BMGT323 - SmartBook

Is it true that a "tax" is essentially the same as a fine or penalty? Yes No

- No; A tax is intended to raise revenue for a government. A fine or penalty is intended to punish or prevent illegal behavior.

The IRC imposes a penalty on a tax practitioner for any position that is not supported by ____________________ ____________________.

- substantial - authority

Which one of the following types of income is NOT unearned revenue generated from owning property? Gain on the sale of land Interest income from a certificate of deposit Dividends received from corporate stock Earnings from services rendered

Earnings from services rendered

Which of the following types of transactions result in capital losses that are NOT deductible for tax purposes? (Check all that apply.) Sales to related parties Sale of land held for investment Sales of personal-use assets Wash sales

Sales to related parties Sales of personal-use assets Wash sales

If a taxpayer sells a personal-use asset at a gain, the taxpayer ____________ recognize a capital gain. If a taxpayer sells a personal-use asset at a loss, the taxpayer ___________ recognize a capital loss. will; will will; will not will not; will not will not; will

will; will not

What is the rate of the additional tax that is assessed on net investment income when it exceeds specified thresholds? 3.8% 6.2% 1.45% 15.3%

3.8%

For mortgages obtained in 2022, MFJ homeowners may deduct interest on up to $__________ of acquisition indebtedness.

750,000

Which one of the following individuals would NOT meet the relationship test for being a qualifying relative of the taxpayer through a qualifying family relationship? Grandmother Nephew Aunt Mother Sister-in-law Cousin

Cousin

Which of the following expenses are deductible FOR AGI? (Check all that apply.) Unreimbursed employee business expenses Expenses generated by rental and royalty activities Most expenses generated by business activities Most expenses generated by investment activities

Expenses generated by rental and royalty activities Most expenses generated by business activities

Which of the choices below are the tests that must be met to qualify as a qualifying relative? (Check all that apply.) Age Gross income Support Relationship Occupation

Gross income Support Relationship

The income and deductions that result from rental property and royalties are reported on: Schedule A Form 1040 Schedule D Form 1040 Schedule B Form 1040 Schedule E Form 1040

Schedule E Form 1040

A tax _____ reduces taxable income and a tax _____ reduces the tax liability dollar for dollar.

deduction credit

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

Excess charitable contributions can be carried forward ___________ year(s) before expiring. three two one five

five

Expenses associated with generating rental or royalty income are deductible _______________ AGI.

for

A(n) ____________________ tax is defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.

implicit

A $1 today is worth ____________________ than $1 in the future.

more

Self-employed persons pay FICA taxes on the ____________ earnings from their business while employees pay FICA taxes on ___________.

net/self-employment wages/salaries

In personal injury cases, any damages awarded due to __________ injury are exempt from taxation.

physical

The impact of the tax rate on a transaction must be considered along with the ____________________ ____________________ of the transaction to determine if the benefits of accelerating the transaction outweigh the disadvantages.

present value

The federal individual income tax system in the United States uses a(n) ____________________ tax structure.

progressive

Regarding portfolio investments, __________ dividends generally are taxed at capital gains rates and __________ dividends are taxed at ordinary rates.

qualified nonqualified

Dividends from corporations that meet certain requirements may be taxed at a favorable rate. These dividends are referred to as: qualified dividends. capital dividends. special dividends. favorable dividends.

qualified dividends.

In order to qualify for the maximum child tax credit in 2022, the child must meet the requirements to be a(n) ____________ ___________ and be under age ____________ at the end of the year.

qualifying child 17

Under the cash method, taxpayers recognize income in the period they __________ it, rather than when they actually __________ it.

received earned

U.S. ___________ __________ do NOT pay periodic interest payments, but the interest accumulates over the term of the bond.

saving bonds

The U.S. tax laws are based on the all-inclusive concept where gross income includes all realized income from "whatever _____ _____

source derived

Assessing the ____________________ of a tax system means determining the amount of tax revenue needed to fund the government and ensuring that the funds are provided by the system.

sufficiency

When an investor sells or trades stock or securities at a loss and within 30 days either before or after the day of sale buys substantially identical stocks or securities a(n) __________ ___________ occurs.

wash sale

____________________ forecasting ignores that taxpayers may respond to a tax change by changing their behavior. _____________________ forecasting attempts to account for possible taxpayer responses to the tax law change.

- Static forecasting - Dynamic forecasting

Which of the following criteria are often used to evaluate a good tax system? - Popularity - Sufficiency - Certainty - Convenience - Equity - Economy - Punctuality

- Sufficiency - Certainty - Convenience - Equity - Economy

Judging the convenience of a tax system is best described by which of the following? - Considering that the system should minimize compliance and administration costs - Considering how the tax burden should be distributed across taxpayers - Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax - Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship - Considering whether tax revenues generated are adequate to meet the financial needs of the government

- Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship

The highest judicial authority is the U.S. ____________________ Court followed by the 13 U.S. Circuit Courts of Appeal, the U.S. ____________________ Court, the U.S. Court of Federal Claims, and the District Court.

- Supreme - Tax

Which of the following calculations is correct for determining the amount of tax? - Tax base x tax rate - Tax base + tax rate - Tax base/tax rate - Tax rate/tax base

- Tax base x tax rate

Which of the following options are limitations of a timing strategy? - Tax laws generally require taxpayers to continue their investment in an asset in order to defer income recognition. - Taxpayers can sometimes choose to accelerate the recognition of tax deductible expense. - The constructive receipt doctrine often prevents income from being deferred to a later period. - The assignment of income doctrine dictates that the person/entity earning the income cannot assign the income and tax consequences to another.

- Tax laws generally require taxpayers to continue their investment in an asset in order to defer income recognition. - The constructive receipt doctrine often prevents income from being deferred to a later period.

Which of the following doctrines is NOT used by the IRS to examine transactions where it expects taxpayer abuse? - Substance-over-form doctrine - Economic substance doctrine - Step-transaction doctrine - Business purpose doctrine - Tax minimization doctrine

- Tax minimization doctrine

Chester incurred $14,500 in hospital and medical bills during the current year. His health insurance policy reimbursed him $11,600 toward those expenses. What amount should be included in Chester's gross income? $ 2,900 $ 11,600 $ 0 $ 14,500

$ 0 There was no income involved. He was billed $14,500 but was reimbursed for $11,600. He still owes $2,900.

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? $500 $0 $3,500 $3,000

$0 $3,500 - $3,000 - $500 = $0

Braden is in the 12% marginal tax bracket with a taxable income of $36,000 for the year. In addition, Braden has a $500 long-term capital gain on bonds he sold this year. If the $500 were taxed as ordinary income, Braden would remain in the 12% rate bracket. Since it is a long-term capital gain on security sales, Braden will pay tax of $___________ on this income. If the $500 gain was on collectibles, taxed at a maximum 28%, Braden would incur tax of $___________ on this income.

$0 $60

Gary incurred $5,200 in qualified medical expenses in 2022. His AGI for the year is $50,000. Gary will be able to deduct $__________ itemized deduction for medical expenses.

$1,450

Andrew volunteered for the American Red Cross after a recent hurricane. He traveled 200 miles and helped the victims of the disaster in the clean up for five days. He also donated $1,500 to the American Red Cross, but charged the amount of the donation on his credit card. He plans to pay $300 plus interest each month on the credit card charge, so he will pay $900 of the $1,500 charge by the end of the year. What amounts will Andrew be able to deduct for his charitable contributions? (Check all that apply.) $900 that is actually paid toward the credit card bill during the year $1,500 charged to the credit card during the year Mileage for the 200 miles he drove to the ravaged area The cost of lodging while he is volunteering The value of his time for five days based on his current salary

$1,500 charged to the credit card during the year Mileage for the 200 miles he drove to the ravaged area The cost of lodging while he is volunteering

Andre has the option of receiving $1,800 today or $1,860 a year from now. Assuming Andre can invest the money and earn 4 percent this year, he would have $__________ a year from now. He should take the $___________ (1,800/1,860).

$1,872 $1,800

Darin is a 25% owner in a partnership in which he has a tax basis of $7,000 and an at-risk basis of $5,000. Darin materially participates in the operations of the partnership which incurred a loss of $40,000 in the current year. Based on these facts, ___________. $10,000 of the loss will flow-through to Darin, and he will be able to deduct $7,000. $10,000 of the loss will flow-through to Darin, and he will be able to deduct $10,000. $10,000 of the loss will flow-through to Darin, and he will be able to deduct $5,000. $40,000 of the loss will flow-through to Darin, and he will be able to deduct $10,000.

$10,000 of the loss will flow-through to Darin, and he will be able to deduct $5,000.

In 2022, Ryan files as head of household and has taxable income of $75,673. None of his taxable income consists of capital gains or qualified dividends. His tax liability rounded to the nearest dollar totals $______

$10,765

Darlene is a 50% owner in a partnership in which she has a tax basis and at-risk basis of $10,000. Darlene materially participates in the operations of the partnership which incurred a loss of $35,000 in the current year. Based on these facts, ____________. $35,000 of the loss will flow-through to Darlene, and she will be able to deduct $17,500. $17,500 of the loss will flow-through to Darlene, and she will be able to deduct $17,500. $10,000 of the loss will flow-through to Darlene, and she will be able to deduct $10,000. $17,500 of the loss will flow-through to Darlene, and she will be able to deduct $10,000.

$17,500 of the loss will flow-through to Darlene, and she will be able to deduct $10,000.

Match the amount of the 2021 standard deduction with the filing status of the taxpayer. Head of Household Married filinh jointly Single Additional - for age or blindness (married)

$19,400 $25,900 $12,950 $1,400

Using the attached table, what is the present value today of $2,300 received two years from now with a rate of return equal to 4%? Year 4% 5% 6% 7% 1 .962 .952 .943 .935 2 .925 .907 .890 .873 3 .889 .864 .840 .816 4 .855 .823 .792 .763 5 .822 .784 .747 .716 $2,392.00 $2,212.60 $2,211.54 $2,127.50

$2,127.50 $2,300 x .925 = $2,127.50

Darlene plans to purchase $3,000 in furniture for her office. She is currently in the 20% tax bracket, so her after tax cost of the furniture is $___________ if she purchases it in the current year. She expects her marginal rate will increase to 25% next year. If she waits until next year to purchase the furniture and her after tax rate of return is 7%, the after-tax cost of her furniture will be $__________. Year 4% 5% 6% 7% 1 .962 .952 .943 .935 2 .925 .907 .890 .873 3 .889 .864 .840 .816 4 .855 .823 .792 .763 5 .822 .784 .747 .713

$2,400 $2,300

Isabella, age 50, pays $500 each month for health insurance premiums with after-tax dollars. She is not self-employed. During 2022, 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? $0 $6,200 $2,825 $1,700

$2,825

Sheri's only source of income for the year is a salary of $40,000. She is not married and has three dependent children who are not eligible for the child tax credit. Sheri's tax liability is $1,795 before any credits or prepayments are applied. She had $2,000 withheld from her salary. After applying the earned income credit, what is the amount of Sheri's refund? $205 refund $2,955 refund $6,935 refund $2,620 refund

$2,955 refund

In 2022, Ryan files as head of household and has taxable income of $122,500. None of his taxable income consists of capital gains or qualified dividends. Using the tax rate schedule, his tax liability rounded to the nearest dollar, totals $_____

$21,736

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.) $5,000 workers' compensation $23,000 car won on a game show $73,000 salary $1,200 corporate bond interest $1,200 health insurance reimbursement $600 disability premiums

$23,000 car won on a game show $73,000 salary $1,200 corporate bond interest

If a taxpayer is an active participant in a rental activity, she may be allowed to deduct up to $___________ in rental losses against other types of income.

$25,000

Will and Lyndsey are married with no dependents and file a joint tax return. In 2022, they paid $3,000 in qualified student loan interest in addition to $23,850 in itemized deductions. What is the total of their "FROM AGI" deductions in 2021? $25,900 $27,800 $23,850 $26,850

$25,900

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? $350,000 $260,000 $360,000 $250,000

$250,000

Single taxpayers meeting certain home ownership and use requirements can permanently exclude up to $___________ of the realized gain on the sale of their principal residence.

$250,000

Tim and Sandy have a ten-year-old daughter. During 2022, they spent $7,000 on childcare expenses at a daycare center and paid $1,500 in childcare expenses to Sandy's sister. Their child and dependent care credit will be calculated based on a maximum limit of $___________ in childcare expenses.

$3,000

Angie incurred capital gains and losses during the current year. She has a $12,000 net short-term capital loss; a $5,000 long-term capital gain in the 15% category; and a $15,000 long-term capital gain in the 28% category. How will these transactions be taxed after the gains and losses are combined? $2,000 will be taxed at 15% and $15,000 will be taxed at 28%. $3,000 will be taxed at 28% and $5,000 will be taxed at 15%. $8,000 will be taxed at 28%. $5,000 will be taxed at 15% and $12,000 will be taxed at 28%.

$3,000 will be taxed at 28% and $5,000 will be taxed at 15%.

Chad incurred capital gains and losses during the current year. He has a $7,000 net short-term capital gain; a $14,000 long-term capital loss in the 15% category; and a $10,000 long-term capital gain taxed at 28%. How will these transactions be taxed after the gains and losses are combined? $7,000 will be taxed at taxed at the marginal rate, and the $4,000 excess long-term capital loss will be carried forward. $3,000 will be taxed at 28%. $3,000 will be taxed at marginal rates. $3,000 will be taxed at 15%.

$3,000 will be taxed at marginal rates.

Amy and Ethan are married and file a joint return for 2022. Their taxable income is $192,100. The amount of their tax liability, rounded to the nearest dollar, is $_____.

$33,775

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? $4,000 $0 $60,000 $68,000

$4,000

The gross income test requires that a qualifying relative's gross income for 2022 be less than $_____

$4,400

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? $6.00 $0.48 $4.80 $0.60

$4.80 Tax base x tax rate = ($80 x .06 = $4.80)

Nina can choose to receive $5,000 today or $5,000 a year from now. If she takes the money now and invests the money at a 6% interest rate (after tax), she will have $__________ one year from now.

$5,300 (5,000 x (1+0.06)^1 = 5,300)

In 2022, Ryan files as single and has taxable income of $47,153. None of his taxable income consists of capital gains or qualified dividends. His tax liability rounded to the nearest dollar totals $_____

$5,991

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.) $1,500 municipal bond interest $500 partnership income $65,000 salary $4,800 health insurance $10,000 judgment $2,000 dividend income

$500 partnership income $65,000 salary $10,000 judgment $2,000 dividend income

Lucky Lee has won a contest where he can choose to receive $500 today or $550 one year from now. Assuming his rate of return is 5%, how much is the $550 worth today? Year 4% 5% 6% 7% 1 .962 .952 .943 .935 2 .925 .907 .890 .873 3 .889 .864 .840 .816 4 .855 .823 .792 .763 5 .822 .784 .747 .713 $523.60 $500.00 $577.73 $550.00

$523.60 $550 x 0.952(PV) = $523.60

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? $61,000 $161,000 $157,500 $57,500

$57,500 $55,000 + ($6,000-$3,500) = $57,500

Stacy is unmarried and has three children, ages 5, 8 and 12, that qualify for the child tax credit. Her AGI for the current year is $97,000. The amount of her child tax credit is $____________.

$6,000

Carly sold land that she purchased 10 years ago for $3,000. The selling price of the land was $7,000 and Carly paid broker's fees of $420. When she originally purchased the land, she paid $1,000 to clear some of the brush in order to make a walking path down to a nearby lake. In the ten years since the purchase, Carly paid $200 per year to keep the path maintained. Carly's amount realized on the sale was $_________ and her tax basis was $__________ resulting in a capital gain of $__________ for the year.

$6,580 $4,000 $2,580

Andrea owed $12,000 on a medical bill to University Hospital. The hospital agreed to discharge the debt due to Andrea's financial situation. Immediately prior to the discharge of the debt, Andrea's debts exceeded her assets by $5,000. How much of the debt forgiveness will Andrea need to include in her gross income? $12,000 $5,000 $0 $7,000

$7,000 $12,000 - $5,000 = $7,000

Patrick has an adjusted gross income of $160,000 in the current year. He donated $30,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of $40,000 to a public charity, and publicly traded stock with a basis of $20,000 and a fair market value of $35,000 to a private nonoperating foundation. The amount that Patrick can deduct for the stock donation to the private nonoperating foundation is ____________. $8,000 $32,000 $20,000 $10,000

$8,000

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

Amy and Ethan are married and file a joint return for 2022. Their taxable income is $78,500. What is the amount of their tax liability (use the tax rate schedules)? $5,901 $9,009 $12,887 $9,420

$9,009

Bailey has $8,000 to invest. She has a 24% marginal tax rate and is planning to reinvest her dividends and leave the investment in place for three years. If she can invest the money in taxable securities that earn qualified dividends with a 6% rate of return before tax, how much will she have at the end of the third year? $9,080 $9,129 $9,287 $9,224

$9,287 6% x (1 -.15) = 5.1%; $8,000 x (1+.051)3 = $9,287

Owen's adjusted gross income for the year will be $150,000 and he is planning to make only ONE of following charitable donations. If he contributes $100,000 cash to a public charity, he can deduct $__________. If he contributes property that is worth $80,000 to a public charity, he can deduct $__________. Or, if he contributes publicly traded stock with a FMV of $60,000 and a basis of $40,000 to a private non-operating foundation, he can deduct $__________.

$90,000 $45,000 $30,000

Ben's tax information is as follows: AGI for 2022 = $101,000 Withholding for 2022 = $5,600 Total tax for 2022 = $10,400 Total tax for 2021 = $11,750 How much per quarter must Ben pay in estimated taxes to avoid a penalty? $909 per quarter $3,760 per quarter $1,050 per quarter $940 per quarter

$940 per quarter To avoid the underpayment penalty, Ben must pay the lesser of 90% of the current year tax liability ($9,360) or 100% of the previous year tax liability ($11,750). Since his 2020 withholding will be $5,600, Ben must pay at least $3,760 ($9,360 - $5,600). So, $3,760/4 = $960 per quarter.

Bridget, a single taxpayer, sold a building used in her business during the current year. The realized gain on the sale was $135,000. Of this amount, $95,000 is unrecaptured Section 1250 gain. How will Bridget be taxed on this gain assuming her marginal tax rate is 32 percent and her LTCG rate is 15%? $135,000 will be taxed at 25%. $135,000 will be taxed at 32% $95,000 will be taxed at 25 percent and $40,000 will be taxed at 32%. $95,000 will be taxed at 25 percent and $40,000 will be taxed at 15%.

$95,000 will be taxed at 25 percent and $40,000 will be taxed at 15%.

Which of the following statements regarding tax return extensions are CORRECT? - "S" Corporations may request an automatic six month extension to file. - "C" Corporations are not granted automatic tax return extensions. - A six-month extension allows a taxpayer to file a return up to six months after the original due date. - Partnerships extensions are granted for up to four months only. - A six-month extension allows a taxpayer to pay the tax due up to six months after the original due date.

- "S" Corporations may request an automatic six month extension to file. - A six-month extension allows a taxpayer to file a return up to six months after the original due date. EXPLANATION: - "C" Corporations are not granted automatic tax return extensions.; "C" Corporations may get an automatic six or seven month extension, depending on year-end. - Partnerships extensions are granted for up to four months only.; Partnerships get an automatic six-month extension. - A six-month extension allows a taxpayer to pay the tax due up to six months after the original due date.; Taxes must be paid when the extension request is filed.

Calculate the discount factor for one period for an investment given a rate of return equal to 6 percent. - 0.167 - 0.943 - 0.060 - 1.06

- 0.943 1/(1 +.06) = 0.943

When does the statute of limitations generally end for tax noncompliance when fraud is not a factor? - 3 years - No limit - 10 years - 6 years

- 3 years

Which of the choices below BEST describes the judicial doctrine of stare decisis? - A court will rule consistently with the rulings of higher courts with appellate jurisdiction, but often differs with its own prior decisions. - A court will rule consistently with its previous rulings, but is NOT bound by the rulings of higher courts with appellate jurisdiction. - A court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction. - All courts will follow the Supreme Court's rulings, but may rule independently of other courts when the issue has NOT reached the Supreme Court.

- A court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction.

Which of the following definitions describes a tax? - A payment required by a government that is unrelated to any specific benefit or service received from the government. - A payment required by an organization, business, or governmental agency to benefit the general welfare of the country. - A payment required by a government that is directly related to a specific benefit or service received from the government.

- A payment required by a government that is unrelated to any specific benefit or service received from the government.

Which of the following definitions describes a tax? - A payment required by a government that is unrelated to any specific benefit or service received from the government. - A payment required by a government that is directly related to a specific benefit or service received from the government. - A payment required by an organization, business, or governmental agency to benefit the general welfare of the country.

- A payment required by a government that is unrelated to any specific benefit or service received from the government. EXPLANATION: - A payment required by a government that is directly related to a specific benefit or service received from the government.; A tax is NOT designated for a specific benefit or service provided by the government. - A payment required by an organization, business, or governmental agency to benefit the general welfare of the country.; A tax is required by a government rather than an organization, business or agency.

Marcus and Lydia Brown are married and filing jointly and have $165,000 in taxable income. Lydia has been offered a job promotion which will increase their taxable income to $184,000 in 2022. This additional income will move them into the next graduated tax bracket (24%). Which of the following statements is correct? - A portion of the additional $19,000 will be taxed at 22% and a portion will be taxed at 24%. - The Browns will pay 24% in income tax on $184,000 rather than on 22% on $165,000 if they are moved into a new rate bracket. - The additional $19,000 will be taxed at 24%.

- A portion of the additional $19,000 will be taxed at 22% and a portion will be taxed at 24%.

Which of the following taxpayers would likely benefit LEAST from an income shifting strategy? - A taxpayer that operates businesses in different jurisdictions - A taxpayer with a business that operates in one state - A taxpayer that has family members with varying marginal rates

- A taxpayer with a business that operates in one state

Which of the following statements are correct regarding tax filing requirements? - Corporations do not have to file tax returns if their net income is less than $400. - All trusts must file tax returns regardless of income. - Estates are required to file income tax returns if their gross income exceeds $600. - All corporations must file regardless of income.

- All corporations must file regardless of income. - Estates are required to file income tax returns if their gross income exceeds $600.

Which of the following statements is correct regarding extensions? - Extensions for individual returns give the taxpayer four additional months to file. - An extension to file will allow a taxpayer extra time to pay his taxes. - An extension to file is granted automatically at the request of the taxpayer. - Extensions must be approved by the IRS before they are valid.

- An extension to file is granted automatically at the request of the taxpayer.

What is the due date for calendar-year corporate income tax returns assuming the date does NOT fall on a Saturday, Sunday or holiday? - December 31 - January 31 - March 15 - April 15

- April 15

Which of the following common decisions would most likely NOT be influenced by the United States income tax laws? - Purchasing a home versus renting - Determining how to save for retirement - Evaluating alternative job opportunities - Choosing a public school for your children

- Choosing a public school for your children EXPLANATION: - Purchasing a home versus renting; There are tax deductions for mortgage interest, but not deductions for rent payments. - Determining how to save for retirement; There are tax-advantaged methods of saving for retirement. - Evaluating alternative job opportunities; There are different tax implications for employees versus individuals who are self-employed. The tax treatment of employment-related may need to be considered.

Which of the following decisions would most likely NOT be influenced by our tax system? - Choosing investments - Choosing a vacation destination - Estate planning - Saving for a college education

- Choosing a vacation destination EXPLANATION: - Choosing a vacation destination; Earnings on certain investments may be tax-exempt, tax-deferred, or taxed at lower rates. - Estate planning; For large estates, the estate tax can be very costly. Financial planning is important for minimizing the tax implications. - Saving for a college education; There are a number of tax-advantaged savings plans and tax credits available for education costs.

Which of these penalties is the most common and generally comes in the form of monetary penalties? - Civil - Negligence - Criminal - Punitive

- Civil

Which of the following criteria is NOT a characteristic of a good tax system? - Convenience - Complexity - Equity - Sufficiency

- Complexity

Judging the equity of a tax system is best described by which of the following? - Considering how the tax burden should be distributed across taxpayers - Considering that the system should minimize compliance and administration costs - Considering whether tax revenues generated are adequate to meet the financial needs of the government - Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship - Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax

- Considering how the tax burden should be distributed across taxpayers

Judging the certainty of a tax system is best described by which of the following? - Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship - Considering that the system should minimize compliance and administration costs - Considering whether tax revenues generated are adequate to meet the financial needs of the government - Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax - Considering how the tax burden should be distributed across taxpayers

- Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax

Judging the sufficiency of a tax system is best described by which of the following? - Considering whether tax revenues generated are adequate to meet the financial needs of the government - Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax - Considering that the system should minimize compliance and administration costs - Considering how the tax burden should be distributed across taxpayers - Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship

- Considering whether tax revenues generated are adequate to meet the financial needs of the government

Which of the following choices is NOT one of the steps in the tax research process? - Contact IRS - Locate tax authorities - Understand facts - Identify issues

- Contact IRS

Which of the following tax planning strategies is based on the understanding that the tax law does NOT treat all types of income and deductions the same? - Timing strategy - Conversion strategy - Income shifting strategy - Income assignment strategy

- Conversion strategy

Andy is considering investing $5,000 into one of three investments. He can invest in corporate stock that will pay dividends of 5% per year. He can purchase corporate bonds that pay 6%. Or, he can invest in tax-exempt securities that will pay 4% per year. Andy is in the 33% marginal tax bracket and the dividends will be taxed at 15%. Based on his after-tax return, which investment should he choose? - Corporate stock - Tax-exempt securities - Corporate bonds

- Corporate stock Corporate bonds will result in after-tax proceeds of $201 compared to after-tax proceeds of $212.50 for Corporate stock or $200 for tax-exempt securities.

Which of these penalties may involve incarceration along with monetary penalties? - Civil - Punitive - Negligence - Criminal

- Criminal

Economy is listed as one criteria of a good tax system. What is meant by economy in this context? - Economy requires that taxpayers should be able to determine when, where, and how to calculate and pay the tax. - Economy requires that tax revenues generated are adequate to meet the financial needs of the government. - Economy requires that the system should minimize compliance and administration costs. - Economy requires that a tax system should be designed to facilitate the collection of tax revenue without undue hardship. - Economy requires that the tax burden should be distributed across taxpayers fairly.

- Economy requires that the system should minimize compliance and administration costs.

Which of the following taxes is based on the quantity of a product sold, rather than the selling price of the product sold? - Sales tax - Excise tax - Gift tax - Transfer tax

- Excise tax

Andrew received 20 percent of his business revenue in cash. The cash was not third-party reported to the IRS. Andrew has decided NOT to report the cash receipts on his tax return. Which response is true? - Failure to report the income is acceptable since it is not being reported to the government by third parties. - Failure to report the income is considered tax avoidance. - Failure to report the income is a form of a conversion strategy. - Failure to report the income is considered tax evasion.

- Failure to report the income is considered tax evasion.

True or false: If an individual taxpayer discovers that he has a balance due on his tax return, but he does NOT have the money to pay the amount, he should file an extension in order to extend the date at which the payment is required to be made. True/False

- False An "extension" only postpones the due date of the tax return. However, the total tax liability must be paid by the original due date (typically April 15th).

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. True/False

- False In 2021, the federal income tax represented approximately 50.2 percent of all tax revenues collected in the U.S.

True or false: Revenue rulings and revenue procedures carry the same authoritative weight as Treasury regulations. True/False

- False Revenue rulings and procedures carry less authoritative weight than Treasury regulations.

True or false: A Joint Conference Committee report is important, but is NOT considered an authority of the tax law when disputing a tax position. True/False

- False These committee reports are considered statutory sources of the tax law and can be used to interpret the tax laws.

True or false: All other things being equal, taxpayers should prefer to recognize income during high-tax-rate years. True/False

- False; It is more financially beneficial to recognize deductions in high-tax-rate years and recognize income in a low-tax-rate years.

True or false: A tax can be defined as a fine or penalty. True/False

- False; Taxes are NOT intended to punish or prevent illegal behavior as are fines or penalties.

True or false: The general purpose of a tax is to provide incentives that will stimulate and improve the economy. True/False

- False; The main purpose of a tax is to raise revenue to fund the operations of the government.

True or false: The primary purpose of effective tax planning is to minimize taxable income, thus minimizing a taxpayer's tax liability for the year. True/False

- False; The purpose is to achieve the maximum amount of after-tax wealth for the taxpayer, while also accomplishing his or her nontax-related goals.

Which of the following taxes uses a progressive tax rate structure? - Federal corporate income tax - Sales tax - Excise tax - Social security tax - Federal individual income tax

- Federal individual income tax

Which of the following taxpayer characteristics are NOT factors in determining whether or not a taxpayer is required to file a tax return? - Filing status - Gender - Race - Age - Gross income

- Gender - Race

Which of the following criteria determine whether an individual must file a tax return? - Gross income - Amount of tax withheld - Filing status - Age - Number of dependents - Race

- Gross income - Filing status - Age

Which of the following federal taxes comprises the highest percentage (almost half) of all tax revenues collected by the U.S. government? - Excise tax - Income tax - Value-added tax - Estate tax

- Income tax

Administrative and judicial tax authorities are interpretations of which statutory authority? - Tax treaties - U.S. Constitution - Internal Revenue Code - Congressional reports

- Internal Revenue Code

What is the main statutory tax authority? - Regulations - Internal Revenue Service - Internal Revenue Code - Supreme Court decisions

- Internal Revenue Code

The understanding that the Treasury Department has of the Internal Revenue Code is represented in ____________________ regulations. - Procedural - Interpretative - Legal - Legislative

- Interpretative

What type of tax authority is the U.S. Constitution, the Internal Revenue Code, and tax treaties? - Judicial - Executive - Administrative - Legislative

- Legislative

Which of the following statements is correct regarding state income tax? - All states and the District of Columbia impose some type of a state income tax on individuals. - The states are not allowed to deviate from the Internal Revenue Code, except for using a much lower tax rate schedule. - States with an income tax system generally do NOT impose a sales and use tax. - Many states also impose an income tax on corporations.

- Many states also impose an income tax on corporations.

What is the due date for calendar-year partnership income tax returns, assuming the date does NOT fall on a Saturday, Sunday or holiday? - March 15 - December 31 - January 31 - April 15

- March 15

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? - Marginal tax rate - Average tax rate - Proportional tax rate - Effective tax rate

- Marginal tax rate The marginal rate is the rate of tax assessed on the next additional increment of income.

Which of the following is NOT necessarily a part of effective tax planning? - Maximizing after-tax wealth - Minimizing tax payments - Achieving nontax goals

- Minimizing tax payments Effective tax planning involves maximizing the taxpayer's after-tax wealth while achieving nontax goals.

Which of the following are tax planning methods used in income shifting strategies? - Moving income and deductions from taxpayers in one rate bracket to taxpayers in a different rate bracket - Changing the form of income into a more tax-favored type of income - Moving income and deductions to more tax favorable jurisdictions - Accelerating deductions into an earlier year

- Moving income and deductions from taxpayers in one rate bracket to taxpayers in a different rate bracket - Moving income and deductions to more tax favorable jurisdictions

Which one of the following choices describes an income shifting tax planning strategy? - Converting the type of income to a more tax favored source - Deferring income to a low-tax-year - Accelerating tax deductions to a high-tax year - Moving income to more tax favorable jurisdictions

- Moving income to more tax favorable jurisdictions EXPLANATIONS: - Converting the type of income to a more tax favored source; this is a conversion strategy - Deferring income to a low-tax-year; this is a timing strategy - Accelerating tax deductions to a high-tax year; this is a timing strategy

Which of the following methods will NOT result in a tax beneficial shift of income from a corporation to its employee-owner? - Borrowing money from the employee-owner - Paying compensation to the employee-owner - Paying dividends to the employee-owner - Renting property from the employee-owner

- Paying dividends to the employee-owner EXPLANATION: - Borrowing money from the employee-owner; Interest payments on the loan will result in an expense for the corporation and taxable income for the employee-owner. - Paying compensation to the employee-owner; Compensation will result in an expense for the corporation and taxable income for the employee-owner. - Renting property from the employee-owner; Rental payments will result in an expense for the corporation and taxable income for the employee-owner.

Which of the following choices describes the official sources of the tax law generated by one of the branches of government? - Main authorities - Editorial authorities - Primary authorities - Secondary authorities

- Primary authorities

Which of the following statements is INCORRECT regarding sales tax? - Some local governments may impose a sales tax in addition to the state sales tax. - Products purchased on the internet are never subject to sales tax. - The tax base is the sales price of goods or some services that are subject to the tax. - The retailer is responsible for collecting and remitting the tax.

- Products purchased on the internet are never subject to sales tax.

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? - Progressive - Flat - Regressive - Proportional

- Progressive Blade is paying 10%. Caden is paying a higher percentage of tax (12%) on a higher level of income.

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 law - Question of legality - Question of fact - Question of interpretation

- Question of fact

Which of the following choices is NOT one of the steps in the tax research process? - Identify issues - Communicate results - Analyze tax authorities - Request private letter ruling

- Request private letter ruling

Which of the following taxes are commonly assessed by state and/or local governments? - Gift tax - Estate tax - Sales tax - Property tax - Income tax

- Sales tax - Property tax - Income tax

Which of the following is NOT one of the basic parts of the internal research memo? - Issues section - Secondary authorities - Conclusion - Fact section - Analysis

- Secondary authorities

Sally has NOT completed her tax return and the due date is approaching. She estimates that she will owe no more than $1,500, but she doesn't have time to finish her return by April 15th. She has decided to file an extension. Which of the following statements describes what she needs to do when filing the extension? - She is not eligible to file an extension because she owes an additional amount of tax at the end of the year. - She should send in a $1,500 payment when filing the extension. -She should file the extension, but she can wait and pay the $1,500 when she actually files the return.

- She should send in a $1,500 payment when filing the extension.

Which of the following statements is true regarding sin taxes? - Sin taxes discourage undesirable, yet legal, behaviors such as smoking and drinking. - Sin taxes are imposed on illegal activities in order to discourage participation. - Sin taxes could be considered fines or penalties rather than taxes.

- Sin taxes discourage undesirable, yet legal, behaviors such as smoking and drinking. Sin taxes are imposed on legal activities, but often those that seem to have negative influences on society, such as alcohol and tobacco.

Which tax is assessed to provide monthly retirement, survivor, and disability benefits for qualifying individuals? - Excise taxes - Social Security taxes - Gift taxes - Medicare taxes - Estate taxes

- Social Security taxes

Which of the following taxes uses a regressive tax rate structure? - Federal individual income tax - Social security tax - Federal corporate income tax - Federal estate tax - Gift tax

- Social security tax

What judicial doctrine means that a court will rule consistently with its previous rulings and the rulings of higher courts with appellate jurisdiction? - Trial de novo - Stare decisis - Sui generis - Sub judice

- Stare decisis

When is the standard deduction NOT added back to regular taxable income to arrive at alternative minimum taxable income? The standard deduction is not added back when the taxpayer deducted itemized deductions rather than the standard deduction. The standard deduction is never added back to regular taxable income to arrive at AMTI. The standard deduction is always added back to regular taxable income to arrive at AMTI.

The standard deduction is not added back when the taxpayer deducted itemized deductions rather than the standard deduction.

Which of the following statements are true regarding the qualifying widow or widower filing status? (Check all that apply.) The status may be used for up to two years after the year the other spouse died. The status is used in the year that one spouse died. The surviving spouse must have dependents. The surviving spouse can NOT use this status if he or she has dependents. The surviving spouse must NOT have remarried during the year.

The status may be used for up to two years after the year the other spouse died. The surviving spouse must have dependents. The surviving spouse must NOT have remarried during the year.

Which of the following statements is true when considering the deductibility of a suspended passive loss? The taxpayer will lose the tax benefit of the suspended loss if he sells or divests of the passive activity. The suspended loss can reduce short and long-term capital gains, but NOT ordinary income. The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity. The suspended loss can only be deducted against passive income from the same passive activity that generated the loss.

The suspended loss may be deducted when a taxpayer generates passive income from that activity or another passive activity.

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? The asset is real property, such as land or a building. The tangible personal property's use is unrelated to the charity's operations. The asset is intangible, such as stock or bonds. The asset was held by the donor for a total of 367 days.

The tangible personal property's use is unrelated to the charity's operations.

Please choose the statement that is INCORRECT? Investing in capital assets allows taxpayers to defer recognizing gains until the assets are sold resulting in a lower PV of capital gains tax. The tax advantages of holding an asset for more than a year overrides the risk of declining values in the investment. Taxpayers should balance the tax benefits of holding assets with the risk that the asset values will have declined by the time they are sold. Gains on the sale of capital assets are taxed at rates lower than a taxpayer's marginal rate if the assets were held for more than one year.

The tax advantages of holding an asset for more than a year overrides the risk of declining values in the investment.

How is a capital asset's tax basis calculated? (Check all that apply.) The tax basis is reduced by depreciation taken on the asset in prior years. The tax basis includes costs to substantially improve the asset. The tax basis includes the the sales proceeds generated at the time the taxpayer sells the asset. The tax basis includes costs incurred in preparing the asset for initial use. The tax basis includes the original cost (or other basis) in the asset.

The tax basis includes costs to substantially improve the asset. The tax basis includes costs incurred in preparing the asset for initial use. The tax basis includes the original cost (or other basis) in the asset.

Under a multiple support agreement, taxpayers who DON'T pay over half of an individual's support may still be allowed to claim the individual as a dependent if which of the following rules apply? (Check all that apply.) The taxpayer and at least one other person provided over one-half of the support of the individual. The taxpayer contributed over 5 percent of the individual's support for the year. The individual earns more than the gross income test amount ($4,400), but NOT enough to provide half of his support. No one taxpayer paid over one-half of the individual's support. All other individuals contributing more than 10 percent support provides statements to taxpayer agreeing NOT to claim the individual as a dependent.

The taxpayer and at least one other person provided over one-half of the support of the individual. No one taxpayer paid over one-half of the individual's support. All other individuals contributing more than 10 percent support provides statements to taxpayer agreeing NOT to claim the individual as a dependent.

Which of the following rules must be met for a taxpayer to be able to exclude the gain on the sale of a personal residence? (Check all that apply.) The taxpayer must NOT have used the gain exclusion provision in the five years prior to the sale. If married, both spouses must meet the ownership and principal-use tests. The taxpayer must have used the property as their principal residence for a total of two or more years during the five year period prior to the sale. The taxpayer must have owned the residence for at least two years of the five year period prior to the sale.

The taxpayer must have used the property as their principal residence for a total of two or more years during the five year period prior to the sale. The taxpayer must have owned the residence for at least two years of the five year period prior to the sale.

Which of the following statements is INCORRECT regarding charitable donations of capital gain property? To qualify as capital gain property, the asset must have been owned by the taxpayer for more than one year. The taxpayer must include the appreciation of the asset in gross income. To qualify as capital gain property, the asset must have appreciated in value.

The taxpayer must include the appreciation of the asset in gross income.

Which of the following individuals meet the requirements of a qualifying person for determining head of household filing status? A friend of the taxpayer who is a qualifying relative because he lives with the taxpayer for the entire year An unmarried son who is NOT a dependent but lives with his father for most of the year The taxpayer's child who resides with his other parent for over half the year, but where the taxpayer gets the earned income credit The taxpayer's mother who is dependent of the taxpayer, but lives in her own home which is maintained by the taxpayer

The taxpayer's mother who is dependent of the taxpayer, but lives in her own home which is maintained by the taxpayer

What is the tax treatment for a taxpayer receiving a gold watch valued at $350 in recognition of his 25th year of working for the same company? The value of the watch is only excluded from gross income if the taxpayer donates it to a charitable organization. One-half of the value of the watch must be included in gross income. The value of the watch is included in gross income. The value of the watch is excluded from gross income.

The value of the watch is excluded from gross income.

Which of the following choices describe exclusions and deferrals for tax purposes? (Choose all that apply.) These provisions are the result of specific congressional action. These provisions are narrowly defined. These provisions are generally deducted from AGI and reduce taxable income. These provisions are often granted in order to subsidize or encourage particular behaviors. These provisions reduce the tax liability dollar for dollar.

These provisions are the result of specific congressional action. These provisions are narrowly defined. These provisions are often granted in order to subsidize or encourage particular behaviors.

The gross income test requires that a qualifying relative's gross income for the year must be less than $4,400 for tax year 2022. True/False

True

True or false: A suspended loss on a passive activity can be used to offset active and portfolio income in the year the taxpayer sells or divests of the activity. True/False

True

True or false: Capital losses retain their character as short-term or long-term when they are carried forward to subsequent years. True/False

True

True or false: Gambling expenses and losses to the extent of gambling winnings are reported as miscellaneous itemized deductions. True/False

True

True or false: Income and deductions from a partnership or S corporation are taxed on the owners' tax returns rather than the entity tax return. True/False

True

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. True/False

True

True or false: Net passive income is included with net investment income and, therefore, may be subject to the 3.8% additional tax on net investment income. True/False

True

True or false: Personal nonrefundable credits should be applied to a taxpayer's tax liability before other types of credits. After personal nonrefundable credits, any business credits should be used followed by all personal refundable credits. True/False

True

True or false: Punitive damages are generally fully taxable to the recipient. True/False

True

Which of the following expenses typically qualify for the Lifetime Learning Credit? (Check all that apply.) Tuition for full-time enrollment at a university Housing in a university dormitory Tuition for graduate courses Fees for continuing professional education required for job Meal plans on campus Textbooks required for courses at a university

Tuition for full-time enrollment at a university Tuition for graduate courses Fees for continuing professional education required for job

Certain types of investment earnings are nontaxable if the proceeds are used to pay for qualifying educational expenditures including ___________. (Check all that apply.) U.S. Series EE bonds municipal bonds Section 529 plans Coverdell savings accounts Roth IRA plans

U.S. Series EE bonds Section 529 plans Coverdell savings accounts

Which of the following investments do NOT pay periodic interest payments, but rather accumulate interest over the life? Mutual funds Certificate of deposits Corporate bonds U.S. savings bonds

U.S. savings bonds

Which of the following terms is used to refer to income from property? Deferred income Exempt income Earned income Unearned income

Unearned income

What type of gain is taxed at a maximum long-term capital gains rate of 25%? Gain from the sale of intangible investments, such as stock Unrecaptured Section 1250 gain from the sale of business property Gain from the sale of personal use assets Gain from the sale of collectibles

Unrecaptured Section 1250 gain from the sale of business property

Which of the following statements is CORRECT regarding the sale of qualified small business stock (Sec. 1202 stock)? Up to 100% of the gain could be excluded depending on the acquisition date. The taxable gain is taxed as ordinary income The effective capital gains tax rate is 28%. The stock must have a long-term holding period of at least one year.

Up to 100% of the gain could be excluded depending on the acquisition date.

During the current year, Barry (single taxpayer) has taxable income of $60,000. Of that amount, $10,000 is long-term capital gain. How will Barry calculate the tax on his income? Use the tax rate schedule to calculate tax on $50,000; multiply the capital gain income of $10,000 by 15%; then subtract the two amounts. Use the tax rate schedule to calculate tax on $60,000; multiply the capital gain income of $10,000 by 15%; then add the two amounts together. Use the tax rate schedule to calculate tax on $60,000; multiply the capital gain income of $10,000 by 15%; then subtract the two amounts. Use the tax rate schedule to calculate tax on $50,000; multiply the capital gain income of $10,000 by 15%; then add the two amounts together.

Use the tax rate schedule to calculate tax on $50,000; multiply the capital gain income of $10,000 by 15%; then add the two amounts together.

Which one of the following types of income is NOT part of net investment income for purposes of calculating the Net Investment Income tax? Annuity income Veteran's benefits Interest income Passive activity income

Veteran's benefits

Which one of the following items is NOT a qualified medical expense? Vaccinations for the prevention of a disease Vitamins for promoting good health Prescription medication for the cure of an illness MRI for the diagnosis of a bodily injury

Vitamins for promoting good health

Which of the following items is income from services? Wage income Dividend income Royalty income Interest income

Wage income

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? Weakened Sudden Unusual Unexpected

Weakened

Which of the following statements are correct? (Check all that apply.) When taxpayers sell nondepreciable assets, they may exclude the original cost of those assets from gross income. If a taxpayer receives a state tax refund for a tax year where she deducted the state tax paid, she must report the refund as gross income. A current year insurance reimbursement of prior year medical expenses is recognized even if the expenses were NOT deducted in the prior year. Taxpayers who exchange or trade goods or services with each other must recognize the increase in value of the goods or services as income. A taxpayer must recognize cash received in exchange for services rendered, but NOT property or services if they were received instead of cash.

When taxpayers sell nondepreciable assets, they may exclude the original cost of those assets from gross income. If a taxpayer receives a state tax refund for a tax year where she deducted the state tax paid, she must report the refund as gross income. Taxpayers who exchange or trade goods or services with each other must recognize the increase in value of the goods or services as income.

Which of the following situations will result in an award being excluded from gross income? (Check all that apply.) When the award is given during the holidays, such as a Christmas cash bonus, since the intent of the award is to be a gift When the award has a charitable component, such as a television giveaway, where guests are given needed items When the award is a noncash item valued at less than $400, and given for either safety or years of service by an employee When the award is given for scientific, literary, or charitable achievement and meets certain other requirements

When the award is a noncash item valued at less than $400, and given for either safety or years of service by an employee When the award is given for scientific, literary, or charitable achievement and meets certain other requirements

Which of the following situations will result in an award being excluded from gross income? (Check all that apply.) When the award has a charitable component, such as a television giveaway, where guests are given needed items When the award is given during the holidays, such as a Christmas cash bonus, since the intent of the award is to be a gift When the award is given for scientific, literary, or charitable achievement and meets certain other requirements When the award is a noncash item valued at less than $400, and given for either safety or years of service by an employee

When the award is given for scientific, literary, or charitable achievement and meets certain other requirements When the award is a noncash item valued at less than $400, and given for either safety or years of service by an employee

When is a discharge of indebtedness NOT included in gross income? When the taxpayer works out a debt settlement arrangement that lowers his debt, rather than totally discharging it When the taxpayer is insolvent before, but not after the debt forgiveness When the taxpayer's debt forgiveness does not exceed $10,000 When the taxpayer is insolvent before and after the debt forgiveness

When the taxpayer is insolvent before and after the debt forgiveness

When can a single taxpayer's mother or father be a qualifying person for determining head of household filing status? When the parent lives with the taxpayer regardless of whether he or she is a dependent of the taxpayer Never; only a qualifying child can cause a taxpayer to qualify for head of household status When the taxpayer pays over half the cost of maintaining a parent's home.

When the taxpayer pays over half the cost of maintaining a parent's home.

Chasity is 20, has a full-time job, and supports herself. Her brother, William, age 22, has decided to go back to college. He moved in with Chasity and is attending college full-time. Which of the following statements is accurate regarding the age test for a qualifying child and how it applies to William? William meets the age test because he is full-time student under age 24. William does NOT meet the age test because he is not under the age of 19. William does NOT meet the age test because he is older than Chasity. William does NOT meet the age test because he is not Chasity's child.

William does NOT meet the age test because he is older than Chasity.

Which of the following statements are CORRECT when describing "Workers' Compensation?" (Choose all that apply.) Workers' compensation is another term for "unemployment compensation." Workers' compensation benefits are not taxable to the recipient because the payments result from a physical injury. Workers' compensation benefits are paid to employees who have been injured in a work-related situation. Workers' compensation benefits are taxable to the recipient because this insurance was provided tax-free by the employer. Both "worker's compensation" and "unemployment compensation" are taxable to the recipient.

Workers' compensation benefits are not taxable to the recipient because the payments result from a physical injury. Workers' compensation benefits are paid to employees who have been injured in a work-related situation.

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? No Yes

Yes

Life insurance proceeds may be included in gross income when _______________. (Check all that apply.) the proceeds of the policy are paid to the beneficiary in one lump sum the beneficiary of the life insurance policy is NOT related to the insured a life insurance policy is transferred to another party for valuable consideration proceeds are paid over time and a portion represents taxable interest payments

a life insurance policy is transferred to another party for valuable consideration proceeds are paid over time and a portion represents taxable interest payments

In order for a taxpayer to be able to deduct up to $25,000 in rental losses against other types of income, her or she must be a(n) __________ participant in the rental activity. regular active full-time material

active

Although losses from rental property are classified as passive losses, there is an exception that allows a taxpayer who is a(n) __________ participant in a rental activity to deduct up to $___________ of the rental loss against nonpassive income.

active $25,000

Court-ordered cash payments pursuant to a divorce or legal separation which provide financial support to an ex-spouse and do not continue after the death of the ex-spouse are referred to as ____________. property settlements alimony punitive damages child support payments

alimony

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

For all divorce agreements executed after December 31, 2018, __________ payments are excluded from gross income of the recipient and ____________ for the spouse making the payment.

alimony nondeductible

The __________ __________ tax was implemented to make sure that taxpayers who were generating income pay some income tax, rather than disproportionately benefiting from tax advantaged items.

alternative minimum

Tax services that are arranged by Internal Revenue Code Sections are known as _____________________ tax services.

annotated

An investment that pays a stream of equal payments over time is a(n) ___________.

annuity

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

The tax ____________________ defines what is actually taxed and is usually expressed in monetary terms.

base

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 ____________. need to include the appreciation of $9,000 in gross income in order to take the full deduction only be able to deduct $21,000 if the church doesn't use the land in its related use be able to deduct $30,000 as a charitable contribution can only deduct $21,000 for the land contribution, regardless of how the church uses the land

be able to deduct $30,000 as a charitable contribution

The system of shifting itemized deductions into one year such that the amount of itemized deductions exceeds the standard deduction for the year, and then deducting the standard deduction the next year is known as ___________ itemized deductions.

bunching

Activities that are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as __________ activities.

business

Employees ____________ deduct their unreimbursed business expenses, while self-employed individuals can deduct their business expenses _____________ AGI.

can't for

Expenses that may be classified as miscellaneous itemized deductions for 2022 include ___________. (Check all that apply.) casualty and theft losses on investment property unreimbursed employee business expenses the unrecovered cost of a life annuity when the taxpayer dies tax preparation fees all gambling losses

casualty and theft losses on investment property the unrecovered cost of a life annuity when the taxpayer dies

When evaluating a tax system, ____________________ suggests that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax.

certainty

Allie's only source of income for the year is wages from a part-time job of $9,000. She is not married and has one dependent child. Allie has no tax liability and she had no income tax withheld by her employer. What is the amount of Allie's earned income credit? EXHIBIT 8-11 2022 Earned Income Credit Table Qualifiying Children (1) Maximum Earned Income Eligible for Credit (2) Credit % (3) Maximum Credit (1)××(2) (4) Credit Phase-Out for AGI (or earned income if greater) over This Amount (5) Phase-Out Percentage No Credit When AGI (or earned income if greater) Equals or Exceeds This Amount (4)+[(3)/(5)] Married taxpayers filling joint returns0$ 7,3207.65%$560$15,2907.65%$22,610110,980343,73326,26015.9849,622215,410406.16426,26021.0655,5293+15,410456,93526,26021.0659,187All taxpayers except married taxpayers filling joint returns0$ 7,3207.65%$560$9,16015.30%$16,480110,980343,73320,13015.9843,492215,410406,16420,13021.0649,3993+15,410456,93520,13021.0653,057 Multiple choice question. $529 $0 $3,060 $3,600

check phone screenshot (3/28/2023) ANS: $3,060

In order to meet the criteria for a qualifying _____, the dependent must NOT have provided more than half of his or her own support for the year. However, the support may have been provided by someone other than the taxpayer.

child

In general, when a taxpayer cashes out a life insurance policy before death, taxable income may result. However, if the taxpayer is ___________ ill, the portion of the proceeds used for long-term care is excluded from gross income. If the taxpayer is ___________ ill, the proceeds are NOT taxable.

chronically terminally

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/taxpayer's facts

Assets such as works of art, antiques, stamps and coins held for more than one year are referred to as _________. The maximum capital gains tax rate applied to the gain on the sale of these assets is __________percent.

collectibles 28%

Because it often restricts the income deferral for cash-method taxpayers, the ____________________ ____________________ doctrine is a limitation of a timing strategy.

constructive receipt

When evaluating a tax system, ____________________ suggests that the system should be designed to facilitate the collection of tax revenues without undue hardship on the taxpayer or the government.

convenience

The tax planning strategy based on the understanding that the tax law does NOT treat all types of income and deductions the same is the _____________________ strategy.

conversion

Regardless of the level of income, all _____________________ must file a tax return annually.

corporation

A tax ____________ reduces a taxpayer's tax liability dollar for dollar. A tax ____________ reduces taxable income, resulting in a tax savings that is dependent on the taxpayer's marginal tax bracket.

credit deduction

Rather than claiming the foreign-earned income exclusion, taxpayers may claim a foreign tax ____________ or a foreign tax _______________ for income taxes paid to other countries.

deduction credit

All sources of income are taxable unless specifically excluded through a tax provision. However, _____ are NOT permitted unless a specific tax provision allows them.

deductions

When tax rates are constant, tax planning suggests that taxpayers should consider _____________________ the recognition of income.

deferring

Sharon Jones is single. During 2022, 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 ______ rounded to the nearest whole dollar of $______

due $3,507

Earnings on investments in plans such as 529 plans, Coverdell savings accounts, and U.S. Series EE bonds are excluded from taxation if the proceeds are used for qualifying ___________ expenses.

education

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 ___________ AGI.

educational for

When evaluating a tax system, ____________________ considers how the tax burden should be distributed across taxpayers.

equity

A(n) ____________________ tax is based on the quantity sold of particular products, rather than the monetary amount of the retail selling price.

excise

LLCs, S Corporations, and partnerships do NOT pay taxes at the organization level; rather these types of activities are ___________ - _____________ entities whose operating income and losses are allocated to the owners of the entities.

flow - through

Expenses such as alimony paid for divorces finalized before 1/1/2019, contributions to qualified retirement accounts, and business expenses for self-employed persons are deductions _____ AGI

for

Deductions _____ (for/from) AGI cause a reduction in AGI, which increases the deductibility of _____ (for/from) AGI deductions subject to AGI limitations.

for from

Some tax deductions are subtracted _____ AGI and some are subtracted _____ AGI.

for from

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: from; they result in a lower AGI which reduces the limitations based on AGI that decrease some tax benefits. for; these deductions increase the amount of the standard deduction. from; these deductions reduce a taxpayer's tax liability dollar for dollar. for; they are available to all eligible taxpayers, not just those that itemize deductions.

for; they are available to all eligible taxpayers, not just those that itemize deductions.

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 __________ to the person receiving the property.

gift nontaxable

A tax is a payment required by a(n) ____________________ that is unrelated to any specific benefit or service received by the taxpayer.

government

Sec. 61 of the Internal Revenue Code defines ______ income as "all income, from whatever source derived." realized gross taxable earned

gross

The all-inclusive concept means that _____ _____ generally includes all realized income from whatever source derived.

gross income

A lower rate of return on tax-exempt securities than the rate earned on similar taxable securities is an example of a(n) ____________________ tax which often reduces or negates the benefits of conversion strategies.

implicit

Taxpayers receiving indirect economic benefits, such as bargain purchases or below-market loans, are said to have ___________ income which may be taxable.

imputed

Taxpayers must ___________ gains but ___________ losses on the disposal of personal use assets from gross income.

include exclude

Most states and the District of Columbia impose ____________________ on individuals and corporations who earn income within the state.

income tax

Activities which are profit-motivated, but do NOT require a relatively high level of involvement from the taxpayer are referred to as _______________ activities.

investing

Rental and royalty endeavors are most commonly classified as _______________ activities.

investment

When taxpayers borrow money to acquire investments, the interest expense they pay on the loan is __________ __________ expense and the deduction is limited to the taxpayer's __________ ___________income for the year.

investment interest net investment

Our ____________________ system has the ultimate authority to interpret the Internal Revenue Code and to settle disputes between the IRS and taxpayers.

judicial

The net investment income tax is imposed on the _____________ of (a) net investment income or (b) the excess of ____________ AGI over a specific level depending on filing status.

lesser modified

The ___________ __________ credit is available for individuals in any course of instruction to acquire or improve their job skills.

lifetime learning

Bob has capital losses of $4,000 that exceed his capital gains in the current year. Of this amount, $1,200 is a short-term capital loss and $2,800 is a long-term capital loss. The capital loss carryforward will be a $1,000 Blank______. long-term capital loss because Bob must first use the short-term loss to offset ordinary income short-term capital loss because Bob must first use the long-term loss to offset ordinary income capital loss pro-rated between short-term ($300) and long-term ($700) capital loss carryforward and Bob can choose how much of the gain to allocate to short-term versus long-term

long-term capital loss because Bob must first use the short-term loss to offset ordinary income

If a taxpayer cashes out a life insurance policy before death due to a chronic illness, she may exclude from income the amount used to pay for her ___________ - ____________ _____________.

long-term care

When a married couple's tax liability is smaller using the married filing jointly status than it would have been if both individuals were unmarried and filed as single, the difference in the tax liability is called a(n) __________ __________.

marriage benefit

In order for a taxpayer to be able to deduct the loss on a business activity in which she is an owner, she must demonstrate that she ___________ _________ in the conduct of the business. If she does NOT, the activity is considered to be a passive activity.

materially participates

Rental activities _____________. are always classified as business activities and the expenses are deducted for AGI may be classified as investment activities or business activities, but the expenses are always deducted for AGI are always classified as investment activities and the expenses are deducted from AGI may be classified as investment activities or business activities, but the expenses are always deducted from AGI

may be classified as investment activities or business activities, but the expenses are always deducted for AGI

A gift ____________. may be subject to "gift tax" which is paid by the person receiving the gift may be subject to "gift tax" which is paid by the person giving the gift is included in the gross income of the person receiving the gift and subject to income tax is included in the gross income of the person giving the gift and subject to income tax

may be subject to "gift tax" which is paid by the person giving the gift

Employees pay ___________ taxes on their salary, wages, and other compensation at a current rate of 1.45% (2.35% for higher income taxpayers).

medicare

The general purpose of a tax is to raise ____________________ to fund the operations of the ____________________.

money, revenue, funds, income, etc. government

In order to meet the requirements of the residence test for a qualifying child, the individual must live with the taxpayer for: the entire year longer than he has resided with anyone else during the year at least one-third of the year more than half the year

more than half the year

Interest income on ___________ bonds is excluded from federal taxation. both municipal and federal government corporate federal government municipal

municipal

Interest on ___________ bonds is excluded from federal income taxation.

municipal

Business tax credits are __________ credits, but may be carried back one year or forward for ___________ years. nonrefundable; twenty refundable; five refundable; twenty nonrefundable; five

nonrefundable; twenty

Any reimbursement a taxpayer receives from a medical or accident insurance policy for medical expenses paid by the taxpayer during the current year are __________ for the taxpayer.

nontaxable

In general, life insurance proceeds are ___________ to the beneficiary of the policy.

nontaxable

Income that is taxed in the current year according to the tax rate schedule is referred to as ______ income. long-term capital gains tax-deferred ordinary tax-exempt

ordinary

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

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 ___________. capital gain property and Markita can deduct $1,000 capital gain property and Markita can deduct $1,200 ordinary income property and Markita can deduct $1,200 ordinary income property and Markita can deduct $1,000

ordinary income property and Markita can deduct $1,000

Assuming no multiple-support agreement, to meet the support test to be a qualifying relative of a taxpayer, the taxpayer must pay _________ of the individual's support. more than anyone else pays at least 10 percent all over half

over half

If an individual could be a qualifying child for either her parent or her grandparent, the _____ is entitled to claim the child as a dependent.

parent

Passive activity losses may only offset ____________ income, but NOT active business or ____________ income.

passive portfolio

When a taxpayer does NOT materially participate in the business activities of a trade or business (including rental activities) in which he is a partial owner, any loss that flows through to the taxpayer is subject to the ___________ ____________ loss rules.

passive activity

The basis for requiring employers to withhold taxes from employees' pay and requiring periodic estimated tax payments from taxpayers with income not subject to withholding is known as the: revenue recognition basis. wherewithal-to-pay basis. cash basis. pay-as-you-go basis.

pay-as-you-go basis.

Donations to _______________ organizations are NOT deductible for federal income tax purposes. political educational religious scientific

political

An example of a tax assessed by a state or local government is ____________________ tax.

property; sales; use; income. excise

A sales tax is an example of a tax that uses a(n) ____________________ tax rate structure when compared to its tax base.

proportional

Sheila and Joe Wells are married with no dependent children. During 2022, they have gross income of $159,800, deductions for AGI of $5,500, and itemized deductions of $10,000. The Wells' had $22,000 withheld by their employer for federal income tax. They have a tax ______ of $_____

refund $2,518

Sheila and Joe Wells are married with one dependent child. During 2022, they have gross income of $159,800, deductions for AGI of $5,500, itemized deductions of $27,100 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 ______ of $_____.

refund $4,782

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 starting point for determining the alternative minimum tax is: gross income regular tax liability regular taxable income adjusted gross income

regular taxable income

The highest authoritative weight when interpreting the Internal Revenue Code are ____________________ issued by the Treasury Department.

regulations

In addition to the individual income tax, individuals may be required to pay other taxes. Owners of unincorporated businesses may have to pay _____ - _____ tax

self-employment

A taxpayer may file as a single taxpayer when: she is unmarried at the end of the tax year she has been unmarried for over half of the year her spouse died during the year she is separated from her husband, but not yet divorced

she is unmarried at the end of the tax year

Individual taxpayers who are unable to file by the due date can request an automatic __________ - __________ extension to file.

six - month

Employees pay ___________ ___________ taxes on their salary, wages, and other compensation at a current rate of 6.2%.

social security

Up to 85% of ________ ________ benefits, in retirement, may be taxable for taxpayers with moderate to high taxable income.

social security

The ___________ __________ tax is intended to provide basic pension coverage for the retired and disabled, and the __________ tax helps pay medical costs for qualifying individuals.

social security medicare

For purposes of the qualified business income deduction, a qualified trade or business is any trade or business other than a(n) __________ __________ trade or business or business of being a(n) __________.

specified service employee

The __________ __________ is a flat amount that most individuals can elect to deduct instead of deducting their itemized deductions.

standard deduction

Primary sources consist of statutory, administrative, and judicial sources of the law. The ____________________ source includes committee reports from the House Ways and Means Committee or the Senate Finance Committee.

statutory

In order to meet the _____ test, the taxpayer must pay more than half of the living expenses for the qualifying relative.

support

A payment required by a government that is unrelated to any specific benefit or service received from the government is a(n) ____________________.

tax

Each separate range of income subject to a different tax rate is referred to as a(n) __________ __________.

tax bracket

Investment interest expense that was NOT deductible for regular taxable income will be deductible for AMTI to the extent it was attributable to interest income that was __________ __________ for regular tax purposes, but is __________ FOR AMTI.

tax exempt taxable

Generally, whenever a taxpayer can accelerate a tax deduction without accelerating the cash outflow, the ____________________ strategy will be beneficial.

timing

Tax services that are arranged by topic, such as types of taxable income, are known as ____________________ tax services.

topical

Taxpayers may be subject to a(n) __________ ___________ if they have taxes due and have NOT met the safe harbor provisions.

underpayment penalty

Income from property is referred to as __________ income.

unearned

The purpose of ____________________ tax is to provide temporary income for individuals terminated from their jobs without cause.

unemployment

Gross income means all income from ______ ______ _____

whatever/all sources dervied

The income tax is paid on a pay-as-you-go basis through __________ or ____________ tax payments.

withholdings estimated

Which of the following statements is INCORRECT regarding tax planning? - Tax planning requires understanding that almost every financial transaction includes the taxpayer, the other transacting party, and the government. - Tax planning is important because taxes are the primary determinant of how a transaction is structured. - The government is involved in most all transactions between two parties and is sometimes referred to as "the uninvited silent party." - Good tax planning requires understanding the tax and nontax costs from the taxpayer's and the other party's perspective.

- Tax planning is important because taxes are the primary determinant of how a transaction is structured. EXPLANATION: - Tax planning requires understanding that almost every financial transaction includes the taxpayer, the other transacting party, and the government.; An understanding of the tax impact on all parties involved in the transaction will help with structuring the transaction in the most tax-favored manner. - The government is involved in most all transactions between two parties and is sometimes referred to as "the uninvited silent party."; This is correct. Tax consequences are often a result of a financial transaction between two parties. Hence, the government becomes involved. - Good tax planning requires understanding the tax and nontax costs from the taxpayer's and the other party's perspective.; An understanding of the tax impact on all parties involved in the transaction will help with structuring the transaction in the most tax-favored manner.

Which of the following statements are CORRECT? - Taxpayers prefer lower present values when considering cash inflows. - Taxpayers prefer higher present values when considering cash inflows. - Taxpayers prefer lower present values when considering cash outflows. - Taxpayers prefer higher present values when considering cash outflows.

- Taxpayers prefer higher present values when considering cash inflows. - Taxpayers prefer lower present values when considering cash outflows.

Which of the following statements is INCORRECT regarding income shifting strategies across jurisdictions? - The differences in tax rates and tax laws across jurisdictions can often be used to maximize after-tax wealth. - Although tax laws may be more favorable in other countries, negative publicity may hamper operations of companies who move operations overseas. - Taxpayers that operate in multiple countries should always incorporate in the country with the lowest tax structure in order to pay taxes in that country. - The IRS is likely to closely scrutinize companies who operate in multiple jurisdictions.

- Taxpayers that operate in multiple countries should always incorporate in the country with the lowest tax structure in order to pay taxes in that country.

The taxpayers who are MOST likely to benefit from an income shifting strategy include which of the following choices? - Taxpayers who have family members with the same marginal rates that are willing to shift income for the benefit of the group - Taxpayers with multiple businesses operating in one jurisdiction where the tax rates are consistent - Taxpayers who have related parties with varying marginal tax rates or who operate in multiple jurisdictions with different marginal tax rates

- Taxpayers who have related parties with varying marginal tax rates or who operate in multiple jurisdictions with different marginal tax rates

Which of the following statements is INCORRECT regarding Treasury regulations? - Final regulations represent the Treasury's interpretation of the Code. - Proposed regulations do not carry the same authoritative weight as final regulations. - Temporary regulations carry less authoritative weight than final regulations. - Proposed regulations allow public comment on them.

- Temporary regulations carry less authoritative weight than final regulations.

The state of Indiana charges a 6% sales tax on most consumer goods. Grant purchased a generator for $400 and paid an additional $24 in sales tax. In this example, what is the "tax base?" - The $400 retail price of the generator - The $424 paid by Grant - The $24 sales tax amount - The percentage of tax being charged (6%)

- The $400 retail price of the generator The tax base defines what is actually being taxed. In this case it is the $400.

Which trial court does NOT require the taxpayer to pay the deficiency before the case is heard? - The U.S. Tax Court - The U.S. Circuit Court of Appeal - The U.S. District Court - The U.S. Court of Federal Claims

- The U.S. Tax Court The Tax Court is the only venue where the taxpayer does not have to pay the deficiency and then sue for a refund. The court of appeal is not a trial court.

Danny is trying to determine if he should purchase equipment for his business this year or next year. He is currently in the 28% tax bracket and will be able to expense the equipment in the year he purchases it. With the new equipment, he believes that his marginal rate will increase to 33% next year. The cost of the equipment is $20,000 and his after-tax rate of return is 6%. Calculate the after-tax cost of the equipment for both years and choose the correct statement below. Year 4% 5% 6% 7% 1 .962 .952 .943 .935 2 .925 .907 .890 .873 3 .889 .864 .840 .816 4 .855 .823 .792 .763 5 .822 .784 .747 .713 - The after tax cost of the equipment is $14,400 this year or $13,776 next year. Danny should purchase the equipment next year. - The after tax cost of the equipment is $14,400 this year or $13,776 next year. Danny should purchase the equipment this year. - The after-tax cost of the equipment is $14,400 this year or $13,400 next year. Danny should purchase the equipment next year. - The after-tax cost of the equipment is $14,400 this year or $13,400 next year. Danny should purchase the equipment this year.

- The after tax cost of the equipment is $14,400 this year or $13,776 next year. Danny should purchase the equipment next year.

Which of the following sentences describes the average tax rate? - The tax rate applied to the next additional increment of a taxpayer's taxable income (or deductions) - The average level of taxation on each dollar of the taxpayer's taxable income - The average level of taxation on each dollar of the taxpayer's total income including taxable and nontaxable income

- The average level of taxation on each dollar of the taxpayer's taxable income

How does the losing party in a trial court decide which U.S. Circuit Court of Appeals will hear the case? - The losing party should appeal in the circuit that has ruled most consistently with its stance on the tax position. - The case must be appealed to the U.S. Circuit Court with jurisdiction over the taxpayer's case (typically based on the taxpayer's residence). - The losing party should choose the U.S. Circuit Court with the most experience on that particular tax issue. - The case will be heard by the U.S. Circuit Court with the lightest case load in order to expedite the process.

- The case must be appealed to the U.S. Circuit Court with jurisdiction over the taxpayer's case (typically based on the taxpayer's residence).

Which of the following choices is an advantage of shifting income across jurisdictions? - The IRS is likely to closely scrutinize companies who operate in multiple jurisdictions. - Taxpayers often receive less scrutiny from the IRS when operating in multiple jurisdictions. - The differences in tax rates and tax laws across jurisdictions can often be used to maximize after-tax wealth. - The public is generally supportive of companies moving operations out of the U.S. in order to reap tax and other financial benefits.

- The differences in tax rates and tax laws across jurisdictions can often be used to maximize after-tax wealth.

What is the tax base for the gift tax? - An amount agreed upon by the donor and the donee - The fair market value of the gift on the date the gift is given - The original purchase price of the gift paid by the donor - An appraisal made by the Internal Revenue Service

- The fair market value of the gift on the date the gift is given

Which of the following statements are correct regarding the history of the U.S. personal income tax? - The 16th Amendment to the U.S. Constitution gives Congress the power to assess income tax on individuals. - The income tax was once ruled unconstitutional. - The first personal income tax contained a very high marginal tax rate. - The first personal income tax was enacted to fund the Spanish-American War.

- The income tax was once ruled unconstitutional. - The 16th Amendment to the U.S. Constitution gives Congress the power to assess income tax on individuals.

Who has the ultimate authority to interpret the IRC and settle tax disputes? - The legislative system - The judicial system - Congress - The Internal Revenue Service

- The judicial system

Which of the following statements describes implicit taxes? - The increased before-tax return that a tax-favored asset produces because of its tax-advantaged status - The increased after-tax return that a tax-favored asset produces because of its tax-advantaged status - The reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status - The reduced after-tax return that a tax-favored asset produces because of its tax-advantaged status

- The reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status

Which of the following statements is INCORRECT regarding use tax? - The retailer is responsible for collecting and remitting the tax to the state where the consumer resides. - Many states offer a use tax credit for purchases made in another state where a sales tax was imposed. - The tax base is the retail price of the goods purchased in another state. - The use tax allows a state to collect tax on items purchased in another state but utilized or consumed within their own state.

- The retailer is responsible for collecting and remitting the tax to the state where the consumer resides.

Which of the following reasons is NOT sufficient for the U.S. Supreme Court to agree to hear a tax case? - The tax issues in the case have been resolved differently among the circuit courts. - The tax issues in the case have great significance to a broad cross-section of taxpayers. - The tax issues are not clearly covered in the Internal Revenue Code.

- The tax issues are not clearly covered in the Internal Revenue Code.

Which of the following sentences describes the marginal tax rate? - The marginal tax rate that is constant and applies to each dollar of taxable income generated by the taxpayer - The average level of taxation on each dollar of the taxpayer's taxable income - The average level of taxation on each dollar of the taxpayer's total income including taxable and nontaxable income - The tax rate applied to the next additional increment of a taxpayer's taxable income (or deductions)

- The tax rate applied to the next additional increment of a taxpayer's taxable income (or deductions)

What action does the 30-day letter provide a taxpayer if the taxpayer does NOT agree with an assessment after being audited by the IRS? - The taxpayer should file for an Offer in Compromise. - The taxpayer should petition the U.S. Tax Court to hear the case. - The taxpayer can request an appeals conference. - If there has been an audit, the taxpayer should pay the deficiency. There is no recourse.

- The taxpayer can request an appeals conference.

How should a taxpayer evaluate whether it is advantageous to accelerate a tax deduction in a period of tax rate increases? - The taxpayer should always choose to take the deduction in the high-tax-rate year if there is an option. - The taxpayer needs to compare the tax-savings from the deduction in the current year to the present value of the tax-savings in one year. - The taxpayer should always take the deduction in the current year to minimize current taxes.

- The taxpayer needs to compare the tax-savings from the deduction in the current year to the present value of the tax-savings in one year. EXPLANATION: NOT --> - The taxpayer should always choose to take the deduction in the high-tax-rate year if there is an option.; The projected tax savings must be adjusted to the present value in order to make a good comparison. This requires extra work and the taxpayer must determine if the benefit of deferral is worth the time and risk that tax rates will decrease.

What action does the 90-day letter provide a taxpayer if the taxpayer does NOT agree with an assessment after being audited by the IRS and participating in the appeals conference? - The taxpayer can request a second appeals conference with a senior IRS manager. - If the appeals conference is unsuccessful, the taxpayer should pay the deficiency. There is no recourse. - The taxpayer should petition the U.S. Tax Court to hear the case. - The taxpayer should file for an Offer in Compromise.

- The taxpayer should petition the U.S. Tax Court to hear the case. The 90-day letter asks the taxpayer to either pay the deficiency or petition the Tax Court to hear the case. An Offer in Compromise does not dispute the amount owed; it simply asks for a reduction in the amount due to financial hardship.

Which of the following statements does NOT apply to private letter rulings? - They typically address transactions with potentially large tax implications. - They carry the same weight and authority as Treasury regulations. - They explain the IRS position on a proposed transaction for the taxpayer. - They are issued at the request of the taxpayer.

- They carry the same weight and authority as Treasury regulations.

Jose has been offered a new job. The new job will pay more than his current job. Jose is hesitant to take the new job because it will cause his income to exceed the maximum amount in his current tax bracket. He is concerned that the increase in taxes will exceed his increased income from the new job. - This is not possible. Only the portion of income that exceeds Jose's current bracket will be taxed at the higher rate, not his total taxable income. - This is possible. Jose's entire taxable income will be taxed at the higher rate which could cause his increased taxes to exceed his increased salary.

- This is not possible. Only the portion of income that exceeds Jose's current bracket will be taxed at the higher rate, not his total taxable income.

What is the general purpose of a tax? - To punish or prevent illegal behavior - To fund the operations of the government - To influence business decisions - To stimulate the economy

- To fund the operations of the government

Which of the following transactions would NOT be acceptable to the IRS as a means of switching the taxable income to another taxpayer? -Selling a taxpayer's assets to her business at fair market value - Transferring interest income from a taxpayer's investment to his young daughter - Giving a gift of the taxpayer's stock to her son

- Transferring interest income from a taxpayer's investment to his young daughter EXPLANATION: -Selling a taxpayer's assets to her business at fair market value; This transaction is acceptable if the assets are sold at fair market value. - Giving a gift of the taxpayer's stock to her son; This transaction will allow the dividends on the stock to be taxed at her son's rate.

Which of the following primary authorities is NOT a legislative source of authority? - Internal Revenue Code - Treasury regulations - U.S. Constitution - Tax treaties

- Treasury regulations While the President has the power to enter into treaties, Congress must approve the treaty.

True or false: Open fact transactions are more conducive to tax planning than closed fact transactions. True/False

- True Open facts have not yet occurred, so there is the opportunity to plan the transaction where it yields the most favorable tax treatment.

To where does a losing party in a trial level court appeal the decision? - U.S. Circuit Court of Appeal - U.S. Tax Court of Appeals - U.S. Supreme Court - Internal Revenue Service

- U.S. Circuit Court of Appeal To one of the 13 U.S. Circuit Courts of Appeal (based on the taxpayer's residence); the Supreme Court may agree to hear the case after the appeal

After an appeals court hears a case, which court can the losing party petition to hear the case? - U.S. Circuit Court of Appeal in a different circuit than previously used - The appeals court is the final step in the judicial process - State Supreme Court in the taxpayer's state of residence - U.S. Supreme Court

- U.S. Supreme Court

Which of the following types of taxes are paid by employers based upon their employees' wages? - Sales tax - Unemployment tax - Social Security tax - Excise tax - Medicare tax

- Unemployment tax - Social Security tax - Medicare tax

Under which of the following situations is a strategy for the timing of deductions most beneficial? - When the taxpayer is earning a high rate of return - When the taxpayer is expecting to be taxed at a higher rate in the future - When tax deductions can be accelerated without accelerating the cash outflow - When the transaction is small - When the transaction is large - When tax rates are high - When tax rates are low

- When tax deductions can be accelerated without accelerating the cash outflow - When the taxpayer is earning a high rate of return - When tax rates are high - When the transaction is large

Under what circumstances might a taxpayer want to defer the recognition of income? - When the actual receipt of the income does not have to be postponed very long - When the rate of return on an investment is projected to increase - When setting aside money for retirement - When the taxpayer expects to be in a higher tax bracket in the future

- When the actual receipt of the income does not have to be postponed very long - When setting aside money for retirement

When tax rates are decreasing, taxpayers should ____________________ tax deductions and ____________________ taxable income.

- accelerate - defer

When tax rates are constant, taxpayers should _____________________ tax deductions and ____________________ recognizing taxable income. - accelerate; accelerate - accelerate; defer - defer; accelerate - defer; defer

- accelerate; defer

The Treasury Department is charged with ___________________ and ___________________ the tax laws of the United States. - making, administering - writing, passing - overturning, revising - administering, interpreting

- administering, interpreting

What is the name of the tax rule that requires income to be taxed to the taxpayer who actually earns it? - assignment of income doctrine - ownership of assets doctrine - income shifting doctrine

- assignment of income doctrine

What is the name of the tax rule that requires income to be taxed to the taxpayer who actually earns it? - ownership of assets doctrine - assignment of income doctrine - income shifting doctrine

- assignment of income doctrine

Tax ____________________ is the legal act of arranging one's transactions to minimize taxes paid. Tax ____________________ is the willful act of defrauding the government by NOT paying taxes legally owed.

- avoidance - evasion

Limitations on certain tax benefits, such as depreciation for luxury automobiles, often decrease or eliminate the benefits of ______ strategies. - conversion - income shifting - diversion - timing

- conversion

When tax rates are constant or _____________________, taxpayers should accelerate tax deductions and defer taxable income. - decreasing - increasing

- decreasing

An effective income shifting strategy for a corporation and an employee-owner involves generating a tax ____________________ for one party while generating taxable ____________________ for the other party.

- deduction - income

In addition to accelerating deductions, the timing strategy of __________________ income recognition is beneficial to many taxpayers. - accelerating - deferring - converting - eliminating

- deferring

In order to raise revenue in the city of Hamlet, the city considered assessing a local tax on food served in restaurants. When forecasting the amount of revenue that would be generated by the new tax, the budget officials suggested that about 10% of current customers would likely quit eating out in Hamlet and drive to the nearest town. This is an example of: - substitution forecasting - dynamic forecasting - static forecasting - zero-based budgeting

- dynamic forecasting

The ____________________ tax and ____________________ tax are based on fair market value of the assets being transferred at death or as a gift.

- estate tax - gift tax

Property taxes are ad valorem taxes which means that the tax base is the: - quantity of items or property being taxed. - original purchase price of the property. - fair market value of the property.

- fair market value of the property.

Treasury regulations come in three forms: ____________________ regulations have been issued in their final form and represent the Treasury's interpretations of the Code; ____________________ regulations have a limited life but carry high authoritative weight; and ____________________ regulations, which have the lowest authority.

- final - temporary - proposed

When considering cash inflows, taxpayers and planners prefer present values that are _____________________ (higher/lower) than the future value. When considering cash outflows, taxpayers and planners prefer present values that are ____________________ (higher/lower) than the future value.

- higher - lower

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: - analyzing the tax authorities - communicating the results - identifying the issues - locating the relevant authorities

- identifying the issues

Treasury regulations have different purposes. ____________________ regulations represent the Treasury's understanding of the Code. ____________________ regulations explain Treasury Department's policies as they relate to administering the Code. And, ____________________ regulations are issued when the Treasury Department has been instructed to address an issue in an area of law.

- interpretative - procedural - legislative

Which of the following lists contains the five basic parts of an internal research memo? - issues, facts, authority list, opinion, analysis - issues, facts, authority list, conclusion, analysis - issues, facts, authority list, opinion, discussion - issues, facts, authority list, conclusion, discussion

- issues, facts, authority list, conclusion, analysis

Which of the following lists contains the five basic parts of an internal research memo? - issues, facts, authority list, opinion, analysis - issues, facts, authority list, conclusion, discussion - issues, facts, authority list, conclusion, analysis - issues, facts, authority list, opinion, discussion

- issues, facts, authority list, conclusion, analysis

A question of ____________________ could involve the interpretation of a particular Code section, while a question of _____________________

- law - fact

All other things being equal, taxpayers should prefer to recognize income during ____________________ tax-rate years and deductions during ____________________ tax-rate years.

- low -high

____________________ facts have not yet occurred. ____________________ facts have already occurred.

- open - closed

The concept that $1 today is worth more than $1 in the future is known as: - projected value - forecasted value - future value - present value

- present value

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 authorities - secondary authorities

A ____________________ is issued in response to a taxpayer request. These requests commonly relate to proposed transactions with potentially large tax implications. - technical advice memorandum - revenue ruling - private letter ruling - determination letter

- private letter ruling

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

Property taxes are commonly assessed on _____________________ property (such as buildings and land) and ____________________ property (such as cars and boats).

- real property - personal property

The tax preparer can avoid a penalty if the tax position has at least a(n) ____________________ ____________________, as long as it is disclosed on the tax return.

- reasonable - basis

The tax base for sales tax is the _____________________ of goods and certain services provided. - quantity - retail sales price - wholesale price

- retail sales price

Revenue ____________________ and revenue ____________________ are second in administrative authoritative weight after regulations.

- rulings - procedures

A tax imposed on a legal product or service that may be addictive in nature is known as a(n): - excise tax - consumption tax - earmarked tax - sin tax

- sin tax

A tax imposed on a legal product or service that may be addictive in nature is known as a(n): - sin tax - earmarked tax - excise tax - consumption tax

- sin tax

Every transaction includes three parties: the ____________________, the other transacting party, and the _____________________.

- taxpayer - government

There are three basic tax planning strategies that represent the building blocks of tax planning. These strategies include ____________________, income shifting, and ____________________.

- timing - conversion

Which type of tax is based on the retail price of goods owned, possessed, or consumed within a state that were NOT purchased within the state? - income tax - sales tax - excise tax - use tax

- use tax

Andy is considering investing $5,000 into one of three investments. He can invest in corporate stock that will pay dividends of 5% per year. He can purchase corporate bonds that pay 6%. Or, he can invest in tax-exempt securities that will pay 4% per year. Andy is in the 33% marginal tax bracket and the dividends will be taxed at 15%. Match the investment to its respective after-tax return. Corporate stock <---- Corporate bonds <---- Tax-exempt securities <----

----> $212.50 ----> $201.00 ----> $200.00

Match which trial court would be the best choice for a taxpayer in the situation described below. U.S. Tax Court <---- U.S. District Court <---- U.S. Court of Federal Claims <----

----> A taxpayer feels very confident in her position and lacks the funds to pay the assessment. ----> The tax return position is low on technical support, but high on emotional appeal. ----> The taxpayer knows that the Circuit Court of Appeals in the circuit in which she resides has ruled against a similar tax return position in the past.

Match the judicial doctrine used by the IRS when taxpayer abuse is suspected with the description of the doctrine. Business purpose doctrine <---- Step-transaction <---- Substance over form <---- Economic substance doctrine <----

----> Allows the IRS to challenge and disallow business expenses with no underlying business motivation ----> Allows the IRS to collapse a series of related transactions into one transaction to determine the tax consequences ----> Allows the IRS to consider the purpose of the transaction regardless of the way it is structured ----> Requires the transaction to meet two criteria: (1) meaningfully change a taxpayer's economic position and (2) have a substantial purpose for the transaction

Match the evaluation criteria (on the left) with their respective definitions (on the right). Sufficiency <---- Equity <---- Certainty <---- Convenience <---- Economy <----

----> Considers whether tax revenues generated are adequate to meet the financial needs of the government. ----> Considers how the tax burden should be distributed across taxpayers. ----> Considers that taxpayers should be able to determine when, where, and how to calculate and pay the tax. ----> Suggests that a tax system should be designed to facilitate the collection of tax revenue without undue hardship. ----> Considers that the system should minimize compliance and administration costs.

Match the statute of limitations to the various types of noncompliance. Instructions Three years <---- Six years <---- No statute of limitations <----

----> If the taxpayer misreports income (not exceeding 25 percent of gross income) or deductions ----> If the taxpayer omits items of gross income that exceed 25 percent of gross income ----> If the taxpayer commits fraud or doesn't file a tax return

Match the three basic tax planning strategies with their description: timing <---- income shifting <---- conversion <----

----> accelerating tax deductions and deferring the recognition of taxable income ----> moving income and deductions from taxpayers in one tax bracket to taxpayers in a different tax bracket ----> changing the type of income to a more tax-favored form of income

Match the expense with the tax treatment related to that expense. Other Investment expense <--- Investment Interest expense <---

---> Not deductible ---> Interest expense itemized deduction

List the order in which taxpayers with multiple credits should apply them against their gross tax. 1 <-- 2 <-- 3 <--

--> Personal nonrefundable credits --> Business credits --> Refundable credits

Match the term on the left with the best fitting definition on the right. Social Security Tax <-- Medicare Tax <-- Self employment tax <--

--> Provides basic pension coverage for the retired and disabled --> Helps pay medical costs for qualifying individuals --> Includes the employer and employee portion of FICA taxes

Match the tax rate with the corresponding type of tax. 12.4% <-- 2.9% <-- 3.8% <-- 15% <--

--> Social Security Tax rate --> Medicare Tax Rate on the tax base up to $200,000 (for single taxpayers). --> Medicare Tax Rate on the tax base above $200,000 (for single taxpayers). --> This rate does not apply to either Social Security or Medicare taxes.

Chris has taxable income of $123,000. A portion of this income is from capital gains and should receive preferential tax treatment. List the steps below in the order in which they should occur for Chris to be able to determine his overall tax liability. Step 1 <-- Step 2 <-- Step 3 <--

--> Split taxable income into the portion taxed at preferential rates versus the portion taxed at ordinary rates. --> Compute the tax separately on each type of income, using the tax rate schedule on the portion taxed at ordinary rates. --> Add the tax on the income subject to preferential rates to the tax on the income subject to ordinary rates.

Which of the following taxes uses a proportional tax rate structure? - Federal estate tax - Federal individual income tax -Federal corporate income tax - Social security tax

-Federal corporate income tax EXPLANATION: - Federal estate tax; The federal estate tax is based on a progressive rate structure. - Federal individual income tax; The federal income tax is based on a progressive structure. - Social security tax; The social security tax imposes a regressive tax structure.

Which of the following is NOT a computer initiative that helps the IRS identify tax returns that may have an understated tax liability? - Document perfection program - Information matching program - Discriminant function system -Statistical percentage program

-Statistical percentage program

Darcy received $2,000 in qualified dividends this year and has ordinary income of $20,000. Assuming Darcy has no other taxable income, the tax rate will be assessed on the $2,000 dividend is ___________%.

0%

The discount factor for a one-year investment earning a rate of return of 3 percent is equal to ____________________.

0.971

Put the following items in the order in which they are found in the individual income tax formula.

1. Gross income 2. Minus for AGI deductions 3. Equals adjusted gross income 4. Minus from AGI deductions 5. Equals taxable income

Starting with the highest authoritative weight, rank the authorities in descending order.

1. Internal Revenue Code 2. Treasury Regulations 3. Revenue rulings and revenue procedures 4. Letter rulings

Click and drag on elements in order Qi, Julian, and Omar are all in the 24% tax bracket. Qi has received $3,000 in corporate bond interest, Omar $2,500 in savings account interest, and Julian $2,500 in dividends from a US corporation. Rank the taxpayers by their tax liability from the amounts received, from least to greatest.

1. Julian's $2,500 2. Omar's $2,500 3. Qi's $3,000

List the steps in the legislative process to enact a tax law.

1. The bill is discussed in the House Ways and Means Committee and moves to the House of Representatives for a vote. 2. The bill is reviewed in the Senate Finance Committee for discussion and revisions. 3. The revised bill from the Finance Committee passes a vote in the Senate. 4. The two versions of the bill are reconciled in the Joint Conference Committee. 5. The bill passes both the House of Representatives and the Senate. 6. The bill is signed into law or vetoed by the President.

Starting with the court having the highest level of authority, rank the courts in descending order of authoritative rank.

1. U.S. Supreme Court 2. Circuit Courts of Appeal 3. U.S. Tax Court 4. U.S. court of Federal Claims 5. District Courts

Section 1202 provides that owners of qualified small business stock that is sold during 2022 and has been held for at least five years can exclude up to __________ percent of the gain from taxation depending on the acquisition date.

100%

In order to meet the safe harbor provisions, a taxpayer, with an adjusted gross income of $120,000 in the prior year, must have withholdings and estimated tax payments that equal or exceed which of the following measures? (Check all that apply.) 100% of their previous year tax liability 90% of their current tax liability 90% of their previous year tax liability 100% of their current year tax liability

100% of their previous year tax liability 90% of their current tax liability

Arlene is single and has taxable income of $19,000. Her tax liability is currently $2,075. 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 $2,675 if she accepts the special project. Arlene has a marginal tax rate of ____________________%.

12% tax liability/additional income (2,675-2,075)/5,000

Yolanda is your client. With her current level of taxable income, she is paying tax at 24% marginal rate. She received $2,000 in qualified dividends this year. What rate of tax do you expect that Yolanda will pay on her dividends? 15% 20% 0% 24%

15%

Annette is currently in the 24% marginal tax bracket. She had a long-term capital gain from the sale of stock and another capital gain from a coin collection. Assuming that the combined gains are not large enough to push her into a higher marginal bracket, she will be taxed _________% on the gain from the sale of stock and __________% on the gain from the coin collection.

15% 24%

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? 18.92% 15% 25% 14.99%

18.92% (5771-4636)/6000 = .1892 or 18.92%

Which one of the following tax rates does NOT currently apply to long-term capital gains? 25% 20% 28% 37% 15%

37%

Denis and Debbie are married and file jointly. They have two children, ages 10 and 12, that qualify for the child tax credit. Their 2022 AGI for the current year is $142,000. The amount of their child tax credit is $____________.

4,000

When a taxpayer's charitable contributions exceed the AGI ceiling limitation for the year, the excess contributions can be carried forward for __________ years.

5

The late filing penalty equals __________% of the amount of tax owed for each month that the tax return is late, with a maximum penalty of ___________%.

5% 25%

Brent, a single taxpayer, has a 24% marginal tax rate. He is considering an investment that will earn qualified dividends at a rate of 7% before tax. What is Brent's after-tax rate of return on the securities? 5.95% 1.05% 5.25% 1.75%

5.95% 7% x 0.85 = 5.95%

The earnings on a(n) _____________ plan are NOT taxable to the beneficiary if the distributions from the account are used to pay qualified higher education expenses.

529

Cash donations to public charities are limited to ____________% of a taxpayer's AGI. Donations of capital gain property to public charities are generally limited to __________% of a taxpayer's AGI. And, donations of certain capital gain property to private nonoperating foundations are limited to __________% of AGI.

60 30 20

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

The highest percentage of Social Security benefits that may be taxed is _____________% , and only for moderate to high income taxpayers.

85%

To avoid underpayment penalties, taxpayers should ensure the amount of withholding and/or estimated tax payments equal or exceed __________ percent of their current tax liability or __________ percent of their previous-year tax liability (__________ percent for individuals with AGI greater than $150,000).

90% 100% 110%

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? An employer's $12,000 loan to an employee with no interest on the note A bargain purchase between a father and his son Employee discounts of 30% on services

A bargain purchase between a father and his son

The child and dependent care credit is available for expenses paid to provide care for which of the following individuals? (Check all that apply.) A dependent who is a qualifying child regardless of age A dependent under age 13 A dependent, elderly parent who can take care of herself, but is low-income and does not provide over half of her own support. A spouse who is physically or mentally incapable of caring for himself A dependent who is physically or mentally incapable of caring for himself

A dependent under age 13 A spouse who is physically or mentally incapable of caring for himself A dependent who is physically or mentally incapable of caring for himself

What is the maximum amount of the 2022 child tax credit for a child under age seventeen? A maximum of $3,000 per qualifying child A maximum of $2,000 per tax return A maximum of $3,600 for each qualifying child A maximum of $2,000 for each qualifying child

A maximum of $2,000 for each qualifying child

Which of the following would most likely NOT qualify as support for meeting the support test? A wedding dress Summer camp with horseback riding, swimming, and other activities Medical and dental care A riding lawnmower used by a child to mow the family yard

A riding lawnmower used by a child to mow the family yard

Which of the following choices is NOT a form of a tax prepayment? A tax refund received in the current year for the prior year An overpayment of taxes in the prior year that was applied as an estimated payment for the current year Estimated tax payments the taxpayer made directly to the IRS Income tax withheld from a taxpayer's salary or wages by an employer

A tax refund received in the current year for the prior year

Which of the following statements regarding material participation is TRUE? A taxpayer must be involved in the business on a full-time basis throughout the year to be considered materially participating. A taxpayer's involvement is measured only in the current year and can NOT be deemed to be materially participating due to prior years of service. A taxpayer's involvement must exceed 500 hours a year in one activity to be considered materially participating. A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels.

A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels.

Which of the following statements is TRUE regarding the individual income tax formula? A taxpayer may deduct the greater of his standard deduction or his total adjustments (above the line) for AGI. A taxpayer may deduct the greater of his standard deduction or his total deductions (below the line) from AGI. A taxpayer may deduct the greater of his standard deduction or his itemized deductions for AGI to arrive at adjusted gross income. A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income.

A taxpayer may deduct the greater of his standard deduction or his itemized deductions from AGI to arrive at taxable income.

Which of the following statements regarding material participation is FALSE? A taxpayer can be materially participating by being involved in more than one activity if the total hours of involvement meet certain levels. A taxpayer's involvement does NOT have to exceed 500 hours a year in one activity to be considered materially participating if other tests are met. A taxpayer must be involved in a business on a full-time basis throughout the year to be considered materially participating. A taxpayer can be deemed to be materially participating due to prior years of service.

A taxpayer must be involved in a business on a full-time basis throughout the year to be considered materially participating.

Charlie's regular tax liability is $43,695. His tentative minimum tax is $58,304. He doesn't have any tax credits. What is the amount of Charlie's alternative minimum tax (AMT) and how much will he actually pay in tax for the current year? AMT: $58,304; Tax: $43,695 AMT: $14,609; Tax: $58,304 AMT: $0; Tax: $43,695 AMT: $58,304; Tax: $58,304

AMT: $14,609; Tax: $58,304

The operating loss from a passive activity can NOT be used to offset which categories of income? Active business and portfolio income Passive and portfolio income Active business income only Active business and passive income Passive income only Portfolio income only

Active business and portfolio income

Which of the following choices describe collectibles? (Check all that apply.) Corporate stock held in an investment portfolio may qualify as a collectible. A gain on collectibles is taxed at a maximum rate of 15 percent. Alcoholic beverages held over a year can qualify as a collectible. Coin collections and stamp collections may qualify as collectibles. A gain on collectibles is taxed at a maximum rate of 25 percent. Collectibles held less than twelve months may still qualify for preferential tax treatment. A gain on collectibles is taxed at a maximum rate of 28 percent.

Alcoholic beverages held over a year can qualify as a collectible. Coin collections and stamp collections may qualify as collectibles. A gain on collectibles is taxed at a maximum rate of 28 percent.

Which of the following statements is NOT correct regarding alimony paid related to divorce decrees entered into on or after January 1, 2019? Alimony is NOT deductible for AGI for the person paying it. Alimony payments must be made in cash. Alimony is NOT included in gross income of the person receiving it. Alimony is another term for child support.

Alimony is another term for child support.

Which of the following tax provisions was implemented to ensure that the taxpayer pays some level of income tax, despite the disproportionate use of tax preference items to reduce regular taxable income? Alternative minimum tax Earned income credit Tax on net investment income Kiddie tax Self-employment tax

Alternative minimum tax

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.) Capital gains tax Alternative minimum tax Value-added tax Self-employment tax

Alternative minimum tax Self-employment tax

Which one of the following individuals CANNOT meet the residence test for being a qualifying child of another taxpayer? Amy lived with her parents until the end of April. She moved into an apartment on May 1. Cathy was injured in a car accident in February. She remained in the hospital until September. Steven graduated from college in May and moved back in with his parents for two months. He moved out on July 15. Justin attends college in a different state than where his parents live.

Amy lived with her parents until the end of April. She moved into an apartment on May 1.

Andrew invested in a U.S. Savings bond. He paid $500 for the initial investment one year ago. The redemption value of the bond increased by $25 in the current year. Which of the following options is NOT acceptable for reporting the income? Andrew may request to receive the $25 in cash in the current year, so that he would have the wherewithal to pay the tax. Andrew could elect to recognize the $25 as interest in the current year. Andrew may recognize no interest in the current year, but recognize the total interest accumulated the year the bond is redeemed. Andrew may permanently exclude all interest if the savings bonds are Series EE or Series I bonds and the proceeds are used for educational expenses.

Andrew may request to receive the $25 in cash in the current year, so that he would have the wherewithal to pay the tax.

Which of the following terms describes business expenses that would be deductible by the taxpayer? (Check all that apply.) Appropriate Repetitive in nature Crucial Helpful Necessary Authorized Ordinary

Appropriate Helpful Necessary Ordinary

The due date for filing an individual tax return is ____________________ 15th (assuming the date does not fall on a holiday or a weekend day).

April

When are individual tax returns typically due for calendar-year taxpayers? January 31 April 15 March 15 December 31

April 15

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)? Ashley must use married filing separately in the prior year and head of household in the current year. Ashley will use qualifying widower in the prior year and head of household in the current year. Ashley will use qualifying widower for both years. Ashley will use married filing jointly in the prior year and qualifying widow in the current year.

Ashley will use married filing jointly in the prior year and qualifying widow in the current year.

Which of the following types of assets does NOT qualify as a capital asset? Assets classified as "personal use" Assets held as investments Assets used in a trade or business

Assets used in a trade or business

Bailey stood in line for hours and purchased the new game system the day it became available for $600. Knowing that there was a high demand for the game system and a limited supply, she decided to put the item on E-bay rather than keep it. She sold it for $950. She also sold her five-year old car for $5,000. She had purchased the car for $13,000. What is the taxable nature of these transactions? Bailey has no tax consequences for these transactions because the assets sold were "personal use" assets. Bailey has a taxable short-term capital gain of $350 and a deductible long-term capital loss. Bailey does not have to pay tax on the game system, but she deductible long-term capital loss. Bailey has a taxable short-term capital gain of $350, but no deductible loss for the car.

Bailey has a taxable short-term capital gain of $350, but no deductible loss for the car.

Which of the following requirements are necessary to qualify for head of household status? (Check all that apply.) Pay more than half the costs of keeping up a home for the year Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year Be a qualifying widow or widower Have lived with a qualifying person in the taxpayer's home for the entire year

Be unmarried (or considered unmarried under the abandoned spouse provisions) at the end of the year Pay more than half the costs of keeping up a home for the year

Which filing status is best for a married couple that lives together, but one spouse does NOT want to be liable for the other spouse's tax liability? Both individuals should file "single." Both individuals will be liable for the tax liability if they are married. Filing status is irrelevant. Both individuals should file "married filing separately." One individual should file "head of household" and the other individual should file "single."

Both individuals should file "married filing separately."

Which of the following statements is INCORRECT? Both tax deductions and tax credits reduce taxable income. Both tax deductions and tax credits are a matter of legislative grace. Both tax deductions and tax credits are specifically defined by Congress and are narrowly defined.

Both tax deductions and tax credits reduce taxable income.

Which of the following amounts is NOT added back to regular taxable income to arrive at alternative minimum taxable income? Capital losses State income taxes Standard deduction Tax-exempt income from private activity bonds

Capital losses

Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes? Travel costs incurred for charitable purposes Contributions made with credit cards where the charge is paid in a subsequent year Contributions made through payroll deduction Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause

Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause

Which of the following represents economic benefits to a taxpayer? (Check all that apply.) Cash received from a bank loan Cash received for completing a job A computer received in exchange for services rendered Interest income on investments

Cash received for completing a job A computer received in exchange for services rendered Interest income on investments

Which of the following expenses is most easily bunched, or accelerated, into one year, so that the itemized deductions can be used in one year and the standard deduction can be used the following year? Charitable contributions Gambling losses State income taxes Mortgage interest expense

Charitable contributions

Which of the following types of donations would be deductible as charitable contributions? (Check all that apply) Volunteering 4 hours (personal services) at a local Goodwill store Checks made payable to (and as a donation to) The Boy Scouts of America Cash donated to United Way Land donated to a state university Stocks and bonds donated to the Republican National Committee

Checks made payable to (and as a donation to) The Boy Scouts of America Cash donated to United Way Land donated to a state university

Which one of the following credits is a tax subsidy designed to help taxpayers provide care for their dependents, so that they can work or look for work? Child tax credit Child and dependent care credit Earned income credit Caregiving assistance credit

Child and dependent care credit

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) Chiropractic services Health insurance premiums paid with after tax dollars Plastic surgery to reduce scarring after a dog bite Prescription medications Liposuction to improve appearance

Chiropractic services Health insurance premiums paid with after tax dollars Plastic surgery to reduce scarring after a dog bite Prescription medications

Christina's taxable income is $35,000. Charlie's is $50,000, and Chris' is $500,000. Each of these taxpayers additionally earned $1,000 of long term capital gain income in 2022. All of the taxpayers file as single. Which of the following answers is correct regarding the amount of tax liability assessed on the capital gain? Each of the taxpayers will pay $150 in tax. Chris will pay $200 in tax. Christina will pay $100. Charlie will pay $280 in tax.

Chris will pay $200 in tax.

The first personal income tax was enacted in 1861 to fund the ____________________ ____________________.

Civil War

Courtney invested in RAD, Inc. stock nine months ago. She is considering tax planning strategies at the end of the year and is pondering whether or not to sell her investment in the stock. A friend has advised Courtney that she should hold the stock for at least three more months in order to have a long-term holding period. Which of the following considerations describes a valid reason for selling the stock now? Courtney is concerned that the value of the stock will decline in the near future. Courtney currently has $2,000 in capital losses and she needs to generate at least $2,000 in capital gains to be able to deduct her capital losses. Courtney wants to sell the stock, donate the proceeds to a qualified charity, and utilize the tax deduction on this year's tax return. Courtney is currently in the 37% tax bracket. Consequently, she will not receive preferential treatment for long-term capital gains.

Courtney is concerned that the value of the stock will decline in the near future.

Hillary, Craig, and David provide 60% of the support for their elderly aunt, Brooke. Hillary provides 8%, while Craig provides 40% and David provides 12%. Which of the taxpayers are eligible to claim Brooke as a dependent? Only Craig Hillary, Craig and David Craig and David No one

Craig and David

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? 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. 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. Deduct the $4,000 loss on equipment but not the $8,000 investment loss as this is considered a personal asset. Deduct both losses in their entirety in the current year.

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.

Which of the following statements are CORRECT when comparing For AGI deductions to From AGI deductions? (Choose all that apply.) From AGI deductions are generally preferred over deductions for AGI. For AGI deductions are subtracted directly from adjusted gross income. For AGI deductions are also called deductions "below the line" or "itemized deductions." Deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers. Certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense.

Deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers. Certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense.

The ____________________ ____________________ system assigns a score to each tax return representing the probability the tax liabilities on the return have been underreported.

Discriminant Function

Which one of the following types of taxable income is NOT considered to be service income? Unemployment compensation Dividend income Business income Salary income

Dividend income

Which one of the following medical payments would be deductible for the taxpayer in the current year? Doctor bills paid by the taxpayer for his dependent son who lives with the taxpayer's ex-wife Doctor bills incurred by the taxpayer and paid with the taxpayer's flexible spending account Doctor bills incurred by the taxpayer, but paid by the taxpayer's health insurance company Doctor bills incurred by the taxpayer in the current year that will be paid next year

Doctor bills paid by the taxpayer for his dependent son who lives with the taxpayer's ex-wife

Action Sport is an S corporation owned equally by three shareholders. During the current year, Action Sport generated taxable income of $60,000. What is the tax treatment, if any, of the $60,000 income? Each shareholder will report $20,000 in taxable income. S corporations are tax-exempt entities, so there is no tax liability resulting from Action Sport's operations. Action Sports will report and pay tax on $60,000. Each shareholder will report the portion of income that he or she receives in cash, and Action Sport will pay tax on the remaining income.

Each shareholder will report $20,000 in taxable income.

Which of the following choices are characteristics of qualified tuition programs, also known as 529 plans? (Check all that apply.) Distributions to contributors are NOT subject to income tax, but they do incur a 10% penalty. Earnings on the account are NOT taxable if used for qualified education expenses. The distributions can be made for tuition expenses for kindergarten through 12th grade. The maximum yearly contributions to the account are limited to $2,000 for each beneficiary. Distributions made to the beneficiary for purposes other than education are taxable and incur a penalty on the plan earnings.

Earnings on the account are NOT taxable if used for qualified education expenses. The distributions can be made for tuition expenses for kindergarten through 12th grade. Distributions made to the beneficiary for purposes other than education are taxable and incur a penalty on the plan earnings.

Lucy is single and has $225,000 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? Accounting Engineering Investment Legal

Engineering

A specified service trade or business for purposes of the Qualified Business Income Deduction includes all of the following except: (Check all that apply.) Engineering Consulting Health Law Architecture Financial Services

Engineering Architecture

Which of the following choices are forms of tax prepayments? (Check all that apply.) Income tax withheld from a taxpayer's salary or wages by an employer A tax credit used to reduce the tax liability in the current year A tax refund received in the current year for the prior year Estimated tax payments the taxpayer made directly to the IRS An overpayment of taxes in the prior year that was applied as an estimated payment for the current year

Estimated tax payments the taxpayer made directly to the IRS Income tax withheld from a taxpayer's salary or wages by an employer An overpayment of taxes in the prior year that was applied as an estimated payment for the current year

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) Eyeglasses Over-the-counter medications Tummy tuck Laser eye surgery Dental work

Eyeglasses Laser eye surgery Dental work

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. True/False

False

True or false: A taxpayer may deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income. True/False

False

True or false: A taxpayer may deduct both his standard deduction and his itemized deductions from AGI in order to calculate taxable income. True/False

False

True or false: Activities classified as hobbies can generate tax deductible losses that can be used against other types of income. True/False

False

True or false: All net capital gains are included in the definition of net investment income. True/False

False

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. True/False

False

True or false: Business expenses are deducted for AGI and reported directly on Form 1040. True/False

False

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. True/False

False

True or false: In general, prizes awarded to taxpayers are excluded from gross income. True/False

False

True or false: Income from passive investments may be taxed at ordinary rates, preferential rates, or may be exempt from taxation while income from portfolio investments will be taxed at ordinary rates. True/False

False

True or false: Interest income is generally taxed at lower capital gains rates. True/False

False

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. True/False

False

True or false: Self-employed taxpayers pay the employee portion of the FICA tax burden through self-employment taxes, but they are exempt from paying the employer portion. True/False

False

True or false: Short-term capital gains are subject to preferential tax treatment when the capital gains rates are lower than the taxpayer's marginal income tax rate. True/False

False

True or false: The term tax bracket refers to the average tax rate that is applied to an individual's taxable income. True/False

False

True or false: There is no underpayment penalty assessed if the taxpayer chooses to pay nothing throughout the year, but sends in just enough of an estimated payment at year-end to meet the safe harbor rules. True/False

False

Individual taxpayers are required to file a tax return only if their gross income exceeds certain thresholds which vary based on: (Check all that apply.) Filing status Amount of earned income Age Prior year tax liability

Filing status Age

Which of the following statements is correct regarding the choice of a taxpayer's filing status? Filing status depends on the gender of the taxpayer. Filing status depends on marital status and whether the taxpayer has dependents. Filing status depends on the level of income generated by the taxpayer. Filing status depends on the age of the taxpayer.

Filing status depends on marital status and whether the taxpayer has dependents.

How do self-employed independent contractors deduct their business expenses? For AGI against all forms of income From AGI against business income For AGI against business income From AGI against all forms of income

For AGI against business income

Why are for AGI deductions preferable to from AGI deductions? For AGI deductions are only taken if itemized deduction exceeds standard deduction. For AGI deductions cause a dollar for dollar drop in tax liability. For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI.

For AGI deductions reduce AGI thus increasing deductibility of from AGI deductions based on AGI.

There is one tax infraction that incurs a penalty calculated as 15% of the amount of tax owed per month with a maximum penalty of 75%. What violation incurs this level of penalty? Late filing penalty Late payment penalty Underpayment penalty Fraudulent failure to file

Fraudulent failure to file

Abby sold a parcel of land for $18,000. She paid a real estate agent a commission of $1,200 for assisting with the sale. Abby had purchased the land several years earlier for $14,500. What is the gain on the sale of the land? Gain of $2,300 Gain of $16,800 Gain of $3,500 Gain of $18,000

Gain of $2,300 Reason:$18,000 - $1,200 - $14,500 = $2,300

Which of the following taxpayers can use the tax rate schedule to calculate the tax on all of his or her taxable income without having to perform additional calculations to determine the tax on varying types of income? Harold received income from a partnership where he works full-time and interest from corporate bonds. Yining has a profitable business and received qualified dividends. Sheri is 13 and a dependent of her parents. She has unearned income of $3,800. Rick earned wages from his employer and has long term capital gain income.

Harold received income from a partnership where he works full-time and interest from corporate bonds.

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? Married filing separately Head of household Single Qualifying widower

Head of household

Shonda is currently in the 24 percent tax bracket. She reports a $400 tax credit. How will this credit affect her tax liability? Her tax liability will increase by $400. Her tax liability will decrease by $400. Her tax liability will decrease by $96. Her tax liability will increase by $96.

Her tax liability will decrease by $400.

Which of the following statements is accurate when referring to hobby expenses? Hobby expenses are NOT deductible because revenues generated from hobbies are not taxable. Hobby expenses are NOT deductible, but revenues generated by the hobby are taxable. Hobby expenses are deductible as itemized deductions but only to the extent of the revenue generated by the hobby. Hobby expenses are deductible against the revenue generated by the hobby and will result in a deductible loss if they exceed revenues. Hobby expenses are deductible FOR AGI, but only to the extent of the revenue generated by the hobby.

Hobby expenses are NOT deductible, but revenues generated by the hobby are taxable.

Which of the following choices concerning the recognition of interest income for corporate bond are CORRECT? (Check all that apply.) If bonds were issued at a premium, taxpayers must amortize the premium over the life of the bond resulting in an increase in interest income. If bonds were issued at a discount, special original issue discount rules apply. If bonds are purchased at a premium in the secondary market, the premium can be amortized or added to the basis of the bond. If bonds are purchased at a discount in the secondary market, the discount is amortized over the remaining life of the bond. The actual interest payments received are included in gross income.

If bonds were issued at a discount, special original issue discount rules apply. If bonds are purchased at a premium in the secondary market, the premium can be amortized or added to the basis of the bond. The actual interest payments received are included in gross income.

Which of the following choices determine the amount and the timing for recognizing interest income? (Check all that apply.) If bonds were issued at a premium, special original issue discount rules apply. If bonds are purchased at a premium in the secondary market, the premium cannot be amortized, but is added to the basis of the bonds. If bonds were issued at a premium, taxpayers may amortize the premium over the life of the bond resulting in a decrease in interest income. If bonds are purchased at a discount in the secondary market, the discount is recognized as interest income at maturity. The actual interest payments received are included in gross income.

If bonds were issued at a premium, taxpayers may amortize the premium over the life of the bond resulting in a decrease in interest income. If bonds are purchased at a discount in the secondary market, the discount is recognized as interest income at maturity. The actual interest payments received are included in gross income.

When is it possible for a qualifying person for determining head of household status to NOT live with the taxpayer? If the person is the parent of the taxpayer If the person is the child of the taxpayer, but lives with the other parent If the person is the married child of the taxpayer

If the person is the parent of the taxpayer

Which of the following statements is INCORRECT regarding losses on rental activities? Up to $25,000 in losses from rental activities may be used to offset nonpassive income. The maximum exception amount for active owners starts phasing out for taxpayers with AGI in excess of $100,000. In order to deduct a loss from a rental activity, the owner must be a material participant in the rental activity. Rental losses are classified as passive losses.

In order to deduct a loss from a rental activity, the owner must be a material participant in the rental activity.

Choose the types of income that qualify as net investment income for the purposes of assessing the Net Investment Income tax. (Check all that apply.) Income from a trade or business that is a passive activity Tax-exempt interest income Distributions from qualified retirement plans Self-employment income Excluded gain on sale of a personal residence Interest income Dividend income

Income from a trade or business that is a passive activity Interest income Dividend income

Which of the following statements is INCORRECT regarding gross income? Some types of income may be temporarily deferred from gross income to be included in a later year. Income is only included in gross income when spelled out in specific tax provisions. Exclusions and deferrals are a result of specific Congressional action and narrowly defined. Specific types of income may be excluded from gross income by Congress.

Income is only included in gross income when spelled out in specific tax provisions.

Which of the following statements is CORRECT regarding the recognition of income? Income is realized when a taxpayer receives a refund of an amount that was not deducted in a prior period. Income is realized for the return of the capital received in a sales transaction. Income may be in the form of cash, property, or services received in a transaction.

Income may be in the form of cash, property, or services received in a transaction.

When is an individual required to file a tax return? Individuals must file a tax return when they have income tax withheld from their wages. All individuals must file an income tax return when they reach the required age. Individuals must file a tax return when they are no longer claimed as dependents. Individuals must file a tax return when their gross income exceeds certain amounts based on their filing status and age.

Individuals must file a tax return when their gross income exceeds certain amounts based on their filing status and age.

Which of the following types of income are generated from property ownership? (Check all that apply.) Interest earned on U.S. Treasury bonds Dividends received on corporate stock Gain from the sale of a building Rental income from lessees Wages earned by an electrician Salary earned by an accountant

Interest earned on U.S. Treasury bonds Dividends received on corporate stock Gain from the sale of a building Rental income from lessees

What term is used to denote the interest incurred on loans used to acquire investments? Investment expense Net investment expense Investment interest expense Net investment income

Investment interest expense

Which of the following choices does NOT describe an annuity? It is a lump sum payment that is usually received by the beneficiary of a life insurance policy. It is a means of generating a fixed income stream during retirement. It is an investment that pays a stream of equal payments over time.

It is a lump sum payment that is usually received by the beneficiary of a life insurance policy.

The _____________________ _____________________ Committee attempts to reconcile the House and Senate versions of a tax bill.

Joint Conference

Which of the following individuals is eligible to receive (or qualify their parents to receive) the American Opportunity Credit? Kris is a fifth-year senior at IU. She is 23, a full time student, and a dependent of her parents. Kim is single, works full time, and goes to college half time for her second year at LSU. She provides over half of her own support. Kourtney is a graduate student at NYU, but is still a dependent of her parents. Khloe is married and in her third year as a full time student at UCLA. She uses the married filing separately filing status on her tax return.

Kim is single, works full time, and goes to college half time for her second year at LSU. She provides over half of her own support.

Which of the following assets would generally qualify as capital assets? (Check all that apply.) Land held for investment Inventory in a business Personal residence Warehouse used in a business Coin collection Corporate stock

Land held for investment Personal residence Coin collection Corporate stock

____________________ rulings are less authoritative and more specific than revenue rulings and regulations.

Letter

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? Linda is deemed to meet the age test because she is permanently and totally disabled. Linda does NOT meet the age test because she is not under the age of 19. Linda does NOT meet the age test because she is not a full-time student.

Linda is deemed to meet the age test because she is permanently and totally disabled.

Bart sold a parcel of land for $21,000. He paid a real estate agent a commission of $1,500 for assisting with the sale. Bart had purchased the land several years earlier for $20,000. What is the gain or loss on the sale of the land? Gain of $1,000 Loss of $500 Gain of $21,000 Loss of $2,500

Loss of $500 $20,000 + $1,500 =$21,500 - $21,000 = $500

Choose the statement that is INCORRECT regarding a loss that is generated from the disposal or sale of assets for individuals? When capital losses exceed capital gains, up to $3,000 can be deducted for AGI. Losses from business assets are deductible for AGI. Losses from capital assets are deductible against gains from capital assets. Losses from personal use assets are deductible for AGI.

Losses from personal use assets are deductible for AGI.

Choose the following statement that is INCORRECT regarding Social Security and Medicare taxes? The Social Security tax rate is 12.4% of wages up to a maximum wage amount. Low-income taxpayers are exempt from paying Social Security and Medicare taxes on their wages. There is no wage cap (maximum wage limitation) for Medicare taxes. Single taxpayers will pay an increased rate of Medicare tax when their tax base exceeds $200,000.

Low-income taxpayers are exempt from paying Social Security and Medicare taxes on their wages.

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? One of Horatio's children is not a dependent because she is 25 and earns too much income. Horatio's net income from his business exceeds the cost of the health insurance premiums. Horatio and Maria's children are all dependents for tax purposes. Maria has an employer-sponsored health insurance plan available at work, but they do not participate.

Maria has an employer-sponsored health insurance plan available at work, but they do not participate.

Alex and Alecia used the married filing jointly filing status when they prepared their tax return. During the current year, their joint tax liability totaled $9,300. If they were not married and had both filed as single, Alex would have had a $3,900 tax liability, and Alecia would have had a $5,000 tax liability. What is the term used for the $400 difference in their tax liability? Marriage benefit Marriage penalty Joint penalty Joint benefit

Marriage penalty

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 Qualifying widow or widower Head of household Married filing jointly (or separately)

Married filing jointly (or separately)

Kayla and Ben were married in November of the current year. What will be their filing status for the current year? 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 Single because they were married for less than half of the year Married filing separately because they have been married for less than half of the year Married filing jointly (or separately) because they were married as of the end of the year

Married filing jointly (or separately) because they were married as of the end of the year

Which of the following statements BEST describes the treatment of medical expenses for alternative minimum taxable income? Medical expenses are NOT deductible for AMTI and must be added back to regular taxable income to calculate AMTI. Medical expenses are NOT deductible for AMTI and must be subtracted from regular taxable income to calculate AMTI. Medical expenses are deductible for AMTI, subject to a 10% of AGI floor for all taxpayers regardless of age.

Medical expenses are deductible for AMTI, subject to a 10% of AGI floor for all taxpayers regardless of age.

Which of the following criteria is necessary to qualify as a dependent of another taxpayer? (Check all that apply.) Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico 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 Must be considered both a qualifying child and a qualifying relative Must be considered either a qualifying child or a qualifying relative Must NOT be required to file a tax return of his own

Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico Must be considered either a qualifying child or a qualifying relative 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

Which of the following criteria is NOT necessary to qualify as a dependent of another taxpayer? Must NOT file a joint return unless there is no tax liability on the couple's tax return Must be considered either a qualifying child or a qualifying relative Must be unmarried for at least a portion of the year Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico

Must be unmarried for at least a portion of the year

Please choose the statement that is INCORRECT when referring to net passive income? Net passive income is taxed at long-term capital gains rates. Net passive income may be subject to the net investment income tax of 3.8% in addition to regular income tax. Net investment income includes net passive income.

Net passive income is taxed at long-term capital gains rates.

Which of the following types of income are generally included in the calculation of investment income? (Check all that apply.) Qualified dividends Net short-term capital gains Nonqualified dividends Interest income Net long-term capital gains

Net short-term capital gains Nonqualified dividends Interest income

Which of the following individuals would meet the relationship test for being a qualifying relative of the taxpayer if s/he has only lived with the taxpayer for eight months of the year? Niece Brother Cousin Friend Grandchild Father

Niece Brother Grandchild Father

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

Which of the following types of income is generated from passive investments rather than portfolio investments? Dividend income Operating income Capital gains Interest income

Operating income

Which of the following statements is INCORRECT regarding flow-through entities? Operating losses are treated as ordinary losses for taxpayers to the extent they are deductible. Operating income from flow-through entities is taxed as ordinary income to the taxpayer-owners of the entities. Operating losses from flow-through entities are deductible in the current year. Operating income from flow-through entities may or may NOT be taxable in the current year, depending on certain limits imposed on the taxpayer.

Operating income from flow-through entities may or may NOT be taxable in the current year, depending on certain limits imposed on the taxpayer.

Which of the following characteristics are required for a business expense to be deductible? (Check all that apply.) Ordinary Necessary Directly related to business activity Repetitive Critical for business success

Ordinary Necessary Directly related to business activity

Which one of the following individuals meet the requirements to be a a qualifying relative (not a qualifying child) for Owen? 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. 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. 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. 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.

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.

Which of the following types of taxes may be considered when determining the itemized deduction for taxes? (Check all that apply.) Personal property tax on the value of a boat Federal estate taxes Real estate taxes on property held for investment Federal gift taxes Social security tax withheld from pay

Personal property tax on the value of a boat Real estate taxes on property held for investment

Which of the following cash receipts are taxable to the recipient? (Check all that apply.) Prizes Awards Loan proceeds Gambling winnings

Prizes Awards Gambling winnings

Which one of the following choices does NOT represent an economic benefit to the taxpayer? Income from services Proceeds from property sales Income from investments Proceeds from a loan

Proceeds from a loan

Which of the following descriptions BEST defines business activities? Profit-motivated, but not requiring a high level of effort from the taxpayer Motivated primarily by personal enjoyment, but does not require a high level of effort from the taxpayer Motivated primarily by personal enjoyment and requires a high level of effort from the taxpayer Profit-motivated and requiring a high level of effort from the taxpayer

Profit-motivated and requiring a high level of effort from the taxpayer

Which of the following descriptions BEST defines investment activities? Profit-motivated and requiring a high level of effort from the taxpayer Motivated primarily by personal enjoyment, but does not require a high level of effort from the taxpayer Motivated primarily by personal enjoyment and requires a high level of effort from the taxpayer Profit-motivated, but not requiring a high level of effort from the taxpayer

Profit-motivated, but not requiring a high level of effort from the taxpayer

Which of the following types of income may be taxed at rates lower than the tax rate schedule would dictate? (Check all that apply.) Qualified dividend income Long-term capital gain income Unearned income when the taxpayer is a dependent child Rental income from property the taxpayer owns.

Qualified dividend income Long-term capital gain income

Which of the following types of taxes may be deducted from AGI as itemized deductions? (Check all that apply.) Excise taxes paid on cigarette and alcohol purchases Federal income taxes Real estate taxes on a primary residence Personal property tax on the value of a car State and local income taxes

Real estate taxes on a primary residence Personal property tax on the value of a car State and local income taxes

Which one of the following items is NOT a deduction FOR AGI? Rental property expenses One-half of self-employment taxes Self employment expenses Real estate taxes on personal residence

Real estate taxes on personal residence

Which of the following expenses qualify for the American Opportunity Credit? (Check all that apply.) Required fees Housing Tuition Textbooks Meal plans Parking fees

Required fees Tuition Textbooks

Which of the following individuals meet the requirements to be qualifying children for Tonya? (Choose all that apply.) 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 aunt, Tonya. Pam (age 19) receives 70% of her support from her cousin, Tonya. Pam is a full-time student, earned $7,000, and lived with Tonya 7 months this year. Vinnie (age 17) does not provide half of his own support. He is in high school, earned $5,000 this year, and lives with his mother, Tonya. Ron (age 20) provides over half of his own support. He is a full-time college student, earned $12,000 this year, and lives with his mother, Tonya.

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 aunt, Tonya. Vinnie (age 17) does not provide half of his own support. He is in high school, earned $5,000 this year, and lives with his mother, Tonya.

Which of the following items does NOT constitute support when determining who provided the support for a child of the taxpayer who is a full-time student? Food and clothing Scholarships Recreational activities and camps Allowances and gifts

Scholarships

Which of the following statements is correct regarding the deductibility of self-employment tax for self-employed taxpayers? Self-employed taxpayers can deduct 100% of the self-employment tax they pay from AGI. Self-employed taxpayers can deduct the employer portion of the self-employment tax they pay from AGI. Self-employed taxpayers can deduct 100% of the self-employment tax they pay for AGI. Self-employed taxpayers can deduct the employer portion of the self-employment tax they pay for AGI.

Self-employed taxpayers can deduct the employer portion of the self-employment tax they pay for AGI.

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? Married filing separately Single Qualifying widow Head of household

Single

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

Which of the following individuals would meet the relationship test for being a qualifying child of the taxpayer? (Check all that apply.) Aunt Cousin (younger than the taxpayer) Stepson Grandmother Nephew (younger than the taxpayer) Half-sister (younger than the taxpayer) Brother (younger than the taxpayer) Father Niece (younger than the taxpayer) Grandchild Child

Stepson Nephew (younger than the taxpayer) Half-sister (younger than the taxpayer) Niece (younger than the taxpayer) Grandchild Child Brother (younger than the taxpayer)

Which of the following tests states that the qualifying child must NOT have provided more than half his or her own living expenses for the year? Residence Relationship Gross income Support

Support

Which of the following options is NOT available to taxpayers who have worked outside the United States and meet the requirements necessary to receive tax relief on their foreign earnings? Tax credit for foreign taxes paid Tax deduction for foreign taxes paid Income exclusion for foreign-earned income Tax deduction for foreign-earned income

Tax deduction for foreign-earned income

Which of the following statements are correct concerning the married filing separately (MFS) filing status? (Check all that apply.) MFS taxpayers can capitalize on deductions when one spouse itemizes deductions, while the other spouse uses the standard deduction. Tax-related items for MFS taxpayers (i.e. tax rate schedules, standard deduction amounts), are half the amounts for married filing jointly taxpayers. The MFS status is the only status that may be used when a spouse dies during the tax year. The MFS status may be useful when one spouse does NOT want to be liable for the tax liability of the other spouse.

Tax-related items for MFS taxpayers (i.e. tax rate schedules, standard deduction amounts), are half the amounts for married filing jointly taxpayers. The MFS status may be useful when one spouse does NOT want to be liable for the tax liability of the other spouse.

Which one of the following is NOT an advantage of the cash method for reporting income? The cash method generally simplifies the computation of income. Taxpayers recognize income in the period they receive it, giving them the wherewithal to pay the tax. Taxpayers have some control over when income is received and expenses are paid which assists in tax planning. Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them.

Taxpayers are able to deduct expenses in the period incurred, which may be before they actually pay them.

Which one of the following statements is INCORRECT regarding interest earned on U.S. savings bonds? Taxpayers may elect to include the increase in the bond redemption value in income each year. Taxpayers include the periodic interest payments from U.S. savings bonds in gross income each year when received. Taxpayers may recognize the interest that has accumulated on the bonds when they are redeemed. Taxpayers may exclude interest from Series EE and Series I bonds if the proceeds are used for educational expenses.

Taxpayers include the periodic interest payments from U.S. savings bonds in gross income each year when received.

How can taxpayers protect themselves from incurring an underpayment penalty? When income is unpredictable, the tax return should be filed by the end of the year. As long as the tax return is filed and taxes are paid by the due date, there is no underpayment penalty. The taxpayer should file an extension if they can NOT pay the taxes that are due. Taxpayers should meet one of the safe harbor provisions for estimated tax payment requirements.

Taxpayers should meet one of the safe harbor provisions for estimated tax payment requirements.

Which of the following expenses will qualify for the American Opportunity Credit in the current year? (Check all that apply.) Tuition is billed during December of the current year for the term beginning in January. Payment is made in January. Parking permit is paid in the current year. Textbooks and required lab fees are paid in the current year. Housing fees are paid in the current year. Tuition for a term beginning in January is paid in December of the current year.

Textbooks and required lab fees are paid in the current year. Tuition for a term beginning in January is paid in December of the current year.

Which of the following statements is INCORRECT regarding the child and dependent care credit in 2022? The qualifying expenditures are limited to the earned income of the lesser-earning spouse, if married. Expenditures for care within the home can qualify for credit. The credit completely phases out for high income taxpayers. The minimum dependent care credit is 20% of qualifying expenditures

The credit completely phases out for high income taxpayers.

How are business tax credits, except for the foreign tax credit, handled when they exceed the taxpayer's gross tax for the year? The credits are carried forward for 5 years. The credits are refundable, so the taxpayer is entitled to a refund of the excess credit. The credits are carried back one year and forward 20 years. The credits are carried forward indefinitely.

The credits are carried back one year and forward 20 years.

Which of the following statements regarding the deduction for qualified business income is incorrect? The deduction cannot be claimed unless the taxpayer also itemized his or her deductions. The wage-based limits only apply to taxpayers with taxable income in excess of $340,100 (in the case of a joint return). For purposes of the wage-based limit, each partner is treated as having wages for the year equal to his or her allocable share from her partnership. The wage-based limit is phased in ratably over $100,000 for married filing joint returns.

The deduction cannot be claimed unless the taxpayer also itemized his or her deductions.

How much of a self-employed taxpayer's self-employment tax may be deducted for AGI? All of the self-employment tax is deductible. Self-employment tax is deductible to the extent of the self-employment income. The employer portion of self-employment tax is deductible. None of self-employment tax is deductible.

The employer portion of self-employment tax is deductible.

Which of the following is CORRECT concerning the deduction of qualified medical expenses for the 2022 tax year? Most individuals are able to deduct medical expenses. The expenses must be reduced by 7.5% of AGI. The expense can be increased by 7.5% of AGI. The expenses must be increased by 7.5% of AGI.

The expenses must be reduced by 7.5% of AGI.

Which of the following statements is NOT accurate regarding the deduction for qualified education loan interest? The full amount of interest paid on qualified educational loans is deductible. The amount of the deduction is phased out depending on filing status and modified AGI. Loans used to provide room and board during college are considered qualifying educational expenses. The interest on educational loans for a taxpayer's dependents is deductible.

The full amount of interest paid on qualified educational loans is deductible.

Which of the following choices describes the tax treatment for qualified dividends? (Check all that apply.) The income may be taxed at a rate as high as 20%, depending on the taxpayer's taxable income. The income may be taxed as low as 0%, depending on the taxpayer's ordinary income rate. The income is taxed at the lower of the taxpayer's marginal rate or at a maximum 15%. The income is always taxed at the taxpayer's ordinary income tax rate.

The income may be taxed at a rate as high as 20%, depending on the taxpayer's taxable income. The income may be taxed as low as 0%, depending on the taxpayer's ordinary income rate.

Andrews, Badin, and Carr formed a partnership, ABC. During Year 2, the partnership sold some land that was held for investment and generated a long-term capital gain. How will this income be reported on the partners' individual tax returns? The income will retain its character and be reported as a long-term capital gain. The income will be combined with the profit generated by the partnership and flow through to the partners as ordinary income. The partnership will pay the tax due on the long-term capital gain rather than allocate it to the partners. The income will be reported on the partners' individual tax returns only if they receive the proceeds from the sale.

The income will retain its character and be reported as a long-term capital gain.

Which of the following statements regarding the child tax credit for the 2022 tax year are true? (Check all that apply.) The individual claimed must be under age 17 at year-end. The tax credit is $500 for each qualifying child. To get the maximum credit, the individual claimed must be a qualifying child. The individual claimed may or may not be a dependent.

The individual claimed must be under age 17 at year-end. To get the maximum credit, the individual claimed must be a qualifying child.

Which of the following is NOT a criteria for the American Opportunity credit? To claim the credit in 2022, eligible expenses must be paid for an academic period beginning 2022 or by March of 2023. The student must be enrolled in a qualified postsecondary education institution. The individual must be a full time student. The student must be in the first four years of postsecondary education.

The individual must be a full time student.

Which of the characteristics below BEST describes the treatment of investment interest expense? (Check all that apply.) The interest deduction is limited to the taxpayer's net investment income for the year. This expense is deductible as an itemized deduction in the interest expense category. Any amount of this expense that is NOT deducted in the current year due to the investment income limitations may be carried forward indefinitely. This expense is deductible as a for AGI deduction (adjustment) This expense is NOT deductible. Any amount of this expense that is NOT able to be deducted in the current year cannot be carried forward.

The interest deduction is limited to the taxpayer's net investment income for the year. This expense is deductible as an itemized deduction in the interest expense category. Any amount of this expense that is NOT deducted in the current year due to the investment income limitations may be carried forward indefinitely.

Which of the following characteristics of a wash sale are CORRECT? Substantially identical securities as those sold at a loss are repurchased in the period beginning 15 days before and ending 15 days after the sale. The unrecognized loss is subtracted from the basis of the newly acquired stock. The loss generated by a wash sale is NOT deductible. The unrecognized loss is added to the basis of the newly acquired stock. Any gain realized on the wash sale is deferred until the newly acquired stock is sold at a later date.

The loss generated by a wash sale is NOT deductible. The unrecognized loss is added to the basis of the newly acquired stock.

If an individual is a qualifying child for both of his parents who divorced during the year, which parent is entitled to claim the child as a dependent? The parent with whom the child has lived with the longest during the year The parent who files his/her tax return the earliest The parent with the lowest adjusted gross income The child gets to choose which parent to whom they are dependent

The parent with whom the child has lived with the longest during the year

Which of the following statements is INCORRECT regarding workers' compensation payments? The payments are included in gross income because they are a replacement of wages. The payments are received due to work-related physical injury. Workers' compensation payments have a different tax treatment from unemployment compensation payments. The payments are nontaxable because they are due to a physical injury.

The payments are included in gross income because they are a replacement of wages.

Yolanda is your client. With her current level of taxable income, she is paying tax at a 24% marginal rate. She received $2,000 in qualified dividends this year. What rate of tax do you expect that Yolanda will pay on her dividends? Qualified dividends are tax-exempt income, so the dividends will not be taxed now or in the future. Qualified dividends are tax deferred income and will be taxed in a future year when the underlying investment is sold. The dividends are considered ordinary income, so they will be taxed at Yolanda's marginal rate of 24%. The qualified dividends are taxed at a favorable rate. Since Yolanda is in the 24% bracket, the dividends will be taxed at 15%.

The qualified dividends are taxed at a favorable rate. Since Yolanda is in the 24% bracket, the dividends will be taxed at 15%.

Which of the following statements is correct? The revenues and expenses from a business are reported on Schedule C and the resulting profit or loss is transferred to Form 1040. A business calculates net income or loss for tax purposes. Details do NOT have to be reported on the tax return, but records must be retained by the company to present in the event of an audit. Businesses attach financial accounting income statements to tax returns and report the profit or loss reported directly on Form 1040.

The revenues and expenses from a business are reported on Schedule C and the resulting profit or loss is transferred to Form 1040.