Tax Smartbook
List the 5 steps in the tax research process in order, using the below options. Document and communicate results Locate relevant tax authorities Understand facts Identify issues Analyze tax authorities
Understand facts Identify issues Locate relevant tax authorities Analyze tax authorities Document and communicate results
A taxpayer may file as a single taxpayer when: a. her spouse died during the year b. she has been unmarried for over half of the year c. she is separated from her husband, but not yet divorced d. she is unmarried at the end of the tax year
d
Lan is from Vietnam and has lived in the U.S. for five months during the year. He is not yet considered a resident because he hasn't lived in the U.S. for long enough. He resides with his uncle who is a U.S. citizen. Lan is single and a full-time student. If eligible, Lan would otherwise be considered a qualifying child of his uncle. Which of the following is correct regarding Lan's status as a dependent? a. Lan can be claimed by his uncle because he will not have to file a tax return since he has no income. b. Lan can be claimed as a dependent by his uncle because his uncle is a citizen and Lan is a qualifying child. c. Lan can NOT be claimed by his uncle because he would need to meet the qualifying relative requirements, rather than the qualifying child. d. Lan can NOT be claimed as a dependent by his uncle because he is not a citizen or resident of the U.S..
d
A loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck that occurs as part of a(n) ____ ____ disaster is a(n) ________ loss.
federally declared casualty
A taxpayer's _______ ________ depends on his or her marital status at the end of the year and whether the taxpayer has dependents.
filing status
A sales tax is an example of a tax that uses a(n) ____________ tax rate structure when compared to its tax base.
flat/proportional
Investment interest expense is deducted _________ AGI while self-employed business expenses are deducted ________ AGI.
from for
When an individual transfers property to another taxpayer during their life, without receiving or expecting to receive value in return, the property transferred is a(n) _____________ and is ____________ (taxable/nontaxable) to the person receiving the property.
gift nontaxable
Sec. 61 of the Internal Revenue Code defines ______ income as "all income, from whatever source derived." realized gross earned taxable
gross
Which of the choices below is NOT one of the tests that must be met to qualify as a qualifying child? Support Relationship Residence Gross income Age
gross income
During the tax research process, the exercise of attaining and understanding the client's facts and combining those facts with the tax preparer's knowledge of the tax law is referred to as: communicating the results locating the relevant authorities analyzing the tax authorities identifying the issues
identifying the issues
A(n) ___________ tax is defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.
implicit
For below-market-loans, the discounted interest rate is treated as interest ___________ to the lender and interest ___________ to the borrower.
income expense
An example of a tax assessed by a state or local government is _______________ tax.
income sales use excise property ad valorem
Most states and the District of Columbia impose ___________ _________ on individuals and corporations who earn income within the state.
income tax
The __________ tax pays the monthly retirement, survivor, and disability benefits for qualifying individuals, whereas the _____________ tax pays for medical insurance for individuals who are elderly or disabled
social security medicare
The ________ ________ is a flat amount that most individuals can elect to deduct instead of deducting their itemized deductions.
standard deduction
Tax services that are arranged by topic, such as types of taxable income, are known as ___________ tax services
topical
Bobby received a $3,500 scholarship for the semester. He used $3,000 to pay tuition to the community college, and the remaining $500 was paid toward textbooks. How much of the scholarship must be included in gross income? Multiple choice question. $3,500 $500 $3,000 $0
$0
Will and Lyndsey are married with no dependents and file a joint tax return. In 2020, they paid $3,000 in qualified student loan interest in addition to $22,550 in itemized deductions. What is the total of their "FROM AGI" deductions in 2020? $24,800 $25,550 $22,550 $27,800
24,800
When does the statute of limitations generally end for tax noncompliance when fraud is not a factor? 6 years No limit 3 years 10 years
3 years
Amy and Ethan are married and file a joint return for 2020. Their taxable income is $192,100. The amount of their tax liability, rounded to the nearest dollar, is $ _________.
34,263
True or false: Gross income only includes income received in cash because cash is a measurable change in wealth.
False- includes money in any form, like property or services
Which of the following taxes uses a proportional tax rate structure? Federal individual income tax Social security tax Federal corporate income tax Federal estate tax
Federal corporate income tax
Which of the following taxes uses a progressive tax rate structure?. Federal individual income tax Sales tax Federal corporate income tax Social security tax Excise tax
Federal individual income tax
Which tax is assessed to provide medical insurance for individuals who are elderly or disabled? Medicare tax Excise tax Gift tax Social Security tax
Medicare tax
Up to 85% of ______________ benefits, in retirement, may be taxable for taxpayers with moderate to high taxable income.
social security
Activities that are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as ____________________ activities.
business
Which of the following choices is NOT one of the steps in the tax research process? Understand facts Locate tax authorities Contact IRS Identify issues
contact IRS
Income from ____________ takes different forms, such as dividends, interest, rents, royalties, and annuities.
property
True or false: The federal estate tax is the MOST significant tax assessed by the U.S. government because it generates more revenue for the government than other types of federal taxes.
F - income tax
True or false: An individual will qualify as a qualifying child if he satisfies at least one of the following tests: age, support, relationship, and residence.
F - must satisfy all 4 requirements
Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $361,600 in taxable income and $375,000 in profit from the tax service, before the deduction for qualified business income (QBI). How much of the income from Bruce's tax services is eligible for the QBI deduction? $235,040 $326,600 $0 $243,750
$243,750 - their taxable income is above the $323,600 threshold for MFJ but below $426,600, so the phase-out rules apply. (361,600-326,600) = 35,000 / 100,000 phase out = 35% ineligible for QBI deduction. 35% x 375,000= $243,750
Jenny and Jerry have a home with a fair market value of $625,000. They borrowed $400,000 ten years ago to purchase the home (home value at that time was $450,000). They currently owe $250,000 on the acquisition loan. They recently borrowed $110,000 on a home-equity loan. The proceeds were used to purchase a car and take a vacation. What is the maximum amount of their indebtedness that can generate deductible interest in the current year? Multiple choice question. $260,000 $350,000 $250,000 $360,000
$250,000 acquisition debt
Frick and Frack are equal partners in F&F Industries. The company generated net income of $60,000 during the year and distributed $7,000 cash to both Frick and Frack. How much income should Frack report on his individual income tax return due to the partnership interest? $30,000 $37,000 $7,000 $3,500
$30,000 - not $7000 because distributions to partners aren't taxable, *only the portion of net income allocable to the partner is taxable*
During the current year, Sam received interest income from the following investments: $400 from State of Wyoming bonds, $200 from Ford Motor Co., $50 from City of Laramie bonds, $100 from U.S. Treasury bonds. How much of the interest received will be included in gross income? $300 $700 $600 $200
$300 - State of Wyoming and Ford Motor Co aren't taxable
Holly files married filing jointly and reports income of $300,000 ($340,000 AGI - $40,000 itemized deductions) before the deduction for qualified business income. She has no capital gains or dividends included in taxable income. Holly's engineering consulting service generates $20,000 of qualified business income. She paid no wages during the current year. What is Holly's deduction for qualified business income? $68,000 $4,000 $60,000 $0
$4,000
Tori bought a dress costing $80 from Arlene's Dress Shop in a state where there is a sales tax. The tax base is the price of the dress, and the tax rate is 6 percent. What amount of tax did Tori have to pay on the purchase? $0.48 $0.60 $6.00 $4.80
$4.80
Sam traded a parcel of land for a tractor and a car. He had purchased the land five years earlier for $16,000. The market value of the car and tractor is $20,000. What is the amount of gross income resulting from this transaction?
$4000
Arnie was the beneficiary of his wife's life insurance policy. He received $100,000 in June from the policy after his wife's death. He also sold some land that he had purchased a couple of years earlier. He sold the land for $6,000. He only paid $3,500 for the land when he bought it. Arnie is self-employed and earned a profit in his business of $55,000 (ignoring the self-employment tax deduction). What is the amount of Arnie's gross income for the current year? $161,000 $57,500 $157,500 $61,000
$57,500 [55,000+(6000-3500)] - life insurance proceeds aren't taxable
In 2020, Ryan files as single and has taxable income of $45,653. None of his taxable income consists of capital gains or qualified dividends. His tax liability rounded to the nearest dollar totals $______.
$5834
Andrew earned $5,000 in wages while working a part-time job during the current year. He also received a scholarship for $12,000. He used $9,000 for tuition and $800 for books. The remaining $2,200 went to help cover the cost of housing. During the summer, Andrew's uncle died and Andrew inherited $30,000. What is the amount of Andrew's gross income for the current year? $35,000 $14,800 $36,200 $17,000 $7,200 $44,800
$7,200
Arlene is single and has taxable income of $34,000. Her tax liability is currently $4,636. She has the opportunity to earn an additional $6,000 this year. Her tax liability will grow to $5,771 if she receives the additional income. What is Arlene's marginal tax rate for the additional $6,000? 25% 15% 18.92% 14.99%
18.92%
Married filing joint taxpayers may deduct no more than $_____ in total state and local taxes.
10,000
Gary incurred $5,200 in qualified medical expenses in 2020. His AGI for the year is $50,000. Gary will be able to deduct $_______ as an itemized deduction for medical expenses.
1450
Arlene is single and has taxable income of $18,000. Her tax liability is currently $2,236. She has the opportunity to earn an additional $5,000 if she accepts and completes a special project at work. There are no additional expenses to offset the $5,000 income. Consequently, Arlene will have a tax liability of $2,986 if she accepts the special project. Arlene has a marginal tax rate of ______________.
15%
Match the amount of the 2020 standard deduction with the filing status of the taxpayer. HoH MFJ Single Additional - for age or blindness (married)
18,650 24,800 12,400 1,300
The deduction for qualified business income cannot exceed the greater of: (i) _____ percent of the wages paid with respect to the qualified trade or business, or (ii) the sum of ______ percent of the wages with respect to the qualified trade or businesses plus 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property in the qualified trade or businesses.
50% 25%
Sandy earned a salary of $50,000 last year. Her parents gave her a car valued at $23,000 for her birthday. In addition, she earned $1,200 in interest income on a savings account and inherited $75,000 from her grandmother's estate. What is the amount of Sandy's gross income for the year? $124,200 $126,500 $51,200 $50,000 $123,000 $125,000
51,200
What is the statute of limitations for tax returns where over 25 percent of gross income has been omitted in a particular tax year? 6 years 10 years No limit 3 years
6 years
The overall limitation for cash charitable contribution deductions for individual taxpayers is ___% of AGI. The limit is reduced to ___% for ordinary gain property other than cash, and ___% for long-term capital gain property.
60% 50% 30%
Zack is single and has collected the following information for preparing his 2020 taxes: Gross income $74,000, tax credits $2,500, itemized deductions $9,000, deductions for AGI $5,000, tax prepayments $8,400. Based on this information, Zack's "adjusted gross income" equals $______, and his "taxable income" equals $______.
69,000 56,600
For mortgages obtained in 2020, MFJ homeowners may deduct interest on up to $_________ of acquisition indebtedness.
750,000
Nancy donated an antique desk to her church that she paid $800 for six years ago. An appraisal indicates the current fair market value of the desk is $1,000. The church donated the desk to a family whose home was destroyed in a fire. As a result, Nancy will be able to deduct $_______ for her contribution.
800
Which of the following statements is INCORRECT regarding charitable donations of capital gain property? a. The taxpayer must include the appreciation of the asset in gross income. b. To qualify as capital gain property, the asset must have been owned by the taxpayer for more than one year. c. To qualify as capital gain property, the asset must have appreciated in value.
?
Which of the following common decisions would most likely NOT be influenced by the United States income tax laws? Purchasing a home versus renting Evaluating alternative job opportunities Choosing a public school for your children Determining how to save for retirement
Choosing a public school for your children
Which of the following decisions would most likely NOT be influenced by our tax system? Choosing investments Saving for a college education Estate planning Choosing a vacation destination
Choosing a vacation destination
The first personal income tax was enacted in 1861 to fund the ______________ _____________.
Civil War
Lucy is single and has $215,000 of taxable income from services outside her employment before the Qualified Business Income deduction. Which of the following types of services, if it were the service performed by Lucy, would qualify as Qualified Business Income? Investment Legal Accounting Engineering
Engineering - these services aren't a specified trade or business
Is it true that a "tax" is essentially the same as a fine or penalty?
F
True or false: A self-employed individual may deduct the cost of his self-employed health insurance premiums even if his spouse's employer offers family coverage to him.
F
True or false: A tax can be defined as a fine or penalty.
F
True or false: Darlene owns stock in several different companies. When she received a dividend check from her Avatar stock, she endorsed the checks and deposited the money in her daughter's checking account. Consequently, her daughter will be assessed the tax on the dividends.
F
True or false: Hobby expenses are deductible to the extent of hobby income reported in AGI.
F
True or false: In general, prizes awarded to taxpayers are excluded from gross income.
F
True or false: The general purpose of a tax is to provide incentives that will stimulate and improve the economy.
F
True or false: Taxpayers may deduct both state and local income taxes and state and local sales taxes as itemized deductions.
F - can deduce one or the other but not both
True or false: A taxpayer may deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income.
F - he can only deduct one of these amounts and should usually choose the larger of the two
True or false: Scholarships received by college students qualify as gifts and are, therefore, nontaxable. The actual use of the money (tuition, fees, housing, meals, and any other expenses) does not affect the taxable status of the scholarship.
F - housing is taxable
Put the following items in the order in which they are found in the individual income tax formula. Instructions Equals adjusted gross income Equals taxable income Minus for AGI deductions Minus from AGI deductions Gross income
Gross income Minus for AGI deductions Equals adjusted gross income Minus from AGI deductions Equals taxable income
What is meant by the all-inclusive concept when referring to the U.S. tax laws? Gross income includes all realized income from whatever source derived. Gross income includes all cash received from any source. Gross income includes all increases in wealth, regardless of whether the income has been realized during the year.
Gross income includes all realized income from whatever source derived.
When a divorced taxpayer pays over half the cost of maintaining a home where she and a dependent child lived for over half the year, she qualifies for which filing status? Head of household Single Married filing separately Qualifying widower
Head of household
Which of the following federal taxes comprises the highest percentage (almost half) of all tax revenues collected by the U.S. government? Value-added tax Excise tax Estate tax Income tax
Income tax
Administrative and judicial tax authorities are interpretations of which statutory authority? Congressional reports Internal Revenue Code Tax treaties U.S. Constitution
Internal Revenue Code
Mary Beth is considering accepting some additional contract work. She is trying to evaluate whether the compensation for the job is worth the effort. Which tax rate should she use to calculate her after-tax proceeds of accepting the job? Average tax rate Marginal tax rate Effective tax rate Proportional tax rate
Marginal tax rate
Which filing status is used if one spouse dies during the year and the surviving spouse does not remarry before the end of the year? Single Married filing jointly (or separately) Head of household Qualifying widow or widower
Married filing jointly (or separately)
Blade pays tax of $5,000 on taxable income of $50,000 while Caden pays tax of $12,000 on taxable income of $100,000. What type of tax rate structure appears to be in force? Flat Progressive Regressive Proportional
Progressive
Which type of issue will focus on understanding how the various components and circumstances of the transaction affect the research answer and look for authorities with fact patterns similar to the client's? Question of fact Question of legality Question of law Question of interpretation
Question of fact
Which of the following choices is NOT one of the steps in the tax research process? Request private letter ruling Identify issues Communicate results Analyze tax authorities
Request private letter ruling
Which of the following is NOT one of the basic parts of the internal research memo? Fact section Issues section Conclusion Analysis Secondary authorities
Secondary authorities
Ruida divorced on October 31 of the current year. He does NOT have any dependents. Which filing status should Ruida use for the current year? Qualifying widow Married filing separately Head of household Single
Single
Which of the following taxes uses a regressive tax rate structure? Social security tax Federal individual income tax Federal estate tax Federal corporate income tax Gift tax
Social security tax
Rank the following courts in terms of descending order of authoritative rank, starting with the highest power court. Circuit Courts of Appeal US Tax Court US Supreme Court US Court of Federal Claims District Courts
Supreme Court Circuit Courts of Appeal US Tax Court US Court of Federal Claims District Courts
True or false: Income and deductions generated within a partnership or S corporation that are subject to various tax treatments (i.e. qualified dividends, capital gains, etc.) retain their character when they flow-through to the owners rather than being reclassified as ordinary income or loss.
T
True or false: Open fact transactions are more conducive to tax planning than closed fact transactions.
T
True or false: The U.S. tax laws are based on the all-inclusive concept where gross income includes all realized income from whatever source derived.
T
True or false: The estate tax is based on the fair market value of the estate upon death.
T
Which of the following calculations is correct for determining the amount of tax? Tax base x tax rate Tax base + tax rate Tax rate/tax base Tax base/tax rate
Tax base x tax rate
Which of the following is a necessary criteria for a payment to be considered a tax? The payment is imposed by an organization, business, or government agency. The payment is tied directly to an economic benefit received by the taxpayer. The payment is required by a governmental body. The payment is intended to prevent illegal behavior.
The payment is required by a governmental body.
What is the general purpose of a tax? To influence business decisions To stimulate the economy To fund the operations of the government To punish or prevent illegal behavior
To fund the operations of the government
Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $330,000 in net profit from his tax business and $300,000 in taxable income before the deduction for qualified business income (QBI). Will Bruce's tax business be deemed a qualified trade or business for purposes of the QBI deduction?
Yes
A gift ______. a. may be subject to "gift tax" which is paid by the person giving the gift b. is included in the gross income of the person giving the gift and subject to income tax c. may be subject to "gift tax" which is paid by the person receiving the gift d. is included in the gross income of the person receiving the gift and subject to income tax
a
Ashley and Roland were married and had two dependent children. Roland died last year. What filing status will Ashley use for the year Roland died and for the current year (assuming she does not remarry)? a. Ashley will use married filing jointly in the prior year and qualifying widow in the current year. b. Ashley will use qualifying widower in the prior year and head of household in the current year. c. Ashley must use married filing separately in the prior year and head of household in the current year. d. Ashley will use qualifying widower for both years.
a
Choose the statement that is INCORRECT regarding a loss that is generated from the disposal or sale of assets for individuals? a. Losses from personal use assets are deductible for AGI. b. Losses from capital assets are deductible against gains from capital assets. c. When capital losses exceed capital gains, up to $3,000 can be deducted for AGI. d. Losses from business assets are deductible for AGI.
a
Isabella, age 50, pays $500 each month for health insurance premiums with after-tax dollars. She is not self-employed. During 2020, she also incurred $200 in doctor bills and $50 in over-the-counter medications. Her AGI is $45,000. What amount will she be able to deduct as an itemized deduction after the AGI floor is applied? a. $2,825 b. $1,700 c. $6,200 d. $0
a
Melina's daughter, Linda, is considered permanently and totally disabled. Linda is 30 years old and still lives with Melina. Which of the following statements is accurate regarding the age test for a qualifying child as it applies to Linda? a. Linda is deemed to meet the age test because she is permanently and totally disabled. b. Linda does NOT meet the age test because she is not under the age of 19. c. Linda does NOT meet the age test because she is not a full-time student.
a
Which of the following items is income from services?. a. Wage income b. Royalty income c. Dividend income d. Interest income
a
Which of the following statements describes implicit taxes? a. The reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status b. The increased after-tax return that a tax-favored asset produces because of its tax-advantaged status c. The reduced after-tax return that a tax-favored asset produces because of its tax-advantaged status d. The increased before-tax return that a tax-favored asset produces because of its tax-advantaged status
a
Which of the following statements is INCORRECT regarding sales tax? a. Products purchased on the internet are never subject to sales tax. b. The retailer is responsible for collecting and remitting the tax. c. Some local governments may impose a sales tax in addition to the state sales tax. d. The tax base is the sales price of goods or some services that are subject to the tax.
a
Which of the following statements is TRUE regarding the individual income tax formula? a. A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income. b. A taxpayer may deduct the greater of his standard deduction or his personal exemption from AGI to arrive at taxable income. c. A taxpayer may deduct the greater of his standard deduction or his itemized deductions for AGI to arrive at adjusted gross income. d. A taxpayer may deduct the greater of his standard deduction or his personal exemption for AGI to arrive at adjusted gross income.
a
In order to identify issues in the tax research process, the tax preparer should get a good understanding of the ___________________. Then, the tax preparer can combine that information with his knowledge of the tax laws.
client's facts
Which of the following statements is correct? a. The Supreme Court and the Internal Revenue Code represent the highest tax-specific authorities in tax law. b. The Supreme Court, along with the IRC, establishes tax law that is interpreted by the other authorities. c. Within its own geographic area, a District Court carries more authoritative weight than the U.S. Tax Court. d. The U.S. Court of Federal Claims is considered to be a higher authority than the U.S. Tax Court.
a
Which of the following terms does NOT describe a casualty that could be deductible for tax purposes if it occurs in a federally-declared disaster area? a. Weakened b. Unusual c. Sudden d. Unexpected
a
Which of the following types of imputed income is NOT included in the gross income and is not taxable to the person receiving the benefit? A bargain purchase between a father and his son Employee discounts of 30% on services An employer's $12,000 loan to an employee with no interest on the note
a b - employee discounts can't exceed 20% to be exempt from taxation c - loans exceeded $12,000 are subject to imputed interest rules
Which of the following taxes may be imposed in addition to the individual income tax and are calculated on tax bases other than the regular taxable income? (Check all that apply.) a. Self-employment tax b. Alternative minimum tax c. Value-added tax d. Capital gains tax
a and b
Which of the following requirements are necessary to qualify for head of household status? (Check all that apply.) a. Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year b. Pay more than half the costs of keeping up a home for the year c. Be a qualifying widow or widower d. Have lived with a qualifying person in the taxpayer's home for the entire year
a and b not d because the qualifying person only has to live there half the year
Which of the following expenses are deductible FOR AGI? (Check all that apply.) a. Most expenses generated by business activities b. Unreimbursed employee business expenses c. Expenses generated by rental and royalty activities d. Most expenses generated by investment activities
a and c
Which of the following statements are correct regarding tax filing requirements? (Check all that apply.) a. Estates are required to file income tax returns if their gross income exceeds $600. b. Corporations do not have to file tax returns if their net income is less than $400. c. All corporations must file regardless of income. d. All trusts must file tax returns regardless of income.
a and c
Which of the following statements are correct regarding the history of the U.S. personal income tax? (Check all that apply.) a. The 16th Amendment to the U.S. Constitution gives Congress the power to assess income tax on individuals. b. The first personal income tax contained a very high marginal tax rate. c. The income tax was once ruled unconstitutional. d. The first personal income tax was enacted to fund the Spanish-American War.
a and c
Which of the choices below are the tests that must be met to qualify as a qualifying relative? (Check all that apply.) a. Gross income b. Relationship c. Age d. Support e. Occupation
a, b and d
Which of the following statements are true regarding the qualifying widow or widower filing status? (Check all that apply.) a. The surviving spouse must have dependents. b. The status may be used for up to two years after the year the other spouse died. c. The surviving spouse can NOT use this status if he or she has dependents. d. The status is used in the year that one spouse died. e. The surviving spouse must NOT have remarried during the year.
a, b and e
Which of the following types of income are generated from property ownership? (Check all that apply.) a. Interest earned on U.S. Treasury bonds b. Dividends received on corporate stock c. Wages earned by an electrician d. Gain from the sale of a building e. Rental income from lessees f. Salary earned by an accountant
a, b, d and e
Which of the following criteria is necessary to qualify as a dependent of another taxpayer? (Check all that apply.) a. Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico b. Must NOT be required to file a tax return of his own c. Must be considered either a qualifying child or a qualifying relative d. Must be considered both a qualifying child and a qualifying relative e. Must NOT file a joint return unless there is no tax liability on the couple's return and no tax liability on either return if they filed separately
a, c and e
Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) a. Dental work b. Tummy tuck c. Eyeglasses d. Over-the-counter medications e. Laser eye surgery
a, c and e
Which of the following taxes are commonly assessed by state and/or local governments? (Check all that apply.) a. Property tax b. Estate tax c. Gift tax d. Income tax e. Sales tax
a, d, and e
Which of the following criteria will contribute toward qualifying a taxpayer for head of household status? (Check all that apply.) a. Have lived with a qualifying person in the taxpayer's home for more than half the year b. Be a qualifying widow or widower c. Be married with a spouse that is not employed outside the home d. Provide over half the cost of maintaining a household for a dependent parent not living with the taxpayer e. Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year f. Pay more than half the costs of keeping up a home for the year
a, d, e and f
Which of the following terms describes business expenses that would be deductible by the taxpayer? (Check all that apply.) a. Appropriate b. Authorized c. Crucial d. Ordinary e. Necessary f. Repetitive in nature g. Helpful
a, d, e and g
Chad has received the following income and benefits during the current year: $65,000 salary, $4,800 employer-provided health insurance, $1,500 municipal bond interest, $2,000 dividend income, $500 from a partnership, and a $10,000 judgment for lost wages due to an age discrimination lawsuit. What amounts should Chad include in his gross income? (Check all that apply.) a. $10,000 judgment b. $2,000 dividend income c. $4,800 health insurance d. $1,500 municipal bond interest e. $65,000 salary f. $500 partnership income
a, e and f
Match the statute of limitations to the various types of noncompliance. a. If the taxpayer omits items of gross income that exceed 25% of gross income b. If the taxpayer commits fraud or doesn't file a tax return c. If the taxpayer misreports income (not exceeding 25% of gross income) or deductions
a. 6 years b. no statute of limitations c. 3 years
Match the type or character of income to its definition. a. income realized during the year that is not included in gross income until a later year b. income realized during the year that is excluded from gross income and never taxed c. income included in gross income in the current year and taxed at the ordinary rates per the tax schedules d. gains (or losses) on investments or personal use assets that may be taxed at favorable rates
a. tax deferred b. tax exempt c. ordinary d. capital
The term used when one former spouse is required to provide financial support to the other spouse pursuant to a legal separation or divorce is ___________.
alimony
In addition to the individual income tax, individuals may be required to pay other taxes. Taxpayers with a large amount of tax preference items and itemized deductions may be subject to the _______ _______ tax.
alternative minimum
Tax services that are arranged by Internal Revenue Code Sections are known as ____________ tax services.
annotated
Tax services that are arranged by Internal Revenue Code Sections are known as ______________ tax services.
annotated
The taxpayer who earns income from services must recognize the income, and the income from property is taxed to the person who owns the property under the _____________________ doctrine.
assignment of income
Which of the following donations will qualify as a deductible charitable contribution? a. Volunteering at Habitat for Humanity for four hours b. Land donated to a public university c. Cash contributions to a political campaign d. Furniture given to a family whose home burned
b
Which of the following statements is correct regarding state income tax? a. The states are not allowed to deviate from the Internal Revenue Code, except for using a much lower tax rate schedule. b. Many states also impose an income tax on corporations. c. All states and the District of Columbia impose some type of a state income tax on individuals. d. States with an income tax system generally do NOT impose a sales and use tax.
b
Which of the following statements is NOT accurate regarding the deduction for qualified education loan interest? a. The interest on educational loans for a taxpayer's dependents is deductible. b. The full amount of interest paid on qualified educational loans is deductible. c. Loans used to provide room and board during college are considered qualifying educational expenses. d. The amount of the deduction is phased out depending on filing status and modified AGI.
b - current limit of $2500 annually
Which one of the following individuals meet the requirements to be a a qualifying relative (not a qualifying child) for Owen? a. Sandy (age 23) does not provide half of her own support. She is a full-time college student, earned $7,000 this year, and lives with her uncle, Owen. b. Owen provides over half of his son, Vinnie's (age 20) support. Vinnie, a part-time college student, earned $3,800 and lived with Owen. c. Owen provides over half of his niece, Rani's (age 21) support. Rani is a full-time college student, earned $6,000, and lived with Owen. d. Ron (age 22) provides over half of his own support. He is a full-time student, earned $12,000, and lived with his cousin, Owen the entire year.
b - he isn't a qualifying CHILD because he's over 18 and doesn't attend college full-time, but he meets the qualifying relative requirements a and c both are qualifying children d doesn't meet the gross income or support tests, though he passes relationship because he lived with Owen the entire year
Kayla and Ben were married in November of the current year. What will be their filing status for the current year? a. Married filing separately because they have been married for less than half of the year b. Married filing jointly (or separately) because they were married as of the end of the year c. Single because they were married for less than half of the year d. One spouse can file as head of household and the other will file single since they live together but have been married less than half the year
b - marital status is determined on the last day of the tax year
For divorce decrees entered into in 2021 alimony is ______. (Check all that apply.) a. included in the gross income of the person receiving it b. NOT deductible to the person paying it c. NOT included in the gross income of the person receiving it d. deductible for AGI for the person paying it
b and c
Which of the following statements are CORRECT when comparing For AGI deductions to From AGI deductions? (Choose all that apply.) a. For AGI deductions are also called deductions "below the line" or "itemized deductions." b. Deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers. c. Certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense. d. For AGI deductions are subtracted directly from adjusted gross income. e. From AGI deductions are generally preferred over deductions for AGI.
b and c
Which of the following statements are INCORRECT regarding the receipt of Social Security benefits? (Check all that apply.) a. Up to 85% of Social Security benefits may be taxed to taxpayers with moderate to high taxable income. b. Social Security benefits are not taxable because the contributions were taxed when the taxpayer was working. c. 50% of Social Security benefits are taxable to all taxpayers because the employer contributed funds that were never taxed to the employee. d. Social Security benefits are not taxable if the recipient has relatively low taxable income.
b and c
How does a taxpayer determine which filing status to use? (Check all that apply.) a. Filing status depends on the age of the taxpayer. b. Filing status may depend on whether or not the taxpayer has dependents. c. Filing status depends on the amount of taxable income the taxpayer has for the year. d. Filing status depends on whether or not the taxpayer is married at the end of the year.
b and d
When can the married filing jointly or married filing separately filing status be used? (Check all that apply.). a. When the taxpayers have been married for any part of the tax year b. When the taxpayers are married as of the last day of the tax year c. When the taxpayers are unmarried, but have lived together for the entire year d. When one spouse died during the year and the surviving spouse has not remarried e. When the taxpayers are unmarried, but have a dependent child living with them
b and d
Which of the following types of taxes may be considered when determining the itemized deduction for taxes? (Check all that apply.) a. Social security tax withheld from pay b. Personal property tax on the value of a boat c. Federal gift taxes d. Federal estate taxes e. Real estate taxes on property held for investment
b and e
Which of the following cash receipts are taxable to the recipient? (Check all that apply.) a. Loan proceeds b. Gambling winnings c. Prizes d. Awards
b, c and d
Which of the following payments to a taxpayer should be included in gross income? (Check all that apply.) a. Emotional distress damages awarded due to injuries from a car accident b. Emotional distress damages awarded due to slander of the taxpayer's reputation c. Punitive damages awarded after an accident at work where the taxpayer sustained a non-physical injury d. Compensatory damages for lost wages awarded in a sex discrimination lawsuit e. Compensatory damages awarded for lost wages due to injuries sustained in a fall at the grocery store
b, c and d
Which of the following characteristics are required for a business expense to be deductible? (Check all that apply.) a. Repetitive b. Directly related to business activity c. Ordinary d. Critical for business success e. Necessary
b, c and e
Which of the following types of donations would be deductible as charitable contributions? (Check all that apply) a. Volunteering 4 hours (personal services) at a local Goodwill store b. Checks made payable to (and as a donation to) The Boy Scouts of America c. Cash donated to United Way d. Stocks and bonds donated to the Republican National Committee e. Land donated to a state university
b, c and e
Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) a. Liposuction to improve appearance b. Chiropractic services c. Health insurance premiums paid with after tax dollars d. Prescription medications e. Plastic surgery to reduce scarring after a dog bite
b, c, d and e
Which of the following transactions results in realized income during the current year? a. Louie sold stock for $400 that he had purchased for $400 in a prior year. b. Huey receives a set of new tires valued at $400 for his car in exchange for cleaning and painting the mechanic's garage. c. Donald borrowed $400 from his brother on a 6-month note. d. Dewey received a $400 refund for returning an item he had previously purchased.
b. c - no b/c loans aren't income since they have to be repaid a - no b/c the $400 sales price is a return of capital; if it had been over $400, the excess would've been gross income
Certain charitable contributions of capital gain property do not qualify for a fair market value deduction. Which of the following characteristics of capital gain property will definitely cause it to qualify for a fair market value deduction? a. It is NOT used by the charity for a related purpose. b. It has appreciated in value. c. It is intangible property such as stocks and bonds. d. It is personal property. e. It is tangible property.
c
Certain contributions of capital gain property do NOT qualify for a fair market value deduction. Which of the following characteristics of the contribution will cause the asset to NOT qualify for a fair market value deduction? a. The asset is intangible, such as stock or bonds. b. The asset is real property, such as land or a building. c. The tangible personal property's use is unrelated to the charity's operations. d. The asset was held by the donor for a total of 367 days.
c
Corey is 25 and has a full-time job. His younger brother, James, is 20 and was enrolled as a full-time student at the community college during the summer and fall semesters. James lives with Corey. Which of the following statements is correct with respect to the age requirement for a qualifying child? a. James does NOT meet the age test because he was not enrolled as a full-time student for the entire year. b. James must be older than than Corey in order to meet the age test. c. James meets the age test because he is younger than Corey, and he is under age 24 and a full-time student. d. James does NOT meet the age test because he is not under the age of 19.
c
Harli is taking her 6-month-old daughter to the doctor to receive vaccinations. Which of the following statements is correct regarding the deductibility of the vaccinations? a. The cost of vaccinations is NOT deductible because Harli's daughter is not receiving a cure or treatment for a current illness. b. The cost of vaccinations is deductible for Harli's daughter, but not for Harli. c. The cost of vaccinations is deductible because it is for the prevention of a disease. d. The cost of vaccinations is NOT deductible because receiving vaccinations is not mandatory, but a choice by the parents.
c
Horatio and Maria are married and have three children. Horatio is self-employed and pays health insurance premiums for himself and his family. Which of the following situations would disqualify part or all of the premium costs from being deductible for AGI? a. Horatio and Maria's children are all dependents for tax purposes. b. One of Horatio's children is not a dependent because she is 25 and earns too much income. c. Maria has an employer-sponsored health insurance plan available at work, but they do not participate. d. Horatio's net income from his business exceeds the cost of the health insurance premiums.
c
Mike sold equipment he is no longer using in his business at a loss of $4,000, and he sold investments at a loss of $8,000. Mike had no other sales of property in the current year. What are the tax implications of these losses to Mike? a. Deduct both losses in their entirety in the current year. b. Deduct the $4,000 loss on equipment but not the $8,000 investment loss as this is considered a personal asset. c. Deduct the $4,000 loss on equipment and $3,000 of the loss on investment in the current year. The remaining investment loss is carried forward. d. Deduct $3,000 of the loss on equipment and $3,000 of the loss on investment in the current year. The remaining losses are carried forward.
c
Which of the following lists contains the five basic parts of an internal research memo? a. issues, facts, authority list, conclusion, discussion b. issues, facts, authority list, opinion, discussion c. issues, facts, authority list, conclusion, analysis d. issues, facts, authority list, opinion, analysis
c
Which one of the following items is NOT a qualified medical expense? a. Vaccinations for the prevention of a disease b. Prescription medication for the cure of an illness c. Vitamins for promoting good health d. MRI for the diagnosis of a bodily injury
c
Mary has received the following income and fringe benefits during the current year: a $73,000 salary; $600 premiums paid by the employer in employer-provided disability insurance; $5,000 in workers' compensation; $1,200 in corporate bond interest; a $23,000 car won on a game show; and a $1,200 health insurance reimbursement for medical expenses paid during the year. Which of these amounts should Mary include in her gross income? (Check all that apply.) a. $1,200 health insurance reimbursement b. $600 disability premiums c. $1,200 corporate bond interest d. $5,000 workers' compensation e. $73,000 salary
c and e
Which of the following statements regarding tax return extensions are CORRECT? (Check all that apply.) a. Partnerships extensions are granted for up to four months only. b. "C" Corporations are not granted automatic tax return extensions. c. "S" Corporations may request an automatic six month extension to file. d. A six-month extension allows a taxpayer to pay the tax due up to six months after the original due date. e. A six-month extension allows a taxpayer to file a return up to six months after the original due date.
c and e
Which of the following choices are forms of tax prepayments? (Check all that apply.) a. A tax credit used to reduce the tax liability in the current year b. A tax refund received in the current year for the prior year c. Estimated tax payments the taxpayer made directly to the IRS d. An overpayment of taxes in the prior year that was applied as an estimated payment for the current year e. Income tax withheld from a taxpayer's salary or wages by an employer
c, d and e
Which of the following choices describe exclusions and deferrals for tax purposes? (Choose all that apply.) a. These provisions reduce the tax liability dollar for dollar. b. These provisions are generally deducted from AGI and reduce taxable income. c. These provisions are the result of specific congressional action. d. These provisions are often granted in order to subsidize or encourage particular behaviors. e. These provisions are narrowly defined.
c, d and e
Which of the following types of taxes are paid by employers based upon their employees' wages? (Check all that apply.) a. Excise tax b. Sales tax c. Social Security tax d. Unemployment tax e. Medicare tax
c, d and e
In general, when contributing long-term property to charity, taxpayers are allowed to deduct the fair market value of _______ _________ property on the date of the donation
capital gain
Lance paid $21,000 for seven acres of land six years ago. During the current year, Lance donated the land which now has a fair market value of $30,000 to his church. Lance will ______. a. need to include the appreciation of $9,000 in gross income in order to take the full deduction b. can only deduct $21,000 for the land contribution, regardless of how the church uses the land c. only be able to deduct $21,000 if the church doesn't use the land in its related use d. be able to deduct $30,000 as a charitable contribution
d
Markita donated stock that she has held for less than a year to a qualified charitable organization. Her basis in the stock is $1,000 and the fair market value of the stock is $1,200. In regards to the donation, the stock is ______. a. capital gain property and Markita can deduct $1,000 b. ordinary income property and Markita can deduct $1,200 c. capital gain property and Markita can deduct $1,200 d. ordinary income property and Markita can deduct $1,000
d
Taxpayers have a choice of deducting the standard deduction or their itemized deductions. Therefore, ______ AGI deductions are considered to be beneficial to more taxpayers because: a. from; these deductions reduce a taxpayer's tax liability dollar for dollar. b. for; these deductions increase the amount of the standard deduction. c. from; they result in a lower AGI which reduces the limitations based on AGI that decrease some tax benefits. d. for; they are available to all eligible taxpayers, not just those that itemize deductions.
d
The Treasury Department is charged with ______ and ______ the tax laws of the United States. a. making, administering b. writing, passing c. overturning, revising d. administering, interpreting
d
Which of the following choices is NOT a form of a tax prepayment? a. An overpayment of taxes in the prior year that was applied as an estimated payment for the current year b. Income tax withheld from a taxpayer's salary or wages by an employer c. Estimated tax payments the taxpayer made directly to the IRS d. A tax refund received in the current year for the prior year
d
Which of the following criteria is NOT necessary to qualify as a dependent of another taxpayer? a. Must NOT file a joint return unless there is no tax liability on the couple's tax return b. Must be considered either a qualifying child or a qualifying relative c. Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico d. Must be unmarried for at least a portion of the year
d
Which of the following descriptions BEST defines business activities? a. Profit-motivated, but not requiring a high level of effort from the taxpayer b. Motivated primarily by personal enjoyment and requires a high level of effort from the taxpayer c. Motivated primarily by personal enjoyment, but does not requires a high level of effort from the taxpayer d. Profit-motivated and requiring a high level of effort from the taxpayer
d
Which of the following statements is accurate when referring to hobby expenses? a. Hobby expenses are NOT deductible because revenues generated from hobbies are not taxable. b. Hobby expenses are deductible FOR AGI, but only to the extent of the revenue generated by the hobby. c. Hobby expenses are deductible against the revenue generated by the hobby and will result in a deductible loss if they exceed revenues. d. Hobby expenses are NOT deductible, but revenues generated by the hobby are taxable. e. Hobby expenses are deductible as itemized deductions but only to the extent of the revenue generated by the hobby.
d
Which of the following statements is correct regarding extensions?. a. An extension to file will allow a taxpayer extra time to pay his taxes. b. Extensions for individual returns give the taxpayer four additional months to file. c. Extensions must be approved by the IRS before they are valid. d. An extension to file is granted automatically at the request of the taxpayer.
d
Which one of the following is NOT an advantage of the cash method for reporting income? a. Taxpayers have some control over when income is received and expenses are paid which assists in tax planning. b. The cash method generally simplifies the computation of income. c. Taxpayers recognize income in the period they receive it, giving them the wherewithal to pay the tax. d. Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them.
d
Patrick has an adjusted gross income of $120,000 in the current year. He donated $50,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of $35,000 to a public charity, and publicly traded stock with a basis of $12,000 and a fair market value of $25,000 to a private nonoperating foundation. Patrick's deductible contribution for the current year is ______. a. $50,000 in cash to the public charity, $15,000 in property to the public charity, and $12,000 in stock to the private nonoperating foundation b. $1,000 in cash to the public charity, $35,000 in property to the public charity, and $24,000 in stock to the private nonoperating foundation c. $50,000 in cash to the public charity, $35,000 in property to the public charity, and $24,000 in stock to the private nonoperating foundation d. $50,000 in cash to the public charity, $10,000 in property to the public charity, and $0 in stock to the private nonoperating foundation
d - he can only deduct $60,000 total because his gross income is $120,000 x 50%
Which one of the following types of taxable income is NOT considered to be service income? Dividend income Unemployment compensation Business income Salary income
dividend income - unemployment compensation is a substitute for wages/salary
Sharon Jones is single. During 2020, she had gross income of $159,800, deductions for AGI of $5,500, itemized deductions of $14,000 and tax credits of $2,000. Sharon had $22,000 withheld by their employer for federal income tax. She has a tax __________ (due/refund) rounded to the nearest whole dollar of $________. Listen to the complete question
due 3752
A taxpayer may deduct interest expense paid on qualified _______________ loans where the proceeds were used for tuition, fees, books, and other necessary expenses. The interest is deductible _______________ (for/from) AGI.
education for
The __________ tax rate is the best measure of the tax burden because it is the average level of tax on all income from taxable and nontaxable sources. The ____________ tax rate measures the average level of tax on only taxable income. The _____________ tax rate indicates the rate of tax on the next additional increment of income.
effective average marginal
The ___________ tax and _______________ tax are based on fair market value of the assets being transferred at death or as a gift
estate gift
If their gross income exceeds $600, ________ and _________ must file a tax return.
estates and trusts
Nonrecognition provisions refer to specific types of income that taxpayers realize but are allowed to permanently __________ from gross income or temporarily ________ until a later period.
exclude defer
For tax years beginning in 2018, a taxpayer's from AGI deductions include the greater of the standard deduction or the taxpayer's _________ deductions and 20% of the taxpayer's qualified _______ income.
itemized business
A question of ____________ could involve the interpretation of a particular Code section, while a question of _____________ hinges upon the circumstances of the taxpayer's transaction.
law fact
Which type of tax authority is the Internal Revenue Code of 1986? Administrative Secondary Judicial Legislative
legislative
Interest on _______ bonds is excluded from federal income taxation.
municipal
Interest on ___________ bonds is excluded from federal income taxation.
municipal
Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $445,000 in taxable income before any QBI deduction. Is Bruce eligible to claim the deduction for QBI for his tax service? No Yes
no - their taxable income is above the $326,600 threshold for MFJ + $100,000, Bruce can't claim the QBI deduction
__________ facts provide opportunities for tax planning, while ___________ facts deal with tax compliance.
open closed
Income that is taxed in the current year according to the tax rate schedule is referred to as ______ income. long-term capital gains ordinary tax-deferred tax-exempt
ordinary
In order to be deductible, business expenses must be ___________ and ___________ for the business activity.
ordinary necessary
Taxpayers can only deduct the lesser of (1) the property's fair market value or (2) the property's adjusted basis when making a charitable donation of _________ __________ property
ordinary income
In personal injury cases, any damages awarded due to ________ injury are exempt from taxation.
physical
Examples of a tax __________ include income taxes withheld from a taxpayer's salary by an employer, estimated tax payments paid directly to the IRS, and amounts from a prior year overpayment that were applied to the current year's tax liability.
prepayment
The __________ authorities are official sources of the tax law generated by one of the branches of government. The _______ authorities are unofficial tax authorities that help explain the law.
primary secondary
Which of the following choices describes the official sources of the tax law generated by one of the branches of government? Main authorities Primary authorities Editorial authorities Secondary authorities
primary authorities
The federal individual income tax system in the United States uses a(n) _____________ tax structure.
progressive
A(n) ______ tax structure applies the same tax rate to all levels of income, while a(n) ______ tax structure applies higher tax rates as the tax base increases and a(n) ______ tax structure applies lower tax rates as the tax base increases. proportional, progressive, regressive progressive, proportional, regressive progressive, regressive, proportional regressive, progressive, proportional
proportional, progressive, regressive
Under the cash method, taxpayers recognize income in the period they ___________ it, rather than when they actually _________ it.
receive earn
Sheila and Joe Wells are married with one dependent child. During 2020, they have gross income of $159,800, deductions for AGI of $5,500, itemized deductions of $25,000 and a dependent tax credit of $2,000. The Wells' had $22,000 withheld by their employer for federal income tax. They have a tax _______ (due/refund) of $_______.
refund 3974
The social security tax is an example of a(n) ______________ tax structure because as the tax base increases, the taxes paid increase, but the marginal tax rate decreases.
regressive
The highest authoritative weight when interpreting the Internal Revenue Code are ________ issued by the Treasury Department.
regulations
The tax base for sales tax is the ______ of goods and certain services provided. wholesale price retail sales price quantity
retail sales price
A payment required by a government that is unrelated to any specific benefit or service received from the government is a(n) _____________.
tax
The purpose of ____________ tax is to provide temporary income for individuals terminated from their jobs without cause
unemployment
