may claim a credit for an eligible contribution to an eligible retirement plan. The AGI limit is $30,750 ($61,500 MFJ, $46,125 HH) in 2016.

Sally and Joe Johnson have one child who is a U.S. citizen under the age of 17. Their earned income for all of 2016 was $80,000. What is the amount of Child Tax Credit that they may take in 2016 if they file a joint return? A. $200 B. $1,000 C. $500 D. $0

Correct SubmitB. $1,000 A Child Tax Credit in the amount of $1,000 per child is allowed in 2016. In addition, the credit for taxpayers filing a joint return is not phased out until their AGI exceeds $110,000. Therefore, the Johnsons are allowed a credit of $1,000 (Publication 17 or 972).

During the current year, Anthony paid the following taxes: Real estate taxes on rental property he owns $3,000 Real estate taxes on his own residence 2,500 Federal income taxes 7,000 State income taxes 2,700 Local city income taxes 500 Social Security taxes for household help 500 Anthony did not use the rental property for personal purposes. What amount is deductible as an itemized deduction on Anthony's current-year income tax return? A. $5,200 B. $14,000 C. $8,700 D. $5,700

D. $5,700 Publication 17 and Sec. 164(a) list the taxes that are deductible from adjusted gross income. The real estate taxes on the personal residence, the state income taxes, and the local city income taxes are deductible as itemized deductions. The real estate taxes on the rental property and the Social Security taxes for household help may be deductible but not as itemized deductions. Federal income taxes are not deductible.

Zach and Myra have four children ranging in age from 2 to 10. Zach has wages of $80,000, and Myra has wages of $25,000. Two of the children went to Child Nursery School, Inc., at a total cost of $8,000. The two older children attended a qualified after-school program that costs $2,500. What amount of childcare expenses can be used to determine the credit on their 2016 return? A. $3,000 B. $4,800 C. $10,500 D. $6,000

D. $6,000

Mr. K is 67 years old, single, and retired. During the current year, he received a taxable pension from his former employer in the amount of $4,000. His adjusted gross income is $15,000, and he received $650 of nontaxable Social Security benefits. His tax before credits is $310. What is Mr. K's Credit for the Elderly and the Permanently and Totally Disabled? A. $330 B. $750 C. $0 D. $90

D. $90 5000 - 650 - 3750 * 15% = 90 15000/2 = 3750

Which of the following is not an example of a passive activity? A. The rental of office equipment with no provision of unusual services. B. The farming of land when the taxpayer owning the land has hired others to manage operations. C. A limited partner's interest in a limited partnership. D. A working interest in oil and gas property, when the taxpayer-owner has unlimited liability, and does not materially participate in the activity.

D. A working interest in oil and gas property, when the taxpayer-owner has unlimited liability, and does not materially participate in the activity. Passive activities generally include any activity involving the conduct of a trade or business or the production of income and in which the taxpayer does not materially participate (Sec. 469). However, Sec. 469(c)(3) of the tax code excludes from the passive activity definition any working interest in oil or gas property in which the form of ownership does not limit liability. This is true whether or not the taxpayer-owner materially participates in the activity (Publication 925).

The fringe benefit that must be included in wages and reported on Form W-2 is A. Health or accident insurance coverage provided by your employer. B. Employer-provided parking near the place of business valued at less than $255 per month. C. Contributions by your employer to provide long-term care services. D. Group-term life insurance coverage in excess of $50,000.

D. Group-term life insurance coverage in excess of $50,000.

Jan owns and operates a store in the downtown shopping mall. She reports her income and expenses as a sole proprietor on a Schedule C. In 2016, one of the financial institutions that she borrowed money from in order to start her business cancels her debt. Jan had a balance due of $5,000 when the debt was canceled. Which of the following statements is true? A. Jan has to report the relief of debt of $5,000 as a long-term gain on Schedule D. B. Jan must report the $5,000 debt cancelation as other income on Form 1040. C. Jan does not have to report the forgiveness of the debt as income. D. Jan has to report the $5,000 debt cancelation as income on her Schedule C.

D. Jan has to report the $5,000 debt cancelation as income on her Schedule C.

Which of the following is a medical deduction? A. Health club dues advised by your doctor. B. Maternity clothing. C. None of the answers are correct. D. Legal abortion.

D. Legal abortion.

All of the following individuals file their income tax returns as single. Which one is required to make estimated tax payments for Year 2? A. Ms. Streams, who had no tax liability for Year 1, expects to owe $1,200 self-employment tax for Year 2 (she has no withholding tax or credits). B. Mr. Charles, who had a Year 1 tax liability of $10,000, expects a tax liability of $19,500 for Year 2, with $10,500 withholding. C. Mr. Rush, who had a $1,000 tax liability for Year 1, expects a $1,100 tax liability for Year 2 and withholding of $900. D. Ms. Givonni, who had a $4,000 tax liability for Year 1, expects a tax liability of $4,900 for Year 2 with $3,900 withholding.

D. Ms. Givonni, who had a $4,000 tax liability for Year 1, expects a tax liability of $4,900 for Year 2 with $3,900 withholding. The annual estimated payment that must be made is equal to the lesser of (1) 90% of the tax for the current year or (2) 100% of the tax for the prior year (Publication 17). Also, no penalty will apply to an individual whose tax for the year, after credit for withheld tax, is less than $1,000. Ms. Givonni does not meet either the 90% or the 100% test, and her tax after credit for withholding is not less than $1,000. Therefore, she will have to make estimated tax payments.

Which of the following types of taxes can be deducted on Schedule A? A. A tax on a motor vehicle based on vehicle weight. B. Transfer taxes on the sale of a residence. C. A tax on a motor vehicle based on engine horsepower. D. None of the answers are correct.

D. None of the answers are correct.

To compute the Minimum Tax Credit (MTC), the taxpayer should A. Recompute the most recent year's alternative minimum tax with adjustment for certain exclusion items, and add the carryover MTC. B. Recompute the most recent year's alternative minimum tax with the adjustment for the tax amount, and subtract the carryover MTC. C. Recompute the most recent year's alternative minimum tax and subtract the carryover MTC. D. Recompute the most recent year's alternative minimum tax without adjustment for certain exclusion items, and add the carryover MTC.

D. Recompute the most recent year's alternative minimum tax without adjustment for certain exclusion items, and add the carryover MTC.

Paula met all the requirements to deduct moving expenses when she moved from California to Florida. Which of the following expenses that she incurred is deductible? A. Real estate commissions paid to sell her house. B. Househunting trips before she moved. C. Home improvements to help sell her home in California. D. The cost of an oil change for her car while driving from California to Florida during her move.

D. The cost of an oil change for her car while driving from California to Florida during her move.

Income in respect of a decedent must not be included in the income of which of the following? A. The beneficiary's filing (if the right to income is passed directly to and received by the beneficiary). B. Any person to whom the estate properly distributes the right to receive it. C. The decedent's estate (if received by the estate). D. The decedent's final Form 1040 filing.

D. The decedent's final Form 1040 filing. Income in respect of a decedent (IRD) is earned by the taxpayer but not received prior to his or her death or accrued prior to his or her death if on the accrual method, so it is not included on the decedent's final return.

Which of the following statements concerning the deduction for estate taxes by individuals is true? A. None of the answers are correct. B. Individuals may claim the deduction for estate tax whether or not they itemize deductions. C. The estate tax deduction is a miscellaneous itemized deduction subject to the 2% limitation. D. The deduction for estate tax can be claimed only for the same tax year in which the income in respect of a decedent must be included in the recipient's income.

D. The deduction for estate tax can be claimed only for the same tax year in which the income in respect of a decedent must be included in the recipient's income.

Which of the following is considered a nonbusiness bad debt? A. Kirby guaranteed a loan as a gesture of friendship for Sue. Sue defaulted and Kirby paid off the loan. B. Mary obtained a court order for her former husband, Bill, to pay child support. Bill did not pay the child support. C. None of the answers are correct. D. Tom, a CPA, made personal loans to several friends who were not his clients. Three of the loans became totally worthless.

D. Tom, a CPA, made personal loans to several friends who were not his clients. Three of the loans became totally worthless. A loss from a business debt is an ordinary loss, while a loss from a nonbusiness debt is treated as a short-term capital loss. A nonbusiness bad debt is a debt other than one incurred or acquired in connection with the trade or business of the taxpayer. A nonbusiness bad debt must be wholly worthless to be deducted (Publication 550). The personal loans were, by nature, not connected to Tom's business, especially since they were not even made to clients.

Which of the following would not be considered alimony with respect to payments to or for a spouse under a divorce or separation instrument? A. Cash to a third party under terms of the instrument or written request. B. Payments by cash, check, or money order. C. Payments for which there is no liability after the death of the recipient spouse. D. Transfer of services or property (including a debt instrument of a third party or an annuity contract).

D. Transfer of services or property (including a debt instrument of a third party or an annuity contract). alimony as any payment in cash if (1) it is received under a divorce or separation instrument, (2) the instrument does not designate the payment as not includible in gross income, (3) the payee spouse and payor spouse are not members of the same household at the time the payment is made, and (4) there is no liability to make such payment for any period after the death of the payee spouse. Thus, if the payments are in services or property, and not cash, they cannot be considered alimony (Publication 17).

Mr. W died early in the current year. Mrs. W remarried in December of the same year and therefore was unable to file a joint return with Mr. W. What is the filing status of the decedent, Mr. W? -Married filing separate return. -Head of household. -Single. -Married filing joint return.

Married filing separate return. A joint return with the deceased spouse may not be filed if the surviving spouse remarried before the end of the year of the decedent's death. In this case, the filing status of the deceased spouse is that of married filing separate return

Which dependent relative does not have to live in the same household as the taxpayer claiming head of household filing status? -Uncle. -Daughter. -Sister or brother. -Mother.

Mother Sec. 2(b) provides head of household status for an unmarried taxpayer who maintains a household that constitutes the principal place of abode of the taxpayer's father or mother, but only if the taxpayer is entitled to a dependency exemption for the parent. The taxpayer is considered as maintaining a household only if (s)he furnishes over half of the cost of maintaining it. In the case of anyone other than the taxpayer's father or mother, such person(s) must actually occupy the taxpayer's own household for the taxpayer to be considered a head of household (Publication 17).

Standard deductions for: Single Head of Household Married filing separately Married filling jointly

Single $6300 HOH $9300 MFS $6300 MFJ $12600

Which of the following is a disqualification for the Child and Dependent Care Credit? A. Head of household filing status. B. Paying for care for your spouse who is not physically or mentally able to care for himself or herself while you work. C. Child care only while you perform unpaid volunteer work. D. Making child care payments to relatives.

SubmitC. Child care only while you perform unpaid volunteer work. To be eligible for the Child and Dependent Care Credit, a taxpayer must incur child and dependent care expenses that enable the taxpayer to be gainfully employed. These expenses may be incurred when the claimant is employed or actively seeking employment. In addition, the taxpayer must provide more than half the cost of maintaining a household for a dependent under age 13 or a physically or mentally incapacitated spouse or dependent. (Publication 503.)

Fred received the following from his employer during the year: $25,000 regular wages, $5,000 cash bonus, trip valued at $1,000, and parking valued at $100 per month at a lot adjacent to the office building. His employer contributed $200 per month to a 401(k) plan for Fred. Fred chose not to set aside any of his pay for the retirement plan. How much income should Fred report? A. $32,200 B. $34,600 C. $33,400 D. $31,000

compensation for personal services, no matter what form of payment, must be included in gross income. Wages, bonuses, and fringe benefits that do not qualify for exclusions are some examples of items included. Parking is specifically listed as a qualified transportation fringe benefit under Sec. 132(f)(1) and (2). The $5,000 cash bonus and the trip are included in his income; however, contributions to a 401(k), subject to a limitation that Fred does not surpass, are not included. Therefore, his income is $31,000 ($25,000 regular wages + $5,000 cash bonus + $1,000 trip value).

Who would not be a qualifying person for purposes of filing as head of household in 2016? -Your mother, whom you can claim as a dependent. -Your foster child who lived with you all year and is your dependent. -Your adopted child who lives with you, is married, and can be claimed as your dependent. -Your aunt, related to you by blood. She does not live with you but is your dependent.

your aunt, who is your dependent, would not be a qualifying individual because she does not live in the principal place of abode -An unmarried son or daughter, unmarried grandchild, or unmarried stepchild, or -Any other relative eligible to be claimed as a dependent, except for those eligible under a multiple-support agreement.