EA 1 Practice Questions

To be considered to have insurance, taxpayers must be enrolled in qualifying health coverage, also called minimum essential coverage. All of the following are examples of minimum essential coverage EXCEPT: a. Certain insurance coverage that may provide limited benefits. b. Employer-sponsored coverage. c. Individual health coverage. d. Coverage under government-sponsored programs.

a. Certain insurance coverage that may provide limited benefits.

George, a 32-year-old single taxpayer, has W-2 income of $31,000. During the 2018 tax year he contributed $6,500 to his traditional IRA. George has excess contributions of how much?

$1,000

When Chris bought his motorcycle, he paid $500 cash and took over payments when the principal balance was $5,000. He added accessories that cost $1,000. Ten years later, a collector paid Chris $8,000 for the motorcycle. Chris applied the entire $8,000 to the $10,000 purchase price of a new cycle. What are the tax consequences to Chris of these transactions?

$1,500 taxable gain The exchange of property for the same kind of property is the most common type of nontaxable exchange. To qualify as a like- kind exchange, the property must be held for business or investment purposes both the property transferred and the property received. There must also be an exchange of like-kind property (such as real estate for real estate). Since Chris did not hold the motorcycle for business or investment purposes, it cannot be treated as a nontaxable exchange. The sale of the motorcycle is a taxable sale. The application of the sales price to the purchase of a new motorcycle does not change the taxable nature of the sale.

Taxpayers may be able to exclude up to how much foreign earned income in 2018.

$104,100

A taxpayer's qualified business income as an attorney is $100,000. Their taxable income is $200,000 and they file as married filing jointly. They have no net capital gain. What is their qualified business income deduction?

$20,000

A 62-year-old, married taxpayer files Married Filing Separately, and lives apart from the spouse for an entire taxable year. What is the taxpayer's base amount for computing taxable Social Security benefits?

$25,000 Base amount. Your base amount is: $25,000 if you are single, head of household, or qualifying widow(er); $25,000 if you are married filing separately and lived apart from your spouse for all of 2018; $32,000 if you are married filing jointly; or $0 if you are married filing separately and lived with your spouse at anytime during 2018

A taxpayer sells property for $6,000. No liabilities are assumed. The gross profit is $1,500. What is their contract price, and what is the gross profit percentage?

$6000, 25%

Last year, Trinny received 300 shares of XYZ Corp. from her uncle as a gift. Her uncle purchased the stock in 1990 for $180,000, and at the time of the gift to his niece he paid no gift tax. At the time of the gift, the property's fair market value was $240,000. Trinny did not have any other events that increased or decreased her basis in the gift after she received it. What is her gain if she sold her property for $260,000?

$80,000 gain

To find out if a taxpayer's Social Security benefits may be taxable, all of the following are taken into account EXCEPT: (A) Interest that is tax-exempt (B) The exclusion for foreign earned income (C) Notary fees received (D) Unemployment benefits

(B) The exclusion for foreign earned income

All of the following income types are reported on Form 1099-MISC EXCEPT: (A) Non-employee compensation over $600 (B) Payments made to a physician or supplier or provider of medical or healthcare services of $600 or more made in the course of your trade of business (C) Canceled debt of $600 of more (D) Crop insurance proceeds of $600 or more

(C) Canceled debt of $600 of more

Gregg is an unmarried taxpayer who provides all of the support for his 19-year-old daughter, and 59-year-old mother, neither of whom had any income. How many exemptions can Gregg claim on his return?

0 For 2018, you can't claim a personal exemption for yourself, your spouse, or your dependents.

Brenda sold property for $9,000. The buyer will pay her $1,000 annually (plus 8% interest) over the next 3 years and will assume an existing mortgage of $6,000. Brenda's adjusted basis in the property is $4,400. She has selling expenses of $600. What is the gross profit percentage?

100%

Generally, home sale qualifies for exclusion of $250,000 gain ($500,000 if married filing jointly) if the taxpyer owned the home and used it as their main home during at least how many years out of th last 5 years before the date of sale.

2

Kristin, a full-time student with no taxable compensation, marries Carl during the year. Neither of them was age 50 by the end of 2018. For the year, Carl has taxable compensation of $30,000. He plans to contribute (and deduct) $5,500 to a traditional IRA. How much can Kristin contribute?

5,500

Winston turned 70 1/2 on June 1, 2018. By what date must he receive his minimum distribution by?

April 1, 2019

Marge Godfrey sold her investment property March 30, 2018 at a gain of $50,000. Marge expects to owe $10,000 in additional income taxes on this sale. She had a tax liability of $900 for 2017 and will have no withholding for 2018. Marge's first estimated tax payment is due on what date?

April 17 2018 Marge is subject to the requirement to pay estimated tax. She expects to owe at least $1,000 for 2018 and does not have any withholding. Since the sale of investment property occurred in March of 2018 (first quarter of 2018), the estimated tax due date for the first quarter is April 17, 2018.

Which of the following is permitted? A. Recharacterize a conversion from a SIMPLE to a Roth IRA. B. Recharacterize a conversion from a traditional IRA to a Roth IRA. C. Treat a regular contribution to a Roth IRA as having been made to a traditional IRA. D. Recharacterize an amount rolled over to a Roth IRA from a 401(k).

C. Treat a regular contribution to a Roth IRA as having been made to a traditional IRA. You can no longer recharacterize a conversion from a traditional IRA, SEP or SIMPLE to a Roth IRA. The new law also prohibits recharacterizing amounts rolled over to a Roth IRA from other retirement plans, such as 401(k) or 403(b) plans. You can still treat a regular contribution made to a Roth IRA or to a traditional IRA as having been made to the other type of IRA.

Geena paid $10,000 for stock in a start-up company. A few months after she bought it, she sold the stock to her brother, Henry, for $8,000, its current value. Later, he sold the stock to an unrelated party for $15,000. What gain or loss should Geena and Henry recognize on their tax returns in the year of sale?

Geena recognizes $0 loss; Henry recognizes $5,000 gain

An unmarried son lived with his mother all year. He is 25 years old at the end of the year and his gross income was $5,000. He did not provide more than half of his own support. In regard to dependency, and head of household filing status, what is his situation?

He is neither a qualifying child nor qualifying relative and is not a qualifying person

Each month Betsy's employer gives her $600 for her business expenses. Sometimes Betsy spends more than the $600. Once a year, she negotiates the amount of expense money with her employer, but she is not required to submit any proof of how she spends the $600 per month. How should Betsy report her expenses on her return?

No report required

In January 2018, a taxpayer takes out a $500,000 mortgage to purchase a main home. The loan is secured by the main home. In February 2018, the taxpayer takes out a $250,000 home equity loan purchase a vacation home. The loan is secured by the main home. How much of the home equity is considered to generate deductible home mortgage interest?

None Your deduction for mortgage interest is limited to interest you paid on a loan secured by your main home or second home that you used to buy, build, or substantially improve your main home or second home. Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan.

Child support payments are: a. Taxable to the recipient (payee); deductible by the payer. b. Taxable to the recipient (payee); not deductible by the payer. c. Not taxable to the recipient (payee); not deductible by the payer d. Not taxable to the recipient (payee); deductible by the payer.

Not taxable to the recipient (payee); not deductible by the payer.

Amy bought shares in the Oppenheimer Mutual Fund for $250. She received a capital gain distribution, also known as a capital gain dividend, of $90 on Form 1099-DIV. How should Amy report the capital gain distribution on her tax return?

Report the $90 as long-term capital gain

Sam received a total distribution of $40,000 from his employer's 401(K) plan consisting of $25,000 in cash, and land with a fair market value of $15,000. If Sam decides to keep the land, what is the total amount that he can roll over to his IRA?

Sam can roll over the $25,000 cash received into his IRA. If property is received in an eligible rollover distribution from a qualified retirement plan, the taxpayer cannot keep the property and contribute cash to a traditional IRA in place of the property. They must either roll over the property or sell it and roll over the proceeds.

Which of the following is compensation for the purpose of contributions to individual retirement accounts?

Taxable alimony and separate maintenance.

Which of the following is generally not considered self- employment income? a. Part-time business income b. All church employee income. c. Certain church employee income. d. Guaranteed payments of a general partner.

b. All church employee income.

To be engaged in business as a trader in securities, they must meet all of the following conditions except: a. They must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation b. They must earn a profit 2 out of every 5 years c. Their activity must be substantial d. They must carry on the activity with continuity and regularity

b. They must earn a profit 2 out of every 5 years

Which of the following individuals are exempt from the individual shared responsibility payment? a. Residents of states that expanded Medicaid coverage b. Taxpayers with no coverage for less than four years c. Members of certain religious sects in existence since 1950 d. Taxpayers ineligible for Medicaid for any reason

c. Members of certain religious sects in existence since 1950

In an installment sale, if the buyer assumes a mortgage that is greater than the installment sale basis of the property sold: a. There is never a profit or a loss. b. The transaction is disqualified as an installment sale. c. The gross profit percentage is always 100 %. d. The gain is treated as short-term capital gain.

c. The gross profit percentage is always 100 %.

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

c.Paying for care for your spouse who is not physically or mentally able to care for himself/herself while you work Child and dependent care expenses must be work- related to qualify for the credit.

The Affordable Care Act requires individuals to have qualifying health coverage, qualify for a coverage exemption, or make an individual responsibility payment when they file their tax return. All of the following are exempt from the individual shared responsibility payment EXCEPT: a. A US citizen physically present in a foreign country for at least 330 full days during a period of 12 consecutive months b. A US citizen who owns a home valued at $1,500,000 but gross income falls below the return filing threshold c. A US citizen who is currently incarcerated d. A US citizen, single parent, filing Head of Household with two children and gross income of $125,000

d. A US citizen, single parent, filing Head of Household with two children and gross income of $125,000

The Tax Cut and Jobs Act (TCJA) impacted the domestic production activities deduction (DPAD). Which statement best describes TCJA's impact on this deduction? a. The DPAD has been renamed. b. The DPAD is being phased-out. c. The DPAD will end in 2020. d. The DPAD has been repealed with limited exceptions

d. The DPAD has been repealed with limited exceptions The domestic production activities deduction has been repealed with limited exceptions.

As a result of a hurricane that resulted in a presidentially declared disaster, Phil vacated his apartment for a month and moved to a motel. He normally pays $525 a month for rent. None was charged for the month the apartment was vacated. His motel rent for the month was $1,200. He normally pays $200 a month for food. His food expenses for the month he lived in the motel were $400. He received $2,100 from his insurance company to cover living expenses. How much of the reimbursement must be included in income?

$0

Rick received 100 restricted shares of his employer's stock on January 1, Year 1 when the stock was trading at $100 per share. On December 31, Year 2, when the stock was trading at $200 per share, the stock vested. How much income does Rick have, and what year does it apply to? He did not make any special elections.

$20,000 income in Year 2. Restricted Stock Units are unsecured, unfunded promises to pay cash or stock in the future and are considered nonqualified deferred compensation. Typically, one Restricted Stock Unit represents one share of actual stock. Restricted Stock Units generally are not taxable at grant. Generally, a taxable event does not take place until the vesting of the Restricted Stock Unit.

Ralph gave his aunt an antique clock during the year. He had purchased the clock for $15,000 in 2013. The fair market value at the date of the transfer was $21,000. What amount should be recorded on Form 709 as the value of this gift?

$21,000

In 2018, Ivan was over age 70 1⁄2. The balance at the beginning of 2018 of his traditional IRA was $41,000. All of his IRA contributions had been tax deductible. The required minimum distribution for 2018 was $3,000. If Ivan only took a distribution of $1,000, what is the amount of excise tax that Ivan would have to pay on the excess accumulation?

$1,000 If distributions are less than the required minimum distribution for the year there is a 50% excise tax for that year on the amount not distributed as required.$3,000 - $1,000 = $2,000 X 50% = $1,000

During the year, Nicholas made the following dispositions of property: Sold publicly traded stock, which cost $2,000 and had been held for 2 years, for $3,000; Sold land, which cost $20,000 and had been held for 9 months, to his brother for $16,000. How should Nicholas report these dispositions on his return?

$1,000 long-term capital gain

n February 2018, Paul and Jean, a married couple, cashed a qualified series EE savings bond they bought in November 1991. They received proceeds of $7,132, representing principal of $5,000 and interest of $2,132. In 2018, they helped pay for their daughter's college tuition. The qualified education expenses they paid in 2018 totaled $4,000. They are not claiming an education credit for the expenses and they do not have an education IRA. How much interest income can Paul and Jean exclude?

$1,196

How much income should Devin, who uses the cash method of accounting, report on his 2018 return from the following transactions? *$300 was garnisheed from his wages to pay his debts; *$500 (gross) paycheck received December 28, 2018 but not cashed until January 2, 2019; *$900 (gross) wages paid directly to his mother at his request.

$1,700

Josie lost a building in a storm that was not part of her home. She received an insurance reimbursement of $180,000 for the destroyed building. She had paid $200,000 for the building and land six years ago, with $40,000 of the purchase being allocated to the land. Eighteen months after the storm, she invested $170,000 for another building that qualifies as replacement property. How much is her taxable gain?

$10,000

Ben and Rachel Sanchez, joint filers, sold property in 2018. The sale resulted in a capital loss of $14,000. The Sanchez's had no other capital transactions. They had taxable income of $2,000. What is their capital loss carryover?

$11,00

Todd and Susan divorced on September 1, 2018. As part of the divorce decree, beginning in September, Todd was to make payments of $2,000 a month for the balance of the year to Susan's doctor for recent medical expenses; child support payments of $500 per month, and $1,500 a month for the mortgage payment on a jointly-owned home. Susan and the children will continue to live in the home. What is the amount that Todd can deduct as alimony for 2018?

$11,000

Angie purchased a barn and 10 acres of land from Alex on January 20, 2018. Prior to the purchase Angie had been renting the property from Alex for $600 per month. Angie paid the following amounts: *$160,000 in loan proceeds to Alex; *$4,000 in points to the bank; *$2,400 in real estate taxes Alex owed to the town; *$1,800 in past due rent to Alex; *$6,400 in closing costs to the bank for legal, recording, title insurance and survey fees; *$3,200 in escrowed Real Estate taxes to the bank. What is Angie's basis in the building and land purchased from Alex?

$168,000

George opened a four-year certificate of deposit in January 2016. He earned $400 in interest for 2017 and reported this on his 2017 return. He withdrew all of the funds in October 2018. However, due to the premature withdrawal provisions, he received only $230 of the 2017 interest, plus $195 of interest for 2018. What should he report in 2018?

$195 interest income on Schedule B and $170 as an adjustment to gross income.

John has a heart ailment. On his doctor's advice, he installed an elevator in his home so that he would not have to climb stairs. The cost of the elevator was $7,000. An appraisal shows that the elevator increased the value of his home by $5,000. John can claim a medical deduction of:

$2,000 Include in medical expenses amounts paid for special equipment installed in a home, or for improvements, if their main purpose is medical care. The cost of permanent improvements that increase the value of your property may be partly included as a medical expense. The cost of the improvement is reduced by the increase in the value to the property. The difference is a medical expense. If the value of the property isn't increased by the improvement, the entire cost is included as a medical expense

What is the total amount a sole proprietor is obligated to report on 1099-MISC forms based on the following expenses claimed on schedule C? *Incorporated law firm: $600; *Web page designer: $800 ($600 labor and $200 software); *Sign printer: $500; *Incorporated janitorial company: $800; *Consultant A: $1,000 ($400 paid in cash and $600 paid by check); *Consultant B: $500 paid in cash; *Consultant C: $400 paid by check.

$2,400 File Form 1099-MISC, Miscellaneous Income, for each person paid during the year at least $600 in services performed by someone who is not their employee (including parts and materials). Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation) are not reportable on Form 1099-MISC. However, payments made to corporations for attorney fees generally must be reported on Form 1099-MISC. Incorporated law firm + Web Page Designer + Consultant A

The original owner of Felix Plumbing Company stock paid $10,000 for his 100 shares. Stock in Felix Plumbing is qualifying small business stock under Section 1244. The stockholder also made a $2,000 contribution to capital of Felix Plumbing for a total investment of $12,000. He then sold the 100 shares for $9,000. What is the amount and character of loss that he can deduct on his return for the year of sale?

$2,500 ordinary loss and $500 capital loss

Geri worked in France for part of the year where she earned $28,000. She reports her income on the calendar- year basis and qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2018. How much is her foreign earned income exclusion?

$21,349

Jada sold a parcel of land for $50,000. She received a $10,000 down payment and will receive the balance over the next 10 years at $4,000 a year, plus 8% interest. The buyer gave her a note for $40,000. The note had an FMV of $40,000. She paid a commission of 6% to a broker for negotiating the sale. The land cost $25,000, and she owned it for more than one year. She has elected out of the installment method. How much gain will she report in the year of sale?

$22,000

William owns a 4-unit apartment building for which he receives $500 per month per unit. Three of the units were rented for the entire twelve months. The fourth unit was occupied from January 1 to April 30. Upon vacating the unit, the tenant was not refunded his security deposit of $500 due to damage to the unit. The unit was subsequently rented for one year beginning August 1. On August 1, the new tenant paid the first and last month's rent and a refundable security of $500. The new tenant then paid their rent on the first of the month for the rest of the year. What is William's rental income for the year?

$23,500

Barry is a lawyer. He owns ten apartment buildings that are managed by his brother's real estate business. At the end of the year the apartment buildings resulted in a $40,000 loss. Barry earned $75,000 in wages. His wife, Claire, earned $20,000 from her part time job. Their other income included $5,000 in dividends from their mutual funds. They had no other income. How much of the rental loss can Barry use?

$25,000 If MAGI is less than $100,000 ($50,000 MFS) TP can only deduct up to $25,000 rental loss If MAGI is more than $100,000 ($50,000 MFS) TP can deduct 50% of the difference of $150,000 ($75,000 MFS) minus MAGI

John, a single taxpayer, received interest income of $40,000 consisting of the following: *Certificate of deposit $6,000 (which is reinvested); *Savings account $4,000; *City of Glendale Municipal Bond $8,000; *Mortgage note $12,000; *Cobb County Municipal Bond $7,000; *Corporate bond $3,000; What is the amount of taxable interest income he will report on his Form 1040?

$25,000 interest on a bond used to finance government operations generally is not taxable if the bond is issued by a state, the District of Columbia, a U.S. possession, or any of their political subdivisions. Taxable interest is calculated as follows:* Certificate of deposit $6,000; *Savings account $4,000; *Mortgage note $12,000; *Corporate bond $3,000;Total $25,000

Mark sold a building for $100,000 cash plus property with a fair market value (FMV) of $10,000. He had purchased the building for $85,000. He made $30,000 worth of improvements and deducted $25,000 for depreciation. The buyer assumed Mark's real estate taxes of $12,000 and mortgage of $20,000 on the building. Mark paid selling expenses of $3,500. What amount of gain should be recognized on the sale of the building?

$48,000

Bill took out a $100,000 non-recourse loan and bought an apartment building. The building is not security for the loan. Bill spent $25,000 of his own money on repairs before he rented the apartment building to the public. Bill is single, works full-time and earns $80,000 per year. Bill's loss from the rental real estate activity, in which he actively participates, is $30,000. He has no passive income. For what amount is Bill at-risk and how much of Bill's passive loss from his rental activity is deductible?

$25,000 $25,000 The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of modified adjusted gross income that's more than $100,000 ($50,000 if married filing separately).

Arnold (age 60) and Beatrice (age 45) were married. They sold their home that they had owned and lived in for 10 years at a profit of $560,000 on March 1, 2018. Beatrice unexpectedly died in September 2018 of a disease. Arnold remarried in February 2019 and purchased a new, more expensive home in March. Beatrice's mother was appointed as executor of her estate. She elected to file a separate return for Beatrice for 2018. How much of the gain can Arnold exclude on his 2018 return?

$250,000 Taxpayers can exclude up to $250,000 of gain ($500,000 if married filing jointly) on the sale of their home if they meet the eligibility test. Married individuals may exclude up to $500,000 of gain if they file a joint return and neither spouse excluded gain on the sale of another home within a previous 2-year period.

Gordon, age 70, is retired and works part-time as a security guard earning $8,000. He received $5,000 interest from a saving account and $2,500 interest from tax-exempt municipal bonds. His Social Security benefits were $12,000 and his taxable pension was $6,000. To determine if any of his Social Security is taxable, Gordon should compare how much of his income to the $25,000 base amount?

$27,500

Tanya purchased hunting land from Tony on March 12, 2018. Prior to the purchase Tanya had bee renting the property from Tony for $500 per month. Tanya paid the following amounts: *$265,000 in proceeds to Tony; *$2,800 in points to the bank; *$2,900 in real estate taxes Tony owed to the tow *$1,750 in past due rent to Tony; *$3,400 in closing costs to the bank for legal, recording, title insur and survey fees; *$2,700 in escrowed Real Estate taxes to the bank. What is Tanya's basis in the building and land purchased from Tony?

$271,300

Joan paid $3,000 for tuition and $5,000 for room and board at University X. The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. The terms of the scholarship state that its use is not restricted. If Joan chooses to include her scholarship in income, what amount of qualified education expenses does she have?

$3,000

Aaron sold his building for $24,000 under threat of condemnation to a public utility company that had the authority to condemn. He rented half the building and lived in the other half. He paid $25,000 for the building and spent an additional $1,000 for a new roof. He claimed allowable depreciation of $4,600 on the rental half and spent $200 in legal expenses to obtain the condemnation award. What is the gain or (loss) on the rental portion of the property?

$3,500

Consider the following expenditures and determine the total amount that would be deducted as adjustments to income in arriving at adjusted gross income (assuming no income limitations) on Form 1040, Individual Income Tax Return: $1,000 interest paid on student loan; $2,000 paid to a SIMPLE retirement plan; $100 jury duty pay given to the employer; $500 expenses from the nonbusiness rental of personal property.

$3,600

Joseph is a single taxpayer. His modified adjusted gross income in 2018 was $140,000, of which $116,000 was earned income. In 2018, he made a $5,000 contribution to his previously established Roth IRA. What is the penalty for excess contributions if he doesn't withdraw the contribution (and all attributable earnings) by the due date of the return (including extensions)?

$300

Last year, Erica received $100 for XYZ Corp. classified as a qualified dividend, $200 from France Corp. classified as an ordinary dividend, and $400 from ABC Corp. classified as a return of capital. How much did Erica receive as dividends during the year?

$300

Margaret, age 51, is fully vested and will receive social security benefits at retirement but has no other retirement plan coverage. Her present and past employers have not had retirement plans available. She files as single, and her earnings are $34,000. Also, during the year she contributes $5,000 to a traditional IRA. How much of the $5,000 contribution may she deduct?

$5,000

Michael operates his health food store as a sole proprietorship out of a building he owns. Based on following information, compute his net self- employment income (for SE tax purposes). *Gross received $100,000; *Cost of goods sold $49,000; *Utilities, $6,000, *Real estate taxes, $1,000; *Gain on sale business truck, $2,000; *Depreciation expense, $5,000; *Section 179 expense, $1,000; *Mortgage interest on buildings, $7,000; Contributions to Keough plan, $2,000; Net operating loss from 2016, $10,000.

$31,000 Use Schedule C net profit or loss as basis of net self- employment income. Gain on sale business truck is reported on Form 4797 initially, contributions to Keough plans are deductible on Form 1040 as a deduction for AGI, and net operating loss is deducted on Form 1040.

Andy is a cash basis taxpayer who is employed and also owns rental property. During the year, his employer did not pay him his November salary of $6,000 due to cash flow problems. Instead of his salary, his employer gave him an I.O.U. for $6,000. The employer has now filed for bankruptcy. Andy has no hope of collecting the salary owed to him. Also, Andy's tenant did not pay him the $3,000 rent for owed for November. The tenant has moved out and Andy does not know how to contact him. Additionally, Andy gave up hope of collecting $4,000 he lent to his friend. The friend had signed a note payable and interest was being collected over time. How much does Andy have for a bad debt deduction for the year?

$4,000

Mary files as head of household and has three dependent children, ages 15, 16 and 17. Mary and the children are U. S. citizens. Her only income is a salary of $77,500. Her tax is $13,262. How much child tax credit is she allowed in 2018?

$4,000 For 2018, the maximum credit increased to $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the additional child tax credit. In addition, the income threshold at which the child tax credit begins to phase out is increased to $200,000, or $400,000 if married filing jointly.

Janice dropped off her annual records for preparation of her tax return. Determine the amount of taxable interest to be reported on Janice's return. *$1,000 interest earned on her 16-year-old son's savings account (he had no other income and did not file a tax return); *$50 interest income reported on Form 1099-OID; *$200 interest earned on a certificate of deposit (your client borrowed the entire $3,000 to purchase this CD); *$20 value of a calculator that was a gift from the bank for opening a savings account; *$6,000 received on a prior year installment sale, of which $4,000 is interest and $2,000 is principal.

$4,270

Peter and Jill are married and file a joint return. Neither is age 50 or older. In 2018, Jill was a media relation's manager for a large firm and earned $98,000; Peter owns a graphic design business that showed a net profit of $500. In 2018 Jill was covered by an employer's plan, Peter was not. Their Modified Adjusted Gross Income was $155,000. What is the maximum deductible amount that Peter can contribute to a traditional IRA?

$5,500

Ted and William agreed to trade apartment buildings with Ted agreeing to pay William $10,000 cas Ted's basis in his apartment building is $40,000. William's basis in his apartment building is $50,00 What is Ted's basis in his new apartment building?

$50,000

Earl uses the cash method of accounting. He took out a $100,000 home mortgage loan payable over 20 years. The terms of the loan are the same as for other 20-year loans offered in your area. You paid $4,800 in points. You made 3 monthly payments on the loan in 2018. How much can he deduct for points in the first year of the loan if he chooses not to deduct points in full in the year paid.

$60 The points may be shown as paid from either your funds or the seller's. He can deduct $60 [($4,800 ÷ 240 months) x 3 payments] in the first year. In future years, if he makes all twelve payments, he will be able to deduct $240 ($20 x 12).

Aaron sold his building for $48,000 under threat of condemnation to a public utility company that had the authority to condemn. He rented half the building and lived in the other half. He paid $50,000 for the building and spent an additional $2,000 for a new roof. He claimed allowable depreciation of $9,200 on the rental half and spent $400 in legal expenses to obtain the condemnation award. What is the gain or (loss) on the rental portion of the property?

$7,000

John and Jim owned, as joint tenants with right of survivorship, business property they purchased for $60,000. John furnished two-thirds of the purchase price and Jim furnished one-third. Depreciation deductions allowed before John's death were $24,000. Under local law, each had a half interest in the income from the property. At the date of John's death, the property had an FMV of $120,000. What is Jim's basis in the property?

$88,000

4. For years beginning before January 1, 2019, to avoid the individual shared responsibility payment for not having insurance, taxpayers must be enrolled in qualifying health coverage, also called minimum essential coverage, or qualify for a coverage exemption. All of the following are examples of minimum essential coverage EXCEPT: (A) Certain insurance coverage that may provide limited benefits. That includes, but is not limited to, the following types of plans: stand-alone dental and vision, accident or disability income or workers' compensation (B) Employer-sponsored coverage. That includes, but is not limited to, the following types of plans: a self-insured group health plan for employees, retiree and COBRA coverage (C) Individual market health coverage. That includes, but is not limited to, the following types of plans: health insurance purchased directly from an insurance company, or Health Insurance Marketplace (D) Coverage under government-sponsored programs. That includes, but is not limited to, the following types of plans: Medicare Part A coverage, Medicare Advantage Plans and most Medicaid coverage

(A) Certain insurance coverage that may provide limited benefits. That includes, but is not limited to, the following types of plans: stand-alone dental and vision, accident or disability income or workers' compensation

Two taxpayers married on November 30. That same year, the husband enrolled in an accredited college to further his career and subsequently received a Form 1098-T, Tuition Statement. The wife was employed with an income of $45,000 and paid for the husband's education expenses. Based on their circumstances, what is the correct method to report the education credit? (A) Taxpayers must file a joint return to claim an education credit (B) Based on the wife's AGI, they do not qualify to claim an education credit (C) Husband is ineligible to claim an education credit because the wife paid his education expenses (D) Wife should report nonqualified education expenses on Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)

(A) Taxpayers must file a joint return to claim an education credit You cannot claim an education credit on a 2018 tax return if your filing status is married filing separately. If qualified education expenses were paid on behalf of the student by someone other than the student the expenses are treated as paid by the student.

A taxpayer's beach cottage was available for rent from June 1 through August 31 (92 days). During that time, except for the first week in August (7 days) when they taxpayer was unable to find a renter, they rented the cottage at a fair rental price. The person who rented the cottage for July allowed the taxpayer to use it over the weekend (2 days) without any reduction in or refund of rent. The taxpayer's family also used the cottage during the last 2 weeks of May (14 days). The cottage was not used at all before May 17 or after August 31. How many days of rental use were there, and how many days of personal use were there?

84, 14

In 2015 you bought 100 shares of XYZ stock for $1,000 or $10 a share. In 2016 you bought 100 shares of XYZ stock for $1,600 or $16 a share. In 2017 XYZ declared a 2-for-1 stock split. Which of the following is correct? a. You now have 200 shares with a basis of $5 per share. b. You now have 200 shares with a basis of $8 per share. c. You now have 400 shares with a basis of $6.50 per share. d. A & B above.

A & B above.

Peter is an auto mechanic. On Nov. 25, 2017, he made some major auto repairs on Harry's Mercedes. Harry is an attorney. In exchange for the service, Harry is going to draft Peter's will and represent him when he settles on his new house. Harry will perform all of these services in 2018. The repair bill for the Mercedes came to $1,200. Both Peter and Harry are cash basis taxpayers. How do they report this income?

Harry reports $1,200 in 2017 and Peter reports $1,200 in 2018. Bartering is an exchange of property or services. The fair market value of property or services received is included in income. If services are exchanged and the parties have both agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise. As a cash basis taxpayer, the income is reported in the year payment is received (i.e. year that service is received).

In regard to self-employment (SE) tax, which of the following statements is incorrect? a. A member of a single-member LLC is not considered self- employed for SE tax purposes. b. A partner in a partnership can be considered self- employed for SE tax purposes. c. Taxpayers usually must pay self-employment tax if they had net earnings from self-employment of $400 or more. d. Self-employed individuals can be liable for paying self- employment tax even if they currently receive social security benefits.

a. A member of a single-member LLC is not considered self- employed for SE tax purposes.

Edwin and Donna were married. He had established a traditional IRA to which he made contributions and had taken no distributions. The total value of the IRA was $50,000 of which $20,000 was non-deductible contributions. As the spousal beneficiary, which of the following applies to Donna? a. Edwin's $20,000 basis in the IRA may be treated as basis to Donna b. When Donna receives the distribution, she may not roll it over to her own traditional IRA c. Donna must begin receiving periodic distributions by December 31 of the fifth year following Edwin's death d. Donna must pay a 10% penalty on the funds in the IRA if she receives an immediate distribution after Edwin's death

a. Edwin's $20,000 basis in the IRA may be treated as basis to Donna

Assuming the qualifications are met, contributions to the health savings account (HSA) made by an employer (including contributions made through a cafeteria plan) are: a. Excluded from gross income. b. Included in gross income. c. Included in gross income and then deducted as an adjustment to income. d. Included in gross income and then deducted as an itemized deduction.

a. Excluded from gross income. Account holders can claim a tax deduction for contributions they, or someone other than an employer, make to the HSA even if they don't itemize deductions. Contributions to an HSA made by an employer (including contributions made through a cafeteria plan) may be excluded from the employee's gross income. Distributions are tax free if used to pay qualified medical expenses.

Which of the following would most likely qualify as self- employment earnings for Keogh plan purposes? a. Fees a minister reports on Schedule C for performing marriages and baptisms. b. Income earned as a full-time insurance salesperson. c. Income an U. S. citizen earns in the U.S. as an employee of a foreign government. d. None of the above

a. Fees a minister reports on Schedule C for performing marriages and baptisms

All of the following may take the self-employed health insurance deduction, except: a. Self-employed taxpayer who had a net profit or loss for the year reported on Schedule C. b. A partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065). c.A taxpayer who used one of the optional methods to figure their net earnings from self-employment on Schedule SE. d. A taxpayer who received wages from an S corporation in which they were a more-than-2% shareholder whose health insurance premiums reimbursed by the S corporation are shown as wages on Form W-2.

a. Self-employed taxpayer who had a net profit or loss for the year reported on Schedule C.

When figuring compensation for purposes of determining the amount of an allowable contribution to a traditional IRA, which of the following is an incorrect statement? a. Pension or annuity income is not considered as compensation for an IRA plan. b. Earnings and profits from property, such as rental income, are considered compensation. c. Interest and dividend is not considered as compensation for an IRA plan. d. Any amount you exclude from income is not considered as compensation for an IRA plan.

b. Earnings and profits from property, such as rental income, are considered compensation.

Your client wants to maximize the amount of IRA funds in his Roth IRA, and minimize the amount in his traditional IRAs. Which of the following statements is true? a. He can convert amounts from his traditional IRA to Roth IRA tax-free. b. He can convert amounts from his traditional IRA to Roth IRA by including some or all of the rollover in income. c. He can convert amounts from his traditional IRA to Roth IRA, but only if done prior to January 1, 2018. d. He cannot convert amounts from his traditional IRA to Roth IRA.

b. He can convert amounts from his traditional IRA to Roth IRA by including some or all of the rollover in income.

Which one of the following is not an adjustment to total income in arriving at adjusted gross income? a. Interest paid on student loans. b. Portion of health insurance of self-employed persons. c. Certain contributions to a medical savings account or HSA. d. Contributions to a Roth IRA.

d. Contributions to a Roth IRA. contributions to a Roth IRA are made with after-tax funds and are not adjustments to income.

Which of the following single taxpayers can open and contribute to a traditional IRA? a. Age 59, income from interest and dividends only. b. Age 71, income from social security and wages only. c. Age 50, income from alimony only d. Age 32, income from unemployment compensation only.

c. Age 50, income from alimony only

Dave, age 40, had a traditional IRA with a $40,000 balance at the beginning of 2018. All of Dave's contributions have been tax deductible. On July 1, 2018, Dave borrowed $20,000 from the IRA account. Which of the following would be a correct statement regarding the effects of this transaction? a. This would not be a prohibited transaction provided that the loan called for periodic payments and an interest rate at least equal to the applicable federal rate (AFR). b. Dave would be required to include $20,000 in income as a distribution in 2018. c. Dave would be required to include $40,000 in income as a distribution in 2018. d. Dave would not have to include the $20,000 in income if it were used for qualified higher education expenses.

c. Dave would be required to include $40,000 in income as a distribution in 2018.

Frank and Melody's home was completely destroyed by a tornado in a Presidentially declared disaster. They had no insurance. On which of the following forms would they report their loss? a. Form 4684, Casualties and Thefts and Form 1040, U.S. Individual Income Tax Return, as an adjustment to income. b. Schedule A, Itemized Deductions, only. c. Form 4684, Casualties and Thefts, and Schedule A, Itemized Deductions. d. Form 4684, Casualties and Thefts, only.

c. Form 4684, Casualties and Thefts, and Schedule A, Itemized Deductions.

After many years as a bachelor, Buddy age 50, married Penny, age 63. Penny's only income was $10,800 of social security. They filed a joint return for year 2018 with a modified adjusted gross income of $99,000. Buddy is covered by a retirement plan at work where he receives compensation of $85,000. He wishes to contribute to an IRA for himself and for Penny. Which of the following will provide them the greatest allowable tax benefit? a. He may contribute $6,500 to each IRA, but only take a deduction for the $6,500 to his IRA b. He may contribute $6,500 to each IRA, but take no deduction for either IRA c. He may contribute $6,500 to each IRA, and take a deduction of $6,500 for each IRA d. He may contribute $6,500 to each IRA, but only take a deduction for the $6,500 to Penny's IRA

c. He may contribute $6,500 to each IRA, and take a deduction of $6,500 for each IRA

In regard to foreign pensions, which of the following is not correct? a. For purposes of the foreign earned income exclusion amounts received as pensions or annuities are unearned income. b. For purposes of the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. c. In determining cost of a pension or annuity, contributions of a U.S. citizen or resident alien who received distributions from a plan to which contributions were made while they were a nonresident alien are always included in cost. d. None of the above

c. In determining cost of a pension or annuity, contributions of a U.S. citizen or resident alien who received distributions from a plan to which contributions were made while they were a nonresident alien are always included in cost.

Which of the following is deductible as medical insurance? a. Medical portion of auto insurance policy that provides coverage for all persons injured in or by your car. b. Insurance policy that pays you $50 a day if you are unable to work due to illness or injury. c. Medicare Part B. d. None of the above.

c. Medicare Part B

When figuring the deduction for contributions made to your own SEP-IRA, compensation is your n earnings from self-employment, which takes into account: a. A reduction for all of your self-employment tax. b. A reduction for the maximum allowable contribution to your own SEP-IRA. c. The deduction for one-half of your self-employment tax and the deduction for contributions to your own SEP- IRA. d. A. & B. above.

c. The deduction for one-half of your self-employment tax and the deduction for contributions to your own SEP- IRA.

A refund of state and local income taxes is not taxable in all of these situations except: a. Taxpayer elected to deduct state and local sales taxes as an itemized deduction. b. Taxpayer did not itemize deductions in the year they paid the state and local income tax. c. They did not receive a Form 1099-G for the year they received the refund. d. None of the above.

c. They did not receive a Form 1099-G for the year they received the refund. The taxpayer should report any taxable refund even if they didn't receive Form 1099-G.

Diane, single and age 49, made a $3,000 contribution to her traditional IRA in 2018. Her compensation for 2018 was $2,000. She filed a Form 4868 for an extension until October 15, 2019 to file her 2018 return. To avoid the 6% additional tax on excess contributions, Diane must do which of the following: a. Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by December 31, 2018 b. Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by April 15, 2019 c. Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by October 15, 2019 d. File an election to deduct the $1,000 on her 2019 return by attaching a statement to her 2018 return

c. Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by October 15, 2019

All the following qualify as a dependent except: a. Your deceased wife's stepmother who lived with you for 7 months during the tax year. She had no income and filed no tax return. You provided more than half of her total support. b. Your son who filed a joint return with his wife to receive a refund of all his withholding. No tax liability would have been due even if they had filed separate returns. All other exemption tests are met. c. Your 23-year-old daughter who is not a student and earned $5,000. She lived with you all year and you provided more than half of her total support. d. Your 17-year-old niece lived with you for 10 months. She earned $500 during the summer and you provided more than half of her total support.

c. Your 23-year-old daughter who is not a student and earned $5,000. She lived with you all year and you provided more than half of her total support.

Which of the following are examples of prohibited transactions with a traditional IRA? a. Selling property to it. b.Using it as security for a loan. c.Buying property for personal use with your IRA funds. d. All of the above.

d. All of the above.

John sells land on an installment basis. He will receive equal amounts of principal over the next ten years (plus interest). He elects out of the installment method. Which of the following statements is true? a. Under the installment method, the only income if interest income. b. He will report income evenly over the ten-year period. c. Since he elected out of the installment method, he will pay less tax. d. He will generally be required to report the entire gain in the year of sale.

d. He will generally be required to report the entire gain in the year of sale.

For traditional individual retirement arrangements (IRA's), which of the following is correct? a. The modified AGI limitation range for joint filers is unlimited. b. The Roth IRA contribution is deductible for a spousal IRA. c. Contributions may be made up to the due date of the return including extensions. d. If your spouse is covered by a retirement plan, and you are not, your traditional IRA deduction is not limited if your modified AGI on a joint return is less than $189,000.

d. If your spouse is covered by a retirement plan, and you are not, your traditional IRA deduction is not limited if your modified AGI on a joint return is less than $189,000.

Which of the following statements may be true? a. A nephew may be a dependent but does not qualify for the Credit for Other Dependents. b. A nephew may not be claimed as a dependent. c. A nephew may not be claimed as a dependent and does not qualify for the Credit for Other Dependents. d. None of the above.

d. None of the above.