Mock Exam Session 1

Sam Johnson, a calendar-year taxpayer, applied for and received an extension for filing his Year 1 tax return. Mr. Johnson filed his tax return on June 2 of Year 2 and paid the balance due. The return reflected a tax liability of $50,000 and estimated tax payments made timely of $45,000. Based on these facts, Mr. Johnson owes Failure to file Penality--Failure to Pay Penalty $0 $50 $500 $50 $0 $25 $250 $25

$0 $50. Received an extension, so no failure to file. The penalty for failure to pay tax is .5% each month to a max of 25%. So, 5,000 (add. due on return) **.005= 25**2 months = 50

On July 8, 2016, Mr. Cole purchased 100 shares of qualified small business (Sec. 1202) stock for $50,000. If Mr. Cole sells the shares for $130,000 on August 22, 2021, how much gain must he recognize?

$0, more than 5 years held and after Sept 27, 2010, so 100% exclusion.

Jim has elected to treat transfers (on behalf of his son) made by him during tax year 2021 to a qualified state tuition program as made ratably over 5 years. His total contribution to this plan during 2021 is $75,000. He makes no other transfers during tax year 2021. What amount will be treated as a taxable gift in tax year 2021? $75,000 $60,000 $0 $15,000

$0. 75/5= 15- 15 exclusion= 0

Alf owns all of the shares of Waxman Corporation, a manufacturer of finished leather products. Alf also owns a 60% partnership interest and his friend Richard owns a 40% partnership interest in York Real Estate Rentals, LLC. York owns and leases warehouse space to numerous businesses. In 2021, York sold a building with an adjusted basis of $100,000 to Waxman for $80,000. What is the amount of York's deductible loss in 2021 from this transaction? ($12,000) ($8,000) ($20,000) $0

$0. Controlled entities (50% ownership) are considered related parties for tax purposes. So, no recognized loss.

Myrtle moved in with Eddie in 2018. They then were married in 2020. Eddie had lived in this home for the past 13 years. In early 2021, Eddie and Myrtle decided that marriage was not for them; consequently, they were divorced. Eddie's home was transferred to Myrtle incident to the divorce. Myrtle then sold the house for $250,000. The basis in the home was $80,000. What is Myrtle's recognized gain on the sale of the home in 2021? $170,000 $45,000 $0 $250,000

$0. Due to the divorce, Myrtle is entitled to Eddie's ownership period. so can exclude a max of $250,000.

Ricky, age 35, and Lacy, age 51, are married and file a joint return. Ricky is covered by an employer plan. In 2021, Ricky had compensation of $50,000 and Lacy had compensation of $2,000. Their modified AGI was $235,000. What is the amount of the deductible contribution that can be made for Lacy to her traditional IRA for 2021? $6,000 $0 $2,000 $7,000

$0. Over limit of $208,000, so no deduction for contribution.

Jim and Nancy Walton, both age 55, had adjusted gross income of $25,000 in 2021. During the year, they paid the following medical-related expenses: Over-the-counter medicines $400 Prescription drugs 300 Doctor fees 830 Health club membership (recommended by the family doctor for general health care) 800 Medical care insurance 280 How much may the Waltons use as medical expenses in calculating itemized deductions for 2021? $735 $0 $465 $1,410

$0. Total expenses is 280+830+300= 1410. However, 7.5% of AGI is 1,875, so there is no allowable med. deduction.

A flood damaged an auto owned by Mr. and Mrs. Horton on June 15, 2021. The area of the flood was a federally declared disaster area. Based on the following facts, what is the amount of the Hortons' casualty loss deduction for 2021 (assume an election was not made to file an amended return for 2020)? Fair market value before the flood $11,000 Fair market value after the flood 5,000 Cost basis 5,500 Insurance proceeds 1,500 Replacement property through disaster relief 200 Business use of auto 0 Adjusted gross income for 2021 25,000 $3,800 $1,200 $2,700 $3,900

$1,200. Lesser of decrease in FMV (11-5=6) or cost basis 5,500-1500-200-100-2,500(25,000**.1)= 1,200

During the year, Mark paid his first quarter county real estate taxes of $1,400 on his personal home. Mark paid real estate taxes on his unemployed brother-in-law's home of $800. During the year, Mark was assessed a tax for trash pick-up of $165. He also paid a tax of $250 for improvements made by the town in his development, which increased the value of his property. Mark also withdrew the entire amount of $10,400 from his traditional IRA of which $2,400 was interest earned, to go on vacation to Italy. Mark, in previous years, had taken deductions for his IRA contributions. Mark is 48 years old. What is deductible on his Form 1040 for real estate taxes and what is the tax penalty, if any, on the early withdrawal from his IRA? Deductable Real Estate Tax on Sch A Tax on IRA $1,400 $1,040 $1,400 $0 $1,815 $1040 $1,400 $240

$1,400 $1,040. Only RE tax on the home is deductable. Early distributions of taxable amounts from IRA's are subject to an additional 10% tax. So, 10,400*.1=1,040.

Chris, age 5, has $3,600 of interest income and no earned income this year. Assuming the current applicable standard deduction is $1,100, how much of Chris's income will be taxed at his parents' marginal rate? $1,400 $3,600 $2,500 $0

$1,400. 3,600-1,100-1,100 (greater of Stand. or Itemiz. ded. of 1,100 or the amount of allowable ded. directly connected with the production of unearned income)

Shirley, a single taxpayer, has taxable income of $150,000. She has qualified business income (QBI) of $50,000. The qualified business paid a total of $15,000 in wages. Under Sec. 199A, what is Shirley's deductible amount for the qualified business? $15,000 $9,975 $10,000 $7,500

$10,000. Taxable income is less than 164,900, so only the 20% QBI limit applies. 50**20%= 10,000.

Fern is a self-employed florist. In 2021, she paid self-employment tax of $5,000 ($2,500 employer's portion) and $8,000 in medical insurance premiums. What amount of these expenses may Fern deduct in arriving at adjusted gross income? $6,500 $13,000 $10,500 $9,000

$10,500. 8000+2,500(can deduct employer's portion if self employed)= 10,500.

Ernesto was an employee of Med-Tech Corporation for all of 2021. He earned $144,800 in salary. What is the amount of FICA taxes paid by Med-Tech Corporation with respect to Ernesto? $8,854 $11,077 $10,954 $10,924

$10,954. Employer, so no extra OASDI tax above exclusion. 142,800**.062= 8,854. 144,800**.0145= 2100. so 8854+2100= 10,954

Jerry's adjusted gross income for the current year is $40,000. How much of the following contributions (after limitations, if any) can he deduct on Schedule A? $1,000 paid at a charity auction for a week at a fishing resort in Arkansas. The trip is valued at $1,000. $500 to the local Chamber of Commerce. Land adjacent to his church for use as a parking lot. The fair market value of the land is $35,000. Jerry paid $20,000 for the land. He does not elect to reduce the fair market value to qualify for a different AGI limit. $20,000 $10,500 $8,000 $12,000

$12,000. 500 doesnt count as a charitable contribution. The 1000 is canceled out by the trip expenses. The land is deductible to 30% of AGI. So, 40,000*.3= 12,000. The rest will be carried over to subsequent years

Johanna, an unmarried taxpayer, had $70,000 of adjusted gross income and the following deductions for regular income tax purposes: Home mortgage interest on a loan to acquire a principal residence $11,000 State income tax 2,000 Real property tax 3,000 Medical expenses (after the 7.5% floor) 2,000 What are Johanna's total allowable itemized deductions for computing alternative minimum taxable income? $18,000 $13,000 $2,000 $0

$13,000. 11,000+2,000 (medical expenses)= 13,000.

Fact Pattern: Sabrina is a cash-basis self-employed accountant. During 2021, she had the following income and expense items: Gross receipts$174,700 Operating expenses31,000 Guaranteed payments from partnership for service to partnership 6,000 Share of income from general partnership that operates bakery 10,000 Net operating loss carryover(6,000)Share of S corporation's ordinary income 7,000 Gain on sale of a computer used in the business 500 What is the amount of earnings on which Sabrina will have to pay the Medicare portion of the self-employment tax for 2021? $166,700 $142,800 $147,873 $159,700

$147,873.

George had the following income and expenses: Interest and dividend income of $8,000 Gross wages of $100,000 Margin interest of $10,000 Mortgage interest of $6,000 Interest on a mobile home used as a second home, $3,000 Credit card interest of $2,000 How much interest can George deduct on Schedule A? $19,000 $18,000 $21,000 $17,000

$17,000. 6,000+8,000 (margin interest to the limit of interest/dividend income)+3,000=17,000.

Ms. Pub died on February 28, 2021. The assets that comprised her estate were valued as follows: 2/28/21 6/28/21 8/28/21 House $12,000,000 $11,900,000 $11,800,000 Stocks 3,950,000 3,975,000 3,875,000 Bonds 1,500,000 1,500,000 1,540,000 The executor sold the home on June 28, 2021, for $11,900,000. The executor properly elected the alternate-valuation-date method. What is the value of Ms. Pub's estate? $17,375,000 $17,315,000 $17,215,000 $17,450,000

$17,315,000. 11,900,000(sold before valuation)+3,875,000+1540,000= $17,315,000.

Susan gave her niece a classic piano during tax year 2021. She had purchased the piano for $20,000 in 2017. The fair market value at the date of the transfer was $18,000. What amount should be recorded on Form 709 as the value of this gift? $3,000 $18,000 $5,000 $20,000

$18,000. FMV at the date of gift

Charles gave his daughter, Jane, a residential house. He had purchased the house for $250,000 in 2006. The fair market value on the date of the gift was $300,000. Charles had added a $25,000 roof the year before he gave it to Jane. Jane converts the house to a residential rental property within 1 year of the gift when the FMV was $320,000. Jane's basis in the property is $250,000 $275,000 $225,000 $300,000

$275,000. Real property that is converted to residential rental property is the adj. basis of the doner.

During 2021, Marcus sold real property that had an adjusted basis to him of $120,000 to Andrew for $250,000. On the sale, Marcus had depreciation recapture of $20,000, which he correctly reported as ordinary income. Andrew paid $50,000 as a down payment and agreed to pay $25,000 per year plus interest for the next 8 years beginning January 9, 2022. Marcus incurred selling expenses of $15,000. For 2021, what is the amount of capital gain from this transaction to be included by Marcus in his gross income? $19,000 $23,000 $11,000 $22,000

$19,000. Gross profit (250,000-(120,000+20,000)-15,000)= 95,000. 95,000/250,000**50,000= 19,000.

Mr. and Mrs. Wilson's 5-year-old son, Dennis, goes to kindergarten in the morning. In the afternoon, he attends a day care center. The cost of sending Dennis to the day care center for 2021 was $3,400. Mr. Wilson's earned income was $40,000, and Mrs. Wilson's earned income was $2,100. Based on the above information, the amount of the Wilson's work-related expenses used to figure the Child and Dependent Care Credit for 2021 cannot be more than $4,800 $3,400 $2,400 $2,100

$2,100. Limited to each spouse's earned income, so only to 2,100.

E-Z Corporation, which has a dividend reinvestment plan, paid dividends of $20 per share during the year. Carlos, who owned 100 shares of E-Z Corporation prior to the distribution, participated in the plan by using all the dividends to purchase 20 additional shares of stock. He purchased the stock for $100 per share when the fair market value was $125 per share. How much dividend income must Carlos report on his income tax return?

$2,500. $2,000 for the dividend and $500 for the gain of the purchase of stock.

Harry, a single person, died in 2021. The executor does not elect the alternate valuation date. Given the following information, determine the value of Harry's gross estate. Assets of the Estate FMV at Date of Death Certificates of deposit $ 100,000 Mortgage receivable on sale of property 2,000,000 Paintings and collectibles 500,000 Income tax refund due from 2020 individual tax return 30,000 Household goods and personal effects 20,000 $2,120,000 $2,620,000 $2,600,000 $2,650,000

$2,650,000. Everything is incudeable, so add everything together.

Mr. and Mrs. Jones, both over age 65, elect joint return status. They must file a return for 2021 if their combined gross income equals or exceeds $26,450 $1 $27,800 $25,100

$27,800. 25,100 standard deduction + 1,350(For MFJ add. stand. deduction)**2= 27,800.

Alan is a cash-basis taxpayer. During the year, he paid the following medical expenses for himself and his daughter, Johanna, whom he claims as a dependent on his tax return. $310 for glasses for Johanna and $290 for glasses for himself $650 for a dental root canal procedure for him $900 for hospital emergency services of which $700 was paid by insurance in the same year $1,250 for Johanna's braces which he charged to his credit card in December and paid in January of the next year $500 for prescriptions for allergies $2,200 for cosmetic plastic surgery The taxpayer's medical expense deduction before limitations is $6,100 $5,400 $4,150 $3,200

$3,200. 290+310+650+200+1250+500= 3,200.

Jack and Janice had adjusted gross income of $145,000 on their joint return for the current year. They planned to itemize the following deductions on their tax return: State income taxes $ 2,000 Gambling losses (with gambling winnings of $2,000) 1,800 Charitable contributions 1,300 Real property taxes 1,500 Medical expenses (before the AGI limitation) 20,000 Mortgage interest 3,000 What is the total amount of adjustments needed when computing the alternative minimum taxable income (AMTI) on Jack and Janice's joint return? $5,300 $3,500 $12,625 $29,300

$3,500. 2000+1500= 3,500. Remember, total amount of adjustments needed, and certain itemized deductions that were claimed for regular tax purposes may not be claimed for AMTI purposes.

John is a furniture maker and carpenter. John makes half of his income as an employee of Concept Designs, Inc., a fine furniture manufacturing corporation. He makes the other half of his income from a personal business where he purchases, renovates, and then resells houses. In January of 2021, John purchases a house that is not his residence for $50,000. He spends $10,000 in materials renovating the house, which he sells in November of 2021 for $90,000. What is the amount and character of John's gain from this transaction? $20,000 ST capital gain $20,000 ordinary gain $30,000 ST capital gain $30,000 ordinary gain

$30,000 ordinary gain. Held for sale for customers, so cannot be a capital asset. 90-60= 30,000.

Which of the following may NOT be deducted as medical expenses? (Disregard any limitations that may apply.)

$300 for maternity clothes.

During the current year, Mr. K, who is single and 45 years of age, made cash contributions of $500 to his church. Mr. K is taking the standard deduction on his current-year return. What is the amount of Mr. K's deduction for charitable contributions? $500 $0 $75 $300

$300. Allowed $300 for an above the line limit on cash contributions.

The following items are reported on Mr. and Mrs. Spice's 2021 joint return: Net profit on Mrs. Spice's Schedule C of $40,000 Mr. Spice's paid court-ordered alimony of $5,000 for a pre-2019 divorce Self-Employment Tax of $5,650 on Mrs. Spice's Schedule C profit ($2,825 employer's portion) Compute their adjusted gross income for 2021. $35,000 $40,000 $32,175 $28,880

$32,175. 40,000-5000-2,825(only employer part is deductable)= 32,175.

The following information pertains to Wald Corporation's operations for the current year: Worldwide taxable income $300,000 U.S. source taxable income 180,000 U.S. income tax before Foreign Tax Credit 96,000 Foreign nonbusiness-related interest earned 30,000 Foreign income taxes paid on nonbusiness-related interest earned 6,000 Other foreign-source taxable income 90,000 Foreign income taxes paid on other foreign-source taxable income 30,000 What amount of Foreign Tax Credit may Wald claim for the current year? $28,800 $34,800 $36,000 $38,400

$34,800. (90,000/300,000)**96,000=28,800. limit is 30,000, so whole amount can be used with 1,200 carried forward 10 or back 1 year. (30,000/300,000)**96,000=9,600, but limited by 6,000 nonbusiness taxes paid. So 28,800+6000= 34,800 for credit.

On January 1, Year 1, Mr. Shaw, a cash-basis taxpayer, sold land and reported the sale using the installment method of accounting. The net sales price was $300,000, and its cost basis was $150,000. The installment agreement called for five equal annual payments (plus accrued interest) due on January 1 beginning in Year 2. Since Mr. Shaw died on July 1, Year 5, the executor of his estate collected the final installment payment plus $5,000 of accrued interest. How much income in respect of a decedent should Mr. Shaw's estate include on the Form 1041 for Year 6 (assuming the estate uses a calendar year as its tax year)? $32,500 $5,000 $30,000 $35,000

$35,000. Gross profit margin was 50% (150,000/300,000). Five equal pmts is 150,000/5= 30,000. 2 pmts left, or 60,000**50%= 30,000+5,000 accrued interest(excutor collected the interest)= 35,000

For estimated tax purposes, the calendar year is divided into four payment periods. Which of the following payment periods is incorrect? -Sept. 1 through Dec. 31 -Jan. 1 through Mar. 31 -Apr. 1 through June 30. June 1 through Aug. 31.

-Apr. 1 through June 30. First payment is for Apr 15 for Jan-Mar. 2nd is for June 15 for Apr. and May. Third pmt is for Sept 15 for June through Aug.. Fouth pmt is for Jan 15, through Sept-Dec.

Alan Curtis, a U.S. citizen, died on March 1 of the current year, leaving an adjusted gross estate with a fair market value of $1.4 million at the date of death. Under the terms of Alan's will, $375,000 was bequeathed outright to his widow. The remainder of Alan's estate was left to his mother. Alan made no taxable gifts during his lifetime. In computing the taxable estate, the executor of Alan's estate should claim a marital deduction of $1,025,000 $700,000 $375,000 $250,000

$375,000. A deduction from the gross estate is allowed for all property transferred in a qualified manner to the surviving spouse.

Keith, a business taxpayer, sold the following business assets during 2021: Machinery: Sales price $45,000 Original cost 40,000 Accumulated depreciation 15,000 Computer equipment: Sales price 34,000 Original cost 28,000 Accumulated depreciation 16,000 Keith had net Sec. 1231 losses in 2020 of $8,000. What is the amount and character of Keith's gain for $0 ordinary income; $42,000 Sec. 1231 gain $39,000 ordinary income; $3,000 Sec, 1231 gain $16,000 ordinary income; $26,000 Sec. 1231 gain $31,000 ordinary income; $11,000 Sec. 1231 gain

$39,000 ordinary income; $3,000 Sec, 1231 gain. Total gain is 45,000-40,000+15,000+ 34,000-28,000+16,000= 42,000. 16,000+15,000+8,000= 39,000 for ordinary income. Sec. 1231 is gain-depr.-1231 loss, 42-39= 3,000.

Herb files single and had the following capital gains and losses in 2021: $500 loss on the sale of stock he purchased on January 14, 2021, and sold on August 10, 2021 $5,000 loss on the sale of stock purchased October 1, 2020, and sold November 1, 2021 $1,000 gain on the sale of a vacant lot held for 5 years How should Herb's capital gains and losses be initially reported on Schedule D? $4,500 LT loss and $1,000 ST loss $5,500 LT loss and $1,000 ST gain $4,000 LT loss and $500 ST loss $4,500 LT loss

$4,000 LT loss and $500 ST loss.

Corporation X made the following payments to or on behalf of Mr. B, a cash-basis taxpayer: Note received in lieu of bonus (fair market value $3,000, no payments received on note in current year) $5,000 Advance commissions for services to be performed in the future 600 Ham received at Christmas party 20 Sick pay due to illness paid directly by Corporation X 1,000 Group-term life insurance premium paid by Corporation X on nondiscriminatory insurance coverage of $50,000 100 What amount should Mr. B report as income? $4,620 $4,600 $6,720 $4,720

$4,600. FMV of the note 3,000 (when it is paid, an additional $2,000 will be included)+ 1000+600= 4,600.

As a result of a fire, Sam had to vacate his apartment for a month and move to a motel. His rent for the apartment had been $600 per month. No rent was charged for the month the apartment was vacated. His motel rent for this month was $1,000. He normally pays $200 a month for food, but food expenses for the month he lived in the motel were $500. He received $1,100 from his insurance company to cover his living expenses. Based on this information, determine the amount, if any, he must include in income. $400 $700 $0 $300

$400. Exclusion is limited to the excess of actual living expenses (1000+500)=1500- over normal living expenses(600+200) 800=700. So, 1,100-700.

During the current year, Mr. Jones made gifts to his son of the following items: A minivan with an adjusted basis of $15,000 and fair market value of $17,000. Bonds with an adjusted basis of $7,000 and fair market value of $19,000. Antique furniture with an adjusted basis of $15,000 and a fair market value of $38,000. An interest-free $10,000 loan on January 1 to buy a boat for his personal pleasure. His son repaid the loan in full on December 31. The applicable federal interest rate was 10%. Mr. and Mrs. Jones elect gift splitting. What is the total amount of their taxable gifts to their son in the current year? $44,000 $7,000 $38,000 $74,000

$44,000. Total gifts is 17+38+19=74,000-15,000-15,000= 44,000. Only one donee, so only 30,000 in total.

Mr. F transferred property with an adjusted basis of $1,000 and a fair market value of $250 to a qualifying corporation for its small business stock (Sec. 1244). He later sold the stock for $200. What are the amount and the character of F's loss? $200 ordinary and $750 capital $50 ordinary and $750 capital $0 ordinary and $750 capital $250 ordinary and $750 capital

$50 ordinary and $750 capital. Ordinary loss is 200 sales price - 250 basis= $50. When there is a loss on the sale of the Sec. 1244 stock, the basis is reduced by the difference between the basis and the FMV at the time of the original exchange.

Mr. Rich died in the current year. The following expenses and credit relate to the estate: Administrative expenses $ 12,500 Funeral expenses 8,500 State inheritance tax 33,000 Applicable credit amount 4,625,800 What amount can the executrix of Mr. Rich's estate deduct from the gross estate in figuring the taxable estate? $4,625,800 $4,646,800 $21,000 $54,000

$54,000. (12.5+8.5+33)= 54.

Sol and Julia Crane are married and filed a joint return for 2021. Sol earned a salary of $126,000 in 2021 from his job at Troy Corporation, where he is covered by his employer's pension plan. In addition, Sol and Julia earned interest of $5,000 in 2021 on their joint savings account. Julia is not employed, and the couple had no other income. On January 15, 2022, Sol contributed $6,000 to an IRA for himself and $6,000 to an IRA for his spouse. The allowable IRA deduction in the Cranes' 2021 joint return is $0 $11,000 $12,000 $6,000

$6,000. Sol's income exceeds income limits (105,000-125,000). Does not exceed couple's limit 198,000, so 6000 for Julia

Smithco, Inc., a domestic corporation, was paid $20,000 of the total of $100,000 in dividends paid by a foreign corporation this year. Smithco owned 20% of the foreign corporation's stock. The foreign corporation paid $35,000 in foreign taxes and had accumulated profits of $120,000 after payment of its foreign taxes for the last 11 years. Smithco also had $1,000 in taxes withheld by the foreign country on the dividend. Smithco has a Foreign Tax Credit before limitation of $6,833 $8,000 $5,833 $1,000

$6,833. 20,000 foreign dividends/120,000 (total undistributed earnings) **35,000= 5,833+1000= 6,833

From the items listed below, determine the interest income includible on Mr. F's tax return for the current year: Received on deposits in a federal savings and loan association $320 Received on share accounts in a credit union 125 Received on money market certificates at fixed intervals of 1 year or less 50 Toaster received for opening an account in a mutual savings bank 26 Increase in the value of prepaid premiums applied to the payment of premiums due on a life insurance policy 95 $465 $445 $616 $526

$616. All of the items listed are includible interest income.

Python Corporation wants to obtain commercial property located on Mainstreet. Paul, one of its customers, owns the property and uses it in his business. Python offers to give Paul the land it owns next to its business and inventory items worth $70,000 in exchange for his Mainstreet property. Paul's basis in the Mainstreet property is $160,000, and its fair market value is $350,000. The land owned by Python has an adjusted basis to Python of $100,000 and a fair market value of $280,000. Paul will hold the land he receives from Python for investment purposes. What is the amount of Paul's recognized gain if he accepts the offer? $120,000 $70,000 $190,000 $0

$70,000. Gain for like-kind is to the extent that not like kind property is received, so the less of the boot received (70,000) or the realized gain 190,000 (280,000+70,000-160,000)

In the current year, Mr. A, a sole proprietor, made interest payments of $800 on his personal credit cards, $650 on his business truck loan, $3,000 to the bank for a loan origination fee (charge for services) for his Veterans Administration mortgage, and $8,000 on his home mortgage. What is the total allowable interest deduction on Schedule A, Form 1040? $12,450 $11,800 $8,000 $9,450

$8,000.

Which of the following forms is used to claim a dependent when there is more than one eligible person who can claim the dependent?

Form 2120 (Multiple Support Declaration)

During the current year, Luca paid the following taxes: State and local real estate taxes on rental property he owns $ 4,500 State and local real estate taxes on his own residence 3,750 Federal income taxes 10,500 State income taxes 4,050 Local city income taxes 750 Social Security taxes for household help 750 Luca did not use the rental property for personal purposes. What amount is deductible as an itemized deduction on Luca's current-year income tax return? $21,000 $7,800 $8,550 $13,050

$8,550. 3,750+4,050+750= 8,550.

Alex started his own welding business this year. He paid $8,000 for a truck, contributed $15,000 cash and paid $20,000 for tools for the business. His bank loaned $50,000 to buy a building for the business. The building secures the loan. What is Alex's at-risk amount for this activity? $93,000 $103,000 $53,000 $43,000

$93,000. At risk is for amounts contributied and amounts borrowed for use in the activity. (8000+15,000+20,000+50,000)= 93,000.

Gilda Bach is a cash-basis, self-employed consultant. For the year 2021, she determined that her net income from self-employment was $80,000. In reviewing her books, you determine that the following items were deducted in arriving at the net income of $80,000: Salary drawn by Gilda Bach $20,000 Estimated federal income taxes paid 6,000 Malpractice insurance premiums 4,000 Cost of attending professional seminar 1,000 Based upon the above information, what should Gilda Bach report as her net earnings from self-employment for 2021? $89,782 $97,891 $110,000 $106,000

$97,891. 80+20+6= 106,000*7.65% (Net earnings from self-employment are reduced by the employer portion)= 8,109. So, 106,000-8,109= 97,891.

Pat Garrett worked for two different employers during 2021. He earned $62,800 from the first employer and $81,600 from the second. Each employer withheld Social Security taxes. What is the amount of Pat Garrett's credit for the excess Social Security taxes paid in 2021? $0 $99.2 $1,22.40 $1,600

$99.2. 144,400-142,800= 1,600*.062= 99.2.

George opened a 4-year certificate of deposit in January 2020. He earned $400 in interest for 2020 and reported this on his 2020 return. He withdrew all of the funds in October 2021. However, due to the premature withdrawal provisions, he received only $230 of the 2020 interest, plus $195 of interest for 2021. What should he report in 2021? -$25 interest income on Sch. B. -$195 interest income on Sch. B. -$195 interest income on Sch B and $170 as an adjustment to gross income. -$170 interest expense on Sch A and $195 interest income on Sch. B.

-$195 interest income on Sch B and $170 as an adjustment to gross income. The penalty can be taken as a deduction.

In 2019, Sam bought 200 shares of stock at $9 per share for a total cost of $1,800. In 2020, he bought 300 shares at $12 per share for a total of $3,600. In 2021, the stock split 3-for-1. What is the basis per share in the stock after the split? -600 shares at $9 and 900 shares at $12 -200 shares at $9 and 300 shares at $12 -200 shares at $3 and 300 shares at $4 -600 shares at $3 and 900 shares at $4

-600 shares at $3 and 900 shares at $4. 200**9=1800/600(200**3)= $3 and the same for the others.

Which of the following statements is NOT true regarding documentation requirements for charitable contributions? -A noncash contribution of less than $250 must be supported by a receipt or other written acknowledgment from the charitable org. -A deduction of more than $1,000 for one property item generally requires that a written appraisal be obtained and attached to the return. -A contribution charged to a credit card is a cash contribution for the purposes of documentation requirements. If the total deduction for all noncash contributions for the year is more than $500, Section A of Form 8283, Noncash Charitable Contributions, must be completed.

-A deduction of more than $1,000 for one property item generally requires that a written appraisal be obtained and attached to the return. False because the taxpayer need only provide a good-faith estimate of the property.

Rhett, a U.S. resident, and his wife, Florencia, a nonresident alien, both make the proper election to file a joint return. As a corporate pilot, Rhett has earned income from both domestic and foreign sources. Florencia has earned income from both her part-time job in the U.S. and from video arcades her family owns and operates in her native Venezuela. The couple also has foreign sourced interest income. On what income will the couple be taxed? -Rhett's income and Florencia's part-time job. -All income except for the foreign sourced interest. -Rhett's domestic and foreign income -All of their worldwild income.

-All of their worldwild income. Note: Once both spouses make the election to file joint when one is a nonresident alien, tax is applied to worldwide income.

All of the following income types are reported on Form 1099-MISC EXCEPT -Payments made to a physician or supplier of medical or healthcare services of $600 or more made in the course of your trade or business. -Crop insurance proceeds of $600 or more. -Rents of $600 or more. -Canceled debt payments of $600 or more

-Canceled debt payments of $600 or more

Which of the following income items is included in gross income? -Christmas bonus of $100 in cash received at the end of the year. -Adoption expenses of $4,000 incurred by an employee that are reimbursed by an employer. -Military pay received while serving in a combat zone. -Housing received by a medical research student at an academic health center. The monthly charge is 25% of the housing's fair market value.

-Christmas bonus of $100 in cash received at the end of the year.

Form 706, United States Estate Tax Return, was filed for John Doe in 2021. His gross estate tax was $25 million. Which group of credits is allowable in computing his net estate tax? -Credit for foreign death taxes and credit for taxes paid on prior transfers. -Credit for funeral expenses and credit for charitable contributions. -Credit for gift taxes and credit for casualty and theft losses. -Applicable credit amount and marital deduction credit.

-Credit for foreign death taxes and credit for taxes paid on prior transfers.

For 2021, Robert and Martha, calendar-year taxpayers, received all of their gross income of $75,000 from their dairy farm. As of December 31, 2021, they had not made any estimated tax payments for 2021. Which of the following will allow them to avoid the estimated tax penalty (ignoring Saturdays, Sundays, or holidays)? -Make one est. tax payment by Jan. 15, 2022. -File their 2021 federal income tax return by Apr. 15, 2022, pay all of the tax, and attach a statement that they are qualified farmers. -File their 2021 federal income tax return by Mar. 15, 2022. -File their 2021 federal income tax return by Mar. 15, 2022, and pay all the tax due.

-Make one est. tax payment by Jan. 15, 2022. Farmers/fishermen who receive two-thirds of their gross income, to pay est. tax for they year in one installment.

Which one of the following statements about the foreign operations of Nora Corporation (a domestic corporation) is true? -Nora may elect to take either a credit or a deduction, but not both, for the income taxes paid to a foreign country. -Nora may exclude both revenues and expenses of the foreign operations from its federal income tax return. -Nora may take the deduction, but not a credit, for the income taxes paid to a foreign country. -Nora may take a credit, but not a deduction, for the income taxes paid to a foreign country.

-Nora may elect to take either a credit or a deduction, but not both, for the income taxes paid to a foreign country.

Charles is a self-employed attorney and files a joint return. He reported AGI of $80,000 and taxable income of $60,000 in Year 1, and he paid a tax liability of $12,000 after credits. In Year 2, he expects his AGI to increase about 25%. In setting up his estimated tax payments so as to avoid any penalty for underpayment of his Year 2 liability, Charles should -Pay at least 25% more tax each quarter than he did in Year 1. -Pay quarterly installments of 90% of 25% of 12,000. -Make only one est. payment late in Year 2 when he can more clearly estimate his Year 2 income. -Pay quarterly installments of 25% of 12,000.

-Pay quarterly installments of 25% of 12,000. Charles can avoid the penalty by paying 100% of the prior year liability.

Which of the following is NOT an itemized deduction reported on Schedule A? -Qualified business income -Unrecoverable investment in a pension. -Gambling losses up to the amount of gambling winnings -Repayments of $5,000 under a claim of right.

-Qualified business income

To compute the Minimum Tax Credit (MTC), the taxpayer should -Recompute the most recent year's alternative minimum tax without adj. for certain exclusion items, and add the carryover MTC. -Recompute the most recent year's alternative minimum tax and subtract the carryover MTC. -Recompute the most recent year's alternative minimum tax with adjustment for certain exclusion items, and add the carryover MTC. -Recompute the most recent year's alternative minimum tax with the adjustment for the tax amount , and subtract the carryover MTC.

-Recompute the most recent year's alternative minimum tax without adj. for certain exclusion items, and add the carryover MTC.

Arthur lived and worked in Florida for 8 months in 2021 and earned $30,000. He then worked in California at a seasonal job at a race track the last 4 months of the year and earned $12,000 before returning to Florida. What is Arthur's "tax home"?

-Since most of his time and income were from the job in Florida, it is considered his tax home. Since he worked more and earned more in Florida, it is his tax home.

When taxable income exceeds the upper threshold limit, for each qualified trade or business, the qualified business income (QBI) deductible amount with respect to the qualified trade or business is -Unlimited (i.e., 100% of QBI). -Limited to 20% of the taxpayer's QBI. -Completely disallowed (100% phaseout). -Subject to additional limitations beyond the 20% overall limit.

-Subject to additional limitations beyond the 20% overall limit. See, exceeds threshold limit.

Diane, single and age 49, made a $5,000 contribution to her traditional IRA in 2021. Her compensation for 2021 was $4,000. She filed a Form 4868 for an extension until October 17, 2022, to file her 2021 return. In order to avoid the 6% additional tax on excess contributions, Diane must do which of the following? -Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by Oct. 17, 2022. -Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by April 18, 2022. -Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by Dec. 31, 2021. -File an election to deduct the $1,000 on her 2022 return by attaching a statement to her 2021 return.

-Withdraw the $1,000 excess contribution and all interest earned on the $1,000 by Oct. 17, 2022.

Who would NOT be a qualifying person for purposes of filing as head of household in 2021? -Your mother, whom you can claim as a dependent. -Your aunt, related to you by blood. She does not live with you but is your dependent. -Your foster child who lived with you all year and is your dependent. -Your adopted child who lives with you, is married, and can be claimed as your dependent.

-Your aunt, related to you by blood. She does not live with you but is your dependent. -Does not live with you, must be the principal place of abode for more than half of the taxable year.

During the calendar year, Mary gave several gifts to relatives. Which of the following gifts must be reported in an annual gift tax return? $25,000 to her mother to help pay for medical expenses A $20,000 federal tax-exempt municipal bond to her sister 100 shares of stock to her daughter (Mary's basis in the stock was $10,000 and the fair market value at the date of gift was $20,000) $20,000 to a qualified university for her son's dormitory fees 2 and 4 3 only 2,3, and 4 1, 2, 3, and 4

1, 2, 3, and 4. Med payment not made directly to institution, so must be included. The federal tax exempt bond is not exempt for gift tax. The Stock counts as a gift. The edu expense is not qualified, for room and board, so it counts too.

Thomas and Rebecca are the parents of four children, ages 10, 12, 15, and 22. Their 22-year-old child is a full-time student with income of $6,050. Thomas and Rebecca provided more than 50% of the support for all their children. If they file a joint return, how many dependents can they claim for the above family members? 6 3 4 2

4.

Kramer (age 63) established a trust and named his second wife, Theresa (age 50), as income beneficiary for 20 years. After 20 years, Kramer's son Trevor (age 40) and nephew Bob (age 25) are to receive lifetime income interests. After the death of both Trevor and Bob, the remainder passes equally to Kramer's granddaughter Sara (age 20) and great-granddaughter Hope (age 1). How many younger generations are there in this trust arrangement? 4 1 2 3

3. Younger generations refer to generations younger than the transferor's generation. Hope is assigned to three generations below the transferor's generation.

On March 10 of this year, James Rogers sold 300 shares of Red Company common stock for $4,200. Rogers acquired the stock 4 years ago at a cost of $5,000. On April 4 of this year, he repurchased 300 shares of Red Company common stock for $3,600 and held them until July 18 of this year, when he sold them for $6,000. How should Rogers report the above transactions for the year? A long term capital gain of $1,600. A long term capital loss of $800. A long term capital loss of $800 and a short term capital gain of $2,400. A long term capital gain of $1,000

A long term capital gain of $1,600. Sale under Mar 10 was a wash sale (sold/traded stock at a loss and 30 days before/after this sale, buys the same or a substantially identical stock or security), so loss was not realized. 6000-3600= 2400 gain - 800 loss = 1,600 LT capital gain. A wash sale also results if an individual sells a security, and the individual's spouse or a company controlled by the individual buys a substantially equivalent security during the 61-day wait period.

Which of the following statements relating to qualified transfers for gift tax purposes is NOT true? -A qualified transfer is allowed without regard to the relationship between the donor and the donee. -The exclusion for a qualified transfer is in addition to the annual exclusion. -Only that part of a payment to a qualified education institution that applies to direct tuition costs is a qualified transfer. -A payment made directly to an individual to reimburse him or her for his or her medical expenses is a qualified transfer.

A payment made directly to an individual to reimburse him or her for his or her medical expenses is a qualified transfer.

Albina purchased 1,000 shares of Global Tech Growth mutual fund on February 15, 2020, for $15 per share. On January 31, 2021, she sold the 1,000 shares of Global Tech Growth mutual fund for $4.50 per share. Albina had no other capital transactions in 2021. Which of the following is true?

Albina has a short term capital loss of $10,500 in 2021 and can deduct $3,000 on her tax return. She can carry forward a short term loss of $7,500 to 2022.

Connor purchased Flora stock in 2015 and sold it in 2021. He also sold a copy machine that he had been using in his business since 2016. On December 15, 2021, he inherited 35 shares of Fauna Laboratories stock. What is the holding period for these properties? All long term. All short term. Flora stock long-term, copy machine and Fauna stock short term. Flora and Fauna stock long term, copy machine short term.

All long term. Inherited is long term always.

Johnny has various investments. He earns interest and dividends on a certificate of deposit (CD), a savings account, mutual funds, corporate stocks, and corporate bonds. Johnny files his tax returns using the cash method. The interest on the CD is rolled into a new CD with the old principal. He receives the interest from the corporate bonds and savings account on a semi-annual basis. The earnings from the mutual funds are not distributed and are used to purchase additional shares. The dividends from the corporate stocks are reinvested. What income does Johnny have to report for the current year? Corporate bond and savings account interest. Corporate stock and mutual fund dividends. Savings account and CD interest. All of the answers are correct.

All of the answers are correct.

On January 1, Year 2, Sandy contributed inventory with a basis of $10,000 and a fair market value of $14,000 to ASTEC Corporation and received 100 shares of ASTEC stock. All the requirements of Sec. 351 were met. Sandy had acquired the inventory on December 1, Year 1, in the normal course of business. By April 15, Year 2, all the inventory was sold. Sandy's holding period for the ASTEC stock Began Jan. 2, Year 2 Began Dec. 2, Year 1 Is always short-term because the stock was received for an ordinary income asset. Began April 16, Year 2

Began Jan. 2, Year 2. Not a gift, exchanged, so on Jan 2.

Maria Mordant acquired all of the original stock of The Diamond, Inc., a Section 1244 small business, on January 10, 2017, for $10,000. She contributed another $9,000 to capital before selling all of her stock on June 30, 2021, for $10,000. How much loss should Maria report on her 2021 return, and is the loss capital or ordinary? None of the answers are correct. Deduct her $9,000 loss as an ordinary loss Deduct $4,737 as ordinary loss and $4,263 as capital loss subject to limitations. Deduct $3,000 of her loss on Sch. D as a capital loss and carry over the remainder.

Deduct $4,737 as ordinary loss and $4,263 as capital loss subject to limitations. Since the additional capital interest of $9,000 is 9/19 of the total basis of $19,000, the $9,000 loss is apportioned as follows: $4,263 of capital loss (9/19 of $9,000) and $4,737 of qualifying ordinary loss.

Which of the following is an example of unearned child income? Bonuses Salary Dividends Tips

Dividends

Flavia Tillen is a German citizen who had never before been in the United States. She entered the United States on a visa on May 5, 2021, and stayed the rest of the year. Her residential status for 2021 is U.S. citizan Single-status alien Dual status alien Nonresident alien

Dual status alien. Both a non resident alien (Jan 1-May 4) and a resident alien (May 5 to Dec 31)

Dr. Steve and Joyce are married and have total income of $195,500 and itemized deductions of $26,700, leaving estimated taxable income of $168,800. Assume that for 2021 the tax on $168,800 would be $35,403. They have withholding taxes of $30,000 during the year. In 2020, they paid a total of $42,000 in taxes for the year and had adjusted gross income of $185,000. For 2021, they would need to make Est. payments of $1,863 Est. payments of $12,000 Est. payments of $5,403. No est. tax payments since they have withholding taxes.

Est. payments of $1,863. The total amount an indvidual must pay is the lesser of 90% of the current year taxes or 100% [110% for taxpayers whose prior year AGI exceeded $150,000] of the prior year's tax. So it needs to be either 31,863 (90% of 35,403) or 46,200 (110% of 42,000) S0, 31,863-30,000= 1,863.

For Year 2, all of the following situations qualify as exceptions to the penalty for underpayment of estimated tax EXCEPT -Est. payments were 100% of that shown on the Year 1 return, and last year's AGI was $120,000. -The taxes shown as owed on the return are no more than 10% of the total Year 2 tax, alll required est. tax payments were made on time, and Year 1 AGI was $100,000. -Est. tax payments were 90% of that shown on the Year 1 return, and last year's AGI was $160,000. -Total tax shown on the return minus withholdings is less than $1,000

Est. tax payments were 90% of that shown on the Year 1 return, and last year's AGI was $160,000. Must be 110% if AGI is above 150,000

Which of the following is included in determining the total support of a dependent? Allocable portion of mortgage payment on lodging facility Social Security benefits added to savings account Life insurance premiums Fair rental value of lodging provided

Fair rental value of lodging provided

Patsy pays Anne, an unrelated person, $100 per week to come to her home and care for her children while she works part-time. Anne requests that Patsy withhold $10 federal income tax from each paycheck. Patsy has no other employees. She has other filing obligations, such as Form W-2. Patsy must do which of the following?

File Sch. H (Form 1040 as an attachment to her Form 1040 or Form 1040SS and report Social Security, Medicare, FUTA, and federal tax withholding. Only Sch H is required for household employees, and Form 941 is not necessary.

Which of the following is false? -Interest on installment debt accrued before the death of the cash-basis taxpayer is income in respect of a decedent. -Income classified as income in respect of a decedent receives a step up in basis upon the decedent's death. -Income in respect of a decedent is taxable to the recipient and is includible in the gross estate. -Mr. Bryan, a single. accrual basis taxpayer, died on Nov. 10 of the current year. The salary earned and accrued by Bryan during the current year is not income in respect of the decedent.

Income classified as income in respect of a decedent receives a step up in basis upon the decedent's death. Sec. 1014 prevents a step up basis.

Which of the following items are NOT adjustments or tax preference items for computing alternative minimum tax? Research and Experimental expenditures Standard Deduction. Interest Income. Itemized deduction for state and local taxes.

Interest Income.

Mr. Alexis died April 30, 2021. His gross estate totaled $17.5 million. Assuming no extension is granted, the executor must file Form 706, United States Estate Tax Return, on or before (ignore weekends and holidays Aug. 15, 2021 Oct. 31, 2022 Jan 30, 2022 Apr. 15, 2022

Jan 30, 2022.

On June 30, 2021, John Smith made a gift of $2,000 to his daughter. John will need to file a gift tax return (Form 709) on or after January 1, 2022, but no later than

John will not have to file Form 709 for year ending Dec. 31, 2021.

Midshipman Mike, a calendar-year taxpayer, was assigned a post of duty on the U.S.S. Enterprise. The ship went on a 6-month cruise of the Mediterranean Sea, leaving February 15, Year 2. Mike did not file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Mike is automatically granted an extension of time to file his Year 1 income tax return and pay any tax due until Oct. 15, Year 2. No automatic extension is granted. Mike must file and pay tax due by April 15, Year 2. August 15, Year 2. June 15, Year 2.

June 15, Year 2. Automatic 2 month extension for citizens/residents for people in the military/navy

Which of the following expenses related to casualty losses are deductible? Appraisal of a casualty loss Cost of insuring a personal asset No No Yes No Yes Yes No Yes

No No. The cost of appraising a casualty loss is treated as a cost to determine tax liability, and there is no deduction.

Ms. Alexander properly executed a request for an automatic extension of time to file her 2021 tax return. She must file her 2021 return on or before (ignoring Saturdays, Sundays, and holidays)

October 15, 2022

Which of the following interest expenses incurred by Leila is treated as a personal interest? -Interest incurred by a partnership in which Leila is a limited partner. -Bonds purchased with accrued interest. -Interest on a $200,000 home mortgage she took out in 2011. -Ordinary bank loan used to pay for her son's medical care.

Ordinary bank loan used to pay for her son's medical care.

Paula filed a separate return and paid more than half the cost of keeping up her home. Her spouse did not live in her home during the last 6 months of the tax year. Which one of the following dependents would qualify Paula to file as head of household?

Paula's son, who lived with her but was absent from her home for 9 months during the year while attending boarding school.

James and Edna Evans are a childless married couple with no other dependents who lived apart for all of the year. On December 31, they were legally separated under a decree of separate maintenance. Which of the following is the only filing-status choice available to them for the year? Married filing joint return Single Head of household Married filing separate return

Single

Which of the following taxes is NOT deductible? Special assessment to provide local benefits. State and local real estate tax Personal Property tax One-half of the self employed tax paid

Special assessment to provide local benefits.

Income in respect of a decedent must NOT be included in the income of which of the following?

The decedent's final Form 1040 filing.

All of the following might include income in respect of a decedent EXCEPT

The decedent's final return. Income earned but not received is not on the decedent's final return.

A husband and wife can file a joint return even if -Either spouse was a nonresident alien at any time during the tax year, provided that at least one spouse makes the proper election. -The spouses have different tax years, provided that both spouses are alive at the end of the year. -They were divorced before the end of the tax year. -The spouses have different accounting methods.

The spouses have different accounting methods. Note: different tax years cannot file joint.

Qualified small business stock under Sec. 1202, for purposes of applying rollover and exclusion rules, is stock that meets all the following tests EXCEPT -Acquired by original issue in exchange for money or other property or as pay for services. -Stock in a C corp. -Originally issued after Aug. 10, 1993 -Total gross assets of $100 million or less at all times after Aug. 10, 1993, and before it issued the stock.

Total gross assets of $100 million or less at all times after Aug. 10, 1993, and before it issued the stock. Limit for gross assets is $50 million.

All of the following are requirements to claim head of household filing status EXCEPT

Your parent must live in your home for at least 6 months.