Income Tax Tests
Tameka has taxable income of $97,075 that is taxed as follows: $9,700 × 10% =$970.00($39,475 − $9,700) × 12% = 3,573.00($84,200 − $39,475) × 22% = 9,839.50($97,075 − $84,200) × 24% = 3,090.00Total tax liability$17,472.50 Her marginal tax rate is:
24%
Which of the following organizations do not qualify for deductible charitable contributions?
A political party
Victoria determined her tax liability was $6,145. Her employer withheld $6,451 from her paychecks during the year. Victoria's tax return would show:
A refund of $306
If Janelle, an accountant, agrees to provide accounting services to Fred, a friend, in exchange for Fred fixing Janelle's office floor, then:
Both of them must report income on their tax returns
With respect to the income tax formula, which of the following statements is correct?
Certain deductions from income are permitted before calculating tax liability.
Paid tax preparers must comply with all of the following EXCEPT:
Charge a contingent fee
Which of the following organizations generally qualify for deductible charitable contributions?
Churches
Which of the following statements is true?
Compensation for services includes bonuses and severance pay.
Constructive receipt means the taxpayer has:
Control of the income for his or her use.
For a qualifying relative to be claimed as a dependent, a person must either be related to the taxpayer, or be a member of the taxpayer's household for the entire year. Select the relative who must be part of the taxpayer's household for the entire year.
Cousin
Generally, the taxpayer may deduct the cost of medical expenses on Schedule A for which of the following?
Doctor prescribed birth control pills.
In 2018, Carlos, who is single, received his Bachelor's degree and started working. In 2019, he began paying interest on qualified education loans and had modified AGI of $75,000. He paid interest of $1,200 in 2019. Which of the following statements is correct?
Due to the phase-out rules, only a portion of the $1,200 will be deductible
The following fringe benefit provided by the employer is not taxable to the employee:
Employer-paid premiums on group-term life insurance with coverage of $40,000 per person.
Which one of the following items is not exempt under the umbrella of compensation for injuries or sickness?
Employer-provided adoption assistance
Robert, Fred and Lucas are supporting their mother who lives in a separate apartment. Their contributions towards her support are 10%, 40% and 50%, respectively. In a multiple support agreement, who would be entitled to claim the mother as a dependent?
Fred or Lucas
Which one of the following items is considered an other itemized deduction subject to a built in limitation?
Gambling losses up to the amount of gambling winnings.
A legally divorced taxpayer maintains a household for himself and maintains a separate household that is the principal place of abode of his dependent widowed mother. What filing status should he use when filing his tax return?
Head of Household
Rachelle, a major in the Air Force, moved from Washington State to South Carolina, as a result of military orders and met all the requirements to deduct moving expenses. Which of the following expenses that she incurred is not deductible as qualified moving expenses?
Home improvements to sell her home in Oregon
Which of the following types of income is subject to the self-employment tax?
Income from a sole proprietor's coffee shop.
Under the provisions of Circular 230, paid tax preparers must:
Inform the client if the client has made an error in a document submitted to the IRS
In 2019, the U.S. President declared a federal disaster due to the flooding in Louisiana. Danielle lives in that area and lost her home in the flood. What choice does she have regarding when she can claim the loss on her tax return?
It may be claimed in 2018 or 2019.
Which of the following expenses is not deductible as medical expense?
Joining a tennis club to become more active upon recommendation of a doctor.
Jane, Joseph and John are supporting their father who lives in a separate apartment. Their contribution towards his support is 10%, 35% and 55%, respectively. In a multiple support agreement, who would be entitled to claim the father as a dependent?
Joseph or John
For tax purposes, marital status is determined as of the __________ day of the year.
Last
Which of the following items would not be considered as support for a dependency exemption?
Life insurance programs
For investment interest expense in 2019, the deduction by a taxpayer is:
Limited to the taxpayer's net investment income for 2019.
The taxpayer's spouse died at the beginning of 2019. He has no qualifying child. Which status should the taxpayer select when filing his tax return?
Married Filing Jointly
The taxpayer's spouse died at the beginning of 2019. She has a qualifying child. Which status should the taxpayer select when filing her tax return for 2019?
Married Filing Jointly
A taxpayer is married with a qualifying child (dependent), but she has been living separate from her spouse for the last five months of the year. However, she paid for more than half of the cost of keeping up the household. Her spouse does not want to file jointly. What filing status must she use when filing her tax return? She wants to obtain the maximum legal benefit.
Married Filing Separately
Mirtha is 21 years of age and a full-time student living by herself. She had wages of $25,000 for 2019 and provided more than half of her own support. Can Mirtha be claimed as a dependent on her parent's tax return?
No, Mirtha cannot be claimed on her parents' tax return.
All of the following are requirements for a payment to be considered alimony except,
Payments can either be in cash or property.
Which of the following items are considered alimony?
Payments made to a third party on behalf of the former spouse for the former spouse's dental expenses.
Sallie earned $25,000 and paid $2,000 of income tax; Theodore earned $35,000 and paid $2,900 of income tax. The tax rate structure they are subject to is
Progressive
Sallie earned $85,000 and paid $5,950 of income tax; Theodore earned $33,000 and paid $2,310 of income tax. The tax rate structure they are subject to is:
Proportional
Raphael, a roofer, decides to fix the roof of his neighbor, Angela, in exchange for Angela providing bookkeeping services for his business. Who must report income on their tax return?
Raphael and Angela
An individual must complete Schedule B if the following situation occurs:
Received interest income of $1,750.
An individual must complete Schedule B if the following situation occurs:
Received tax-exempt interest of $700.
Jake earned $15,000 and paid $1,500 of income tax, while Jill earned $40,000 and paid $3,000 of income tax. The structure of the tax their income is subject to is:
Regressive
On December 31, 2019, a taxpayer received the notification that he was legally divorced. However, he lived with his spouse for 8 months during 2019. He has no dependent children. What status should he select when filing his tax return for 2019?
Single
The taxpayer's spouse died at the beginning of 2018. He has no qualifying child. Which status should the taxpayer select when filing his tax return for 2019?
Single
Which of the following is an example of a regressive tax?
Social Security tax
The following are not taxable to shareholders:
Stock split
Victoria determined her tax liability was $6,451. Her employer withheld $6,145 from her paychecks during the year. Victoria's tax return would show
Tax due of $306
Which of the following statements is correct?
Temporary Regulations expire three years after issuance.
Qualification under the 900-hour working test for the educator's expense deduction is measured by:
The academic year
When filing their tax returns, almost all individuals use:
The cash receipts and disbursements method.
Which of the following is deductible as a military personnel moving expense?
The cost of moving household goods
Which of the following is not a requirement for an allowable alimony deduction?
The payee must have a dependent child.
For tax purposes, one of the requirements to recognize income is:
There must be an economic benefit
For the deduction of self-employment taxes, which of the following statements is correct?
They are 50% deductible as a for AGI deduction.
If a student must perform certain services for the educational institution (e.g., graduate assistantships), the amount paid for services is considered:
Wages
For equivalent amounts of taxable income, the total tax liability of a single individual:
Will be more than married filing jointly
What item should not be included in income?
Worker's compensation payments
To qualify for a medical expense deduction as a taxpayer's dependent, a person must be a dependent either at the time the medical services were provided or at the time the expenses were paid. A person generally qualifies as a dependent for purposes of the medical expense deduction if the person:
Would qualify as a dependent except for the amount of gross income.
Elisa is 21 years of age and a full-time student living with her parents. She had wages of $680 ($75 of income tax withholding) for 2019. Can Elisa file a tax return even though her parents will claim her as a dependent on their tax return?
Yes, Elisa can file a tax return.
George is 21 years of age and a full-time student living with his parents who are paying more than 50% of his support. He had wages of $1,375 ($140 of income tax withholding) for 2019. Can George's parents claim him on their tax return even though he will file a tax return to claim his refund of $140?
Yes, George's parents can claim him as a dependent.
Interest income on Series EE and Series E U.S. Savings Bonds can be reported:
either at the maturity date or on an annual basis
Corporate distributions to shareholders that represent a nontaxable return of capital are those that are:
made from the excess over earnings and profits of the corporation.
The determination for the deduction of the self-employment tax is based upon the:
net earnings of the business
In 2015 through 2018, Shana borrowed a total of $30,000 for higher education expenses on qualified education loans. In 2019, while still living at home and being claimed by her parents as a dependent, she began making payments on the loan. The first year interest on the loan was reported as $1,750. The amount that Shana can claim on her tax return is:
$0
Ed's parents can claim him as a dependent on their tax return. In 2019, his only source of income was $1,100 of interest income received from Global Bank. What is Ed's standard deduction?
$1,100
During 2019 Yoko paid the following expenses: Prescription medicines$525Doctors and dentists 1,050Vitamins and ibuprofen 275Health club membership fee 450 What is the total amount of medical expenses (before application of the adjusted gross income limitation) that would enter into the calculation of itemized deductions on Yoko's 2019 income tax return?
$1,575
During 2019, Remy paid the following expenses: Prescription medicines $640 Aspirin, vitamins, and cold medicine 165 Hospital and treatment fees 1,050 Health insurance premiums 250 What is the total amount of medical expenses (before considering the limitation based on adjusted gross income) that would enter into the calculation of itemized deductions on Remy's 2019 income tax return?
$1,940
If an attorney performs some estate tax work for a client and the client agrees to pay $6,000 to him and $5,000 to a local financial institution for a debt the attorney owes, the attorney has income of:
$11,000
The Sharps were granted a decree of divorce effective January 1, 2018. In accordance with the decree, Susan Sharp is to pay her spouse $24,000 a year until their only child, Melanie now 11, turns 18, and then the payments will decrease by $11,000 per year. For 2019, how much can Susan deduct as alimony?
$13,000
For family coverage in 2019, the maximum deductible and out-of-pocket expense to a Health Savings Account is:
$13,500
For the year ended December 31, 2019, Terrance, a single professional, reported the following: Net investment income from interest, $14,000 Other expenses unrelated to the generation of interest, $6,000 Investment interest expense on funds borrowed in 2018 to purchase stocks and bonds, $15,000What is the maximum amount that Terrance can deduct in 2019 as investment interest expense?
$14,000
Under a non-revised divorce decree executed in 2018, Pillar is required to pay her ex-husband, Miguel, $4,750 a month until their youngest son, whose is now 10, turns age 18. At that time, the required payments are reduced to $2,100 per month. How much of each payment is deductible by Pillar as alimony for 2019?
$2,100
During 2019, Belen paid the following taxes: Property taxes on residence (paid from escrow account) $1,550 Property tax portion of car registration (based on value) 400 Property taxes on land held for long-term appreciation 350 What amount can Belen deduct as property taxes in calculating her itemized deductions for 2019?
$2,300
Horace properly completed his Form 1040 tax return and received a refund from the IRS of $649. Horace had income tax withholding during the year of $2,985. His tax liability for the year was:
$2,336
Luisa's parents can claim her as a dependent on their tax return. In 2019, her only source of income was a part-time job as a medical clerk where she earned $2,600 during the year. What is Luisa's standard deduction?
$2,950
The basic standard deduction in 2019 for a taxpayer, 67 and not blind, filing head of household is:
$20,000
Robert and Becky (husband and wife) are both lawyers and they contribute money to various organizations each year. They file a joint return and their adjusted gross income for 2019 is $100,000. They contributed to the following organizations in 2019: $5,000 to Shangri La country club $10,000 to the ASPCA $2,000 to State Bar Association Political Action Committee $12,000 to a juvenile diabetes research foundation Donated clothing to Goodwill. (Robert originally purchased the items for $400, but the fair market value of the same items at a thrift store is equal to $50.) How much can Robert and Becky deduct as charitable contributions for the year 2019?
$22,050
John forgot to file his tax return by April 15. He did not file an extension. John finally filed his tax return on June 30 and had a remaining tax liability of $1,500. What is John's failure to file penalty? Assume he made all his payments on time.
$225
Isaiah, an NBA point guard, is advised by his physician to install a Jacuzzi in his residence since he is afflicted with a back problem incurred after years of running up and down the court. The cost of installing the Jacuzzi is $6,500. He installs the Jacuzzi in January of 2019, and it increases the value of his residence by $3,500. Disregarding the limitation based on adjusted gross income, how much of the cost of the Jacuzzi may Isaiah take into account in determining his medical expense deduction for 2019?
$3,000
Laura is a student at a state university. In 2019, she received a scholarship of $6,000 for tuition and fees and an assistantship for $3,000. What is the amount that Laura must report in income?
$3,000
Severin, who is 20 years old and a full- time student, is claimed by his parent as a dependent. However, in 2019, he earned $3,350. What is his standard deduction?
$3,700
Which of the following may not be deducted either totally or partially as medical expenses? (Disregard any limitations which may apply.)
$300 for maternity clothes.
Due to a military base closing, Major Le Tran is transferred from Boston to San Diego as a permanent change of station. Under a new job description, he is reclassified from division commander to a General's staff member. His moving expenses, which are not reimbursed, are as follows: Transportation $1,200 Meals 300 Lodging 400 Cost of moving household goods 4,000 Pre-move house hunting costs 2,500 Major Tran's deductible moving expense is:
$5,600
Rick and Lenora were granted a divorce in 2017. In accordance with the decree, Rick made the following total payments to Lenora in 2019: Child support payments contingent on the age of the child $4,000 Annual cash payments other than child support $6,000 How much should Lenora include in her 2019 taxable income as alimony?
$6,000
Jena is a self-employed fitness trainer who had net earnings from self-employment of $53,500. She paid $525 per month for health insurance over the entire last year. Jena is entitled to a for AGI deduction for health insurance of:
$6,300
For 2019, Miram, a single mother, reported the following amounts relating to her investments: Net investment income from interest $7,000 Interest expense on a loan to purchase stocks 2,000 Interest expense on funds borrowed in 2018 to purchase land for investment 6,000 What is the maximum amount that Miriam can deduct in 2019 as investment interest expense?
$7,000
Beth is a freshman in the UC-Davis degree program in veterinary medicine. In 2019, Beth paid $3,000 in tuition, $500 for books, and $250 for supplies for class. Beth also paid room and board of $3,500. What is the total qualifying education expense for the student loan interest deduction for Beth in 2019?
$7,250
Peter forgot to file his tax return by April 15. He did not file an extension. Peter finally filed his tax return on July 31 and had a remaining tax liability of $3,500. What is Peter's failure to file penalty? Assume he made all his payments on time.
$700
During 2019, Manuel and Gloria, who are not married and live in Beverly Hills, incurred acquisition debt on their new residence of $2,150,000. On their individual tax returns, what is the amount of qualified acquisition debt on which they can each deduct interest in 2019?
$750,000
The tax liability for a married couple with taxable income of $73,209 is:
$8,339
The tax liability for a single individual with taxable income of $58,312 is:
$8,690
Akule paid the following amounts of interest in 2019: $150 on his personal credit card $9,500 on his home mortgage $750 on a personal car loan, which was not used for business $350 on funds borrowed to purchase tax-exempt securities What is his deductible interest for 2019?
$9,500
Which of the following costs are potentially deductible on Form 1040, Schedule A as taxes for 2019? 1.Property tax on principal residence. 2. Garbage pickup itemized on the real estate bill. 3. Real estate tax on property owned as an investment. 4.Sales tax paid on the purchase of a personal car.
1,3,&4
The percentage of self-employed health insurance premiums that could be deductible as a for AGI deduction is:
100%
Jordan and Paul, a married couple, have taxable income of $87,175, which is taxed as follows: $19,400 × 10% =$1,940.00($78,950 − $19,400) × 12% = 7,146.00($87,175 − $78,950) × 22% = 1,809.50Total tax liability$10,895.50 Their average tax rate is
12.5%
Tameka has taxable income of $97,075 that is taxed as follows: $9,700 × 10% =$970.00($39,475 − $9,700) × 12% = 3,573.00($84,200 − $39,475) × 22% = 9,839.50($97,075 − $84,200) × 24% = 3,090.00Total tax liability$17,472.50 Her average tax rate is:
18%
Pedro agreed to repair a house for a client and started to work on December 30, 2017. On January 2, 2019, he completed the job and received payment from the client. Pedro must record the income in:
2019
On December 30, 2019, Robert agreed to repair a damaged house wall and started to work on that date. He will finish and get paid for the job in January of 2020. Robert needs to record the income received from his work in the year:
2020
Jordan and Paul, a married couple, have taxable income of $87,175, which is taxed as follows: $19,400 × 10% =$1,940.00($78,950 − $19,400) × 12% = 7,146.00($87,175 − $78,950) × 22% = 1,809.50Total tax liability$10,895.50 Their marginal tax rate is:
22%
Tom and Betsy, who are married filing jointly, reported a standard deduction of $24,000 on their 2018 tax return. They paid $500 to the state for income taxes in 2018. In 2019, they received a $125 refund of state taxes paid in 2018. What is the amount that Tom and Betsy need to report on their 2019 tax return?
$0
Which of the following statements is false with respect to the standard mileage rate?
The taxpayer can have an unlimited number of autos and use the mileage rate.
Sonia's car was completely destroyed in an accident that was her fault. Her loss was $8,500 and her insurance company reimbursed her $6,500. What amount of casualty loss can Sonia claim on her return (before deduction limitations)?
$0
Sumiko files her tax return married filing separately. She has not lived with her husband for over two years. Beginning in January 2019, by court ordered decree, she is to pay her husband $600 per month as separate maintenance. For 2019 how much will she be able to deduct as alimony?
$0
Conner and Matsuko paid $1,000 and $2,000, in qualifying expenses for their two sons, Jason and Justin, respectively, to attend Idaho State University. Jason is a sophomore and Justin is a freshman. Conner and Matsuko's AGI is $195,000. What is their allowable American opportunity tax credit?
$0 The AOTC phases out completely for AGI greater than $180,000 for MFJ taxpayers.
Angelina is single and has modified AGI of $275,000. She adopted a boy from San Antonio, Texas, and incurred a total of $16,000 in qualified adoption expenses. What is the amount of adoption credit she can take?
$0 The adoption credit is phased out completely when modified AGI reaches $251,160 (for 2019).
Katie and Mike own a home in Newport Beach, California. During the year, they rented the house for 80 days for $24,000 and used it for personal use for 30 days. The expenses for the house included $20,000 in mortgage interest, $8,500 in property taxes, $6,000 in utilities, $2,000 in maintenance, and $12,000 in depreciation. What is the deductible loss for the rental of their home (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.
$0 This is a personal/rental property and therefore, no net loss is allowed.
Dane is a single father with two dependent children, Elle, age 7 and Eva, age 5. He has AGI of $61,000 and paid $6,100 to a qualified day care center for the two children. What amount of child and dependent care credit can Dane receive this year?
$1,200 $6,000 × 20% = $1,200. Applicable expenses are limited to $6,000.
Georgia owns a home in Colorado that she rents for $1,200 per month (she does not use the home personally). While she was in Europe in November, the roof in her rental home leaked and her tenant repaired it for $900. For the following month's rent (December), her tenant paid her $300 for rent ($1,200 − $900). What amounts should Georgia include for rental income and repair expense, respectively, for December?
$1,200; $900 Expenses paid by the tenant in lieu of rent payments are components of rental income.
Kwon-Lee sold 200 shares held in FNP Mutual Fund in 2019 for $22,500 and received a 1099-B to record the sale of the shares. Kwon-Lee's investment portfolio includes the following purchases of FNP Mutual Fund stock: 2007- 250 shares at $100 per share 2011- 100 shares at $110 per share 2015- 75 shares at $115 per share 2015- 25 shares at $120 per share Assuming Kwon-Lee uses the single category average cost method, he will recognize
$1,334 gain
On May 26, 2015, Jamal purchased machinery for $30,000 to be used in his business. He did not elect to expense the equipment under §179 or the bonus. On October 10, 2019, he sells the machinery to a scrap metal dealer. What is his cost recovery deduction for 2019 rounded to the nearest dollar?
$1,340
Marion drives 20 miles a day from his first job to his second job. He worked 125 days during 2019 on both jobs. What is Marion's mileage deduction rounded to the nearest dollar assuming he uses the standard mileage rate and mileage is incurred ratably throughout the year?
$1,450
Jackson owns a condominium in Las Vegas, Nevada, and he rents it to Joanne for $1,500 per month, payable on the 1st of each month. While he was out of town in August, the condominium's air conditioning broke and Joanne had it replaced for $1,350. How much rental income does Jackson report for September if Joanne deducts the repair cost from her rent for September?
$1,500 Report the gross amount of the rent.
Patricia is single and her son Quinn is age 11. If her AGI is $207,000, what amount of child tax credit can she claim?
$1,650 ($207,000 − $200,000 = $7,000); $7,000/$1,000 = 7; $2,000 − ($50 × 7) = $1,650.
Debbie files as head of household and has AGI of $36,500. During the year, she contributed $1,000 to a 401(k). What amount of retirement savings contributions credit can Debbie take?
$100 $1,000 × 10% = $100
Alex, Ellen and Nicolas are equal partners in a local restaurant. The restaurant reports the following items for the current year: Business revenue $770,000 Business expenses 470,000 Investment expenses 150,000 Each partner receives a Schedule K-1 with one-third of the preceding items reported to him/her. How must each individual report these results on his/her Form 1040?
$100,000 income on Schedule E; $50,000 investment expense on Schedule A
Ariel, Bob, Candice and Dmitri are equal partners in a local ski resort. The resort reports the following items for the current year: Business revenue $1,200,000 Business expenses 750,000 Short-term capital gains 107,000 Short-term capital losses (103,000) Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her. How must each individual report these results on his/her Form 1040?
$112,500 income on Schedule E; $1,000 short-term capital gain on Schedule D
Anike received property as part of an inheritance from her father who passed away on March 10, 2019. Her father purchased the property on July 3, 2018, for $156,000. Anike sold the property on June 30, 2019, for $168,000. At the date of his death the property had a FMV of $154,000. What gain, if any, will Anike pick up on her return for 2019?
$14,000 long-term gain
Maria and Vincent, whose modified AGI is $169,000, adopted a little girl from Mexico which was finalized in 2019. They incurred a total of $16,000 in qualified adoption expenses. What is the amount of adoption credit they can claim in 2019?
$14,080 Maximum allowed is $14,080
Gilberto invested in a mid-size local company with gross assets of $16,000,000. Gilberto purchased 1,000 shares for $48,000 in 2000. In the current tax year, Gilberto sold the stock for $78,000. How is the gain treated for tax purposes?
$15,000 excluded from gross income under Section 1202 and $15,000 taxed at 28%.
Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land. Patrice's basis in the land is $40,000. What is the gain or loss she will recognize on the sale?
$17,000 gain
Sam paid the following expenses during October 2019 for his son Aaron's spring 2020 college expenses: Spring 2020 semester begins in January 2020: Tuition $18,000 Housing 8,000 Meal plan 3,500 In addition, Aaron's uncle paid $500 for college fees on behalf of Aaron directly to the college. Aaron is claimed as Sam's dependent on his tax return. How much of the paid expenses qualify for purposes of the education credit deduction for Sam in 2019?
$18,500 $18,000 + $500 = $18,500
Mindy and Xavier have a total tax liability of $475 before EIC. Their EIC for the current year is $2,578. What is their total tax refund or tax owed for the current year (assume they have no other credits or additional tax liability)?
$2,103 tax refund $2,578 − $475 = $2,103 tax refund
Byron took a business trip from Philadelphia to Rome. He was away 16 days of which he spent 9 days on business (including two travel days) and 7 days vacationing. His expenses are as follows: Airfare $1,100 Lodging (16 days × $140) 2,240 Meals (16 days × $115) 1,840 Byron's total travel (including meals and lodging) expense deduction rounded to the nearest dollar is:
$2,396
On July 15, 2018, Travis purchased some office furniture for $20,000 to be used in his business. He did not elect to expense the equipment under §179 or bonus. On December 15, 2019, he sells the equipment. What is his cost recovery deduction for 2019?
$2,449
Julia and Omar are married and file a joint tax return. They have two dependent daughters, ages 14 and 18. If their AGI is $98,000, what amount of child or other qualifying dependents tax credit can they claim?
$2,500 $1,000 per child. Only one child qualifies since only one of the children is under age 17.
Matt is a single father. He paid $5,000 in qualifying expenses for his son, Kyle, to attend the University of Minnesota. Kyle is a sophomore. Matt's AGI is $47,000. What is his allowable American opportunity tax credit?
$2,500 The credit is a maximum of $2,500 per eligible student.
Juanita is a sole proprietor who has some outstanding receivables she wishes to sell. The receivables have a $16,000 FMV and a basis of $10,000. Juanita sells the receivables for $12,500. What gain or loss does Juanita recognize on the sale?
$2,500 ordinary gain
Shante is employed by a local pharmaceutical company where she earned $48,000 in 2019. During the year, she also had self-employment income of $18,000. Her self-employment tax rounded to the nearest dollar is:
$2,543
Patricia, a professional gambler, had the following income and expenses in her business: Gambling winnings $275,000 Expenses Fees paid for illegal information 18,000 Travel costs $8,000 Office expenses 5,000 Supplies 3,000 Business long-distance phone charges 1,000 Tickets for illegal parking 900 How much net income must Patricia report from this business?
$258,000
Naomi and Matt received the following amounts from a tenant who is renting their condominium during the current year (rent is $1,500 per month): 2 months rent $2,200 Deposit 1,600 Rent for two months would normally have been $3,000, but the tenant paid $800 for a plumbing repair. The repair would normally have been paid by Naomi and Matt but the problem occurred while they were out of town. How much should Naomi and Matt report as rental income for the current tax year?
$3,000
Greg sold some equipment for $72,510 on June 13, 2019. Greg had originally purchased the equipment for $86,750 on November 21, 2018. The equipment was subject to depreciation of $17,350. What gain or loss will Greg recognize on the sale?
$3,110 ordinary gain
On November 30, 2019, Constance purchased an apartment building for $750,000 (assume this is the Depreciable Cost excluding any Land valuation). Determine her cost recovery deduction for 2019 rounded to the nearest dollar.
$3,413
Patty and Rich, married filing jointly, have $385,000 in MAGI and $90,000 of net investment income (NII). They will pay a surtax of:
$3,420
Kyle and Alyssa paid $1,000 and $4,000 in qualifying expenses for their two daughters Jane and Jill, respectively, to attend the University of California. Jane is a sophomore and Jill is a freshman. Kyle and Alyssa's AGI is $137,000 and they file a joint return. What is their allowable American opportunity tax credit after the credit phase-out based on AGI is taken into account?
$3,500 $1,000 + [$2,000 + (2,000 × 25%)] = $3,500; Maximum credit per student is $2,500
Shawn and Dahlia are married; both work and have one qualifying child. They had earned income of $19,000. What is their Earned Income Credit?
$3,526
In June 2019, Kelly purchased new equipment for $26,000 to be used in her business. Assuming Kelly has net income from her business of $75,000 prior to the deduction, what is the maximum amount of cost recovery Kelly can deduct rounded to the nearest dollar, assuming she does not elect §179 expense or bonus depreciation?
$3,715
Joseph paid $1,750 in qualifying expenses for his daughter who attended a community college. How much is Joseph's lifetime learning credit without regard to AGI limitations or other credits?
$350 $1,750 × 0.20 = $350
Edward and Ethel are ages 71 and 59, respectively, and file a joint return. They have AGI of $11,000 and received $2,000 in nontaxable social security benefits. How much can Edward and Ethel take as a credit for the elderly or the disabled?
$375 ($5,000 − $2,000 − $500) × 15% = $375
Tanisha buys a sculpture from a collector for resale in her gallery for $8,400. She sold it 15 months later for $12,500. What are the nature and amount of the gain on the sale of the sculpture?
$4,100 ordinary income
Marquez purchased some equipment for $58,750 on August 15, 2018. He decided he did not need the equipment so he sold it on June 13, 2019 for $56,500. The equipment was subject to depreciation of $6,964 for 2018 and 2019. What gain or loss will Marquez recognize on the sale of the equipment?
$4,714 ordinary gain
A taxpayer purchased land in 2008 for $85,000 and sold it in 2019 for $75,000 cash. The buyer also assumed the mortgage of $5,000. What is the amount of gain/loss on the sale of the land?
$5,000 loss
Cole purchased a car for business and personal use. In 2019, he used the car 60% for business (13,000 total use miles) and used the standard mileage rate to calculate his vehicle expenses. He also paid $1,500 in interest and $360 in county property tax on the car. What is the total business deduction related to business use of the car rounded to the nearest dollar?
$5,640
Jillian is single and her son, Parker is 18 years old. If her AGI is $76,200, what is her child or qualifying dependent tax credit for Parker?
$500 Qualifying child must be under age 17 for the child tax credit, but the $500 qualifying dependent tax credit is available.
Della purchased a warehouse on February 25, 2019, for $350,000. $45,000 of the price was for the land. What is her cost recovery deduction for 2019 rounded to the nearest dollar?
$6,853
Paola purchased an office building on January 5, 2018, for $450,000. $30,000 of the price was for the land. On September 25, 2019, he sold the office building. What is the cost recovery deduction for 2019 rounded to the nearest dollar?
$7,628
Jamison owns a rental cabin in Mammoth, and travels there for maintenance three times a year, between January and June. The round trip to Mammoth from San Diego where Jamison lives, is approximately 405 miles. How much travel costs can Jamison deduct per year related to his rental cabin? (Round your answer to the nearest whole number)
$705 405 miles × 3 × .58 = $705.
Dean and Sue are married filing jointly with AGI of $28,000. They made a $1,500 contribution to a qualified retirement plan. How much is their retirement savings contributions credit?
$750 $1,500 × 50% = $750.
Brad and Kate received $9,500 for rent from Mike and Janet, who are renting their home in Santa Ana, California. Brad and Kate did not use this property for personal use. The rent covers eight months from August 1 of the current year to March 31 of the following year. The amount also includes a security deposit of $1,500. How much should Brad and Kate report as rental income in the current tax year?
$8,000 $9,500 − $1,500 = $8,000.
Otis bought a 2-unit apartment building in July 2012 for $330,000 and sold it for $400,000 on December 20, 2019. At the time of sale there was $83,493 of accumulated straight-line depreciation on the apartment building. Assuming Otis is in the 37% tax bracket, how much of the gain will be taxed at 25%?
$83,493
Max and Nora have modified AGI of $75,000, and adopted a little boy from San Antonio, Texas, in the current year and incurred a total of $13,000 in qualified adoption expenses. In addition, Max's employer provided the couple with adoption benefits of $4,000. What is the maximum amount of adoption credit they can take this year?
$9,000 $13,000 − $4,000 = $9,000
Sammy sells a piece of specialized equipment (with a high resale value) used in his business for $41,650 on September 10, 2019. The equipment was purchased on May 20, 2016 for $32,000. Sammy has taken $9,200 of depreciation on the equipment. What are the amount and classification of the gain on the sale by Sammy?
$9,200 ordinary income under Section 1245 and $9,650 Section 1231 gain.
Eddie and Camilla received $11,600 for the rental of their rental house in Irvine, California. Eddie and Camilla do not use this property for personal use. The rent covers six months from October 1 of the current year to March 31 of next year. The amount also includes a security deposit of $2,000. How much should Eddie and Camilla report as rental income in the current tax year?
$9,600 $11,600 − $2,000 = $9,600.
Sean and Jenny are married, file a joint return and have two dependent children, Blake, age 9 and Jake, age 5. Sean has earned income of $72,000. Jenny was a full-time student (for nine months) with no income. They paid a qualified day care center $7,000. What amount of child and dependent care credit can Sean and Jenny receive?
$900 $500 × 9 months (while in school) = $4,500; $4,500 × 20% = $900.
Sylvio purchased an apartment building as an investment in January 2013 for $383,500 and sold it for $475,000 in 2019. He reported $68,436 of allowed accumulated straight-line depreciation. If Sylvio is in the highest tax bracket for ordinary income, how much of his gain qualifies for preferential tax treatment?
$91,500
Lupe rented her personal residence for 13 days to summer vacationers for $3,800. She lived in the home for the rest of the year. She has AGI of $95,000 excluding the rental income. Related expenses for Lupe's personal residence for the year include these: Real property taxes $4,500 Utilities 5,000 Insurance 900 Mortgage interest 7,000 Repairs 800 Depreciation 1,500 What is Lupe's AGI after taking into consideration the rental income and related expenses?
$95,000 Income from primarily personal properties is not included in AGI and expenses may not be deducted (except for those that may be itemized).
Hiroko, a single taxpayer, has wage income of $92,000. In addition, she has $6,500 in long-term capital losses, $5,000 in long-term capital gains, and $5,800 in short-term capital gains. What is Hiroko's AGI?
$96,300
Marcus has two jobs. He works as a night auditor at the Midnight Motel. When his shift at the motel is over, he works as a short order cook at the Break-An-Egg Restaurant. On a typical day, he drives the following distances: Home to Midnight Motel 4 miles Midnight Motel to restaurant 12 miles Restaurant to home 8 miles How many miles per day would qualify as transportation expenses for tax purposes?
12
When an individual's taxable income is $70,000, the tax rate on qualified dividends is
15%
Which of the following statements is true concerning vacation home properties?
A property rented for 15 days or more and used for personal use for no more than 14 days is categorized as primarily rental.
Which of the following statements is false regarding the earned income credit (EIC)?
A taxpayer without children cannot claim the credit.
§179 expense is available for all of the following business assets except:
Apartment complex
What is the basis of artistic works that have been gifted to another by the creator?
Artistic works are not capital assets for the creator or the recipient of the artistic works if given as a gift.
The standard mileage rate encompasses all of the following auto costs except for:
Auto property taxes
Under MACRS, 5-year property includes:
Automobiles and light trucks used in a trade or business.
Which of the following entity(ies) is(are) considered flow-through entity(ies)?
Certain types of estates
Which of the following is not an example of a proportional tax?
Federal Income tax
Which of the following statements is true with regard to the reporting of royalty income?
It can be reported on Schedule C, but is generally reported on Schedule E.
What is the proper tax treatment of capital improvements for a residential or commercial rental property?
Must be depreciated using straight-line over 27½ or 39 years.
Jane and Don own a ski chalet in Lake Tahoe, NV and rented it for 12 days for $8,000. The rest of the year, the chalet was used by them and their friends and family. What is the proper tax treatment of the $8,000?
None of the rental income is included in gross income This property is considered primarily personal and therefore, none of the rental income is included in gross income.
A property that has been rented for 180 days and used for personal use for 16 days should be categorized as:
Primarily renal
A property that has been rented for 120 days and used for personal use for 13 days should be categorized as:
Primarily rental
Section 1231 property is:
Property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.
Jack purchased 100 shares of Ford stock on April 22, 2018. If he sells the stock on April 21, 2019, what is the character of the sale?
Regardless of whether the sale produces a gain or loss, the transaction does not qualify for preferential treatment because the stock was not held for more than one year.
Which of the following properties is not eligible for the §179 expense election when purchased?
Rental real estate
Which of the following is not considered a capital improvement for a rental activity?
Repair of a leaky water pipe
Hugh and Mary own a cabin in Big Bear that they rented for 45 days at $4,500. They used the cabin for personal use for 30 days during the year. The allocated expenses related to the cabin of $6,000 resulted in a net loss of $1,500 for this rental activity. What is the proper tax treatment of these amounts by Hugh and Mary?
Report income and expenses on Schedule E but expenses cannot exceed income
Samantha is a full-time author and recently published her 8th romance novel. She should report the royalty income she receives from the publisher this year on what Schedule/Form?
Schedule C
Which expenses incurred in a trade or business are deductible?
Supplies expenses
In which of the following situations would a taxpayer be better off to take the foreign taxes paid as an itemized deduction rather than as a foreign tax credit?
The foreign tax paid was a property tax.
If property is converted from personal-use property to business property, the depreciable cost basis is which of the following?
The lower of the cost or FMV at the date of conversion
Which of the following is incorrect regarding luxury automobile limitations?
The luxury limitations do not apply to the Section 179 expense deduction.
Josephine gave her son, Shane 700 shares of Creative Marketing Inc., common stock on May 26, 2018. Josephine originally paid $9,000 for the stock on April 15, 2018. At the date of the gift, the fair market value of the stock was $8,500. If no gift tax is paid and Shane sells the stock for $5,500 on May 26, 2019, he will recognize:
a short-term capital loss
Diane gifted 100 shares of Runners Link common stock with a FMV of $8,000 to her brother, Sean. The stock originally cost Diane $11,000. Sean later sells the stock on the open market for $9,000. Sean recognizes:
no gain or loss
Lourdes, a sole proprietor, collected $8,650 on November 21, 2019 on some of her outstanding receivables. Her basis in these receivables was $0. What is the gain or loss Lourdes recognizes for 2019?
no gain or loss as the payments are within the normal course of businsess
