Final Exam

Adele is the beneficiary of her mother's life insurance policy. She receives $100,000 (the face value of the policy). How much is taxable as income? a.) $0 b.) The portion exceeding the cash value of the policy c.) The portion exceeding the total premiums paid for the policy d.) $100,000

a.) $0

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

a.) $0

Lydia, whose AGI is $50,000 was recently transferred to another office across the country by her employer, Lilac Co. Her employer paid most of the moving expenses except for a house-hunting trip where she spent $80 on gas, $200 on hotel, and $300 on meals. How much is deductible? a.) $0 b.) $430 c.) $580 d.) $280

a.) $0

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.) $600 c.) $500 d.) $1,200

a.) $0

Sheila spent $15,000 in day care services for her four children, ages 4, 6, 8, and 10, to allow her to go to work. If her adjusted gross income is $180,000, how much is her dependent care credit? a.) $1,200 b.) $0 c.) $15,000 d.) $3,000

a.) $1,200

Jill paid $3,000 in interest on her student loans this year. Jill is single and earned $69,000 form 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.) $1,250 b.) $0 c.) $1,500 d.) $2,500

a.) $1,250

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.) $1,250 b.) $0 c.) $2,500 d.) $1,500

a.) $1,250

Sally is 92 years old and single and is a dependent of her daughter. During the tax year she received $1,900 in interest, $1,500 from State of New York general obligation bonds, and $8,000 from Social Security benefits. What is her gross income? a.) $1,900 b.) $3,400 c.) $11,400 d.) $1,500

a.) $1,900

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 2020 to take advantage of their maximum allowable IRA deduction for their return? a.) $12,000 b.) $0 c.) $14,000 d.) $6,000

a.) $12,000

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

a.) $12,500

The adoption expense credit for 2020 is limited to: a.) $14,300 b.) $6,000 c.) $12,950 d.) $15,000

a.) $14,300

Mark and Maggie are married filing jointly and have four children (ages 12, 14, 16 and 18), all of whom qualify as their dependents. Mark and Maggie's tax liability before any tax credits is $5,800. They had $2,000 withheld as federal withholdings. What is their tax liability due or refund? a.) $2,700 refund b.) $4,200 refund c.) $2,000 refund d.) $2,200 refund

a.) $2,700 refund

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 $2,300 from a part-time job. What is Bobby's taxable income? a.) $3,150 b.) $550 c.) $0 d.) $2,300

a.) $3,150

Lyle, whose AGI is $50,000 had the following charitable contributions this year: $10,000 to his church, $20,000 to his alma mater, $25,000 (FMV) in long-term capital gain stock (basis=$12,000) to Boy Scouts of America. How much may he deduct this year? a.) $30,000 in cash contributions only b.) $25,000 cash and $15,000 (FMV) of stock c.) $25,000 in cash contributions only d.) $30,000 cash and $15,000 (FMV) of stock

a.) $30,000 in cash contributions only

Nina, age 61, has been very ill this year and has a significant amount of medical expenses, as listed below. Nina's AGI is $20,000. What is the amount of her deduction for medical expenses? - $1,200 in prescription drug costs - $2,000 in doctor's bills not reimbursed by Nina's insurance - $800 in travel expenses to see a specialist in another state - $2,000 in health insurance premiums a.) $4,500 b.) $3,700 c.) $6,000 d.) $1,500

a.) $4,500

Eight months ago, Frank purchased 100 shares of the ABC mutual fund for $20 per share. A few weeks after Frank made the purchase, a dividend was paid equal to $0.50 per share. Frank is participating in the company's dividend reinvestment program. If Frank sells the increased number of shares for $2,100, what will be the taxable gain? a.) $50 b.) $20 c.) $100 d.) $0

a.) $50

Eric has realized several capital gains and losses this year: 1. $10,000 in short-term capital gains. 2. $15,000 in short-term capital losses. 3. $18,000 in long-term capital gains. 4. $6,000 in long-term capital losses. What is Eric's net gain or loss? a.) $7,000 net long-term capital gain. b.) $7,000 net short-term capital gain. c.) $7,000 net long-term capital loss. d.) $7,000 net short-term capital loss.

a.) $7,000 net long-term capital gain.

Lawrence, who is in the 22% marginal tax bracket is qualified to contribute to a health savings account. If Lawrence contributes $3,550 to the HSA this year, how much will it save him in taxes? a.) $781 b.) $0 c.) $220 d.) $2,730

a.) $781

Leo and Lark are married and file jointly. They have AGI of $100,000. They incurred the following expenses this year: $8,000 health insurance premiums, $500 prescription drugs, $5,000 state income taxes, $6,000 property taxes, $15,000 cash contribution to their church. What is their tax liability? a.) $8,485 b.) $5,509 c.) $7,465 d.) $12,070

a.) $8,485

Hank and Irene are married and have two qualifying dependents. Hank and Irene are both 35 years old and have gross income of $115,000. Their deductions for AGI equal $10,000 and they always use the standard deduction. Using the married filing jointly tax rate schedule, compute their tax on taxable income for 2020. a.) $9,229 b.) $14,680 c.) $23,100 d.) $9,624

a.) $9,229

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.) $900 b.) $40,000 c.) $0 d.) $36,000

a.) $900

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 and 2 only b.) 2 only c.) 1 only d.) 1 and 3 only

a.) 1 and 2 only

Which of the following statements regarding administrative tax law issued by the IRS are true? 1.) Revenue rulings are based on a set of facts that are common to many taxpayers. 2.) Private letter rulings are issued at the request of an individual taxpayer. 3.) Determination letters are issued prior to the completion of a transaction. a.) 1 and 2 only b.) 2 and 3 only c.) 1, 2, and 3 d.) 1 only

a.) 1 and 2 only

Income to U.S. taxpayers is taxed in the year it is derived in which of the following situations? 1.) Interest earned but reinvested in a savings account in an FDIC savings bank. 2.) Unrealized long-term capital gains on stocks. 3.) Income earned on most municipal bonds. 4.) Short-term gains realized within a qualified retirement plan. 5.) Increased value of personal residence. a.) 1 only b.) 2, 3, 4, and 5 c.) 1 and 3 only d.) 2, 3, and 4 only

a.) 1 only

Which is true? 1.) Gross income includes all income items that must be reported on the federal income tax return and that are subject to the federal income tax. 2.) Deductions for adjusted gross income are known as below-the-line deductions. a.) 1 only b.) 2 only c.) Both 1 and 2 d.) Neither 1 nor 2

a.) 1 only

Which of the following is an itemized deduction? 1. Medical expenses. 2. A contribution to an HSA. 3. A contribution to a traditional IRA. 4. Student loan interest. a.) 1 only b.) 1 and 4 only c.) 1, 2, and 3 only d.) 1 and 2 only

a.) 1 only

Hazel owns a downtown office building. She originally purchased the building for $600,000 and deducted straight-line depreciation deductions of $200,000. What are the tax consequences if she sells the building for $1,000,000? 1. She will have ordinary income of $0. 2. She will have $200,000 of any gain taxed at 25%. 3. She will have 1231 gains of $400,000. a.) 1, 2, and 3 b.) 1 only c.) None of the above is correct d.) 1 and 3 only

a.) 1, 2, and 3

For which of the following expenses may a self-employed individual take above the line deductions? 1. Health insurance premiums 2. Qualified retirement plan contributions 3. Operating expenses of the business 4. Home mortgage interest a.) 1, 2, and 3 only b.) 2 and 3 only c.) 3 only d.) 1, 2, 3, and 4

a.) 1, 2, and 3 only

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.) 19 days b.) 190 days c.) 14 days d.) 95 days

a.) 19 days

In what year was the Social Security Act created? a.) 1935 b.) 1853 c.) 1776 d.) 1980

a.) 1935

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

a.) 2, 3, and 4 only

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. a.) 2, 3, and 4 only b.) 1 and 2 only c.) 4 only d.) 1, 2, 3, and 4

a.) 2, 3, and 4 only

Teddy has three capital transactions for the current year: 1. A short-term capital loss of $8,000. 2. A short-term capital gain of $6,000. 3. A long-term capital loss of $5,000. What is the net effect on Teddy's income taxes this year if he is in the 37% income tax bracket? a.) A $1,110 tax reduction b.) A $2,590 tax reduction c.) A $2,000 deduction d.) A $7,000 deduction

a.) A $1,110 tax reduction

Abel bought a 30 year corporate bond with an annual coupon of 5% for $930 in January of this year. Two years later he sells the bond on January 1 for $1,010. What is his tax consequence upon sale of the bond?Ignore OID for this problem. a.) A LTCG of $80. b.) A LTCG of $8. c.) A STCG of $8. d.) None. He accrues at 6.11% interest.

a.) A LTCG of $80.

Seth gifts to Jordan stock in DDD Company. The value of the stock on the date of the gift was $14,000. Seth had acquired the stock 3 years earlier at a price of $9,000. What is the tax consequence to Jordan if Jordan immediately (on the date of the gift) sells the stock for $14,000? a.) A long-term capital gain of $5,000 b.) No gain or loss c.) A short-term capital gain of $5,000 d.) A deferred long-term capital gain of $5,000

a.) A long-term capital gain of $5,000

Jerry gifts to Joanne stock in BL Company. The value of the stock on the date of the gift was $14,000. Jerry had acquired the stock three years earlier for $6,000. On April 15 of the year following the purchase, Jerry paid gift tax of $4,800. Joanne sold the stock for $18,000 on July 1 of the year following the gift (exactly one year from the date of the gift). What is Joanne's gain or loss? a.) A long-term capital gain of $9,257 b.) A short-term capital gain of $9,257 c.) A short-term capital gain of $12,000 d.) A long-term capital gain of $12,000

a.) A long-term capital gain of $9,257

Monica gifts her brother, Hardy, stock in DCC Company. The value of the stock on the date of the gift was $14,000. Monica had acquired the stock for $17,000 five years ago. What is the tax consequence to Hardy if Hardy sells the stock for $12,000 one month after the gift. a.) A short-term capital loss b.) A short-term capital gain c.) A long-term capital loss d.) No gain or loss

a.) A short-term capital loss

Which of the following is not a disallowed loss? a.) Capital losses in excess of $3,000. b.) Losses from the subsequent sale of property gifted to a related party when its fair market value is less than the original owner's adjusted basis and the sale is greater than the loss basis but less than the gain basis of the transferor. c.) Losses from the sale of personal use assets. d.) Losses from wash sales.

a.) Capital losses in excess of $3,000.

James lost his tax case in a jury trial in the U.S. District Court. Which of the following statements is correct? a.) He can appeal to the U.S. Court of Appeals in his circuit. b.) He can appeal to the U.S. Supreme Court. c.) He can appeal to the U.S. Tax Court. d.) He has no appeal because he lost in a jury trial.

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

Ryan owns an apartment building. Real estate prices in the area have been rising and he thinks he could make a profit by selling the building. He originally purchased the building for $1.2M and took depreciation deductions of $700,000. Straight-line depreciation would have been $500,000. What are the tax consequences if he sells the building for $3.5M? a.) He will have ordinary income of $200,000. b.) He will have $700,000 of unrecaptured Section 1250 gain. c.) None of the answer choices is correct. d.) He will have capital gains of $3,000,000.

a.) He will have ordinary income of $200,000.

Becky and Wayne are getting divorced. As part of the divorce settlement, Becky receives a vacation home worth $680,000. The couple purchased the vacation home jointly five years ago for $400,000. Which of the following statements is true? a.) If Becky sells the vacation home for $780,000, she will have a gain of $380,000. b.) In any future sale of the vacation home, Becky and Wayne will each have a basis of $200,000. c.) If Becky sells the vacation home for $800,000, she will have a $120,000 gain. d.) If Becky sells the vacation home six months after receiving it in the divorce settlement, any gain or loss that she has will be short term.

a.) If Becky sells the vacation home for $780,000, she will have a gain of $380,000.

Wanda purchased 100 shares of ABC stock five years ago for $10,000. She recently gifted the stock to her brother, Keith. On the date of the gift, the stock had a fair market value of $7,500. Six months after receiving the stock, Keith decides to sell the stock. Which of the following statements is correct? a.) If Keith sells the stock for $6,750, he will have a short-term capital loss. b.) If Keith sells the stock for $7,000, he will have a long-term capital loss. c.) If Keith sells the stock for $8,000, he will have a long-term capital gain. d.) If Keith sells the stock for $11,000, he will have a short-term capital gain.

a.) If Keith sells the stock for $6,750, he will have a short-term capital loss.

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 $40,000, the basis used to calculate his gain or loss will be $60,000. b.) If Seth subsequently sells the shares of RCM Inc. for $105,000, 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 $105,000, he will not have any gain or loss.

a.) 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.

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

a.) Incidental personal use of the company car

Leah recently refinanced her mortgage to get a lower interest rate. The amount owed on the old mortgage was $400,000. She refinanced for $500,000. The FMV of the house is $750,000. How much of the interest will be deductible? a.) Interest on $400,000 will be deductible. b.) Interest on $100,000 will be deductible. c.) Interest on $500,000 will be deductible. d.) None of the interest will be deductible.

a.) Interest on $400,000 will be deductible.

Gemma owns an investment asset with a FMV of $50,000. She acquired the asset three years earlier and her basis in the asset is $60,000. Gemma sells the asset to her son, Jax, for $50,000. What is Gemma's tax consequences from this sale? a.) None b.) A taxable loss suspended of $10,000. c.) A short term taxable loss of $10,000 but limited to $3,000. d.) A taxable loss usable against ordinary income of $3,000 and a suspended long term capital loss of $7,000.

a.) None

Which of the following imposed the first constitutional federal income tax? a.) Revenue Act of 1913 b.) Revenue Act of 1916 c.) 16th Amendment d.) Revenue Act of 1861

a.) Revenue Act of 1913

Which of the following is the highest legal authority in income tax? a.) Supreme Court decisions b.) IRS technical advice memorandums c.) IRS publications d.) IRS revenue rulings

a.) Supreme Court decisions

A deduction for a nonbusiness bad debt is only allowed when the debt becomes totally worthless. a.) True b.) False

a.) True

Above-the-line deductions are generally considered to be more favorable to the taxpayer than below-the-line deductions on a dollar-for-dollar basis. a.) True b.) False

a.) True

Ford's federal income tax return was due on April 15, but Ford did not file his return or pay his taxes until June 30. Ford's unpaid tax balance during this period was $600. The total penalty that will be imposed on Ford for his failure to file and failure to pay is $435. a.) True b.) False

a.) True

If a taxpayer delays filing his income tax return by requesting an extension of time to file the return, the statute of limitations does not begin to run until the return is actually filed. a.) True b.) False

a.) True

Regular compensation paid to the CEO, CFO, or one of the 3 other highest paid officers in excess of $1 million may not be deducted by a publicly held corporation. a.) True b.) False

a.) True

Targeted compliance audits involve checking the tax returns of members of a particular profession to test compliance with the tax laws. a.) True b.) False

a.) True

What were the earliest taxes created by Congress in the U.S. called? a.) direct taxes b.) customs duties c.) estate taxes d.) income taxes

a.) direct taxes

Jackie and Julie have been in a long-term relationship and get married on January 1, 2021. They intend to file a joint return for all years in which they are eligible to do so. Neither Jackie nor Julie has ever been married before and neither have any children or other dependents. What filing status can Julie use on her 2020 tax return? a.) single b.) MFS c.) MFJ d.) HOH

a.) single

Which of the following is excluded from gross income? a.) workers compensation benefits b.) hobby income c.) unemployment compensation d.) damages received from a sexual harassment lawsuit

a.) workers compensation benefits

Augustus is the manager of a hotel. To be available in emergency situations, Augustus' 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 Augustus did not live there, he would live in an apartment that would rent for $900 per month. Augustus' inclusion in monthly gross income from living in the hotel room is: a.) $900 b.) $0 c.) $1,350 d.) $1,500

b.) $0

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? a.) $500 long-term capital gain b.) $0 c.) $500 short-term capital loss d.) It depends on what price Luke eventually sells the stock for

b.) $0

Lionel recently borrowed $100,000 to repair the foundation of his home. He paid $4,000 in interest on the loan this year. His total outstanding mortgages and loans on the home are $600,000. How much of the interest on this $100,000 loan will be deductible? a.) $4,000 b.) $0 c.) $2,000 d.) $6,000

b.) $0

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

b.) $1,000

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

b.) $1,100

Bob broke his leg skiing earlier this year. Bob collected $10,000 from his short-term disability plan paid for solely by his employer. How much does Bob have to include in his gross income? a.) $8,500 b.) $10,000 c.) $0 d.) $5,000

b.) $10,000

Leonardo is self-employed where his net income is $80,000. How much self-employment tax does he owe for the year? a.) $6,120.21 b.) $11,303.64 c.) $0 d.) $12,240.37

b.) $11,303.64

Leona is 68 years old and single. What is the largest amount of adjusted gross income that Leona can have for 2020 without being required to file a tax return? a.) $13,700 b.) $14,050 c.) $1,650 d.) $12,400

b.) $14,050

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? a.) $10,000 b.) $15,000 c.) $5,000 d.) $20,000

b.) $15,000

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.) $21,000 b.) $21,400 c.) $20,400 d.) $20,000

b.) $21,400

Abby's employer paid for a long-term disability insurance policy on Abby. Abby became disabled and received $3,000 per month for 8 months this year. How much of the disability benefits will be taxable as income? a.) $0 b.) $24,000 c.) $12,000 d.) $36,000

b.) $24,000

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.) $273,000 b.) $253,000 c.) $300,000 d.) $280,000

b.) $253,000

Laddie has AGI of $100,000. He had the following medical expenses which were not reimbursed by insurance.: $600 prescription drugs, $400 medical marijuana prescribed by a physician, $10,000 for alcohol treatment. What is the medical expense deduction after adjusting for AGI? a.) $11,000 b.) $3,100 c.) $600 d.) $0 e.) $3,500

b.) $3,100

Lilith is self-employed. Her net self-employment income from Schedule C is $50,000. What is her taxable income? a.) $35,600 b.) $34,068 c.) $50,000 d.) $42,935

b.) $34,068

Alastair is single with a salary of $50,000, interest of $600, and itemized deductions of $10,000. What is his 2020 tax liability? a.) $4,674.50 b.) $4,386.50 c.) $5,291.50 d.) $6,010.50

b.) $4,386.50

Alfred, who is single, is claimed as a dependent on his parents' tax return. His only income for the year was $1,500 in dividends. How much does he owe in taxes in 2020? a.) $1,500 b.) $40 c.) $0 d.) $150

b.) $40

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 2020. What is the amount of his Section 179 deduction for 2020? a.) $108,000 b.) $400,000 c.) $25,000 d.) $250,000

b.) $400,000

Athena, age 35, is unmarried and has two qualifying dependents for whom she maintains a household for the entire year. Athena has an adjusted gross income of $65,000 and uses the standard deduction. Using the appropriate tax rate schedule, calculate Athena's tax on her taxable income for 2020. a.) $5,562 b.) $5,400 c.) $5,280 d.) $7,362

b.) $5,400

Alex is 35 and single. He has AGI of $70,000 and itemized deductions of $4,800. What is his taxable income? a.) $70,000 b.) $57,600 c.) $65,200 d.) $52,800

b.) $57,600

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.) $950 b.) $600 c.) $2,000 d.) $2,950

b.) $600

Reba and Charlie, who are married filing jointly, have three children (ages 5, 9 and 17) who are dependents. They have a W-2 income of $90,000. They have $13,500 in Federal taxes withheld. Reba and Charlie have the following expenses for the year: - Interest on a home equity loan taken out in 2018 (loan issued for $100,000, used for secondary education): $2,500 - Interest on first mortgage (original loan balance $450,000): $12,000 - Property taxes on personal residence: $8,000 - State income tax: $8,000 - State sales tax: $4,500 What is Reba and Charlie's taxable income? a.) $62,000 b.) $65,200 c.) $57,500 d.) $55,000

b.) $65,200

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? a.) $800 b.) $80 c.) $2,000 d.) $0

b.) $80

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 (2020). a.) $4,500 b.) $9,500 c.) $0 d.) $3,600

b.) $9,500

Axel bought an annuity with $100,000 he inherited. The annuity is to pay Axel $800 per month for 15 years. Axel is hale and hearty and outlives the insurance company's life prediction. The 16th year, Axel receives $9600; how much of the $9600 will be taxable as income? a.) $4,800 b.) $9,600 c.) $2,976 d.) $0

b.) $9,600

Which of the following is 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 only b.) 1, 2, and 3 only c.) 1, 3, and 5 only d.) 2, 3, and 5 only

b.) 1, 2, and 3 only

The Tax Reform Act of 1986 was roughly revenue neutral because: 1.) It was supported by both Republicans and Democrats. 2.) It was not intended to raise or lower taxes collected by the government. 3.) It divided the tax burden evenly between individuals and businesses. 4.) It made the tax rates equal across all tax brackets. a.) 1 and 3 only b.) 2 only c.) 1, 2, and 4 only d.) 2 and 3 only

b.) 2 only

Beau would like to invest in bonds and is considering either a taxable bond with an interest rate of 5% or a tax-exempt municipal bond of comparable risk and quality with an interest rate of 3%. Beau's marginal tax rate is 25%. In order to help Beau compare these two bonds, compute the equivalent tax-free rate for the taxable bond. a.) 5.00% b.) 3.75% c.) 4.25% d.) 3.00%

b.) 3.75%

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 MFJ 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.) Lifetime Learning Credit in the amount of $1,000 b.) American Opportunity Tax Credit in the amount of $2,500 c.) Robin is not eligible to claim an education credit. d.) Lifetime Learning Credit in the amount of $2,000

b.) American Opportunity Tax Credit in the amount of $2,500

All taxpayers who make contributions to a traditional IRA may take an above-the-line deduction for the value of the contribution. a.) True b.) False

b.) False

Claire, who is married, has an AGI of $125,000, and is an active participant in her employer's defined contribution plan can make a deductible contribution to a traditional IRA. a.) True b.) False

b.) False

The Internal Revenue Code is only one of several statutory sources of federal tax law. a.) True b.) False

b.) False

Whenever expenses are associated with a business activity, they are below-the-line deductions. a.) True b.) False

b.) False

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

b.) Five years

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 $290,000. c.) Frances' basis is $260,000. d.) Frances' basis is $145,000.

b.) Frances' basis is $290,000.

Amad owns a personal fitness facility that specializes in training athletes. Several years ago, he purchased a weight machine for $5,000 and has since taken $1,000 in depreciation deductions. He is now ready to replace the weight machine with a more current model but is not sure what the tax consequences of selling the old weight machine will be. Which of the following statements regarding the tax consequences of selling the old machine is true? a.) If Amad sells the old weight machine for $4,800, he will have a $800 capital gain. b.) If Amad sells the old weight machine for $4,200, he will have a $200 ordinary income. c.) If Amad sells the old weight machine for $3,800, he will have a $600 ordinary income. d.) If Amad sells the old weight machine for $4,000, he will have a $600 capital loss.

b.) If Amad sells the old weight machine for $4,200, he will have a $200 ordinary income.

Savannah owns an event planning company. Several years ago, she purchased a magnificent vanilla fountain for $3,000 and has since taken $1,200 in depreciation deductions on the fountain. She is now ready to replace the fountain with tools for creating ice sculptures but she is not sure what the tax consequences of selling the fountain will be. Which of the following statements is true regarding the tax consequence of selling the fountain? a.) If she sells the fountain for $3,300, she will have a $1,500 capital gain. b.) If she sells the fountain for $2,000, she will have an ordinary gain of $200 and no capital gain. c.) If she sells the fountain for $1,800, she will have a $1,200 ordinary loss. d.) If she sells the fountain for $1,700, she will have a $100 capital loss.

b.) If she sells the fountain for $2,000, she will have an ordinary gain of $200 and no capital gain.

Lizzie, age 38, works for Laddie Co. where she earns $120,000. Lizzie, who is single, is an active participant in Laddie Co.'s qualified plan. Lizzie wants to contribute to an IRA. Which of the following statements is true? a.) Lizzie may not contribute to a Roth IRA. b.) Lizzie may contribute up to $6,000 in a traditional IRA, but she may not deduct it. c.) Lizzie may not contribute or deduct a contribution to a traditional IRA this year. d.) Lizzie may contribute up to $6,000 in a Roth IRA and deduct the contribution.

b.) Lizzie may contribute up to $6,000 in a traditional IRA, but she may not deduct it.

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

b.) Medical expenses

Which of the following is true? 1. Over-the-counter drugs are a deductible medical expense that can also be reimbursed through a flexible spending plan. 2. Taxpayers may deduct both state income taxes and state sales taxes. a.) 2 only b.) Neither 1 nor 2 c.) Both 1 and 2 d.) 1 only

b.) Neither 1 nor 2

In the U.S. income tax system, what are the three types of income? a.) Active income, portfolio income, business income b.) Ordinary income, portfolio income, passive income c.) W-2 income, self-employment income, pension income d.) Active income, passive income, hobby income

b.) Ordinary income, portfolio income, passive income

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 has a long-term capital loss of $150. b.) She has a long-term capital gain of $50. c.) She is subject to the double basis rule: no gain or loss. d.) She has a short-term capital loss of $150.

b.) She has a long-term capital gain of $50.

Alyssa received a state income tax refund of $300 in 2020 for her 2019 taxes. She itemized deductions in 2019. How must she treat this tax refund in 2020? a.) She must call the IRS to find out how to handle the tax refund. b.) She will have to include the $300 as income on her 2020 tax return. c.) The refund will not affect her 2020 taxes. d.) She will have to file an amended 2019 tax return, subtracting out the $300 from itemized deductions.

b.) She will have to include the $300 as income on her 2020 tax return.

Addie and Alan were divorced on December 30, 2020. They have no children. What filing status may they use for their 2020 tax return(s)? a.) MFS b.) Single c.) MFJ d.) HOH

b.) Single

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 assets, whereas depreciation applies to both business and personal assets.

b.) The Section 179 may be elected on a property-by-property basis.

Section 1245 recapture does not apply to business equipment held for 17 months or longer if: a.) The property was sold for a gain but was depreciated using straight-line depreciation rather than MACRS. b.) The property was abandoned as worthless. c.) The property was acquired, depreciated, and exchanged for a less valuable asset where the buyer of the asset paid additional cash in the exchange. d.) The property was destroyed by fire and the insurance recovery exceeds the property's adjusted basis.

b.) The property was abandoned as worthless.

Which of the following creates a potential Section 1245 result? a.) The immediate expensing under Section 179. b.) The sale of tangible personalty used in a trade or business at a gain. c.) A Section 1231 loss from a property's disposition. d.) The amortization of goodwill.

b.) The sale of tangible personalty used in a trade or business at a gain.

In a transaction for the sale of a bank building at an amount in excess of the original purchase price, any previously taken straight-line depreciation is: a.) Ignored for the calculation of capital gains. b.) Treated as capital gain taxed at 25%. c.) Recaptured as ordinary income. d.) Treated as capital gain under regular capital gain rules.

b.) Treated as capital gain taxed at 25%.

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

b.) Workers compensation benefits

Andy owns 100 shares of AA stock. At the beginning of the year, the stock was worth $5,000; at the end of the year, the stock was worth $6,000. Andy does not plan to sell the stock anytime soon. How much must Andy include as income this year? a.) $333 b.) $150 c.) $0 d.) $1,000

c.) $0

Landry borrowed $100,000 to buy corporate stock. This year he paid $4500 on the loan. Landry's investment income this year was $8,000, all of which was in qualified dividends and long-term capital gains. How much of the investment interest he paid is deductible? a.) $4,500 b.) $8,000 c.) $0 d.) $675

c.) $0

Layla, whose AGI is $60,000, paid $8,000 in health insurance premiums using before tax dollars. She spent $600 on copays and prescriptions which she paid for with her health savings account. If these were her only medical expenses, how much may she deduct this year? a.) $3,500 b.) $4,100 c.) $0 d.) $600

c.) $0

Lucien and Linda, both age 50, are married and file jointly. Their AGI is $150,000. Lucien is covered by a high deductible help plan through his employer as well as by a health insurance policy through Linda's employer. Lucien wants to open a health savings account and asks how much he can contribute in 2020. a.) $4,550 b.) $7,100 c.) $0 d.) $8,100 e.) $3,550

c.) $0

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

c.) $1,333.35

Langford, whose AGI is $300,000, made the following charitable contributions this year: - $100,000 in cash to the Field Museum of Natural History - $100,000 (FMV, basis is $30,000) in stock to the Museum of Science and Industry - $100,000 (FMV, adjusted basis is $50,000) apartment building to Chicago History Museum How much may Langford deduct this year if these are his only charitable contributions? a.) $100,000 cash to Field Museum, $30,000 stock gift to Museum of Science and Industry, and $30,000 of the gift to the Chicago History Museum. b.) $60,000 cash to Field Museum, $30,000 stock to Museum of Science and Industry, and $30,000 of apartment building gift to Chicago History Museum c.) $100,000 cash to Field Museum, $50,000 stock gift to Museum of Science and Industry, and $0 for gift of apartment building to Chicago History Museum. d.) $100,000 cash to Field Museum, $30,000 stock gift to Museum of Science and Industry, and $20,000 of the gift to the Chicago History Museum.

c.) $100,000 cash to Field Museum, $50,000 stock gift to Museum of Science and Industry, and $0 for gift of apartment building to Chicago History Museum.

Cassie is preparing her federal income tax return. Which of the following items should be excluded from Cassie's gross income? a.) Alimony received by Cassie from her ex-husband (2016 divorce decree).. b.) Royalties received by Cassie for her best-selling novel. c.) $100,000 in cash received by Cassie when her grandmother died. d.) $5,000 of gain resulting from the sale of Cassie's favorite painting.

c.) $100,000 in cash received by Cassie when her grandmother died.

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

c.) $2,000

On October 15, 2019, Dara purchased stock in ABC Corporation (the stock is not small business stock) for $2,000. On June 15, 2020, the stock became worthless. How should Dara treat the loss in 2020? a.) $1,000 short-term capital loss b.) $2,000 short-term capital loss c.) $2,000 long-term capital loss d.) $1,000 long-term capital loss

c.) $2,000 long-term capital loss

On September 19, 2019, an investor purchases 5,000 shares of Baritone Corporation for $5,000. On March 31, 2020, the stock became worthless. What is the deductible gain or loss in 2020 and how is it classified? a.) $3,000 short-term capital loss b.) $5,000 short-term capital gain c.) $3,000 long-term capital loss d.) $5,000 long-term capital loss

c.) $3,000 long-term capital loss

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.) $3,000 c.) $3,500 d.) $1,500

c.) $3,500

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.) $200,000 b.) $150,000 c.) $300,000 d.) $250,000

c.) $300,000

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 ABC Corporation 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 and recognized loss b.) $7,000 realized but not recognized loss c.) $5,000 realized but not recognized loss d.) $8,000 realized and recognized loss

c.) $5,000 realized but not recognized loss

Alton and Amanda have been married for 20 years and always file a joint return, but never itemize their deductions. Alton and Amanda have gross income of $80,000 and deductions for AGI in the amount of $5,000. They have no children. Neither is over the age of 65 and neither is blind. What is Alton and Amanda's taxable income for 2020? a.) $50,800 b.) $75,000 c.) $50,200 d.) $55,200

c.) $50,200

Lindsay contributed $120,000 to K-State this year. Lindsay's AGI is $100,000. If this was her only charitable contribution this year, how much may she deduct this year? a.) $50,000 b.) $100,000 c.) $60,000 d.) $120,000

c.) $60,000

Azalea earns $40,000. Her employer provides 3 times annual earnings in life insurance. If the P.S. 58 rate for Azalea's age group is 0.10, what is the annual tax consequence to Azalea? a.) $144 will be added to her income for tax purposes. b.) None of what her employer pays will be taxable to Azalea. c.) $84 will be added to her income for tax purposes. d.) The total amount of the life insurance premium paid by the employer is taxable to Azalea.

c.) $84 will be added to her income for tax purposes.

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

c.) 1, 2, 3, and 4

Carlos recently won a $20,000 prize for outstanding achievement in his field. Carlos has requested that the prize money be paid directly to his favorite qualified charity. Which of the following requirements must be met in order to exclude the prize money from Carlos's gross income? 1.) The prize must have been awarded in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement. 2.) Carlos must not have applied for the prize. 3.) Carlos must not be required to render substantial future services in order to receive the prize. a.) 1 and 2 only b.) 3 only c.) 1, 2, and 3 d.) 1 and 3 only

c.) 1, 2, and 3

Kenny would like to make a deductible contribution to a Health Savings Account. Which of the following is/are requirements in order for Kenny to be able to make such a contribution? 1.) Kenny must be over age 65. 2.) Kenny must have a high deductible health plan. 3.) Kenny must meet the deductible of his HDHP. a.) 1 only b.) 2 and 3 only c.) 2 only d.) 3 only

c.) 2 only

Which of the following is true? - The benefit received by a taxpayer from a tax credit is the same as the benefit received by the taxpayer from a tax deduction, regardless of the taxpayer's marginal tax rate. - The credit for the elderly or disabled is intended to provide financial assistance to elderly or disabled individuals with modest incomes. a.) Neither 1 nor 2 b.) Both 1 and 2 c.) 2 only d.) 1 only

c.) 2 only

Fiona is a highly compensated employee of GreatWorks, Inc. Which of the following fringe benefits would be taxable to Fiona? 1.) Health insurance provided by GreatWorks to all employees. 2.) Group term life insurance in the amount of $40,000 paid for by GreatWorks. 3.) Dependent care assistance exclusively for the highly compensated employees of GreatWorks. a.) 1 and 2 only b.) 1, 2, and 3 c.) 3 only d.) 2 and 3 only

c.) 3 only

Alma and Abe are divorced. They have one daughter, Aloha, who spends exactly six months of the year living with her mother and exactly six months of the year living with her father. Alma has an AGI of $200,000 and Abe has an AGI of $150,000. Aloha is a qualifying child of both Alma and Abe. Who can claim Aloha as a dependent? a.) Neither Alma nor Abe b.) Both Alma and Abe c.) Alma d.) Abe

c.) Alma

Which of the following statements concerning cafeteria employee benefit plans is (are) correct? 1. Any cash benefit elected is included in the employee's gross income. 2. If a cafeteria plan is discriminatory, the value of any benefit the employer provides a highly-paid employee is included in the employee's gross income. a.) Neither 1 nor 2 b.) 1 only c.) Both 1 and 2 d.) 2 only

c.) Both 1 and 2

Ralph is not married and does not have any children. However, Ralph is a very good son and provides more than half of the cost of maintaining a very nice apartment for his mother, and more than half of her support since her only income is a small amount from Social Security. Which of the following filing statuses should Ralph use and why? a.) Single, because Ralph is not married. b.) Head of Household, because Ralph's mother is a qualifying child. c.) Head of Household, because Ralph's mother is his dependent. d.) Single, because Ralph does not have any qualifying children.

c.) Head of Household, because Ralph's mother is his dependent.

Five years ago, Bailey purchased 200 shares of Circus Clowns, Inc. for $4,000. Bailey recently gifted those shares of stock to his son Barnum. The value of the 200 shares of stock on the date of the gift was $2,000. Which of the following statements is correct? a.) If Barnum subsequently sells the shares of Circus Clowns, Inc. for $1,600, he will not have any gain or loss. b.) If Barnum subsequently sells the shares of Circus Clowns, Inc. for $4,750, the basis used to calculate his gain or loss will be $1,000. c.) If Barnum subsequently sells the shares of Circus Clowns, Inc. for $4,750, the basis used to calculate his gain or loss will be $4,000. d.) If Barnum subsequently sells the shares of Circus Clowns Inc. for $1,600, the basis used to calculate his gain or loss will be $4,000.

c.) If Barnum subsequently sells the shares of Circus Clowns, Inc. for $4,750, the basis used to calculate his gain or loss will be $4,000.

Lida paid the following interest this year: $8,000 mortgage interest on her home, $2,000 interest on her party barge, $800 credit card interest, $1,000 interest on her student loans. Which of these interest payments are deductible on Schedule A (itemized deductions)? a.) Mortgage interest and interest on party barge b.) Mortgage interest and student loan interest c.) Mortgage interest only d.) All of the interest she paid is deductible.

c.) Mortgage interest only

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

c.) Real estate taxes

If personal use property is converted to business use: a.) Loss is recognized on the date of conversion to the extent of the excess of the adjusted basis over the fair market value. b.) Gain is recognized on the date of the conversion to the extent of the excess of the fair market value over the adjusted basis. c.) The adjusted basis is the lower of the taxpayer's adjusted basis or the fair market value on the date of conversion. d.) There is no gain or loss from the later sale of the property if the sales price is below the original adjusted basis and over the fair market value at the date of conversion.

c.) The adjusted basis is the lower of the taxpayer's adjusted basis or the fair market value on the date of conversion.

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 furnish more than half the cost of maintaining the household, b.) The taxpayer must file a separate tax return from the spouse. c.) The taxpayer must be legally separated from their spouse. d.) The spouse must not be a member of the household during the last six months of the tax year.

c.) The taxpayer must be legally separated from their spouse.

Amy makes a $90,000 loan at 0% interest to her daughter on January 1, 2020. If the federal imputed tax rate is 4%, what are the tax implications for 2020 if her daughter's net investment income is $900? a.) Amy must report $900 as imputed interest for the year. b.) There is $3,600 of imputed interest that Amy must report in 2020. c.) There is no imputed interest for Amy in 2020. d.) Amy's daughter must pay tax on $3,600 interest.

c.) There is no imputed interest for Amy in 2020.

John Smith company purchased a cement truck 5 years ago costing $200,000. Since the purchase, they have taken $62,000 in straight-line depreciation. They now have an offer to sell the cement truck for $145,000. Assuming they sell the truck, what is the tax consequence? a.) They have a $7,000 LTCG. b.) They have a LTCL of $55,000. c.) They have $7,000 ordinary income. d.) There are no tax consequences.

c.) They have $7,000 ordinary income.

For income tax purposes, from which court is there no appeal? a.) A District Court b.) U.S. Tax Court c.) U.S. Supreme Court d.) The Court of Appeals

c.) U.S. Supreme Court

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? a.) U.S. Court of Federal Claims b.) U.S. District Court c.) U.S. Tax Court d.) U.S. Tax Court-Small Claims

c.) U.S. Tax Court

The doctrine of the fruit and the tree means a.) the person who owns the asset pays half the tax while the person receiving the income pays the remaining tax on income received. b.) the owner of the asset can decide who receives the income and who will pay taxes on the income received from the asset. c.) the person who owns the asset pays income tax on earnings from that asset. d.) the person who receives the income from an asset is taxed on that income, regardless of who owns the asset.

c.) the person who owns the asset pays income tax on earnings from that asset.

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.) $1,440 b.) $640 c.) $0 d.) $1,040

d.) $1,040

During the current year, a taxpayer collected $600 interest on U.S. Treasury bills, $900 interest on Escambia County school bonds, and $200 from a state income tax refund (she itemized her deductions last year and deducted a total of $8,000 for state and local taxes). She also received $400 in dividends from a U.S. common stock. Her gross income from the above is: a.) $2,100 b.) $1,000 c.) $400 d.) $1,200

d.) $1,200

Tony (age 70) and Kate (age 68) are married and file a joint return for 2020. Although Tony's eyesight is above average for a man his age, Kate is legally blind. What is Tony and Kate's standard deduction for 2020? a.) $24,800 b.) $26,100 c.) $27,400 d.) $28,700

d.) $28,700

Tony (age 70) and Kate (age 68) are married and file a joint return for 2020. Although Tony's eyesight is above average for a man his age, Kate is legally blind. What is Tony and Kate's standard deduction for 2020? a.) $27,400 b.) $24,800 c.) $26,100 d.) $28,700

d.) $28,700

Les donated stock he bought five years ago (FMV=$80,000; basis=$25,000). He donated the stock to the Catholic Church. Les's AGI is $100,000. If this is his only charitable contribution, how much may he deduct this year? a.) $25,000 b.) $24,000 c.) $80,000 d.) $30,000

d.) $30,000

Agatha, age 65, purchases an annuity for $800,000 using the proceeds of her 401(k). The annuity will pay her $5,000 per month for life. The expected return is 20 years. Agatha receives $35,000 (7 months of payments) the first year. How much will be taxable as income? a.) $11,666 b.) $0 c.) $23,224.50 d.) $35,000

d.) $35,000

Lettye, whose AGI is $250,000, bought a house this year. She financed $600,000 on which she paid $24,000 interest. She also paid $12,000 in points and she paid $8,000 for private mortgage insurance. How much of what she paid may she deduct as an itemized deduction this year? a.) $32,000 b.) $44,000 c.) $24,000 d.) $36,000

d.) $36,000

Ashley, single and age 42, was divorced after 12/31/2018. She had the following items of income and expense for the current tax year. - Wages: $60,000 - Interest: $1,000 - Inheritance: $50,000 - Alimony paid: $10,000 - Child support paid: $8,000 - Federal taxes paid: $5,000 - State income taxes paid: $2,000 - Medical expenses: $7,500 What is Ashley's adjusted gross income? a.) $111,000 b.) $59,000 c.) $49,000 d.) $61,000

d.) $61,000

Lavinia, age 53, works for a Lamar Co. where she earns $500,000. The company has no retirement plan. How much may Lavinia deduct for a contribution to a traditional IRA this year? a.) $0 b.) $6,000 c.) $1,250 d.) $7,000

d.) $7,000

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.) $10,100 b.) $8,300 c.) $9,100 d.) $7,300

d.) $7,300

Lars is single and self-employed. His net income from his business was $90,000. Lars paid $12,716.60 in self-employment taxes. He also contributed $5,000 to his Simplified Employee Pension and he paid $8,000 for his health insurance. What is his AGI? a.) $72,283 b.) $64,642 c.) $77,283 d.) $70,642

d.) $70,642

Lance, whose AGI is $100,000, incurred the following expenses during the year: $10,000 mortgage interest - $4,000 property taxes - $8,000 cash contributions to his church - $5,000 state income taxes were withheld - $6,000 unreimbursed medical and dental expenses - $500 tax preparation fees - $1,000 professional dues What is Lance's taxable income? a.) $87,600 b.) $100,000 c.) $60,600 d.) $73,000

d.) $73,000

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; FMV $40,000). His adjusted gross income is $90,000. What is his charitable deduction for this year? a.) $0 b.) $36,000 c.) $40,000 d.) $900

d.) $900

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

d.) 1 and 2 only

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

d.) 1 and 2 only

Which of the following correctly states one of the basic rules of income taxation? 1.) All accretions to wealth, from whatever source derived, constitute income. 2.) Deductions may be taken regardless of income inclusion. a.) Both 1 and 2 b.) Neither 1 nor 2 c.) 2 only d.) 1 only

d.) 1 only

Which of the following is true? 1.) Qualified adoption expenses include adoption fees, court costs, attorney fees, and travel expenses (including amounts spent for meals and lodging) while away from home incurred during the adoption process. 2.) Once refundable credits have been used to the extent possible to reduce the tax calculated on taxable income, the full amount of nonrefundable credits can be used in the current year to further reduce the year's tax liability and/or to generate a tax refund. a.) Both 1 and 2 b.) 2 only c.) Neither 1 nor 2 d.) 1 only

d.) 1 only

Cate owns a downtown office building. She originally purchased the building for $2,000,000 and took straight-line depreciation deductions of $1,200,000. Cate is in the 37% tax bracket. What are the tax consequences if Kate sells the building for $2,100,000 (ignore the Medicare tax on net investment income)? 1. Cate will have ordinary income of $0. 2. Cate will have $1,200,000 of gain taxed at 25%. 3. Cate will have 1231 gains of $100,000 taxed at 20%. a.) 1 only b.) 3 only c.) 1 and 2 only d.) 1, 2, and 3

d.) 1, 2, and 3

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

d.) 1, 2, and 4 only

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-cancellable 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.) 2 and 3 only b.) 3 only c.) 1 and 3 only d.) 1, 3, and 4 only

d.) 1, 3, and 4 only

What tax act reduced the top income tax bracket to 50%? a.) RA 1913 b.) TRA 1986 c.) EGTRRA 2001 d.) ERTA 1981

d.) ERTA 1981

Which of the following is true regarding tax audits, procedures, and appeals? a.) The dollar limit for the small claims division is $20,000. b.) Letter rulings are private and are not available to the public. c.) A taxpayer can always request a jury trial. d.) In order to appeal in a District court the taxpayer must pay the deficiency and sue the IRS as the defendant.

d.) In order to appeal in a District court the taxpayer must pay the deficiency and sue the IRS as the defendant.

The IRS collects more than $3 billion in taxes each year. What is the largest source of collections? a.) Employment Tax b.) Estate and Gift Tax c.) Business Income Tax d.) Individual and Estate and Trust Income Tax

d.) Individual and Estate and Trust Income Tax

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 taxpayer's 17-year-old nephew d.) Payments for employment-related care made to a 17-year-old dependent child of the taxpayer

d.) Payments for employment-related care made to a 17-year-old dependent child of the taxpayer

Which of the following is not a method of accounting used for federal income tax purposes? a.) The cash method b.) The hybrid method c.) The accrual method d.) The portfolio method

d.) The portfolio method

Abbott's marginal tax bracket is 25%. He is trying to decide between tax-exempt bonds, which pay 4% interest and taxable bonds paying 7%. Which is better? a.) There is no difference between the after-tax yield of the two bonds. b.) It depends on how long until maturity for each of the bonds. c.) The tax-exempt bond d.) The taxable bond

d.) The taxable bond

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.) Their son, who was born on December 30 of the current year b.) Sally's granddaughter, who turned 6 in the current year and lives with them for more than half of the year c.) B.J.'s brother, who turned 13 in the current year and lives with them for more than half of the year d.) Their daughter, who turned 17 in the current year, and provides more than half of her own support

d.) Their daughter, who turned 17 in the current year, and provides more than half of her own support

On December 31 of last year, Uli purchased 100 shares of Runway, Inc. (a publicly held company) for $5,000. On March 1 of this year, Runway, Inc. declared that it was bankrupt, that it will wind up operations, and that all of its assets will be used to satisfy secured creditor claims so there will be no residual equity left for the stockholders. Which of the following statements describes the tax treatment of this transaction? a.) Uli may deduct the $5,000 as an ordinary loss. b.) Uli may deduct the $5,000 investment as a long-term capital loss. c.) No loss deduction is permitted. d.) Uli may deduct the $5,000 investment as a short-term capital loss.

d.) Uli may deduct the $5,000 investment as a short-term capital loss.

Which is true? 1.) An employer can deduct the cost of up to $50,000 (face or death benefit amount) of group term life insurance for each employee and the employee can exclude the premium from gross income. 2.) No-additional-cost services must be provided on a space-available basis in order to be excluded from the employee's gross income. a.) 1 only b.) neither 1 nor 2 c.) 2 only d.) both 1 and 2

d.) both 1 and 2

Lawson paid the following interest this year: $20,000 interest on a $400,000 home mortgage, $4,000 points paid on this mortgage, $1,000 credit card interest, $21,000 interest on a $300,000 loan on his houseboat, $6,000 interest on auto loans, $18,000 interest on his nephew's mortgage. How much interest may he deduct? a.) $24,000 b.) $20,000 c.) $41,000 d.) $63,000 e.) $45,000

e.) $45,000