Income Tax - Danielle's Q&A

Barry and Larry, who are brothers, are equal owners in Chickadee Corporation. On July 1, 2018, each loans the corporation $10,000 at an annual interest rate of 10%. Both shareholders are on the cash method of accounting, while Chickadee Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2019, Chickadee repays the loans of $20,000 together with the specified interest of $2,000. How much of the interest can Chickadee Corporation deduct in 2018?

$0

Early in the year, Marion was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year: Reimbursement of medical expenses Marion paid by a medical insurance policy he purchased $10,000 Damage settlement to replace his lost salary 15,000 ​ What is the amount that Marion must include in gross income for the current year?

$0

In 2018, Grant's personal residence was completely destroyed by fire. Grant was insured for 100% of his actual loss, and he received the insurance settlement. Grant had adjusted gross income, before considering the casualty item, of $30,000. Pertinent data with respect to the residence follows: Cost basis $280,000 Value before casualty 250,000 Value after casualty -0- What is Grant's allowable casualty loss deduction?

$0

In the current year, Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council. The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games. Also this year, Jerry pays $2,200 (the regular retail price) for season tickets for himself and his wife. For these items, how much qualifies as a charitable contribution?

$0

Melba incurred the following expenses for her dependent daughter during the current year: Payment of principal on daughter's automobile loan $3,600 Payment of interest on above loan 2,900 Payment of daughter's property taxes 1,800 Payment of principal on daughter's personal residence loan 2,800 Payment of interest on daughter's personal residence loan 7,000 ​ How much may Melba deduct in computing her itemized deductions?

$0

On February 1, 2018, Omar acquires used 7-year personal property for $100,000 for use in his business. Omar does not elect § 179 expensing, but he does take the maximum regular cost recovery deduction. As a result, Omar incurs a positive AMT adjustment in 2018 of what amount?

$0

On June 1, 2018, Norm leases a taxi and places it in service. The lease payments are $1,000 per month. Assuming the dollar amount from the IRS table for such leases is $241, determine Norm's gross income inclusion amount.

$0

On June 2, 2017, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000. Fred's TV Sales uses the accrual method. In 2018, when the balance on the account was $8,000, Mark filed for bankruptcy. Fred was notified that he could not expect to receive any of the amount owed to him. In 2019, final settlement was made and Fred received $1,000. How much bad debt loss can Fred deduct in 2019?

$0

This year, Carol, a single taxpayer, purchased a vacation home for $400,000 using an equity debt of $350,000 on her principal residence. Carol has no other debt on her principal residence. Carol paid $16,000 of interest on the debt this year. How much of this interest is deductible assuming Carol itemizes her deductions?

$0

White Corporation, a closely held personal service corporation, has $150,000 of passive activity losses, $120,000 of active business income, and $30,000 of portfolio income. How much of the passive activity loss can White Corporation deduct?

$0

Harry and Wilma are married and file a joint income tax return. On their tax return, they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wilma) and claim two exemptions for their dependent children. During the year, they pay the following amounts to care for their 4-year old son and 6-year old daughter while they work. ABC Day Care Center $3,200 Blue Ridge Housekeeping Services 2,000 Mrs. Mason (Harry's mother) 1,000 ​ Harry and Wilma may claim a credit for child and dependent care expenses of:

$1,200

Heather's interest and gains on investments for the current year are as follows: Interest on Madison County school bonds $600 Interest on U.S. government bonds 700 Interest on a Federal income tax refund 200 Gain on the sale of Madison County school bonds 500 ​ Heather's adjusted gross income from the above is: or; ​ Heather must report gross income in the amount of:

$1,400

Cory incurred and paid the following expenses in 2018: Tax return preparation fee $ 600 Moving expenses 2,000 Investment expenses 500 Expenses associated with rental property 1,500 Interest expense associated with loan to finance tax-exempt bonds 400 ​ Calculate the amount that Cory can deduct (before any percentage limitations).

$1,500

Alice owns land with an adjusted basis of $610,000, subject to a mortgage of $350,000. On April 1, Alice sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000. What is the amount realized?

$1,720,000

The taxpayer's marginal federal and state tax rate is 25%. Which would the taxpayer prefer?

$1.40 taxable income rather than $1.00 tax-exempt income

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000). Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit. She received only $360,000 because of a co-insurance clause in her insurance policy. What is Joyce's recognized gain or loss?

$10,000 gain

Richard, age 50, is employed as an actuary. For calendar year 2018, he had AGI of $130,000 and paid the following medical expenses: Medical insurance premiums $5,300 Doctor and dentist bills for Derrick and Jane (Richard's parents) 7,900 Doctor and dentist bills for Richard 5,100 Prescribed medicines for Richard 830 Nonprescribed insulin for Richard 960 Derrick and Jane would qualify as Richard's dependents except that they file a joint return. Richard's medical insurance policy does not cover them. Richard filed a claim for $4,800 of his own expenses with his insurance company in November 2018 and received the reimbursement in January 2019. What is Richard's maximum allowable medical expense deduction for 2018?

$10,340

Byron owned stock in Blossom Corporation that he donated to a museum (a qualified charitable organization) on June 8 this year. What is the amount of Byron's deduction assuming that he had purchased the stock for $10,500 last year on August 7, and the stock had a fair market value of $13,800 when he made the donation?

$10,500

On June 1, 2018, Red Corporation purchased an existing business. With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Red may amortize for 2018 for the patent

$11,667

Petal, Inc. is an accrual basis taxpayer. Petal uses the aging approach to calculate the reserve for bad debts. During 2018, the following occur associated with bad debts. Credit sales $400,000 Collections on credit sales 250,000 Amount added to the reserve 10,000 Beginning balance in the reserve -0- Identifiable bad debts during 2018 12,000 The amount of the deduction for bad debt expense for Petal for 2018 is:

$12,000

Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year. The rental income is $6,000 and the expenses are as follows: Mortgage interest $9,000 Real estate taxes 3,000 Utilities 2,000 Maintenance 1,000 Insurance 500 Depreciation (rental part) 4,000 ​ Using the IRS approach, total expenses that Robyn can deduct on her tax return associated with the beach house are:

$12,000

Brad, who would otherwise qualify as Faye's dependent, had gross income of $9,000 during the year. Faye, who had AGI of $120,000, paid the following medical expenses this year: Cataract operation for Brad $ 5,400 Brad's prescribed contact lenses 1,800 Faye's doctor and dentist bills 12,600 Prescribed drugs for Faye 2,550 Total $22,350 ​ Faye has a medical expense deduction of:

$13,350

On January 1, 2018, SymboNet Company completed its acquisition of NetOpen. As part of the acquisition, $2 million was allocated to goodwill. What is SymboNet's amortization deduction related to the goodwill for 2018?

$133,333

Molly has generated general business credits over the years that have not been utilized. The amounts generated and not utilized follow: 2014 $2,500 2015 7,500 2016 5,000 2017 4,000 ​ In the current year, 2018, her business generates an additional $15,000 general business credit. In 2018, based on her tax liability before credits, she can utilize a general business credit of up to $20,000. After utilizing the carryforwards and the current year credits, how much of the general business credit generated in 2018 is available for future years?

$14,000

Tamara operates a natural gas sole proprietorship that incurred $68,000 of intangible drilling costs (IDC) in the current year. Her sole proprietorship's net natural gas income for the year is $72,000. ​ What is the sole proprietorship's current year IDC preference?

$14,400

Three years ago, Sharon loaned her sister $30,000 to buy a car. A note was issued for the loan with the provision for monthly payments of principal and interest. Last year, Sharon purchased a car from the same dealer, Hank's Auto. As partial payment for the car, the dealer accepted the note from Sharon's sister. At the time Sharon purchased the car, the note had a balance of $18,000. During the current year, Sharon's sister died. Hank's Auto was notified that no further payments on the note would be received. At the time of the notification, the note had a balance due of $15,500. What is the amount of loss, with respect to the note, that Hank's Auto may claim on the current year tax return?

$15,500

Karen, a calendar year taxpayer, made the following donations to qualified charitable organizations during the year: Basis Fair Market Value Cash donation to State University $30,000 $ 30,000 Unimproved land to the City of Terre Haute, Indiana 70,000 210,000 ​ The land had been held as an investment and was acquired 4 years ago. Shortly after receipt, the City of Terre Haute sold the land for $210,000. Karen's AGI is $450,000. The allowable charitable contribution deduction this year is:

$165,000

Christie sued her former employer for a back injury she suffered on the job in 2018. As a result of the injury, she was partially disabled. In 2019, she received $240,000 for her loss of future income, $160,000 in punitive damages because of the employer's flagrant disregard for the employee's safety, and $15,000 for medical expenses. The medical expenses were deducted on her 2018 return, reducing her taxable income by $12,000. Christie's 2019 gross income from the above is:

$172,000

On January 15, 2018, Dillon purchased the rights to a mineral interest for $3,500,000. At that time it was estimated that the recoverable units would be 500,000. During the year, 40,000 units were mined and 25,000 units were sold for $800,000. Dillon incurred expenses during 2018 of $500,000. The percentage depletion rate is 22%. Determine Dillon's depletion deduction for 2018.

$175,000

During 2018, Barry (who is single and has no children) earned a salary of $13,100. He is age 30. His earned income credit for the year is:

$176

Prior to the effect of the tax credits, Justin's regular income tax liability is $200,000. and his tentative minimum tax is $195,000. Justin reports the following credits. Child tax credit $1,000 Adoption expenses credit 5,000 ​ Calculate Justin's tax liability after credits.

$194,000

During the year, Kim sold the following assets: business auto for a $1,000 loss, stock investment for a $1,000 loss, and pleasure yacht for a $1,000 loss. Presuming adequate income, how much of these losses may Kim claim?

$2,000

Fran is a CPA who has a small tax practice in addition to working as the controller for a local manufacturing business. Fran runs her tax practice out of a 150 square foot office in her home where she meets clients and works on their tax returns and researches their tax issues. She meets the exclusive use test for this space. The gross income from her tax practice amounts to $7,500 for the year. Business expenses amount to $1,000. Based on square footage, $4,000 of Fran's mortgage interest and real estate taxes are allocable to the home office. The allocable portion of maintenance, utilities, and depreciation is $4,500. Assuming no other expenses related to the business were incurred, what amount of the maintenance, utilities, and depreciation is deductible by Fran?

$2,500

Doug purchased a new factory building on January 15, 1990, for $400,000. On March 1, 2018, the building was sold. Determine the cost recovery deduction for the year of the sale; Doug did not use the MACRS straight-line method.

$2,645

Ahmad is considering making a $10,000 investment in a venture which its promoter promises will generate immediate tax benefits for him. Ahmad, who normally itemizes his deductions, is in the 28% marginal tax bracket. If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment normally would be most beneficial to Ahmad and by how much will Ahmad's tax liability decline because of the investment?

$2,800, take the itemized deduction

During the year, Sophie (a self-employed marketing consultant) went from Omaha to Lima (Peru) on business. She spent four days on business, two days on travel, and four days on vacation. Disregarding the vacation costs, Sophie's expenses are: Air fare $3,000 Lodging 800 Meals 600 Entertainment 400 ​ Sophie's deductible expenses are

$2,900

Josh has investments in two passive activities. Activity A (acquired three years ago) produces income of $30,000 this year, while Activity B (acquired two years ago) produces a loss of $50,000. What is the amount of Josh's suspended loss for the year?

$20,000

Several years ago, Joy acquired a passive activity. Until 2016, the activity was profitable. Joy's at-risk amount at the beginning of 2016 was $250,000. The activity produced losses of $100,000 in 2016, $80,000 in 2017, and $90,000 in 2018. During the same period, no passive activity income was recognized. How much is suspended under the at-risk rules and the passive activity loss rules at the beginning of 2019? ​ At-risk Passive activity loss

$20,000. $250,000

Jason owns Blue Corporation bonds (face value of $10,000), purchased on January 1, 2018, for $11,000. The bonds have an annual interest rate of 3% and a maturity date of December 31, 2027. If Jason elects to amortize the bond premium, what is his taxable interest income for 2018 and the adjusted basis for the bonds at the end of 2018 (assuming straight-line amortization is appropriate)?

$200 and $10,900

Pedro borrowed $250,000 to purchase a machine costing $300,000. He later borrowed an additional $25,000 using the machine as collateral. Both notes are nonrecourse. Eight years later, the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000. Pedro sells the machine subject to the two liabilities for $45,000. What is his realized gain or loss?

$208,000

Debbie is age 67 and unmarried and her only sources of income are $200,000 in taxable interest and $20,000 of Social Security benefits. Debbie's adjusted gross income for the year is:

$217,000

Phillip, age 66, developed hip problems and was unable to climb the stairs to reach his second-floor bedroom. His physician advised him to add a first-floor bedroom to his home. The cost of constructing the room was $32,000. The increase in the value of the residence as a result of the room addition was determined to be $17,000. In addition, Phillip paid the contractor $5,500 to construct an entrance ramp to his home and $8,500 to widen the hallways to accommodate his wheelchair. Phillip's AGI for 2018 was $75,000. How much of these expenditures can Phillip deduct as a medical expense in 2018?

$23,375

Barry purchased a used business asset (seven-year property) on September 30, 2018, at a cost of $200,000. This is the only asset he purchased during the year. Barry did not elect to expense any of the asset under § 179, did not take additional first-year depreciation, and did not elect straight-line cost recovery. Barry sold the asset on July 17, 2019. Determine the cost recovery deduction for 2019.

$24,490

Carl, a physician, earns $200,000 from his medical practice in the current year. He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity. In addition, he incurs a loss of $50,000 from an investment in a passive activity. What is Carl's AGI for the current year after considering the passive investment?

$245,000

Bruce, who is single, had the following items for the current year: ∙ Salary of $80,000. ∙ Gain of $20,000 on the sale of § 1244 stock acquired two years earlier. ∙ Loss of $75,000 on the sale of § 1244 stock acquired three years earlier. ∙ ​ Worthless stock of $15,000. The stock was acquired on February 1 of the prior year and became worthless on January 15 of the current year. Determine Bruce's AGI for the current year.

$27,000

The bank forecloses on Lisa's apartment complex. The property had been pledged as security on a nonrecourse mortgage, whose principal amount at the date of foreclosure is $750,000. The adjusted basis of the property is $480,000, and the fair market value is $750,000. What is Lisa's recognized gain or loss?

$270,000

Jed is an electrician. Jed and his wife are accrual basis taxpayers and file a joint return. Jed wired a new house for Alison and billed her $15,000. Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant. Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement. Jed was able to collect the judgement but not the remainder of the bill from Alison. What amount of loss may Jed deduct in the current year?

$3,000

Five years ago, Tom loaned his son John $20,000 to start a business. A note was executed with an interest rate of 8%, which is the Federal rate. The note required monthly payments of the interest with the $20,000 due at the end of ten years. John always made the interest payments until last year. During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800. Tom is an accrual basis taxpayer whose only income is salary and interest income. The proper treatment for the nonpayment of the note is:

$3,000 deduction

Orange Corporation begins business on April 2, 2018. The corporation reports startup expenditures of $64,000 all incurred last year. Determine the total amount that Orange can elect to deduct in 2018

$3,200

Cheryl is single, has one child (age 6), and files as head of household during 2018. Her salary for the year is $19,500. She qualifies for an earned income credit of the following amount.

$3,327

Fred and Lucy are married, ages 33 and 32, and together have AGI of $120,000 in 2018. They have four dependents and file a joint return. They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account. During the year, they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses, and $3,000 for prescribed medicine and drugs. In October 2018, they received an insurance reimbursement of $4,400 for the hospitalization. They expect to receive an additional reimbursement of $1,000 in January 2019. Determine the maximum itemized deduction allowable for medical expenses in 2018.

$3,800

Akeem, who does not itemize, incurred a net operating loss (NOL) of $50,000 in 2017. His deductions in 2017 included AMT tax preference items of $20,000, and he had no AMT adjustments. Assuming the NOL is not carried back, what is Akeem's ATNOLD carryover to 2018?

$30,000

In 2018, Theo, a single taxpayer, operates a sole proprietorship in which he materially participates. His proprietorship generates gross income of $320,000 and deductions of $600,000, resulting is a loss of $280,000. The large deductions are due to the acquisition of equipment and the use of immediate expense and additional first-year depreciation to deduct all of the acquisitions. What is Theo's excess business loss for the year?

$30,000

Prior to the effect of tax credits, Eunice's regular income tax liability is $325,000 and her tentative minimum tax is $312,000. Eunice has general business credits available of $20,000. Calculate Eunice's tax liability after tax credits.

$312,000

Under the terms of a divorce agreement entered into in 2018, Kim was to pay her husband Tom $7,000 per month in alimony. Kim's payments will be reduced to $3,000 per month when their 9 year-old son becomes 21. The husband has custody of their son. For a twelve-month period, Kim can deduct from gross income (and Tom must include in gross income):

$36,000

Janice bought her house in 2009 for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. She sells the house on July 1, 2018. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Don buys the house for $500,000 in cash and assumes her mortgage of $194,000. What is Janice's adjusted basis at the date of the sale and the amount realized?

$370,000 adjusted basis; $659,000 amount realized

Yolanda buys a house in the mountains for $450,000 which she uses as her personal vacation home. She builds an additional room on the house for $40,000. She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house?

$38,000

Green Company, in the renovation of its building, incurs $9,000 of expenditures that qualify for the disabled access credit. The disabled access credit is:

$4,375

Cardinal Corporation hires two persons certified to be eligible employees for the work opportunity tax credit under the general rules (e.g., food stamp recipients), each of whom is paid $9,000 during the year. As a result of this event, Cardinal Corporation may claim a work opportunity credit of:

$4,800

In March 2018, Gray Corporation hired two individuals, both of whom were certified as long-term recipients of family assistance benefits. Each employee was paid $11,000 during 2018. Gray Corporation's work opportunity tax credit amounts for 2018 is:

$4,800

Josh has investments in two passive activities. Activity A, acquired three years ago, produces income in the current year of $60,000. Activity B, acquired last year, produces a loss of $100,000 in the current year. At the beginning of this year, Josh's at-risk amounts in Activities A and B are $10,000 and $100,000, respectively. What is the amount of Josh's suspended passive activity loss with respect to these activities at the end of the current year?

$40,000

Several years ago, Sarah purchased a certified historic structure for $150,000 that was placed in service in 1929. In the current year, she incurred qualifying rehabilitation expenditures of $200,000. The amount of the tax credit for rehabilitation expenditures, and the amount by which the building's basis for cost recovery would increase as a result of the rehabilitation expenditures are the following amounts.

$40,000 credit, $160,000 basis

Rita earns a salary of $150,000, and invests $40,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $250,000, of which Rita's share is $50,000. How is her loss characterized?

$40,000 is suspended under the passive activity loss rules and $10,000 is suspended under the at-risk rules

George and Jill are husband and wife, ages 67 and 65 respectively. During the year, they receive Social Security benefits of $4,000 and have adjusted gross income of $11,000. Assuming they file a joint return, their tax credit for the elderly, before considering any possible limitation due to their tax liability, is:

$450

Chen incurred $58,500 of interest expense this year related to his investments. His investment income includes $15,000 of interest, $9,000 of qualified dividends, and a $22,500 net capital gain on the sale of securities. The maximum amount of Chen's investment interest expense deduction for the year is:

$46,500

Jermaine and Kesha are married, file a joint tax return, have AGI of $82,500, and have two children. Devona is beginning her freshman year at State University during Fall 2018, and Arethia is beginning her senior year at Northeast University during Fall 2018 after having completed her junior year during the spring of that year. Both Devona and Arethia are claimed as dependents on their parents' tax return. ​ Devona's qualifying tuition expenses and fees total $4,000 for the fall semester, while Arethia's qualifying tuition expenses and fees total $6,200 for each semester during 2018. Full payment is made for the tuition and related expenses for both children during each semester. The American Opportunity credit available to Jermaine and Kesha for 2018 is:

$5,000

Tom, age 48, is advised by his family physician that he needs back surgery to correct a problem from his last back surgery. Since Tom is in a wheel chair, he needs his wife, Jean, to accompany him on his trip to Rochester, Minnesota, for in-patient treatment at the Mayo Clinic, which specializes in this type of surgery. Tom incurred the following costs in 2018: Round-trip airfare ($350 each) $ 700 Jean's hotel in Rochester for four nights ($95 per night) 380 Jean's meals while in Rochester 105 Tom's medical treatment 3,500 Tom's prescription medicine 600 ​ Compute Tom's allowable medical expenses for the trip (before application of the AGI floor).

$5,000

During the year, Walt (self-employed) travels from Seattle to Tokyo (Japan) on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows (meals and lodging reflect only the business portion): Air fare $3,000 Lodging 2,000 Meals 1,000 ​ Presuming no reimbursement, Walt's deductible expenses are:

$5,500

Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share. Two years later, he receives a 5% common stock dividend. At that time, the common stock of Purple Corporation had a fair market value of $12.50 per share. What is the basis of the Purple Corporation stock, the per share basis, and gain recognized upon receipt of the common stock dividend?

$50,000 basis in stock, $9.52 basis per share, $0 recognized gain

Zeke made the following donations to qualified charitable organizations during the year: Basis Fair Market Value Used clothing (all acquired more than a year ago) of taxpayer and his family $ 1,350 $ 375 Stock in ABC, Inc., held as an investment for fifteen months 12,000 10,875 Stock in MNO, Inc., held as an investment for eleven months 15,000 18,000 Real estate held as an investment for two years 15,000 30,000 ​ The used clothing was donated to the Salvation Army; the other items of property were donated to Eastern State University. Both are qualified charitable organizations. Disregarding percentage limitations, Zeke's charitable contribution deduction for the year is:

$56,250

Pat purchased a used five-year class asset on March 15, 2018, for $60,000. He did not elect § 179 expensing. Determine the cost recovery deduction for 2018 for earnings and profits purposes.

$6,000

Sandra is single and does a lot of business entertaining at home. Because Arthur, Sandra's 80-year old dependent grandfather who lived with Sandra, needs medical and nursing care, he moved to Twilight Nursing Home. During the year, Sandra made the following payments on behalf of Arthur: Room at Twilight $4,500 Meals for Arthur at Twilight 850 Doctor and nurse fees 700 Cable TV service for Arthur's room 107 Total $6,157 ​ Twilight has medical staff in residence. Disregarding the AGI floor, how much, if any, of these expenses qualify for a medical deduction by Sandra?

$6,050

Ashby, who is single and age 30, provides you with the following information from his financial records for 2018. Regular income tax liability $78,940 AMTI 525,000 Taxable income 295,000 ​ Calculate his AMT exemption for 2018.

$64,050

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident. The adjusted basis prior to the accident was $11,000. The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000. Insurance proceeds of $3,200 are received. What is Sandra's adjusted basis for the automobile after the casualty?

$7,000

Nancy paid the following taxes during the year: Tax on residence (for the period from March 1 through August 31) $5,250 State motor vehicle tax (based on the value of the personal use automobile) 430 State sales tax 3,500 State income tax 3,050 ​ Nancy sold her personal residence on June 30 of this year under an agreement in which the real estate taxes were not prorated between the buyer and the seller. What amount qualifies as a deduction from AGI for Nancy?

$7,382

Thelma and Mitch were divorced in 2017. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years, or until Thelma's death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. Mitch paid the $600,000 to Thelma over the six-year period. The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000. Mitch's recognized gain from the sale is:

$700,000 ($1,300,000 - $600,000)

Cora purchased a hotel building on May 17, 2018, for $3,000,000. Determine the cost recovery deduction for 2019.

$76,920

For the current year, David has wages of $80,000 and the following property transactions: Stock investment sales— Long-term capital gain $ 9,000 Short-term capital loss (12,000) Loss on sale of camper (purchased 4 years ago and used for family vacations) (2,000) What is David's AGI for the current year?

$77,000

On February 20, 2017, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2018, the stock became worthless. During 2018, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2018 tax return?

$8,000 ordinary loss and $3,000 short-term capital loss

In addition to other gifts, Megan made a gift of stock to Jeri in 1976. Megan had purchased the stock in 1974 for $7,500. At the time of the gift, the stock was worth $20,000. If Megan paid $850 of gift tax on the transaction in 1976, what is Jeri's gain basis for the stock?

$8,350

In the current year, Crow Corporation, a closely held C corporation that is not a personal service corporation, has $100,000 of passive activity losses, $80,000 of active business income, and $20,000 of portfolio income. How much of the passive activity loss may Crow deduct in the current year?

$80,000

Edna had an accident while competing in a rodeo. She sustained facial injuries that required cosmetic surgery. While having the surgery done to restore her appearance, she had additional surgery done to reshape her chin, which was not injured in the accident. The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000. How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the 10%-of-AGI floor)?

$9,000

On May 5 of the current tax year, Byrne purchased a patent that qualifies as a § 197 intangible. The cost of the patent was $207,000 and Byrne is a calendar-year taxpayer. In the current tax year, how much of the patent's cost may Byrne amortize?

$9,200

Khalid, who is single, had the following items for 2018: Salary $40,000 Interest income on U.S. Treasury bonds 8,000 Loss on theft of securities (60,000) Interest income on New York state bonds 12,000 ​ What is Khalid's NOL for 2018?

($12,000)

Janice, single, had the following items for 2018: Salary $30,000 Dividend income 8,000 Loss on § 1244 small business stock held for three years (45,000) Total itemized deductions (5,000) ​ Determine Janice's net operating loss for 2018.

($15,000)

Shontelle received a gift of income-producing property with an adjusted basis of $49,000 to the donor and fair market value of $35,000 on the date of gift. No gift tax was paid by the donor. Shontelle subsequently sold the property for $31,000. What is the recognized gain or loss?

($4,000)

With respect to the prepaid income from services, which of the following is true?

A cash basis taxpayer must report all of the income in the year received

Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)?

A deduction is allowed for charitable contributions

Which of the following is not allowed as an itemized deduction?

A subscription to the Wall Street Journal to help with personal investment decisions

For purposes of determining gross income, which of the following is true?

A taxpayer who finds a wallet full of money is required to recognize income even though someone may eventually ask for the return of the money

Adam repairs power lines for the Egret Utilities Company. He is generally working on a power line during the lunch hour. He must eat when and where he can and still get his work done. He usually purchases something at a convenience store and eats in his truck. Egret reimburses Adam for the cost of his meals.

Adam must include the reimbursement in his gross income

The components of the general business credit include all of the following except:

All of the above are components of the general business credit

The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes, provided the privilege is not abused. Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings. The copies made during the year would have cost $150 at a local office supply.

Ed may exclude the cost of the copies as a de minimis fringe benefit

Iris collected $150,000 on her deceased husband's life insurance policy. The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer. She elected to collect the policy in 10 equal annual payments of $18,000 each.

For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income.

Ned, a college professor, owns a separate business (not real estate) in which he participates in the current year. He has one employee who works part-time in the business.

If Ned participates for 600 hours and the employee participates for 2,000 hours during the year, Ned qualifies as a material participant

During 2017, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2018. What is the amount of the deduction for salary expense?

If Silver uses the accrual method, $195,000 in 2017 and $0 in 2018

Turner, a successful executive, is negotiating a compensation plan with his potential employer. The employer has offered to pay Turner a $600,000 annual salary, payable at the rate of $50,000 per month. Turner counteroffers to receive a monthly salary of $40,000 ($480,000 annually) and a $180,000 bonus in 5 years when Turner will be age 65.

If the employer accepts Turner's counteroffer, Turner will recognize $40,000 income each month for the year and $180,000 in year 5

Which of the following statements is correct?

If the tentative minimum tax is $120,000, and the regular income tax liability is $100,000, AMT is $20,000

Which statement is not true with respect to a Regulation that interprets the tax law?

Issued by the U.S. Congress

Tim and Janet were divorced in 2018. Their only marital property was a personal residence with a value of $120,000 and cost of $50,000. Under the terms of the divorce agreement, Janet would receive the house and Janet would pay Tim $15,000 each year for 5 years, or until Tim's death, whichever should occur first. Tim and Janet lived apart when the payments were made to Tim. The divorce agreement did not contain the word "alimony."

Janet is allowed to deduct $15,000 each year for alimony paid

During 2018, Trevor has the following capital transactions: LTCG $ 6,000 Long-term collectible gain 2,000 STCG 4,000 STCL 10,000 After the netting process, the following results:

LTCG of $2,000

Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last fifteen years. She retired from the sporting goods store at the end of last year and will not participate in the activity in the future. However, she continues to be a material participant in an office supply store in which she is a 50% partner. The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000. Leigh's share of the income from the office supply store is $75,000. She does not own interests in any other activities.

Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store

Which, if any, of the following is subject to an overall limitation on meals in 2018?

Meals provided at cost to employees by a cafeteria funded by the employer

A use tax is imposed by:

Most of the states and not the Federal government

George purchases used seven-year class property at a cost of $200,000 on April 20, 2018. Determine George's cost recovery deduction for 2018 for alternative minimum tax purposes, assuming George does not elect § 179 and does not take additional first-year depreciation.

None of the above

In 2018, Wally had the following insured personal casualty losses (arising from one casualty in a Federally-declared disaster area). Wally also had $42,000 AGI for the year before considering the casualty. Fair Market Value ​ Asset Adjusted Basis A $9,200 B $3,000 C $3,700 Before A $8,000 B $4,000 C $1,700 After A $1,000 B -0- C -0- Insurance Recovery A $2,000 B $4,000 C $900 Wally's casualty loss deduction is:

None of the above

Jim had a car accident in 2018 in which his car was completely destroyed. At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000. Jim used the car 100% of the time for business use. Jim received an insurance recovery of 70% of the value of the car at the time of the accident. If Jim's AGI for the year is $60,000, determine his deductible loss on the car.

None of the above

On July 20, 2017, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000. On November 10, 2017, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000. On September 15, 2018, Matt sold the 4,000 shares of stock for $120,000. How should Matt treat the sale of the stock on his 2018 return?

None of the above

Peggy is in the business of factoring accounts receivable. Last year, she purchased a $30,000 account receivable for $25,000. This year, the account was settled for $25,000. How much loss can Peggy deduct and in which year?

None of the above

Which of the following may be deductible in 2018?

None of the above

In the current tax year David, a 32-year-old single taxpayer, reported itemized deductions of $24,500, comprised of the following amounts. ​ ​ $6,000 of medical expenses (in excess of 7.5% of AGI) 4,500 of property taxes on his home 2,500 of investment expenses (not limited by investment income) 3,000 of charitable contributions 8,500 of home mortgage interest ​ ​ Which of David's itemized deductions could create an AMT preference?

None of the itemized deductions potentially create an AMT preference

In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

None of these

In which, if any, of the following situations is the automatic mileage available?

None of these

The § 222 deduction for tuition and related expenses is available:

None of these

Which of the following itemized deductions are allowed in full for AMT purposes?

Only b. and c

Because Scott is three months delinquent on the mortgage payments for his personal residence, Jeanette (his sister) is going to cover the arrearage. Based on past experience, she does not expect to be repaid by Scott. Which of the following statements is correct?

Only b. and c. are correct

The alimony recapture rules are intended to:

Prevent tax deductions for property divisions

The tax concept and economic concept of income are in agreement on which of the following:

Rent income for 2019 collected in 2018 is income for 2018

In contrasting the reporting procedures of employees and self-employed persons regarding job-related transactions, which of the following items involve self-employed?

Schedule C of Form 1040

Which of the following court decisions carries more weight?

Second Circuit Court of Appeals

Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill. Detroit had created its goodwill through providing high-quality services to its customers. Thus, no basis for the goodwill appeared on Detroit's balance sheet. The suit was settled and Detroit received $1,500,000 for the damages to its goodwill

The $1,500,000 is taxable because Detroit has no basis in the goodwill

Which of the following statements is correct?

The AMT exemption amount decreases as AMTI increases

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

The meals are provided on the employer's premises for the employer's convenience

Tommy, a senior at State College, receives free room and board as full compensation for working as a resident advisor at the university dormitory. The regular housing contract is $2,000 a year in total, $1,200 for lodging and $800 for meals in the dormitory. Tommy had the option of receiving the meals or $800 in cash. Tommy accepted the meals. What must Tommy include in gross income from working as a resident advisor?

The meals must be included in gross income

In 2018, Cindy is married and files a joint return. She operates a sole proprietorship in which she materially participates. Her proprietorship generates gross income of $225,000 and deductions of $525,000, resulting in a loss of $300,000. What is Cindy's excess business loss for the year?

$-0-

A U.S. citizen worked in a foreign country for the period July 1, 2017 through August 1, 2018. Her salary was $10,000 per month. Also, in 2017 she received $5,000 in dividends from foreign corporations (not qualified dividends). No dividends were received in 2018. Which of the following is correct?

The taxpayer must include the dividend income of $5,000 in 2017 gross income, but the taxpayer can exclude a portion of the compensation income from U.S. gross income in 2017 and 2018.

A landlord leases property upon which the tenant makes improvements. The improvements are significant and are not made in lieu of rent. At the end of the lease, the value of the improvements are not income to the landlord. This rule is an example of:

The wherewithal to pay concept

Which statement is incorrect with respect to taxation on the CPA exam?

There are no longer task-based simulations on the exam

Evan and Eileen Carter are husband and wife and file a joint return for 2018. Both are under 65 years of age. They provide more than half of the support of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship covering her tuition at college. They furnish all of the support of Belinda (Evan's grandmother), who is age 80 and lives in a nursing home. They also support Peggy (age 66), who is a friend of the family and lives with them. How many dependents may the Carters claim?

Three

Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is:

To take advantage of the per donee annual exclusion

Taxes levied by all states include:

Tobacco excise tax

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year. His current loss from the activity is $80,000. Vic had no passive activity income during the year. At the end of the current year:

Vic has an at-risk amount in the activity of $120,000 and a suspended passive activity loss of $80,000

In 2018, Wang invests $80,000 for a 20% interest in a partnership in which he is a material participant. The partnership incurs a loss with $100,000 being Wang's share. Which of the following statements is incorrect?

Wang's $100,000 loss is nondeductible in 2018 and 2019 under the passive activity loss provisions

Tax bills are handled by which committee in the U.S. House of Representatives?

Ways and Means Committee

Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value.

keep; sell

John files a return as a single taxpayer. In 2018, he had the following items: ∙ Salary of $40,000. ∙ Loss of $65,000 on the sale of § 1244 stock acquired two years ago. ∙ Interest income of $6,000. Determine John's AGI for 2018.

$0

Katie sells her personal use automobile for $12,000. She purchased the car three years ago for $25,000. What is Katie's recognized gain or loss?

$0

Tara purchased a machine for $40,000 to be used in her business. The cost recovery allowed and allowable for the three years the machine was used are computed as follows. Cost Recovery Allowed Cost Recovery Allowable Year 1 $16,000 $ 8,000 Year 2 9,600 12,800 Year 3 5,760 7,680 If Tara sells the machine after three years for $15,000, how much gain should she recognize?

$11,480

Indigo Company acquires a new machine (5-year MACRS property) on February 2, 2018 at a cost of $100,000. On November 18, 2018, Indigo also acquires office equipment (7-year MACRS property) at a cost of $50,000. Indigo does not make a § 179 expense election and chooses not to take additional first-year depreciation. What is Indigo's total MACRS deduction for 2018?

$27,145

Alicia was involved in an automobile accident in 2018. Her car was used 60% for business and 40% for personal use. The car had originally cost $40,000. At the time of the accident, the car was worth $20,000 and Alicia had taken $8,000 of depreciation. The car was totally destroyed and Alicia had let her car insurance expire. If Alicia's AGI is $50,000 (before considering the loss), determine her AGI and itemized deduction for the casualty loss.

$34,000; $-0-

Marsha is single, had gross income of $50,000, and incurred the following expenses: Charitable contribution $2,000 Taxes and interest on home 7,000 Legal fees incurred in a tax dispute 1,000 Medical expenses 3,000 Penalty on early withdrawal of savings 250 ​ Her AGI is:

$49,750

James, a cash basis taxpayer, received the following compensation and fringe benefits in the current year: Salary $66,000 Disability income protection premiums 3,000 Long-term care insurance premiums 4,000 ​ His actual salary was $72,000. He received only $66,000 because his salary was garnished and the employer paid $6,000 on James's credit card debt he owed. The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled. The long-term care insurance is available to all employees and pays $150 per day towards a nursing home or similar facility. What is James's gross income from the above?

$72,000

Maple Company purchases new equipment (7-year MACRS property) on January 10, 2018, at a cost of $430,000. Maple also purchases new machines (5-year MACRS property) on July 19, 2018 at a cost of $290,000. Maple wants to maximize its MACRS deductions; assume no taxable income limitations apply. What is Maple's total MACRS deduction for 2018?

$720,000

Which citation refers to a Second Circuit Court of Appeals decision?

159 F.2d 848 (CA-2, 1947)

Interpret the following citation: 64-1 USTC ¶9618, aff'd in 344 F.2d 966

A U.S. District Court decision that was affirmed on appeal.

A qualifying child cannot include:

A grandmother

Which, if any, of the following transactions will increase a taxing jurisdiction's revenue from the ad valorem tax imposed on real estate?

A tax holiday issued 10 years ago has expired

Characteristics of the "Fair Tax" (i.e., national sales tax) include which, if any, of the following:

Abolition of all Federal income and payroll taxes as well as the Federal estate and gift taxes

Which items tell taxpayers the IRS's reaction to certain court decisions?

Actions on Decisions

Ahmad owns four activities. He participated for 120 hours in Activity A, 150 hours in Activity B, 140 hours in Activity C, and 100 hours in Activity D. Which of the following statements is correct?

Activities A, B, and C are significant participation activities

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

All of the above

Which of the following is a required test for the deduction of a business expense?

All of the above

The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel. All employees are allowed to obtain food from the restaurant at no charge during working hours. In the case of the employees who operate the gambling facilities, bar, and restaurant, 60% of all of Casino's employees, the meals are provided for the convenience of the Casino. However, the hotel workers demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work. Which of the following is correct?

All of the employees may exclude the value of the meals from gross income

A researcher can find tax information on home page sites of:

All of these

Tax research involves which of the following procedures:

All of these

Which of these is not a correct citation to the Internal Revenue Code?

All of these are correct cites

Social considerations can be used to justify:

Allowance of a credit for child care expenses.

Allowing a tax credit for certain solar energy property can be justified:

As promoting a government policy to use alternative energy sources

Indicate which, if any, statement is incorrect. State income taxes:

Cannot apply to visiting nonresidents

Jane is the tax director for Tangent Software Corporation. She is unsure whether Tangent is required to charge sales tax when software is provided to customers in State X via the "cloud." This indicates that the sales tax does not meet the principle of:

Certainty

Which publisher offers the Standard Federal Tax Reporter?

Commerce Clearing House

A characteristic of FUTA is that:

Compliance requires following guidelines issued by both state and Federal regulatory authorities

A characteristic of the fraud penalties is:

Criminal fraud can result in a fine and a prison sentence

Daniel purchased a bond on July 1, 2018, at par of $10,000 plus accrued interest of $300. On December 31, 2018, Daniel collected the $600 interest for the year. On January 1, 2019, Daniel sold the bond for $10,200

Daniel must recognize $300 interest income for 2018 and a $200 gain on the sale of the bond in 2019

Dena owns interests in five businesses and has full-time employees in each business. She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.

Dena is a material participant with respect to Activities B, C, D, and E

In January, Lance sold stock with a cost basis of $26,000 to his brother, James, for $24,000, the fair market value of the stock on the date of sale. Five months later, James sold the same stock through his broker for $27,000. What is the tax effect of these transactions?

Disallowed loss to Lance of $2,000; gain to James of $1,000

Which of the following issues does not need resolution in an employer's effort to comply with employment tax payment requirements?

Each of the above issues needs to be resolved

The holding period of property acquired by gift may begin on:

Either the date the property was acquired by the donor or the date of gift

The § 222 deduction for tuition and related expenses is available:

Even if a taxpayer does claim the standard deduction

Which of the following statements is correct in connection with the investigation of a business?

Expenses may be deducted immediately by a taxpayer engaged in a similar trade or business regardless of whether the business being investigated is acquired

Which of the following taxes is only paid by the employer?

FUTA

Which is presently not a major tax service?

Federal Taxes

Regarding the Tax Tables applicable to the Federal income tax, which of the following statements is correct?

For any one year, the Tax Tables are issued by the IRS after the Tax Rate Schedules

Iris collected $150,000 on her deceased husband's life insurance policy. The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer. She elected to collect the policy in 10 equal annual payments of $18,000 each.

For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income

In 2018 Todd purchased an annuity for $150,000. The annuity is to pay him $2,500 per month for the rest of his life. His life expectancy is 100 months. Which of the following is correct?

For each $2,500 payment received in the first year, Todd must include $1,000 in gross income

In 2018, Glenn recorded a $108,000 loss on a passive activity. None of the loss is attributable to AMT adjustments or preferences. She has no other passive activities. Which of the following statements is correct?

For regular income tax purposes, none of the passive activity loss is allowed in 2018

Which of the following depreciation conventions are not used under MACRS?

Full-month

In addressing the importance of a Regulation, an IRS agent must:

Give equal weight to the Internal Revenue Code and the Regulations

Tess owns a building in which she rents apartments to tenants and operates a restaurant. Which of the following statements is incorrect?

If 98% of Tess's gross income is from apartment rentals and 2% is from the restaurant, the rental operation and the restaurant business must be treated as a single activity that is not a rental activity

Which, if any, of the following statements relating to the standard deduction is correct?

If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary)

With respect to income from services, which of the following is true?

If an accrual basis taxpayer sells a 36-month service contract on July 1, 2018 for $3,600, the taxpayer's 2018 gross income from the contract is $600

Emily is in the 35% marginal tax bracket. She can purchase a York County school bond yielding 3.5% interest and the interest is not subject to a 5% state tax. But she is interested in earning a higher return for comparable risk. Which of the following is correct:

If she buys a U.S. government bond paying 5%, her after-tax rate of return will be less than if she purchased the York County school bond

In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?

In arriving at taxable income, a taxpayer must choose between the standard deduction and itemized deductions

Gold Company was experiencing financial difficulties, but was not bankrupt or insolvent. The National Bank, which held a mortgage on other real estate owned by Gold, reduced the principal from $110,000 to $85,000. The bank had made the loan to Gold when it purchased the real estate from Silver, Inc. Pink, Inc., the holder of a mortgage on Gold's building, agreed to accept $40,000 in full payment of the $55,000 due. Pink had sold the building to Gold for $150,000 that was to be paid in installments over 8 years. As a result of the above, Gold must:

Include $25,000 in gross income and reduce its basis in its assets by $15,000

In the case of interest income from state and Federal bonds:

Interest on United States government bonds is subject to Federal income tax

Which, if any, of the following correctly describes the earned income credit?

Is a refundable credit

Assuming a taxpayer qualifies for the exclusion treatment, the interest income on educational savings bonds:

Is not included in anyone's gross income if the proceeds are used to pay college tuition

The annual increase in the cash surrender value of a life insurance policy:

Is not included in gross income because the policy must be surrendered to receive the cash surrender value

The annual increase in the cash surrender value of a life insurance policy:

Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value

Which company does not publish citators for tax purposes?

John Wiley & Sons

Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent contractor, rather than an employee?

Jordan is paid based on tasks performed

Which of the following assets would be subject to cost recovery?

Landscaping around the doctor's office

Which of the following is a characteristic of the audit process?

Less important issues are handled by means of a correspondence audit

Which of the following is a characteristic of the audit process?

Less important issues are handled by means of a correspondence audit.

Which of the following miscellaneous expenses is deductible in 2018?

Losses from Ponzi-type investment schemes

Martha participated in a qualified tuition program for the benefit of her son. She invested $6,000 in the fund. Four years later her son withdrew $8,000, the entire balance in the program, to pay his college tuition.

Martha is not required to include the $2,000 ($8,000 - $6,000) in her gross income when the funds are used to pay the tuition

Natalie is married to Chad, who abandoned her in early June of 2018. She has not seen or communicated with him since then. She maintains a household in which she and her two dependent children live. Which of the following statements about Natalie's filing status in 2018 is correct?

Natalie can file as a head of household

Which, if any, of the following is an advantage of using the simplified method for determining the office in the home deduction?

No depreciation on the personal residence has to be computed

If a residence is used primarily for personal use (rented for fewer than 15 days per year), which of the following is correct?

No income is included in AGI

Which of the following correctly reflects current rules regarding estimated tax payments for individuals?

No quarterly payments are required if the taxpayer's estimated tax is under $1,000

The basis of personal use property converted to business use is:

None of the above

A characteristic of FICA is that:

None of these

Federal excise taxes that are no longer imposed include:

None of these

If a vacation home is determined to be a personal/rental use residence, which of the following statements is correct?

Only a. and c. are correct

Jed spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that he owns at a resort community. He also owns a music store in another city that is operated by a full-time employee. He elects not to group them together as a single activity under the "appropriate economic unit" standard. Jed spends 40 hours per year working at the music store.

Only the music store is a passive activity

When using the automatic mileage method, which, if any, of the following expenses also can be claimed?

Parking

Under the actual expense method, which, if any, of the following expenses will not be allowed?

Parking fines incurred during business use of a car

Which of the following is not a "trade or business" expense?

Parking ticket paid on business auto

Which of the following amounts generally produce positive AMT adjustments?

Real property taxes deduction

Which publisher offers the United States Tax Reporter?

Research Institute of America (Thomson Reuters)

Under MACRS, which one of the following is not considered in determining depreciation for tax purposes?

Salvage (or residual) value

Which, if any, is not one of Adam Smith's canons (principles) of taxation?

Simplicity

A taxpayer may not appeal a case from which court:

Small Case Division of the U.S. Tax Court

Which of the following indicates that a decision has precedential value for future cases?

Stare decisis

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Sue is not required to recognize gross income from the receipt of the funds, but she must reduce her cost basis in the land by $2,000

Memorandum decision of the U.S. Tax Court could be cited as:

T.C. Memo. 1990-650

In terms of probability, which of the following taxpayers would be least likely to be audited by the IRS?

Taxpayer is an employed electrician

In which, if any, of the following situations will the kiddie tax not apply?

The child has unearned income of $2,100 or less

Which of the following statements describing the alternative minimum tax (AMT) is most correct?

The goal of the AMT is to try and ensure that all taxpayers with economic income pay at least some income tax

Kate dies owning a passive activity with an adjusted basis of $100,000. Its fair market value at that date is $130,000. Suspended losses relating to the property were $45,000.

The heir's adjusted basis is $130,000, and Kate's final deduction is $15,000

Which of the following statements is correct?

The standard deduction is not permitted in calculating the AMT. Therefore, in converting regular taxable income to AMTI, a positive adjustment is required

Which, if any, of the following is a typical characteristic of an ad valorem tax on personalty?

The tax on automobiles sometimes considers the age of the vehicle

A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for:

Tuition, books, and supplies

Kyle and Liza are married and under 65 years of age. During 2018, they furnish more than half of the support of their 19-year old daughter, Kendra, who lives with them. She graduated from high school in May 2017. Kendra earns $15,000 from a part-time job, most of which she sets aside for future college expenses. Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them. Liza's father, who died on January 3, 2018, at age 90, has for many years qualified as their dependent. How many dependents can Kyle and Liza claim?

Two

Wes's at-risk amount in a passive activity is $25,000 at the beginning of the current year. His current loss from the activity is $35,000 and he has no passive activity income. At the end of the current year, which of the following statements is incorrect?

Wes has a loss of $35,000 suspended under the passive activity loss rules

Taylor inherited 100 acres of land on the death of his father in 2018. A Federal estate tax return was filed and this land was valued therein at $650,000, its fair market value at the date of the father's death. The father had originally acquired the land in 1972 for $112,000 and prior to his death he had expended $20,000 on permanent improvements. Determine Taylor's holding period for the land.

Will automatically be long-term

Which, if any, of the following factors is not a characteristic of independent contractor status?

Work-related expenses are reported on Form 2106

A worker may prefer to be treated as an independent contractor (rather than an employee) for which of the following reasons:

Work-related expenses of an independent contractor are deductible for AGI

In 2018, Blake incurs $270,000 of mining exploration expenditures, and deducts the entire amount for regular income tax purposes. Which of the following statements is correct?

a., b., and c. are correct

Which of the following is correct?

a., b., and c., are correct

Which tax-related website probably gives the best policy-orientation results?

taxanalysts.com

Randy is the manager of a motel. As a condition of his employment, Randy is required to live in a room on the premises so that he would be there in case of emergencies. Randy considered this a fringe benefit, since he would otherwise be required to pay $800 per month rent. The room that Randy occupied normally rented for $70 per night, or $2,100 per month. On the average, 90% of the motel rooms were occupied. As a result of this rent-free use of a room, Randy is required to include in gross income.

$0

Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive activity loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

$10,000

Tom operates an illegal drug-running operation and incurred the following expenses: Salaries $ 75,000 Illegal kickbacks 20,000 Bribes to border guards 25,000 Cost of goods sold 160,000 Rent 8,000 Interest 10,000 Insurance on furniture and fixtures 6,000 Utilities and telephone 20,000 Which of the above amounts reduces his taxable income?

$160,000

Raul is married and files a joint tax return. His current investment interest expense of $95,000 is related to a loan used to purchase a parcel of unimproved land being held as an investment. Income from investments [dividends (not qualified) and interest] total $18,000. Raul paid and deducted $5,000 of real estate taxes on the unimproved land. He also has a $4,500 net long-term capital gain from the sale of another parcel of unimproved land. Raul's maximum investment interest deduction for the year is:

$17,500

Steve and Holly have the following items for the current year: Dividend income $8,000 Interest income 7,000 Itemized deductions (none of the amount resulted from a casualty loss) (13,000) Business capital gains 1,000 Business capital losses (5,000) ​ In calculating their net operating loss, and with respect to the above amounts only, what amount must be added back to taxable income (loss)?

$2,000

Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year. According to the IRS Uniform Premium Table (based on Gordon's age), the amount is $12 per year for $1,000 of protection. The cost of an individual policy would be $15 per year for $1,000 of protection. Since Gordon paid nothing towards the cost of the $250,000 protection, Gordon must include in his 2018 gross income which of the following amounts?

$2,400

Faye dies owning an interest in a passive activity property (adjusted basis of $150,000, suspended losses of $52,000, and a fair market value of $180,000). What, if any, can be deducted on her final income tax return?

$22,000

Hazel purchased a new business asset (five-year asset) on September 30, 2018, at a cost of $100,000. On October 4, 2018, Hazel placed the asset in service. This was the only asset Hazel placed in service in 2018. Hazel did not elect § 179 or additional first-year depreciation. On August 20, 2019, Hazel sold the asset. Determine the cost recovery for 2019 for the asset.

$23,750

George, an unmarried cash basis taxpayer, received the following amounts during 2018: Interest on savings accounts $2,000 Interest on a State tax refund 600 Interest on City of Salem school bonds 350 Interest portion of proceeds of a 5% bank certificate of deposit purchased on July 1, 2017, and matured on June 30, 2018 ​ 250 Dividends on USG common stock 300 ​ What amount should George report as gross income from dividends and interest for 2018?

$3,150

On July 10, 2018, Ariff places in service a new sports utility vehicle that cost $70,000 and weighed 6,300 pounds. The SUV is used 100% for business. Determine Ariff's maximum deduction for 2018, assuming Ariff's § 179 business income is $110,000. Ariff does not take additional first-year depreciation.

$34,000

On March 1, 2018, Lana leases and places in service a passenger automobile. The lease will run for five years and the payments are $500 per month. During 2018, she uses her car 60% for business and 40% for personal activities. Assuming the dollar amount from the IRS table for auto leases is $70, determine Lana's gross income attributable to the lease.

$35

Doug and Pattie received the following interest income in the current year: Savings account at Greenbacks Bank $4,000 United States Treasury bonds 250 Interest on State of Iowa bonds 200 Interest on Federal tax refund 150 Interest on state income tax refund 75 ​ Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account. What amount of interest income should they report on their joint income tax return?

$4,575

Last year, Green Corporation incurred the following expenditures in the development of a new plant process: Salaries $250,000 Materials 90,000 Utilities 20,000 Quality control testing costs 40,000 Management study costs 5,000 Depreciation of equipment 18,000 ​ During the current year, benefits from the project began being realized in May. If Green Corporation elects a 60 month deferral and amortization period, determine the amount of the deduction for the current year.

$50,400

Stella, age 38, is single with no dependents. The following information was obtained from her personal records for the 2018 year. Salary $30,000 Interest income 7,000 Alimony received 12,000 Individual retirement account contribution 2,000 Home mortgage interest expense 4,000 Property taxes 2,000 Personal casualty loss in a Federal disaster area (after the $100 floor) 38,000 Stolen investment property 16,000 ​ Based on the above information, what is Stella's net operating loss for 2018?

($8,300)

Kirby is in the 12% tax bracket and had the following capital asset transactions during 2018: Long-term gain from the sale of a coin collection $11,000 Long-term gain from the sale of a land investment 10,000 Short-term gain from the sale of a stock investment 2,000 Kirby's tax consequences from these gains are as follows:

(0% × $10,000) + (12% × $13,000)

Regarding the tax formula and its relationship to Form 1040, which, if any, of the following statements is correct?

A "page 1 deduction" refers to a deduction for AGI

Interpret the following citation: 64-1 USTC ¶9618, aff'd in 344 F.2d 966.

A U.S. District Court decision that was affirmed on appeal

Which, if any, of the following transactions will decrease a taxing jurisdiction's ad valorem tax revenue imposed on real estate?

A tax holiday is granted to an out-of-state business that is searching for a new factory site

Ellen, age 12, lives in the same household with her father, grandfather, and uncle. The cost of maintaining the household is provided by her grandfather (40%) and her uncle (60%). Disregarding tie-breaker rules, Ellen is a qualifying child as to:

All parties involved (i.e., father, grandfather, and uncle)

Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions in 2018: Salary from job $90,000 Alimony received from ex-wife 10,000 Medical expenses 7,000 ​ Based on this information, Sammy has:

Deduction for medical expenses of $0

Swan Finance Company, an accrual method taxpayer, requires all of its customers to carry credit life insurance. If a customer dies, the company receives from the insurance company the balance due on the customer's loan. Ali, a customer, died owing Swan $1,500. The balance due included $200 accrued interest that Swan has included in income. When Swan collects $1,500 from the insurance company, Swan:

Does not recognize income from the life insurance because the entire amount is a recovery of capital

Kyle, whose wife died in December 2015, filed a joint tax return for 2015. He did not remarry, but has continued to maintain his home in which his two dependent children live. What is Kyle's filing status in 2018?

Head of household

On January 1, Father (Dave) loaned Daughter (Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.

If Debra has $15,000 of investment income, Dave must recognize $6,090 of imputed interest income

With respect to income from services, which of the following is true?

If an accrual basis taxpayer sells a 36-month service contract on July 1, 2018 for $3,600, the taxpayer's 2018 gross income from the contract is $600.

Jim and Nora, residents of a community property state, were married in early 2017. Late in 2017 they separated, and in 2018 they were divorced. Each earned a salary, and they received income from community owned investments in all relevant years. They filed separate returns in 2017 and 2018.

In 2018, Nora must report only her salary and one-half of the income from community property on her separate return

A VAT (value added tax):

Is regressive in its effect

What administrative release deals with a proposed transaction rather than a completed transaction?

Letter Ruling

Which of the following taxpayers may file as a head of household in 2018? ​ Marco provides all the support for his mother, Sienna, who lives by herself in an apartment in Fort Lauderdale. Marco pays the rent and other expenses for the apartment and properly claims his mother as a dependent. ​ Tammy provides over one-half the support for her 18-year old brother, Dan. Dan earned $4,200 in 2018 working at a fast food restaurant and is saving his money to attend college in 2019. Dan lives in Tammy's home. ​ Juan's wife left him late in December of 2017. No legal action was taken and Juan has not heard from her in 2018. Juan supported his 6-year-old son, who lived with him throughout 2018.

Marco, Tammy, and Juan

Margaret owns land that appreciates at the rate of 10% each year. Ralph owns a zero coupon (i.e., all of the interest is paid at maturity but is taxed annually) corporate bond with a yield to maturity of 10%. At the end of 10 years, the bond will mature and the land will be sold. At the end of the 10 years,

Margaret will accumulate the greater after-tax amount because she earns a return on the deferred taxes

Which of the following are deductions for AGI?

Mortgage interest on a building used in a business

Carlos purchased an apartment building on November 16, 2018, for $3,000,000. Determine the cost recovery for 2018.

None of the above

In 2018, Wally had the following insured personal casualty losses (arising from one casualty in a Federally-declared disaster area). Wally also had $42,000 AGI for the year before considering the casualty. Fair Market Value Asset A, B, C Adjusted Basis (A) $9,200 (B) $3,000 (C) $3,700 Before (A) $8,000 (B) $4,000 (C) $1,700 After (A) $1,000 (B)-0- (C)-0- Insurance Recovery (A) $2,000 (B) $4,000 (C) $900 Wally's casualty loss deduction is:

None of the above

On September 3, 2017, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000. On December 31, 2017, the stock was worth $85,000. On August 15, 2018, Able was notified that the stock was worthless. How should Able report this item on his 2018 tax return?

None of the above

In 2018, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2018 and $100,000 in 2019, Kipp's share being $60,000 in 2018 and $30,000 in 2019. How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership's operations?

None of the above.

Tommy, an automobile mechanic employed by an auto dealership, is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, any investigation expenses are:

Not deductible

Travis and Andrea were divorced in 2016. Their only marital property consisted of a personal residence (fair market value of $400,000, cost of $200,000), and publicly-traded stocks (fair market value of $800,000, cost basis of $500,000). Under the terms of the divorce agreement, Andrea received the personal residence and Travis received the stocks. In addition, Andrea was to receive $50,000 for eight years. I. ​ If the $50,000 annual payments are to be made to Andrea or her estate (if she dies before the end of the eight years), the payments will qualify as alimony. II. ​ Andrea has a taxable gain from an exchange of her one-half interest in the stocks for Travis' one-half interest in the house and cash. III. If Travis sells the stocks for $900,000, he must recognize a $400,000 gain.

Only III is true

Under the Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year. I. Group medical and hospitalization insurance for the employee, $3,600 a year. II. ​ Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III. Child-care payments, actual cost but not more than $4,800 a year. IV. Cash required to bring the total of benefits and cash to $8,000. ​ Which of the following statements is true?

Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000

Sharon made a $60,000 interest-free loan to her son, Todd, who used the money to start a new business. Todd's only sources of income were $25,000 from the business and $490 of interest on his checking account. The relevant Federal interest rate was 5%. Based on the above information:

Sharon does not recognize any imputed interest income and Todd does not recognize any imputed interest expense

Which of the following items, if any, is deductible?

Substantiated gambling losses (not in excess of gambling winnings) from state lottery

Jerry and Jim are both involved in operating illegal businesses. Terry operates a gambling business and Jim operates a drug running business. Both businesses have gross revenues of $500,000. The businesses incur the following expenses. Terry Jim Employee salaries $200,000 $200,000 Bribes to police 25,000 25,000 Rent and utilities 50,000 50,000 Cost of goods sold -0- 125,000 Which of the following statements is correct?

Terry should report profit from his business of $250,000

The effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are:

The employee has imputed compensation income and the corporation has imputed interest income

Which, if any, of the following is a correct statement relating to the kiddie tax in 2018?

The kiddie tax does not apply if both parents of the child are deceased

Which of the following is not a requirement for an alimony deduction?

The payments must extend over at least three years

On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day. If Tom works, he must hire a painter for $120. For Tom to have a positive cash flow from working and hiring the painter:

Tom must earn more than $158 if he is in the 24% marginal tax bracket

A jury trial is available in the following trial court:

U.S. District Court

If a taxpayer decides not to pay a tax deficiency, he or she must go to which court?

U.S. Tax Court

Millie, age 80, is supported during the current year as follows: Percent of Support Weston (a son) 20% Faith (a daughter) 35% Jake (a cousin) 25% Brayden (unrelated close family friend) 20% During the year, Millie lives in an assisted living facility. Under a multiple support agreement, indicate which parties can qualify to claim Millie as a dependent.

Weston and Faith

A major objective of MACRS is to:

help companies achieve a faster write-off of their capital assets