441 Exam 1

Darlene is a 50% owner in a partnership in which she has a tax basis and at-risk basis of $10,000. Darlene materially participates in the operations of the partnership which incurred a loss of $35,000 in the current year. Based on these facts, ______.

$17,500 of the loss will flow-through to Darlene, and she will be able to deduct $10,000.

Using the attached table, what is the present value today of $2,300 received two years from now with a rate of return equal to 4%?

$2,300 x .925 = $2,127.50

Jenny and Jerry have a home with a fair market value of $625,000. They borrowed $400,000 ten years ago to purchase the home (home value at that time was $450,000). They currently owe $250,000 on the acquisition loan. They recently borrowed $110,000 on a home-equity loan. The proceeds were used to purchase a car and take a vacation. What is the maximum amount of their indebtedness that can generate deductible interest in the current year?

$250,000

Jerry receives an annuity payment of $2,500 per month. Jerry purchased the 20-year annuity for $250,000. What is the amount of the annuity that represents a return of capital and is, therefore, nontaxable?

$250,000 ÷ (20 × $2,500 × 12 mos.) = 41.67%$12,500 per year

Angie incurred capital gains and losses during the current year. She has a $12,000 net short-term capital loss; a $5,000 long-term capital gain in the 15% category; and a $15,000 long-term capital gain in the 28% category. How will these transactions be taxed after the gains and losses are combined?

$3,000 will be taxed at 28% and $5,000 will be taxed at 15%.

Chad incurred capital gains and losses during the current year. He has a $7,000 net short-term capital gain; a $14,000 long-term capital loss in the 15% category; and a $10,000 long-term capital gain taxed at 28%. How will these transactions be taxed after the gains and losses are combined?

$3,000 will be taxed at marginal rates.

Patrick has an adjusted gross income of $120,000 in the current year. He donated $50,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of $35,000 to a public charity, and publicly traded stock with a basis of $12,000 and a fair market value of $25,000 to a private nonoperating foundation. Patrick's deductible contribution for the current year is ______.

$50,000 in cash to the public charity, $10,000 in property to the public charity, and $0 in stock to the private nonoperating foundation

Chad has received the following income and benefits during the current year: $65,000 salary, $4,800 employer-provided health insurance, $1,500 municipal bond interest, $2,000 dividend income, $500 from a partnership, and a $10,000 judgment for lost wages due to an age discrimination lawsuit. What amounts should Chad include in his gross income? (Check all that apply.)

$500 partnership income $2,000 dividend income $65,000 salary $10,000 judgment

Sandy earned a salary of $50,000 last year. Her parents gave her a car valued at $23,000 for her birthday. In addition, she earned $1,200 in interest income on a savings account and inherited $75,000 from her grandmother's estate. What is the amount of Sandy's gross income for the year?

$51,200

Lucky Lee has won a contest where he can choose to receive $500 today or $550 one year from now. Assuming his rate of return is 5%, how much is the $550 worth today?

$550 x 0.952 = $523.60

Amy and Ethan are married and file a joint return for 2021. Their taxable income is $78,500. What is the amount of their tax liability (use the tax rate schedules)?

$9,022

Select the two most important considerations that are necessary for effective tax planning for individuals.

-Achieving non-tax related goals -Maximizing after-tax wealth

The discount factor for a one-year investment earning a rate of return of 3 percent is equal to

.971

Braden is in the 12% marginal tax bracket with a taxable income of $36,000 for the year. In addition, Braden has a $500 long-term capital gain on bonds he sold this year. If the $500 were taxed as ordinary income, Braden would remain in the 12% rate bracket. Since it is a long-term capital gain on security sales, Braden will pay tax of $___ on this income. If the $500 gain was on collectibles, taxed at a maximum 28%, Braden would incur tax of $___ on this income

0 60

Calculate the discount factor for one period for an investment given a rate of return equal to 6 percent.

1/(1 +.06) = 0.943

Section 1202 provides that owners of qualified small business stock that is sold during 2021 and has been held for at least five years can exclude up to ---percent of the gain from taxation depending on the acquisition date.

100%

Mary has received the following income and fringe benefits during the current year: a $73,000 salary; $600 premiums paid by the employer in employer-provided disability insurance; $5,000 in workers' compensation; $1,200 in corporate bond interest; a $23,000 car won on a game show; and a $1,200 health insurance reimbursement for medical expenses paid during the year. Which of these amounts should Mary include in her gross income? (Check all that apply.)

$1,200 corporate bond interest $73,000 salary

Janice started receiving an annuity payment of $1,500 per month when she turned 68 years old. She purchased the annuity for $225,000 and will continue to draw the monthly payment for the remainder of her life. What is the amount of the annuity that represents a return of capital each year and is, therefore, nontaxable? (Round your calculation of the return of capital percentage to the nearest whole number.)

12785

Annette is currently in the 24% marginal tax bracket. She had a long-term capital gain from the sale of stock and another capital gain from a coin collection. Assuming that the combined gains are not large enough to push her into a higher marginal bracket, she will be taxed ___% on the gain from the sale of stock and ___% on the gain from the coin collection.

15 28

Andre has the option of receiving $1,800 today or $1,860 a year from now. Assuming Andre can invest the money and earn 4 percent this year, he would have_________ a year from now he should take _____

1872 1800

Single taxpayers meeting certain home ownership and use requirements can permanently exclude up to $ _________of the realized gain on the sale of their principal residence.

250000

What is the rate of the additional tax that is assessed on net investment income when it exceeds specified thresholds?

3.8%

Amy and Ethan are married and file a joint return for 2021. Their taxable income is $192,100. The amount of their tax liability, rounded to the nearest dollar, is $

34,146

Which one of the following tax rates does NOT currently apply to long-term capital gains? Multiple choice question. 25% 28% 15% 20% 37%

37%-This is the highest ordinary marginal tax rate.

Holly files married filing jointly and reports income of $300,000 ($340,000 AGI - $40,000 itemized deductions) before the deduction for qualified business income. She has no capital gains or dividends included in taxable income. Holly's engineering consulting service generates $20,000 of qualified business income. She paid no wages during the current year. What is Holly's deduction for qualified business income?

4000

The deduction for qualified business income cannot exceed the greater of: (i) ________percent of the wages paid with respect to the qualified trade or business, or (ii) the sum of __________percent of the wages with respect to the qualified trade or businesses plus 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property in the qualified trade or businesses.

50 25

Nina can choose to receive $5,000 today or $5,000 a year from now. If she takes the money now and invests the money at a 6% interest rate (after tax), she will have________ one year from now

5300

Arnie was the beneficiary of his wife's life insurance policy. He received $100,000 in June from the policy after his wife's death. He also sold some land that he had purchased a couple of years earlier. He sold the land for $6,000. He only paid $3,500 for the land when he bought it. Arnie is self-employed and earned a profit in his business of $55,000 (ignoring the self-employment tax deduction). What is the amount of Arnie's gross income for the current year?

57500

Cash donations to public charities are limited to__ % of a taxpayer's AGI. Donations of capital gain property to public charities are generally limited to __% of a taxpayer's AGI. And, donations of certain capital gain property to private nonoperating foundations are limited to __% of AGI

60 30 20

The overall limitation for cash charitable contribution deductions for individual taxpayers is __% of AGI. The limit is reduced to __% for ordinary gain property other than cash, and __% for long-term capital gain property.

60 50 30

Zack is single and has collected the following information for preparing his 2021 taxes: Gross income $74,000, tax credits $2,500, itemized deductions $9,000, deductions for AGI $5,000, tax prepayments $8,400. Based on this information, Zack's "adjusted gross income" equals $__________, and his "taxable income" equals $________.

69000 60000

Andrew earned $5,000 in wages while working a part-time job during the current year. He also received a scholarship for $12,000. He used $9,000 for tuition and $800 for books. The remaining $2,200 went to help cover the cost of housing. During the summer, Andrew's uncle died and Andrew inherited $30,000. What is the amount of Andrew's gross income for the current year?

7200

For mortgages obtained in 2021, MFJ homeowners may deduct interest on up to $______________ of acquisition indebtedness

750000

Patrick has an adjusted gross income of $160,000 in the current year. He donated $30,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of $40,000 to a public charity, and publicly traded stock with a basis of $20,000 and a fair market value of $35,000 to a private nonoperating foundation. The amount that Patrick can deduct for the stock donation to the private nonoperating foundation is ______.

8000

Owen's adjusted gross income for the year will be $150,000 and he is planning to make only ONE of following charitable donations. If he contributes $100,000 cash to a public charity, he can deduct $_____ . If he contributes property that is worth $80,000 to a public charity, he can deduct $_________ . Or, if he contributes publicly traded stock with a FMV of $60,000 and a basis of $40,000 to a private non-operating foundation, he can deduct $____________

90000 45000 30000

Bridget, a single taxpayer, sold a building used in her business during the current year. The realized gain on the sale was $135,000. Of this amount, $95,000 is unrecaptured Section 1250 gain. How will Bridget be taxed on this gain assuming her marginal tax rate is 32 percent and her LTCG rate is 15%?

95,000 will be taxed at 25 percent and $40,000 will be taxed at 15%.

Which of the following represents economic benefits to a taxpayer? (Check all that apply.) Multiple select question. A computer received in exchange for services rendered Interest income on investments Cash received for completing a job Cash received from a bank loan

A computer received in exchange for services rendered Interest income on investments Cash received for completing a job

What is included in the calculation of the amount realized upon the sale of a capital asset? (Check all that apply.) Multiple select question. Broker's fees and other selling costs are deducted Cash received by the seller Fair market value of any other property received by the seller The original cost of the capital asset being sold Depreciation taken on the asset in prior years is deducted

Cash received by the seller Broker's fees and other selling costs are deducted Fair market value of any other property received by the seller

What is included in the calculation of the amount realized upon the sale of a capital asset? (Check all that apply.) Multiple select question. Cash received by the seller The original cost of the capital asset being sold Broker's fees and other selling costs are deducted Fair market value of any other property received by the seller Depreciation taken on the asset in prior years is deducted

Cash received by the seller Broker's fees and other selling costs are deducted Fair market value of any other property received by the seller

Which of the following statements regarding material participation is FALSE? Multiple choice question. A taxpayer can be deemed to be materially participating due to prior years of service. A taxpayer must be involved in a business on a full-time basis throughout the year to be considered materially participating. A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels. A taxpayer's involvement does NOT have to exceed 500 hours a year in one activity to be considered materially participating if other tests are met.

A taxpayer must be involved in a business on a full-time basis throughout the year to be considered materially participating.

Which of the following statements regarding material participation is FALSE? Multiple choice question. A taxpayer's involvement does NOT have to exceed 500 hours a year in one activity to be considered materially participating if other tests are met. A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels. A taxpayer can be deemed to be materially participating due to prior years of service. A taxpayer must be involved in a business on a full-time basis throughout the year to be considered materially participating.

A taxpayer must be involved in a business on a full-time basis throughout the year to be considered materially participating.

The operating loss from a passive activity can NOT be used to offset which categories of income? Multiple choice question. Portfolio income only Active business and passive income Active business and portfolio income Passive and portfolio income Active business income only Passive income only

Active business and portfolio income

Which of the following items are deductions FOR adjusted gross income? (Check all that apply.) Multiple select question. Deduction for Qualified Business Income Alimony paid for divorces finalized before 1/1/2019 Capital losses Contributions to (non Roth) qualified retirement accounts Health insurance for self-employed persons Mortgage interest on a personal residence

Alimony paid for divorces finalized before 1/1/2019 Capital losses Contributions to (non Roth) qualified retirement accounts Health insurance for self-employed persons

Which of the following taxes may be imposed in addition to the individual income tax and are calculated on tax bases other than the regular taxable income? (Check all that apply.) Multiple select question. Value-added tax Alternative minimum tax Capital gains tax Self-employment tax

Alternative minimum tax Self-employment tax

Andrew invested in a U.S. Savings bond. He paid $500 for the initial investment one year ago. The redemption value of the bond increased by $25 in the current year. Which of the following options is NOT acceptable for reporting the income?

Andrew may request to receive the $25 in cash in the current year, so that he would have the wherewithal to pay the tax.

An investment that pays a stream of equal payments over time is a(n)

Annuity

Andy is considering investing $5,000 into one of three investments. He can invest in corporate stock that will pay dividends of 5% per year. He can purchase corporate bonds that pay 6%. Or, he can invest in tax-exempt securities that will pay 4% per year. Andy is in the 33% marginal tax bracket and the dividends will be taxed at 15%. Based on his after-tax return, which investment should he choose?

Corporate stock

Andy is considering investing $5,000 into one of three investments. He can invest in corporate stock that will pay dividends of 5% per year. He can purchase corporate bonds that pay 6%. Or, he can invest in tax-exempt securities that will pay 4% per year. Andy is in the 33% marginal tax bracket and the dividends will be taxed at 15%. Match the investment to its respective after-tax return.

Corporate stock------$212.50 Corporate bonds------$201.00 Tax-exempt securities------$200.00

Courtney invested in RAD, Inc. stock nine months ago. She is considering tax planning strategies at the end of the year and is pondering whether or not to sell her investment in the stock. A friend has advised Courtney that she should hold the stock for at least three more months in order to have a long-term holding period. Which of the following considerations describes a valid reason for selling the stock now?

Courtney is concerned that the value of the stock will decline in the near future.

Certain types of investment earnings are nontaxable if the proceeds are used to pay for qualifying educational expenditures including ______.

Coverdell savings accounts U.S. Series EE bonds Section 529 plans

Bailey stood in line for hours and purchased the new game system the day it became available for $600. Knowing that there was a high demand for the game system and a limited supply, she decided to put the item on E-bay rather than keep it. She sold it for $950. She also sold her five-year old car for $5,000. She had purchased the car for $13,000. What is the taxable nature of these transactions?

Bailey has a taxable short-term capital gain of $350, but no deductible loss for the car.

Carly sold land that she purchased 10 years ago for $3,000. The selling price of the land was $7,000 and Carly paid broker's fees of $420. When she originally purchased the land, she paid $1,000 to clear some of the brush in order to make a walking path down to a nearby lake. In the ten years since the purchase, Carly paid $200 per year to keep the path maintained. Carly's amount realized on the sale was $__ and her tax basis was $__ resulting in a capital gain of $__ for the year.

Blank 1: 6,580 Blank 2: 4,000 Blank 3: 2,580

A loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck that occurs as part of a(n) _________disaster is a(n) ________loss.

Blank 1: federally, federal, president, presidental, or providentially Blank 2: declared or declare Blank 3: casualty

When taxpayers borrow money to acquire investments, the interest expense they pay on the loan is ___ ___expense and the deduction is limited to the taxpayer's ___ ___ income for the year.

Blank 1: investment Blank 2: interest Blank 3: net Blank 4: investment

The net investment income tax is imposed on the ___ of (a) net investment income or (b) the excess of ___ AGI over a specific level depending on filing status.

Blank 1: lesser, lower, least, or smaller Blank 2: modified or M

In order for a taxpayer to be able to deduct the loss on a business activity in which she is an owner, she must demonstrate that she ___ ___ in the conduct of the business. If she does NOT, the activity is considered to be a passive activity.

Blank 1: materially Blank 2: participates, participated, or participate

When a taxpayer does NOT materially participate in the business activities of a trade or business (including rental activities) in which he is a partial owner, any loss that flows through to the taxpayer is subject to the

Blank 1: passive Blank 2: activity

Passive activity losses may only offset ___ income, but NOT active business or ___ income.

Blank 1: passive or passive activity Blank 2: portfolio

A taxpayer's income or loss for the year is classified into one of three categories: ___ income/loss, ___ income/loss, ___ and income/loss.

Blank 1: passive or passive activity Blank 2: portfolio Blank 3: active or active business

For purposes of the qualified business income deduction, a qualified trade or business is any trade or business other than a(n)___________ _______________ trade or business or business of being a(n)____________ .

Blank 1: specified or specific Blank 2: service Blank 3: employee

Which of the following statements is INCORRECT? Multiple choice question. Both tax deductions and tax credits reduce taxable income. Both tax deductions and tax credits are a matter of legislative grace. Both tax deductions and tax credits are specifically defined by Congress and are narrowly defined.

Both tax deductions and tax credits reduce taxable income.

Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes? Multiple choice question. Contributions made with credit cards where the charge is paid in a subsequent year Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause Contributions made through payroll deduction Travel costs incurred for charitable purposes

Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause

Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes? Multiple choice question. Contributions made with credit cards where the charge is paid in a subsequent year Travel costs incurred for charitable purposes Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause Contributions made through payroll deduction

Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause

Mike sold equipment he is no longer using in his business at a loss of $4,000, and he sold investments at a loss of $8,000. Mike had no other sales of property in the current year. What are the tax implications of these losses to Mike?

Deduct the $4,000 loss on equipment and $3,000 of the loss on investment in the current year. The remaining investment loss is carried forward.

Which of the following characteristics are required for a business expense to be deductible? (Check all that apply.) Multiple select question. Directly related to business activity Repetitive Critical for business success Ordinary Necessary

Directly related to business activity Ordinary Necessary

Action Sport is an S corporation owned equally by three shareholders. During the current year, Action Sport generated taxable income of $60,000. What is the tax treatment, if any, of the $60,000 income?

Each shareholder will report $20,000 in taxable income.

Which one of the following types of income is NOT unearned revenue generated from owning property? Multiple choice question. Gain on the sale of land Earnings from services rendered Interest income from a certificate of deposit Dividends received from corporate stock

Earnings from services rendered

In the current year, Ellen sold investment stock that she had owned for five years. The sale generated a loss of $5,000. Assuming she had no other asset sales during the year, how should Ellen handle the loss for the current tax year purposes?

Ellen can deduct $3,000 for AGI.

Lucy is single and has $225,000 of taxable income from services outside her employment before the Qualified Business Income deduction. Which of the following types of services, if it were the service performed by Lucy, would qualify as Qualified Business Income?

Engineering

A specified service trade or business for purposes of the Qualified Business Income Deduction includes all of the following except: (Check all that apply.) Multiple select question. Financial Services Engineering Law Architecture Consulting Health

Engineering Architecture

Andrew received 20 percent of his business revenue in cash. The cash was not third-party reported to the IRS. Andrew has decided NOT to report the cash receipts on his tax return. Which response is true? Multiple choice question. Failure to report the income is a form of a conversion strategy. Failure to report the income is acceptable since it is not being reported to the government by third parties. Failure to report the income is considered tax avoidance. Failure to report the income is considered tax evasion.

Failure to report the income is considered tax evasion.

True or false: A self-employed individual may deduct the cost of his self-employed health insurance premiums even if his spouse's employer offers family coverage to him.

False

True or false: A taxpayer may deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income.

False

True or false: Business expenses are deducted for AGI and reported directly on Form 1040.

False

True or false: Darlene owns stock in several different companies. When she received a dividend check from her Avatar stock, she endorsed the checks and deposited the money in her daughter's checking account. Consequently, her daughter will be assessed the tax on the dividends.

False

True or false: Gross income only includes income received in cash because cash is a measurable change in wealth.

False

True or false: Income from passive investments may be taxed at ordinary rates, preferential rates, or may be exempt from taxation while income from portfolio investments will be taxed at ordinary rates.

False

True or false: Interest income is generally taxed at lower capital gains rates.

False

True or false: Taxpayers may deduct both state and local income taxes and state and local sales taxes as itemized deductions.

False

True or false: The primary purpose of effective tax planning is to minimize taxable income, thus minimizing a taxpayer's tax liability for the year.

False

True or false: In general, prizes awarded to taxpayers are excluded from gross income.

False Prizes and awards are taxable unless they meet very specific exceptions.

Which of the following individuals would meet the relationship test for being a qualifying child of the taxpayer? (Check all that apply.) Multiple select question. Aunt Half-sister (younger than the taxpayer) Nephew (younger than the taxpayer) Grandmother Cousin (younger than the taxpayer) Stepson

Half-sister (younger than the taxpayer) Nephew (younger than the taxpayer) Stepson

Which of the following statements is accurate when referring to hobby expenses? Multiple choice question. Hobby expenses are NOT deductible because revenues generated from hobbies are not taxable. Hobby expenses are deductible FOR AGI, but only to the extent of the revenue generated by the hobby. Hobby expenses are NOT deductible, but revenues generated by the hobby are taxable. Hobby expenses are deductible as itemized deductions but only to the extent of the revenue generated by the hobby. Hobby expenses are deductible against the revenue generated by the hobby and will result in a deductible loss if they exceed revenues.

Hobby expenses are NOT deductible, but revenues generated by the hobby are taxable.

Which of the following transactions results in realized income during the current year? Multiple choice question. Huey receives a set of new tires valued at $400 for his car in exchange for cleaning and painting the mechanic's garage. Louie sold stock for $400 that he had purchased for $400 in a prior year. Donald borrowed $400 from his brother on a 6-month note. Dewey received a $400 refund for returning an item he had previously purchased.

Huey receives a set of new tires valued at $400 for his car in exchange for cleaning and painting the mechanic's garage.

Which of the following choices determine the amount and the timing for recognizing interest income? (Check all that apply.) Multiple select question. If bonds are purchased at a premium in the secondary market, the premium cannot be amortized, but is added to the basis of the bonds. If bonds were issued at a premium, taxpayers may amortize the premium over the life of the bond resulting in a decrease in interest income. If bonds were issued at a premium, special original issue discount rules apply. The actual interest payments received are included in gross income. If bonds are purchased at a discount in the secondary market, the discount is recognized as interest income at maturity.

If bonds were issued at a premium, taxpayers may amortize the premium over the life of the bond resulting in a decrease in interest income. The actual interest payments received are included in gross income. If bonds are purchased at a discount in the secondary market, the discount is recognized as interest income at maturity

Which of the following types of transactions results in capital losses that are deductible for tax purposes? Multiple choice question. Sales to related parties Wash sales Sales of investment assets Sales of personal-use assets

Sales of investment assets

The income and deductions that result from rental property and royalties are reported on:

Schedule E Form 1040

Which of the following statements is correct regarding the deductibility of self-employment tax for self-employed taxpayers? Multiple choice question. Self-employed taxpayers can deduct the employer portion of the self-employment tax they pay from AGI. Self-employed taxpayers can deduct 100% of the self-employment tax they pay from AGI. Self-employed taxpayers can deduct 100% of the self-employment tax they pay for AGI. Self-employed taxpayers can deduct the employer portion of the self-employment tax they pay for AGI.

Self-employed taxpayers can deduct the employer portion of the self-employment tax they pay for AGI.

Which of the following options is NOT available to taxpayers who have worked outside the United States and meet the requirements necessary to receive tax relief on their foreign earnings?

Tax deduction for foreign-earned income

Which of the following choices describe tax deductions? (Choose all that apply.) Multiple select question. Tax deductions are a matter of legislative grace. Taxpayers are NOT allowed to deduct anything unless a specific tax provision allows them to do so. Tax deductions reduce an individual's tax liability dollar for dollar. Tax deductions, like income, follow the all-inclusive concept.

Tax deductions are a matter of legislative grace. Taxpayers are NOT allowed to deduct anything unless a specific tax provision allows them to do so.

Which of the following doctrines is NOT used by the IRS to examine transactions where it expects taxpayer abuse? Multiple choice question. Economic substance doctrine Substance-over-form doctrine Step-transaction doctrine Tax minimization doctrine

Tax minimization doctrine

Which one of the following is NOT an advantage of the cash method for reporting income? Multiple choice question. The cash method generally simplifies the computation of income. Taxpayers recognize income in the period they receive it, giving them the wherewithal to pay the tax. Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them. Taxpayers have some control over when income is received and expenses are paid which assists in tax planning.

Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them.

Which of the following statements is CORRECT regarding the recognition of income? Multiple choice question. Income is realized for the return of the capital received in a sales transaction. Income may be in the form of cash, property, or services received in a transaction. Income is realized when a taxpayer receives a refund of an amount that was not deducted in a prior period.

Income may be in the form of cash, property, or services received in a transaction.

Which of the following statements is CORRECT regarding the recognition of income? Multiple choice question. Income is realized when a taxpayer receives a refund of an amount that was not deducted in a prior period. Income may be in the form of cash, property, or services received in a transaction. Income is realized for the return of the capital received in a sales transaction.

Income may be in the form of cash, property, or services received in a transaction.

tax exepmt

Income realized during the year that is excluded from gross income and never taxed

Tax-deferred

Income realized during the year that is not included in gross income until a later year

Which of the following choices are forms of tax prepayments? (Check all that apply.) Multiple select question. A tax credit used to reduce the tax liability in the current year Income tax withheld from a taxpayer's salary or wages by an employer Estimated tax payments the taxpayer made directly to the IRS An overpayment of taxes in the prior year that was applied as an estimated payment for the current year A tax refund received in the current year for the prior year

Income tax withheld from a taxpayer's salary or wages by an employer Estimated tax payments the taxpayer made directly to the IRS An overpayment of taxes in the prior year that was applied as an estimated payment for the current year

Which of the following statements is correct? Multiple choice question. Interest income may be deferred and recognized in a later year. Dividend income from tax exempt organizations is exempt from tax. Dividend income is generally taxed at ordinary rates. Interest income is typically taxed at ordinary rates.

Interest income is typically taxed at ordinary rates.

What term is used to denote the interest incurred on loans used to acquire investments?

Investment interest expense

Certain charitable contributions of capital gain property do not qualify for a fair market value deduction. Which of the following characteristics of capital gain property will definitely cause it to qualify for a fair market value deduction?

It is intangible property such as stocks and bonds.

Qi, Julian, and Omar are all in the 24% tax bracket. Qi has received $3,000 in corporate bond interest, Omar $2,500 in savings account interest, and Julian $2,500 in dividends from a US corporation. Rank the taxpayers by their tax liability from the amounts received, from least to greatest.

Julian Omar Qi

Lan is from Vietnam and has lived in the U.S. for five months during the year. He is not yet considered a resident because he hasn't lived in the U.S. for long enough. He resides with his uncle who is a U.S. citizen. Lan is single and a full-time student. If eligible, Lan would otherwise be considered a qualifying child of his uncle. Which of the following is correct regarding Lan's status as a dependent?

Lan can NOT be claimed as a dependent by his uncle because he is not a citizen or resident of the U.S..

Which of the following donations will qualify as a deductible charitable contribution? Multiple choice question. Volunteering at Habitat for Humanity for four hours Cash contributions to a political campaign Land donated to a public university Furniture given to a family whose home burned

Land donated to a public university

Which of the following types of donations would be deductible as charitable contributions? (Check all that apply) Multiple select question. Land donated to a state university Checks made payable to (and as a donation to) The Boy Scouts of America Volunteering 4 hours (personal services) at a local Goodwill store Stocks and bonds donated to the Republican National Committee Cash donated to United Way

Land donated to a state university Checks made payable to (and as a donation to) The Boy Scouts of America Cash donated to United Way

Which of the following types of donations would be deductible as charitable contributions? (Check all that apply) Multiple select question. Stocks and bonds donated to the Republican National Committee Land donated to a state university Volunteering 4 hours (personal services) at a local Goodwill store Checks made payable to (and as a donation to) The Boy Scouts of America Cash donated to United Way

Land donated to a state university Checks made payable to (and as a donation to) The Boy Scouts of America Cash donated to United Way

Which of the following assets would generally qualify as capital assets? (Check all that apply.) Multiple select question. Land held for investment Personal residence Coin collection Warehouse used in a business Corporate stock Inventory in a business

Land held for investment Personal residence Coin collection Corporate stock

Which of the following fringe benefits are excluded from taxation? (Check all that apply.) Multiple select question. Medical insurance Dependent care benefits up to $10,500 Moving expenses Lodging provided for the employer's convenience Personal use of company car Off-site gym membership Group term life insurance up to $50,000

Medical insurance Dependent care benefits up to $10,500 Group term life insurance up to $50,000

Which of the following is NOT necessarily a part of effective tax planning? Minimizing tax payments Achieving nontax goals Maximizing after-tax wealth

Minimizing tax payments

Which of the following expenses are deductible FOR AGI? (Check all that apply.) Multiple select question. Most expenses generated by business activities Unreimbursed employee business expenses Most expenses generated by investment activities Expenses generated by rental and royalty activities

Most expenses generated by business activities Expenses generated by rental and royalty activities

Which of the following criteria is NOT necessary to qualify as a dependent of another taxpayer? Multiple choice question. Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico Must be unmarried for at least a portion of the year Must be considered either a qualifying child or a qualifying relative Must NOT file a joint return unless there is no tax liability on the couple's tax return

Must be unmarried for at least a portion of the year

Which of the following terms describes business expenses that would be deductible by the taxpayer? (Check all that apply.) Multiple select question. Necessary Crucial Ordinary Repetitive in nature Helpful Appropriate Authorized

Necessary Ordinary Helpful Appropriate

Which of the following is NOT a hurdle that the taxpayer must clear to be eligible to deduct an operating loss from a flow-through entity? Multiple choice question. At-risk limits Net investment limits Passive loss limits Tax basis

Net investment limits

Which of the following is NOT a hurdle that the taxpayer must clear to be eligible to deduct an operating loss from a flow-through entity? Multiple choice question. Net investment limits Passive loss limits Tax basis At-risk limits

Net investment limits

Which of the following is NOT a hurdle that the taxpayer must clear to be eligible to deduct an operating loss from a flow-through entity? Multiple choice question. Tax basis At-risk limits Passive loss limits Net investment limits

Net investment limits

Please choose the statement that is INCORRECT when referring to net passive income? Multiple choice question. Net passive income may be subject to the net investment income tax of 3.8% in addition to regular income tax. Net investment income includes net passive income. Net passive income is taxed at long-term capital gains rates.

Net passive income is taxed at long-term capital gains rates.

Other Investment expense Investment Interest expense

Not deductible Interest expense itemized deduction

Which of the following payments to a taxpayer should be included in gross income? (Check all that apply.) Multiple select question. Punitive damages awarded after an accident at work where the taxpayer sustained a non-physical injury Compensatory damages for lost wages awarded in a sex discrimination lawsuit Emotional distress damages awarded due to injuries from a car accident Emotional distress damages awarded due to slander of the taxpayer's reputation Compensatory damages awarded for lost wages due to injuries sustained in a fall at the grocery store

Punitive damages awarded after an accident at work where the taxpayer sustained a non-physical injury Compensatory damages for lost wages awarded in a sex discrimination lawsuit Emotional distress damages awarded due to slander of the taxpayer's reputation

Which of the following types of taxes may be considered when determining the itemized deduction for taxes? (Check all that apply.) Multiple select question. Personal property tax on the value of a boat Social security tax withheld from pay Real estate taxes on property held for investment Federal gift taxes Federal estate taxes

Personal property tax on the value of a boat Real estate taxes on property held for investment

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) Multiple select question. Prescription medications Health insurance premiums paid with after tax dollars Liposuction to improve appearance Chiropractic services Plastic surgery to reduce scarring after a dog bite

Prescription medications Health insurance premiums paid with after tax dollars Chiropractic services Plastic surgery to reduce scarring after a dog bite

Which one of the following choices does NOT represent an economic benefit to the taxpayer? Multiple choice question. Income from investments Proceeds from a loan Income from services Proceeds from property sales

Proceeds from a loan

Regarding portfolio investments, which types of income generally are taxed at a rate lower than the taxpayer's marginal tax rate? (Check all that apply.) Multiple select question. Short-term capital gains Qualified dividends Nonqualified dividends Interest on corporate bonds Long-term capital gains

Qualified dividends Long-term capital gains

Which of the following types of taxes may be deducted from AGI as itemized deductions? (Check all that apply.) Multiple select question. Excise taxes paid on cigarette and alcohol purchases Federal income taxes Real estate taxes on a primary residence Personal property tax on the value of a car State and local income taxes

Real estate taxes on a primary residence Personal property tax on the value of a car State and local income taxes

Which one of the following items is NOT a deduction FOR AGI? Multiple choice question. Self employment expenses One-half of self-employment taxes Real estate taxes on personal residence Rental property expenses

Real estate taxes on personal residence

Bailey has $8,000 to invest. She has a 24% marginal tax rate and is planning to reinvest her dividends and leave the investment in place for three years. If she can invest the money in taxable securities that earn qualified dividends with a 6% rate of return before tax, how much will she have at the end of the third year?

Reason: 6% x (1 -.15) = 5.1%; $8,000 x (1+.051)3 = $9,287. Qualified dividends are taxed at 0%/15%/20%, and for all single taxpayers with a marginal rate of 24%, the qualified dividends rate is 15%.

Brent, a single taxpayer, has a 24% marginal tax rate. He is considering an investment that will earn qualified dividends at a rate of 7% before tax. What is Brent's after-tax rate of return on the securities?

Reason: Qualified dividends are taxed at 15% for all taxable incomes of single taxpayers where their marginal tax rate is 24%. The after-tax rate of return is 7% x 0.85 = 5.95%.

The three tests that must be met to qualify as a qualifying relative are:

Relationship support gross income

Which of the following descriptions BEST defines business activities? Multiple choice question. Profit-motivated, but not requiring a high level of effort from the taxpayer Profit-motivated and requiring a high level of effort from the taxpayer Motivated primarily by personal enjoyment, but does not require a high level of effort from the taxpayer Motivated primarily by personal enjoyment and requires a high level of effort from the taxpayer

Profit-motivated and requiring a high level of effort from the taxpayer

Which of the following descriptions BEST defines investment activities? Multiple choice question. Motivated primarily by personal enjoyment, but does not require a high level of effort from the taxpayer Motivated primarily by personal enjoyment and requires a high level of effort from the taxpayer Profit-motivated and requiring a high level of effort from the taxpayer Profit-motivated, but not requiring a high level of effort from the taxpayer

Profit-motivated, but not requiring a high level of effort from the taxpayer

Which of the following choices describes the tax treatment for qualified dividends? (Check all that apply.) Multiple select question. The income may be taxed at a rate as high as 20%, depending on the taxpayer's taxable income. The income is always taxed at the taxpayer's ordinary income tax rate. The income may be taxed as low as 0%, depending on the taxpayer's ordinary income rate. The income is taxed at the lower of the taxpayer's marginal rate or at a maximum 15%.

The income may be taxed at a rate as high as 20%, depending on the taxpayer's taxable income. The income may be taxed as low as 0%, depending on the taxpayer's ordinary income rate.

Andrews, Badin, and Carr formed a partnership, ABC. During Year 2, the partnership sold some land that was held for investment and generated a long-term capital gain. How will this income be reported on the partners' individual tax returns?

The income will retain its character and be reported as a long-term capital gain.

Which of the characteristics below BEST describes the treatment of investment interest expense? (Check all that apply.) Multiple select question. This expense is NOT deductible. The interest deduction is limited to the taxpayer's net investment income for the year. This expense is deductible as an itemized deduction in the interest expense category. Any amount of this expense that is NOT able to be deducted in the current year cannot be carried forward. This expense is deductible as a for AGI deduction (adjustment) Any amount of this expense that is NOT deducted in the current year due to the investment income limitations may be carried forward indefinitely.

The interest deduction is limited to the taxpayer's net investment income for the year. This expense is deductible as an itemized deduction in the interest expense category. Any amount of this expense that is NOT deducted in the current year due to the investment income limitations may be carried forward indefinitely.

Which one of the following statements is INCORRECT regarding interest earned on U.S. savings bonds? Multiple choice question. Taxpayers may elect to include the increase in the bond redemption value in income each year. Taxpayers may exclude interest from Series EE and Series I bonds if the proceeds are used for educational expenses. Taxpayers may recognize the interest that has accumulated on the bonds when they are redeemed. Taxpayers include the periodic interest payments from U.S. savings bonds in gross income each year when received.

Taxpayers include the periodic interest payments from U.S. savings bonds in gross income each year when received.

Which of the following statements are CORRECT? (Choose all that apply.) Taxpayers prefer higher present values when considering cash outflows. Taxpayers prefer lower present values when considering cash inflows. Taxpayers prefer lower present values when considering cash outflows. Taxpayers prefer higher present values when considering cash inflow

Taxpayers prefer lower present values when considering cash outflows. Taxpayers prefer higher present values when considering cash inflows.

Which of the following statements is INCORRECT regarding income shifting strategies across jurisdictions? Multiple choice question. The differences in tax rates and tax laws across jurisdictions can often be used to maximize after-tax wealth. Taxpayers that operate in multiple countries should always incorporate in the country with the lowest tax structure in order to pay taxes in that country. The IRS is likely to closely scrutinize companies who operate in multiple jurisdictions. Although tax laws may be more favorable in other countries, negative publicity may hamper operations of companies who move operations overseas.

Taxpayers that operate in multiple countries should always incorporate in the country with the lowest tax structure in order to pay taxes in that country.

Which of the following statements are correct? (Check all that apply.) Multiple select question. Taxpayers who exchange or trade goods or services with each other must recognize the increase in value of the goods or services as income. A current year insurance reimbursement of prior year medical expenses is recognized even if the expenses were NOT deducted in the prior year. A taxpayer must recognize cash received in exchange for services rendered, but NOT property or services if they were received instead of cash. When taxpayers sell nondepreciable assets, they may exclude the original cost of those assets from gross income. If a taxpayer receives a state tax refund for a tax year where she deducted the state tax paid, she must report the refund as gross income.

Taxpayers who exchange or trade goods or services with each other must recognize the increase in value of the goods or services as income. When taxpayers sell nondepreciable assets, they may exclude the original cost of those assets from gross income. If a taxpayer receives a state tax refund for a tax year where she deducted the state tax paid, she must report the refund as gross income.

Which of the following choices concerning the recognition of interest income for corporate bond are CORRECT? (Check all that apply.) Multiple select question. The actual interest payments received are included in gross income. If bonds were issued at a discount, special original issue discount rules apply. If bonds are purchased at a premium in the secondary market, the premium can be amortized or added to the basis of the bond. If bonds are purchased at a discount in the secondary market, the discount is amortized over the remaining life of the bond. If bonds were issued at a premium, taxpayers must amortize the premium over the life of the bond resulting in an increase in interest income.

The actual interest payments received are included in gross income. If bonds were issued at a discount, special original issue discount rules apply. If bonds are purchased at a premium in the secondary market, the premium can be amortized or added to the basis of the bond.

Danny is trying to determine if he should purchase equipment for his business this year or next year. He is currently in the 28% tax bracket and will be able to expense the equipment in the year he purchases it. With the new equipment, he believes that his marginal rate will increase to 33% next year. The cost of the equipment is $20,000 and his after-tax rate of return is 6%. Calculate the after-tax cost of the equipment for both years and choose the correct statement below.

The after tax cost of the equipment is $14,400 this year or $13,776 next year. Danny should purchase the equipment next year.

If a taxpayer has a long-term capital loss in the 15% category, how is it used to offset capital gains in the other rate categories?

The loss will first offset gains in the 28% category, then the 25% category; then the taxpayer may use it to offset short-term capital gains.

Yolanda is your client. With her current level of taxable income, she is paying tax at a 24% marginal rate. She received $2,000 in qualified dividends this year. What rate of tax do you expect that Yolanda will pay on her dividends?

The qualified dividends are taxed at a favorable rate. Since Yolanda is in the 24% bracket, the dividends will be taxed at 15%.

Which of the following statements is correct? Multiple choice question. A business calculates net income or loss for tax purposes. Details do NOT have to be reported on the tax return, but records must be retained by the company to present in the event of an audit. The revenues and expenses from a business are reported on Schedule C and the resulting profit or loss is transferred to Form 1040. Businesses attach financial accounting income statements to tax returns and report the profit or loss reported directly on Form 1040.

The revenues and expenses from a business are reported on Schedule C and the resulting profit or loss is transferred to Form 1040.

Which of the following characteristics of a wash sale are CORRECT? Multiple select question. Any gain realized on the wash sale is deferred until the newly acquired stock is sold at a later date. Substantially identical securities as those sold at a loss are repurchased in the period beginning 15 days before and ending 15 days after the sale. The unrecognized loss is added to the basis of the newly acquired stock. The unrecognized loss is subtracted from the basis of the newly acquired stock. The loss generated by a wash sale is NOT deductible.

The unrecognized loss is added to the basis of the newly acquired stock. The loss generated by a wash sale is NOT deductible.

What is the tax treatment for a taxpayer receiving a gold watch valued at $350 in recognition of his 25th year of working for the same company?

The value of the watch is excluded from gross income.

Which of the following choices describe exclusions and deferrals for tax purposes? (Choose all that apply.) Multiple select question. These provisions reduce the tax liability dollar for dollar. These provisions are often granted in order to subsidize or encourage particular behaviors. These provisions are generally deducted from AGI and reduce taxable income. These provisions are the result of specific congressional action. These provisions are narrowly defined.

These provisions are often granted in order to subsidize or encourage particular behaviors. These provisions are the result of specific congressional action. These provisions are narrowly defined.

Will and Lyndsey are married with no dependents and file a joint tax return. In 2021, they paid $3,000 in qualified student loan interest in addition to $22,850 in itemized deductions. What is the total of their "FROM AGI" deductions in 2021?

They can deduct the large of their itemized deductions or the standard deduction, which for married filing joint couples in 2021 is $25,100. Student loan interest, however, is a FOR AGI deduction.

Which of the following taxpayers is using an income shifting tax planning strategy? Multiple choice question. Tyler billed a client in January of Year 2 rather than December of Year 1 because he is expecting to be in a lower tax bracket for Year 2. Wyatt waited to pay his real property taxes for Year 1 until January of Year 2 so that he could take the tax deduction in Year 2. Tori (33% marginal tax rate) gave several of her investments to her daughter so that the income will be taxed at the daughter's lower tax rate. Shelby switched her investments in corporate bonds to nontaxable, municipal bonds.

Tori (33% marginal tax rate) gave several of her investments to her daughter so that the income will be taxed at the daughter's lower tax rate.

Which of the following terms is used to refer to income from property?

Unearned income

What type of gain is taxed at a maximum long-term capital gains rate of 25%? Multiple choice question. Gain from the sale of intangible investments, such as stock Gain from the sale of personal use assets Gain from the sale of collectibles Unrecaptured Section 1250 gain from the sale of business property

Unrecaptured Section 1250 gain from the sale of business property

Which of the following statements is CORRECT regarding the sale of qualified small business stock (Sec. 1202 stock)? Multiple choice question. The effective capital gains tax rate is 28%. Up to 100% of the gain could be excluded depending on the acquisition date. The stock must have a long-term holding period of at least one year. The taxable gain is taxed as ordinary income

Up to 100% of the gain could be excluded depending on the acquisition date.

Which of the following types of transactions result in capital losses that are NOT deductible for tax purposes? (Check all that apply.) Multiple select question. Wash sales Sales to related parties Sales of personal-use assets Sale of land held for investment

Wash sales Sales to related parties Sales of personal-use assets

Assets that are held for investment or personal use assets are referred to as

capital assets

In general, when contributing long-term property to charity, taxpayers are allowed to deduct the fair market value ______________ ___________of property on the date of the donation

capital gains

conversion

changing the type of income to a more tax-favored form of income

In general, when a taxpayer cashes out a life insurance policy before death, taxable income may result. However, if the taxpayer is ___________ill, the portion of the proceeds used for long-term care is excluded from gross income. If the taxpayer is __________ill, the proceeds are NOT taxable.

chronically terminally

Assets such as works of art, antiques, stamps and coins held for more than one year are referred to as ___. The maximum capital gains tax rate applied to the gain on the sale of these assets is ___ percent.

collectibles 28

Because it often restricts the income deferral for cash-method taxpayers, the_______ _____________ doctrine is a limitation of a timing strategy.

constructive receipt

When income has been credited to the taxpayer's account or when the income is unconditionally available to the taxpayer, the taxpayer is aware of the availability and there are no restrictions on the income,___________ _________ is deemed to have occurred.

constructive receipts

The ____________strategy is based on the understanding that the tax law does not treat all types of income and deductions the same.

conversion

An effective income shifting strategy for a corporation and an employee-owner involves generating a tax ___________for one party while generating taxable______________ for the other party.

deduction income

A tax _______________ reduces taxable income and a tax _____________ reduces the tax liability dollar for dollar.

deduction credit

Rather than claiming the foreign-earned income exclusion, taxpayers may claim a foreign tax __________or a foreign tax__________ for income taxes paid to other countries.

deduction credit

When tax rates are constant, tax planning suggests that taxpayers should consider _____________ the recognition of income.

defer

In addition to accelerating deductions, the timing strategy of ______ income recognition is beneficial to many taxpayers.

deferring

Sharon Jones is single. During 2021, she had gross income of $159,800, deductions for AGI of $5,500, itemized deductions of $14,000 and tax credits of $2,000. Sharon had $22,000 withheld by their employer for federal income tax. She has a tax

due of $3693

A taxpayer may deduct interest expense paid on qualified _____________loans where the proceeds were used for tuition, fees, books, and other necessary expenses. The interest is deductible ________________(for/from) AGI.

education : For

LLCs, S Corporations, and partnerships do NOT pay taxes at the organization level; rather these types of activities are ___-___ entities whose operating income and losses are allocated to the owners of the entities.

flow-through

Expenses associated with generating rental or royalty income are deductible _______AGI.

for

Taxpayers have a choice of deducting the standard deduction or their itemized deductions. Therefore, ______ AGI deductions are considered to be beneficial to more taxpayers because:

for; they are available to all eligible taxpayers, not just those that itemize deductions.

Investment interest expense is deducted________ AGI while self-employed business expenses are deducted ________AGI.

from: for

Under the cash method, taxpayers recognize income in the period they _________________it, rather than when they actually________________________ it.

get earned

Put the following items in the order in which they are found in the individual income tax formula. Instructions Choice 1 of 5. Minus for AGI deductions Choice 2 of 5. Gross income Choice 3 of 5. Equals adjusted gross income Choice 4 of 5. Minus from AGI deductions Choice 5 of 5. Equals taxable income

gross income minus for AGI equals adjusted gross income Minus from AGI deductions Equals taxable income

When considering cash inflows, taxpayers and planners prefer present values that are _____________(higher/lower) than the future value. When considering cash outflows, taxpayers and planners prefer present values that are ________________ (higher/lower) than the future value.

higher lower

A lower rate of return on tax-exempt securities than the rate earned on similar taxable securities is an example of a(n)_________________ tax which often reduces or negates the benefits of conversion strategies. Listen to the complete question

implicit

Taxpayers receiving indirect economic benefits, such as bargain purchases or below-market loans, are said to have____________ income which may be taxable.

imputed

In general, when a taxpayer's debt is discharged by a lender, the taxpayer's gross income will _____________(include / exclude) the amount forgiven.

include

Taxpayers must (include/exclude) gains but (include/exclude) losses on the disposal of personal use assets from gross income.

include exclude

For a divorce agreement entered into BEFORE January 1, 2019, alimony is ______

included in the gross income of the person receiving it and deductible by the person paying it

The tax planning strategy known as______________ shifting encompasses shifting earnings and deductions from (1) taxpayers in one rate bracket to taxpayers in a different rate bracket, and (2) one jurisdiction to a more tax favorable jurisdiction

income

Activities which are profit-motivated, but do NOT require a relatively high level of involvement from the taxpayer are referred to as _________activities.

investment

Rental and royalty endeavors are most commonly classified as

investment activities

For tax years beginning in 2018, a taxpayer's from AGI deductions include the greater of the standard deduction or the taxpayer's _______, deductions and 20% of the taxpayer's qualified __________ income.

itemized business

An individual that is unrelated to the taxpayer may meet the relationship test for a qualifying relative if he or she:

lives with the taxpayer for the entire year.

Bob has capital losses of $4,000 that exceed his capital gains in the current year. Of this amount, $1,200 is a short-term capital loss and $2,800 is a long-term capital loss. The capital loss carryforward will be a $1,000 ______.

long-term capital loss because Bob must first use the short-term loss to offset ordinary income

If a taxpayer cashes out a life insurance policy before death due to a chronic illness, she may exclude from income the amount used to pay for her

long-term care

All other things being equal, taxpayers should prefer to recognize income during ____________tax-rate years and deductions during _______________tax-rate years.

low high

Taxpayers pay the same ______________tax rates on qualified dividends and long term capital gains, but the amount of the dividends and long term capital are not _________________ together

lower added

Rental activities______.

may be classified as investment activities or business activities, but the expenses are always deducted for AGI

An inheritance ______.

may be subject to the federal estate tax which is paid by the estate of the person who died

A $1 today is worth ___________, than $1 in the future.

more

income shifting

moving income and deductions from taxpayers in one tax bracket to taxpayers in a different tax bracket

Income that is taxed in the current year according to the tax rate schedule is referred to as ______ income.

ordinary

In order to be deductible, business expenses must be _________and_____________ for the business activity.

ordinary and necessary

Markita donated stock that she has held for less than a year to a qualified charitable organization. Her basis in the stock is $1,000 and the fair market value of the stock is $1,200. In regards to the donation, the stock is ______.

ordinary income property and Markita can deduct $1,000

When a taxpayer does NOT materially participate in the business activities of a trade or business (including rental activities) in which he is a partial owner, any loss that flows through to the taxpayer is subject to the ___ ___ loss rules.

passive activity

The impact of the tax rate on a transaction must be considered along with the ____________ ___________of the transaction to determine if the benefits of accelerating the transaction outweigh the disadvantages.

present value

Income from _______________takes different forms, such as dividends, interest, rents, royalties, and annuities.

property

Regarding portfolio investments, ___ dividends generally are taxed at capital gains rates and ___ dividends are taxed at ordinary rates.

qualified non-qualified

Dividends from corporations that meet certain requirements may be taxed at a favorable rate. These dividends are referred to as:

qualified dividends.

Sheila and Joe Wells are married with no dependent children. During 2021, they have gross income of $159,800, deductions for AGI of $5,500, and itemized deductions of $10,000. The Wells' had $22,000 withheld by their employer for federal income tax. They have a tax

refund of 2079

The U.S. tax laws are based on the all-inclusive concept where gross income includes all realized income from "whatever _____________ ___________."

source derived

The______ ________ is a flat amount that most individuals can elect to deduct instead of deducting their itemized deductions.

standard deduction

Which of the following statements regarding the deduction for qualified business income is incorrect? Multiple choice question. The wage-based limit is phased in ratably over $100,000 for married filing joint returns. For purposes of the wage-based limit, each partner is treated as having wages for the year equal to his or her allocable share from her partnership. The wage-based limits only apply to taxpayers with taxable income in excess of $329,800 (in the case of a joint return). The deduction cannot be claimed unless the taxpayer also itemizes his or her deductions.

the deduction cannot be claimed unless the taxpayer also itemizes his or her deductions

Generally, whenever a taxpayer can accelerate a tax deduction without accelerating the cash outflow, the ____________strategy will be beneficial.

timing

Activities that are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as ________activities.

trade or business

Income from property is referred to as ________ income.

unearned

When an investor sells or trades stock or securities at a loss and within 30 days either before or after the day of sale buys substantially identical stocks or securities a(n) ___ ___ occurs.

wash sale

Which of the following terms does NOT describe a casualty that could be deductible for tax purposes if it occurs in a federally-declared disaster area?

weakend

Gross income means all income from _______ _________ __________

whatever source derived

If a taxpayer sells a personal-use asset at a gain, the taxpayer ______ recognize a capital gain. If a taxpayer sells a personal-use asset at a loss, the taxpayer ______ recognize a capital loss.

will will not

Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $330,000 in net profit from his tax business and $300,000 in taxable income before the deduction for qualified business income (QBI). Will Bruce's tax business be deemed a qualified trade or business for purposes of the QBI deduction?

yes

The intent of the terms ordinary and necessary when referring to deductible business expenses means the expenses must be ______.

appropriate and helpful for generating a profit

In order for a related-party transaction to be acceptable to the IRS, it should be structured as a(n)

arms length transaction

The taxpayer who earns income from services must recognize the income, and the income from property is taxed to the person who owns the property under the

assignment of income

What is the name of the tax rule that requires income to be taxed to the taxpayer who actually earns it?

assignment of income doctrine

Darin is a 25% owner in a partnership in which he has a tax basis of $7,000 and an at-risk basis of $5,000. Darin materially participates in the operations of the partnership which incurred a loss of $40,000 in the current year. Based on these facts, ______.

$10,000 of the loss will flow-through to Darin, and he will be able to deduct $5,000.

Which of the following choices describe collectibles? (Check all that apply.) Multiple select question. A gain on collectibles is taxed at a maximum rate of 25 percent. A gain on collectibles is taxed at a maximum rate of 28 percent. Coin collections and stamp collections may qualify as collectibles. Collectibles held less than twelve months may still qualify for preferential tax treatment. A gain on collectibles is taxed at a maximum rate of 15 percent. Corporate stock held in an investment portfolio may qualify as a collectible. Alcoholic beverages held over a year can qualify as a collectible.

A gain on collectibles is taxed at a maximum rate of 28 percent. Coin collections and stamp collections may qualify as collectibles. Alcoholic beverages held over a year can qualify as a collectible.

Which of the following statements regarding material participation is TRUE? Multiple choice question. A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels. A taxpayer's involvement must exceed 500 hours a year in one activity to be considered materially participating. A taxpayer must be involved in the business on a full-time basis throughout the year to be considered materially participating. A taxpayer's involvement is measured only in the current year and can NOT be deemed to be materially participating due to prior years of service.

A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels.

Which of the following statements regarding material participation is TRUE? Multiple choice question. A taxpayer's involvement must exceed 500 hours a year in one activity to be considered materially participating. A taxpayer must be involved in the business on a full-time basis throughout the year to be considered materially participating. A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels. A taxpayer's involvement is measured only in the current year and can NOT be deemed to be materially participating due to prior years of service.

A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels.

Which of the following types of assets does NOT qualify as a capital asset? Multiple choice question. Assets used in a trade or business Assets held as investments Assets classified as "personal use"

Assets used in a trade or business

Which of the following statements are CORRECT when comparing For AGI deductions to From AGI deductions? (Choose all that apply.) Multiple select question. For AGI deductions are also called deductions "below the line" or "itemized deductions." From AGI deductions are generally preferred over deductions for AGI. Certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense. For AGI deductions are subtracted directly from adjusted gross income. Deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers.

Certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense. Deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers.

Which of the following choices are characteristics of Coverdell Educational Savings Accounts? (Check all that apply.) Multiple select question. Expenses for higher education, such as tuition and books, are NOT qualified educational expenses for this type of account. Distributions may be used to pay for qualified educational costs of kindergarten through 12th grade. Reasonable room and board costs are included in qualified higher education expenses. The maximum yearly contributions to the account are limited to $2,000 for each beneficiary. The contribution limit is NOT subject to any phase out for higher levels of AGI. Earnings on the account are NOT taxable if used for qualified educational expenses.

Distributions may be used to pay for qualified educational costs of kindergarten through 12th grade. Reasonable room and board costs are included in qualified higher education expenses. The maximum yearly contributions to the account are limited to $2,000 for each beneficiary. Earnings on the account are NOT taxable if used for qualified educational expenses.

Which one of the following types of taxable income is NOT considered to be service income?

Dividend income

Which one of the following medical payments would be deductible for the taxpayer in the current year? Multiple choice question. Doctor bills incurred by the taxpayer, but paid by the taxpayer's health insurance company Doctor bills incurred by the taxpayer and paid with the taxpayer's flexible spending account Doctor bills paid by the taxpayer for his dependent son who lives with the taxpayer's ex-wife Doctor bills incurred by the taxpayer in the current year that will be paid next year

Doctor bills paid by the taxpayer for his dependent son who lives with the taxpayer's ex-wife

Why are for AGI deductions preferable to from AGI deductions?

For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI.

Which of the following types of income are generated from property ownership? (Check all that apply.) Multiple select question. Gain from the sale of a building Rental income from lessees Salary earned by an accountant Wages earned by an electrician Interest earned on U.S. Treasury bonds Dividends received on corporate stock

Gain from the sale of a building Rental income from lessees Interest earned on U.S. Treasury bonds Dividends received on corporate stock

Capital

Gains (or losses) on investment or personal use assets that may be taxed at favorable rates

Sec. 61 of the Internal Revenue Code defines ______ income as "all income, from whatever source derived."

Gross

Which of the choices below is NOT one of the tests that must be met to qualify as a qualifying child? Multiple choice question. Age Support Residence Relationship Gross income

Gross income

What is meant by the all-inclusive concept when referring to the U.S. tax laws? Multiple choice question. Gross income includes all increases in wealth, regardless of whether the income has been realized during the year. Gross income includes all realized income from whatever source derived. Gross income includes all cash received from any source.

Gross income includes all realized income from whatever source derived.

Ordinary

Income included in gross income in the current year and taxed at the ordinary rates per the tax rate schedules

Choose the statement that is INCORRECT regarding a loss that is generated from the disposal or sale of assets for individuals? Multiple choice question. Losses from personal use assets are deductible for AGI. Losses from business assets are deductible for AGI. When capital losses exceed capital gains, up to $3,000 can be deducted for AGI. Losses from capital assets are deductible against gains from capital assets.

Losses from personal use assets are deductible for AGI.

Choose the statement that is INCORRECT regarding a loss that is generated from the disposal or sale of assets for individuals? Multiple choice question. Losses from personal use assets are deductible for AGI. Losses from capital assets are deductible against gains from capital assets. Losses from business assets are deductible for AGI. When capital losses exceed capital gains, up to $3,000 can be deducted for AGI.

Losses from personal use assets are deductible for AGI.

Please choose the statement that is INCORRECT regarding portfolio and passive investments? Multiple choice question. Losses from portfolio investments are deductible in full against ordinary income. Losses from portfolio investments are deferred until the investment is sold. Losses from passive investments may be deducted immediately or they may have to be deferred. Losses from passive investments not subject to at-risk limits will be deducted at ordinary rates.

Losses from portfolio investments are deductible in full against ordinary income.

Horatio and Maria are married and have three children. Horatio is self-employed and pays health insurance premiums for himself and his family. Which of the following situations would disqualify part or all of the premium costs from being deductible for AGI?

Maria has an employer-sponsored health insurance plan available at work, but they do not participate.

In which of the following situations has constructive receipt occurred in the earlier year? (Check all that apply.) Multiple select question. On December 28, Alex was made aware that her employer had issued her a check and that she could pick it up at anytime. She went out of town and picked it up on January 2. Amber received a year-end bonus check dated December 28, but she did not cash the check until Jan. 3. Andrew worked the last two weeks of the year, but he will not be paid for those hours until January 4. Arnold earned interest of $300 on his savings account, but did not withdraw the funds until the following year. Ashley's last paycheck of the year was dated Dec. 30. She was unable to cash the check because the employer had insufficient funds.

On December 28, Alex was made aware that her employer had issued her a check and that she could pick it up at anytime. She went out of town and picked it up on January 2. Amber received a year-end bonus check dated December 28, but she did not cash the check until Jan. 3. Arnold earned interest of $300 on his savings account, but did not withdraw the funds until the following year.

Which of the following types of income is generated from passive investments rather than portfolio investments? Multiple choice question. Operating income Capital gains Dividend income Interest income

Operating income

Which of the following statements is INCORRECT regarding flow-through entities? Multiple choice question. Operating income from flow-through entities is taxed as ordinary income to the taxpayer-owners of the entities. Operating losses are treated as ordinary losses for taxpayers to the extent they are deductible. Operating income from flow-through entities may or may NOT be taxable in the current year, depending on certain limits imposed on the taxpayer. Operating losses from flow-through entities are deductible in the current year.

Operating income from flow-through entities may or may NOT be taxable in the current year, depending on certain limits imposed on the taxpayer.

Which of the following statements is INCORRECT regarding flow-through entities? Multiple choice question. Operating income from flow-through entities may or may NOT be taxable in the current year, depending on certain limits imposed on the taxpayer. Operating income from flow-through entities is taxed as ordinary income to the taxpayer-owners of the entities. Operating losses are treated as ordinary losses for taxpayers to the extent they are deductible. Operating losses from flow-through entities are deductible in the current year.

Operating income from flow-through entities may or may NOT be taxable in the current year, depending on certain limits imposed on the taxpayer.

Which of the following methods will NOT result in a tax beneficial shift of income from a corporation to its employee-owner? Borrowing money from the employee-owner Renting property from the employee-owner Paying compensation to the employee-owner Paying dividends to the employee-owner

Paying dividends to the employee-owner

Which of the following options are limitations of a timing strategy? (Choose all that apply.) Multiple select question. Taxpayers can sometimes choose to accelerate the recognition of tax deductible expense. The assignment of income doctrine dictates that the person/entity earning the income cannot assign the income and tax consequences to another. The constructive receipt doctrine often prevents income from being deferred to a later period. Tax laws generally require taxpayers to continue their investment in an asset in order to defer income recognition.

The constructive receipt doctrine often prevents income from being deferred to a later period. Tax laws generally require taxpayers to continue their investment in an asset in order to defer income recognition.

Andrew volunteered for the American Red Cross after a recent hurricane. He traveled 200 miles and helped the victims of the disaster in the clean up for five days. He also donated $1,500 to the American Red Cross, but charged the amount of the donation on his credit card. He plans to pay $300 plus interest each month on the credit card charge, so he will pay $900 of the $1,500 charge by the end of the year. What amounts will Andrew be able to deduct for his charitable contributions? (Check all that apply.) Multiple select question. $900 that is actually paid toward the credit card bill during the year The cost of lodging while he is volunteering $1,500 charged to the credit card during the year Mileage for the 200 miles he drove to the ravaged area The value of his time for five days based on his current salary

The cost of lodging while he is volunteering $1,500 charged to the credit card during the year Mileage for the 200 miles he drove to the ravaged area

Harli is taking her 6-month-old daughter to the doctor to receive vaccinations. Which of the following statements is correct regarding the deductibility of the vaccinations?

The cost of vaccinations is deductible because it is for the prevention of a disease.

Which of the following choices are characteristics of qualified tuition programs, also known as 529 plans? (Check all that apply.) Multiple select question. The maximum yearly contributions to the account are limited to $2,000 for each beneficiary. The distributions can be made for tuition expenses for kindergarten through 12th grade. Distributions made to the beneficiary for purposes other than education are taxable and incur a penalty on the plan earnings. Earnings on the account are NOT taxable if used for qualified education expenses. Distributions to contributors are NOT subject to income tax, but they do incur a 10% penalty.

The distributions can be made for tuition expenses for kindergarten through 12th grade. Distributions made to the beneficiary for purposes other than education are taxable and incur a penalty on the plan earnings. Earnings on the account are NOT taxable if used for qualified education expenses.

How much of a self-employed taxpayer's self-employment tax may be deducted for AGI? Multiple choice question. The employer portion of self-employment tax is deductible. All of the self-employment tax is deductible. Self-employment tax is deductible to the extent of the self-employment income. None of self-employment tax is deductible.

The employer portion of self-employment tax is deductible.

How are the proceeds from a life insurance policy treated if the policy is cashed in early for its surrender value when there is no chronic or terminal illness present?

The excess of the cash surrender value over the premiums paid is included in the taxpayer's gross income.

Which of the following is CORRECT concerning the deduction of qualified medical expenses for the 2021 tax year? Most individuals are able to deduct medical expenses. The expenses must be increased by 7.5% of AGI. The expense can be increased by 7.5% of AGI. The expenses must be reduced by 7.5% of AGI.

The expenses must be reduced by 7.5% of AGI.

Which of the following statements is NOT accurate regarding the deduction for qualified education loan interest? Multiple choice question. The full amount of interest paid on qualified educational loans is deductible. The interest on educational loans for a taxpayer's dependents is deductible. The amount of the deduction is phased out depending on filing status and modified AGI. Loans used to provide room and board during college are considered qualifying educational expenses.

The full amount of interest paid on qualified educational loans is deductible.

Which of the following answers pertain to net short-term capital gains and losses? (Check all that apply.) Multiple select question. The holding period is more than two years. The gains are taxed at lower, preferential tax rates. The holding period is five years or less. The gains are taxed at ordinary tax rates. The gains may be taxed at one of three preferential (15%, 25%, 28%) rates. The holding period is one year or less.

The gains are taxed at ordinary tax rates. The holding period is one year or less.

Which of the statements regarding the deductibility of a suspended passive loss are true? (Check all that apply.) Multiple select question. The suspended loss may be deducted against active or portfolio income when the taxpayer sells or divests of the passive activity. The suspended loss can reduce short and long-term capital gains, but NOT ordinary income. The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity. The taxpayer will lose the tax benefit of the suspended loss if he sells or divests of the passive activity. The suspended loss can only be deducted against passive income from the same passive activity that generated the loss.

The suspended loss may be deducted against active or portfolio income when the taxpayer sells or divests of the passive activity. The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity.

Which of the following statements is true when considering the deductibility of a suspended passive loss? Multiple choice question. The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity. The suspended loss can only be deducted against passive income from the same passive activity that generated the loss. The suspended loss can reduce short and long-term capital gains, but NOT ordinary income. The taxpayer will lose the tax benefit of the suspended loss if he sells or divests of the passive activity.

The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity.

Certain contributions of capital gain property do NOT qualify for a fair market value deduction. Which of the following characteristics of the contribution will cause the asset to NOT qualify for a fair market value deduction?

The tangible personal property's use is unrelated to the charity's operations.

Please choose the statement that is INCORRECT? Multiple choice question. Investing in capital assets allows taxpayers to defer recognizing gains until the assets are sold resulting in a lower PV of capital gains tax. The tax advantages of holding an asset for more than a year overrides the risk of declining values in the investment. Gains on the sale of capital assets are taxed at rates lower than a taxpayer's marginal rate if the assets were held for more than one year. Taxpayers should balance the tax benefits of holding assets with the risk that the asset values will have declined by the time they are sold.

The tax advantages of holding an asset for more than a year overrides the risk of declining values in the investment.

How is a capital asset's tax basis calculated? (Check all that apply.) Multiple select question. The tax basis includes the original cost (or other basis) in the asset. The tax basis includes costs incurred in preparing the asset for initial use. The tax basis is reduced by depreciation taken on the asset in prior years. The tax basis includes the the sales proceeds generated at the time the taxpayer sells the asset. The tax basis includes costs to substantially improve the asset.

The tax basis includes the original cost (or other basis) in the asset. The tax basis includes costs incurred in preparing the asset for initial use. The tax basis includes costs to substantially improve the asset.

Which of the following rules must be met for a taxpayer to be able to exclude the gain on the sale of a personal residence? (Check all that apply.) Multiple select question. If married, both spouses must meet the ownership and principal-use tests. The taxpayer must NOT have used the gain exclusion provision in the five years prior to the sale. The taxpayer must have used the property as their principal residence for a total of two or more years during the five year period prior to the sale. The taxpayer must have owned the residence for at least two years of the five year period prior to the sale.

The taxpayer must have used the property as their principal residence for a total of two or more years during the five year period prior to the sale. The taxpayer must have owned the residence for at least two years of the five year period prior to the sale.

Which of the following statements is INCORRECT regarding charitable donations of capital gain property? Multiple choice question. To qualify as capital gain property, the asset must have appreciated in value. The taxpayer must include the appreciation of the asset in gross income. To qualify as capital gain property, the asset must have been owned by the taxpayer for more than one year.

The taxpayer must include the appreciation of the asset in gross income.

In order for a taxpayer to be able to deduct the loss on a business activity that he is involved in, which of the following must be true? Multiple choice question. The taxpayer must actively participate in the business. The taxpayer must own over half of the business. The taxpayer must manage and direct the operations of the business. The taxpayer must materially participate in the business.

The taxpayer must materially participate in the business.

In order for a taxpayer to be able to deduct the loss on a business activity that he is involved in, which of the following must be true? Multiple choice question. The taxpayer must own over half of the business. The taxpayer must manage and direct the operations of the business. The taxpayer must materially participate in the business. The taxpayer must actively participate in the business.

The taxpayer must materially participate in the business.

How should a taxpayer evaluate whether it is advantageous to accelerate a tax deduction in a period of tax rate increases?

The taxpayer needs to compare the tax-savings from the deduction in the current year to the present value of the tax-savings in one year.

Which of the following transactions would NOT be acceptable to the IRS as a means of switching the taxable income to another taxpayer? Multiple choice question. Transferring interest income from a taxpayer's investment to his young daughter Giving a gift of the taxpayer's stock to her son Selling a taxpayer's assets to her business at fair market value

Transferring interest income from a taxpayer's investment to his young daughter

True or false: A suspended loss on a passive activity can be used to offset active and portfolio income in the year the taxpayer sells or divests of the activity.

True

True or false: Capital losses retain their character as short-term or long-term when they are carried forward to subsequent years.

True

True or false: For AGI deductions are preferable to from AGI deductions.

True

True or false: Net passive income is included with net investment income and, therefore, may be subject to the 3.8% additional tax on net investment income.

True

True or false: The U.S. tax laws are based on the all-inclusive concept where gross income includes all realized income from whatever source derived.

True

True or false: Income and deductions from a partnership or S corporation are taxed on the owners' tax returns rather than the entity tax return.

True Partnership and S corporation entities are "flow through" entities. The income and deductions flow through to the owners.

True or false: Punitive damages are generally fully taxable to the recipient.

True Punitive damages are taxable because their purpose is to punish the harm-doer rather than compensate the taxpayer.

Which of the following investments do NOT pay periodic interest payments, but rather accumulate interest over the life? Multiple choice question. Certificate of deposits U.S. savings bonds Mutual funds Corporate bonds

U.S. savings bond

Which of the following items is income from services? Multiple choice question. Wage income Royalty income Dividend income Interest income

Wage income

Which of the following individuals meet the requirements to be qualifying children for Tonya? (Choose all that apply.) Multiple select question. Ron (age 20) provides over half of his own support. He is a full-time college student, earned $12,000 this year, and lives with his mother, Tonya. Pam (age 19) receives 70% of her support from her cousin, Tonya. Pam is a full-time student, earned $7,000, and lived with Tonya 7 months this year. Vinnie (age 17) does not provide half of his own support. He is in high school, earned $5,000 this year, and lives with his mother, Tonya. Sandy (age 23) does not provide half of her own support. She is a full-time college student, earned $7,000 this year, and lives with her aunt, Tonya.

Vinnie (age 17) does not provide half of his own support. He is in high school, earned $5,000 this year, and lives with his mother, Tonya. Sandy (age 23) does not provide half of her own support. She is a full-time college student, earned $7,000 this year, and lives with her aunt, Tonya.

Under which of the following situations is a strategy for the timing of deductions most beneficial? (Check all that apply.) Multiple select question When tax rates are high When the transaction is large When tax deductions can be accelerated without accelerating the cash outflow When the taxpayer is earning a high rate of return When the taxpayer is expecting to be taxed at a higher rate in the future When the transaction is small When tax rates are low

When tax rates are high When the transaction is large When tax deductions can be accelerated without accelerating the cash outflow When the taxpayer is earning a high rate of return

Under what circumstances might a taxpayer want to defer the recognition of income? (Check all that apply.) Multiple select question. When the actual receipt of the income does not have to be postponed very long When setting aside money for retirement When the rate of return on an investment is projected to increase When the taxpayer expects to be in a higher tax bracket in the future

When the actual receipt of the income does not have to be postponed very long When setting aside money for retirement

When is a discharge of indebtedness NOT included in gross income?

When the taxpayer is insolvent before and after the debt forgiveness

Which of the following statements are CORRECT when describing "Workers' Compensation?" (Choose all that apply.) Multiple select question. Workers' compensation benefits are not taxable to the recipient because the payments result from a physical injury. Workers' compensation is another term for "unemployment compensation." Both "worker's compensation" and "unemployment compensation" are taxable to the recipient. Workers' compensation benefits are taxable to the recipient because this insurance was provided tax-free by the employer. Workers' compensation benefits are paid to employees who have been injured in a work-related situation.

Workers' compensation benefits are not taxable to the recipient because the payments result from a physical injury. Workers' compensation benefits are paid to employees who have been injured in a work-related situation.

Isabella, age 50, pays $500 each month for health insurance premiums with after-tax dollars. She is not self-employed. During 2021, she also incurred $200 in doctor bills and $50 in over-the-counter medications. Her AGI is $45,000. What amount will she be able to deduct as an itemized deduction after the AGI floor is applied?

[($500 × 12) + $200] = $6,200 - ($45,000 × 7.5%) = $2,825

Life insurance proceeds may be included in gross income when ______.

a life insurance policy is transferred to another party for valuable consideration proceeds are paid over time and a portion represents taxable interest payments

Court-ordered cash payments pursuant to a divorce or legal separation which provide financial support to an ex-spouse and do not continue after the death of the ex-spouse are referred to as ______.

alimony

When tax rates are constant, taxpayers should ______ tax deductions and ______ recognizing taxable income.

accelerate; defer

timing

accelerating tax deductions and deferring the recognition of taxable income accelerating tax deductions and deferring the recognition of taxable income

In order for a taxpayer to be able to deduct up to $25,000 in rental losses against other types of income, her or she must be a(n) ______ participant in the rental activity.

active

Although losses from rental property are classified as passive losses, there is an exception that allows a taxpayer who is a(n) ___ participant in a rental activity to deduct up to $___ of the rental loss against nonpassive income.

active 25000