AGEC 437: Tax Planning

Alexis had her car broken into and had her ring. The fair market value of the ring was $10,000 and was originally purchased for $12,000. Alexis' AGI is $80,000. She is not a federally declared disaster area. What can she claim as a casualty loss deduction on her tax return? $2,000 $0 $1,900 $10,000

$0

Harvey got a $50 parking ticket while meeting with a client at their office. How much of the parking ticket can Harvey deduct as a business expense? $50 $25 $0 $10

$0

Jerry paid $1,500 of student loan interest for his son's student loans. How much of the interest is deductible? $0 $1,500 $500 $1,000

$0

Max loaned $9,500 to his daughter, Amanda, and charged no interest. Amanda has investment income of $1,500 and investment expenses of $400. Assume the applicable federal rate is 4%. How much interest should be imputed on the loan? $1,100 $380 $0 $400

$0

Nathan paid $3,000 to move his family and belongings to start a new job. Nathan's employer did not reimburse him for these expenses. What is Nathan's moving expense deduction he can claim on his tax return? $0 $1,500 $3,000 $500

$0

Phil rented out his home for 12 days and collected $50,000 of rental income. How much should Phil include in his gross income for the 12 rental days? $50,000 $0 $25,000 $10,000

$0

Tanner is 18 years old and is claimed as a dependent by his parents. He earned $600 using his Ford Bronco to be a driver for Uber. What is Tanner's taxable income for tax year 2020? ($350) $600 $250 $0

$0

Gene contributed $500,000 to an irrevocable trust and did not retain any right to the trust's assets. The income beneficiary of the irrevocable trust was Gene's sister, and the remainder beneficiary of the irrevocable trust was Gene's niece. At the time of the transfer, Gene paid gift tax of $35,000. Gene died four years later, when the value of the irrevocable trust was $1,200,000. With regard to the irrevocable trust, how much is included in Gene's gross estate? $0. $35,000. $500,000. $1,200,000.

$0.

Hansel and Gretel, a married couple, manage apartments and they are required to live in the managers' apartment as a condition of their employment. Instead of providing the apartment to Hansel and Gretel rent-free, the owner of the apartment building gives Hansel and Gretel a housing allowance of $600,which they use to pay rent on the managers' apartment. Hansel and Gretel pay $600 per month in rent. If they did not live in the managers' apartment, Hansel and Gretel could live in another apartment building where they would only pay $500 in rent. What amount, if any, must be included in Hansel and Gretel's gross income? $0. $100. $500. $600.

$0.

Melissa is a very generous single woman. Before this year, she had given $2,000,000 in taxable gifts over the years. In the current year, Melissa gave her daughter Riley$100,000 and promptly filed her gift tax return. Melissa did not make any other gifts this year. How much gift tax must Melissa pay the IRS because of this transaction? $0. $25,900. $30,450. $711,250.

$0.

Mona and Niles recently moved across the country so that Niles could take a new job. Mona and Niles incurred the following expenses during their move. o $10,000 paid to the moving company o $400 in gas to drive across the country to the new home o $100 in meals during the trip across the country o $600 in house-hunting expenses What is Mona and Niles's moving expenses deduction this year? $10,000. $10,100. $0. $10,600.

$0.

Ian, a single taxpayer, received $15,000 of Social Security retirement this year. He also received $16,000 of interest income. How much of Ian's Social Security benefits must be included in his gross income this year? $0. $7,500. $12,750. $15,000.

$0. Since the total of Ian's MAGI ($16,000) and one-half of his Social Security benefits (0.50 x $15,000 = $7,500)is less ($23,500) than the base amount ($25,000), none of his Social Security benefits are included in grossincome.

Deuce has been adjusting his portfolio to meet his target asset allocation, and has realized several capital gains and losses this year. o $13,000 in short-term capital gains o $9,000 in short-term capital losses o $4,000 in long-term capital gains o $7,000 in long-term capital losses $1,000 net short-term capital gain. $1,000 net long-term capital loss. $1,000 net short-term capital loss. $1,000 net long-term capital gain.

$1,000 net short-term capital gain.

Tanner received an inheritance from his uncle Austin. His inheritance consisted of 100% interest in the business Rexco, Ltd. Austin's basis in Rexco is $500,000. Rexco was worth $1,000,000 at Austin's death. What is Tanner's basis in Rexco? $500,000 $250,000 $1,000,000 0

$1,000,000

After 1989, Donna purchased series EE savings bonds for $2,500 at the age of 25. This year she redeemed the bonds for $5,000 and paid qualified higher education expenses for her daughter in the amount of $3,000. How much interest will Donna be required to include in her gross income this year? $0. $1,000. $1,500 $2,500.

$1,000. Because Donna did not use all of the proceeds from the bond redemption to pay for qualified education expenses, she will be required to include part of the interest income from the bonds in her gross income. Donna may exclude $1,500 of interest income from her gross income [($3,000/$5,000) x $2,500]. Therefore, Donna must include $1,000 in her gross income ($2,500 - $1,500).

Dina loans $24,000 to her daughter Erin and does not charge any interest. Erin has investment income of $1,400 and investment expenses of $300. Assume that the applicable federal rate is 5%. How much interest must be imputed on the loan? $1,000. $1,100. $1,200. $1,400.

$1,100. Erin has net investment income of $1,100. Therefore, the amount of imputed interest is the lesser of net investment income or the AFR calculated interest minus the interest based on the stated rate of the loan. Since the stated rate of interest on the loan is 0%, the amount of imputed interest is the lesser of $1,100 or $1,200 ($24,000 x 0.05). Therefore, $1,100 of interest must be imputed on the loan.

Carolyn made the following transfers during her life:o The transfer of her home to an irrevocable trust for the benefit of her four childrenon January 1, 2020. Carolyn retained the right to live in the home for the remainderof her life. The fair market value of the home at the date of the transfer to the trustwas $1,000,000. The fair market value of the home at Carolyn's date of death was$1,200,000.o A transfer of $44,000 to an irrevocable trust for the benefit of her four children onJanuary 2, 2015. Carolyn retained the right to a 4% annuity payment from the trustfor the years 2014 and 2015. At Carolyn's date of death, the trust had a value of$62,000.If Carolyn died on July 13, 2020, with regard to the above transfers, how much is included in Carolyn's gross estate? $0. $1,044,000. $1,200,000. $1,262,000.

$1,200,000.

Avril invested $60,000 in an annuity contract. This year, Avril annuitized the contract. The insurance company agreed to pay Avril $444.45 per month for 15 years. Assuming that Avril receives 12 payments this year, how much must Avril include in her gross income this year? $444.45. $1,333.35. $4,000.05. $5,333.40.

$1,333.35. Avril's expected return is $80,001 (15 years x 12 months x $444.45). Therefore, her exclusion ratio is 75% ($60,000/$80,001). Avril will receive $5,333.40 in annuity payments this year, of which $4,000.05 can be excluded. Therefore, Avril must include $1,333.35 ($5,333.40 x 0.25) in her income this year.

In June of this year, Emma's office building was damaged during a sudden storm. The fair market value of the building is $225,000 and her basis is $100,000. The storm caused $30,000 in damage. The insurance company awards Emma $20,000 in a settlement. What is Emma's includible gain or deductible loss? $300,000 deductible loss. $10,000 deductible loss. $20,000 includible gain. $0; this is a partial loss and not deductible.

$10,000 deductible loss.

Phillip and Brittni, a married couple who file a joint tax return, have lived in their house for the last 20 years. The basis in their home is $300,000. They sold their home this year for $900,000. How much of the gain on the sale of their home will be subject to tax? $0 $500,000 $600,000 $100,000

$100,000

What is the maximum Section 1244 stock ordinary loss deduction for married taxpayers? $50,000 $3,000 $100,000 $0

$100,000

Cassie is preparing her federal income tax return. Which of the following items should be excluded from Cassie's gross income? Royalties received by Cassie for her best-selling novel. $100,000 in cash received by Cassie when her grandmother died. Rent received by Cassie from tenants renting a house Cassie owns. $5,000 of gain resulting from the sale of Cassie's favorite painting.

$100,000 in cash received by Cassie when her grandmother died. only the cash inherited by Cassie from her grandmother would be excluded from Cassie's gross income

Eric's daughter Emilie is attending a local university. Listed below are the items that Eric has paid for this year related to Emilie's education. What are Eric's total qualified tuition and related expenses for the purpose of claiming the Lifetime Learning Credit? 1. $12,000 tuition paid directly to the university. 2. $400 student activity fee which is paid to and required by the university for enrollment. 3. $600 in textbooks purchased from an off-campus bookstore which are not required for the course but are suggested supplemental readings. 4. $100 lab fee for a required science course $12,000. $12,500. $12,700. $13,100.

$12,500.

Alex is a single taxpayer who received $15,000 in Social Security benefits this year. Alex also received $4,000 of interest income and $40,000 from his retirement plan during the year. How much of Alex's Social Security benefits must be included in his gross income this year? $7,500 $12,750 $0 $15,000

$12,750

Patrick is age 32, single and has $80,000 of taxable income. Using the 2020 Tax Rate Schedule for Unmarried Individuals, calculate Patrick's tax liability. Round to the nearest whole dollar. $13,390 $17,600 $9,086 $6,308

$13,390

Drew recently purchased a new machine for his business. The price of the machine was $12,000, but Drew also paid $100 in sales tax, $300 in freight, and $1,000 in installation and testing costs. What is Drew's basis in the new machine? $12,100. $12,400. $13,000 $13,400.

$13,400.

Jessie, an unmarried taxpayer using the single filing status, received $16,000 of Social Security retirement benefits this year. Jessie also received $5,000 of interest income and $45,000 of income from her retirement plan during the year. How much of Jessie's Social Security benefits must be included in her gross income this year? $0. $8,000. $13,600. $16,000.

$13,600. Since her MAGI ($50,000) plus one-half of her Social Security benefits (0.5 x $16,000 = $8,000) exceeds heradjusted base amount ($34,000), she must calculate her includible Social Security benefits using formula 3 or4.Formula 3. 0.85 x $16,000 = $13,600Formula 4. 0.85 x [$50,000 + (0.50 x $16,000) - $34,000] = $20,400 plus the lesser of the amount calculated using formulas 1 and 2 or $4,500:Formula 1. 0.50 x $16,000 = $8,000Formula 2. 0.50 x [$50,000 + (0.50 x $16,000) - $25,000] = $16,500 The lesser amount is $8,000, however, $4,500 is still less.The formula 4 total is $24,900 ($20,400 + $4,500).The lesser of the formula 3 or 4 amounts is $13,600. Therefore, $13,600 of the Social Security benefits must be included in Jessie's gross income.

Sammy owned a home in south Florida that was severely damaged by a hurricane and the area was named as federally declared disaster area. Sammy had purchased the home for $150,000, and the fair market value of the home prior to the hurricane was$500,000. His homeowners insurance policy had lapsed one month before the hurricane hit and Sammy had not obtained any other insurance. After the hurricane, the property had a fair market value of $100,000. Assuming that Sammy's AGI was $115,000 this year, what is Sammy's casualty loss deduction? $38,500. $138,400. $388,400. $400,000.

$138,400. Sammy's casualty loss is valued at $150,000 which is his adjusted basis less insurance proceeds received (insur-ance proceeds in this case are zero). His economic loss (the fair market value before the event, $500,000 lessthe fair market value after the event, $100,000) is $400,000. Since Sammy had never paid tax on the$350,000 gain in the property, however, he cannot take a tax deduction for the economic loss. If Sammy had the property fully insured, he would have received the full $400,000 (less his deductible) from the insurance company. Sammy's casualty loss of $150,000 must be reduced by $100 and the result is only deductible to the extent it exceeds 10% of AGI. The deductible portion of Sammy's casualty loss is $138,400 ($150,000 - $100- $11,500[10% of AGI]).

Jody, a taxpayer claiming head of household filing status, received $17,000 of Social Security retirement benefits. He also received $5,000 of interest income and $50,000 of income from his retirement plan during the year. How much of Jody's Social Security retirement benefits must be included in his gross income? $0. $8,500. $14,450. $17,000.

$14,450. Since his MAGI ($55,000) plus one-half of his Social Security benefits (0.5 x $17,000 = $8,500) exceeds hisadjusted base amount ($34,000), he must calculate his includible Social Security benefits using formula 3 or4.Formula 3. 0.85 x $17,000 = $14,450Formula 4. 0.85 x [$55,000 + (0.50 x $17,000) - $34,000] = $25,075 plus the lesser of the amount calculated using formulas 1 and 2 or $4,500:Formula 1. 0.50 x $17,000 = $8,500Formula 2. 0.50 x [$55,000 + (0.50 x $17,000) - $25,000] = $19,250 The lesser amount of 1 or 2 is $8,500, but $4,500 is less.The formula 4 total is $29,575 ($25,075 + $4,500)The lesser of the formula 3 or 4 amounts is $14,450. Therefore, $14,450 of the Social Security benefits must be included in Jody's gross income.

Sean had mortgage interest of $15,000 that is deductible for regular tax purposes. How much of this interest is deductible under the AMT tax system? $0 $7,500 $10,000 $15,000

$15,000

Anthony's employer provides him with $60,000 of group term life insurance which he pays none of the premium. Anthony is 48 years old. How much should Anthony report as gross income as part of W-2 income related to the life insurance premiums. Use Exhibit 5.10 on Page 185 of your textbook to help with the calculation. $0.00 $108.00 $18.00 $27.60

$18.00

Apple, Inc. spent $2,000 to influence local legislation. How much of this contribution is deductible? $0 $2,000 $1,000 $500

$2,000

Yolanda spent $12,000 in day care services for her 3 children to allow her to work. Assuming her adjusted gross income is $100,000, how much is her dependent care credit $2,100 $2,400. $6,000. $12,000.

$2,100

John just received his student loan statement that indicates that he has paid $3,500 of interest on his student loan during this tax year. How much of the interest may he deduct? $1,000 as an adjustment to income. $3,500 as an itemized deduction. $2,500 as an itemized deduction. $2,500 as an adjustment to income

$2,500 as an adjustment to income Student loan interest is an "above-the-line" deduction. The amount that can be taken is limited to $2,500 of interest paid.

Kyle actively participates in the rental of a home he owns. Kyle's AGI for the year is $75,000. He has a loss from his rental property of $20,000. How much of the loss can Kyle deduct on his income tax return this year? $15,000 $10,000 $20,000 $0

$20,000

Justin has an asset used in his business. He exchanges it for a like-kind asset owned by Trey. The basis of Justin's asset is $40,000 and he gives Trey $20,000 cash plus the asset in exchange for Trey's asset which is worth $36,000. Trey's basis in his original asset is $10,000. What is Trey's gain or loss? $40,000 gain recognized $0 gain recognized $20,000 gain recognized $36,000 gain recognized

$20,000 gain recognized

Peyton has an asset used in his business. He exchanges it for a like-kind asset owned by Eli. The basis of Peyton's asset is $40,000 and he gives Eli $20,000 cash plus the asset in exchange for Eli's asset, which is worth $36,000. Eli's basis in her original asset is $10,000. What is Eli's gain or loss? $20,000 gain recognized. $26,000 gain realized and recognized. $0 gain recognized. $0 loss recognized.

$20,000 gain recognized.

Kelly owns a potato chip manufacturing business and has a net profit of $200,000. Since the demand for her gourmet potato chips is on the rise, Kelly has decided to invest in an upgraded potato slicing machine that will slice potatoes four times as fast as her previous machine. The cost of the new potato slicer costs $200,000 and will be the only depreciable property that Kelly places in service this year. What is the amount of her Section 179 deduction? $25,000. $200,000. $500,000. $600,000.

$200,000.

Which of the below items should be included in Brittany's gross income? $25,000 of rental payments received for a warehouse she owns. $500,000 of interest income from municipal bonds $100,000 of loan proceeds from her bank $50,000 of cash inherited from her grandmother

$25,000 of rental payments received for a warehouse she owns.

Jordan, age 35, has a serious illness and drives 15 times to see a specialist. Each trip was 400 miles round trip. Jordan stayed overnight each trip at a cost of $50 per night in the hotel. Jordan's AGI is $15,000. What is his medical expense deduction ? $1,770 $270 $1,500 $0

$270

Rob, age 75, and Stella age 72, file a joint return. Rob has been blind for the last 3 years. What is their standard deduction for tax year 2020? $28,700 $24,800 $26,100 $27,400

$28,700

Cary invested $100,000 in an annuity contract. This year, Cary annuitized the contract. The insurance company agreed to pay Cary $520.83 per month for 20 years. Assuming that Cary receives eight payments this year, how much can Cary exclude from his gross income this year? $833.33. $3,333.31. $4,164.64. $6,249.96.

$3,333.31. Cary's expected return is $125,000 (20 years x 12 months x $520.83). Therefore, his exclusion ratio is 80%($100,000/$125,000). Cary will receive $4,166.64 in annuity payments this year (8 payments x $520.83), of which $3,333.31 can be excluded. Therefore, Cary must include $833.33 (20% x $520.83 x 8) in his income this year.

Trevor filed his return on April 15 but forgot to pay his tax due of $10,000 until 6 months later. What is the total amount of the penalty Trevor owes? $3,000 $0 $3,300 $300

$300

Roy has an investment in a passive activity XYZ, Inc. Roy's basis in XYZ is $50,000 and he has $35,000 at risk. The current year's loss in XYZ for Roy is $45,000. How much of the current year loss can Roy deduct? $45,000 $35,000 $20,000 $25,000

$35,000

Tucker, a single taxpayer, had $2,000 of qualified education expenses in the current tax year. What is Tucker's Lifetime Learning Credit assuming he's under the AGI threshold? $2,000 $400 $0 $1,500

$400

Roger received a salary of $50,000. He has a deductible IRA contribution of $5,500, moving expenses of $400, mortgage interest of $4,000 and charitable gifts of $2,000. What is Roger's adjusted gross income? $40,100 $38,100 $44,100 $44,500

$44,500

Zach invested $250,000 in an annuity contract. This year, Zach decided to annuitize the contract on July 15th and would begin receiving payments on August 1st. The company has agreed to pay Zach $1,666.67 per month for 20 years. How much can Zach exclude from his gross income this year? $3,125.00 $12,500.00 $5,208.34 $7,500.00

$5,208.34

Karen is a single taxpayer with 3 children under 17. Karen's MAGI is $210,000. What is the amount of the child tax credit that Karen can claim? $0. $1,000. $5,500. $6,000.

$5,500. Karen has three children. The child tax credit is $2,000 per child. However, the allowable child tax credit amount is reduced $50 for each $1,000 that a taxpayer's modified adjusted gross income exceeds $200,000 (for single tax-payers). Karen's MAGI exceeds the threshold by $10,000, so the allowable child tax credit must be reduced by $500 (($10,000/$1,000) x $50).

Sadie is preparing her Form 1040 . Which of the following should not be included in her gross income? $5,000 received from her uncle for renting land to grow corn on $25,000 she withdrew from her retirement plan $50,000 of life insurance proceeds she inherited from her sister, Emma $150 of interest income her bank credited to her checking account

$50,000 of life insurance proceeds she inherited from her sister, Emma

Harvey works for Ice Cream Dream, a company that sells commercial ice cream makers. Ice CreamDream normally has a gross profit percentage of 30%. Harvey's wife loves ice cream, so he decides to buy her a commercial ice cream maker for her birthday. Harvey paid $650 for a machine that would have normally retailed for $1,000. What, if any, amount must be included in Harvey's gross income? $0. $50. $350. $400.

$50. Ice Cream Dream's normal gross profit percentage is 30%. Therefore, Harvey must have paid at least $700 for the machine in order to avoid inclusion in his gross income. However, Harvey's discount was 35%. Therefore, Harvey must include 5% of the discount, or $50, in his gross income.

Leah owns a small mowing company. She sold one of her business lawnmowers that she purchased 4 years ago. Leah sold the lawnmower for $1,500 and her basis in the mower is $500. Leah has taken depreciation deductions totaling $500. What are tax consequences of this transaction? $500 ordinary gain and $500 capital gain $0 ordinary gain and $1,000 capital gain $1,000 ordinary gain and $0 capital gain $1,000 ordinary gain and $500 capital gain

$500 ordinary gain and $500 capital gain

Abner owned bonds that paid $750 of interest on the first day of January each year. Exactly one-third of the way through the current year, Abner gave the bonds to his brother, Brody. When Brody receives the $750 of interest on the first day of January next year, what amount of the $750, if any, will be included in Brody's gross income next year? $0. $250. $500. $750.

$500.

Vince, a single individual, is one of the founders and original shareholders of Security Consulting, Inc., a corporate security consulting firm. The company was initially capitalized with $200,000, and Vince was a 50 percent owner with an investment of $100,000. The company was structured as a C corporation. Filing requirements and permissible tax elections that could benefits the owners were made at the time the company was created. After several years of successful operations, Security Consulting lost market share to large national firms, and eventually closed down operations. Since it had no assets other than the goodwill of the business, there was nothing left to distribute to the shareholders. Assuming that there were no changes to Vince's ownership interest over the period of his ownership, and that Vince had no capital transactions in the current year, by how much can Vince reduce his adjusted gross income this year due to the company becoming worthless? $3,000. $50,000. $53,000. $100,000.

$53,000. Because it was capitalized with less than $1 million and Vince was an original shareholder, the stock is Section 1244 stock in Vince's hands. Vince can deduct up to $50,000 of losses as an ordinary loss in any one tax year and the remaining loss is treated as a capital loss. Therefore, Vince will be able to deduct $50,000 of his loss as a Section 1244 loss against ordinary income and will qualify for an additional $3,000 long-term capital loss deduction. The remaining capital loss of $47,000 will be carried forward to future tax years

Sadie purchased a new drill press for her machining business that cost $50,000. She also paid $3,125 of sales tax, $500 of freight and $1,000 to have the press installed. What is Sadie's cost basis in the drill press? $50,000 $53,125 $53,625 $54,625

$54,625

Tom is a single father with four children ages 6, 10, 12, and 18. What is his maximum child tax credit for the current tax year assuming he's under the AGI threshold? $4,000 $0 $6,000 $8,000

$6,000

Wanda, a single mother, has four children, ages 5, 9, 13, and 18. What is the maximum amount of her child tax credit for the current tax year assuming she is under the AGI threshold? $1,000. $2,000. $6,000. $4,000.

$6,000.

Haley makes a cash gift to a qualified charity in the amount of $60,000. Her AGI is $110,000. What is her charitable contribution deduction? $55,000 $66,000 $60,000 $22,000

$60,000

Abigail was an original investor in, and owns a 25% interest in, Decorate Your Dream LLC, a home decorating company. Abigail paid $50,000 for her interest. This year, Decorate Your Dream did very well and had a profit of $100,000. However, no distributions were made. What is Abigail's basis in her interest in Decorate Your Dream at the end of this year? $25,000. $50,000. $75,000. $100,000.

$75,000.

Eric has net investment income of $1,000 and investment interest expense of $750. How much can Eric deduct as investment interest expense? $1,000 $750 $250 $0

$750

n 2018, Harold had a Section 1231 gain of $12,000. In the prior years, Harold had the followingSection 1231 transactions: NET SECTION 1231 TRANSACTION 2017 $5,000 Section 1231 Loss 2016 $3,000 Section 1231 Loss 2015 No Section 1231 Transactions 2014 No Section 1231 Transactions 2013 No Section 1231 Transactions 2012 $7,000 Section 1231 Gain 2010 $4,000 Section 1231 Gain How will Harold's Section 1231 gain be taxed in 2018 $12,000 will be taxed as ordinary income. $8,000 will be taxed as ordinary income and $4,000 will be taxed as a Section 1231 capitalgain. $12,000 will be taxed as a Section 1231 capital gain. None of the above.

$8,000 will be taxed as ordinary income and $4,000 will be taxed as a Section 1231 capitalgain.

When Ronnie died seven months ago he left his prize art collection to his daughter Kate. Ronnie had a fantastic eye for selecting artwork by unknown painters, buying the painting cheap, and then selling them for a high profit once the painter was recognized by the general public. Three months before his death, Ronnie purchased an enchanting oil painting of a beautiful women that Ronnie claimed would be "as famous as the Mona Lisa" for $4,000. Kate has been exhibiting the painting since her father's death and a local art collector offered her $100,000 for the painting. Kate is extremely excited because the painting was only valued at $15,000 when her father died. If Kate sold the painting today, what would her taxable gain be for income tax purposes. $85,000 short term capital gain. $85,000 long term capital gain. $96,000 short term capital gain. $96,000 long term capital gain.

$85,000 long term capital gain.

Brian, age 45, is a single taxpayer with no dependents. He had wages of $100,000,contributed $5,000 to his Roth IRA and had $250 of interest income from municipal bonds. Brian takes the standard deduction. Calculate Brian's taxable income. $74,600 $79,850 $83,650 $87,600

$87,600

A deduction for a nonbusiness bad debt is only allowed when the debt becomes totally worthless T/F

True

Above-the-line deductions are generally considered to be more favorable to the taxpayer than below-the-line deductions on a dollar-for-dollar basis. T/F

True

An employee can establish their own Health Savings Account. T/F

True

An employer can deduct the cost of up to $50,000 (face or death benefit amount) of group term life insurance for each employee and the employee can exclude the premium from gross income. T/F

True

Cost basis is the initial basis an investor acquires in an asset by using capital to purchase the investment. T/F

True

Deductions for AGI are known as above the line deductions T/F

True

Gains from the sale of capital assets may be subject to favorable tax rates T/F

True

Gains on property are normally taxed when they can be objectively determined through a sale or exchange T/F

True

Gains on property are taxed when they can be determined through a sale or exchange. T/F

True

Payments for employment-related care made to relatives may qualify for the dependent care credit. T/F

True

Regular compensation in excess of $1 million may not be deducted by a publicly held corporation. T/F

True

Temporary regulations issued by the Treasury Department have the same authority as Final regulations and are binding on taxpayers. T/F

True

The significance of Section 1231 is that once an asset is categorized as a Section 1231 asset, gains generated from the sale of the asset are treated as capital gains for income tax purposes, and losses generated from the sale of the asset are treated as ordinary losses for income tax purposes. T/F

True

The taxable estate of a decedent is the adjusted gross estate less the marital and charitable deductions. T/F

True

Transfers to irrevocable trusts are treated as completed gifts and are subject to gift tax. T/F

True

Unless otherwise provided in the Code, personal expenses are not deductible T/F

True

On December 1 of last year, Uli purchased 100 shares of Runway, Inc. (a publicly held company) for$5,000. On March 1 of this year, Runway, Inc. declared that it was bankrupt, that it will wind up operations, and that all of its assets will be used to satisfy secured creditor claims so there will be no residual equity left for the stockholders. Which of the following statements describes the tax treatment of this transaction? Uli may deduct the $5,000 as an ordinary loss. Uli may deduct the $5,000 investment as a short-term capital loss. Uli may deduct the $5,000 investment as a long-term capital loss. No loss deduction is permitted.

Uli may deduct the $5,000 investment as a long-term capital loss. Since the company became worthless during the year, a constructive sale of the stock occurs on December 31 of this year.Uli has a long-term holding period, therefore, Uli will be able to deduct the $5,000 investment as a long-term capital loss

Victor and Vivian have a very diverse family. Which of the following children would not be a qualifying child for the purpose of claiming the child tax credit? Vivian's granddaughter, who turned 4 and lives with Victor and Vivian for more than half of the year. Victor's brother, who turned 6 and lives with Victor and Vivian for more than half of the year. Victor and Vivian's daughter, who turned 17 and does not provide more than half of her support. Victor and Vivian's son, who was born on October 21st.

Victor and Vivian's daughter, who turned 17 and does not provide more than half of her support.

Justin is a business owner who uses the cash method of accounting. When should Justin recognize income from his best customer, Jason? When Jason writes a check to Justin When Justin receives the check in the mail When Justin deposits the check in to his bank account When Justin sends Jason the invoice

When Justin receives the check in the mail

Which of the following is not a factor set forth by the Treasury Department to consider in determining if a taxpayer has a profit motive? Time and effort spent running the activity The financial status of the taxpayer The taxpayer's success in similar activities Whether or not a profit is generated every year.

Whether or not a profit is generated every year.

What is the Corporate AMT tax rate? 25% 0% 35% 30%

0%

Franco and Giada are trying to calculate their gross income. Which of the following items should they exclude from their gross income? 1. $60,000 in cash inherited by Giada from her mother 2. $20,000 borrowed by Franco and Giada from First City Bank. 3. $12,000 gain from the sale of Franco and Giada's boat. 4. $400 of interest earned on a loan made by Franco to his cousin Vinnie. 1 and 2. 3 and 4. 1, 2, and 3. 1, 2, and 4.

1 and 2.

Kenny would like to make a deductible contribution to a Health Savings Account. Which of the following is/are a requirement in order for Kenny to be able to make such a contribution? 1. Kenny must be eligible to establish a Health Savings Account. 2. Kenny must have a high deductible health plan. 3. Kenny must meet the deductible of his HDHP. 1 only. 1 and 2. 2 and 3. 1 and 3.

1 and 2.

Norman and Ciara are trying to calculate their gross income for the current year. Which of the following items should they exclude from their gross income? 1. Cash inherited by Ciara from her mother. 2. Money borrowed by Norman and Ciara from First City Bank. 3. Gain from the sale of Norman and Ciara's boat. 4. Interest earned on a loan made by Norman to his cousin Vinnie. 1 and 2. 3 and 4. 1, 2 and 3. 1, 2 and 4.

1 and 2.

Which of the following are requirements for satisfying the bona fide resident test necessary for excluding foreign earned income? 1. The taxpayer must establish permanent quarters in the foreign country for himself and his family. 2. The taxpayer may not return to the United States during the year. 3. The taxpayer must intend to work in the foreign country for an indefinite period of time. 1 only. 1 and 2. 2 and 3. 1 and 3.

1 and 3.

Mary's husband, Patrick, died two years ago. Patrick's will included the following three testamentary trusts: a trust for the benefit of Mary's children, but giving Mary a general power of appointment over the trust assets for the remainder of her life (GPOA Trust), a bypass trust for the benefit of Mary's children, but giving Mary a power to invade the trust assets for an ascertainable standard for the remainder of her life (Bypass Trust), and a charitable trust for the benefit of Mary's alma mater (Charitable Trust). At Mary's death, which of the trusts assets will be included in her gross estate? GPOA Trust. Bypass Trust. Charitable Trust. 1 only. 1 and 2. 2 and 3. None.

1 only.

Under what circumstances will the child of divorced parents be treated as the qualifying child of the noncustodial parent? 1. The parents are divorced. 2. The child receives over one-half of his support for the year from his parents. 3. The child is in the custody of the parents for more than half the year. 4. The custodial parent signs a statement that he will not claim the child as a dependent for the year and the noncustodial parent attaches the statement to his return. 1 only 1, 2, and 3. 2, 3, and 4. 1, 2, 3, and 4.

1, 2, 3, and 4.

Under which of the following circumstances is a trip outside the United States considered to be purely for business? 1. The taxpayer does not have control over the timing or arrangements for the trip. 2. The trip outside the United States last for less than seven days. 3. Less than 50 percent of the time spent on the trip was personal. 4. Vacation was not a primary consideration for the trip. 1 only. 2 and 3. 1, 2, and 4. 1, 2, 3, and 4.

1, 2, and 4.

Which of the following is/are a type of relief provided under Section 66 of the Internal Revenue Code? 1. Equitable Relief 2. Separated Spouse Relief 3. Abandoned Spouse Relief 4. Innocent Spouse Relief 1 and 2. 3 and 4. 1, 2, and 4. 1, 2, 3, and 4.

1, 2, and 4.

Which of the following tests must be satisfied by a qualifying child? 1. Relationship Test 2. Net Income Test 3. Abode Test 4. Age Test 1 and 2. 3 and 4. 1, 2, and 3. 1, 3, and 4.

1, 3, and 4.

What is the statute of limitations for the IRS to collect a tax deficiency assessed after an audit? Never 3 years 10 years 6 years

10 years

What is the penalty on an early distribution from an annuity? 10% 15% 20% 25%

10%

Which of the following are tax credits that reduce the tax liability calculated on taxable income? 1. Dependency credit. 2. Child tax credit. 3. Earned income credit. 4. A retirement savers credit. 1, 2 and 3. 2 and 3. 2, 3 and 4. 1, 2, 3 and 4.

2, 3 and 4.

Boudreaux and Maude are trying to calculate their gross income for the current year. Which of the following items should they include in gross income? 1. Child support payments in the amount of $15,000 received by Maude from her ex-husband for the support of Maude's minor child Emile. 2. $1,200 in dividends received by Boudreaux and Maude from Mudbugs, Inc., a corporation in which they own 200 shares of stock. 3. Unemployment benefits in the amount of $800 received by Boudreaux from the state of Louisiana. 4. $3,000 that Maude earned selling her homemade andouille sausage. 4 only. 1 and 2. 2, 3, and 4. 1, 2, 3 and 4.

2, 3, and 4.

Which of the following techniques can be used to lower the value of an individual's gross estate? 1. A Totten Trust. 2. A Qualified Personal Residence Trust. 3. A Family Limited Partnership. 4. An Irrevocable Life Insurance Trust. 1 only. 1 and 2. 2, 3, and 4. 1, 3, and 4.

2, 3, and 4.

What is the tax rate for unrecaptured Section 1250 depreciation gains? (Assume no Affordable Care Act surtax applies). 20% 39.6% 15% 25%

25%

Robbie transferred $100,000 to an irrevocable trust for the benefit of his minor child, Dominic. The transfer was eligible for the annual exclusion. The trust permits the trustee to accumulate trust income within the trust, and only make distributions to Dominic based upon an ascertainable standard until Dominic is 21 years old. When Dominic attains the age of 21, the trust must terminate and the trust assets must be distributed to Dominic. Which type of trust has Robbie created? 2503(b) Trust. 2503(c) Trust. Totten Trust. Intentionally Defective Grantor Trust (IDGT).

2503(c) Trust.

Olive's daughter Polly suffers from a rare illness. During 2020, Olive drove Polly to see a specialist in another state 15 times. Each trip was 316.5 miles each way and required an overnight stay in a hotel that costs $70 per night. Olive's AGI is $24,000. What is her medical expense deduction in 2020? 264.15 $2,554.00. $2,759.10 $359.10.

264.15 Olive may deduct 17 cents per mile for the travel associated with Polly's medical care and may deduct up to $50 per night per person (when prudent to have another individual accompany person) for lodging. Therefore, the total medical expenses are $2,664.15 [(316.5 x 2 x 15 x $0.17) + (15 x $70)]. However, Olive may only deduct the amount that exceeds 10% of her AGI. 10% of Olive's AGI is $2,400. Therefore, Olive's medical expenses deduction is $264.15.

Beau would like to invest in bonds and is considering either a taxable bond with an interest rate of 5%or a tax-exempt municipal bond of comparable risk and quality with an interest rate of 3%. Beau's marginal tax rate is 25%. In order to help Beau compare these two bonds, compute the equivalent tax free rate for the taxable bond. 3%. 3.75%. 4.25%. 5%.

3.75%. The equivalent tax free rate for the taxable bond is 3.75% [0.05 x (1 - 0.25)].

Within how many days must a taxpayer identify replacement property for the sale of original property to qualify for deferral of gain under Section 1031? 180 days 45 days 60 days 90 days

45 days

What is the maximum amount of time unused charitable contributions can be carried forward? 2 years 8 years 10 years 5 years

5 years

What is the equivalent tax free rate of a taxable bond with a coupon rate of 6% held by David who is in the 15% marginal tax bracket? 5.10% 7.06% 5.45% 6.35%

5.10%

On December 1, Allison reviews her investment portfolio and finds out that she has had a very profitable year. To offset some of her gains, Allison sells 100 shares of Little Bear Corporation for$10,000. She purchased those shares for $15,000 two years earlier. On December 25 of the same year, Allison reads a newspaper article indicating that the price of Little Bear Corporation is expected to increase substantially. Second-guessing the wisdom of selling her previous shares of Little Bear stock, she purchases 100 shares of Little Bear Corporation for $8,000. What are the tax consequences to Allison this year? A $5,000 realized, but not recognized loss. An $8,000 realized and recognized loss. A $5,000 realized and recognized loss. A $7,000 realized, but not recognized loss.

A $5,000 realized, but not recognized loss. Wash sale

Sharon wants to make sure that she makes full use of the applicable estate tax credit upon her death, but also wants to make sure that her husband, Oswald, has access to her property. Which of the following would you recommend? A Bypass Trust. A Life Insurance Trust. A Revocable Living Trust. A Section 2503(b) Trust.

A Bypass Trust.

Sabrina, a school teacher who is in a low marginal income tax bracket, is interested in investing in an educational business with some of her colleagues. Sabrina says that she wants to keep the money in the business and does not want to pay taxes on income she doesn't receive. Furthermore, Sabrina wants to be assured the business would not be disrupted if one of her partners lost interest or encountered personal financial problems. What legal form of business makes the most sense given Sabrina's desires? A limited partnership. A general partnership. A C corporation. A professional corporation.

A C corporation.

Braden is starting a new business for which he will be the sole owner. He would like to have limited liability, but he would prefer flow-through taxation because he expects to have losses in the first few years. He is not concerned about incurring self- employment taxes. Which of the following entities would best suit Braden's needs? A General or Limited Partnership. A Single-member LLC. A S corporation. A Proprietorship.

A Single-member LLC.

Which of the following is not a requirement for the deferral of gain in a non-simultaneous exchange under Section 1031? The replacement property must be like-kind property with respect to the original property The proceeds from the sale of the original property must be held by an escrow agent. A replacement property must be identified within 90 days of the sale of the original property. The closing on the replacement property must take place by the earlier of 180 days from the sale of the original property or the due date (including extensions) of the tax return for the year the original property was sold.

A replacement property must be identified within 90 days of the sale of the original property.

Which of the following statements regarding deductible expenses is true? Below-the-line deductions are sometimes referred to as adjustments. Above-the-line deductions are usually considered to be more favorable to the taxpayer than below-the-line deductions. Below-the-line deductions are usually considered to be more favorable to the taxpayer than above-the-line deductions. Above-the-line deductions are also known as credits.

Above-the-line deductions are usually considered to be more favorable to the taxpayer than below-the-line deductions

Adrian owns a residential apartment building. Although he enjoys managing the building, real estate prices in his area have sky-rocketed recently, and Adrian thinks he could make a good profit by selling the building. Adrian originally purchased the building for $800,000 and took depreciation deductions of $500,000. Straight-line depreciation would have been $450,000. What are the tax consequences if Adrian sells the building for $3,000,000? Adrian will have ordinary income of $50,000 Adrian will have $500,000 of unrecaptured Section 1250 gain. Adrian will have capital gains of $1,700,000. None of the above.

Adrian will have ordinary income of $50,000

Carlos recently won a $20,000 prize for outstanding achievement in his field. Carlos has requested that the prize money be paid directly to his favorite qualified charity. Which of the following requirements must be met in order to exclude the prize money from Carlos's gross income? The prize must have been awarded in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement Carlos must not have applied for the prize. Carlos must not be required to render substantial future services in order to receive the prize. All of the above.

All of the above.

Jodi owns a downtown office building. Jodi originally purchased the building for $900,000 and took straight-line depreciation deductions of $400,000. What are the tax consequences if Jodi sells the building for $2,100,000? Jodi will have ordinary income of $0. Jodi will have $400,000 of gain taxed at 25%. Jodi will have 1231 gains of $1,200,000 taxed at 15% or 20%. All of the above.

All of the above.

Which of the following is a risk faced by the owner of a business entity? Death or disability of another owner. Retirement of another owner. Bankruptcy. All of the above.

All of the above.

Sara's daughter Tara completed her senior year of college. Sara paid $5,000 in qualified education expenses for Tara. Sara is a single taxpayer and has an AGI of $50,000. What, if any, education credit may Sara claim and how much is the credit? Sara is not eligible to claim an education credit. American Opportunity Tax Credit in the amount of $1,800 American Opportunity Tax Credit in the amount of $2,500 Lifetime Learning Credit in the amount of $2,000

American Opportunity Tax Credit in the amount of $2,500 The American Opportunity Tax Credit can be claimed during the first four years of postsecondary education.Tara completed her senior year this year, so she qualifies for the credit. However, the correct calculation forSara's credit is 100% of the first $2,000 of qualified expenses plus 25% of an additional $2,000 of qualifiedexpenses (maximum credit is $2,500). Option d is incorrect because Sara would need to have paid $10,000 inqualified education expenses in order to claim the maximum Lifetime Learning Credit of $2,000.

Randy is starting a new business. He is concerned about legal liability. He would like to have flow-through taxation. At some point, he would like to be able to easily sell interests in the business, but he does not expect to have more than 20 investors. Randy does not want to pay self-employment taxes on all income. Which of the following entities would best suit Randy's needs? A Proprietorship. An S corporation. A C corporation. A Partnership.

An S corporation.

Which of the following is an advantage of a revocable living trust? Reduction in federal estate taxes. Avoidance of probate. Removal of asset appreciation from the grantor's gross estate. Distribution of the trust assets according to the terms of the grantor's will.

Avoidance of probate.

Which of the following statements regarding deductible expenses is not true? Below the line deductions are usually more favorable to the taxpayer than above the line deductions Above the line deductions are usually more favorable to the taxpayer than below the line deductions

Below the line deductions are usually more favorable to the taxpayer than above the line deductions

Romo is starting a new business. His top priority is limited liability, but he is also concerned with the ability of the company to raise capital. At some point, he would like to be able to easily sell interests in the business to other investors or perhaps to even take the company public, so he does not want to limit the number of potential owners. Which of the following entities would best suit Romo's needs? C corporation. S corporation. LLC. Partnership.

C corporation.

Which of the following is not a disallowed loss? Losses on the sale of personal use assets Losses on the subsequent sale of property gifted or sold to a related party when its fair market value is less than the original owner's adjusted basis. Wash sales. Capital losses in excess of $3,000

Capital losses in excess of $3,000

Which of the following is not a basic tax planning principle? Shift income to a related taxpayer in the lowest marginal tax bracket Generate income to be taxed at capital gains rates when possible Deductions are more valuable then credits Receiver income in tax exempt form

Deductions are more valuable then credits

Which of the following is not a tax credit that reduces tax liability calculated on taxable income? Dependency credit Retirement savers credit Earned income credit Child tax credit

Dependency credit

Fiona is a highly compensated employee of Great Works, Inc. Which of the following fringe benefits would be taxable to Fiona? Health insurance provided by GreatWorks to all employees. Group term life insurance in the amount of $40,000 paid for by GreatWorks. Dependent care assistance for the highly compensated employees of GreatWorks. On-premises athletic facilities that may only be used by the managers and vice-presidents of GreatWorks.

Dependent care assistance for the highly compensated employees of GreatWorks.

Which of the following is a form of cost recovery designed to return capital to business, presumably so it can be reinvested in additional business equipment? Amortization Depreciation Accretion Original Issue Discount

Depreciation

Which of the following is not a type of income that can be generated in our income tax system? Passive Income Portfolio Income Exempt Income Active Income

Exempt Income

An employer can deduct the cost of up to $50,000 (face or death benefit) of group term life insurance per employee but the employee must include the premium in their gross income. T/F

FALSE

Only taxpayers with high AGIs are required to complete the AMT calculation. T/F

FALSE

Over-the-counter drugs are a deductible medical expense that can also be reimbursed through a flexible spending plan. T/F

FALSE

To qualify for the annual gift tax exclusion, a gift can be of a present or future interest T/F

FALSE

Which of the following is not a requirement for a business expense to be deductible? Ordinary Fair Reasonable Necessary

Fair

A taxpayer can elect to calculate their tax either under the regular income tax system or the AMT system T/F

False

All taxpayers who make contributions to a traditional IRA may take an above-the-line deduction for the value of the contribution. T/F

False

Compensation paid to owner/employees of an S corporation is generally considered self-employment income. T/F

False

Deductions for adjusted gross income are known as below-the-line deductions T/F

False

Filing a six month extension for an individual's tax return gives you six more months to pay your tax liability. T/F

False

Like-kind exchange treatment is generally available for all assets held for productive use in a trade orbusiness or for the production of income. T/F

False

Most individual taxpayers report taxable income based on a fiscal year ending on September 15th. T/F

False

Most individuals report taxable income based on a fiscal year ending on May 15th. T/F

False

Roth IRAs require their owners to take minimum distributions beginning at age 72 T/F

False

Section 179 expense can result in a loss for the business. T/F

False

Taxpayers may deduct both state income taxes and state sales taxes. T/F

False

The benefit received by a taxpayer from a tax credit is the same as the benefit received by the taxpayer from a tax deduction, regardless of the taxpayer's marginal tax rate. T/F

False

The deductibility of ordinary losses is limited to $3,000 per year. T/F

False

U.S. Tax Court is the only court that allows the taxpayer access to a jury trial T/F

False

When an employer makes contributions to an employer-sponsored retirement plan, the value of those contributions is included in the employee's gross income. T/F

False

When property is sold to a related party, the holding period used to determine whether any subsequent gains or losses are short-term or long-term depends on the holding periods of both the seller and the purchaser. T/F

False

Whenever expenses are associated with a business activity, they are below-the-line deductions. T/F

False

Which of the following is a 10 percent penalty exception that applies to only IRAs. Death Tax Levy Attainment of age 59.5 First time home purchase of $8,000

First time home purchase of $8,000

Contributions to charity are limited to a certain percentage of income. How long is the carry-over period for individuals to use any excess current charitable deduction? One year. Five years Seven years. Fifteen years.

Five years There is a five-year carry-over provision for charitable deductions. The total years are 6: The initial year plus five carry-over years.

Which of the following is a basic rule of income taxation? The more income you make, the more tax you pay For every tax deduction taken, there must also be an inclusion in income Every taxpayer pays the same rate of tax You should always defer as much income to future years as possible since tax rates will be lower when you retire.

For every tax deduction taken, there must also be an inclusion in income

Which of the following is a form on which individual taxpayers can report their income, deductions, exemptions, and other information required to calculate their federal tax liability? Form 1040. Form 1040A. Form 1040LA-Z. Form 1040IND

Form 1040.

What is the form the AMT is calculated on? Form 990 Form 6251 Form 8960 Form 2210

Form 6251

Which of the following does not illustrate one of the four basic tax planning principles? Buying investments that pay qualified dividends rather than nonqualified dividends. Taking advantage of employer-provided health insurance. Frequent buying and selling of investments in order to take advantage of the short-term capital gains rates. Investing in a Roth IRA.

Frequent buying and selling of investments in order to take advantage of the short-term capital gains rates.

Which of the following is not a benefit of Section 1231 assets? Gains are taxed at capital gains rates Gains are exempt from taxes Losses are deducted as ordinary losses Losses are not subject to limitations that typically apply to capital assets

Gains are exempt from taxes

Eloise is an unmarried, elderly woman who lives alone in a small apartment. Eloise is only able to provide 6% of her own support. The remainder of her support is provided by the following people: o 10% of her support is provided by her oldest son, Frank. o 22% of her support is provided by her daughter, Gertrude. o 30% of her support is provided by her son, Henry. o 32% of her support is provided by her friend, Irene. Which of these individuals is eligible to claim Mary as a dependent? Irene can claim Eloise as a dependent because she provides more support than anyone else Frank can claim Eloise as a dependent because he is the oldest son. Henry can claim Eloise as a dependent, but only if Gertrude signs an appropriate statement. None of these individuals may claim Eloise as a dependent.

Henry can claim Eloise as a dependent, but only if Gertrude signs an appropriate statement. Option a is not correct; Irene may not claim Eloise as a dependent because she does not meet the relationship test as a qualifying relative. Option b is not correct; Frank has not provided more than 10% of Eloise's support, so he is not a qualifying person. Either Gertrude or Henry may claim Eloise as a dependent because they each provided more than 10% of Eloise's support and together they provided more than 50% of her support. In order for one of them to claim Eloise as a dependent, however, the other must sign a statement agreeing not to claim an exemption for Eloise for this year.

Shelby is a single, elderly woman. Which of the following individuals that provides support for Shelby can claim her as a dependent? Her best friend ,Morgan, who provides 30% of her support Her daughter, Addie, who provides 9% of her support Her niece, Kensey, who provides 8% of her support Her son, Tyler, who provides 40% of her support

Her son, Tyler, who provides 40% of her support

Which of the following statements concerning hobby activities is correct? Any activity which does not generate a profit within three years must be treated for income tax purposes as a hobby activity. The IRS must prove that the taxpayer does not have a profit motive to treat an activity as a hobby activity. Expenses associated with the hobby activity can offset, without limitation, the income generated from the activity. Hobby income is included in gross income above the line, while hobby expenses are not deductible.

Hobby income is included in gross income above the line, while hobby expenses are not deductible. Income generated from a hobby activity is included in gross income, and expenses associated with the hobby are not deductible.may be deducted (to the extent of the hobby income) as a miscellaneous itemized deduction.If the activity earns a profit in three out of five years, the IRS has the burden of proof of showing that there is no profit motive, but if there has not been a profit in three out of the last five years, the taxpayer has the burden of proof. There is no bright line test that requires an activity to be treated as a hobby activity based on the income trend of an activity

Brenda purchased 50 shares of Walsh Co. stock three years ago for $1,000. Brenda recently gifted the stock to her brother, Brandon. On the date of the gift, the stock had a fair market value of $750. Six months after receiving the stock from Brenda, Brandon decides to sell the stock. Which of the following statements is correct? If Brandon sells the stock for $700, he will have a long-term capital loss If Brandon sells the stock for $1,100, he will have a short-term capital gain. If Brandon sells the stock for $600, he will have a short-term capital loss. If Brandon sells the stock for $800, he will have a long-term capital gain.

If Brandon sells the stock for $600, he will have a short-term capital loss.

Hannah owns an event planning company that specializes in very high-end events. Several years ago, Hannah purchased a magnificent chocolate fountain for $3,000 and has since taken $1,200 in depreciation deductions. Hannah is now ready to replace the chocolate fountain with the tools for creating ice sculptures, but she is not sure what the tax consequences of selling the chocolate fountain will be. Which of the following statements is true regarding the tax consequences of selling the chocolate fountain? If Hannah sells the chocolate fountain for $1,800, she will have a $1,200 capital loss. If Hannah sells the chocolate fountain for $1,700, she will have a $1,300 ordinary gain. If Hannah sells the chocolate fountain for $2,000, she will have an ordinary gain of $200. If Hannah sells the chocolate fountain for $3,300, she will have a $1,500 capital gain.

If Hannah sells the chocolate fountain for $2,000, she will have an ordinary gain of $200.

Lauren and Rob are getting divorced. As part of the divorce settlement, Lauren receives a vacation home worth $1,000,000. The couple purchased the vacation home 12 years ago for $250,000. Which of the following statements is true? If Lauren sells the vacation home six months after receiving it in the divorce settlement, any gain or loss that she has will be short-term. If Lauren sells the vacation home for $800,000, she will have a $200,000 loss. In any future sale of the vacation home, Lauren and Rob will each have a basis of $125,000. If Lauren sells the vacation home for $1,100,000, she will have a gain of $850,000.

If Lauren sells the vacation home for $1,100,000, she will have a gain of $850,000.

Reggie purchased 100 shares of SportsFan, Inc. five years ago for $5,000. He just gave those shares to his son, R.J, and the value of the 100 shares of stock on the date of the gift was $1,000. Which of the following statements is true? If R.J. subsequently sells the shares of SportsFan, Inc. for $5,500, the basis used to calculatehis gain or loss will be $1,000. If R.J. subsequently sells the shares of SportsFan, Inc. for $750, the basis used to calculatehis gain or loss will be $1,000. If R.J. subsequently sells the shares of SportsFan, Inc. for $750, the basis used to calculatehis gain or loss will be $5,000. If R.J. subsequently sells the shares for $5,500, he will not have any gain or loss.

If R.J. subsequently sells the shares of SportsFan, Inc. for $750, the basis used to calculate his gain or loss will be $1,000.

Trenton owns a country home that sometimes rents out to other people. Which of the following statements regarding Trenton's rental activity is correct? If Trenton rents out the country home for less than half of the year, it will be considered a nontaxable activity. If Trenton rents out the home for exactly half the year and uses the home personally for exactly half the year, the activity will be considered primarily a rental activity. If Trenton rents out the home for 180 days per year and uses the home personally for 20days of the year, the activity will be considered a mixed-use activity. If Trenton rents out the home for more than half of the year, it will be considered primarily a rental activity regardless of his personal use.

If Trenton rents out the home for 180 days per year and uses the home personally for 20days of the year, the activity will be considered a mixed-use activity. Option a is not correct because the activity will only be considered a nontaxable activity if Trenton rents out the country home for less than 15 days per year. Option b is not correct because this option meets the requirements of a mixed-use activity. That is, the property is rented out for 15 days or more, but the owner personally uses it for the greater of 14 days or 10% of the rental days. Option d is not correct because even if Trenton rents out the home for more than half of the year, the activity may be a mixed-use activity if he personally uses the property for the greater of 14 days or 10% of the rental days.

Which of the following individuals can make a deductible contribution to a traditional IRA? Jack, who is married, has an AGI of $150,000, and his spouse is an active participant in her employer's defined contribution plan, but he is not an active participant. Kelly, who is single, has an AGI of $80,000, and is an active participant in her employer's defined benefit plan. Leo, who is married, has an AGI of $220,000, and he and his spouse are active participants in their company retirement plans. Marni, who is single and has no earned income.

Jack, who is married, has an AGI of $150,000, and his spouse is an active participant in her employer's defined Option b is incorrect because Kelly's AGI exceeds the phaseout range for single individuals who are active par-ticipants. Option c is incorrect because Leo's AGI exceeds the phaseout range for married individuals who are active participants. Option d is incorrect because Marni must have earned income in order to contribute to a traditional IRA. Option a is correct because although Jack's spouse is an active participant, Jack is not. There-fore, Jack may make a deductible contribution to a traditional IRA as long as their joint AGI does not exceed$206,000 in 2020.

Which of the following individuals can make a deductible contribution to a traditional IRA? Assume all taxpayers use the single filing status and are covered by retirement plans if employed. Ryan whose AGI is $45,000 of unearned income. Sadie who has AGI of $275,000 of W-2 Income Luke who has no income Kenny who has AGI of $50,000 of W-2 Income

Kenny who has AGI of $50,000 of W-2 Income

Ethan is starting a new business with his best friend, Max. They would like to have limited liability, but they would prefer flow-through taxation because they expect to have losses in the first few years. They are not concerned about incurring self-employment taxes. Which of the following entities would best suit Ethan and Max's needs? Partnership. Proprietorship. C corporation. LLC.

LLC.

Lisa owns the original copy of the Moaning Myrtle, one of the few paintings created by a renowned renaissance artist and inventor. The Moaning Myrtle has been in Lisa's family for years, but she is getting older and moving into a smaller house and none of her children want the painting. When Lisa inherited the Moaning Myrtle from her father's estate, the value was estimated to be $25,000, but an art expert recently appraised the painting at $750,000. Lisa wants the painting to be cared for, so she donates it to a local art museum, which has agreed to display the painting. Assuming that Lisa's AGI is $100,000 this year, which of the following statements is correct? Lisa can deduct $50,000 this year and carry forward $700,000 for the next five years. Lisa can deduct $30,000 this year and carry forward $720,000 for the next five years. Lisa's deduction is limited to her cost basis of $25,000. Lisa's charitable deduction carry-forward will be $730,000.

Lisa can deduct $30,000 this year and carry forward $720,000 for the next five years.

Which of the following is not an above-the-line deduction? Medical expenses. A contribution to an HSA. A contribution to a traditional IRA. Student loan interest.

Medical expenses.

Which of the following is not a highly compensated employee? Sean who owns 15% of the company Newt who has compensation of $200,000 and owns 1% of the company Donald who owns 2% of the company and has compensation of $175,000 Mike who has compensation of $100,000 and owns 4% of the company

Mike who has compensation of $100,000 and owns 4% of the company

Mortimer is an avid collector of antiques associated with the funeral industry. The local hospital is running a campaign to redecorate and expand their lobby, and as a show of support, Mortimer donates a 19th century horse-drawn hearse in mint condition to the hospital. He purchased several of these hearses 30 years ago for $300 each, but the current estimated market value of the hearse today is in the range of $30,000. The hospital decides to sell the hearse and dedicate the proceeds to the renovation effort. Mortimer's AGI is $50,000. Which of the following statements concerning Mortimer's charitable deduction is correct? Mortimer's deduction for the current tax year will be limited to $25,000. Mortimer's deduction for the current tax year will be limited to $15,000. At least $5,000 of the deductible amount will have to be carried over to future tax years. Mortimer's income tax deduction is $300.

Mortimer's income tax deduction is $300. When tangible personal property donated to a charity will not be used by the charity to carry out its tax-exempt purpose, the deduction available to the donor is limited to the donor's cost basis and will be subject to the 50 percent limitation. Redecorating the lobby is not part of the hospital's tax-exempt purpose. In this case ,Mortimer's cost basis is $300 and since 50% of his AGI is $25,000, Mortimer may take his entire charitable deduction this year.

Which of the following is a deductible loss for income tax purposes? Losses on the sale of personal use assets. Losses on the subsequent sale of property gifted or sold to a related party when its fair market value is less than the original owner's adjusted basis and the sale price is greater than the fair market value at the time of the gift but less than the donors original basis. A loss from a wash sales transaction. Net long-term capital losses in excess of $3,000.

Net long-term capital losses in excess of $3,000.

Patrick works for a company where he travels constantly. The company does not reimburse him for all of his expenses so he has $14,000 of unreimbursed employee business expenses. If Patrick's adjusted gross income is $75,000, how much of these expenses may he deduct? None. $7,500. $12,500. $14,000.

None. Unreimbursed employee expenses are a miscellaneous itemized deductions. These are not currently deductible. (2020)

Payments for employment-related care that are made to relatives of the taxpayer may qualify for the credit for child and dependent care expenses. Which of the following payments does not qualify? Payments for employment-related care made to the taxpayer's aunt. Payments for employment-related care made to the taxpayer's 21-year-old daughter (who is not a dependent of the taxpayer). Payments for employment-related care made to a dependent of the taxpayer. Payments for employment-related care made to taxpayer's 17-year-old niece.

Payments for employment-related care made to a dependent of the taxpayer.

Which of the following is not a requirement for claiming the credit for child and dependent care expenses? Payments for employment-related care may not be made to relatives of the taxpayer Expenses must be incurred for the care of qualifying individuals The expenses must be incurred to enable the taxpayer to work or to actively look for work. The taxpayer must have earned income.

Payments for employment-related care may not be made to relatives of the taxpayer

Which of the following transfers would not be considered a qualified transfer? Piper pays $35,000 to Harvard University for her niece's tuition. Piper pays $50,000 to her friend Paige, who uses the money to pay for her medical expenses. Piper pays $10,000 to Children's Hospital for her granddaughter's medical expenses. Piper pays $12,000 to Prestigious Preparatory School for her nephew's tuition.

Piper pays $50,000 to her friend Paige, who uses the money to pay for her medical expenses.

Which of the following is a principal reason for establishing a revocable living trust? Reducing the grantor's gross estate. Temporal Discounts. Probate Avoidance. Avoidance of the Rule Against Perpetuities.

Probate Avoidance.

Which of the following is not a type of ruling issued by the IRS to administer the tax system? Procedural Regulations Determination Letters Private Letter Rulings Revenue Rulings

Procedural Regulations

Which of the following statements regarding a family limited partnership is not correct? The primary purpose of a FLP is to transfer assets to younger generations of a family usingannual exclusion gifts and valuation discounts. Upon creation of a FLP, there are neither income nor gift tax consequences because theentity created is owned by the same person, or persons, who owned it before the transfer. Publicly traded securities make an ideal asset to transfer to a FLP. The use of a FLP can help protect family assets.

Publicly traded securities make an ideal asset to transfer to a FLP.

Which of the following is not an available filing status? Surviving Spouse Married Filing Jointly Head of Household Qualified Dependent Child

Qualified Dependent Child

Frank is considering selling a parcel of raw land located in South Dakota that he owns. If Frank sells the land, he would like to invest the proceeds in another piece of real property and would like to qualify for like-kind exchange treatment. Which of the following assets would not qualify as like-kind property? An apartment building located in Florida. Raw land located in Canada. An office building located in South Dakota. An industrial warehouse located in California.

Raw land located in Canada.

Reilly owns and operates an accounting practice as a sole proprietorship. For tax reporting, Reilly uses the accrual method of accounting. Last year, Reilly prepared a tax return for a client and billed the client $600. The client did not pay and has recently disappeared. The reminder notices that Reilly's secretary had sent to the client have been returned with no forwarding address. How should this bad debt be treated for income tax purposes? No bad debt deduction is permitted. Reilly may deduct $600 from his business income. Reilly may deduct $600 as a short-term capital loss. Reilly may deduct $600 as a long-term capital loss.

Reilly may deduct $600 from his business income. Since Reilly uses the accrual method of accounting, he reported and paid tax on the $600 of income last year when he performed all of the services necessary to collect the income. It is clear that Reilly will not be able to collect the debt, so he can use the specific charge off method and deduct $600 from his business income this year.

Clay is preparing his federal income tax return. Which of the following items should be included in Clay's gross income? Rental payments made to Clay by tenants living in a house that Clay owns. Interest earned on several municipal bonds that Clay bought five years ago. $10,000 that Clay received as a gift from his favorite aunt. Child support payments paid to Clay by his ex-wife.

Rental payments made to Clay by tenants living in a house that Clay owns.

Danny is starting a new business. His top priority is limited liability, but he would also like to have flow-through taxation. At some point, he would like to be able to easily sell interests in the business, but he does not expect to have more than 20 investors. Danny does not want to pay self-employment taxes. Which of the following entities would best suit Danny's needs? Proprietorship. S corporation. C corporation. Partnership.

S corporation.

Which of the following is not a feature of a testamentary trust? Creation under a last will and testament. Shifts the income tax burden to a lower-bracket taxpayer. Results in the inclusion of assets in the gross estate. Does not avoid probate.

Shifts the income tax burden to a lower-bracket taxpayer.

Rudy bought 10 shares of Fat Cat, Inc. stock on January 1, 2020. Rudy paid $20 for each share. At first, it appeared that Rudy had made a good investment, as the price of Fat Cat stock rose to $50 per share on March 1, 2020. However, rumors of corporate wrongdoing soon started to circulate and the price of Fat Cat began to fall. On August 1, 2020, Fat Cat, Inc. declared bankruptcy and announced that the stockholders should not expect to receive anything on the liquidation of the corporation. What type of loss does Rudy have in 2020, if any? Rudy does not have a loss because he did not sell the stock. Short-term capital loss of $200. Short-term capital loss of $500. Long-term capital loss of $200.

Short-term capital loss of $200

Brady is starting a new business where he will be the only owner. He would like to have limited liability, but he would prefer flow-through taxation because he expects to have losses in the first few years. He is not concerned about incurring self-employment taxes. Which of the following entities would best suit Brady's needs? Partnership. Single-member LLC. S corporation. Proprietorship.

Single-member LLC.

A Crummey provision is the explicit right of a trust beneficiary to withdraw some, or all, of any contribution to a trust for a limited period of time after the contribution. T/F

TRUE

A grantor trust is a trust arrangement in which the grantor transfers property into a trust but retains some right of enjoyment over the property, such as the right to receive the income generated by the property. T/F

TRUE

A liability you are relieved of under a like kind exchange is considered boot and thus taxable. T/F

TRUE

Taxpayers may deduct either their state income taxes or state sales taxes but not both. T/F

TRUE

The basis limitation rule states that the maximum allowable loss the taxpayer can deduct is equal to their basis in the investment. T/F

TRUE

Which of the following is true concerning the 5/5 Lapse Rule? The 5/5 Lapse Rule deems that a taxable gift has been made where a power towithdraw in excess of $5,000 or five percent of the trust assets is lapsed bythe powerholder. The 5/5 Lapse Rule only comes into play with a single beneficiary trust. Amounts that lapse under the 5/5 Lapse Rule qualify for the annualexclusion. Gifts under the 5/5 Lapse Rule do not have to be disclosed on a gift taxreturn.

The 5/5 Lapse Rule deems that a taxable gift has been made where a power towithdraw in excess of $5,000 or five percent of the trust assets is lapsed bythe powerholder.

Which of the following statements is false? The unlimited marital deduction is a deduction from a decedent's adjustedgross estate to arrive at the decedent's taxable estate. The unlimited marital deduction is limited to the value of the assets included in the decedent's gross estate which are transferred to the decedent's surviving spouse. The credit for tax paid on prior transfers was repealed in 2005. At that time,the credit became a deduction. If the sum of a decedent's gross estate and lifetime adjusted taxable gifts isless than the applicable estate tax credit equivalency amount for the year ofthe decedent's death, the executor of the decedent's estate does not have tofile an estate tax return. Jesse gave his mom property valued at $100,000 six months before her death.Jesse's adjusted basis in the property was $45,000. Jesse was the sole heir ofhis mother's estate, and the same property was distributed from his mother'sestate to him. At his mom's date of death, the property had a fair market of$105,000. Jesse's adjusted basis in this property is $45,000.

The credit for tax paid on prior transfers was repealed in 2005. At that time,the credit became a deduction.

Which of the following is not a reason that the proceeds of a life insurance policy would be included in a decedent's gross estate? The proceeds of the policy are payable to the estate. The decedent transferred the ownership of the policy to his daughter six years before his death, but retained the right to change the beneficiary of the policy. The decedent transferred the ownership of the policy to his son six months before his death. The decedent transferred the ownership of the policy to his wife four years ago.

The decedent transferred the ownership of the policy to his wife four years ago.

Which of the following is not a requirement for a deductible business-related expense? The expense must be ordinary. The expense must be necessary. The expense must be capitalized. The expense must be reasonable.

The expense must be capitalized.