Regulation - R2 - Individual Taxation

Which of the following is not a refundable tax credit? A. Earned income credit. B. Child tax credit. C. Retirement savings contribution credit. D. Excess social security paid. MCQ-04887

C. Retirement savings contribution credit.

Deet, an unmarried taxpayer, qualified to itemize current year deductions. Deet's adjusted gross income was $40,000 and he made a $1,500 substantiated cash donation directly to a needy family. Deet also donated art, valued at $11,000, to a local art museum. Deet had purchased the art work two years earlier for $2,000. What was the maximum amount of the charitable contribution allowable as an itemized deduction on Deet's current year income tax return? A. $11,000 B. $3,500 C. $12,500 D. $2,000 MCQ-14725

A. $11,000

Mr. and Mrs. Sloan incurred the following expenses during the year when they adopted a child: Child's medical expenses: $5,000 Legal fees: $8,000 Agency fee: $3,000 Without regard to the limitation of the credit, what amount of the above expenses are qualifying expenses for the adoption credit? A. $8,000 B. $11,000 C. $5,000 D. $16,000 MCQ-11783

B. $11,000

Which of the following statements about the child and dependent care credit is correct? A. The maximum credit is $600. B. The credit is nonrefundable. C. The child must be under the age of 18 years. D. The child must be a direct descendant of the taxpayer. MCQ-05971

B. The credit is nonrefundable.

Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their adjusted gross income was $50,000. The Burgs itemized their deductions on Schedule A. The following unreimbursed cash expenditures were among those made by the Burgs during the year: Repair and maintenance of motorized wheelchair for physically handicapped dependent child: $300 Tuition, meals, and lodging at special school for physically handicapped dependent child in the institution primarily for the availability of medical care, with meals and lodging furnished as necessary incidents to that care: $4,000 State income tax: $1,200 Self-employment tax: $7,650 Four tickets to a theatre party sponsored by a qualified charitable organization; not considered a business expense; similar tickets would cost $25 each at the box office: $160 Repair of glass vase accidentally broken in home by dog; vase cost $500 5 years ago; fair value $600 before accident and $200 after accident: $90 Fee for breaking lease on prior apartment residence located 20 miles from new residence: $500 Security deposit placed on apartment at new location: $900 Without regard to the $100 "floor" and the adjusted gross income percentage threshold, what amount should the Burgs deduct for the casualty loss in their itemized deductions on Schedule A for the current year? A. $0 B. $300 C. $400 D. $90 MCQ-02138

A. $0

Krete, an unmarried taxpayer with income exclusively from wages, filed her initial income tax return for Year 8. By December 31, Year 8, Krete's employer had withheld $16,000 in federal income taxes and Krete had made no estimated tax payments. On April 15, Year 9, Krete timely filed an extension request to file her individual tax return and paid $300 of additional taxes. Krete's Year 8 income tax liability was $16,500 when she timely filed her return on April 30, Year 9, and paid the remaining income tax liability balance. What amount would be subject to the penalty for the underpayment of estimated taxes? A. $0 B. $16,500 C. $200 D. $500 MCQ-02084

A. $0

Frank and Mary Wood have 2 children, Becky, age 10, and Matt, age 14. The Woods incur expenses of $4,000 for after-school care for each child. Their only income is from wages. Frank's wages are $60,000, and Mary's wages are $2,500. What amount of Child and Dependent Care Credit may the Woods claim on their joint tax return? A. $500 B. $800 C. $1,200 D. $1,600 MCQ-06477

A. $500

Chris, age 5, has $3,000 of interest income and no earned income this year. Assuming the current applicable standard deduction for dependents is $1,100, how much of Chris' income will be taxed at his parents' marginal rate? A. $800 B. $0 C. $3,000 D. $1,900 MCQ-05969

A. $800

Dawn White's adjusted gross income on her Year 1 tax return was $100,000. The amount covered a 12-month period. For the Year 2 tax year, the minimum payment required from White to avoid the penalty for the underpayment of estimated tax is: A. 90% of the current tax on the return for the current year paid in four installments or 100% of the prior year's tax liability paid in four equal installments. B. 110% of the prior year's tax liability paid in four equal installments only. C. 100% of the prior year's tax liability paid in four equal installments only. D. 90% of the current tax on the return for the current year paid in four equal installments or 110% of the prior year's tax liability paid in four equal installments. MCQ-06479

A. 90% of the current tax on the return for the current year paid in four installments or 100% of the prior year's tax liability in four equal installments.

Which of the following statements is correct regarding the deductibility of donations made to qualifying charities by a cash-basis individual taxpayer? A. A charitable contribution deduction is not allowed for the value of services rendered to a charity. B. The charitable contribution deduction for long-term appreciated stock is limited to 50% of adjusted gross income. C. A qualified appraisal for real property donations is not required to be attached to the tax return unless the property value exceeds $10,000. D. A contemporaneous written acknowledgment is required for donations of $100. MCQ-08443

A. A charitable contribution deduction is not allowed for the value of services rendered to a charity.

Which of the following can be subject to the net investment income tax? A. An individual who is a resident of the United States. B. A nonresident alien. C. A domestic C corporation. D. A limited partnership. MCQ-14931

A. An individual who is a resident of the United States.

Smith, a single individual, made the following charitable contributions during the current year. Smith's adjusted gross income is $60,000. Cash donated to Smith's church: $5,000 Art work donated to the local art museum (Purchases four months ago for $2,000, currently appraised for $3,000): $3,000 Cash contribution to a needy family: $1,000 What amount should Smith deduct as a charitable contribution if Smith itemizes deductions? A. $9,000 B. $8,000 C. $7,000 D. $5,000 MCQ-14724

C. $7,000

An employee who has Social Security tax withheld in an amount greater than the maximum for a particular year may claim: A. The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers. B. Reimbursement of such excess from his employers, if that excess resulted from correct withholding by two or more employers. C. Such excess as either a credit or an itemized deduction, at the election of the employee, if that excess resulted from correct withholding by two or more employers. D. The excess as a credit against income tax, if that excess was withheld by one employer. MCQ-02179

A. The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers.

The Welles family has three children. Which of the children listed below would be subject to the "kiddie tax"? A. Wilson: 20 years old, full-time college student, fully supported by his parents. B. Willy: 20 years old, not a college student, supports himself fully. C. None of these. D. Walker: 25 years old, full-time college student, supports himself fully. MCQ-03265

A. Wilson: 20 years old, full-time college student, fully supported by his parents.

Pat, a single taxpayer, has adjusted gross income of $40,000 in the current year. During the year, a hurricane causes $4,100 damage to Pat's personal use car on which Pat has no insurance. Pat resides in a federally declared disaster area. Pat purchased the car for $20,000. Immediately before the hurricane, the car's fair market value was $11,000 and immediately after the hurricane its fair market value was $6,900. What amount should Pat deduct as a casualty loss for the current year after all threshold limitations are applied? A. $4,100 B. $0 C. $100 D. $4,000 MCQ-08444

B. $0

Matthews was a cash basis taxpayer whose current year records shoed the following: State and local income taxes withheld: $1,500 State estimated income taxes paid December 30 of the current year: $400 Federal income taxes withheld: $2,500 State and local income taxes paid April 17 of the following year: $300 What total amount was Matthews entitled to claim for taxes on her current year Schedule A of Form 1040? A. $1,500 B. $1,900 C. $4,700 D. $2,200 MCQ-01951

B. $1,900

Taylor, an unmarried taxpayer, had $90,000 in adjusted gross income for Year 13. During Year 13, Taylor donated land to a church and made no other contributions. Taylor purchased the land in Year 1 as an investment for $14,000. The land's fair market value was $25,000 on the day of the donation. What is the maximum amount of charitable contribution that Taylor may deduct as an itemized deduction for the land donation for Year 13? A. $14,000 B. $25,000 C. $0 D. $11,000 MCQ-05977

B. $25,000

An individual taxpayer's tax return included the following: Regular tax before tax credits: $5,000 Current year estimated tax payments: $6,000 Amount paid with current year extension: $1,000 Federal income tax withheld: $1,000 What amount, if any, is the taxpayer's overpayment? A. $2,000 B. $3,000 C. $0 D. $1,000 MCQ-08904

B. $3,000

Wade Inc. granted a non qualified stock option for 100 shares at $50 per share to Mary, an employee, on May 1, Year 12. On that date, the option was selling on an established market for $4 per share. Mary exercised the option on August 2, Year 13, when the FMV was $80 per share. She sold the stock on September 2, Year 14, for $100 per share. How much gross income and what type did Mary recognize in Year 12? A. $400 capital gain. B. $400 ordinary income. C. $5,000 ordinary income. D. $5,000 capital gain. MCQ-07356

B. $400 ordinary income

Mary, an unmarried taxpayer, made the following charitable contributions during the current year: A cash contribution to a church: $2,000 A donation to a hospital's thrift shop of furniture purchased two years ago for $2,000, with a fair market value of: $500 A donation to a state university of publicly traded stock purchased by Mary for $3,000 four months ago, with a fair market value of: $4,000 Assuming that Mary's adjusted gross income was $50,000, what amount can Mary claim as a charitable contribution deduction? A. $5,000 B. $5,500 C. $6,500 D. $6,000 MCQ-14731

B. $5,500

Andre Davis is 17 years old and lives at home with his parents. He earned $5,000 in the current tax year moving lawns, Andre also received $3,000 in interest on a corporate bond that his grandmother gave him. Assuming the 2021 "kiddie tax" threshold of $2,200, at what marginal tax rate is Andre's $8,000 of income taxes? A. $8,000 less the standard deduction is taxes at Andre's marginal rate. B. $7,200 less the standard deduction is taxed at Andre's marginal rate. $800 is taxed at his parents' marginal rate. C. $8,000 less the standard deduction is taxed at his parents' marginal rate. D. $5,000 less the standard deduction is taxed at Andre's marginal rate. $3,000 is taxed at his parents' marginal rate. MCQ-14737

B. $7,200 less the standard deduction is taxed at Andre's marginal rate. $800 is taxed at his parents' marginal rate.

Jim had gambling losses totaling $2,500 for the year. He is including a lottery prize of $5,000 in his gross income for the year. The gambling losses are: A. A deduction to arrive at adjusted gross income. B. A deduction from adjusted gross income. C. Not deductible. D. A deduction from adjusted gross income, subject to a 2% AGI Floor. MCQ-04453

B. A deduction from adjusted gross income.

A 22-year-old full-time student earned $11,000 in salary and received $9,000 in interest from corporate bonds. The bonds were a gift from the student's grandparents. The student's parents pay more than half of the student's support, including $25,000 in tuition. Which of the following statements is correct regarding the student's current year income tax? A. Both the student's salary and a portion of the interest income will be subject to the "kiddie tax." B. A portion of the student's interest income and no other income will be subject to the "kiddie tax." C. The student's salary income and no other income will be subject to the "kiddie tax." D. Neither the student's salary nor the interest income will be subject to the "kiddie tax." MCQ-12543

B. A portion of the student's interest income and no other income will be subject to the "kiddie tax."

Chris Baker's adjusted gross income on her current year tax return was $160,000. The amount covered a 12-month period. For the next tax year, Baker may avoid the penalty for the underpayment of estimated tax if the timely estimated tax payments equal the required annual amount of: I. 90% of the tax on the return for the current year paid in four equal installments. II. 110% of prior year's tax liability paid in four equal installments. A. II only. B. Both I and II. C. Neither I nor II. D. I only. MCQ-02098

B. Both I and II.

Which of the following credits can result in a refund even if the individual had no income tax liability? A. Elderly and/or permanently disabled credit. B. Earned income credit. C. Retirement savings contributions credit. D. Lifetime learning credit. MCQ-13097

B. Earned income credit

James Corp. issue stock options to employees under an Employee Stock Purchase Plan. Which of the following statements is correct? I. The option exercise price may not be less tha the lessor of 95% of the FMV of the stock when granted or exercised. II. The option cannot be exercised more than 27 months after the grant date. A. I only. B. II only. C. Both. D. Neither. MCQ-07358

B. II only.

For regular tax purposes, with regard to the itemized deduction for qualified residence interest, home equity indebtedness incurred during a year: A. Must exceed the taxpayer's net equity in the residence. B. Is only deductible when used to buy, build, or substantially improve the taxpayer's home that secures the loan. C. May exceed the fair market value of the residence. D. Included acquisition indebtedness secured by a qualified residence. MCQ-02113

B. Is only deductible when used to buy, build, or substantially improve the taxpayer's home that secures the loan.

Which of the following statements is true regarding the net investment income (NII) tax? A. The tax is 3.8% and is levied on the greater of (1) the taxpayer's net investment income; or (2) the excess of modified AGI over a threshold amount. B. The tax is 3.8% and is levied on the lessor of (1) the taxpayer's net investment income; or (2) the excess of modified AGI over a threshold amount. C. The tax is 2.8% and is levied on the lessor of (1) the taxpayer's net investment income; or (2) the excess of modified AGI over a threshold amount. D. The tax is 2.8% and is levied on the greater of (1) the taxpayer's net investment income; or (2) the excess of modified AGI over a threshold amount. MCQ-14735

B. The tax is 3.8% and is levied on the lessor of (1) the taxpayer's net investment income; or (2) the excess of modified AGI over a threshold amount.

Stein, an unmarried taxpayer, had adjusted gross income of $80,000 for the year, and qualified to itemize deductions. Stein had no charitable contribution carryovers and only made one contribution during the year. Stein donated stock, purchased seven years earlier for $17,000, to a tax-exempt educational organization. The stock was valued at $25,000 when it was contributed. What is the amount of charitable contributions deductible on Stein's current year income tax return? A. $21,000 B. $17,000 C. $24,000 D. $25,000 MCQ-01930

C. $24,000

Sam's Year 2 taxable income was $175,000 with a corresponding tax liability of $30,000. His Year 2 adjusted gross income was $200,000. For Year 3, Sam expects taxable income of $250,000 and a tax liability of $50,000. In order to avoid a penalty for underpayment of estimated tax, what is the minimum amount of Year 3 estimated tax payments that Sam can make? A. $45,000 B. $50,000 C. $33,000 D. $30,000 MCQ-06884

C. $33,000

Madison and Nick Koz have two children, ages 8 and 10. Both children meet the definition of qualifying child. The Koz family has adjusted gross income of $300,000. What is the amount of the child tax credit on the couple's income tax return? A. $2,000 B. $3,000 C. $4,000 D. $1,000 MCQ-14734

C. $4,000

How may taxes paid by an individual to a foreign county be treated? A. As an itemized deduction subject to a 2% floor. B. As an adjustment to gross income. C. As a credit against federal income taxes due. D. As a nondeductible expense. MCQ-05529

C. As a credit against federal income taxes due.

In Year 10, Farm, a cash basis individual taxpayer, received an $8,000 invoice for personal property taxes. Believing the amount to be overstated by $5,000, Farb paid the invoiced amount under protest and immediately started legal action to recover the overstatement. In November, Year 11, the matter was resolved in Farb's favor, and he received a $5,000 refund. Fard itemizes his deductions on his tax returns. Which of the following statements is correct regarding the deductibility of the property taxes? A. Farb should deduct $3,000 in his Year 10 income tax return. B. Farb should not deduct any amount in his Year 10 income tax return and should deduct $3,000 in his Year 11 income tax return. C. Farb should deduct $8,000 from his Year 10 tax return and should report the $5,000 refund as income in his Year 11 income tax return. D. Farb should not deduct any amount in his Year 10 income tax return when originally filed, and should file an amended Year 10 income tax return in Year 11. MCQ-02007

C. Farb should deduct $8,000 from his Year 10 tax return and should report the $5,000 refund as income in his Year 11 income tax return.

The deduction by an individual taxpayer for interest on investment indebtedness is: A. Not limited. B. Limited to the investment interest paid during the year. C. Limited to the taxpayer's net investment income for the year. D. Limited to the taxpayer's interest income for the year. MCQ-01968

C. Limited to the taxpayer's net investment income for the year.

Which of the following statements if not correct? A. For an incentive stock option, once exercised, the stock must be held at least two years after the grant date and at least one year after the exercise date. B. Employee stock purchase plans are a type of qualified stock option plan. C. The recipient of an incentive stock option will generally have to report compensation income in the year the option is received. D. The employer may recognize a deductible expense for a non qualified stock option in the same year the employee will recognize ordinary income. MCQ-07357

C. The recipient of an incentive stock option will generally have to report compensation income in the year that they option is received.

In the current year, Joan Frazer's residence was totally destroyed by a hurricane. It was located in a federally declared disaster area. The property had an adjusted basis and a fair market value of $130,000 before the hurricane. During the year, Frazer received insurance reimbursement of $120,000 for the destruction of her home. Frazer's current year adjusted gross income was $70,000. Frazer had no casualty gains during the year. What amount of the loss was Frazer entitled to claim as an itemized deduction on her current year tax return? A. $8,500 B. $10,000 C. $8,600 D. $2,900 MCQ-01953

D. $2,900

Jefferson's investment income consisted of $2,000 in interest from a U.S. Treasury bond and $1,000 interest from a municipal bond. Jefferson also paid $4,000 in investment interest expense. Assuming that Jefferson itemizes, what amount can Jefferson deduct for investment interest expense? A. $3,000 B. $1,000 C. $4,000 D. $2,000 MCQ-14910

D. $2,000

Robert Corp. granted an incentive stock option for 200 shares to Beverly, an employee, on March 14, Year 12. The option price and FMV on the date of the grant was $150. Beverly exercised the option on August 2, Year 14, when the FMV was $180 per share. She sold the stock on September 20, Year 15, for $250 per share. How much gross income did Beverly recognize in Year 15? A. $0 B. $150 C. $30,000 D. $20,000 MCQ-07355

D. $20,000

Jackson owns two residences. The second residence, which has never been used for rental purposes, is the only residence that is subject to a mortgage. The following expenses were incurred for the second residence in the current year: Mortgage interest: $5,000 Utilities: $1,200 Hazard Insurance: $6,000 For regular income tax purposes, what is the maximum amount allowable as a deduction for Jackson's second residence in the current year? A. $6,200 in determining adjusted gross income. B. $11,000 in determining adjusted gross income. C. $12,200 as an itemized deduction. D. $5,000 as an itemized deduction. MCQ-01934

D. $5,000 as an itemized deduction.

The Stevensons are filling married filing jointly, and their adjusted gross income was $58,250. Additional information is as follows: Interest paid on their home mortgage: $5,200 State taxes paid: $2,000 Medical expenses in excess of AGI Floor: $1,500 Deductible contributions to IRAs: $4,000 Alimony paid to Mr. Stevenson's first wife (divorce finalized in 2015): $5,000 Child support paid for Mr. Stevenson's daughter: $5,100 What amount may the Stevensons claim as itemized deductions on their Schedule A? A. $13,800 B. $12,300 C. $7,200 D. $8,700 MCQ-14730

D. $8,700

An individual's losses on transactions entered into for personal purposes are deductible only if: A. No part of the transactions was entered into for profit. B. The losses can be characterized as hobby losses. C. The losses do not exceed $3,000 ($6,000 on a joint return). D. The losses qualify as casualty or theft losses. MCQ-02116

D. The losses qualify as casualty or theft losses.

Logan, an employee of Argon Industries, earned a salary of $60,000 in Year 2. In addition, the following two transactions between Logan and Argon occurred in Year 2: Logan received a bonus of 100 shares of publicly-traded stock worth $13,000 with a basis to Argon of $8,000, and Logan purchased 1,000 shares of unrestricted Argon stock pursuant to a nonqualifying stock option plan for $10 per share when stock was valued at $25 per share. What amount of compensation should Argon report in Logan's Form W-2 for Year 2? A: $60,000 B: $73,000 C: $93,000 D: $88,000 MCQ-08655

D: $88,000