Tax MC
The taxable portion of Social Security benefits may be affected by: a. The individual's tax-exempt interest income. b. The number of quarters the individual worked. c. The individual's standard deduction. d. The taxpayer's itemized deductions. e. None of these choices are correct.
a
Tom owns a fast-food restaurant which he reports as a sole proprietorship for tax purposes. Which of the following expenses is allowed as a deduction on Tom's Schedule C for the current year? A. Wages of $20 per week to his 14-year-old daughter who cleans the restaurant on Saturdays. B. Speeding ticket of $75 that he incurred while picking up supplies to bring to the restaurant. C. A bribe of $200 to the city inspector charged with inspecting whether restaurants have met all city health requirements. D. State income taxes paid during the year of $1,650.
a
Wayne owns a 30% interest in the capital and profits of Emerald Company (a calendar year partnership). For tax year 2019, the partnership earned revenue of $900,000 and had operating expenses of $660,000. During the year, Wayne withdrew from the partnership a total of $90,000. He also invested an additional $30,000 in the partnership. For 2019, Wayne's gross income from the partnership is: a. $72,000. b. $162,000. c. $132,000. d. $90,000.
a
Kyle, whose wife died in December 2016, filed a joint tax return for 2016. He did not remarry but has continued to maintain his home in which his two dependent children live. What is Kyle's filing status in 2019? a. Single b. Married filing separately c. Surviving spouse d. Head of household e. None of these choices are correct.
d
Madison and Nick Koz have two children, ages 8 and 10. Both children meet the definition of qualifying child. The Koz family has adjusted gross income of $300,000. What is the amount of the child tax credit on the couple's income tax return? a. $1,000 b. $2,000 c. $3,000 d. $4,000
d
The amount of Social Security benefits received by an individual that he or she must include in gross income: a. May be zero or as much as 85% of the Social Security benefits received, depending upon the taxpayer's Social Security benefits and other income. b. May not exceed 50% of the Social Security benefits received. c. Is computed in the same manner as an annuity [exclusion = (cost/expected return) × amount received]. d. May not exceed the portion contributed by the employer. e. None of these choices are correct.
a
The de minimis fringe benefit: a. Can be provided on a discriminatory basis. b. Exclusion applies to employee discounts. c. Exclusion applies only to property received by the employee. d. Exclusion is limited to $250 per year. e. None of these choices are correct.
a
A cash-basis taxpayer should report gross income A. For the year in which income is either actually or constructively received, whether in cash or in property. B. For the year in which income is either actually or constructively received in cash only. C. Only for the year in which income is actually received whether in cash or in property. D. Only for the year in which income is actually received in cash.
a
Amy Finch had the following cash receipts during 2019: Net rent on vacant lot used by a car dealer (lessee pays all taxes, insurance, and other expenses on the lot) $6,000 Advance rent from lessee of above vacant lot, such advance to be applied against rent for the last two months of the five-year lease in 2023 1,000 How much should Amy include in her 2019 taxable income for rent? A. $7,000 B. $6,800 C. $6,200 D. $6,000
a
An individual's losses on transactions entered into for personal purposes are deductible only if A. The losses qualify as casualty losses in a federal disaster area. B. The losses can be characterized as hobby losses. C. The losses do not exceed $3,000 ($6,000 on a joint return). D. No part of the transactions was entered into for profit.
a
Barkley owns a vacation cabin that was rented to unrelated parties for 10 days during the year for $2,500. The cabin was used personally by Barkley for three months and left vacant for the rest of the year. Expenses for the cabin were as follows. Real estate taxes $1,000 Maintenance and utilities $2,000 How much rental income (loss) is included in Barkley's adjusted gross income? A. $0 B. $ 500 C. $ (500) D. $(1,500)
a
Bob provides more than half of his mother's support. His mother earns $6,000 per year as a hairdresser. She lives in an apartment across town. Bob is unmarried and has no children. What is Bob's most advantageous filing status? a. Single b. Head of household c. Qualifying single d. Supporting single
a
During 2019, Kay received interest income as follows: On U.S. Treasury certificates $4,000 On refund of the prior year's federal income tax $500 The total amount of interest subject to tax in Kay's 2019 tax return is A. $4,500. B. $4,000. C. $500. D. $0.
a
Heather's interest and gains on investments for the current year are as follows: Interest on Madison County school bonds $600 Interest on U.S. government bonds 700 Interest on a Federal income tax refund 200 Gain on the sale of Madison County school bonds 500 Heather must report gross income in the amount of: a. $1,400. b. $2,000. c. $1,300. d. $1,800. e. None of these choices are correct.
a
Kim was seriously injured at her job. As a result of her injury, she received the following payments: *$5,000 reimbursement from employer-provided health insurance for medical expenses paid by Kim. The premiums this year paid by Kim's employer totaled $6,000. *$15,000 disability pay. Kim has disability insurance provided by her employer as a nontaxable fringe benefit. Kim's employer paid $6,000 in disability premiums this year on behalf of Kim. *$10,000 received for damages for personal physical injury. *$200,000 for punitive damages. What amount is taxable to Kim? a. $215,000 b. $225,000 c. $236,000 d. $0
a
Marc Clay was unemployed for the entire year 2018. In January 2019, Clay obtained full-time employment 60 miles away from the city where he had resided during the 10 years preceding 2019. Clay kept his new job for the entire year 2019. In January 2019, Clay paid direct moving expenses of $1,300 in relocating to his new city of residence, but he received no reimbursement for these expenses. In his 2019 income tax return, Clay's direct moving expenses are A. Not deductible. B. Fully deductible only if Clay itemizes his deductions. C. Fully deductible from gross income in arriving at adjusted gross income. D. Deductible subject to a 2% threshold if Clay itemizes his deductions.
a
Olaf was injured in an automobile accident and received $25,000 for his physical injury, $50,000 for his loss of income, and $10,000 for punitive damages. As a result of the award, the amount Olaf must include in gross income is: a. $10,000. b. $50,000. c. $85,000. d. $60,000. e. None of these choices are correct.
a
Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions in 2019: Salary from job $90,000 Alimony received from ex-wife 10,000 Medical expenses 7,000 Based on this information, Sammy has: a. Deduction for medical expenses of $0. b. AGI of $95,000. c. AGI of $90,000. d. AGI of $99,500. e. None of these choices are correct.
a
Which of the following statements about a nonacquiescence is correct? a. A nonacquiescence in published in the Internal Revenue Bulletin. b. The IRS does not issue nonacquiescences to adverse decisions that are not appealed. c. Nonacquiescences are published only for certain regular decisions of the U.S. Tax Court. d. A nonacquiescence is issued in the Federal Registrar. e. All of these choices are correct.
a
Which of the following statements is true regarding the taxation of Social Security benefits? a. 85% is the maximum amount of taxable Social Security benefits. b. 50% is the maximum amount of taxable Social Security benefits. c. If a taxpayer's only source of income is $10,000 of Social Security benefits, then 50% of the benefits are taxable. d. If a taxpayer's only source of income is $10,000 of Social Security benefits, then 85% of the benefits are taxable.
a
Which of the following, if any, is a deduction for AGI? a. Contributions to a traditional Individual Retirement Account. b. Funeral expenses. c. Child support payments. d. Medical expenses. e. Loss on the sale of a personal residence.
a
Which, if any, of the following taxes are proportional (rather than progressive)? a. State general sales tax b. Federal individual income tax c. Federal estate tax d. Federal gift tax e. All of these choices are correct.
a
A calendar-year individual is eligible to contribute to a deductible IRA. The taxpayer obtained a six-month extension to file until October 15 but did not file the return until November 1. What is the latest date that an IRA contribution can be made in order to qualify as a deduction on the prior year's return? A. October 15 B. April 15 C. August 15 D. November 1
b
Amy Finch had the following cash receipts during 2019: Distributions from a mutual insurance company on a life insurance policy $500 Dividend on listed corporation stock; payment date by corporation was 12/30/18, but Amy received the dividend in the mail on 1/2/19 875 Total dividends received to date on the life insurance policy do not exceed the aggregated premiums paid by Amy. How much should Amy report for dividend income for 2019? A. $1,375 B. $ 875 C. $ 500 D. $0
b
Cassidy, an individual, reported the following items of income and expense during 2018: Salary $50,000 Alimony paid to former spouse (Divorce finalized in 2019) 10,000 Inheritance from a grandparent 25,000 Proceeds of a lawsuit for personal physical injuries 50,000 What is the amount of Cassidy's adjusted gross income? A. $ 40,000 B. $ 50,000 C. $115,000 D. $125,000
b
Cole earned $3,000 in wages, incurred $1,000 in unreimbursed employee business expenses, paid $400 as interest on a student loan, and contributed $100 to a charity. What is Cole's adjusted gross income? A. $3,000 B. $2,600 C. $2,500 D. $1,600
b
Danny received the following interest and dividend payments this year. What amount should Danny include in his gross income? Source Amount City of Atlanta bond interest $1,200 U.S. Treasury bond interest 500 State of Georgia bond interest 1,000 Ellis Company common stock dividend 400 Row Corporation bond interest 600 a. $2,500 b. $1,500 c. $3,700 d. $2,200
b
David is a CPA and enjoys playing the lottery. This year David won $10,000 in lottery scratch-off tickets. He spent $200 purchasing the tickets. Which statement is true regarding David's winnings? a. David must include $9,800 in gross income. b. David must include the $10,000 in gross income and can deduct $200 as an itemized deduction not subject to the 2%-of-AGI limitation. c. David must include $10,000 in gross income and can deduct $200 as an adjustment to AGI. d. David's winnings are not taxable.
b
Evan and Eileen Carter are husband and wife and file a joint return for 2019. Both are under 65 years of age. They provide more than half of the support of their daughter, Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship covering her tuition at college. Evan and Eileen furnish all of the support of Belinda (Evan's grandmother), who is age 80 and lives in a nursing home. They also support Peggy (age 66), who is a friend of the family and lives with them. How many dependents may the Carters claim? a. None b. Three c. One d. Two
b
Harpreet, whose husband died in December 2018, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2019? (Note: Harpreet is the executor of her husband's estate.) a. Surviving spouse b. Head of household c. Married, filing jointly d. Single e. Married, filing separately
b
In the current tax year, Blake Smith provided more than half of the support for his cousin, niece, and a close family friend. Blake lives alone and sends a monthly support check to each person. None of the individuals whom Blake supports has any income or files a tax return. All three individuals are U.S. citizens. Which of the three people Blake supports can he claim as a dependent on his tax return? a. Cousin b. Niece c. Family friend d. None.
b
In § 212(1), the number (1) stands for the: a. Section number. b. Paragraph designation. c. Subparagraph designation. d. Subsection number. e. None of these choices are correct.
b
Indicate which, if any, statement is incorrect. State income taxes: a. Can piggyback to the Federal version. b. Cannot apply to visiting nonresidents. c. Can decouple from the Federal version. d. Can provide occasional amnesty programs. e. None of these choices are correct.
b
Jake pays the following amounts to his former spouse during the current year: Regular alimony payments $12,000 Child support 10,000 Residence as part of a property settlement 115,000 What amount can Jake deduct as alimony for the current year? Assume the divorce occurred before 2019. a. $0 b. $12,000 c. $22,000 d. $137,000
b
Jena is a full-time undergraduate student at State University and qualifies as a dependent of her parents. Her only source of income is a $10,000 athletic scholarship ($1,000, books; $5,500, tuition; $500, student activity fee; and $3,000, room and board). Jena's gross income for the year is: a. $4,000. b. $3,000. c. $10,000. d. $500. e. None of these choices are correct.
b
Jeremy is married to Amy, who abandoned him in 2018. He has not seen or communicated with her since April of that year. He maintains a household in which their son, Evan, lives. Evan is age 25 and earns over $6,000 each year. For tax year 2019, Jeremy's filing status is: a. Married, filing jointly. b. Married, filing separately. c. Head of household. d. Surviving spouse. e. Single.
b
Klein, a master's degree candidate at Briar University, was awarded a $12,000 scholarship from Briar. The scholarship was used to pay Klein's university tuition and fees. Klein also received $5,000 for teaching two courses at a nearby college. What amount is includible in Klein's gross income? A. $0 B. $ 5,000 C. $12,000 D. $17,000
b
Kyle and Liza are married and under 65 years of age. During 2019, they furnish more than half of the support of their 19-year old daughter, Kendra, who lives with them. She graduated from high school in May 2018. Kendra earns $15,000 from a part-time job, most of which she sets aside for future college expenses. Kyle and Liza also provide more than half of the support of Kyle's cousin who lives with them. Liza's father, who died on January 3, 2019, at age 90, has for many years qualified as their dependent. How many dependents can Kyle and Liza claim? a. One b. Two c. Three d. None
b
Melba incurred the following expenses for her dependent daughter during the current year: Payment of principal on daughter's automobile loan $3,600 Payment of interest on daughter's automobile loan 2,900 Payment of daughter's property taxes 1,800 Payment of principal on daughter's personal residence loan 2,800 Payment of interest on daughter's personal residence loan 7,000 How much may Melba deduct in computing her itemized deductions? a. $11,700. b. $0. c. $8,800. d. $18,100. e. None of these choices are correct.
b
Memorandum decision of the U.S. Tax Court could be cited as: a. 68-1 USTC ¶9200. b. T.C. Memo. 1990-650. c. 37 AFTR.2d 456. d. All of these choices are correct. e. None of these choices are correct.
b
Regarding the tax formula and its relationship to Form 1040, which of the following statements, if any, is correct? a. An above-the-line deduction refers to a deduction from AGI. b. A "Schedule 1 deduction" refers to a deduction for AGI. c. A taxpayer's AGI amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040. d. Most exclusions from gross income are reported on page 2 of Form 1040. e. None of these choices are correct.
b
Roger Burrows, age 19, is a full-time student at Marshall College and a candidate for a bachelor's degree. During the current year he received the following payments: State scholarship covering tuition for 10 months $ 3,600 Loan from college financial aid office 5,500 Cash support from parents 8,000 Cash dividends on qualified investments 700 Cash prize awarded in contest 5,000 What is Burrows's gross income for the current year? A. $ 700 B. $ 5,700 C. $13,700 D. $17,300
b
Ron, age 19, is a full-time graduate student at City University. During 2019, he received the following payments: Cash award for being the outstanding resident adviser: $ 1,500 Resident adviser housing: $2,500 State scholarship for ten months (tuition and books): $6,000 State scholarship (meals allowance): $2,400 Loan from college financial aid office: $3,000 Cash support from parents: $ 2,000 Total: $17,400 Ron served as a resident adviser in a dormitory and, therefore, the university waived the $2,500 charge for the room he occupied. What is Ron's adjusted gross income for 2019? a. $9,000 b. $3,900 c. $15,400 d. $1,500 e. None of these choices are correct.
b
Stephen is a graduate student at West University. He works part time at the campus coffee shop earning $5,000 this year. Stephen also receives a $25,000 scholarship that pays for his tuition, fees, and books. What amount does Stephen include in his gross income? a. $25,000 b. $5,000 c. $30,000 d. $0
b
Subtitle A of the Internal Revenue Code covers which of the following taxes? a. Estate and gift taxes b. Income taxes c. Excise taxes d. Employment taxes e. All of these choices are correct.
b
The Hutters filed a joint return for 2019. They provide more than 50% of the support of Carla, Ellie, and Aaron. Carla (age 18) is a cousin and earns $2,800 from a part-time job. Ellie (age 25) is their daughter and is a full-time law student. She received a $7,500 scholarship for tuition from her law school. Aaron is a brother who is a citizen of Israel but resides in France. Carla and Ellie live with the Hutters. How many dependents can the Hutters claim? a. None b. Two c. Three d. One
b
The annual increase in the cash surrender value of a life insurance policy: a. Is taxed when the individual dies and the heirs collect the insurance proceeds. b. Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value. c. Must be included in gross income each year under the original issue discount rules. d. Reduces the deduction for life insurance expense. e. None of these choices are correct.
b
The tax concept and economic concept of income are in agreement on which of the following: a. The fair rental value of an owner-occupied home should be included in income. b. Rent income for 2020 collected in 2019 is income for 2019. c. The increase in value of assets held for the entire year should be included in income for the year. d. All of these choices are correct.
b
Which is a primary source of tax law? a. Article by a Federal judge in Tax Notes. b. Serverino R. Nico, Jr., 67 T.C. 647 (1977). c. An IRS publication. d. Written determination letter. e. All of these choices are primary sources.
b
Which of the following is a deduction for AGI? a. Charitable contributions. b. Alimony paid for a divorce finalized in 2015. c. Tax preparation fees. d. Mortgage interest paid on your primary residence.
b
Which statement is incorrect with respect to taxation on the CPA exam? a. The CPA exam now has only four parts. b. There are no longer task-based simulations on the exam. c. A candidate may not go back after exiting a testlet. d. Simulations include a four-function pop-up calculator. e. None of these choices are incorrect.
b
A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for: a. Tuition only. b. Tuition, books, supplies, meals, and lodging. c. Tuition, books, and supplies. d. Meals and lodging. e. None of these choices are correct.
c
Al is single, age 60, and has gross income of $140,000. His deductible expenses are as follows: Alimony(divorce finalized in 2017) $20,000 Charitable contributions 4,000 Contribution to a traditional IRA 5,500 Expenses paid on rental property 7,500 Interest on home mortgage and property taxes on personal residence 7,200 State income tax 2,200 What is Al's AGI? a. $94,100. b. $127,000. c. $107,000. d. $103,000. e. None of these choices are correct.
c
Andrew, who operates a laundry business, incurred the following expenses during the year. ∙ Parking ticket of $250 for one of his delivery vans that parked illegally. ∙ Parking ticket of $75 when he parked illegally while attending a rock concert in Tulsa. ∙ DUI ticket of $500 while returning from the rock concert. ∙ Attorney's fee of $600 associated with the DUI ticket. What amount can Andrew deduct for these expenses? a. $600. b. $1,425. c. $0. d. $250.
c
Bob is a farmer and is required to use the accrual method. At the beginning of the year, Bob has inventory, including livestock held for resale, amounting to $10,000. During the year, Bob purchased livestock totaling $3,000. Bob's ending inventory was $4,000. Bob's net sales for the year totaled $17,000. What is Bob's gross profit for the current year? a. $9,000 b. $17,000 c. $8,000 d. $13,000
c
Burt and Lisa are married and live in a common law state. Burt wants to make gifts to their four children in 2019. What is the maximum amount of the annual exclusion they will be allowed for these gifts? a. $30,000 b. $60,000 c. $120,000 d. $15,000 e. None of these choices are correct.
c
On January 1, 2019, James Davis was awarded a postdoctorate fellowship grant of $30,000 by a tax-exempt educational organization. Davis is not a candidate for a degree and was awarded the grant to continue his research. The grant was awarded for the period March 1, 2019 through May 31, 2020. On March 1, 2019, Davis elected to receive the full amount of the grant. What amount should be included in his gross income for 2019? A. $0 B. $10,000 C. $20,000 D. $30,000
d
Daniel purchased a bond on July 1, 2019, at par of $10,000 plus accrued interest of $300. On December 31, 2019, Daniel collected the $600 interest for the year. On January 1, 2020, Daniel sold the bond for $10,200. a. Daniel must recognize $600 interest income for 2019 and a $100 loss on the sale of the bond in 2020. b. Daniel must recognize $300 interest income for 2019 and a $100 loss on the sale of the bond in 2020. c. Daniel must recognize $300 interest income for 2019 and a $200 gain on the sale of the bond in 2020. d. Daniel must recognize $600 interest income for 2019 and a $200 gain on the sale of the bond in 2020. e. None of these choices are correct.
c
During 2019, Enrique had the following transactions: Salary $70,000 Interest income on Xerox bonds 2,000 Inheritance from uncle 40,000 Contribution to traditional IRA 5,500 Capital losses 2,500 Enrique's AGI is: a. $102,000. b. $67,000. c. $64,000. d. $62,000. e. $104,000.
c
During 2019, Sandeep had the following transactions: Salary $ 80,000 Interest income on City of Baltimore bonds 1,000 Damages for personal injury (car accident) 100,000 Punitive damages (same car accident) 200,000 Cash dividends from Chevron Corporation stock 7,000 Sandeep's AGI is: a. $387,000. b. $187,000. c. $287,000. d. $185,000. e. $285,000.
c
During the current year, Adler had the following cash receipts: Wages $18,000 Interest income from investments in municipal bonds 400 Unemployment compensation 1,500 What is the total amount that must be included in gross income on Adler's current-year income tax return? A. $18,000 B. $18,400 C. $19,500 D. $19,900
c
Early in the year, Marlon was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year: Reimbursement of medical expenses Marlon paid by a medical insurance policy he purchased $10,000 Damage settlement to replace his lost salary 15,000 What is the amount that Marlon must include in gross income for the current year? a. $12,500 b. $15,000 c. $0. d. $25,000 e. $10,000
c
Elizabeth received the following sources of income in the current year: U.S. Treasury bond certificates interest $500 Interest on state tax refund (paid by state government for late payment of tax refund to Elizabeth) 200 Corporate bond interest 600 Amount received for opening a new savings account at a local bank 50 Puerto Rico bond interest 350 What amount must Elizabeth include in gross income on her Federal income tax return? a. $650 b. $1,150 c. $1,350 d. $1,700
c
Heather is single and has one son, Rhett, who is 19 years old. Rhett lived at home for four months of the current tax year before moving away to take a full-time job in another city. Heather provided more than half of Rhett's support for the taxable year. Rhett earned $20,000 in gross income and is unmarried. Which of the following statements regarding the dependency rules for Rhett is true? a. Heather may claim Rhett as a dependent because he is a qualifying child. b. Heather may claim Rhett as a dependent because he is a qualifying relative. c. Rhett fails the age limit test for a qualifying child. d. Rhett must live with Heather for the entire year to meet the qualifying relative test.
c
In which of the following situations, if any, may the individual not be claimed as a dependent of the taxpayer? a. A cousin who lives with the taxpayer. b. A stepmother who does not live with the taxpayer. c. A half-brother who does not live with the taxpayer and is a citizen and resident of Honduras. d. A married daughter who lives with the taxpayer. e. A former spouse who lives with the taxpayer (divorce took place last year).
c
Jeffrey Dean, a Master's Degree candidate at North State Central University, was awarded a $15,000 scholarship from North State Central in the current year. During the current year, he paid the following expenses: Tuition $12,000 Books 1,000 Fees 500 Room & Board 1,500 In addition, he received $6,000 for teaching two undergraduate accounting courses. What amount must be included in Dean's gross income? a. $0 b. $6,000 c. $7,500 d. $21,000
c
Linda is an employee of JRH Corporation. Which of the following would be included in Linda's gross income? a. Premiums paid by JRH Corporation for a group term life insurance policy for $50,000 of coverage for Linda. b. $1,000 of tuition paid by JRH Corporation to State University for Linda's master's degree program. c. A $2,000 trip given to Linda by JRH Corporation for meeting sales goals. d. $1,200 paid by JRH Corporation for an annual parking pass for Linda.
c
Matthews was a cash basis taxpayer whose records showed the following: 2019 state and local income taxes withheld $1,500 2019 state estimated income taxes paid December 30, 2019 400 2019 federal income taxes withheld 2,500 2019 state and local income taxes paid April 15, 2020 300 What total amount was Matthews entitled to claim for taxes on her 2019 Schedule A of Form 1040? A. $4,700 B. $2,200 C. $1,900 D. $1,500
c
Natalie is married to Chad, who abandoned her in early June of 2019. She has not seen or communicated with him since then. She maintains a household in which she and her two dependent children live. Which of the following statements about Natalie's filing status in 2019 is correct? a. Natalie can use the rates for single taxpayers. b. Natalie can file as a surviving spouse. c. Natalie can file as a head of household. d. Natalie can file a joint return with Chad. e. None of these statements are appropriate.
c
Stockley, a candidate for an undergraduate college degree, received a $20,000 scholarship from the university in 2019. Stockley had the following expenses relating to his attendance in 2019: Tuition and fees $12,000 Room and board 6,000 Books and supplies 500 Spring break in Cancun 1,500 What amount of the scholarship should Stockley include as taxable income in 2019? A. $0 B. $1,500 C. $7,500 D. $20,000
c
Tax functions that accounting and finance professionals may assist clients with include all but the following: a. Tax compliance. b. Cash management to ensure timely payment of taxes. c. Tax evasion. d. Tax planning.
c
The 2019 deduction by an individual taxpayer for interest expense on investment indebtedness is A. Limited to the investment interest paid in 2019. B. Limited to the taxpayer's 2019 interest income. C. Limited to the taxpayer's 2019 net investment income. D. Not limited.
c
The Griffins own a mountain cabin that is used for both personal and rental purposes. In the current year, the Griffins rented the cabin out for 150 days and used it personally for 50 days. Assume that the Griffins itemize their deductions. Which of the following statements regarding the treatment of the mountain cabin on the Griffin's tax return is true? a. 100% of the utilities for the mountain cabin for the entire year are deductible. b. Depreciation is deductible under all rental circumstances. c. Real estate taxes are deductible under all rental circumstances. d. The rental income received is not included in gross income.
c
Which of the following court decisions carries more weight? a. U.S. Court of Federal Claims b. U.S. Tax Court decision c. Second Circuit Court of Appeals d. Federal District Court e. Small Cases Division of U.S. Tax Court
c
Which of the following is not a deduction for AGI? a. Alimony paid for a divorce finalized in 2018. b. Business rent on a self-employed business. c. Property taxes paid on your primary residence. d. One half of self-employment tax.
c
Which of the following items, if any, is deductible? a. Contributions to mayor's reelection campaign. b. Premiums paid on personal life insurance policy. c. Substantiated gambling losses (not in excess of gambling winnings) from state lottery. d. Speeding ticket incurred while on business. e. Parking expenses incurred in connection with jury duty—taxpayer is a dentist.
c
Which of the following sources has the highest tax validity? a. Regulations b. Revenue Procedure c. Internal Revenue Code section d. Revenue Ruling e. None of these choices are correct.
c
Which of the statements regarding the standard deduction, if any, is correct? a. The basic standard deduction is indexed for inflation but the additional standard deduction is not. b. The standard deduction may be taken as a for AGI deduction. c. Some taxpayers may qualify for two types of standard deductions. d. The standard deduction is not available to taxpayers who are dependents. e. None of these choices are correct.
c
With respect to income from services, which of the following is true? a. A cash basis taxpayer can spread the income from a 24-month service contract over the contract period. b. An accrual basis taxpayer will always recognize the income over the period the services will be rendered. c. If an accrual basis taxpayer sells a 36-month service contract on July 1, 2019 for $3,600, the taxpayer's 2019 gross income from the contract is $600. d. If an accrual basis taxpayer sells a 24-month service contract on July 1, 2019, one-half (12/24) the income is recognized in 2020. e. None of these choices are correct.
c
With respect to the unearned income from services, which of the following is true? a. An accrual basis taxpayer can spread the income over the period services are to be provided if all of the services will be completed within three years following the year of receipt. b. An accrual basis taxpayer can spread the income over the period services are to be provided on a contract for three years or less. c. A cash basis taxpayer must report all of the income in the year received. d. The treatment of unearned income is the same for tax and financial accounting for both cash and accrual basis taxpayers. e. None of these choices are correct.
c
A qualifying child cannot include: a. A daughter who is away at college. b. A nonresident alien. c. A brother who is 28 years of age and disabled. d. A grandmother. e. A married son who files a joint return.
d
A use tax is imposed by: a. The Federal government and a majority of the states. b. The Federal government and all states. c. All states but not the Federal government. d. Most of the states but not the Federal government. e. None of these choices are correct.
d
Barney is a full-time graduate student at State University. He serves as a teaching assistant for which he is paid $700 per month for nine months and his $5,000 tuition is waived. The university waives tuition for all of its employees. In addition, Barney receives a $1,500 research grant to pursue his own research and studies. Barney's gross income from the above is: a. $0. b. $11,300. c. $12,800. d. $6,300. e. None of these choices are correct.
d
Carin, a widow, elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each. Her husband had paid premiums of $60,000 on the policy. In the first year, Carin collected $17,500 from the insurance company. She must include in gross income: a. $25,000. b. $0. c. $10,000. d. $2,500. e. None of these choices are correct.
d
Hall, a divorced person and custodian of her 12-year-old child, filed her 2019 federal income tax return as Head of a Household. During 2019, Hall paid a $490 casualty insurance premium on her personal residence. Hall does not rent out any portion of the home, nor use it for business. The casualty insurance premium of $490 is A. Allowed as an itemized deduction subject to the $100 floor and the 10% of AGI floor. B. Allowed as an itemized deduction subject to the 2% of adjusted gross income floor. C. Deductible in arriving at adjusted gross income. D. Not deductible in 2019.
d
In 2019, Emil Gow won $5,000 in a state lottery. Also in 2019, Emil spent $400 for the purchase of lottery tickets. Emil elected the standard deduction on his 2019 income tax return. The amount of lottery winnings that should be included in Emil's 2019 taxable income is A. $0. B. $2,000. C. $4,600. D. $5,000.
d
In 2019, Nai-Yu had the following transactions: Salary $90,000 Short-term capital gain from a stock investment 4,000 Moving expense to change jobs (11,000) Receipt of repayment of $20,000 loan she made to her sister in 2014 (includes no interest) 20,000 State income taxes (5,000) Nai-Yu's AGI is: a. $103,000. b. $98,000. c. $114,000. d. $94,000. e. $83,000.
d
Jonathan Jones is a 19-year-old full-time college student at the local community college. He lives in an apartment near campus during the school year and returns home for the summer break and holidays. Jonathan earned $5,000 this year working at the campus bookstore. His parents gave him $20,000 and his grandparents gave him $10,000 this year in support. Which of the following statements is true? a. Jonathan does not qualify as a dependent for his parents because his gross income is too high. b. Jonathan does not meet the residency test for qualifying child. c. Jonathan's grandparents can claim him as a dependent. d. Jonathan's parents can claim him as a dependent.
d
Priscella pursued a hobby of making bedspreads in her spare time. Her AGI before considering the hobby is $40,000. During 2019 she sold the bedspreads for $10,000. She incurred expenses as follows: Supplies $4,000 Interest on loan to get business started 500 Advertising 6,500 Assuming that the activity is deemed a hobby, how should she report these items on her tax return? a. Ignore both income and expenses since hobby losses are disallowed. b. Include $10,000 in income, deduct nothing for AGI, and claim $11,000 of the expenses as itemized deductions. c. Include $10,000 in income and deduct $11,000 for AGI. d. Include $10,000 in income and deduct nothing. e. None of these choices are correct.
d
Property can be transferred within the family group by gift or at death. One motivation for preferring the gift approach is: a. To take advantage of the higher unified transfer tax credit available under the gift tax. b. To shift income to higher bracket donees. c. To avoid a future decline in value of the property transferred. d. To take advantage of the per donee annual exclusion. e. None of these choices are correct.
d
The annual increase in the cash surrender value of a life insurance policy: a. Is taxed according to the original issue discount rules. b. Reduces the deduction for life insurance expense. c. Is exempt because it is life insurance proceeds. d. Is not included in gross income because the policy must be surrendered to receive the cash surrender value. e. None of these choices are correct.
d
Theresa sued her former employer for age, race, and gender discrimination. She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages. She settled the claim for $700,000. As a result of the settlement, Theresa must include in gross income: a. $490,000 [($700,000/$1,000,000) × $700,000]. b. $500,000. c. $0. d. $700,000. e. None of these choices are correct.
d
Theresa, a cash basis taxpayer, purchased a bond on July 1, 2014, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2019, she sold the bond for $9,800, which included $200 of accrued interest. a. Theresa's loss on the sale of the bond is $600. b. Theresa has a $100 loss from the sale of the bond and no interest income. c. Theresa has $200 interest income and a $200 gain from the bond in 2019. d. Theresa has $200 interest income and a $400 loss from the bond in 2019. e. None of these choices are correct.
d
Which items tell taxpayers the IRS's reaction to certain court decisions? a. Notices b. Revenue Procedures c. Legislative Regulations d. Actions on Decisions e. Revenue Rulings
d
Which of the following statements relating to the standard deduction, if any, is correct? a. If a taxpayer dies during the year, his or her standard deduction must be prorated. b. If spouses file separate returns, both must claim the standard deduction (rather than itemize their deductions from AGI). c. If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed. d. If a taxpayer is claimed as a dependent of another, his or her additional standard deduction is allowed in full (i.e., no adjustment is necessary). e. None of these choices are correct.
d
Which of the following types of Regulations has the highest tax validity? a. Temporary b. Procedural c. Interpretive d. Legislative e. None of these choices are correct.
d
During 2019, Marvin had the following transactions: Salary $50,000 Bank loan (proceeds used to buy personal auto) 10,000 Alimony paid (divorce was finalized in 2010). 12,000 Child support paid 6,000 Gift from aunt 20,000 Marvin's AGI is: a. $44,000. b. $64,000. c. $32,000. d. $56,000. e. $38,000.
e
Which of the following, if any, is a deduction for AGI? a. Charitable contributions. b. State and local sales taxes. c. Interest on home mortgage. d. Unreimbursed moving expenses of an employee (not in the military). e. None of these choices are correct.
e
Which, if any, is not one of Adam Smith's canons (principles) of taxation? a. Economy in collection b. Equality c. Certainty d. Convenience of payment e. Simplicity
e
Which, if any, of the following provisions of the tax law cannot be justified as promoting administrative feasibility (simplifying the task of the IRS)? a. Prepaid income is taxed in the year received, not in the year earned. b. Personal casualty losses in Federally declared disaster areas must exceed 10% of AGI to be deductible. c. Penalties are imposed for failure to file a return or pay a tax on time. d. Annual adjustments for indexation increases the amount of the standard deduction allowed. e. A deduction is allowed for charitable contributions.
e