ACCT-301 Unit One

Allen was homeless for part of last year. He received welfare payments from the government totaling $5,000 and food stamps valued at $500. The amount of these payments included in Allen's gross income is ______.

$0

Brandon was injured in an accident and sued the responsible party for negligence. In court, he was awarded $500,000 compensation for his physical injuries and $1 million in punitive damages. The amount he must include in gross income is ______.

$1 million

Mr. and Mrs. Jinx are married and file jointly. They have two children, ages 10 and 12. They report AGI of $450,000. Mr. and Mrs. Jinx can claim a child credit of

$1,500.

Mr. Reynolds passed away this year. On his date of death, the fair market value of all of the assets in the estate was $2.2 million and his debts totaled $250,000. His estate paid $10,000 in legal fees, donated $20,000 to United Way, bequeathed $600,000 to his spouse, and the remaining $1.32 million was to be divided among his children. His taxable estate is ______.

$1.32 million

Enrique paid $96,000 for an annuity contract that will pay $1,600 per month for life. Based on Enrique's age, his expected return on the contract is $400,000. This year, Enrique received payments totaling $19,200. How much is taxable to Enrique each year?

$14,592

Melanie's mother died two years ago. Her estate was not subject to any federal estate tax. Melanie inherited a parcel of land from her mother. The fair market value of the land was $120,000 at the time of her mother's death and was originally purchased 12 years ago for $80,000. This year, Melanie sold the land for $140,000. Melanie's gain or loss on the sale is ______.

$20,000

Graham and Kathy, a married couple filing a joint return, own their principal residence and a vacation home. This year, they paid the following mortgage interest on these two residences: $22,000 on acquisition debt of $500,000 related to their principal residence and $7,000 on a $200,000 mortgage on their vacation home. How much of this mortgage interest can Graham and Kathy deduct as an itemized deduction?

$29,000

Mildred and Milton and married and filing a joint return. Mildred is 72 years old and blind. Milton 70 years old. Their standard deduction is ______.

$29,150

This year, Mr. Fox invested $45,000 in a mutual fund. During the year, the investment yielded the following:Qualified dividend income: $2,400Dividends reinvested: $2,000Non taxable distributions: $1,200Mr. Fox's basis at year end is ______.

$45,800

Justina, a single taxpayer, has taxable income of $50,000 and a $200 tax credit. Justina's 2021 tax liability is ______.

$6,549

This year, Mr. Judd, a single taxpayer, recognized a $24,000 long-term capital gain and a $21,000 short-term capital loss. What is the income tax cost from these capital transactions if his taxable income is $480,000?

$600

Oscar paid $45,000 for an annuity contract that will pay $800 per month for life. Based on Oscar's age, his expected return on the contract is $281,250. This year, Oscar received payments totaling $9,600. How much is taxable to Oscar?

$8,064

Lily is unmarried with no dependents. In 2021, Lily reports $97,000 of AGI. Included in AGI is $20,600 of qualified business income and a deduction of $600 for self-employment tax. She also reports $13,000 of itemized deductions. Lily's taxable income is ______.

$80,000

Mr Jones's AGI is $______.

$82,023

Elena has AGI of $93,000 before considering the following transactions that occurred this year:200 shares of Alpha Corp sold at a $12,000 long term capital loss.100 shares of Beta Inc. sold at a $3,000 long term capital gain.150 shares of Chi Company sold at a $3,000 short term capital gain.Elena will report AGI of ______.

$90,000

Which of the following transactions would be classified into a special subcategory taxed at 28%?

-A gain recognized on the sale of a collection of baseball cards purchased 5 years ago -A gain from the sale of qualified small business stock purchased 15 years ago

Long-term capital gain on the sale of which of the following personal use assets is taxed at a maximum rate of 28 percent?

-Antiques -Works of art

Which of the following types of income are permitted a preferential tax rate?

-Capital gains -Qualified dividends

Which of the following expenditures are qualified medical expenses?

-Chiropractor costs -Prescription drugs -Crutches -Costs of dental care -Long-term care insurance premiums -Hospital costs

Which of the following situations describes a nontaxable exchange?

-Common stock is exchanged for common stock (same class of stock) in the same company. -Common stock is exchanged for common stock (different class) in the same company -Common stock in one company is exchanged for common stock in another company pursuant to a reorganization agreement. -Preferred stock is exchanged for preferred stock in the same company.

Which of the following approaches has Congress used to provide tax subsidies for education?

-Exclusions from income for certain types of interest income -Tax credits for qualified expenses -Above-the-line deductions for qualified expenses

Which of the following are typical nontax costs that may offset the preferential tax treatment of annuities and life insurance contracts?

-Fees for surrendering policies prior to the first annuity payment -Higher commissions and fees than nontax favored investments

Mr. and Mrs. Rylander are married and file a joint income tax return. This year, Mr. Rylander gifted $50,000 to their favorite grandchild to support him during college. Which of the following statements are true?

-If gift splitting is elected, $30,000 is excluded and $10,000 is considered gifted by Mr. Rylander and $10,000 by Mrs. Rylander. -If gift splitting is not elected, $15,000 is excluded and $35,000 is considered a gift by Mr. Rylander for federal tax purposes.

Select all answers that accurately describe Social Security and Medicare.

-Imposed on employees and self-employed individuals -Earmarked taxes -Federal Taxes

Federal transfer taxes (select all that apply)

-Include the federal gift tax -Include the federal estate tax

Which of the following personal expenses are generally not deductible?

-Lunch during the workday -Utility costs for personal residence -Membership at a gym

Which of the following prizes or awards are subject to income tax?

-New car won on a game show -Cash award to a college professor for outstanding teaching

Which of the following types of income are taxed at a preferential rate?

-Qualified dividend income -Long-term capital gains

Which of the following items are included in total income?

-Revenues less deductions from rental activities -Interest income from savings account -Revenues less deductions from sole proprietorship -Wages

In which of the following cases is a realized loss tax deductible?

-Sale of equipment used in a business -Sale of stock held as an investment

Identify issues that contribute to jurisdictional tax competition.

-Taxing jurisdictions often overlap. -Taxpayers are increasingly mobile and can relocate to a jurisdiction to secure a better tax situation. -Businesses increasingly operate on a global scale.

Which of the following could potentially meet the requirements of a qualifying child under the dependency rules?

-Taxpayer's child -Taxpayer's sister or brother -Taxpayer's niece or nephew -Taxpayer's grandchild

Subject to limitations, the gain on the sale of a residence may be excluded from taxable income. Which of the following situations would cause the exclusion to be disallowed?

-The home was owned and used as the taxpayers' principal residence for 1 of the last 5 years. -The taxpayer used the home as a vacation property or second residence.

Which of the following statements are true about sales tax?

-The sales tax base is the retail price of the good. -Sales tax rates vary across states. -In the U.S., sales taxes are more commonly structured as a consumption tax.

Mr. and Mrs. White file a joint return. They have two children. Both are full-time college students, and the Whites provide more than half of their financial support. Trenton is 22 years old, lives on campus, and he earned $7,000 from a part-time job. Lisa is 26 years old, lives at home, and earns $2,000 from a part-time job. Which of the following statements are true?

-Trenton is a qualifying child. -Lisa is a qualifying relative.

Louis and Jean recently sold their personal residence. For tax purposes ______.

-a gain on sale of their personal residence could be taxable -a loss on the sale of their personal residence is not deductible

Tangible assets purchased for personal use ______.

-are not depreciable -have a tax basis equal to their cost

VAT taxes are ______.

-commonly observed in foreign jurisdictions -levied on firms engaged in the production process

Interest incurred by a married couple on a home mortgage is ______.

-deductible as an itemized deduction -fully deductible if the mortgage is acquisition debt of less than $1 million for debt incurred prior to December 15, 2017

The transfer tax system has multiple integrated components including a(n) ______.

-estate tax -gift tax -generation skipping tax

A taxpayer's filing status ______.

-impacts the rates at which income is taxed -may have implications in determining eligibility for certain tax benefits

The Medicare contribution tax ______.

-is assessed on net investment income -applies to taxpayers who exceed an AGI threshold.

The taxable estate ______.

-is reduced by transfers made to the surviving spouse -can be reduced to zero by transferring all of the assets to a charitable organization

Gross income ______.

-presumes that any economic receipt that increases net worth is subject to tax -refers to all income from whatever source derived

The Social Security tax system ______.

-provides a minimal income level to senior citizens -is funded through employee payroll and self-employment taxes

Which of the following investment options are examples for investments in financial assets referred to as securities?

-purchase of bonds -certificates of deposit

Adam owns stock he originally purchased for $10,000. This year, the stock is valued at $50,000. If Adam gives the stock to Jane, she must include $___ in her gross income this year.

0

Graham purchased a life insurance policy naming his wife, Eileen, as beneficiary. Graham paid $20,000 in premiums on the policy. This year, Graham died and the insurance company paid Eileen $750,000. The amount includible in Eileen's gross income is $___.

0

This year, Amy received a $2,000 state income tax refund. If Amy took the standard deduction last year and did not itemize, $___ of her state tax refund should be included in this year's taxable income.

0

During the current year, George incurred $20,000 of unreimbursed medical expenses. If George's AGI is $120,000, he can deduct $___ of medical costs as an itemized deduction.

11000

Drew, a single individual, sold his home after one year because of a job transfer to another state. The maximum amount of gain Drew could exclude from taxation on this sale is $___.

125,000

Phillip recognized the following capital gains and losses this year:Short-term capital gain: $12,000Short-term capital loss: ($6,000)Long-term capital gain: $43,000Long-term capital loss: (60,000)If AGI before consideration of these gains and losses is $140,000, Phillip will report AGI of $___ on his Form 1040 and will carry forward a capital loss of $___.

137000; 8000

James received total scholarships of $30,000 to pursue his accounting degree at State University. He spent $15,000 of the money on tuition, $1,000 on books, and $14,000 on rent for his off-campus apartment. James must include $___ in gross income on his tax return.

14000

Ms. Barrett purchased 1,000 shares of Tillman stock for a price of $14,000 ($14/share). The fees associated with the transaction were $60. The following year, Ms. Barrett sold this investment for $12,600 and incurred additional fees of $70 on the sale. Ms.Barrett's basis in the investment is $___, and she realized a $___ (gain/loss) on the sale.

14060; 1530; loss

Marissa is a single mom with two dependent children. She is 30 years old. Her standard deduction is $___.

18,800

Marissa is a single mom with two dependent children. She is 30 years old. Her standard deduction is $.

18650

Haley and Nathan recently sold the house they had lived in for 10 years, realizing a gain of $700,000. If Haley and Nathan file a joint return, they must report $___ of this gain in taxable income.

200,000

John and his father invested in a rental property. They have agreed to have an equal interest in the investment. The property costs $200,000. John contributes $80,000 and his father contributes $120,000. For gift tax purposes, his father is deemed to have made a $___ gift to John.

20000

Eloise, a single taxpayer, had $110,000 of taxable income. Her income tax liability is $___. If taxable income of $110,000 includes $10,000 in capital gains subject to a preferential rate of 15%, the tax liability is $___.

20421; 19521

Tom files as a single taxpayer. In 2021, he reports taxable income of $120,000. His tax liability is $___, assuming that he has no income subject to a preferential rate.

22821

Mark and Mary file a joint return. They are both 40 years old and have two young children. Their standard deduction is $___.

25,100

Paul, a single individual, owns his own home. This year, he paid $25,000 of interest on acquisition debt with a balance of $650,000 and $3,000 of interest on a home equity loan of $50,000 used to pay off student loans. Paul's allowable itemized deduction for mortgage interest is $___.

25000

To avoid an underpayment penalty, Mr. and Mrs. Grekas must pay $___ towards their 2021 tax liability by April 15, 2022.

26200

Mr. and Mrs. Ricketts have determined that their assets have accumulated beyond what they will need in retirement. They would like to use the annual gift tax exclusion to distribute cash to their children and their families. They have two married children and a total of six grandchildren. The maximum they may distribute under the annual gift tax exclusion is $___.

300,000

Mr. and Mrs. Wyatt report $350,000 of AGI which includes salaries of $320,000, net profit of $22,000 from Ms.Wyatt's cake decorating business, capital gains of $3,000, and dividend income of $5,000. Their Medicare contribution tax is $___.

304

Ryland is a single taxpayer with a 32% marginal tax rate. Each year, his itemized deductions include $3,000 in property taxes and a $6,500 donation to his university, thus he typically does not exceed the standard deduction. If Ryland decides to bunch his deductions by donating $13,000 to his university every other year instead of $6,500 annually, his total deductions over two years will increase by $___, and it will result in a total tax savings of $___.

3600; 1152

Levi owns a business producing furniture. If Levi contributes part of his inventory with a tax basis of $4,000 and a fair market value of $20,000 to a charitable organization, he can take a tax deduction of $___ for this contribution.

4000

Jed owns corporate stock with a tax basis of $5,000 and a fair market value of $47,000. If Jed contributes the stock to a charitable organization, he can take an itemized deduction of $___ for this contribution.

47000

Allie's AGI is $___ and her taxable income is $___.

60500; 47950

Riley, an unmarried taxpayer, reports $220,000 of AGI which includes his salary of $180,000, $22,000 in dividend income, and $18,000 in capital gains. He has no related investment activities. His Medicare contribution tax is $___.

760

Alyssa and Adam, married filing jointly, report the following taxes for the current year. Colorado State income tax: $3,000 Property taxes on primary residence: $5,000 Sales Tax: $2,000 They may deduct $___ as an itemized deduction.

8000

Erik and Francesca's AGI is $___ and their taxable income is $___.

97174; 64,639

Which of the following statements is true?

A child who is considered a dependent of another taxpayer and who earns income is required to file as a single taxpayer.

Which of the following transfers are treated as taxable gifts for federal gift tax purposes?

A gift to the taxpayer's niece used by the niece to support herself while in college

Which of the following statements about designing a tax system is false?

A graduated system involves multiple tax rates that decrease as the base increases

Which of the following statements best reflects the maximum transfer a married couple may make without the transfer being considered a gift for gift tax purposes?

A married couple may transfer up to $30,000 each year to as many individuals as they would like.

Which of the following statements about a qualifying relative as defined under the dependency rules is false?

A qualifying relative must be related to the taxpayer.

Which of the following statements concerning judicial authority is false?

A revenue ruling is the least important source of judicial authority.

Which of the following is not a characteristic of a tax?

A tax is intended to punish unacceptable behavior.

Which of the following is the best example of an earmarked tax?

A tax that generates revenues that the government may only use to maintain National Parks

Legalized gambling ______.

All high-paying careers require a four-year college degree.

Which of the following statements is false regarding capital assets?

All long-term capital assets are taxed at a 28% tax rate.

Which of the following is not an education tax subsidy?

American Jobs Credit

Which of the following statements about the computation of gain or loss on the sale of shares of stock is true?

Amount realized from the sale includes cash and any noncash assets received.

Which of the following statements about deductions is true?

An above-the-line deduction always reduces taxable income.

Mr. Adams purchased 200 shares of Tyco stock for $10/share. Broker's fees were $20 for the entire purchase. Three years later, Mr. Adams sold this investment for $15/share less a broker's fee of $20. Determine Mr. Adam's basis in the stock and gain on the sale.

Basis: $2,020; Gain: $960

In 2010, Harley paid $24,000 for 3,200 shares in a mutual fund. Since that time, the fund has distributed $4,500 in dividends of which Harley has elected to reinvest half of the dividends in the fund. This year, Harley sold her entire investment for $31,000. Determine her basis in the investment and gain from the sale.

Basis: $26,250; Gain: $4,750

In 2013, Maggie purchased 1,000 shares in a mutual fund for $5,200. Maggie participates in a dividend reinvestment program. Her reinvested dividends were:2013: $4802014: $5002015: $520At year end, Maggie held a total of 1,250 shares (1,000 from the original purchase plus 250 through the dividend reinvestment plan.) At this time, she sold 100 shares for $736. Assume Maggie uses an average cost method, determine her total basis for the 100 shares sold and the gain on the sale.

Basis: $536; Gain: $200

In 2011, Juan began purchasing shares in Pet Products, Inc. each month. This month, Juan sold half of his investment in Pet Products, Inc. Which of the following statements accurately describes the method Juan is permitted for tracking the basis in his investment in Pet Products?

Because Juan purchased shares over many months and cannot identify the basis of each share, he may use average cost or FIFO for tracking basis.

Which of the following statements about financial assets is true?

Because taxation occurs upon disposal of an invested asset, investors are able to defer taxation on wealth increases from appreciation.

Which of the following types of legal settlements are exempt from tax?

Compensation for injury or illness

Which of the following statements is false?

Corporate income taxes generate more federal funds than any other federal tax structure.

Which of the following statements is true?

Differences exist in the computation of taxable income for individuals depending on their filing status.

True or false: A single taxpayer with $75,000 of taxable income pays tax on that income at a flat rate of 22%.

False

True or false: If requested by the filing deadline, a taxpayer may request a six month extension to both file their return and pay their outstanding tax obligation.

False

True or false: Personal, living, and family expenses are generally deductible as an itemized deduction.

False

True or false: The annual economic benefit of living in owner-occupied housing is included in taxable income

False

True or false: While tax rates may vary across states, the computation of taxable income for state tax purposes is consistent.

False

Which of the following statements about the dependent credit is false?

High income taxpayers are not eligible for the credit.

Marcus is a single taxpayer. His AGI is $75,500 and his itemized deductions total to $7,500. Which of the following statements is true?

His itemized deductions yield no tax benefit.

Bob Kranske died this year. This year, his taxable income is $225,000, which reflects a 35% marginal tax rate. During his lifetime, he made taxable gifts that were far in excess of the lifetime exclusion. Mr. Kranske's taxable estate is $22.4 million. Which of the following statements is true?

His taxable estate is subject to a 40% tax rate.

Which of the following statements is false regarding their 2021 tax obligation?

If the Hamiltons choose not to rely on their estimates, they may avoid an underpayment penalty if they pay $36,200 by April 15, 2022.

Mrs. Linn exchanged 200 shares of Necker, Inc. common stock for 300 shares of Granger Corporation stock. Mrs. Linn's basis in Necker stock was $12,200 and the FMV of Granger stock was $22,000 on the date of the exchange. Which of the following statements is false?

If the exchange is pursuant to a reorganization involving both companies, Ms. Linn's basis in Granger stock is $22,000.

This year, Mr. Rogers sold his stock in Cardigan Company for a $2,000 gain. Mr. Rogers is single and has taxable income of $100,000. Which of the following statements is true?

If the gain is long-term, the tax on this transaction is $300.

When did the U.S. federal income tax become a permanent tax?

In 1913, when the Sixteenth Amendment to the U.S. Constitution was ratified.

Which federal tax generates the most government revenues?

Individual income tax

Revenue rulings and revenue procedures are written by the ______.

Internal Revenue Service (IRS)

Bryan and Liz married in 2016. They have two dependent children, ages 3 and 5. Bryan died in 2020. Which of the following statements describes the tax rate schedules Liz will use when she files?

Liz will use the married, filing jointly rates in 2020, 2021, and 2022. In 2023, she will use head of household rates.

Which of the following statements regarding preferential rates on capital gains is false?

Long-term capital gains have always been taxed at lower rates than ordinary income.

Mario and Maria Moreno have no children of their own. However, their niece, Lupe, lives with them, and they provide more than one-half of her financial support. Which describes a scenario in which the Moreno's may not consider Lupe a qualifying child?

Lupe is 22 years old, lives with the Morenos full time, and is not a full-time student.

In 2007, Marilyn established a $200,000 life insurance policy and named her son, Mark, as the sole beneficiary. Marilyn died in 2020 when the cash surrender value was $62,000 and her total premiums paid since 2007 was $40,000. The policy paid Mark $200,000 upon her death. Which of the following reflects the tax consequence of the payment?

Mark does not report any taxable income.

Kristen and Austin married in 2014. They have no children. Kristen died on January 2, 2020. Which tax rates will Austin use for 2020 and 2021?

Married, filing jointly for 2020 and single for 2021

Jennifer and Justin were married with two young children. Justin died during 2019. Which tax rates will Jennifer use for 2019 and 2020?

Married, filing jointly for both tax years

Brian and Mary divorced in 2021. Under the divorce decree, Mary must pay alimony of $24,000 in 2021. Which of the following best describes the tax treatment of the alimony payment?

Mary: No deduction Brian: No income

In 2008, Mike Walters purchased a life insurance policy that would pay a $250,000 death benefit to his beneficiary, his daughter Lana. Since he established the policy, Mike has paid $44,000 in premiums. This year, Mike liquidated the policy for the $52,000 cash surrender value. Which of the following statements is true?

Mike recognizes $8,000 of ordinary income upon liquidation.

Which statement about the federal tax law is false?

New tax legislation is typically passed once every two to four years.

Which of the following is false regarding AGI?

No deductions are included in the computation of AGI.

Which of the following creative assets is considered a capital asset?

Painting owned by an art collector and purchased from a gallery

Indicate which of the following is not a filing status.

Permanent resident of the U.S.

Which of the words below best describes the U.S. environment for taxation?

Pervasive and dynamic

Which tax structure tends to provide local governments with the greatest source of tax revenue?

Real property tax

Which of the following statements is false about taxation of gains and losses from security transactions?

Realized and unrealized gains from appreciation of investment assets are taxed currently.

Which of the following statements is false regarding state income taxes?

States can only impose a state income tax on their residents.

Which of the following is false regarding the computation of federal income tax?

Tax is computed by applying the tax rate tables to AGI.

What gives the federal government the right to impose a tax on individual and corporate income?

The 16th Amendment to the U.S. Constitution

Mr. and Mrs. Henley could not complete their 2021 Form 1040 before April 15, 2022. They estimate that they will owe a balance of $2,500 with the return. Which of the following statements is true?

The Henleys can file an extension request by April 15 to extend the filing deadline six months, but they must pay the balance with the request.

Which of the following statements are false?

The amount of the standard deduction is directly related to a taxpayer's cash flows.

Which of the following statements is false?

The annual economic benefit from living in a home you own must be included in taxable income.

Which of the following statements is false regarding bonds issued by state and local governments?

The bond will likely offer a higher rate of interest than corporate bonds with the same degree of risk.

Which of the following statements is true about VAT taxes?

The budgets of many industrial nations depend heavily on the collection of VAT taxes.

Which of the following statements is true about VAT taxes? Multiple choice question.

The budgets of many industrial nations depend heavily on the collection of VAT taxes.

Which of the following statements is true regarding the structure of life insurance policies?

The cash surrender value represents the amount that would be received if a policy is liquidated before the death of the insured.

Ms. Clark paid $62,000 for 25,000 shares of Acme, Inc. stock. This year Acme declared bankruptcy, and the shareholders were notified that their stock has no value. Which of the following statements is false?

The character of any recognized loss is ordinary.

Jim and Jenny paid $50 to their county to obtain a marriage license. Choose the answer that best describes this payment.

The payment best represents a user fee because it entitles the couple to a specific benefit (the right to marry).

Which of the following is true regarding investment income?

The primary source of investment income is invested capital.

Which of the following statements is false?

The tax consequences of business and investment activities are generally the same.

Which of the following statements is false?

The taxpayer will always opt to take the standard deduction if their AGI is less than $72,600.

Which of the following statements about the U.S. transfer tax system is false?

The transfer tax system has had the same structure since it was enacted in 1916.

Last year, Robert sold one block of securities that resulted in an $11,000 long-term capital loss, generating a carryforward of $8,000. This year, Robert engaged in three transactions which resulted in a $4,000 net long-term capital gain. Before considering these transactions, his AGI this year was $120,000. Which of the following statements is true?

This year, Robert will report AGI of $117,000 and a long-term capital loss carryforward of $1,000.

Which of the following statements about total income is false?

Total income excludes income from business ventures in which the taxpayer engages.

Which of the following statements about Treasury regulations is false?

Treasury regulations are part of statutory law.

True or false: A tax on net income is an activity-based tax

True

True or false: In the event total itemized deductions do not exceed the standard deduction, a taxpayer receives no tax benefit for itemized deductions.

True

True or false: Life insurance policies and annuity contracts enjoy preferential tax status. The benefit of this status is typically offset by higher fees and lower rates of return for these savings vehicles relative to other investment options that are not subject to preferential tax status.

True

True or false: Tax structures are based on political and economic assumptions that are constantly evolving.

True

In general, which of the following does not normally triggers the need to make an estimated tax payment?

a significant increase in wages relative to the prior year

Sales tax is an example of ______.

a transaction-based tax

An above-the-line deduction ______ reduces AGI and ______ reduces taxable income. An itemized deduction ______ reduces AGI and ______ reduces taxable income.

always; always; never; sometimes

Government transfer payments received without regard to economic need ______.

are generally included in gross income

Need-based payments received from local, state, or federal government agencies ______.

are tax exempt

Tax laws

are widespread and continually changing

Contributions to public charities are deductible ______.

as an itemized deduction, limited to 60 percent of AGI

The gift tax is ______.

assessed on inter vivos transfers

A tax ___ is an item, occurrence, transaction, or activity with respect to which a tax is levied.

base

Jurisdictional tax competition occurs ______.

between states and between foreign countries

Milton is a retired, unmarried taxpayer with no dependents. In a typical year, his only itemized deductions are his property taxes of $6,500 and a $6,000 donation to his church. His tax accountant has advised him to consider making an $12,000 contribution to his church every other year instead of an annual $6,000 contribution. This technique is best described as ______.

bunching

The practice of timing itemized deductions to concentrate them in a single year is referred to as ______.

bunching

If an individual's annual charitable contributions exceed the annual deductibility limit, the excess

can be carried forward as an itemized deduction for five years.

State and local sales taxes

can be deducted instead of state and local income taxes.

Gain on the sale of personal use assets is typically characterized as ___ gain.

capital

Mr. Wallis purchased 200 shares of Bear Corp. stock in 2010 for $28,600. This year, Bear filed for bankruptcy and ceased operation. Bear stock was deemed worthless. This year, Mr. Wallis reports a ___ loss of $___ on his Form 1040.

capital; 28600

To raise additional nontax government revenues, many states have resorted to legalized gambling in the form of ___ and ___.

casinos; lotteries

In the current year, unreimbursed medical expenses are

deductible in excess of 7.5 percent of AGI.

The greatest disadvantage of state tax conformity to federal income tax law is ______.

diminished control over state tax revenues because changes to the federal definition also affect the state definition of taxable income

An extension of time to file an individual tax return ______.

does not extend the time for payment of tax

The beneficiary of a life insurance policy

does not include any death benefit received in gross income.

When child support is paid as part of a divorce settlement, the recipient ______.

does not recognize gross income and the payer is not permitted a deduction

The revenues from a(n) ___ tax are designated to finance specific government expenditures.

earmarked

Itemized deductions only create a tax savings when itemized deductions ______ the standard deduction.

exceed

All states with a net income tax refer to the ______ definition of taxable income as a starting point for calculating state taxable income.

federal

Indicate which of the following statements is false: Debt instruments issued by the U.S. government ______.

generate interest that is tax exempt for U.S. federal income tax purposes

___ means all income from whatever source derived.

gross income

Hunt is single. His disabled father lives with him and is considered a dependent. Hunt's filing status is ______.

head of household

Estimated tax payments are due

in four quarterly installments.

A cash basis taxpayer recognizes dividend income ______.

in the period in which the cash is actually or constructively received

As a general rule, prizes and awards are

included in gross income

Total income ______.

includes both income earned from business ventures and as an employee

The federal government subsidizes charitable activities ______.

indirectly through the tax system by allowing a charitable contribution deduction

In the United States, ___ and ___ are the two primary entities subject to income.

individual; corporation

The tax treatment of gifts and inheritances ______.

is a major exception to the general rule that economic receipts are taxable; gifts and inheritances are tax exempt

Inherited property that ______.

is appreciated in value is never taxed on the appreciation that occurs prior to the date of death

The QBI deduction is ______.

is deducted from AGI

The dependent care credit ______.

is only available if the taxpayer has earned income

A preferential rate on capital gains

is sometimes argued as offsetting the effects of inflation on historical basis of an asset.

Julia and Rob are both unmarried and file as single taxpayers. Julia's individual tax liability is $22,500 and Rob's is $32,000. If Julia and Rob were married, they would file jointly and their joint tax would be $60,000 which is $5,500 more than the amount computed by adding their individual tax liabilities together. This illustrates the ___ present in the U.S. federal income tax structure.

marriage penalty

A taxpayer realizing a gain on sale of a personal residence, but failing to meet the ownership or use requirements for a full gain exclusion, ______.

may be entitled to a partial exclusion if the sale was due to a change in employment, health, or unforeseen circumstances

An unemployed worker receiving unemployment compensation ______.

must generally include such compensation in gross income

A minor child with earned income

must use the "single" filing status.

Because personal assets may not be depreciated, the sale of such assets usually results in a loss. This loss is typically

non-deductible

If the sale of a personal use asset produces a loss, the loss is ______.

not deductible

In general, sales taxes ______.

often have a local and a state component

Qualified dividend income is ______.

permitted a preferential tax rate

A charitable contribution of noncash property ______.

produces a tax deduction equal to the value of the property only if the item is a long-term capital gain asset

In general, local governments rely more heavily on ___ taxes, while state governments rely about equally on income and ___ taxes.

property; sales

The tax treatment of creative assets ______.

provides an exception to the general rule that personal use assets are capital in nature

The safe-harbor estimate provision ______.

provides taxpayers with certainty because accurately estimating current year tax obligation can be difficult

The child credit ______.

provisions provides for a reduced for certain non-child dependents

Tax credits ______.

reduce the tax liability by $1 for every $1 of credit

The marriage penalty ______.

refers to the notion that the tax system is not neutral with respect to marital status

The major advantage of state tax conformity to federal income tax law is ______.

simplicity

The three basic sources of tax law are ___, ___ and ___ authority.

staturtory; administrative; judicial

ABC Company collected $1 million of life insurance proceeds on the death of its CFO. This economic benefit is ______.

tax exempt

Municipal bond interest is ______.

tax exempt for U.S. income tax purposes

Interest generated by U.S. debt instruments, such as Treasury notes or Series EE bonds, is generally ______ for state income tax purposes and ______ for U.S. income tax purposes.

tax exempt; taxable

An excise tax is best described as a ______.

tax on a specific good or service

A refund of state or local income taxes is ______.

taxable only if the prior deduction for the tax payment produced tax savings

Ms. Frost, a cash basis taxpayer, owns shares of XYZ, Inc. in her investment portfolio and participates in a dividend reinvestment program. Therefore, her share of the 4th quarter 2020 dividend paid by XYZ was reinvested in additional shares of XYZ. The dividend is ______.

taxable to Ms. Frost in 2020

In 2021, a child's unearned income in excess of the inflation-adjusted base amount of $2,200 is ___

taxed at the parent's marginal rate.

Statutory authority refers to ______.

the Internal Revenue Code

Social Security and Medicare benefits are typically available

to individuals who paid payroll or self-employment tax during their working lives.

The "kiddie tax" was originally implemented

to limit the ability to shift income from a parent's high tax bracket to a lower tax bracket.

The incidence of sales tax levied on the purchase of retail goods is borne by the ______.

ultimate consumer of the good

The tax base on which property taxes are levied is the ______.

value of the property

The tax base for Social Security and Medicare is ______.

wages for an employee

For a given year, filing status is determined ______.

with respect to the criteria evaluated on the last day of the taxable year