TAX Mid-term
Partially Taxable Example
1. Employer-provided education reimbursement of $8,000 for the year. 2. $15,000 in scholarship funds for degree-seeking student ($10,000 tuition, $2,000 books, and $3,000 room and board). 3. Social security benefits received by a very wealthy retiree. 4. Employer-paid group-term life insurance premiums, $150,000 of coverage 5. Annuity income received in first year of distributions. Annuity contract was purchased many years ago with after-tax funds. 6. Reimbursement received by employee in excess of submitted expenses. Employer has an accountable plan.
Fully Taxable Examples
1. Fair market value of property received as wages. 2. Interest received from state government for late payment of tax refund. 3. Distribution from a 401(k) retirement plan. 4. Jury duty pay received. 5. Unemployment benefits received by a laid-off individual. 6. Cancellation of debt, no exceptions apply. 7. Punitive damages received from a lawsuit settlement. 8. $25,000 prize won on a game show. 9. Cash dividends received from ownership of IBM common stock. 10. Interest income received on U.S. Treasury notes. 11. Bonus from employer made available at year-end, but actually received January 2. 12. Individual found diamond ring on the ground and kept it after being unsuccessful in finding the rightful owner. 13. State income tax refund received this year; the amount was deducted last year.
Not Taxable Example
1. Interest received on state government bonds. 2. Property received as a gift. 3. Worker's compensation payments for sickness. 4. Property settlement received pursuant to a divorce. 5. Alimony payments received pursuant to a post-2018 divorce. 6. Disability payments received (disability insurance premiums paid by employee). 7. Health insurance premiums fully paid by employer. 8. Physical injury damages received from a lawsuit settlement. 9. Social security payments received by a retiree who has no other income. 10. State income tax refund received (individual always takes standard deduction). 11. Life insurance proceeds received on the death of taxpayer's mother. 12. $50,000 insurance proceeds received on loss of finger in a work-related accident. 13. Child support payments received pursuant to a divorce. 14. Employee received a turkey at Thanksgiving from his employer. 15. Food stamps received from the state by an individual. 16. Employee received a watch valued at $300 for his 25 years of service to the company. 17. Stock dividends received from ownership of IBM common stock, no cash option. 18. Section 529 distribution used for college expenses. 19. Airline employee was allowed to fly free to Hawaii on stand-by since there were empty seats on the plane. 20. Individual was awarded Nobel Peace Prize, but directed prize money to go to charity. 21. Disability insurance premiums paid by employer.
Revenue bills normally are initiated by the A. House Ways and Means Committee. B. Senate Finance Committee. C. Joint Conference Committee. D. President.
A. House Ways and Means Committee.
In which Federal trial court may a taxpayer proceed without paying the tax deficiency proposed by the IRS? A. U.S. Tax Court. B. U.S. District Court. C. U.S. Court of Federal Claims D. U.S. Court of Appeals. E. U.S. Supreme Court.
A. U.S. Tax Court.
To avoid the 20 percent accuracy-related penalty for insubstantial negligence on a tax return, the taxpayer's position on the return must have, at a minimum, A. a reasonable basis. B. a realistic possibility of success. C. substantial authority. D. a greater than 50 percent chance of succeeding. E. a 100 percent chance of succeeding.
A. a reasonable basis.
FUTA and SUTA taxes are imposed on A. employer only. B. the self-employed only. C. both employer and employee. D. employee only.
A. employer only.
All of the following are examples of using the tax system to achieve social objectives EXCEPT: A. Deduction for charitable contributions. B. Accelerated depreciation deduction. C. Additional standard deduction for the elderly. D. Deduction for medical expenses. E. Credit for renovation of historical buildings.
B. Accelerated depreciation deduction.
In which Federal trial court may a taxpayer request trial by jury? A. U.S. Tax Court. B. U.S. District Court. C. U.S. Court of Federal Claims. D. U.S. Court of Appeals. E. U.S. Supreme Court.
B. U.S. District Court.
The percentage at which the next dollar added to taxable income will be taxed is known as the A. average tax rate. B. marginal tax rate. C. effective tax rate. D. proportional tax rate. E. progressive tax rate.
B. marginal tax rate.
Which of the following is not true of the Small Tax Division of the U.S. Tax Court? A. It is administered by the chief judge of the U.S. Tax Court. B. The amount of tax at issue must be $50,000 or less. C. A taxpayer may appeal to the regular Tax Court if he/she loses. D. The process is less formal than in the regular Tax Court.
C. A taxpayer may appeal to the regular Tax Court if he/she loses.
All of the following statements concerning the federal tax system are correct EXCEPT: A. The power of Congress to levy taxes is provided by the Sixteenth Amendment to the Constitution. B. The principal source of revenue for the federal government is the personal income tax. C. The second largest source of revenue for the federal government is the corporate income tax. D. Under the original Constitution, any direct tax imposed by Congress was required to be apportioned among the states on the basis of relative populations.
C. The second largest source of revenue for the federal government is the corporate income tax.
FICA taxes are imposed on A. employer only. B. the self-employed only. C. both employer and employee. D. employee only.
C. both employer and employee.
Which of the following is not normally considered a characteristic of a tax? A. It is levied on a recurring basis. B. a. It is levied on some predetermined criteria. C. It is compulsory to pay it. D. It may give the payer some right or privilege.
D. It may give the payer some right or privilege.
Which of the following is not true of Treasury Regulations? A. They are written by the Treasury Department. B. They are issued in the form of Treasury Decisions. C. Proposed Regulations are not effective until issued in final form. D. Temporary Regulations are not effective until issued in final form. E. Regulations can be classified as legislative, interpretative, or procedural.
D. Temporary Regulations are not effective until issued in final form.
Which one of the following entities normally pays tax on its taxable income separately at the entity level? a. Regular corporations. b. S corporations. c. Partnerships. d. Limited liability companies. e. Sole proprietorships.
a. Regular corporations.
A couple filed a joint return in prior tax years. During the current tax year, one spouse died. The couple has no dependent children. What is the filing status available to the surviving spouse for the first subsequent tax year? a. Surviving spouse. b. Single. c. Head of household. d. Married filing separately.
b. Single.
Carol owns and operates a retail appliance store with annual sales in excess of $12 million. The store has an extensive selection of appliances on hand. What method of tax accounting must Carol's business use to account for its inventories and related sales? a. Accrual method. b. Cash method. c. Installment sales method. d. Completed contract method.
a. Accrual method.
On January 10, Year 1, Todd sold stock with a cost basis of $6,000 to his son Trey for $4,000, its market value. On July 31, Year 2, Trey sold the same stock for $5,000 in a bona fide arms length transaction to Mary, who is unrelated to him or Todd. What is the proper treatment for these transactions? a. Neither Todd nor Trey has a recognized gain or loss in either Year 1 or Year 2. b. Todd has a recognized loss of $2,000 in Year 1. c. Trey has a recognized gain of $1,000 in Year 2. d. Trey has a recognized gain of $2,000 in Year 2. e. Both b and c.
a. Neither Todd nor Trey has a recognized gain or loss in either Year 1 or Year 2
Jim and Kay Ross contributed to the support of their two children, Dale and Kim, and Jim's widowed parent, Grant. For 20X4, Dale, a 19-year old full-time college student, earned $6,500 as a baby-sitter. Kim, a 23-year old bank teller, earned $12,000. Grant received $6,000 in dividend income and $4,000 in nontaxable Social Security benefits. Grant, Dale, and Kim are U.S. citizens, were over one-half supported by Jim and Kay, and reside with Jim and Kay. How many dependents do Jim and Kay have for purposes of their 20X4 joint income tax return? a. One b. Two c. Three d. Four e. Five
a. One
Peter and Susan Dillon are married and have two children: Paul, age 22 and a full-time student during the entire year and Mary, age 18. Paul has $6,000 in taxable interest income and Mary has $5,000 in taxable dividend income. Peter and Susan provide over half of the support of both children, who live at home. Neither child is married. Which of the following statements is true? a. Paul qualifies as a dependent of the Dillons. b. Mary qualifies as a dependent of the Dillons only if she is a full-time student for at least five months. c. Because of his income level, Paul is not required to file a tax return. d. Because of her age, Mary is not required to file a tax return.
a. Paul qualifies as a dependent of the Dillons.
Jacob is considering a business transaction. After speaking with his accountant, he has determined that the Internal Revenue Code is not clear on the tax treatment of his transaction. Because the tax dollars at stake are high, Jacob is not comfortable completing the transaction without first knowing how the transaction will be treated by the IRS. Which of the following would give Jacob the most piece of mind prior to completing the transaction? a. Private Letter Ruling b. Determination Letter c. Technical Advice Memorandum d. Article in a respectable taxation journal e. Commentary in a national tax service
a. Private Letter Ruling
In which of the following situations may taxpayers file as married filing jointly? a. Taxpayers are a same-sex couple who were married during the year. b. Taxpayers were married at the beginning of the year but were legally separated at the end of the year. c. Taxpayers were divorced during the year. d. Taxpayers live together, have children together, but do not hold out as a married couple.
a. Taxpayers are a same-sex couple who were married during the year.
In which of the following situations may taxpayers file as married filing jointly? a. Taxpayers who were married but lived apart during the year. b. Taxpayers who were married but lived under a legal separation agreement at the year-end. c. Taxpayers who were divorced during the year. d. Taxpayers who were legally separated but lived together for the entire year.
a. Taxpayers who were married but lived apart during the year.
Emma would like to challenge a tax deficiency assessed by the IRS on last year's tax return, and she already exhausted the IRS internal appeals process. Her lawyer believes that the facts of her case may help Emma if she has a sympathetic audience. However, she is unable to pay the claim currently and her top priority is to utilize a court that does not require her to pay up-front. She does want to be able to appeal if the lower court does not render in her favor. Which court is the most appropriate for Emma? a. US Tax Court b. US District Court c. US Court of Federal Claims d. Small Tax Division of US Tax Court e. US Supreme Court
a. US Tax Court
Roger retired on May 31, 20X7, and receives a monthly annuity of $1,200 payable for life. His life expectancy at the date of retirement is 10 years (120 months). The first payment was received on June 15, 20X7. During his work life, Roger contributed $24,000 (after-tax) to the cost of the annuity. How much of the amounts received may Roger exclude from taxable income for the years 20X7, 20X8, and 20X9? 20X7 20X8 20X9 a. $0 $0 $0 b. $1,400 $2,400 $2,400 c. $8,400 $8,400 $8,400 d. $8,400 $14,400 $14,400 e. $14,400 $14,400 $14,400
b. $1,400 $2,400 $2,400
Oil and gas properties enjoy a 15% statutory depletion allowance. Assume Winona has an oil well in her backyard. Gross income from the well is $100,000 for the year. Taxable income from the oil well, before the depletion deduction, is $60,000. Cost depletion for the year is $20,000. What is Winona's depletion deduction? a. $15,000 b. $20,000 c. $30,000 d. $60,000
b. $20,000
This year Mary sold 100 shares of ABC Corp. for $500, having paid $5,000 five months ago. She also sold 100 shares of DEF Corp. for $1,700, having paid $1,600 two years ago. What is the net effect of these transactions on her adjusted gross income for the current year? a. $100 increase. c. $4,400 decrease. b. $3,000 decrease. d. $4,500 decrease.
b. $3,000 decrease.
Lay, a self-employed consultant, incurred and paid the following business-related expenses in the current year: Entertainment $2,500 Country club dues $2,000 Travel $3,000 Meals 1,500 How much of these expenses can be deducted on his current year tax return? a. $0 b. $3,750 c. $4,500 d. $5,000 e. $9,000
b. $3,750
Charlie purchased an apartment building on November 16, 20X2 for $1,000,000 and immediately put it into service. Determine the MACRS cost recovery for 20X2. a. $3,205 b. $4,545 c. $25,641 d. $36,364
b. $4,545
Oil and gas properties are entitled to a 15% statutory depletion allowance. Assume that Billy Bob purchased an oil reserve several years ago. Gross income from the reserve is $200,000 for the year. Taxable income from the oil reserve, before the depletion deduction, is $120,000. Cost depletion for the year is $40,000. What is Billy Bob's depletion deduction for tax purposes? a. 30,000 b. $40,000 c. $60,000 d. $120,000
b. $40,000
During the current year, Blake had self-employment revenue of $200,000 and expenses of $80,000. In addition, he was an employee at another company earning W-2 wages of $60,000. Assume the social security wage cap is $100,000 for the current year. What is Blake's self-employment tax for the current year? a. $7,794 b. $8,174 c. $8,440 d. $9,937 e. $10,316
b. $8,174
Which of the following is correct regarding deductions and credits? a. A deduction of $100 is always better than a $30 credit. b. A deduction of $100 is better than a $30 credit if the taxpayer is in the 35 percent marginal rate bracket. c. A deduction of $100 is better than a $30 credit if the taxpayer is in the 24 percent marginal rate bracket. d. A $30 credit is better for a taxpayer in the 35 percent marginal rate bracket than for a taxpayer in the 24 percent bracket.
b. A deduction of $100 is better than a $30 credit if the taxpayer is in the 35 percent marginal rate bracket.
Which of the following dependent children have income subject to the so-called kiddie tax?: · Bob, age 20 and not a student, earned $6,000 in wages and $2,600 in interest income from a savings account. · Carol, age 13, earned $1,000 in wages and $3,000 in dividend income from stock investments. · Ted, age 2, earned $2,900 in interest income from a savings account. · Alice, age 9, earned $2,000 in wages and $1,400 in interest and dividend income. a. Bob and Carol only. b. Carol and Ted only. c. Ted and Alice only. d. Alice and Bob only. e. Bob and Carol and Ted and Alice will have income subject to kiddie tax.
b. Carol and Ted only.
All of the following are requirements to secure the home office deduction except: a. Regular and exclusive business use. b. Taxpayer may only have one trade or business reported on his tax return for the year the home office is claimed. c. If the office is a separate structure, it only need be connected with the taxpayer's trade or business. d. A principal place may include an administrative office if this is the only place where administrative activities are conducted.
b. Taxpayer may only have one trade or business reported on his tax return for the year the home office is claimed.
Felicia is covered by a $180,000 group term life insurance policy and her daughter is the beneficiary. Felicia'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 Felicia? a. $0 b. $640 c. $1,040 d. $1,440 e. $12,480
c. $1,040
Gary filed his current income tax return three months late. The return showed a balance due of $10,000. Assuming he did not file an extension request and disregarding the interest element, what is Gary's total tax penalty, if any, for late filing of his tax return? a. $0. b. $150. c. $1,500. d. $2,000. e. $3,000.
c. $1,500.
On January 31 of the current year, Adonis Company purchased and placed into service computers to be used in its operations. The computers cost $208,000 and qualify as 5-year MACRS property. The computers were the only assets placed into service during the year. Adonis elects to expense $100,000 under Section 179. The company's taxable income before any deduction related to the computers is $250,000. Assume the depreciation table percentages are 20% for Year 1 and 32% for Year 2. What is the total maximum expense deduction for these computers in the current year? a. $100,000 b. $110,800 c. $121,600 d. $208,000
c. $121,600
Cox Construction, a company in its tenth year of business, purchased a piece of equipment on April 1 of the current year for $20,000 and used it for business purposes from the date of purchase. The equipment is a 5-year MACRS asset. Bonus deprecation, but not Section 179, was elected. Assume the depreciation table percentages are 20% for Year 1 and 32% for Year 2. For tax purposes, what is the amount of depreciation taken on the equipment as of December 31 of the current year 2023? a. $4,000 b. $6,400 c. $16,800 d. $20,000
c. $16,800
2. Refer to #1 but assume the company had a net loss of $10,000 instead of a taxable income of $250,000 before any deduction related to the computers. Adonis elects to expense $100,000 under Section 179. What is the total maximum expense deduction for these computers in the current year? a. $0 b. $10,800 c. $21,600 d. $100,000
c. $21,600
Wilda, a calendar-year taxpayer, bought an apartment building on July 28 of the current year and immediately placed it into service. The total cost was $300,000, of which $60,000 was deemed to be the value of the land. What is the amount of MACRS depreciation that Wilda may claim on this property for the current year? a. $2,821 b. $3,636 c. $4,000 d. $5,000
c. $4,000
Jack purchased a heavy general purpose truck on August 1, Year 1, for $30,000 and placed it into service. The truck was the only asset placed into service that year and qualifies as 5-year MACRS property. Neither bonus depreciation nor Section 179 was elected. Jack sold the truck on March 1, Year 2. Assume the depreciation table percentages are 20% for Year 1 and 32% for Year 2. What is the maximum depreciation deduction in Year 2? a. $0 b. $3,000 c. $4,800 d. $9,600
c. $4,800
Josh, a single taxpayer, sold Dell stock which he had held for three years for $6,000, his cost basis being $2,000. In addition, he sold IBM stock for $4,000, having paid $5,000 for the stock three months earlier. Josh is in the 32% tax rate bracket. What will be his tax liability relative to these stock sales? a. $0 b. $250 c. $450 d. $1,050 e. $3,000
c. $450
April, a single Mom, has two children who she fully supports and live at home with her, May (age 16) and June (age 19). May is a high school student with wage income of $5,000 from babysitting. June is a full-time college student with wage income of $9,500 from a part-time accounting job. April's grandfather Charles, a U.S. citizen age 70, resides in one of April's rental properties. Charlie's only income is $2,000 a month in nontaxable Social Security benefits. April receives no rent payments from Charlie and provides all remaining support for his living arrangements. How many dependents is April entitled to claim for purposes of her income tax return? a. 1 b. 2 c. 3 d. 4
c. 3
Janet and Ted have two children, Mary (age 10) and Seth (age 12). Janet's Aunt Martha resides with the family in an apartment over the garage. Martha's only income is $1,500 a month in nontaxable Social Security benefits. Janet and Ted receive no rent payments from Martha and provide all remaining support for her living arrangements. How many dependents do Janet and Ted have for purposes of their joint tax return? a. 1 b. 2 c. 3 d. 4 e. 5
c. 3
A taxpayer is in the 35 percent marginal rate bracket and has the opportunity to invest in tax-exempt municipal bonds that have an annual yield of 4.0 percent. What would be the bonds' taxable yield equivalent? a. 2.6% b. 4.0% c. 6.15% d. 11.43%
c. 6.15%
Which of the following statements is true? a. A deduction of $1000 is better than a credit of $300 if the taxpayer is in the 24% marginal rate bracket. b. A deduction of $1000 is better for a taxpayer in the 24% marginal rate bracket than for one in the 35% bracket. c. A deduction of $1000 is better for a taxpayer in the 35% marginal rate bracket than for one in the 24% bracket. d. A credit of $1000 is better for a taxpayer in the 35% marginal rate bracket than for one in the 24% bracket. e. A credit of $1000 is better for a taxpayer in the 24% marginal rate bracket than for one in the 35% bracket.
c. A deduction of $1000 is better for a taxpayer in the 35% marginal rate bracket than for one in the 24% bracket.
Which one of the following forms of business enterprise is NOT taxed at the individual owner level as a pass-through entity? a. Limited partnership b. S corporation c. Closely held C corporation d. Sole proprietorship
c. Closely held C corporation
In the current year, Kittsie is an employee of a major oil and gas company. Which of the following expenses would be deductible by Kittsie? a. Unreimbursed moving expenses from being transferred by her company from Houston to New York City. b. Unreimbursed business dues and subscriptions directly related to her job. c. Reimbursed business airfare and hotel expenses under the company's accountable reimbursement plan. d. Reimbursed personal living expenses for apartment rent and food.
c. Reimbursed business airfare and hotel expenses under the company's accountable reimbursement plan.
Which of the following is true of the standard deduction? a. It is the same amount regardless of filing status. b. It is the same amount from year to year. c. There is no standard deduction for nonresident aliens. d. There is an additional standard deduction for hearing-impaired taxpayers.
c. There is no standard deduction for nonresident aliens.
Which of the following assets qualifies for the Section 179 expense election? a. New office building with a 40-year useful life b. Patent with a 17-year useful life c. Used office equipment with a 7-year useful life d. Apartment building with a 30-year useful life
c. Used office equipment with a 7-year useful life
Scott, age 22, is a full-time student at State College and a candidate for a bachelor's degree. During the current year, he received the following payments: State scholarship (tuition and books), $5,000; Loan from college financial aid office, $2,000; Cash support from parents, $9,000; Interest income from State of Texas bonds, $500; Death benefit (not life insurance) from father's employer upon father's death, $10,000. What is Scott's adjusted gross income for the year? a. $0 b. $5,000 c. $7,000 d. $10,000 e. $26,500
d. $10,000
Fox Corporation, a calendar year corporation, purchased and placed into service used factory equipment that cost $70,000 on December 17, 20X8. No other personalty was placed into service during 20X8. Assume the machinery is 7-year MACRS property and Fox will take MACRS accelerated depreciation but will not elect to expense under Section 179 or bonus depreciation. What amount of depreciation is allowable for 20X8? a. $20,000 b. $16,667 c. $10,000 d. $2,500
d. $2,500
Nare, an accrual-basis taxpayer, owns a building which was rented to Mott under a ten-year lease expiring August 31, 20X8. On January 2, 20X2, Mott paid $30,000 as consideration for canceling the lease. On November 1, 20X2, Nare leased the building to Pine under a five-year lease. Pine paid Nare $10,000 rent for the two months of November and December, an additional $5,000 for the last month's rent, and a $10,000 refundable security deposit. What amount of income should Nare report in its 20X2 income tax return? a. $10,000 d. $45,000 b. $15,000 e. $55,000 c. $40,000
d. $45,000
Mary is single and has one dependent. Her financial records show the following items in the current year: $6,000 gift received from her uncle; $1,000 in qualified dividends received; $12,000 lottery winnings; $6,000 child support received; $7,500 alimony received; $3,000 worker's compensation received due to work-related injury; $10,000 unemployment compensation received; $40,000 salary from her employer; and $5,000 short-term capital loss on the sale of stock. What is Mary's adjusted gross income for the current year? a. $76,500 b. $70,500 c. $67,500 d. $60,000 e. $58,000
d. $60,000
John sold an antique desk for $1,000. He paid an agent $100 commission on the sale. He had bought the desk several years ago for $800, and used it in his business, taking depreciation of $500. What is John's realized gain on the sale? Amount Realized - Adjusted Basis= Realized Gain(Loss) a. $1,000. d. $600. b. $900. e. $200. c. $700.
d. $600.
On December 31 of the current year, Anderson Company purchased and placed into service a machine to be used in its manufacturing operations. The machine cost $210,000 and qualifies as 7-year MACRS personal property under the half-year convention. Anderson elects to expense $70,000 in the current year under Sec. 179. What is the total maximum expense deduction for this machine for the current year? a. $0 b. $70,000 c. $80,000 d. $90,000 e. $110,000
d. $90,000
For tax purposes, purchased intangible assets, such as franchises and goodwill, must be amortized over a. their useful life b. their legal life c. 5 years d. 15 years
d. 15 years
Gil is in the top income tax bracket and owns income-producing property. Gil retains ownership of the property but directs that the income be paid to his son Kevin, who is age 30 and is in a low income tax bracket. The income is paid directly to Kevin, who reports it as part of his taxable income. Gil does not report the income on his tax return. With which one of the following tax rules should Gil be most concerned about? a. Kiddie tax. b. Recovery of cost. c. Constructive receipt. d. Assignment of income.
d. Assignment of income
Smith fully supports his son who is 24 and single and has earned income of $6,000. Smith also fully supports his daughter who is 20, married, in school full time all year, has $1,700 of earned income, and filed married filing jointly with her husband, who has $60,000 of earned income. Both the son and daughter live separately from Smith. Smith also fully supports his father who lives in a rest home. The father has $2,000 in taxable interest income and $7,000 in nontaxable social security payments. What is Smith's filing status and how many dependents does he have? a. Single and one. b. Single and two. c. Single and three. d. Head of household and one. e. Head of household and two. f. Head of household and three.
d. Head of household and one.
Which of the following individuals could claim Head of Household filing status? I. A 25 year-old divorced mother of two children, both of whom resided with her for the entire tax year. II. A 45 year-old widow whose spouse died in the prior tax year and who provided all expenses related to the principal residence of her dependent mother for the tax year. III. A 56 year-old widow whose spouse died during the current tax year and who provided a household that is the principal residence of her 15-year-old daughter. IV. A single male who owns his own home and provides 100% of the support for his Aunt Martha, who resided with him for the entire tax year and is his dependent. a. I and III. b. I only. c. II and IV. d. I, II, and IV.
d. I, II, and IV.
Which of the following assets cannot be depreciated, depleted, or amortized? a. Machinery used in a business b. Copyright used in a business c. Patents used in a business d. Land upon which a factory is built
d. Land upon which a factory is built
Eddie, age 12, is claimed as a dependent on his parents' income tax return and has $2,000 of investment income. Billie, age 24, is also claimed as a dependent on his parents' income tax return and has $3,000 of investment income. Which of the two dependents, if any, has taxable income that will be taxed at the parents' top marginal rate as a result of being subject to the so-called kiddie tax? a. Only Eddie b. Only Billie c. Both Eddie and Billie d. Neither Eddie nor Billie
d. Neither Eddie nor Billie
During the current year Carlton, a financial planner, took an investment planning seminar at the local chapter of the Financial Planning Association. The course tuition totaled $2,000, which he paid out-of-pocket and is not being reimbursed by his employer. How is this expense treated on his current year tax return? a. A deduction to arrive at AGI. b. An itemized deduction. c. Either a deduction to arrive at AGI or an itemized deduction, at the taxpayer's option. d. Neither a deduction to arrive at AGI nor an itemized deduction; the expense is not deductible.
d. Neither a deduction to arrive at AGI nor an itemized deduction; the expense is not deductible.
How do employees treat unreimbursed business expenses in the current year? a. For-AGI deduction b. From-AGI deduction c. Tax credit d. No deduction or tax credit
d. No deduction or tax credit
Sara filed an extension on April 15. On July 15, she filed her tax return and owed $1,000 on a total tax liability of $10,000. She paid the amount owed when she filed the return. Which of the following will apply? a. Failure-to-file penalty b. Failure-to-pay penalty c. All of the above d. None of the above because prepayments were at least 90% of the tax liability and she paid the amount owed when she filed the return within the extension period
d. None of the above because prepayments were at least 90% of the tax liability and she paid the amount owed when she filed the return within the extension period
. Mary's husband died in 20X3. Assume that Mary does not remarry, and continues to maintain a home for herself and her dependent infant child during 20X4, 20X5, and 20X6, providing full support for herself and her child during these 3 years. For 20X3, Mary properly filed a joint return. For 20X5, what is Mary's filing status? a. Single. . b. Head of household. c. Married filing jointly. d. Qualifying widow with dependent child e. Married filing separately.
d. Qualifying widow with dependent child
Parker, whose spouse died during the preceding year, has not remarried. Parker maintains a home for a dependent child for the entire current year. What is Parker's most advantageous filing status? a. Single. c. Married filing separately. b. Head of household. c. Married filing separately. d. Qualifying widow(er) with dependent child.
d. Qualifying widow(er) with dependent child.
Which of the following is true regarding the individual tax formula? a. The tax savings from a deduction is the amount of the deduction itself. b. Exclusions are items of expenditure that are allowed to reduce taxable income. c. Itemized deductions are always beneficial to the taxpayer. d. The standard deduction amount is generally based on the taxpayer's filing status. e. The tax rate structure for individuals is proportional.
d. The standard deduction amount is generally based on the taxpayer's filing status.
Which of the following is not true of itemized deductions? a. They are allowed in addition to the deductions for AGI. b. They are allowed if greater than the standard deduction. c. They include charitable contributions, with AGI limitations. d. They include all medical expenses without limitation. e. Gambling losses are included as itemized deductions to the extent of the taxpayer's gambling winnings.
d. They include all medical expenses without limitation.
Which of the following taxes is assessed only on employers and not on employees? a. Income taxes b. Social security taxes c. Medicare taxes d. Unemployment taxes e. Property taxes
d. Unemployment taxes
Zena, a cash basis taxpayer, performed cleaning services during November of the current year. The client paid Zena $500 on December 28. In addition, Zena received $200 as a prepayment for cleaning services that Zena will perform next year. How much gross income should Zena report in the current year from these transactions? a. $0 b.$200 c. $500 d.$700
d.$700
In 20X4, Smith, a divorced person, provided over one half the support for his widowed 70 year-old mother, Ruth, and his son, Clay, both of whom are U.S. citizens. During 20X4, Ruth did not live with Smith. She received $9,000 in nontaxable Social Security benefits. Clay, a 25 year-old full-time graduate student, and his wife lived with Smith. Clay had no income but filed a joint return for 20X4, owing an additional $500 in taxes on his wife's income. How many dependents does Smith have for purposes of his 20X4 tax return? a. 5 b. 4 c. 3 d. 2 e. 1
e. 1
Which of the following statements is false about current-year deductions? a. Legitimate expenses of an illegal business are generally deductible. b. There is no deduction for local lobbying expenses. c. There is no deduction for political contributions. d. Hobby income is fully taxable. e. A cash basis taxpayer deducts business expenses charged on a bank credit card when he pays the credit card company.
e. A cash basis taxpayer deducts business expenses charged on a bank credit card when he pays the credit card company.
On August 15, Year 3, Jennifer filed her income tax return for Year 2. She reported gross income of $20,000 from her salary but failed to report $6,000 she received as an award. Jennifer believed that the award was not taxable, but it was taxable. What is the last day that the IRS may assess a deficiency or otherwise examine Jennifer's Year 2 income tax return? a. April 15, Year 5 b. April 15, Year 6 c. August 15, Year 6 d. April 15, Year 9 e. August 15, Year 9
e. August 15, Year 9
