Reg Exam 2

Which of the following statements about the Sec. 199A deduction is false?

The Sec. 199A deduction is taken on Schedule C.

Rachel Robinson, age 52, receives a $500 per month annuity from her pension plan. The annuity started January 1, 2018. Her contributions to the plan totaled $39,600. The number of anticipated monthly payments is 360. What is Rachel's nontaxable part of the annuity payment?

The investment in the contract divided by the number of anticipated monthly payments.

Mark established a Roth IRA at age 40 and contributed $5,500 per year to the account for 20 years. He met the income limits for contributing to the account and was therefore eligible to hold a Roth IRA. Mark now wishes to withdraw the $200,000 of accumulated funds from his Roth IRA. What is the amount of the distribution that is included in Mark's gross income?

$0

On February 1, Year 5, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in Year 1. Fair market value of the stock on February 1, Year 5, the date of his father's death, was $4,000 and had increased to $5,500 6 months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, Year 5, the date that the executor distributed the stock to him. How much income should Hall include in his Year 5 individual income tax return for the inheritance of the 500 shares of stock that he received from his father's estate?

$0

Charles and Marcia are married cash-basis taxpayers. In 2018, they had interest income as follows: $500 interest on federal income tax refund $600 interest on state income tax refund $800 interest on federal government obligations $1,000 interest on state government obligations What amount of interest income is taxable on Charles and Marcia's 2018 joint income tax return?

$1,900

Shirley, a single taxpayer, has taxable income of $150,000. She has qualified business income (QBI) of $50,000 and no qualified property. The qualified business paid a total of $15,000 in wages. Under Sec. 199A, what is Shirley's deductible amount for the qualified business?

$10,000

Smith, a retired corporate executive, earned consulting fees of $8,000 and director's fees of $2,000 in 2018. Smith's gross earnings from self-employment in 2018 was

$10,000

Roberta Warner and Sally Roger formed the Acme Corporation on October 1, 2018. On the same date Warner paid $75,000 cash to Acme for 750 shares of its common stock. Simultaneously, Roger received 100 shares of Acme's common stock for services rendered. How much should Roger include as taxable income for 2018, and what will be the basis of her stock?

$10,000 $10,000

Willie Coconut was injured during the year and was not able to work due to his injury and the associated emotional distress. Willie received the following payments during the year: Disability pay $3,500 Accident insurance proceeds (substitute for lost income) 7,000 Damages for emotional distress received by a lawsuit 2,000 Punitive damages 5,000 Willie has paid the premiums for all of his policies and has not taken any deductions for the medical expenses. The total amount of compensation for injury that Willie may exclude from gross income is

$12,500

Roger Burrows, age 19, is a full-time student at Marshall College and a candidate for a bachelor's degree. His tuition and fees were $4,000 per year. During 2018 he received the following payments: State scholarship for 10 months $3,600 Loan from college financial aid office 1,500 Cash support from parents 3,000 Cash dividends on investments 700 Cash prize awarded in newspaper contest 500 $9,300 What is Burrows' gross income for 2018?

$1200

A 33-year-old taxpayer withdrew $30,000 (pretax) from a traditional IRA. The taxpayer has a 28% effective tax rate and a 35% marginal tax rate. What is the total tax liability associated with the withdrawal?

$13,500

During 2018, Ash had the following cash receipts: Wages $15,000 Interest income from U.S. Treasury bonds 350 Workers' compensation following a job-related injury 8,500 What is the total amount that must be included in gross income on Ash's 2018 income tax return?

$15,350

Robin and Monica are married and filing a joint return. They have a taxable income of $300,000. Robin owns a qualified sole proprietorship that generates qualified business income (QBI) of $50,000, and Monica is the sole owner of a qualified S corporation that generates a QBI of $75,000. How much is Robin and Monica's combined deductible amount for the year?

$25,000

Moore, a single taxpayer, had $50,000 in adjusted gross income for 2018. During 2018, she contributed $23,000 in cash to her church. She had a $10,000 charitable contribution carryover from her 2017 cash church contribution. What was the maximum amount of properly substantiated charitable contributions that Moore could claim as an itemized deduction for 2018?

$30,000

Randolph is a single individual who always claims the standard deduction. Randolph received the following in the current year: Wages $22,000 Unemployment compensation 6,000 Pension distribution (100% taxable) 4,000 A state tax refund from the previous year 425 What is Randolph's gross income?

$32,000

Pierce Corp., an accrual-basis, calendar-year C corporation, had the following 2018 receipts: 2019 advance rental payments for a lease ending in 2020 $250,000 Lease cancellation payment from a 5-year lease tenant 100,000 Pierce had no restrictions on the use of the advance rental payments and renders no services in connection with the rental income. What amount of gross income should Pierce report on its 2018 tax return?

$350,000

Aviary Corp. sold a building for $600,000. Aviary received a down payment of $120,000, as well as annual principal payments of $120,000 for each of the subsequent 4 years. Aviary purchased the building for $500,000 and claimed depreciation of $80,000. What amount of gain should Aviary report in the year of sale using the installment method?

$36,000

Mr. Cypress owned a small three-unit apartment building in Detroit, Michigan. The rent on each apartment was $1,000 per month. During 2018, he received the following payments: Apt. A - Timely rent payments were made for 12 months. Apt. B - The apartment was vacant in January and February. On 3/1/18, a new tenant entered into a 1-year lease from 3/1/18 through 2/28/19. The tenant paid first and last month's rent and a security deposit of $1,500. The security deposit is to be returned at the end of the lease if the tenant lives up to the terms of the lease. The tenant timely paid the rent for the next 9 months (April through December) on the first of each month. Apt. C - In December, after timely paying the rent for 12 months of the year, the tenant came to Mr. Cypress and told him that he had been transferred to a new job location in Tennessee. He asked to be released from his 2-year lease obligation, which was scheduled to expire on June 30, 2019. Mr. Cypress agreed to accept 3 months' rent to cancel the lease. The tenant paid Mr. Cypress $3,000 to cancel the lease in December. Assuming Mr. Cypress is a cash-basis taxpayer, what amount should Mr. Cypress include in his 2018 gross income from the apartment building?

$38,000

Flowers, a married taxpayer, purchased an annuity for $64,400 that will pay $700 per month over the life of Flowers and Flowers's spouse. At the time of purchase, the couple's joint life expectancy was 23 years. Flowers received payment beginning April 1, Year 1, amounting to $6,300 in the first year of the annuity contract. How much is includible in Flowers's gross income in the first year?

$4,200

Poole, 45 years old and single, is in the 12% tax bracket. He had 2018 adjusted gross income of $50,000. The following information applies to Poole: Medical expenses $16,000 Standard deduction 12,000 The relevant tax brackets are Income Tax ≤ $9,525 10% $9,525 to $38,700 12% Poole wishes to minimize his income tax. What is Poole's 2018 total income tax rounded to the nearest dollar?

$4,340

In 2018, a self-employed taxpayer had gross income of $57,000. The taxpayer paid self-employment tax of $8,000, health insurance of $6,000, and $5,000 of alimony. The taxpayer also contributed $2,000 to a traditional IRA. What is the taxpayer's adjusted gross income

$40,000

Emil Gow owns a two-family house that has two identical apartments. Gow lives in one apartment and rents out the other. In 2018, the rental apartment was fully occupied, and Gow received $7,200 in rent. During the year ended December 31, 2018, Gow paid the following: Real estate taxes $6,400 Painting of rental apartment 800 Annual fire insurance premium 600 In 2018, depreciation for the entire house was determined to be $5,000. What amount should Gow include in his adjusted gross income for 2018?

$400

Porter was unemployed for part of the year. Porter received $35,000 of wages, $4,000 from a state unemployment compensation plan, and $2,000 from his former employer's company-paid supplemental unemployment benefit plan. What is the amount of Porter's gross income?

$41,000

U Co. had cash purchases and payments on account during the current year totaling $455,000. U's beginning and ending accounts payable balances for the year were $64,000 and $50,000, respectively. What amount represents U's accrual basis purchases for the year?

$441,000

Nare, an accrual-basis taxpayer, owns a building which was rented to Mott under a 10-year lease expiring August 31, Year 4. On January 2, Year 1, Mott paid $30,000 as consideration for canceling the lease. On November 1, Year 1, Nare leased the building to Pine under a 5-year lease. Pine paid Nare $10,000 rent for the 2 months of November and December, and an additional $5,000 for the last month's rent. What amount of rental income should Nare report in its Year 1 income tax return?

$45,000

Klein, a master's degree candidate at Briar University, was awarded a $12,000 scholarship from Briar in Year 1. The scholarship was used to pay Klein's Year 1 university tuition and fees. Also in Year 1, Klein received $5,000 for teaching two courses at a nearby college. What amount must be included in Klein's Year 1 gross income?

$5,000

Smith paid the following unreimbursed medical expenses: Dentist and eye doctor fees $ 5,000 Contact lenses 500 Facial cosmetic surgery to improve Smith's personal appearance (surgery is unrelated to personal injury or congenital deformity) 10,000 Premium on disability insurance policy to pay him if he is injured and unable to work 2,000 What is the total amount of Smith's tax-deductible medical expenses before the adjusted gross income limitation?

$5,500

Lana and Luke are married and have a taxable income of $305,000. Their share of the income from an accounting partnership is $250,000. The accounting partnership pays a total of $90,000 in W-2 wages. Under Sec. 199A, what is their deductible amount for the partnership?

$50,000

Robin, Monica, and Rose have a partnership that is a qualified business. In the partnership agreement, each partner has a one-third share in income and expenses. The partnership generated qualified business income (QBI) of $150,000, paid total W-2 wages of $120,000, and purchased qualified property with an unadjusted basis of $60,000. There are no special allocations to partners. Under Sec. 199A, what is Robin's allocable share of QBI, W-2 wages, and qualified property, respectively? QBI: W-2: Qualified Property:

$50,000 $40,000 $20,000

During the year, Barbra Carrey received an inheritance of $15,000 and a $500 gift from her employer. What amount of gifts received should Barbra include in her income tax return?

$500

Kant, a cash-basis individual, owns and operates an office building. Kant received the following payments during the current year: Current rents $30,000 Advance rents for the next year 10,000 Security deposits held in a segregated account 5,000 Lease cancellation payments 15,000 What amount is included in gross income?

$55,000

Soma Corp. had $600,000 in compensation expense for book purposes in Year 1. Included in this amount was a $50,000 accrual for Year 1 nonshareholder bonuses. Soma paid the actual Year 1 bonus of $60,000 on March 1, Year 2. In its Year 1 tax return, what amount should Soma deduct as compensation expense?

$610,000

Tyler and Ross are married, have taxable income of $419,600, and own a partnership together. They have a qualified business income (QBI) of $334,600 from the partnership and do not have any qualified property. The partnership pays a total of $127,500 in W-2 wages. Under Sec. 199A, what is Tyler and Ross's QBI allowed amount for the partnership?

$63,750

Which of the following should be included when determining adjusted gross income?

Alimony received pursuant to a 2018 divorce.

Amy and Tyler are married and have taxable income of $350,000. Amy has a sole proprietorship that is a specified service trade or business. Under Sec. 199A, which of the following statements is correct based on the above information

Amy and Tyler can claim the Sec. 199A deduction, but only the applicable percentage of qualified items of income, gain, deduction, or loss; the W-2 wages; and the unadjusted basis of qualified property allocable to the business should be taken into account in the calculations.

Carl Slater was the sole proprietor of a high-volume drug store, which he owned for 25 years before he sold it to Statewide Drug Stores, Inc., in 2018. Besides the $800,000 selling price for the store's tangible assets and goodwill, Slater received a lump sum of $60,000 in 2018 for his agreement not to operate a competing enterprise within 10 miles of the store's location, for a period of 6 years. How will the $60,000 be taxed to Slater?

As $60,000 ordinary income in 2018.

How may taxes paid by an individual to a foreign country be treated?

As a credit against federal income taxes due

Sanderson has made deductible contributions to his traditional IRA for many years. Sanderson recently retired at age 60 and received a distribution of $150,000. In which way, if any, will the distribution be taxed?

As ordinary income

Chrisp, a freelance photographer, uses the cash method for business. The tax year ends on December 31. Which of the following should not be included in the determination of Chrisp's gross income for the current year?

Chrisp received a dividend check on January 4 of the following year. The dividends were declared payable on December 30 of the current year.

Dart, a C corporation, distributes software over the Internet and has had average revenues in excess of $40 million per year for the past 3 years. To purchase software, customers enter their credit card number to a secure website and receive a password that allows the customer to immediately download the software. As a result, Dart does not record accounts receivable or inventory on its books. Which of the following statements is correct?

Dart must use the accrual method of accounting

The Tax Cuts and Jobs Act added a new deduction for qualified business income (QBI) of pass-through entities that will be available for tax years beginning after December 31, 2017, and before January 1, 2026. Which of the following comments is not correct regarding the QBI deduction?

For the most part, the deduction is 21% of a taxpayer's QBI from a partnership, S corporation, or sole proprietorship.

A cash-basis taxpayer should report gross income

For the year in which income is either actually or constructively received, whether in cash or in property.

The 2018 deduction by an individual taxpayer for interest on investment indebtedness is

Limited to the taxpayer's 2018 net investment income

For regular tax purposes, with regard to the itemized deduction for qualified residence interest, home equity indebtedness incurred

Must be used to buy, build, or significantly improve a qualified residence.

In 2018, the Browns borrowed $20,000, secured by their home, to pay their son's college tuition. At the time of the loan, the fair market value of their home was $400,000, and it was unencumbered by other debt. The interest on the loan qualifies as

Nondeductible interest

Shifty borrowed $10,000 from Easy. When Easy tried to collect the debt, she discovered that Shifty had moved to another state. Easy tracked Shifty down and demanded payment. Knowing it would cost Easy a substantial amount of time and money to collect the debt, Shifty offered to pay $5,000 on the condition that Easy cancel the remainder of the debt. Easy agreed to accept the $5,000 and cancel the remaining $5,000 of the debt. Which of the following statements is correct?

Shifty has $5,000 of income when Easy cancels the debt.

Under what circumstances is a married filing jointly taxpayer who is engaged in a specified service trade or business allowed to claim the Sec. 199A deduction?

The taxpayer may claim the Sec. 199A deduction if (s)he has taxable income of less than $415,000.

Which one of the following expenditures qualifies as a deductible medical expense for tax purposes?

Transportation to physician's office for required medical care.

Nova owns a sole proprietorship and is also a one-third owner of a partnership. Both businesses are qualified businesses. Which of the following statements is correct in calculating W-2 wage limitation to determine Nova's deductible amount for each business under Sec. 199A?

When calculating the W-2 wages limitation, Nova should take into account all W-2 wages paid to employees by the sole proprietorship and the allocable share of W-2 wages paid by the partnership, respectively.

Which of the following requirements must be met in order for a single individual to qualify for an additional standard deduction? Must Be Age 65 or Blind: Must Support Dependent Child or Aged Parent:

Yes No