Family Income Tax Midterm Exam

In the current year, Kim is transferred by her employer from New Orleans to Houston. Her moving expenses are not reimbursed and are as follows: Costs of moving household furnishings $1,600 +Transportation costs $300 +Meals in route $400 +Lodging in route $250 =Total: $2,550 Her deductible moving expenses are: a. $0. b. $2,150. c. $2,350. d. $2,550

$0 Under the provisions of TCJA 2017, moving expense deductions are suspended until 2025 (unless an active duty member of the armed forces.)

Jack bought 100 shares of XYZ stock for $40 per share ($4,000) two years ago. The stock is now selling for $35 per share and Jack sells it to his son, Luke, for $35 per share. What is Jack's gain or loss and what is Luke's basis? Jack (G/L), Luke's Basis a. $0, $4,000 for gains b. ($500) STCL, $3,500 c. $0, $3,500 d. ($500) LTCL, $4,000 for losses

$0 for Jack's g/l, $4,000 for Luke's basis gains.

Tom is the manager of a hotel. To be available in emergency situations, Tom's employer requires that he live in one of the hotel rooms (without charge). The value of the room is $1,500 per month if occupied each night. The hotel is ordinarily 70% occupied. If Tom did not live there, he would live in an apartment that would rent for $900 per month. Tom's inclusion is monthly gross income from living in the hotel room is: a. $0. b. $900. c. $1,350. d. $1,500

$0. An employee is allowed to exclude from gross income the value of lodging furnished by an employer if the lodging is: 1. on the employer's business premises 2. for the convenience of the employer 3. required for the employee to accept as a condition for employment.

Cate was recently diagnosed with lung cancer and has been certified by her doctor, on June 1st of the current year, as terminally ill. On July 1st of the current year, Cate sold her life insurance policy with a face value of $500,000 to a viatical settlement provider for $340,000. Assuming she paid $50,000 in premiums, how much of the $340,000 proceeds must she include in her gross income for the current year? a. $0. b. $34,000. c. $50,000. d. $290,000.

$0. Life insurance proceeds paid to a beneficiary because of the death of the insured person are normally excluded from gross income. The entire death benefit is excludable regardless of the amount received. If a death benefit is being paid in installments, the insurance company will pay interest on the proceeds that it retains. The part of each payment representing the death benefit will be excluded from income, with the remaining portion of the payment included in income as interest income. (Life insurance death benefits must be included in gross income of a policy owner if the Life insurance policy is sold (transferred for value) by the original owner of the policy. This is an exception to the general rule.)

In October of 2019 Bruce, a cash basis CPA, contracted to perform an audit for $2,000 and to prepare the corporate tax return for $1,000. The contract called for payment January 31 of 2020. The client offered Bruce $1,500 on December 31, 2019. Bruce refused citing the contract payment date. What amount must Bruce include in his 2018 tax return? a. $0. b. $1,000. c. $1,500. d. $3,000

$0. The contract calls for payment January 31 of 2019. Bruce does not have to accept the offer to pay in 2018.

Over the past 4 years, Annabelle, age 28, has contributed a total of $20,000 to a Roth IRA. The current balance is $25,000. She was tired of renting, so this year she took a distribution of $15,000 for a down payment on a home. What amount of the distribution should she include in her gross income this year? a. $0. b. $3,000. c. $5,000. d. $15,000

$0. While amounts contributed to a Roth 401k or 403b account are included in gross income, earnings are NOT subject to tax when withdrawn in a qualified distribution.

During this year, Jack was injured on his job. As a result of the injury, he received the following payments during this year: Workers compensation $2,600 Reimbursement from his employer for medical expenses paid by Jack(medical plan) $1,200 Damages for physical injuries $10,000 What is the amount to be included in Jack's gross income for the current year? a. $0. b. $12,000. c. $10,000. d. $13,800

$0. Worker's compensation insurance premiums are paid by an employer and any benefits received are excludable from an employee's gross income.

Stacy is employed by a large corporation with 500 employees. The corporation has an exercise facility within its office for the exclusive use of the employees. A health club membership at a similar public facility would cost Stacy $1,200 per year. How much must Stacy include in her adjusted gross income? a. $0. b. $500. c. $600. d. $1,200

$0. the value of the use of on-premises gyms and other athletic facilities can be excluded from an employee's income if: 1.facilities are on the premises of the employer 2. employer operates the facilities 3. substantially all the use of the facilities is by employees, their spouses, and their dependent children.

Harold is covered by a $180,000 group term life insurance policy and his daughter is the beneficiary. Harold's employer pays the entire cost of the policy for which the uniform annual premium is $8 per $1,000 of coverage. How much of this premium is taxable to Harold? a. $0. b. $640. c. $1,040. d. $1,440.

$1,040 The cost of any death benefit coverage in excess of $50,000 is taxable to the employee. $180,000 - $50,000 = $130,000 $130,000 x ($8/$1000) = $1,040

Sheila spent $15,000 in day care services for her four children to allow her to go to work. If her adjusted gross income is $180,000, how much is her dependent care credit? a. $0. b. $1,200. c. $3,000. d. $15,000

$1,200 For taxpayers with AGI over $43,000, the dependent care credit provides a credit of 20% of the cost (up to $3,000) per qualifying child or $6,000 for two or more children. Therefore her credit is $6,000 x 0.20 = $1,200

Jill paid $3,000 in interest on her student loans this year. Jill is single, and earned $69,000 from her job as an analyst and $8,500 in interest income. She had no other income this year. What amount of Jill's student loan interest is deductible for AGI this year? a. $0. b. $1,250. c. $1,500. d. $2,500

$1,250 $69,000+$8,500=$77,500 AGI Up to $2,500 of student loan interest may be deducted as an adjustment to gross income. Jill's AGI of $77,500 is within the phaseout range (70-85 thousand for single filing status), so the maximum deduction of $2,500 will be reduced. The deductible amount is: [($85,000 maximum in range - $77,500 AGI)/$15,000 span of phaseout range] x $2,500 maximum deduction = $1,250 (85000-77500)/15000= 0.5 0.5 x 2500= 1250

Trish invested $100,000 in an annuity contract. Years later, she annuitized the contract. The insurance company agreed to pay her $1,666.67 per month for 20 years. How much of each payment is taxable? a. $0. b. $466.67. c. $1,250.00. d. $1,666.67

$1,250 Each payment includes both a portion of non-taxable return of investment capital and a portion of gross income. (investment in contract so far/expected total return) 20yrs x 12mo x $1,666.67 = $400,000 (expected total return) $100,000 (investment in contract so far) $100,000 / $400,000 = 25% exclusion ratio 1 - 0.25 = 0.75 inclusion ratio 0.75 x $1,666.67 = $1,250 (taxable portion of payment)

Thadra and Deb, both age 48, are married and filed a joint Federal income tax return for the current year. Their adjusted gross income was $113,000, including Thadra's $95,000 salary. Deb had no income of her own. Neither spouse was covered by an employer-sponsored retirement plan. What amount could they contribute to IRAs for 2019 to take advantage of their maximum allowable IRA deduction for their return? a. $0. b. $6,000. c. $12,000. d. $14,000

$12,000 Since they are not covered by a retirement plan, they are allowed a deductible $6,000 IRA contribution for Thadra plus a $6,000 deductible contribution to a spousal IRA. Total deductible IRA contribution of $12,000 is allowed. To make a contribution to an IRA, a taxpayer must have earned income. If the taxpayer is married and has a non-working spouse, a spousal IRA can be set up and the same contribution amount ($6,000) can be contributed. For taxpayers 50 and over, an additional $1,000 catch up contribution can be made.

Tim and Diane were divorced in 2016 (Year 1). Under the divorce agreement, Diane is to receive $100,000 in 2016, $60,000 in 2017 (Year 2) and nothing thereafter. The payments were to cease upon Diane's death or remarriage. How much, if any, should Tim have to claim as alimony recapture in Year 3? a. $0. b. $30,000. c. $115,000. d. $122,500.

$122,500 The amount of alimony recaptured in year 3 may be calculated by using the following formula (if the alimony payments decreased by more than $15,000 per year over the first 3 years): R3= [(P1+P2)-2P3]-37,5000. R3= [(100,000+60,000)-0]-37,5000 R3=160,000-37,500 R3= 122,500 This recaptured amount must be added to the gross income of the payor and deducted from the gross income of the payee for the 3rd year that such payments are made.

The adoption expense credit for 2019 is limited to: a. $6,000. b. $12,950. c. $14,080. d. $15,000

$14,080

Last year, Jack had a Section 179 deduction carryover of $8,000. In the current year, he elected Section 179 for an asset acquired at a cost of $10,000. Jack's net income for the current year is $15,000. Determine Jack's Section 179 deduction for the current year (assume no other income). a. $8,000. b. $10,000. c. $15,000. d. $18,000

$15,000 section 179 cannot result in a loss for the business, so the maximum deduction that can be taken in any year is limited by the income of the business.

Jack purchased a personal residence for $180,000, and insured it for the full replacement value. It had a fair market value of $195,000 when it was damaged by a fire (declared natural disaster by the President). The fair market value after the fire was $155,000, and Jack received insurance proceeds of $15,000. What is the net amount of casualty loss that Jack can deduct if his adjusted gross income is $80,000? a. $0. b. $16,900. c. $17,000. d. $25,000.

$16,900 After 2019, casualty losses may be claimed only for losses attributable to a disaster declared by the president. Two additional restrictions apply: First, $100 must be deducted for each occurrence. Second, to be deductible, the losses must exceed 10% of the taxpayers AGI. For personal casualty and theft losses, the amount of the loss is the LOWER of: 1. the difference between the fair market value of the property before the event and the fair market value of the property after the event, minus insurance proceeds received, or 2. the taxpayers adjusted basis in the property minus insurance proceeds received. 1. $195,000-$155,000= $40,000 $40,000-$15,000= $25,000 2. insurance proceeds received are 180,000+15,000+100 ($180,000-$15,000-$100-[10% of AGI]) ($24,900-[$8000])= $16,900

Cassie was an original investor in DEF LLC, a construction company. She owns a 30% interest in the company for which she paid $100,000. This year, DEF did very well and had a profit of $200,000.However, no distributions were made. What is Cassie's basis in her interest in DEF at the end of this year? a. $0. b. $100,000. c. $160,000. d. $300,000

$160,000 30% of $200,000 = $60,000 $100,000 of original cost basis + $60,000 her share of the profit = $160,000

Under current law, what is the maximum Child Tax Credit per child? a. $750. b. $1,000. c. $2,000. d. $5,000

$2,000

On October 15, 2018, Dara purchased stock in ABC Corporation (the stock is not small business stock) for $2,000. On June 15, 2019, the stock became worthless. How should Dara treat the loss in 2019? a. $1,000 long-term capital loss. b. $2,000 short-term capital loss. c. $2,000 long-term capital loss. d. $1,000 short-term capital loss

$2,000 long-term capital loss IRC section 165 creates an "artificial sale" date on the last day of the taxable year in which the security becomes worthless. Since worthless securities are treated at year-end, so it's long-term even though it was only held for 8 months. A long-term capital gain or loss is the gain or loss stemming from the sale of a qualifying investment that has been owned for longer than 12 months at the time of sale. This may be contrasted with short-term gains or losses on investments that are disposed of in less than 12 months time.

Trey recently purchased a new machine for his business. The price of the machine was $20,000 but he also paid $100 in sales tax, $300 in freight, and $1,000 for installation. What is Trey's basis in the new machine? a. $20,000. b. $20,400. c. $21,000. d. $21,400

$21,400 $20,000 + 100 + 300 + 1000 Including all costs incurred in placing the asset into operation.

Joan is 62 years of age and has lived in her home for 22 years. She paid $150,000 for the home, and she recently sold it for $450,000. She added a room to the house by converting a garage to a den, at a cost of $20,000. The real estate broker charged a 6% commission for the sale. What is Joan's taxable gain from the transaction (ignore any Section 121 exclusion)? a. $253,000. b. $273,000. c. $280,000. d. $300,000

$253,000 The broker's commission is 6% of $450,000, which is $27,000. This amount is subtracted from the sale price, so the amount realized is $450,000 - $27,000 = $423,000. The adjusted basis is the purchase price plus the improvements, or $150,000 + $20,000 = $170,000. The gain is $423,000 - $170,000 =$253,000

On September 19, 2018, an investor purchases 5,000 shares of Baritone Corporation for $5,000. On March 31, 2019, the stock became worthless. What is the deductible gain or loss in 2019 and how is it classified? a. $3,000 STCL. b. $5,000 STCL. c. $3,000 LTCL. d. $5,000 LTCL

$3,000 Long-term capital loss long term: worthless stock and the artificial start date Three Grand: If there are no capital gains for the year, $3000 Long-term capital loss will be deductible. The loss is limited to just $3000 per year, so if there is more, it can carryover to another year.

Bobby is age 62, single, and is a dependent of his daughter. During the current year, Bobby received interest on a bank account of $3,500 and earned $2,300 from a part-time job. What is Bobby's taxable income? a. $0. b. $550. c. $2,300. d. $3,150.

$3,150 Taxable income is the tax base upon which the income tax is calculated. It is determined by reducing the taxpayer's adjusted gross income (AGI) by: 1. the greater of the standard deductions or the taxpayer's itemized deductions 2. the QBI or section 199A deduction $3,500 interest on bank account +$2,300 earned income =$5,800 taxable income before standard deduction Standard deduction: earned income $2,300 + $350 = $2,650 $5,800 - $2,650 = $3,150 Taxable income

Two years ago, Cory loaned his friend, Candy, $5,000. In the current year, Candy paid Cory $1,500 in final settlement of the loan. Cory has $100,000 of salary and $5,000 of capital gains for the current year. What amount of the loss may he use in the current year? a. $0. b. $1,500. c. $3,000. d. $3,500.

$3,500 5000 - 1500 = 3500

During the current year, Austin, a self-employed individual, paid the following amounts: • Federal income tax - $5,000 • State income tax - $3,000 • Real estate taxes on land (held as an investment) - $800 • State sales taxes - $600 • State occupational license fee - $400. What amount can Austin deduct as taxes by itemizing his deductions?a. $3,000. b. $3,400. c. $3,800. d. $4,800

$3,800 state (and local) income tax is considered an itemized deduction (up to $10,000 after 2019)- may deduct state income tax or state sales tax, but not both (so you'd itemize the higher of the two, which in this case is state income tax) An investor can deduct property taxes paid on a vacant land as a personal itemized deduction on Schedule A. You can take tax deductions for your investment land as long as you do not use the land for personal use.

Bonnie and Ron are married. Ron paid $200,000 for their home five years ago. Its fair market value was $300,000 when he died. What is Bonnie's basis in the home after Ron's death if the home was held as community property and Ron left his half to Bonnie? a. $150,000. b. $200,000. c. $250,000. d. $300,000.

$300,000 Upon death of either spouse, both halves are stepped to the fair market value regardless of who inherits the decedent's half.

Three years ago, Derrick loaned Robin $5,000 (Year 1) with the understanding that the loan would be repaid in two years. Last year (Year 3) Robin filed for bankruptcy, and Derrick learned that he would receive 10cents on the dollar. In the current year, Year 4, the final settlement was made, and Derrick received $300. Assuming the loan is a nonbusiness bad debt, how should Derrick account for the loan? a. $4,700 ordinary loss in the current year. b. $3,000 ordinary loss last year and $1,700 ordinary loss in the current year. c. $4,700 short-term capital loss in the current year. d. $3,000 short-term capital loss last year and $1,700 short-term capital loss in the current year.

$4,700 short-term capital loss in the current year. a personal bad debt (personal loan, not created in connection with a trade or business) is considered short-term capital loss. $5000 - $300=$4,700

Skip owns a business. Since demand is on the rise, he decided to purchase an upgraded machine that will produce four times as fast as his previous machine. The cost of the new machine is $400,000 and will be the only depreciable property that Skip places in service during 2019. What is the amount of his Section 179 deduction for 2019? a. $25,000. b. $108,000. c. $250,000. d. $400,000

$400,000 Because the property does not exceed the price of $1,020,000 (the cap price for Section 179) Skip can take the full $400,000 Section 179 deduction.

Lane is single and has two dependent children. Financial records show the following items in the current year: Gift from a friend $12,000 Dividends received on stock $1,200 Prize won in state lottery $1,000 Salary from employer $35,000 Child support received from ex-spouse $6,000 Alimony received from ex-spouse (2016 divorce) $12,000 How much is Lane's adjusted gross income for the current year? a. $47,000. b. $48,200. c. $49,200. d. $67,200

$49,200. $12,000 gift: NOT includible by donee $1,200 dividend: Includible in AGI $1,000 won as prize: Includible in AGI $35,000 salary: Includible in AGI $6,000 support: NOT includible in AGI $12,000 alimony: Includible in AGI $1,200 Dividend +$1,000 Prize +$35,000 Salary +$12,000 Alimony ------------------------- =$49,200 Adjusted Gross Income (AGI)

On January 1, Tara reviews her investment portfolio and discovers she had a very profitable year. To offset some of her gains, she sells 100 shares of ABC Corporation for $10,000. She had purchased those shares for $15,000 two years earlier. On January 25th of the same year, Tara reads a newspaper article indicating that the price of ABCCorporation is expected to substantially increase. Second-guessing the wisdom of previously selling her shares of ABC, she purchases an additional 100 shares of ABC for $8,000. What are the tax consequences to Tara this year? a. $5,000 realized but not recognized loss. b. $8,000 realized and recognized loss .c. $5,000 realized and recognized loss. d. $7,000 realized but not recognized loss

$5000 realized but not recognized loss. Wash sales: when a taxpayer sells stock at a loss, and purchases substantially identical securities within 30 days before or after the sale, the taxpayer has participated in a wash sale and cannot recognize any loss from the sale of the stock. Loss disallowance is temporary and the full benefit of the loss may still be recognized at a future date.

Nial had the following transactions for the most recent tax year: Alimony Paid (2017 divorce) $4,800 Commissions earned as a salesperson $65,000 Capital Loss on stock investment $2,000 Gift received from mother $5,000 Qualified residential interest paid on home mortgage $8,000 What is Nial's AGI? a. $50,200. b. $55,200. c. $58,200. d. $63,000

$58,200 Sales commissions - alimony(only because its pre 2019) - capital loss = AGI 65000 - 4800 - 2000 = $58,200 gifts are not deductions for AGI residential interest paid is a below-the-line deduction

Missy, a single mother, has four children, ages 6, 7, 9, and 17. How much will her child tax credit be for the current tax year assuming she is under the AGI threshold? a. $1,000. b. $2,000 c. $6,000. d. $8,000

$6,000 $2,000 per qualifying child (her 17 year old isn't qualified for age)

Martina, who is age 45 and divorced (2016), received alimony of $30,000 in 2019. In addition, she received $900 in earnings from a part-time job. Martina is not covered by a qualified pension plan. What was the maximum deductible regular IRA contribution that Martina could have made for 2019? a. $0. b. $900. c. $6,000. d. $7,000

$6,000 Alimony is not deductible in 2019. If a person is not covered by a qualified pension plan, they are able to take a maximum deductible contribution of $6,000 (unless they are over 50, and then can make an additional $1000 catch up contribution)

Jimmy and Dee Dee, both age 35, are married and filed a joint Federal income tax return for 2019. Jimmy earned a salary of $125,000 and was covered by his employer's pension plan. Dee Dee was not employed and the couple had no other income. On June 15, Jimmy contributed $6,000 to an IRA for himself and $6,000 to an IRA for Dee Dee. The allowable IRA deduction on Jimmy and Dee Dee's year 2019 joint tax return is: a. $0. b. $3,000. c. $6,000. d. $12,000

$6,000 Traditional IRA contributions are fully deductible each year for all individuals who are not active participants in qualified retirement plans. The contribution for DeeDee is fully deductible, the contribution for Jimmy is not.

Will sustained a serious injury in the course of his employment. As a result of this injury, he received the following payments: Workers Compensation $2,500 Reimbursement from his employer's accident and health plan for medical expenses paid by Will and not deducted by him $4,000 Compensatory damages for physical injuries $1,000 Punitive damages for physical injuries $6,000 The amount to be included in Will's gross income should be: a. $2,500. b. $4,000. c. $6,000. d. $13,000.

$6,000 Workers compensation is to make a person whole and is excludable. Reimbursements from an employer medical plan not previously deducted are NOT includible Compensatory damages for physical injuries are excludable. All punitive damages are includible in income.

George, age 21 is a full-time student at the University and is a dependent of his parents. He had earned income of $2,000 from a part-time job. In addition he had $950 interest from a savings account. He had total itemized deductions of $200 in the current year. What is George's taxable income this year? a. $600. b. $950. c. $2,000. d. $2,950.

$600. $2,000 + $950 = $2,950 total $2,950 - $2,350 (earned income +350) = taxable income ($600.)

Cody and Chelsea are married filing jointly taxpayers with three children ages 6, 12 and 16. Their MAGI is $68,500. What is the amount of the child tax credit that they can claim? a. $2,000. b. $3,000. c. $5,000. d. $6,000

$6000 under 16 is qualifying, and its $2000/qualifying kid

Last year, Jacques paid the following interest: • Interest on home mortgage: $7,300 • Interest on home equity loan used to purchase furniture for personal residence: $1,000 • Interest on loan used to purchase State of Louisiana general purpose bonds: $1,800 If Jacques itemizes his deductions for last year, what is the amount of deductible interest expense? a. $7,300. b. $8,300. c. $9,100. d. $10,100

$7,300 taxpayers can deduct interest on a home equity loan if it is used for buying or building or making capital improvements to the taxpayer's residence. (furniture is not a capital improvement to the residence) public purpose bond interest is not deductible (tax exempt bond)

Jimmy and Virginia decided last year that adoption would be the best choice for them. They adopted a 3- year-old son this year. They paid $18,000 in qualifying adoption expense for the current year. Their ModifiedAGI is $175,000, and their tax due before any qualified adoption credit is $8,000. What is their available adoption credit for the current year? a. $0. b. $8,000. c. $14,080. d. $18,000

$8,000 Limited to the LESSER of: tax due adoption tax credit adoption expenses.

Andrea and Elliott are married and together they have AGI of $60,000. They have no dependents and they file a joint federal income tax return. Each pays $4,800 for medical insurance. During the year, they paid the following amounts for medical care, for which they were NOT reimbursed by insurance: • Doctor and dentist bills and hospital expenses = $3,600 • Prescription drugs = $800 Determine the deduction allowable for medical expenses paid during the year (2019). a. $0. b. $3,600. c. $6,000. d. $8,000

$8,000 Medical expenses must exceed a 10% floor (after 2018). The formula is: total expenses - 10% of AGI $4800 + $4800 + $3600 + $800 = $14,000 total expenses $14,000 - (.10 x $60,000)= $8000

Connor failed to pay $8,000 of income tax due with his return, which was timely filed on April 15th. He waited for 2 months after April 15th to pay the tax. How much will his penalties be?

$80 The amount for failure to pay is 0.5% per month: $8000 x 0.005 x 2 = $80.

Colby has decided to make charitable contributions of property this year. He donates a picture that he had created to a local art museum (adjusted basis $900, fair market value $40,000.) His adjusted gross income is $90,000. What is his charitable deduction for this year? a. $0. b. $900. c. $36,000. d. $40,000

$900 Contributions must be made to a U.S., qualified charitable organization (exclusively for religious, charitable, scientific, literary, or education purposes, or for the prevention of cruelty to animals/children) you can only deduct the cost basis of the donation (what you paid for it), not the market value.

What difference does it make if a taxpayer's expenses are classified as unreimbursed employee expenses rather than expenses from self-employment? 1. Unreimbursed employee expenses are not deductible. 2. Expenses from self-employment are deducted above the line and have no AGI floor. 3. Unreimbursed employee expenses are deducted above the line and have no AGI floor. a. 1 only. b. 2 only. c. 1 and 2. d. 1 and 3

1 and 2 unreimbursed employee expenses are not deductible expenses from self-employment are deducted above-the-line and have no AGI floor.

Which of the following fringe benefits received by an employee would be excluded from the employee's gross income? 1. Employer-provided parking. 2. Dues to an athletic club paid for by the employer. 3. Tickets to the basketball game tonight. 4. Employer-provided interior decorating for a new personal residence

1 and 3. 2. athletic facility or gym needs to be on premises and primarily used by employees to be considered a fringe benefit. 4. personal tickets to one game could be considered "de minimis fringe benefits"

Which of the following are below-the-line income tax deductions? 1. Medical expenses. 2. Alimony paid. 3. Moving expenses. 4. Qualified business income. a. 1 and 3. b. 1 and 4. c. 1, 2, and 3. d. 1, 2, 3, and 4

1 and 4 after 2019, alimony paid is not deductible. But before 2019, alimony was above-the-line anyway. moving expenses are only deductible for active duty armed force members, and they are above-the-line deductions.

Sources of "substantial authority" available for tax research include: 1. Internal Revenue Code 2. Congressional Committee Reports (Blue Book) 3. Treasury Regulations 4. Private Letter Rulings.

1, 2, 3, and 4. "Substantial authority" is official words and rulings which can be relied on to support a tax opinion or position. All of these can be relied on.

Which of the following is/are deductible for adjusted gross income? 1. Alimony paid to the taxpayer's ex-spouse (2016 divorce). 2. Capital losses. 3. Ordinary and necessary expenses incurred in a business. 4. Contribution to a Roth IRA. 5. Child support paid to ex-spouse. a. 3 and 4. b. 1, 3, and 5. c. 2, 3, and 5. d. 1, 2, and 3

1, 2, and 3. Child support payments are excluded from income for the parent receiving the support, and the parent paying the support does not get a deduction. Contributions to Roth IRAs are not deductible for adjusted gross income (growth and withdrawals are tax-free for qualified distributions made after age 59.5)

Which of the following fringe benefits would be excluded from an employee's gross income? 1. Business magazine subscriptions paid for by an employer in the names of various employees. 2. Season tickets to basketball games. 3. Parking provided near its business by an employer for its employees. 4. On-premises athletic facilities provided by an employer to its employees

1, 3, and 4.

Harold is 55 years old and has decided to purchase a Long-term Care Insurance Policy. Which of the following most accurately describes the tax and other benefits of purchasing a long term care policy? 1. The policy must be guaranteed renewable or non-cancelable for the premiums to be deductible. 2. Since Harold is less than age 62, only 10% of premiums paid are deductible. 3. Premiums paid are deductible but limited based upon age. 4. The long term care insurance deduction is from AGI. a. 3 only. b. 1 and 3. c. 2 and 3. d. 1, 3, and 4

1, 3, and 4. To be a long-term care insurance plan, the plan must meet the following requirements: 1. does not duplicate benefits paid by medicare 2. must be guaranteed renewable 3. does not have a cash surrender value 4. only provides qualified long-term care insurance coverage 5. only pays when the beneficiary of the plan is certified by a licensed heal care practitioner as chronically ill There is a limit on the amount of premiums that can be deducted for long-term care insurance depending on the age of the insured individual.

Christian owns a vacation home which he plans to rent for 190 days this year. He also plans to live in the house during the year. What is the maximum number of days he can live in the home without jeopardizing the property's status as a rental property? a. 14 days. b. 19 days. c. 95 days. d. 190 days.

19 days. A two part test is applied: If a property is rented for 14 days or less, the activity will be non-taxable rental activity. If real estate is rented for 15 days or more, a second test determines the classification: **If the owner's personal use of the property does not exceed the GREATER of 14 days or 10 percent of rental days, the activity is considered primarily rental use activity. 10% of 190 rental days is 19 days allowed

In what year was the Social Security Act created?

1935 The Social Security Act was created in 1935

Which of the following is a credit that reduces the tax calculated on taxable income? 1. Dependency credit. 2. Child tax credit. 3. Earned income credit. 4. Credit for estimated tax payments

2, 3, and 4. Although there was a dependency exemption in the prior law, there is no such thing as a dependency credit.

Nick and Kim are married and are trying to calculate their gross income for the current year. Which of the following items should they include in gross income? 1. Child support payments in the amount of $15,000 received from Kim's ex-husband for the support of their minor child. 2. $1,200 in dividends received. 3. Unemployment benefits received in the amount of $800. 4. $3,000 that Kim earned selling homemade soaps

2, 3, and 4. Child support payments are EXCLUDED from the gross income of the payee and are not deductible by the payor since these payments simply satisfy the legal obligation of the payor to support the children. Alimony must be INCLUDED in the gross income of the payee and is deductible (for AGI) by the payor.

Treasury regulations take one of how many forms?

3 legislative, interpretive, procedural

How many distinct federal tax systems are in the U.S.?

3. There are three distinct federal income tax systems in the U.S.: (1) The income tax system, (2) the estate and gift tax system, and (3) the generation skipping transfer tax system.

How many types of tax accounting are there for taxpayers?

3. There are three types of accounting for taxpayers: cash, accrual, and hybrid.

How many types of assets are there in the U.S. income tax system?

3. There are three types of assets: capital assets, ordinary income assets, and 1231 assets.

How many types of income are in the U.S. income tax system?

3. There are three types of income in the U.S. income tax system: active, portfolio, and passive.

Treasury regulations take one of how many forms?

3. Treasury regulations take one of three forms: (1) Procedural, (2) Interpretive, or (3) Legislative.

Assume the following payments meet the tax requirements for deductible alimony. Which of the following alimony payment streams will result in alimony recapture to the payor? Year 1 Year 2 Year 3 a. $100,000 $120,000 $150,000 b. $0 $10,000 $50,000 c. $50,000 $40,000 $30,000 d. $60,000 $45,000 $25,000

60,000 45,000 25,000 The alimony payments decreased by more than $15,000 per year over the first 3 years.

With regard to the alimony deduction related to a post-1984, pre-2019 divorce, which one of the following statements IS correct? a. Alimony is deductible by the payor spouse, and includible by the payee spouse, to the extent that payment is contingent on the status of the divorced couple's children. b. The divorced couple may be members of the same household at the time alimony is paid, provided that the persons do not live as husband and wife. c. Alimony payments must terminate on the death of the payee spouse. d. Alimony may be paid either in cash or in property.

Alimony is deductible by the payor spouse, and includible by the payee spouse, to the extent that payment is contingent on the status of the divorced couple's children. For post-1984, pre-2019 divorce agreements and decrees, payments to former spouses are alimony ONLY IF: • The payments are in cash; • The agreement or decree does NOT specify that the payments are NOT alimony for federal income tax purposes; • The payee and payor are not members of the same household at the time the payments are made; and • There is no liability to make the payments for any period after the death of the payee

Which of the following types of deductions CAN be claimed in arriving at an individual's adjusted gross income? a. Unreimbursed business expenses of an outside employee-salesperson. b. Personal casualty losses. c. Charitable contributions. d. Alimony payments for divorces prior to 2019

Alimony payments for divorces prior to 2019. TCJA 2017 repealed the deduction by the payor and the inclusion in income by the payee (of alimony).

Short Company allows a 20% discount to all non-officer employees. Officers, all highly compensated, are allowed a 30% discount on company products. Short's gross profit is 35%. Which of the following is true? a. An officer who takes a 30% discount must include the extra 10% (30%-20%) in gross income. b. All discounts taken by employees are includible because the plan is discriminatory. c. All discounts taken by officers (30%) are includible because the plan is discriminatory. d. None of the discounts are includible in income because the discount in all cases is less than the company's gross profit percentage

All discounts taken by officers (30%) are includible because the plan is discriminatory. "if qualified employee discounts discriminate in favor of highly compensated employees, the highly compensated employees must include the discounts in gross income."

John, the majority shareholder in ABC, Inc., received an interest-free loan from the corporation. Which of the following is/are correct? a. If the loan is classified as an employer-employee loan, the corporation's taxable income will not be affected by the imputation of interest. b. If the loan is classified as a corporation-shareholder loan, the corporation's taxable income will increase as a result of the imputation of interest. c. If John uses the funds to take a vacation, the imputation of interest will cause a net increase to his taxable income. d. All of the above

All of the above.

Robin's daughter, Reese, completed her senior year of college in the current year. Robin paid $5,000 in qualified education expenses for Reese in the current year. Robin is a Married Filing Jointly taxpayer and has an AGI of $60,000 for the current year. What, if any, education credit will provide Robin the highest credit and how much is that credit? a. Robin is not eligible to claim an education credit. b. American Opportunity Tax Credit in the amount of $2,500 c. Lifetime Learning Credit in the amount of $1,000 d. Lifetime Learning Credit in the amount of $2,000

American Opportunity Tax Credit in the amount of $2,500 $5,000: 100% of the first $2,000 (2000), and then 25% of the next $2,000 (500) = $2,500 American Opportunity Tax Credit covers 100% of the first $2,000 and then 25% of the next $2,000 Lifetime Learning covers only 20% of the first $10,000 (2,000)

What were the earliest taxes created by Congress in the U.S. called?

Direct Taxes Direct taxes on property came into being in the late 1790s

On January 1, Donald loaned Ivanka $90,000 to purchase a new personal residence. There were no other loans outstanding between Donald and Ivanka. Ivanka's only income was $30,000 salary and $4,000 interest income. Donald had investment income of $200,000. Donald did not charge Ivanka interest. The relevant federal rate was 9%. For the current year: a. Ivanka must recognize $8,100 (0.09 x $90,000) imputed interest income on the loan. b. Donald must recognize imputed interest income of $4,000. c. Donald must recognize imputed interest income of $8,100. d. Ivanka is allowed a deduction for imputed interest of $8,100

Donald must recognize imputed interest income of $4,000. 1. Donald needs to include $8,100 on his income tax return. When an interest-free or below-market rate loan is made to an individual, interest income will be imputed to the LENDER for income tax purposes. The amount of imputed interest will be the difference between the interest rate charged on the loan, and the applicable federal rate -which is set by the IRS on a monthly basis- (9% of $90,000 in this case). 2. Because Ivanka is not making the interest payment to Donald, Donald will be deemed to make a gift to Ivanka of the imputed interest. In addition to the phantom income from imputed interest that is included in the lender's gross income, the lender (Don) is deemed to make a gift of the imputed interest back to the borrower (Ivanka). If the imputed interest is less than $15,000 the gift may be shielded by the gift tax annual exclusion.

What tax act reduced the top income tax bracket to 50%?

ERTA 1981 reduced the top income tax bracket to 50%

Gee and Bea Lee have a very diverse family. Which of the following children does NOT meet the relationship test for the purpose of Gee and Bea claiming a qualified child? a. Dan, Bea's 8-year-old son from a prior marriage. b. Fran, Gee's 10-year-old cousin. c. Stan, a 5-year-old foster child placed with Gee and Bea by a state agency. d. Xan, Bea's 12-year-old niece

Fran, Gee's 10-year-old cousin. Because Fran is from the same generation as Gee (even though she is presumably much younger than Gee), she does not meet the relationship test. A qualifying child must be from a lower generation than the taxpayer. All of the other options DO meet the relationship test for being a qualifying child. The purpose is for child tax credit, etc.

Moshe and Frances were married for many years. During their marriage, they jointly purchased a townhouse as an investment. The original cost of the townhouse, including all closing costs, expected interest and taxes, was $240,000. During the holding period, they invested an additional $50,000 to improve the property (not repairs and maintenance). They held the property as tenants by the entirety until their divorce this year. As a result of the divorce, Frances became the sole owner. At the time of the divorce, the fair market value of the property, as determined by a court appointed appraiser, was $260,000. Which of the following is correct? a. Frances has income of $130,000 and Moshe has a corresponding income tax deduction of $130,000. b. Frances' basis is $145,000. c. Frances' basis is $260,000. d. Frances' basis is $290,000

Frances' basis is $290,000 in marriage and marital dissolution, basis is carry over.

James lost his tax case in a jury trial in the U.S. District Court. Where can he appeal?

He can appeal to the U.S. Court of Appeals in his circuit. He can appeal from a U.S. District Court to his circuit Court of Appeals.

Robin purchased 10,000 shares of RCM Inc. five years ago for $100,000. She just gave those shares to her son, Seth. The value of the 10,000 shares of stock, as of the date of the gift, was $60,000. Which of the following statements is true? a. If Seth subsequently sells the shares of RCM Inc. for $105,000, the basis used to calculate his gain or loss will be $60,000. b. If Seth subsequently sells the shares of RCM Inc. for $40,000, the basis used to calculate his gain or loss will be $60,000. c. If Seth subsequently sells the shares of RCM Inc. for $40,000, the basis used to calculate his gain or loss will be $100,000. d. If Seth subsequently sells the shares of RCM Inc. for $105,000, he will not have any gain or loss

If Seth subsequently sells the shares of RCM Inc. for $40,000, the basis used to calculate his gain or loss will be $60,000. Seth will have a double basis in the stock, determined as follows: If the donee's sale price is between the donor's original basis and the Fair Market Value, then there is no gain or loss. If Seth subsequently sells the shares of RCM Inc. for $40,000 (or less than the FMV on the date of the gift), the basis used to calculate his gain or loss will be $60,000. If he subsequently sells the shares for a price higher than the donor's basis on the date of the gift ($100,000), the basis used to calculate his gain is $100,000

Which of the following is true regarding tax audits, procedures, and appeals? 1. The dollar limit for the small crimes division is $20,000. 2. In order to appeal in a District court the taxpayer must pay the deficiency and sue the IRS as the defendant. 3. Letter ruling's are private and are not available to the public 4. A taxpayer can always request a jury trial

In order to appeal in a District court the taxpayer must pay the deficiency and sue the IRS as the defendant. In order to appeal in the District Court, the taxpayer must first pay the tax deficiency and then sue the IRS as the defendant.

Which of the following benefits provided by an employer to its employees is taxable? a. Employees of the XYZ Department Store are allowed a 5% discount on store merchandise. XYZ's normal gross profit percentage is 20%. b. Undergraduate tuition is waived by ABC University for the dependent children of employees. c. B.J. Airline provides free standby flights to its employees. d. Incidental personal use of the company car

Incidental personal use of the company car. a. qualified employee discounts on qualified property and services can be excluded from an employee's gross income. Discounts cannot exceed the employer's gross profit percentage (of the price for customers). b. An employee of an educational institution can exclude from gross income the value of a qualified tuition reduction for himself, his spouse, or his dependent child (only up to graduate level.) c. Whether the no-additional-cost exclusion is available depends upon seat availability to other customers. The key issue is that the airline must not forgo revenue in order to provide the excludable fringe benefit. d. the use of a company car is a common working condition fringe benefit. If the employee uses the car for both personal and business purposes, the business-use value is considered to be a fringe benefit, but the personal use value must be included in the employee's gross income.

Clara pursued a hobby of selling antique furniture in her spare time. During the year she sold the furniture for $3,000. She incurred expenses as follows: Cost of goods sold $2,000 Supplies $1,200 Interest on loan to get business started $800 Advertising $750 Assuming that the activity is a hobby, and that she cannot itemize this year, how should she report these items on her tax return? a. Include $3,000 in income and deduct $4,750 for AGI. b. Ignore both income and expenses since hobby losses are disallowed. c. Include $3,000 in income and deduct nothing for AGI. d. Include $3,000 in income and deduct interest of $800 for AGI

Include $3,000 in income and deduct nothing for AGI The IRS doesn't allow you to deduct hobby expenses from hobby income. You must claim all hobby income and are not permitted to reduce that income by any expenses.

The IRS collects over three trillion dollars each year. What is the largest source of collections?

Individual and estate and trust income tax. Individual and estate and trust income tax make up almost 2/3 of the monies collected by the IRS per year.

Which of the following is NOT a requirement that must be satisfied in order for a legally married taxpayer to use the head of household filing status? a. The taxpayer must file a separate tax return from the spouse. b. The taxpayer must furnish over one-half of the cost of maintaining the household. c. The spouse must not be a member of the household during the last six months of the tax year. d. The taxpayer must be legally separated from the spouse

It is NOT a requirement that the taxpayer must be legally separated from the spouse. To file as head of household, The taxpayer must file a separate tax return from the spouse, must furnish over 1/2 of the cost of maintaining the household, and the spouse must not be a member of the household during the last 6 months of the tax year.

Laura and Skip had been married for 25 years when Skip died suddenly in February of the current year. Although Laura was deeply depressed about Skip's death, she knew that Skip would want her to move on with her life and she began dating. It wasn't long before Laura was swept off of her feet by Brad. After a romantic weekend in the Catskills, Brad and Laura got married in November of the same year. What filing status will be used for Laura and Brad for the current year? a. Laura and Skip must both use the single filing status. b. Laura will use the married filing jointly status, and Skip will use the married filing separately status. c. Laura and Brad will both use the married filing jointly status. d. Laura will use the surviving spouse filing status, and Skip will use the married filing jointly status

Laura and Brad will both use the married filed jointly status. For a taxpayer whose spouse dies during the year, a joint return can be filed. The joint return will include the income and deductions of the taxpayer for the full year and the income and deductions of the spouse for the part of the year that the spouse lived. If the surviving taxpayer remarries before the end of the year, they will be able to file a joint return with the new spouse but not with the deceased spouse. In this situation, the final income tax return for the deceased spouse must use the married filing separately filing status.

Which of the following is an itemized deduction? a. Medical expenses. b. A contribution to an HSA. c. A contribution to a traditional IRA. d. Student loan interest

Medical Expenses

Payments for employment-related care that are made to relatives of the taxpayer may qualify for the credit for child and dependent care expenses. Which of the following payments does not qualify? a. Payments for employment-related care made to the taxpayer's uncle. b. Payments for employment-related care made to the taxpayer's 21-year-old married daughter. c. Payments for employment-related care made to a 17-year-old dependent child of the taxpayer. d. Payments for employment-related care made to taxpayer's 17-year-old nephew

Payments for employment related care made to a 17 year old dependent child of the taxpayer because the child is a dependent of the taxpayer. This credit cannot be given to a dependent of the taxpayer.

Which individual can make a deductible contribution to a traditional IRA in the current year? a. Phil, who is married, has an AGI of $150,000, and his spouse is an active participant in her employer's defined contribution plan, but he is not an active participant. b. Kyle, who is single, has an AGI of $80,000, and is an active participant in his employer's defined benefit plan. c. Claire, who is married, has an AGI of $125,000, and is an active participant in her employer's defined contribution plan. d. Kim, who is single and has no earned income

Phil. cannot be an active participant in a employer's defined benefit plan (this is only modified for spousal IRA when one spouse is an active participant but the other is not.) must have earned income to make contributions at all.

Which of the following entities is not subject to federal income tax? C corporation. A trust S corporation proprietorship

Proprietorship A proprietorship is a flow-through entity and is taxed to the individual who owns it, not to the entity.

Which of the following is NOT a deduction for AGI? a. Maintenance expense for a rental property actively managed by the taxpayer. b. Moving expenses of a taxpayer who is an active duty member of the Armed Forces. c. Real estate taxes. d. One-half of self-employment tax paid

Real Estate Taxes moving expenses are deductible for active duty members of the armed forces (or their spouses/dependents) who move under military order to give equal treatment to self-employed individuals, the IRC allows self-employed individuals to deduct one half of self-employment taxes paid as an adjustment to income (above-the-line) deduction.

Which of the following types of credits are available to individual taxpayers? 1. Refundable. 2. Deductible. 3. Non-refundable. 4. Transferable. a. 1 and 2. b. 1 and 3. c. 2 and 4. d. 1, 3, and 4

Refundable and nonrefundable, 1 & 3

Ron and Bonnie were divorced. Their only marital property was a personal residence with a value of $300,000 and cost of $125,000. Under the terms of the divorce agreement (which did not include the word "alimony") Bonnie would receive the house. She would pay Ron $20,000 each year for five years. If Ron died before the end of the five years, the payments were to be made to his estate. Bonnie and Ron lived apart when Ron received the payments. a. Ron does not recognize any income from the above transaction. b. Ron must recognize a $87,500 [1/2 x ($300,000 - $125,000)] gain on the sale of his interest in the house. c. Bonnie can deduct $20,000 a year for alimony paid. d. Bonnie can deduct $25,000 as alimony paid

Ron does not recognize any income from the above transaction. The payments are not alimony because the payments would continue after the death of the payee. To achieve pass-through tax treatment, the payments must actually constitute alimony. IRC section 71 sets forth the requirements necessary to classify payments as alimony. They are: -There is no liability to make the payments for any period after the death of the payee -The payments are in cash -Payments must be required by a court decree -The agreement or decree does NOT specify that the payments are NOT alimony for federal income tax purposes -The payee and payor are not members of the same household at the time the payments are made; -Payments must not be disguised as child support payments -the parties may not file a joint income tax return

Gary dies leaving Sherri stock of CC Company. Gary had acquired the stock in November of this year and died December 10th of this year. The value of the stock on the date of death was $1,000 and Gary's adjusted taxable basis was $1,200. Presuming that Sherri sells the stock for $1,050 on February 14th of the next year, what is her tax consequence? a. She is subject to the double basis rule: no gain or loss. b. She has a short-term capital loss of $150. c. She has a long-term capital loss of $150. d. She has a long-term capital gain of $50

She has a long-term capital gain of $50 all inherited assets are long term regardless of holding period

Which of the following is not generally one of the four main categories of itemized deductions? a. State income, property, and sales taxes. b. Charitable contributions. c. Casualty losses. d. Qualified personal residence mortgage interest.

State income, property, and sales tax 6 categories of itemized deductions: medical expenses taxes (TCJA limited this to $10,000) interest charitable contributions casualty losses miscellaneous itemized deductions.

Which court is the highest legal authority in income tax?

Supreme court decisions. Supreme Court ruling's are the highest law of the land.

Which of the following imposed the first constitutional federal income tax? Revenue act of 1913 Revenue act of 1916 Revenue act of 1861 16th amendment

The Revenue Act of 1913 Although the Revenue Act of 1861 did impose a federal income tax, it was later found to be unconstitutional because Congress did not have the power to levy an individual income tax at that time.

For income tax purposes, from which court is there no appeal:

The Supreme Court. There is no appeal from the U.S. Supreme Court

Kevin files a fraudulent income tax return and has a $20,000 income tax deficiency because of it. What is the amount of his penalty? (HINT: What percentage of the deficiency is the penalty?)

The penalty for filing a fraudulent income tax return is 75% of the deficiency. $15,000

Kevin and Teddi own a house at the beach. The house was rented to unrelated parties for eight full weeks during the current year. Kevin and Teddi used the house 16 days for their vacation during the year. After properly dividing the expenses between rental and personal use, it was determined that a loss was incurred as follows: Gross rental income: $6,400 (made) Mortgage interest and property taxes $7,000 + Other allocated expenses 1,000 = $8,000 (spent) $6,400 - $8,000 = $1,600 (net rental loss) What is the correct treatment of the rental income and expenses on Kevin and Teddi's joint income tax return for the current year? a. A $1,600 loss should be reported. b. The rental portion of interest and taxes can be deducted. c. The rental expenses (other than interest and taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use. d. Since the house was used only 20% personally by Kevin and Teddi, all expenses allocated to personal use may be deducted

The rental expenses (other than interest and taxes) are limited to the gross rental income in excess of deductions for interest and taxes allocated to the rental use.

What is an advantage of using the Section 179 Deduction over MACRS? a. By deducting more currently, total tax liability is increased and the present value of cash flows is decreased. b. The Section 179 may be elected on a property-by-property basis. c. Section 179 reduces the depreciation on most assets to only five years. d. Section 179 applies only to business asserts, whereas depreciation applies to both business and personal assets

The section 179 may be elected on a property-by-property basis. Present value of cash flow is increased

B.J. and Sally have a very diverse family. Which of the following children would NOT be a qualifying child for the purpose of claiming the child tax credit in the current year? a. Sally's granddaughter, who turned 6 in the current year and lives with them for more than half of the year b. B.J.'s brother, who turned 13 in the current year and lives with them for more than half of the year. c. Their daughter, who turned 17 in the current year, and provides more than half of her own support. d. Their son, who was born on December 30 of the current year

Their daughter, who turned 17 in the current year, and provides more than half of her own support. qualifying: -is a son, daughter, stepchild, foster child, brother, sister, step sibling, half sibling, or descendent -was under 17 at the end of the tax year -did not provide over half of their support for the tax year -lived with the taxpayer for more than half the year -was a U.S. citizen, national, or resident of the U.S.

Faith has been audited by the IRS and has received an assessment of $25,000. After an IRS appeals conference, she is still not pleased with the assessment. She is especially displeased considering her deduction was not allowed for medical travel expenses related to her weekly visitation to her dependent minor child at a school for those with psychiatric disorders in another city. She would like to contest the assessment. What is her best choice of court to successfully appeal the IRS's determination?

U.S. District Court While Faith would qualify to bring her case before the Tax Court (and she has the advantage of an informal proceeding before the Tax Court Small Claims Division), her best chance at success in her appeal is before a sympathetic jury. A jury trial is only available before a U.S. District Court. She would likely have to find the resources to pay the $25,000 tax due, since the U.S. District Court (and the U.S. Court of Federal Claims) generally requires the taxpayer to pay the deficiency prior to hearing a claim.

John was audited by the IRS and has received an assessment notice of $75,000. He believes he has an excellent but complex tax argument and does not have the money to pay the assessment. What is his best choice of court to successfully appeal the IRS's determination?

U.S. Tax Court John would qualify to bring his case before the U.S. Tax Court. He can proceed to the U.S. Tax Court without paying the assessment before the hearing.

Which of the following taxpayers can use the standard deduction? a. Zeke, who files a separate return from his wife Yasmine. Yasmine itemizes deductions on her return. b. Xavier, who is a nonresident alien. c. William, who files a tax return for less than 12 months because he changed his annual accounting period. d. Violet, who owns a personal residence.

Violet, who owns a personal residence. Certain taxpayers aren't entitled to the standard deduction: 1. A married individual filing as married filing separately whose spouse itemizes deductions 2. An individual who was a nonresident alien or dual status alien during the year (see below for certain exceptions) 3. An individual who files a return for a period of less than 12 months due to a change in his or her annual accounting period 4. An estate or trust, common trust fund, or partnership

Which of the following is excluded from gross income? a. Damages received from a sexual harassment lawsuit. b. Unemployment compensation. c. Hobby income. d. Workers compensation benefits

Worker's compensation benefits. Workers compensation benefits are excluded from gross income. Damages received from a sexual harassment lawsuit are taxable. In order to be excludable, damages must be for physical injury or sickness. Sexual harassment is considered personal injury and the damages are therefore taxable. Hobby income is taxable. unemployment compensation must be included in gross income (unless the employee made after-tax contributions to a government or private unemployment compensation fund.)

Bruce and Kim divorced three years ago. The divorce agreement called for support payments from Kim to Bruce of $100,000 for the first year, $50,000 for the second year, and $20,000 for the third year. Is there any Year 3 alimony recapture and if so, what is the amount? a. No, $0. b. Yes, $72,500. c. Yes, $113,333. d. Yes, $110,000

yes, $72,500 Recapture in year 3 = [(payment 1 + payment 2 )- 2xpayment 3] - $37,500 R3 =[( P1+P2) - 2P3 ]- 37500 R3= [(100,000 + 50,000) - 40,000]-37500 R3= 110,000-37500 R3= 72,500