FCS 5530 Midterm
Joyce and Melvin have been married for 30 years. In 2020, they received $22,000 of Social Security benefits and had $12,000 of interest income. What portion of the Social Security benefit is taxable?
0
Natalie is a secretary at JKL Law Firm. JKL provides her with free sodas at her discretion. Natalie estimates that she drinks $20 worth of sodas per month. How much must Natalie include in her annual gross income related to the sodas?
0
Over the past 4 years, Annabelle, age 28, has contributed a total of $20,000 to a Roth IRA. The current balance is $25,000. She was tired of renting, so this year she took a distribution of $15,000 for a down payment on a home. What amount of the distribution should she include in her gross income this year?
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?
0
Tom is the manager of a hotel. To be available in emergency situations, Tom's employer requires that he lives in one of the hotel rooms (without charge). The value of the room is $1,500 per month if occupied each night. The hotel is ordinarily 70% occupied. If Tom did not live there, he would live in an apartment that would rent for $900 per month. Tom's inclusion is monthly gross income from living in the hotel room is:
0
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 a personal residence.
1
Which of the following statements concerning the income tax treatment of qualified long-term care insurance contracts is (are) correct? I. Premiums paid for such contracts are deductible as medical expenses subject to annual limitations based on the covered individual's age. II. Premiums paid for such contracts are not eligible for the above-the-line deduction for health insurance premiums of self-employed taxpayers.
1
Which of the following can be excluded from Beth's gross income? 1. The value of a diamond ring that Beth received as a gift from David.2. The value of a mansion that Beth inherited from her parents.3. The value of concert tickets that Beth won in a radio contest.4. The value of a scholarship for room and board that Beth received from her state university.
1,2
Which of the following is false as to adoption assistance programs? 1. The amount paid is excluded from the employee's income regardless of the employee's income level. 2. The unlimited amount paid is excluded from the employee's income with a phaseout of AGI at certain levels. 3. Up to $14,300 for 2020 is excluded from the employee's income with a phaseout of AGI at certain levels.
1,2
Which of the following is/are advantages of cafeteria plans? 1. Cafeteria plans help to give employees an appreciation of the value of their benefit package.2. The flexibility of a cafeteria benefit package helps to meet varied employee needs.3. Cafeteria plans can help control employer costs for the benefit package because the cost of benefits that employees do not need is minimized.4. Cafeteria plans are less complex and less expensive to design and administer than general group benefit plans.
1,2,3
David is a small-business owner and has employees. It is year-end, and David has brought his record to Janet, his tax preparer and financial advisor. After reviewing the documents, which of the following fringe benefits would be excluded from an employee's gross income? 1. David paid for business magazine subscriptions in the names of rank-and-file employees. 2. David gave football season tickets to an employee as a performance award. 3. Dave paid for parking in a nearby commercial parking lot near the business for his employees. 4. David, who believes in a healthy lifestyle, converted a large room in his warehouse to an on-premises athletic facility for his employees and their dependents
1,3,4
Which of the following fringe benefits would be excluded from an employee's gross income? 1. Business magazine subscriptions paid for by an employer in the names of various employees.2. Season tickets to basketball games.3. Parking provided near its business by an employer for its employees.4. On-premises athletic facilities provided by an employer to its employees.
1,3,4
Which of the following are below-the-line income tax deductions? 1. Medical expenses. 2. Alimony paid. 3. Moving expenses. 4. Qualified business income.
1,4
This year an individual taxpayer (other than a married individual filing a separate return) has $30,000 of investment interest expense and $1,000 of net investment income. The maximum amount of investment interest expense this taxpayer may deduct this year is:
1000
Bob broke his leg skiing earlier this year. Bob collected $10,000 from his short-term disabilityplan paid for solely by his employer. How much does Bob have to include in his gross income?
10000
Five years ago John purchased a portfolio of public-purpose municipal bonds for $85,000. During the current year, he received $8,000 interest on these bonds. At the end of the current year, he sold these bonds for $95,000. How much taxable income must John report for the current year as a consequence of owning and disposing of these bonds?
10000
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?
1040
Sheila spent $15,000 in daycare services for her four children to allow her to go to work. If her adjusted gross income is $180,000, how much is her dependent care credit?
1200
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?
12000
Heidi is 63 years old, single, and in excellent health. What is her standard deduction for 2020?
12400
Steve and Kendra have been unable to have a baby. They decided last year that adoption would the best choice for them. They believe that they can support a child that has special needs both financially and emotionally. Therefore, they adopted Janice, a four-year-old child with special needs this year. They paid $8,000 in qualifying adoption expenses for the current year. Their MAGI for the year is $160,000. What amount can Steve and Kendra's claim as an adoption credit for 2020?
14300
Elle is 15 years old. She earned $3,000 during 2020 working at an ice cream store. She earned $4,000 in interest income this year. Elle is claimed as a qualifying dependent by her parents. How much of Elle's income will be taxed at trusts and estates tax rates?
1800
An individual taxpayer received an inheritance of $20,000 in cash, which he donated to a public charity. His adjusted gross income for the year is $30,000. The maximum charitable deduction that the taxpayer will be allowed for the current year is:
18000
An employer maintains a group term life insurance plan for its employees. A non-key employee, aged 60, is provided with $100,000 worth of coverage. Using the Uniform Premium Table I, the cost of $1,000 of protection per month in his age bracket is $.66. If the employee contributes $200 annually toward the cost of the coverage, what amount will be included in the employee's gross income?
196
At the time of occurrence, which of the following events will require recognition of $1,000 of gross income by the taxpayer? 1. The taxpayer receives $1,000 in cash from his mother for his birthday 2.A creditor cancels the taxpayer's debt of $1,000.
2
Which of the following statements concerning taxation of an annuity purchased this year is (are) correct? 1. A portion of annuity payments received will be tax-free as a return of capital for as long as the annuitant lives, regardless of how long. 2. Income from early withdrawals (before age 59 1/2) from annuities will be subject to a 10% penalty.
2
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. Interests received from corporate bonds of $80. 4. $3,000 that Kim earned selling homemade soaps.
2,3,4
Which of the following is a credit that reduces the tax calculated on taxable income? 1. Exemption credit. 2. Child tax credit. 3. Earned income credit. 4. Child care expense credit.
2,3,4
Christian owns a vacation home which he plans to rent for 200 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?
20 days
Under current law, what is the maximum Child Tax Credit per child?
2000
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?
2000 long term capital loss
In 2020, a single taxpayer has a business with $400,000 income and $300,000 in losses. How much can be deducted as a business loss this year?
259000
Jane is covered by a $90,000 group-term life insurance policy, her daughter is the sole beneficiary. Jane's employer pays the entire premium for the policy; the uniform annual premium is $0.60 per $1,000 per month of coverage. How much, if any, is W-2 taxable income to Jane resulting from the insurance?
288
Bobby is age 62, single, and is a dependent of his daughter. During the current year, Bobby receivedinterest on a bank account of $3,500 and $2,300 from a part-time job. What is Bobby's taxable income?
3150
George is an officer employee who has been with ABC Corp. for 13 years. For Christmas this year, George bought a 56-inch flat-panel television that retails for $8,800 and he received a discount appropriate to the schedule of discounts listed above. For this year, how much, if any, does George have to include in gross income as a result of this transaction?
3250
Lane is single and has two dependent children. Financial records show the following items in the currentyear: Gift from a friend$12,000 Dividends received on stock$1,200 Prize won in state lottery$1,000 Salary from employer$35,000 Child support received from ex-spouse$6,000 Alimony received from ex-spouse (2016 divorce)$12,000 What is Lane's AGI
49200
Eric, who is in the oil and gas industry, moved from Houston to New Orleans in 2020. His expenses for the move included $400 for truck rental, $100 for lodging, and $200 for pre-move house-hunting expenses. If Eric's employer reimbursed him $600, how much of the reimbursement is included in his gross income?
600
Charles, a single 29-year-old CEO of a technology start-up company, earns a $2 million base salary with a $400,000 bonus. He is not a participant in any retirement plans at work. What is the maximum deductible IRA contribution Charles can make during 2020?
6000
Will sustained a serious injury in the course of his employment. As a result of this injury, he received the following payments: Workers Compensation: $2,500 Reimbursement from his employer's accident and health plan for medical expenses paid by Will and not deducted by him: $4,000 Compensatory damages for physical injuries: $1,000 Punitive damages for physical injuries: $6,000 The amount to be included in Will's gross income should be:
6000
George is single and received $28,000 of dividend income during the year. He also received $18,000 of Social Security benefits. What portion of his Social Security benefits are taxable?
7050
Greg is employed by a large corporation with 400 employees. The corporation provides its employees with a no-cost gym membership at a local public YMCA. The cost of the membership is $60 per month, which is completely paid for by Greg's employer. How much must Greg include in his yearly gross income related to this no-cost fringe benefit?
720
Last year, Jacques paid the following interest: • Interest on home mortgage: $7,300• Interest on a home equity loan used to purchase furniture for personal residence: $1,000• Interest on a 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?
7300
Aunt Tillie sends Nephew Nelson a check for $50,000. Nelson invests the check-in an IPO worth $75,000 at the end of the year. The stock also paid a dividend of $750 during the year of the gift. The amount included in Nelson's gross income is:
750
If the yield for a tax-exempt investment is 7 percent, the equivalent yield for a taxable investment is 11.11 percent if a taxpayer has a marginal income tax rate of 37 percent
True
A cash-basis taxpayer includes income from a service business when: a. The client's check is received by the taxpayer. b. The client is invoiced for the services. c. The services are performed. d. The client's check is deposited in the bank
a
Jeremy and Juliet were divorced in 2016. Jeremy has been ordered by the court to pay alimony to Juliet. In the first year after the divorce, Jeremy pays Juliet $100,000. In the second year after the divorce, he pays her $50,000. In the third year, Jeremy pays Juliet $20,000. How much alimony recapture must Jeremy report in the third year? a. Jeremy must report $72,500 in alimony recapture. b. Jeremy is not subject to alimony recapture. c. Jeremy must report $110,000 in alimony recapture. d. Jeremy must report $43,333 in alimony recapture for the overpayment in the first year.
a
John just received his student loan statement that indicates that he has paid $3,500 of interest on his student loan during this tax year. How much of the interest may he deduct? a. $2,500 as an above-the-line deduction to income. b. $2,500 as an itemized deduction. c. $3,500 as an itemized deduction. d. $1,000 as an above-the-line deduction to income
a
Mike, a short-order cook at the Bull's Corner restaurant, works from 12 p.m. to 10 p.m. five days a week. Each workday, he is furnished two meals without charge. The manager of the restaurant encourages Mike to eat lunch in the employee break room each day before 12 p.m., but does not expressly require him to do so. The manager does, however, require Mike to eat dinner in the employee break room. The cost to the restaurant is $5 per lunch and $7 per dinner. Assuming that Mike eats both lunch and dinner at the restaurant, what amount of this fringe benefit should be included in Mike's income? a. Neither the cost of the lunches nor the cost of the dinners should be included in Mike's income. b. Both the cost of the lunches and the dinners should be included in Mike's income. c. Only the cost of the dinners should be included in Mike's income, because is he required to eat them as part of his job. d. Only the cost of the lunches should be included in Mike's income, because he is not required to eat them.
a
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. American Opportunity Tax Credit in the amount of $2,500 b. Robin is not eligible to claim an education credit. c. Lifetime Learning Credit in the amount of $2,000 d. Lifetime Learning Credit in the amount of $1,000
a
Short Company allows a 20% discount to all non-officer employees. Officers, all highly compensated, are allowed a 30% discount on company products. Short's gross profit is 35%. Which of the following is true? a. All discounts taken by officers (30%) are includible because the plan is discriminatory. b. None of the discounts are includible in income because the discount in all cases is less than the company's gross profit percentage. c. An officer who takes a 30% discount must include the extra 10% (30%-20%) in gross income. d. All discounts taken by employees are includible because the plan is discriminatory.
a
To determine adjusted gross income, all the following are potentially deductible, in whole or in part, from gross income, as above-the-line deductions in arriving at AGI EXCEPT: a. charitable contributions of individuals b. losses from the sale or exchange of property c. business expenses of self-employed taxpayers d. contributions to a SEP IRA
a
Trip loans $11,000 to his sister, Tish, and does not charge her interest. Which of the following statements describes the income tax consequences of this transaction? a. Interest would be imputed if Tish has unearned income of $1,100. b. Interest would not be imputed because the loan is less than the amount of the gift tax annual exclusion. c. Interest would not be imputed if Tish's earned income is less than $1,000. d. Interest would not be imputed because loans of $100,000 or less are always exempt from both income tax and gift tax consequences.
a
Virgil is single and does not have any children. However, Virgil is a very good son and provides more than half of the cost of maintaining a very nice, but separate, apartment and the necessary living expenses for his mother whose only income is a small amount of Social Security. Which of the following tax filing statuses should Virgil use and why? a. Head of Household, because Virgil's mother qualifies as his dependent. b. Single, because Virgil does not have any qualifying children. c. Head of Household, because Virgil's mother is a qualifying child d. Single, because Virgil is not married and has no one living in his household.
a
Which of the following describes one of the five tests that must be met to qualify as a dependent? a. The dependent it either a member of the taxpayers household or meets the criteria for family relationship. b. The taxpayer is a U.S. citizen. c. The age of the dependent. d. All of the above
a
Which phrase best completes this sentence: "The exclusion for no-additional-cost services applies to any service provided by the employer to an employee that _____." a. Does not cause the employer to incur any substantial additional costs or lose revenue. b. Causes the employer to lose significant revenue. c. Does not cause the employee to incur substantial additional cost. d. Does not cause the employer to incur any additional costs but causes the employer to lose revenue.
a
Addison pays $15,000 for an annuity that will pay $1,000 a year, starting this year. If the annuity is for a term of 20 years, how much taxable income will Addison have from the annuity each year? a. Addison will have $1,000 of taxable income from the annuity each year. b. Addison will have $250 of taxable income from the annuity each year. c. Addison will have $750 of taxable income from the annuity each year. d. Addison will never have taxable income resulting from annuity distributions.
b
All of the following statements concerning community property are correct, EXCEPT? a. In community property states, half of the income earned (wages, salaries, etc.) by a spouse is deemed to be earned by each spouse and half of the income earned from community property is deemed to be the income of each spouse. b. Community property rules that characterize earned income continue to apply after a married couple divorces. c. If two married taxpayers file married filing separately, the community property income is divided equally, but the separate property income is reported by the spouse owning the separate property. d. Property acquired before marriage or acquired by gift or inheritance before or after marriage is normally considered to be the separate property of the spouse.
b
All the following statements concerning the tax credit for children are correct EXCEPT: a. The taxpayer must be entitled to claim a dependency exemption for the child with respect to whom the credit is claimed. b. The credit is available with respect to children under the age of 21. c. The credit is phased out for upper-income taxpayers. d. The amount of the credit is currently $2,000 per child.
b
In which of the following situations would educational expenses be deductible for income tax purposes in tax years after 2025? a. A paralegal attends law school at night, hoping to obtain a law degree. b. A financial planner takes classes necessary to sit for the CFP® Certification Examination. c. A retired business executive begins a Ph.D. program in business to help relieve him of the boredom of retirement. d. A physician's assistant who works the night shift is attending medical school during the day.
b
It is the last week of December, and you are meeting with your clients, Clark and Kara. The couple has had a very difficult two years. Clark was in an auto accident two years ago, which was settled this tax year. He was awarded $500,000 in punitive damages. Earlier this year, Kara was unemployed and received 10 weeks of unemployment compensation. In September, Clark was injured at work and was paid worker's compensation. These payments are expected to continue into next year. Which of the following is generally excluded from gross income? a. Unemployment compensation b. Worker's comp c. All d. Punitive damages
b
Johnson makes a $500,000 building available five nights a week at no charge to the local Boy Scout Council. Which of the following statements correctly describes how the use of Johnson's property will be treated for purposes of the charitable contribution deduction? a. Johnson has a charitable deduction equal to the value of the rent-free occupancy but limited to 30 percent of his adjusted gross income. b. Johnson has no deduction for the rent-free occupancy. c. Johnson has a charitable deduction equal to the value of the rent-free occupancy but limited to 50 percent of his adjusted gross income. d. Johnson has a charitable deduction equal to the fair market value of the property.
b
Mary Jane received 1,000 NQSOs with an exercise price of $25 per share when the stock was $25 on the market. Two years from the date of grant Mary Jane exercises when the stock price is $102. At exercise, Mary Jane: a. W2 25,000 b. W2 77,000 c. AMT adjustment 25,000 d. AMT adjustment 77,000
b
Orion works for Mad Hatter Chemical Company, Inc. as an engineer. He has been employed there for the past 5 years and earns a salary of $100,000. Earlier this year, acting on advice given to him by his financial planner, Orion purchased a qualified long-term care insurance policy and paid a premium of $800. All of his other medical expenses are covered by his employer-sponsored health insurance plan. Which of the following statements concerning the long-term care policy is correct? a. Orion is not permitted to deduct the cost of long-term care insurance that he purchased, since it is treated as a disability policy for income tax purposes. b. Mad Hatter Chemical Company could have provided the long-term care policy to Orion as an employee benefit even if they did not provide similar coverage for other employees. c. Orion can deduct the cost of the long-term care insurance as an adjustment to income. d. Orion can receive a tax benefit by claiming the cost of the long-term care insurance as a medical expense deduction.
b
Which of the following is a refundable credit? a. General Business Credit b. Earned Income Credit c. The Adoption Credit d. Foreign Tax Credit
b
Which of the following miscellaneous itemized deductions is not subject to the 2 percent floor? a. Investment expenses. b. Gambling losses. c. Hobby activity expenses. d. Unreimbursed employee business expenses.
b
Which of the following statements concerning the doctrine of constructive receipt is(are) correct? I. The taxpayer has constructively received income when it is credited to his account without restrictions II. It is inapplicable to individual taxpayers who report income on a cash basis. a. neither b. I only c. both I and II d. II only
b
Which of the following statements concerning the tax credit for qualified adoption expenses is (are) correct? I. The allowable amount of the credit is phased out for taxpayers whose adjusted gross income exceeds a specified amount. II. Qualified expenses include legal, court, and attorney fees.
both
Joe Bob receives stock options (ISOs) with an exercise price of $18 when the stock is trading at $18. Joe Bob exercises these options two years after the date of the grant when the stock price is $39 per share. Which of the following statements is correct? a. Joe Bob will have $18 of AMT income upon exercise. b. Joe Bob will have W-2 income of $21 per share upon exercise. c. Upon exercise Joe Bob will have no regular income for tax purposes. d. Joe Bob's adjusted basis for regular income tax will be $39 at exercise.
c
Ralph receives stock options (ISOs) with an exercise price of $16 when the stock is trading at $16. Ralph exercises these options two years after the date of the grant when the stock price is $37 per share. Which of the following statements is correct? a. Ralph will have W-2 income of $21 per share upon exercise. b. Ralph will have $16 of AMT income upon exercise. c. Upon exercise Ralph will have no income for regular tax purposes. d. Ralph's adjusted basis for regular income tax will be $37 at exercise.
c
Rita and Roberto were married on September 1 of this year. Following a honeymoon in Tahiti,Roberto died of a heart attack. Neither Rita nor Roberto had any dependents. What filingstatus can Rita use this year? a. Rita will be eligible to file as a surviving spouse. b. Rita must use the single filing status because she was not married as of the end of the year. c. Rita will be able to file as married filing jointly as long as she would have qualified for this filing status if Roberto had survived. d. Rita may use the head of household filing status.
c
Tina (age 50) and Luke (age 68) are married to each other and file a joint return in 2021 for the tax year 2020. Tina is blind. Tina and Luke do not have any dependents. What is their standard deduction for 2020? Standard : 24,800 - add: 1,300 a. 25700 b. 28700 c. 27400 d. 24800
c
Which of the following is not a deduction for AGI (above-the-line)? a. One-half of self-employment tax paid. b. Moving expenses of a taxpayer who is an active duty member of the Armed Forces. c. Real estate taxes. d. Maintenance expense for a rental property actively managed by the taxpayer.
c
Which of the following statements concerning the Section 199A qualified business income (QBI) deduction is correct? a. It is available for distributions from C corporations. b. It applies regardless of the taxpayer's income. c. It applies at the individual level, so one business owner may be able to take the deduction. d. It results in a lower adjusted gross income.
c
Which of the following statements concerning the deductibility of bad debts is correct? a. Under certain circumstances a bad-debt deduction may be available even if a legal debt does not exist. b. If a father guarantees his daughter's bank loan and she defaults, the father is entitled to a business bad-debt deduction. c. A nonbusiness bad debt can be deductible only as a short-term capital loss. d. No deduction for partial worthlessness of a debt is allowed.
c
All of the following statements regarding the Section 199A qualified business income deduction are correct, EXCEPT: a. The deduction may be phased out for high income taxpayers. b. The deduction is generally 20% of qualified business income. c. The deduction may be limited based on taxable income. d. The deduction is not available for service businesses such as health and accounting.
d
All the following statements concerning the income tax treatment of benefits received by an employee under an employer-financed nondiscriminatory accident and health plan are correct EXCEPT: a. Medical expense reimbursement benefits paid through an insurance company are excludible from the employee's gross income. b. Medical expense reimbursement benefits paid directly by the employer to the employee are excludible from the employee's gross income. c. Benefits received for permanent disfigurement in an amount computed without regard to the period the employee is away from work are excludible from the employee's gross income. d. Benefits received in excess of the amount of expenses actually incurred for medical treatment are excludible from the employee's gross income
d
All the following taxes may generally be deducted by an individual taxpayer who itemizes his deductions EXCEPT: a. local real property taxes b. state income taxes c. local personal property taxes d. federal income taxes
d
In order to be treated as a qualifying child of the taxpayer, an individual must generally meet which of the following tests? a. individual's gross income for the year must be less than the amount of the personal exemption b. the taxpayer must provide 100% of the individual's support for the year c. the individuals must by under 17 d. the individual must have the same principal place of abode as the taxpayer for more than half of the taxable year
d
Which of the following statements concerning Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs), is correct? a. MSAs can be created by anyone who has a high deductible health insurance plan. b. Retired taxpayers enrolled in Medicare can make contributions to HSAs to generate tax benefits for out of pocket medical costs. c. MSA and HSA contributions are permitted to be claimed as a medical expense on the taxpayer's Schedule A (Itemized Deductions). d. Taxpayers who use MSAs and HSAs convert below-the-line deductions into above the- line deductions.
d
Which of the following statements concerning the proceeds of a life insurance policy is correct? a. Proceeds paid by reason of the death of the insured are always included in the income of the recipient. b. When the owner of a life insurance policy surrenders a life insurance policy to the issuing insurance company in exchange for the cash surrender value of the policy, the owner of the policy is not required to recognize any gross income. c. Life insurance proceeds are not included in gross income of the new owner if the life insurance policy is sold ("transferred for value") by the original owner of the policy. d. Accelerated death benefits paid by an insurance company under a life insurance policy before the death of the insured are excluded from gross income if the insured person is terminally ill.
d
Which of the following statements is correct? a. The standard deduction is in addition to any available itemized deductions. b. The amount of the standard deduction is determined solely by filing status of the taxpayer. c. The standard deduction of a "kiddie" who owes Kiddie Tax is zero. d. The standard deduction of a taxpayer who is claimed by another as a dependent is subject to special limitations.
d
Ten years ago, Fernando loaned his son, Salvatore, $20,000 to start a business. The note required the payment of interest at a rate of nine percent for ten years, with a balloon payment of the principal at the end of the note term. Salvatore has been making interest payments on the note for the past six years, but this year his business took a turn for the worse and he was not able to make the annual interest payment of $1,800. The business was closed down, and Salvatore owed an amount greater than his net worth to secured creditors, so he informed his father that he would not be able to make the interest or principal payments on the note. How should Fernando treat the default for income tax purposes?
deduct 20000 as short term capital loss
A taxpayer who may be claimed as a dependent of another taxpayer will also be entitled to a personal exemption for himself or herself for the tax year of 2020. t/f
f
An annuity provides for a systematic liquidation of a sum of money, including both principal and interest, over a period of time. t/f
f
If a taxpayer chooses to take the standard deduction instead of itemizing, there is less benefit to contributing to a retirement plan or IRA. t/f
f
A family rents out their primary residence for six days for home football games per year. They must report that rental income in their gross income but may deduct any qualified expenses. t/f
false
A financial advisor invites his best client over to watch the Super Bowl. They do not discuss any business, but their relationship is improved. The financial advisor can deduct 50% of the cost of snacks as a business expense. t/f
false
A licensed engineer cannot deduct the cost of a "continuing education" course to maintain her license. t/f
false
A qualifying child for purposes of the tax credit for children must be under the age of 19 at the end of the tax year. t/f
false
A taxpayer may deduct all interest payments on loans secured by a personal residence regardless of whether the proceeds were actually used for a purpose related to improving or acquiring the residence. t/f
false
A taxpayer may take a loss deduction for the value of a rare coin that he or she mislaid. t/f
false
An eligible child for the Adoption Expenses Tax Credit must be younger than 8 years old or have special needs. t/f
false
An employee converts his guest bedroom into a home office that he only used while working on flex time for his employer. He is able to deduct expenses related to that portion of his home from his income. t/f
false
Assessments for street, sidewalk, and other improvements levied against a personal residence are deductible as taxes. t/f
false
Benefits received from an employer-financed medical expense plan are generally included in an employee's gross income to the extent they provide reimbursement for the medical expenses of the employee's dependents. t/f
false
Gifts made to foreign charities are deductible by the taxpayer provided that the taxpayer is a United States citizen. t/f
false
Home-office deductions (excluding mortgage interest expense and real estate taxes) may have the effect of creating a net loss from business activities. t/f
false
If damages paid pursuant to a lawsuit represent lost wages, they will generally be excludible from the recipient-taxpayer's gross income. t/f
false
Ignoring any phaseouts, a student with $3,000 in qualified education expenses generates $2,500 in American Opportunity Tax Credits. t/f
false
In general, an employer's contributions for employee group term insurance coverage are not deductible by the employer. t/f
false
It is "ordinary" for a landlord to pay a lawn maintenance crew three times the local average. t/f
false
Life insurance death benefits are generally excluded from the gross income of an individual beneficiary but are taxable income to a trust. t.f
false
Loans and withdrawals from an endowment contract are taxed on FIFO basis. t/f
false
One exception to the transfer-for-value rule is a transfer from the insured to another shareholder of a corporation in which the insured is a shareholder or officer. t/f
false
Qualifying dependents for the Dependent Care Credit must be younger than 19 years old. t/f
false
Repairs to an individual's commuter car would be deductible in the year they are made. t/f
false
Starting in 2018, more taxpayers will elect to itemize deductions to reduct their taxable income t/f
false
The "kiddie tax" would not apply to an inheritance from a deceased grandparent. t/f
false
The amount of the tax credit for children (without regard to phaseout rules) is currently $1,000. t/f
false
The dependent-care credit is calculated the same whether the working spouse has one or more children. t/f
false
The lowest marginal rate of tax on ordinary income is currently 15% t/f
false
The qualified business income deduction (QBI) is a permanent deduction that is not set to expire under the Tax Cuts and Jobs Act. t/f
false
The standard deduction for all individual taxpayers for the tax year 2020 is $12,400. t/f
false
Until December 31, 2018, when a former husband is obligated to pay child support for a minor child, he may deduct those amounts as alimony. t/f
false
Until December 31, 2018, when a former husband names his wife revocable beneficiary of a life insurance policy on his life but retains ownership of the policy and pays the premiums, the value of the premiums is tax-deductible by him and includible in the wife's income as additional alimony. t/f
false
When a taxpayer receives a return of capital, the return is subject to income tax t/f
false
Which of the following is (are) included in the gross income of an individual taxpayer? I. damages other than punitive damages received on account of a physical personal injury suffered by the taxpayer II. property received by the taxpayer as an inheritance
neither
Which of the following statements concerning the deductibility of business expenses is (are) correct? I. Entertainment expenses are fully deductible if recorded by the taxpayer when incurred. II. Fines for the violation of a state law are deductible if they are incurred in the ordinary course of business.
neither
Which of the following statements concerning the itemized deduction for medical expenses is (are) correct? I. Any expenses for cosmetic surgery will qualify for the medical expense deduction. II. Physicians' fees are deductible at 50 percent of the cost.
neither
Which of the following statements concerning the tax implications of a divorce, assuming the divorce decree is finalized after January 1, 2019, is (are) correct? I. Excess alimony payments are fully taxable to the recipient. II. Cash payments for child support provided in the divorce decree are tax-deductible.
neither
A $1,000 credit is more valuable than a $1,000 deductible. t/f
true
A business expense need not be made at regular intervals in order to be considered ordinary and necessary. t/f
true
A group life insurance plan might be found to be discriminatory in favor of key employees with regard to either eligibility or benefits. t/f
true
A small business cannot deduct the cost of hiring a lobbyist to the federal government. t/f
true
A taxpayer can qualify as a head of household by maintaining a parent in a nursing home. t/f
true
A taxpayer who personally purchases an individual disability income policy or major medical policy will not have to include the value of any benefits in income t/f
true
A taxpayer who receives a jury award in a lawsuit for personal injuries of a physical nature can exclude the award from his or her gross income if no portion of the award is for punitive damages. t/f
true
A total loss from a nonbusiness bad debt is treated as a short-term capital loss. t/f
true
A vacation home will not be treated as primarily rental property if the home is used as a personal residence for a 30-day period during the year, and rented for 200 days during the year. t/f
true
Accelerated death benefits paid under a life insurance contract to a terminally ill insured are generally excludible from gross income as amounts paid by reason of death. t/f
true
Amounts received under workers' compensation acts are excludible from gross income. t/f
true
An individual taxpayer may generally deduct cash contributions to public charities in an amount up to 60 percent of adjusted gross income in the year of contribution. t/f
true
As of 2018, miscellaneous deductions subject to the 2% AGI floor have been eliminated. t/f
true
Benefits paid from qualified long-term care insurance contracts are excludible from gross income subject to certain limitations. t/f
true
Charitable contributions are allowed for gifts of property but not for gifts of services to the charity. t/f
true
For unmarried individuals meeting specified dependents requirements, the "head of household" filing status offers low tax rates. t/f
true
Gifts of tangible personal property are deductible at their fair market value, whether or not they are use-related for the organization's exempt purpose. t/f
true
If a beneficiary could take a lump sum of $1M but instead opts for an installment with total payments of $1.5M, she will ultimately recognize some of the benefit as taxable income. t/f
true
If tax-exempt bonds are purchased with an investment loan, a deduction is not available for interest payments on the loan. t/f
true
If the transfer of a life insurance policy falls within one of the enumerated exceptions to the transfer-for-value rule, the entire death proceeds will be received income tax free by the beneficiary. t/f
true
In order for an individual to be treated as a qualifying child of the taxpayer under the dependency rules, that individual must not have provided more than half of his or her own support during the year. t/f
true
Individual taxpayers may not deduct interest on credit card charges for the purchase of personal items. t/f
true
QBI deductions may still be allowed for non-service businesses for taxpayers who exceed the income phaseout limitation, but is calculated differently from the QBI deduction for taxpayers under the phaseout income threshold. t/f
true
QBI is the taxpayer's allocable share of trade or business income excluding some items such as investment income and reasonable compensation paid to the person. t/f
true
Repairs to a business's van would be deductible in the year they are made. t/f
true
Subject to certain exceptions, gifts of a remainder interest in property are not deductible unless the gift consists of the donor's entire interest in the property. t/f
true
The Child Tax Credit can reduce a taxpayer's tax liability below $0, triggering a negative tax rate. t/f
true
The amount of each annuity payment is multiplied by the applicable exclusion ratio to determine the portion of the payment that is not taxable t/f
true
The deduction for QBI related to specified service businesses, such as financial advising, is not allowed above the income phaseout limitation. t/f
true
The release of an obligation to pay a debt generally results in taxable income to the debtor t/f
true
To file as a surviving spouse, a taxpayer must maintain a residence for a child of the taxpayer for whom he or she is claimed as a dependent. t/f
true
Unlike the American Opportunity Tax Credit, the Lifetime Learning credit can be used for graduate school expenses. t/f
true
Until 2025, the deduction for state and local taxes is limited to $10,000 annually. t/f
true
When a life insurance policy is surrendered during the period that the contract is in force, the owner will be subject to income taxation on the amount received in excess of his or her cost basis. t/f
true