Total Income (Questions)
George and Martha are married and filed a joint tax return for 20X1. George had $8,000 of Social Security benefits and Martha received $4,000. Their income also included $10,000 of taxable pension income and $2,000 of interest income. What part of their Social Security benefits is taxable for 20X1 based upon the base amount for married filing jointly of $32,000?
$0 $10,000 Pension $2,000 Interest Income $6,000 1/2 SS $18,000 Total Provision Income Total PI is less than $32,000 lower threshold for MFJ SS
Dean and Cathy are married filing a joint tax return for 20X1. They were both 74 years old at the end of that year. Each of them received $7,500 of Social Security benefits in 20X1. In addition, they received taxable pension payments totaling $12,000 for Dean and $6,000 for Cathy. How much of the Social Security benefits received by Dean and Cathy are taxable?
$0 $12,000 Dean Pension $6,000 Cathy Pension $7,500 1/2 SS $25,500 Total Provision Income Total PI is less than $32,000 lower threshold for MFJ SS
You own a vacation home on Amelia Island, Florida, which you use during the summer and rented for 10 days in 20X1. In 20X1, rental expenses were $2,000 and rental income was $5,000. How much of the rental income should be reported on the tax return?
$0 Because it is less than 15 days
Arena, Inc. decided to distribute shares of its own stock to its employees at year-end as a reward for a profitable year. Each employee was to receive 10 shares with a fair market value of $100 per share. Employees were offered a choice of cash or the stock dividend. What is the tax effect on the employees of this distribution?
$1,000 taxable income to each employee If given the choice to receive cash or other property, all distributions are taxable
Dr. Al-Matine practices medicine in the City of Walzone. This year she performed medical services on a local carpenter and charged him the normal fee of $3,000. He could not pay the entire amount so they agreed that he would pay her cash of $200 and also build her a new bookcase. The bookcase cost the carpenter $700 but had a fair value of $1,100. Dr. Al-Matine uses the cash basis to report income and expenses. When Dr. Al-Matine files her income taxes for the year, what amount should be included for the work done on the carpenter?
$1,300
Paula owns and operates a small bakery that generates a $5,000 loss during the tax year. She sold some of the land she uses for the business at a $2,000 gain and some stock she had inherited at a $1,000 loss. She also earned $1,225 from her part-time job as an usher at the local Movie Theater. Her bank personal savings account earned $425 in interest. Paula files as single and claims the standard deduction. Her standard deduction for 2019 is $12,200. What is the amount of her net operating loss for 2019?
$1,775 -$5,000 business loss $2,000 business land gain $1,225 user (work) -$1,775 Net Operating Loss (NOL) $1,000 stock, $425 savings interest, and $12,200 std deduction are all personal related not business/work
Which of the following is taxable income? -A crockpot, valued at $15, received as a gift for depositing $10,000 in a bank account -OID interest of $20 on a bond whose face value is $10,000 -$10 received for mowing your neighbor's lawn -A turkey, valued at $30, received from your employer at Thanksgiving
$10 received for mowing your neighbor's lawn A gift received for a bank deposit of $5,000 or more is not taxable if the give is valued at $20 or less OID interest of less that 1/4 of 1% (.0025) of the redemption value is considered de minimis and treated as zero Holiday gifts from an employer which have nominal (small) value are excluded from income
Stephanie Plum buys a tract of land with a small house on it. The house sits vacant for several months but finally, on December 1, Year One, she rents the property to Mr. Lance for one year. The rental charge is $1,000 per month and he pays for the entire year in advance on that date. At the end of December, Ms. Plum is beginning to prepare her income tax return for Year One. How much of this rental income should she include in her Year One return?
$12,000
Hector, who is 71 years of age and single, received Social Security benefits of $12,000, wages of $5,000, interest and dividends of $5,500, which included $1,500 of tax-exempt interest. He also received unemployment compensation of $3,000. Calculate Hector's adjusted gross income.
$12,000 $6,000 1/2 SS $5,000 wages $5,500 Div/Int (includes $1,500 tax exempt interest) $3,000 Unemployment $19,500 Total Provisional Income $19,500 less than lower Single threshold $25,000, so not taxed on SS. $5,000 wages $4,000 Div/Int (removed $1,500 tax exempt interest) $3,000 Unemployment $12,000 Total Adjusted Gross Income
John and Mary moved into your rental property and paid a $10,000 security deposit. You agreed to use this security deposit as their last month's rent. Additionally, they paid a painting contractor $2,500 to paint the interior and reduced their first rent payment to you by that amount. How much of these payments should be reported as rental income for this year?
$12,500
Joan and Jim had income from investments in 20X1. They also earned a substantial amount of wages. Most of their dividends and interest are reinvested. The reinvested income included $2,000 in dividends from mutual funds, interest from a savings account of $3,000, and interest from certificates of deposit of $4,000. Dividends from stocks of $5,000 were received and spent. Interest of $1,000 earned in 20X1 on a loan to a friend was not received until the following year. How much interest and dividend income must Joan and Jim report on their tax return for 20X1?
$14,000 $2,000 mutual fund dividends $3,000 savings account interest $4,000 CD interest $5,000 Stock dividends $14,000 total interest/dividend income $1,000 friend loan interest not included bc didn't received until following year
Dennis works in a comic book shop in Austin. When his employer had cash flow problems in August, Dennis did not receive $500 on his weekly check. As a substitute his employer gave him a $500 credit on the $2,000 balance he owed the store for purchase of some vintage comic books. In total, Dennis received $17,500 on his paychecks plus the $500 credit. What amount of wages should Dennis report on his return?
$18,000 $17,500 wages $500 credit on account $18,000 Total Wages
Ralph Sinclair owns several small houses that he rents. He files Schedule E of Form 1040 to report his revenues and expenses. In Year One, he generates revenues of $33,000 but has the following costs: $6,000 depreciation of the rental properties $3,000 interest on the mortgage to buy the rental property $2,000 charitable contribution to school in neighborhood $5,000 insurance on the rental properties $1,000 repair and maintenance for one of the rental houses What is his taxable income reported for the rental property on Schedule E?
$18,000 $33,000 revenue -6,000 depreciation -3,000 rental mortgage interest -5,000 rental insurance -1,000 rental repair/mtc $18,000 Taxable Income Cannot deduct $2,000 in charitable contributions to school in neighborhood bc that should go on personal Schedule A (itemization)
John, who is 63 years of age and single, has wages of $10,000, interest income of $3,000, dividends of $2,000, municipal bond interest of $3,000, state unemployment compensation of $4,000 and Social Security benefits of $4,000. What is John's adjusted gross income?
$19,000 $10,000 wages $3,000 interest income $2,000 dividends $3,000 tax exempt municipal bonds $4,000 state unemployment $2,000 1/2 SS $24,000 Total Provisional Income $24,000 less than lower Single threshold so SS is not taxable $10,000 wages $3,000 interest income $2,000 dividends $4,000 state unemployment $19,000 Total Adjusted Gross Income
Mr. Lucky wins $2,000 from gambling in 20X1. Unfortunately, he also loses $2,700 in other gambling activities. Mr. Lucky is single and has no dependents. He plans to take the standard deduction. What is the impact of his gambling activities on his taxable income for 20X1?
$2,000 Gambling winnings are taxable income. Losses are shown on Schedule A as an itemized deduction. Since he is taking the standard deduction, the loss is not relevant
Municipality X issues a bond with a face value of $10,000. Municipality X will redeem the bond at face value in five years. In order to obtain the bond from Municipality X, an investor must pay $8,000. What is the original issue discount in this case?
$2,000 OID is the difference bw the stated redemption price at maturity and the issue price
When Bruce was fired from his job, he was offered a choice of either $2,000 severance pay or $1000 severance pay and outplacement services. Bruce chose to receive $1,000 and the outplacement services. How much should he report as income for his severance package?
$2,000 Severance pay is included in income. If a person chooses an outplacement service (i.e. training in resume writing, interview techniques, etc), they must include the amount they turned down originally.
When Carlos injured his ACL playing basketball, he was unable to work for two months. During this time, he received $2,500 in sick pay from his employer. He also received $1,000 from an insurance policy he had personally purchased several years ago. How much of the amount Carlos received while not working is taxable income?
$2,500 Since he paid for the insurance policy personally, he is not required to include the $1,000 as income
George Black is single and files Form 1040. He received the following income during the current tax year: Fully taxable pension $18,600 Wages from part-time job 9,400 Taxable interest income 990 Total $28,990 George also received social security benefits during the current tax year. Form SSA-1099 shows $5,980 in box 5, Net Benefits. How much of George's social security is taxable?
$2,990 $28,990 Total Income $2,990 1/2 SS $31,980 Provisional Income PI between Lower and Upper threshold of $25,000-$34,000 so 50% of SS is taxable. If over $34,000, 85% would be taxable
Generally, a taxpayer must report to his or her employer tips received in excess of _________?
$20 per month
Laura lost her job as a CPA and worked as a waitress in 20X1 earning $15,000 of wages, not including tips she received. She received tips of $17 in September, which she did not report to her employer. Because Laura is forgetful about numbers, she neglected to report $58 she received as tips in October. She did report the $7,000 she received as tips for the rest of the year. How much income should Laura report as wages, tips and other compensation on her 20X1 tax return?
$22,075 $15,000 wages $17 September tips $58 October tips $7,000 rest of the year tips $22,075 Total Income
A 62-year-old, married taxpayer files Married Filing Separately, and lives apart from the spouse for an entire taxable year. What is the taxpayer's beginning base amount for computing taxable Social Security benefits?
$25,000 Single, HOH, QW, MFS (if live apart from spouse entire year threshold $25,000 - 50% (lower base) to $34,000 - 85% (upper based) MFJ threshold $32,000 - 50% (lower base) to $44,000 - 85% (upper base)
Andy received the following income from his employer in 20X1: $25,000 regular wages $5,000 cash bonus A vacation package valued at $1,000 Parking privileges in a lot adjacent to the office building valued at $100 per month $200 per month employer contributions to his 401(k) What is the total amount that Andy must include as income for 20X1?
$25,000 Wages + $5,000 Cash Bonus + $1,000 Vacation Pkg = $31,000 Included in income $100 per mo parking is a NONTAXABLE FRINGE benefit $200 per mo employer contribution 401k are NOT INCOME to the employee (but are tax deductible for the employer)
For 2019, the excess business loss threshold amount is:
$255,000 ($510,000 for married taxpayers filing a joint return) TCJA (Tax Cuts and Job Acts) limits the amount from businesses of noncorporate taxpayers that they can claim each year. Cannot deduct an excess amount and any remaining amount is carried forward indefinitely as an NOL (Net Operating Loss). $255,000 ($510,000 MFJ) is the 2019 threshold
Joey is retired at age 71 and single. But he worked part-time as a bartender in 20X1 earning $8,000. He received $5,000 of interest income from certificates of deposit, $2,500 of interest from tax-exempt municipal bonds, and $6,000 of taxable payments from a pension. His Social Security benefit payments in 20X1 were $12,000. How much income does Joey compare to the $25,000 base amount to determine if any of his Social Security income is taxable?
$27,500 $8,000 bartending wages $5,000 interest income CDs $2,500 tax exempt municipal bonds $6,000 pension $6,000 1/2 SS $27,500 Total Provisional Income
Ms. Cross owns a house that she rents to non-related parties. She incurred the following costs during the year: $400 to resurface a tub in the master bathroom $500 to paint the kitchen after installing new cabinets $2,000 to replace cabinets in the kitchen $600 to replace the built-in dishwasher She does not make the election to use the safe harbor for any of these costs. How should these costs be characterized and in what amounts?
$3,100 as improvements to be capitalized and $400 repairs Resurfacing the tub would be included in improvements if done in a big project (i.e. remodeling the bathroom) Safe harbor election - costs that normally would be depreciated and under $2,500 have the option of expensing in the current year
Paul owns a second home at the lake. During the year, he spent three weeks (21 days) at the lake home, rented it to his daughter for three three-day weekends for a total of $220, and rented it to friends for ten weeks (70 days) at fair rental value of $300 per week. His expenses for the year include: Depreciation $2,000 Insurance $100 Mortgage interest $1,000 Real estate taxes $2,000 Utilities $1,000 What amount may he deduct for expenses on his Schedule E, Rental Income?
$3,220 21 days (personal use) 9 days (daughter below FMV) 70 days (rental use) 100 Total Days 70 rental days/100 total days = 70% of expenses are deductible However, since this was considered a dual use of the property, Paul is unable to deduct expenses that exceed the rental income. $220 (daughter) $3,000 (rental income) $3,220 Total Income Paul is limited to $3,220 expenses for deductions
Stephanie owns and operates a small flower shop that generated a $7,000 loss for the tax year. She sold some of the land she uses for the business at a $3,000 gain, and some business equipment at a loss of $1,000. She also earned $1,750 from her part-time job as a supermarket cashier. She earned $450 in interest on her personal savings account. Stephanie files as single and claims the standard deduction. Her standard deduction amount for 2019 is $12,200. What is the amount of her net operating loss (NOL) for 2019?
$3,250 -$7,000 business loss +$3,000 business land gain -$1,000 business equipment loss +$1,750 cashier part time job -$3,250 Net Operating Loss $450 savings interest is personal and not related to business/work. It is not allowed when determining a NOL
John is a cash basis taxpayer. He received the following items of income in Dec. 20X1: 1. The loan on his truck was forgiven because he performed some accounting work for the dealer. He owed $2,000 at the time. 2. He received a retainer of $500 from a new client to guarantee that his services would be available in February when the client would need help preparing financial statements. 3. He finally received the $800 for work he completed in Nov. 20X0. How much of this income must John include on his 20X1 tax return?
$3,300 $2,000 forgiven loan amount $500 retainer for February (but received in Dec 20X1) $800 November 20X0 work (but received in Dec 20X1) $3,300 Total Income
Gene Wingo had the following potentially taxable transactions during the current tax year. How much, if any, must he include in his income on his current year tax return? -$200 interest credited to his savings account in December. He did not withdraw any money from the account during the entire year. -A paycheck of $2,000, but the entire amount is withheld by his employer to satisfy a garnishment. -$1,000 discount given by his bank when he paid off his home mortgage five years early. -$500 check received December 31 from an individual for one of Gene's original drawings. Gene didn't cash or deposit the check until the next year.
$3,700 $200 interest is income $2,000 garnished paycheck is income $1,000 mortgage discount is income (seen as a forgiven loan/was a reduction in principal not interest) $500 for drawings is income
During the tax year, Reverend Markham was provided free use of a home and free meals from his church. His income for serving as the active minister of the church was $15,000. The rental value of the home was $12,000 and the meals $4,050. The church did not withhold any taxes from his income. On what amount must he pay self-employment taxes?
$31,050 $15,000 salary $12,000 rental value of home $4,050 meals $31,050 Total
Janice dropped off her annual records for preparation of her 2019 tax return. Determine the amount of taxable interest to be reported on Janice's return. -$900 interest earned on her 16-year-old son's savings account (son had no other income and was not required to file a return) -$50 interest income reported on Form 1099-OID -$200 interest earned on a certificate of deposit (your client borrowed the entire $3,000 to purchase this CD) -$20 value of a calculator that was a gift from the bank for opening a $2,000 savings account -$6,000 received on a prior year installment sale, of which $4,000 is interest and $2,000 is principal
$4,270 $50 interest income $200 CD interest $20 value of calculator $4,000 installment sale interest $4,270 Taxable Interest $900 interest for son - Janice is not required to report his income on tax return bc only from interest/dividends and child's income is less than $11,000 in 2019 $2,000 principal is not included
Winston Albertson is an attorney who performs legal services for H & A Partnership during the current year. Near the end of the year, Albertson presents an invoice to H & A for $60,000 but offers to accept an immediate cash payment of $52,000. He is offered $2,000 in cash and an 8 percent interest in the partnership as payment in full. The interest which has a value of $44,000. He accepts the offer. What is the impact on his taxable income for that year?
$46,000
Melanie owns a cupcake business in a Cleveland shopping mall. She is a sole proprietor and therefore reports her income and expenses on a Schedule C of her personal tax return. Melanie had previously obtained a bank loan for some equipment that she stopped using in 20X1 when it broke down. She did not make any loan payments for 10 months and her bank canceled the $5,000 loan balance in 20X2. What does Melanie have to report as a result of this debt forgiveness in 20X2?
$5,000 as income on Schedule C THIS IS A BUSINESS DEBT seen as cancellation of debt income and must be reported on the Schedule C
Carl's 75-year-old mother moved in with him in June 20X1 and Carl provided more than half her support for the year. In order to determine if his mother qualifies as his dependent, Carl must calculate her gross income. For 20X1, his mother had income of $4,000 from Social Security, $1,400 of dividends, $1,200 of municipal bond interest, $4,000 of rental income, and $1,000 of rent expenses. What amount does Carl use for his mother's gross income for dependency test purposes?
$5,400 $1,400 dividends $4,000 rental income $2,000 1/2 SS $1,200 municipal bond interest $8,600 Provisional Income PI is below the lower threshold $25,000 so SS is not taxable. Municipal bond interest would not be included in the AGI because it also not taxable. $1,000 rent expenses not included bc this is just determining gross income. $1,400 dividends $4,000 rental income $5,400 Total Gross Income
Kathy rented out her summer home for 80 days plus used it personally for 20 days. She paid $1,000 for repairs and $2,000 for utilities. Rental income was $8,000. What was Kathy's net rental income?
$5,600 80 days rented 20 personal days 100 Total Days 80 days rented/100 total days = 80% can use for expenses $1,000 repairs $2,000 utilities $3,000 Total Rental Expenses $3,000 x 80% = $2,400 Usable Rental Expenses $8,000 Rental Income -$2,400 Usable Rental Expenses $5,600 Net Rental Income
Lisa had $50,000 in wages from her day job. She received $40 as compensation for jury duty which she did not have to pay to her boss. She also received punitive damages of $10,000 for a lawsuit against a doctor for malpractice. How much is her gross income?
$60,040 $50,000 wages $40 jury duty $10,000 punitive damages $60,040 Gross Income Compensation for jury duty is included in income. If the taxpayer must give the pay to an employer because the employer paid a salary while serving on the jury, he may deduct the amount as an adjustment to income. Punitive damage awards, whether due to physical injury or illness, are included in ordinary income.
Dave and Dyan are married and had interest income on a bank savings account of $4,000, interest on federal treasury bonds of $3,400, interest on their state income tax refund of $400, and interest of $1,500 on New York City bonds. What is the amount of the above items that are includible in the couple's federal taxable income?
$7,800 $4,000 Interest on bank savings $3,400 Interest on federal treasury bonds $400 Interest on state income tax refund $7,800 Total taxable income $1,500 New York City bonds (Municipal bond interest) are not taxable
Mark Johnson had earned income this year of $68,000. In addition, he also received $4,000 in social security benefits. What is his adjusted gross income?
$71,400 $68,000 income $2,000 1/2 SS $70,000 Provisional Income $4,000 SS x 85% (bc of high income) = $3,400 $68,000 income $3,400 taxable SS $71,400 Adjusted Gross Income
During the current year, Jack sold 500 shares of stock. On December 31 of the current year, he also received a capital gain distribution of $750 from his mutual fund. He owned his mutual fund shares since June 30 of the current year. How should Jack report the capital gain distribution on his current year tax return?
$750 long-term capital gain All capital gain distributions (also called capital gain dividends) are treated as long-term capital gains no matter how long you have held the investment.
Bill is 72 and single. His 20X1 income was $14,000 of Social Security payments, $21,000 of dividend and interest income, $30,000 of pension plan payments, and $16,000 of taxable distributions from his IRA account. What is Bill's 20X1 adjusted gross income (AGI)?
$78,900 $21,000 Div/Int $30,000 Pension $16,000 IRS distributions $7,000 1/2 SS $74,000 Provisional Income The excess provisional income of $40,000 ($74,000 PI - $34,000 upper threshold) is more than 85% of $14,000 SS ($11,900). So would use the lesser of the two. $21,000 Div/Int $30,000 Pension $16,000 IRS distributions $11,900 Taxable SS $78,900 Adjusted Gross Income
Joyce, a cash basis taxpayer, sells high-end jewelry and works on a commission basis. When business is slow she is allowed to receive advances on her commissions. In June Joyce received an advance of $3,500 and in August she received an advance of $5,000. In addition to these advances, her commissions earned and received during the 20X1 year were $73,000. She paid the advances back on January 3 of the following year after she received her December commissions. How much income should Joyce report for 20X1?
$81,500 $3,500 June Advance $5,000 August Advance $73,000 Commissions $81,500 Total Income Under the cash method, a taxpayer receiving advance commissions or other amounts for future services must include these amounts as income in the year received.
Qualified dividends are subject to one of three maximum tax rates. Which three tax rates are used for qualified dividends?
0% / 15% / 20%
Potential business loss limitations for individual taxpayers include: 1. the basis rules 2. the at-risk limitations 3. the passive activity limitations 4. the excess business loss limitations
1, 2, 3 and 4 The four potential limitations on business losses for taxpayers are basis rules, at risk limitations, passive activity limitations, and excess business loss limitations
Potential business loss limitations for individual taxpayers include: the basis rules the at-risk limitations the passive activity limitations the excess business loss limitations These business loss limitations, in the order in which they apply, are:
1,2,3,4 (BAPE) There are four potential limitations on business losses for individual taxpayers. These business loss limitations, in the order in which they apply, are: the basis rules, the at-risk limitations, the passive activity limitations, and the excess business loss limitations.
An employee is subject to penalty for failure to report tips to their employer. The penalty is a percentage against all social security and Medicare taxes due. The amount of the penalty is _________?
50%
What is the penalty for failure to report tip income to an employer as required?
50% of the Social Security and Medicare tax due on the tips
John offers his beach cottage for rent from June through August 31 (92 days). His family uses the cottage during the last 2 weeks in May (15 days). He was unable to find a renter for the first week in August (7 days). The person who rented the cottage for July allowed him to use it over a weekend (2 days) without any reduction in or refund of rent. The cottage was not used at all before May 16th or after August 31st. Total income received was $11,000. Total expenses were $4,000. What percentage of the expenses for the cottage can John deduct as rental expenses?
85% 92 days rented - 7 days not rented (during the period) = 85 days rented in total Family used for 15 days 85 days rented in total + 15 days family used = 100 days used in total 85 rented/100 total = 85% of expenses can be deducted
Which of the following is a true statement regarding a rollover distribution from a qualified plan to a traditional IRA?
A hardship distribution from a qualified plan is not an eligible rollover distribution. The recipient of an eligible rollover distributions from a qualified plan can defer the tax by rolling it over into a traditional IRA or another eligible retirement plan. But must do so within the 60 day time frame, otherwise will be considered a distribution. If the participant chooses to have the plan pay an amount directly to an IRA or another eligible retirement plan (a direct rollover), no withholding is required. Rollover distributions are not deductible contributions to an IRA
Which of the following payments is NOT considered rent to be included in gross income?
A refundable security deposit Only if it is to be returned to the tenant. If advance rent, then it must be recognized in the month/year received
Steve has been working as a waiter for two weeks. What steps should he take to make sure he is correctly reporting his tips? -Keep a daily tip record. -Report tips to his employer by the 10th of the following month if tips totaled more than $20. -Report all of his tips on his income tax return. -All of the above.
All of the above
Tips are subject to what form of taxation? Income tax withholding Social Security tax Medicare tax All of the above
All of the above
Mary has an early withdrawal from her 401(k). If she changes her mind within 60 days, which of the following plans can she use to make a qualified rollover contribution? Traditional IRA Qualified annuity SEP IRA All of the above
All of the above An eligible retirement plan would be a qualified plan or an individual retirement plan. The following eligible retirement plans can accept a qualified rollover contribution: -a qualified plan described in section 401(a) which is exempt from tax under section 501(a) -an annuity plan described in section 403(a) -an individual retirement account described in section 408(a) -an individual retirement annuity (other than an endowment contract) described in section 408(b)
Reportable tips include _________? -Cash received from customers -Charges distributed by the employer -Tip-sharing arrangements -All of the above
All of the above The taxpayer must report any tip exceeding $20 per month to his or her employer. This includes all tips, including cash tips received from customers, charged tips distributed by the employer, and tips received from other employees under any tip-sharing arrangement. IRS Form 4137.
Form 4137 requires that: -All employers are represented on separate lines. -All tips are included. -The current social security and Medicare tax rate is used. -All of the above.
All the above This form is used to figure SS and Med tax owed on tips you didn't report to employer
Ethel is 65 years old. She receives money from her two investment accounts to supplement her retirement income. She withdraws $25,000 from her IRA and $10,000 from her annuity. She received a 1099-R reflecting the amount of the distributions, including $2,500 withheld for taxes by the custodian of her IRA. She is filing a paper Form 1040 return. What should Ethel do with the Form 1099-R's?
Attach only the 1099-R from her IRA because income tax was withheld.
When must the taxpayer report tips in excess of $20 to his or her employer?
By the 10th day of the month following the month of receipt.
A 2017 net operating loss may be:
Carried back 2 years or forward 20 years This can only be done to NOL taxable years prior to 2018
Penny had income from the following sources, which one is excluded from gross income: -Hourly wages from her job as a tipped employee -Child support from her son's father -Money earned from babysitting her neighbor 2 days per week -Severance pay from her first job which downsized due to the economy
Child support from her son's father Child support is not considered income
There is a penalty for not reporting tips to an employer as required. The penalty is:
Equal to 50% of the social security and Medicare tax due on those tips.
Taxable interest is generally reported to a taxpayer on which forms?
Form 1099-INT; Schedule K-1 for partnerships and S corporations
A taxpayer should use the following form to figure the social security and Medicare tax owed on tips he did not report to his employer:
Form 4137
Drue considers himself an employee of Daryl's business. However, Drue did not receive a W-2. Instead, he received a 1099-MISC. Which form should Drue complete and attach to his tax return?
Form 8919 If you are an employee and you received Form 1099-MISC, Miscellaneous Income, instead of Form W-2, Wage and Tax Statement, because your employer did not consider you an employee, use Form 8919 to report Uncollected Social Security and Medicare Tax on Wages.
Ross works in a restaurant as a busboy and receives a portion of the tips that are pooled at the end of each evening. His employer reported these as allocated tips on his W-2. Which of the following statements is true?
He needs to file Form 4137 for the allocated tips. Even though the tips are being reported by the employer on the W2, SS and Med tax still must be taken out.
Gambling winnings are:
Included in gross income Losses are reported as an itemized deduction on Schedule A
All tips received are:
Income and subject to federal income tax.
Which taxes apply to tips that are not reported to an employer?
Income, Social Security and Medicare taxes
Which of the following can never qualify as tax-exempt income for an individual who is filing a federal income tax return?
Interest on United States treasury bonds
You purchased a heating, ventilating and air conditioning (HVAC) unit for your rental property on December 15th. It was delivered on December 28th and was installed and ready for use on January 2nd. When should the HVAC unit be considered placed in service?
January 2nd (ready and available for use)
Kim was given a ticket to a professional football game as a tip by one of her clients, with a face value totaling $40. She does not report the gift to her employer. Which of the following statements is true?
Kim's does not need to report the tickets to her employer, but she must report the face value of the ticket as income on her tax return. Tickets, passes, and other items of value are not reported on Form 4137 bc they are not tips. Form 4137 is only used when reporting cash and charge tips only to report unpaid SS and Med taxes
Marge works as a waitress for less than minimum wage and gets a lot of tips in small change. Which of the following statements is true?
Marge's tips are subject to social security and Medicare tax.
Mark is a minister of a tax-exempt church. He performs weddings and baptisms and is often paid by personal check or given tips after the ceremonies by the members of his congregation. Which of the following statements is true?
Mark needs to report all fees and tips received for religious ceremonies.
Mary has church employee income of $200 for cleaning services. Her W-2 does not show any withholding for Social security or Medicare. Which of the following statements is true?
Mary has to pay self-employment tax on the wages she received. If you have church employee income of $108.28 or more, you must pay self-employment (SE) tax
Which of the following is NOT a qualified retirement plan?
Modified endowment contracts Qualified retirement plans include: 1. A qualified pension, profit sharing, or stock bonus plan (including 401k) 2. Tax sheltered annuity contract 3. Qualified annuity plan A modified endowment contract is a life insurance contract
Randy Lee is an ordained minister of a tax-exempt church. Randy receives a salary plus a housing allowance for rent and utilities. Which of the following statements is correct?
Randy has to pay both income tax and self-employment tax on his salary, but only self-employment tax for the housing allowance. The housing allowance is not subject to income tax.
Tips not reported to the employer constitute gross income in the year when?
Received
The following statements about dividends received from a dividend reinvestment plan are correct EXCEPT:
Reinvested dividends are not taxable if not removed from the plan Dividends are taxable income when received
Which of the following is classified as a repair and can be deducted as a rental expense? -Repainting all of the rental units -Completely replacing the roof -Upgrading a stove in one unit -Installing a dishwasher in two units
Repainting all of the rental units All others are considered cost of improvements and would be depreciated
Tips reported to the employer constitute gross income in the year when?
Reported
Teresa receives distributions from her IRA in the form of a series of substantially equal periodic payments (SOSEPP). Which of the following statements is true? -She has to pay the 10% penalty on the early withdrawal from her IRA account. -She should not report the distribution because it was already taxed before it went into the IRA account. -She does not have to pay the 10% penalty on the early withdrawal from her IRA account. -She should file form 5099 to report the income from the distribution.
She does not have to pay the 10% penalty on the early withdrawal from her IRA account. A taxpayer can receive distributions from his traditional IRA that are part of a series of substantially equal payments over his life (or his or her life expectancy), or over the lives (or the joint life expectancies) of him and his beneficiary, without having to pay the 10% additional tax, even if he receives such distributions before he is age 59 1/2. He must use an IRS-approved distribution method and he must take at least one distribution annually for this exception to apply (Pub. 590-B, ch. 1, pg. 25, beneath caption, Annuity).
Nancy works two part-time waitressing jobs. Last month her tips at the first restaurant only totaled $15, but they totaled $50 at the second restaurant. Which of the following statements is true?
She does not have to report the $15 in tips to the first employer, but does have to report the $50 in tips to the second employer. If, in any month, you worked for two or more employers and received tips while working for each, the $20 rule applies separately to the tips you received while working for each employer and not to the total you received.
Merry got a $10 tip from a customer at the bakery. That was the only tip she received all month. Which of the following statements is true? -Unless her employer asks, she does not have to report the $10 tip as income. -She does not have to report the tip to her employer if her tips total less than $20 for the month. -She can wait until the end of the year to report the tip to her employer. -She never has to report tips earned while working in a bakery.
She does not have to report the tip to her employer if her tips total less than $20 for the month.
Stephanie received her tax refund for the tax year 20X1 in November of 20X2. Because there was a delay in issuing the refund, the IRS paid Stephanie $50 interest. How should Stephanie report the interest on her 20X2 tax return?
She reports it with the rest of her taxable interest income on Form 1040. Interest received is taxable income
By filing Form 4137:
Social security and Medicare tips will be credited to your social security record (used to figure your benefits).
Heather averages $100 per week in tips as a waitress. When is she required to report her monthly tips?
The 10th of the following month
All of the following are considered deductible rental expenses, fully deductible in the current year, EXCEPT: -Fire and liability insurance premiums paid for the current year -The cost to repair two broken windows and fix the gutters -Advertising fees to obtain a renter -The costs of adding a fence for tenants with pets
The costs of adding a fence for tenants with pets This would be a capital improvement not an expense
Emilio received tips on December 26 and reported them to his employer on January 9. His employer also reported allocated tips on his Form W-2. Which of the following statements is true? -The tips he reported are considered part of his income for December and will go on this year's tax return and Form 4137. -The tips he reported are considered income for January and will go on next year's tax return and Form 4137. -It does not matter when the tips were reported, they are considered income when they are received. -Emilio can file Form 4137 to report those tips for either tax year.
The tips he reported are considered income for January and will go on next year's tax return and Form 4137. Tips that are reported, as required by the 10th day of the month following the month they were received, are considered income in the month they were reported. Therefore, tips received in December and reported before the 10th of January, are considered income for January.
J. R. Jackson received cash dividends of $3,000 this year. The tax information provided by the company indicated that these were qualified dividends. Which of the following statements is true?
These dividends are taxed at the lower rate that is applicable for net long-term capital gains. Qualified dividends are those dividends collected from a U.S. domestic corporation or a qualified foreign corporation. To encourage investments in these companies, the dividends are taxed at the same reduced rate that applies to long-term capital gains.
Which of the following is true about tip income? -Tip income is subject to social security and Medicare tax -Only tips in excess of $100 must be reported to an employer -Only 50% of the FMV of non-cash tips must be reported to an employer -Tips received in tip-splitting arrangements only require reporting if over $250/month
Tip income is subject to social security and Medicare tax
What are allocated tips?
Tips that your employer assigned to you in addition to the tips you reported to your employer for the year.
Form 4137 is used _________?
To calculate the social security and Medicare tax owed on tips not reported to employer. A taxpayer must file Form 4137 if receiving cash and charge tips of $20 or more in a calendar month and he or she did not report all of those tips to the employer. Form 4137 is also used when box 8 of Form W-2 shows allocated tips that the taxpayer must report as income. However, Form 4137 should not be used to report tips received for work covered by the Railroad Retirement Tax Act. In order to get railroad retirement credit, the taxpayer must report these tips to his or her employer. IRS Form 4137.
Tips reported to the employer will be included in the employee's _________?
W2
Under what circumstances must a taxpayer include a forgiven debt in his total income? When the debt was owed to his parent. When the taxpayer is insolvent. When the taxpayer includes it in his bankruptcy case. When he negotiates settlement for less than face value with his 3rd-party lender.
When he negotiates settlement for less than face value with his 3rd-party lender. If a debt is canceled or forgiven other than as a gift or bequest, the taxpayer must include the canceled debt in his income. If an outstanding loan is discharged in bankruptcy or canceled due to a taxpayer's insolvency, then it is not included in the taxpayer's income.
Bill and Eileen Jones are married and live together, but file separate Form 1040 returns for 20X1. Bill earned $18,000 during 20X1. The only other income he had for the year was $4,000 net social security benefits (box 5 of his Form SSA-1099). Is Bill's social security benefits taxable?
Yes, Bill has $3,400 of taxable social security benefits. Bc filing MFS and they still live together, Bill is subject to 85% of taxable SS benefits. If lived apart for entire year, then Bill could have used the upper and lower threshold of $25,000-34,000
Kelly started working at Jimmy's Tavern on May 29 and received $10,000 in wages during the year. During the month of May, Kelly made $19 in tips. Her tips for the rest of the year totaled $6,500. Is Kelly obligated to report the $19 she made in May on her tax return?
Yes, she should now add in the unreported tips on her tax return. Even though it doesn't need to be reported to her employer, Kelly will have to report the $19 on her tax return
A 2019 net operating loss may be:
carried forward indefinitely
A 2019 net operating loss deduction is:
limited to 80% of taxable income
An excess business loss is treated as a(n):
net operating loss (NOL) carryover The Tax Cuts and Jobs Act limits the amount of losses from businesses. Taxpayers cannot deduct an excess business loss in the current year.
A 2017 net operating loss carryover deduction is:
not subject to a limitation NOLs are limited to 80% of taxable income for losses AFTER December 31, 2017
An excess business loss is:
the amount by which the total deductions from taxpayer's trades or businesses are MORE than total gross income or gains from taxpayer's trades or businesses PLUS the threshold amount.
