Federal Taxation multiple choice

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Accounting
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Question description

Humphrey Corp., a calendar year C corporation, realized taxable income of $20,000 from its regular business operations for calendar year 2013. In addition, Humphrey had the following capital gains and losses during 2013:


Short-term capital gain  $2,000

Short-term capital loss  (6,000)

Long-term capital gain  3,500

Long-term capital loss  (9,500)


Humphrey did not realize any other capital gains or losses since it began operations. What is Humphrey's total taxable income for 2013?

 $ 20,000

 $ 17,000

 $ 12,000

 $ 10,000




Meeker operates a hardware store and owns a parcel of land that is operated as a parking lot. Meeker owns an additional parcel across the street from the store that is being held for investment purposes.

 Land/Parking  Land/Investment

 Capital  Capital

 Section 1231  Section 1231

 Capital  Section 1231

 Section 1231  Capital


Carlos Anderson died on March 13, 2013 and bequeathed his entire $4,000,000 estate to his daughter, Derna. His estate included investment real estate that had a tax basis to Carlos of $230,000. This property was distributed to Derna seven months after Carlos's death. The alternate valuation date was validly elected by the executor of Carlos's estate.


Fair market values for the real estate were:

At the date of Carlos's death  $500,000

Six months after Carlos's death  460,000

Seven months after Carlos's death  470,000


Derna's basis for the stock is:

 $ 0

 $460,000

 $470,000

 $500,000




Suzanne gave corporate bonds to her child, Benjamin. At the date of gift, Suzanne's basis in the bonds was $17,000 and the stock's fair market value was $12,000. No gift taxes were paid on the transfer.


What is Benjamin's basis in the bonds?

 Gain Basis  Loss Basis

 $12,000  $12,000

 $17,000  $17,000

 $17,000  $12,000

 $12,000  $17,000


Rico sells a parcel of investment real estate and received $120,000 cash and stock with a fair market value of $100,000 and basis of $60,000. Additionally, his $50,000 mortgage on the property is assumed by the buyer. Rico paid an attorney $1,000 to execute the sale. The week before the sale he paid $75 to have a fence repaired on the property. His basis in the property is $200,000.


What is Rico's amount realized from selling the property?

 $219,000

 $268,925

 $269,000

 $270,000



Which of the following assets are classified as "ordinary" for purposes of determining the character of gain or loss?


I. Personal residence


II. Inventory


III. Asset sold by a business that had been owned for 8 months

 II

 II, III

 I, II

 I, II, III


 II, III



Which of the following assets are classified as "capital" for purposes of determining the character of gain or loss?


I. Equipment used in a business


II. Land owned by a dealer in real estate


III. Personal use lawnmower


IV. Copyright owned by author of book

 III

 IV

 II, III

 I, II, III, IV


Based on Zella's taxable income for 2013 her ordinary income is taxed at a marginal tax rate of 15%. Zella also has net capital gains for 2013 of $3,000.


At what rate will the $3,000 capital gain be taxed?

 28%

 15%

 10%

 0%


In 2013, Yousi has net short-term capital loss of $35,000. He has also realized a net long-term gain of $60,000 comprised of the following net gains and losses:


$15,000 gain on the sale of coins held 3 years.


$25,000 gain on the sale of securities held 5 years.


$20,000 gain on the sale of realty (attributable to straight-line depreciation).


Which gains will the $35,000 net capital loss offset for 2013?

 None; the losses cannot offset the gains

 Gain from securities and realty

 Gain from coins and securities

 Gain from coins and realty


Which of the following assets is classified as a Section 1231 asset?

 Antique car held as an investment

 Accounts receivable

 Equipment owned for three years and used in a business

 Goodwill


Wolf, Inc. had the following net Section 1231 gains/losses for its first four years of operations:


Year 1  $10,000

Year 2  $ 4,000

Year 3  $12,000

Year 4  ($18,000)


In Year 5, Wolf has a net Section 1231 gain of $30,000. How will this gain be taxed according to the following classification?

 Ordinary Income  Long-Term Capital Gain

 $18,000  $12,000

 $ 0  $30,000

 $30,000  $ 0

 $12,000  $18,000




Carmella purchased a commercial building on June 1, 2003 for $200,000. The building was depreciated using regular MACRS straight-line depreciation. The apartment building was sold on December 31, 2013 for $330,000 when its adjusted tax basis was $160,000 (assume that $40,000 of depreciation has been claimed). How much gain from the sale of the building is subject to the 25% rate and qualifies as Section 1250 depreciation recapture?

 25% rate  Section 1250

 $ 0  $170,000

 $40,000  $130,000

 $40,000  $ 0

 $170,000  $ 0


On January 1, 2011, Whitehouse Corp. placed into service 5-year MACRS equipment with a tax basis of $10,000. On December 31, 2013, Whitehouse sold the property for $8,000, after having taken $6,000 in MACRS depreciation deductions. What amount of the gain should Whitehouse recapture as ordinary income under the Section 1245 recapture rules?

 $0

 $2,000

 $4,000

 $5,000



Which of the following statements is false?

 Depreciation recapture does not apply to losses

 Buildings used as residential rental property are Section 1245 property

 Buildings used as commercial rental property are Section 1250 property

 All depreciable property is classified as Section 1231 property



BOX Corporation purchased MACRS 5 year property in Year 1 for $5,000. On November 19 of Year 5 BOX sells the property for $1,500. The MACRS deprecation percentages provided are as follows:


Year 1  20.00%

Year 2  32.00%

Year 3  19.20%

Year 4  11.52%

Year 5  11.52%

Year 6  5.76%


The depreciation allowed for Year 5 (ignoring bonus depreciation and Section 179) is:

 $0

 $288

 $576

 $1,000



On May 28, 2013, Randy purchased and placed into service a commercial building costing $1,000,000. Twenty percent of the cost was allocated to the land. What was Randy's 2013 MACRS deduction for the building (rounded to the

 $12,821

 $18,182

 $25,758

 $29,091



Sonny, a calendar year taxpayer, purchased the following assets in the current year for use in his business. He does not make a Section 179 election or elect bonus depreciation.


January 31  Equipment  $50,000

November 15  Computers  $150,000

December 30  Storage Building  $500,000


Which of the following conventions will apply when computing depreciation for these assets for the current year?

 A. Mid-quarter only

 Half-year only

 Mid-quarter and mid-month

 Half-year, mid-month, and mid-quarter



Which of the following assets qualify for both Section 179 and bonus depreciation treatment in 2013 if purchased for use in a business?

 Franchise fee

 New office building

 Refurbished computer

 New delivery van



Which of the following transactions qualify for deferral of gain and loss under the like-kind exchange rules?

 Exchange of business computer for personal use computer

 Exchange of business office building for investment land

 Exchange of business automobile for business equipment

 Exchange of business office building for business equipment



Matthew exchanges land used in his business for another parcel of land which is more suitable for parking for his customers. Matthew's land has a fair market value of $160,000 and adjusted basis of $100,000. The land he receives has a fair market value of $120,000 so he also receives cash of $40,000. What is Matthew's recognized gain or loss from this transaction?

 $ 0

 $40,000

 $60,000

 $160,000



Karen exchanges land used in her business for another parcel of land which is more suitable for parking for her customers.


Karen's land has a fair market value of $200,000 and adjusted basis of $80,000. The land she receives has a fair market


value of $150,000 so she also receives cash of $50,000. Assume that Karen's recognized gain from this transaction is


$50,000. What is Karen's basis in the new parcel of land?

 $ 80,000

 $130,000

 $150,000

 $200,000



Fenwick operates a grocery store and his retail building was completely destroyed by a hurricane on August 22, 2013. The fair market value of the building before the hurricane was $1,200,000 with an adjusted basis of $800,000. His insurance company reimbursed him $1,200,000 of December 2, 2013. When is the last date that Fenwick can replace this building with qualifying property and avoid recognizing gain from this transaction?

 December 31, 2013

 August 22, 2015

 December 31, 2015

 December 31, 2016




On April 16, 2013, Alvin sold 200 shares of Chipmunk stock to his father, Tang, for $18,000. Alvin had purchased the stock


in 2009 for $23,000. Tang sold the stock to Amber, an unrelated third party, for $30,000 on December 28, 2013.


What amount of gain from the sale of the stock to Amber should Tang report on his 2013 income tax return?

 $ 0

 $2,000

 $5,000

 $7,000



Potter, who is 48 years old, sold his principal residence this year for $350,000. He had purchased the residence six years ago for $200,000 and has lived in it since them except for six months last year when he was in a rehabilitation center after a car accident. He paid a realtor's commission of $15,000. He has not bought a new home by the end of the tax year and does not plan to do so in the near future.


What amount of gain is recognized from the sale of the former residence on Potter's tax return?

 $ 0

 $135,000

 $150,000

 $350,000



Sabin purchased 100 shares of Risky company stock in 2012 for $10,000. He sold these shares on December 27, 2013 when the


value had dropped to $2,000. On January 3, 2014 he repurchased 100 shares of Risky for $3,000.


What gain or loss can Sabin recognize from this sale in 2013 what basis does he have in the shares purchased in 2014?

 Gain/Loss  Basis

 $ 0  $3,000

 ($8,000)  $3,000

 $ 0  $11,000

 ($8,000)  $11,000


Ike Investor purchased land in Year 1 for $600,000. He sold the land for $800,000 in Year 4 and received a down payment of $200,000. He will receive principal payments each year of $200,000 for the next three years. What amount of gain should be reported in Year 4 if he reports the gain under the installment method?

 $ 50,000

 $100,000

 $200,000

 $800,000


Which of the following are NOT considered to be a related party for purposes of the loss disallowance rules on related party sales?

 A partnership and a partner who owns 60% of the partnership

 A grandfather and grandson

 A corporation and a shareholder owns 90% of the corporation

 Two cousins



Dandy Corporation's business building was destroyed by an earthquake this year. Dandy had an adjusted basis in the building of $350,000. The fair market value of the building before the earthquake was $500,000. However, the building was insured for only $250,000 which was the amount received by Dandy's insurance company. Dandy uses these funds and other resources to purchase a new business building for $400,000 by the end of the year. How much gain or loss must be recognized by Dandy?

 $ 0

 $50,000 gain

 $100,000 loss

 $150,000 gain



Corporation P is organized this year and incurs $41,000 of organizational expenses. P, a calendar year corporation, begins business operations on October 1. What will be the total deductions taken on this year's tax return for these expenditures?

 $ 0

 $ 5,000

 $ 5,600

 $ 41,000

$ 0


Which of the following items is tangible personal property?

 50 shares of stock in Ace Corp.

 Oil painting

 Land

 Franchise


Oil painting


Jeff and Annette are married and report on the cash basis. For the current tax year they received the following:

$1,300 interest on local government obligations.

$  50 interest on federal income tax refund.

$ 1,200 interest on United States Treasury Bonds

How much interest income will they report on their tax return for the current year?

$0

$50

$1,250

$2,500


In the current tax year Carlos received a state income tax refund related to taxes he had paid for the previous tax year. The refund was $400 and he also received interest income on the refund of $5. In the previous year Carlos itemized deductions on his federal income tax return. His itemized deductions exceeded his standard deduction by $3,000. How much income must Carols report from these receipts?

$0

$5

$400

$405

In which of the following situations is income taxable in Year 1 to Belinda. Belinda owns an architectural firm and reports on the cash basis.

I.  Belinda received $6,000 from a client on December 28, Year 1. She deposited the check on December 29 but it was rejected because the client's bank account did not have sufficient funds.

II.  Belinda was offered $5,000 from a client on December 31, Year 1 but she refused to accept the payment and asked the client to mail the check to her the next week.

III.  Belinda received a $4,000 check from a client on December 29, Year 1 but did not deposit in her checking accounting until January 4, Year 2.

I only.

II only.

II and III only

I, II, and III.


Hubie is the sole shareholder of EW Enterprises, Inc. His basis in the EW stock is $100,000. On December 31 of the current year EW distributed $175,000 to Hubie. EW has current and accumulated earnings and profit, in total, of $60,000. How will this distribution be treated for federal income tax purposes?

Dividend income of $60,000 and capital gain of $15,000.

Dividend income of $75,000.

Dividend income of $60,000 and capital gain of $115,000.

Dividend income of $175,000.


Louise owns 100 shares of Social, Inc. common stock which she purchased for $1,500. On May 29 of the current year, Social issued a 10% proportionate common stock dividend and Louise received an additional 10 shares, each of which has a value of $18. How much income does Louise report for this dividend?

$0

$180

$1,500

$1,800


Alphonso purchased an annuity contract for $60,000 from ACE Insurance on November 1 of the current year. He is to receive $1,500 per month starting December 1 of this year and continuing for life. He has a life expectancy of 5 years at the time the annuity is purchased. Alphonso's reportable annuity income for the current year is:

$ 500

$ 1,000

$ 1,500

$18,000









Fred and Wilma divorced during the current tax year. As part of the divorce agreement Fred is required to transfer to Wilma ownership of stock in ACE Corporation which has a tax basis of $80,000 and fair market value at the date of transfer of $125,000. How much income does Wilma recognize for this transfer and what is her basis in the stock?

Income

Basis

$80,000

$80,000

$0

$80,000

$125,000

$0

$125,000

$125,000


Garth was injured at work when he slipped while walking down the stairs and he was not able to work for four months. He received disability payments of $1,200 per month for these four months. The annual premiums on the policy were paid 75% by his employer and 25% by Garth. How much of the disability payments are included in his gross income?

$ 900

$1,200

$3,600

$4,800

Mike and Paula were divorced during the current tax year and the following payments were made by Mike in accordance with the written divorce decree:

  • $5,000 to UNA University for Paula's tuition.

  • $10,000 to Paula for child support.

  • $12,000 per year to Paula which must continue in all circumstances for 10 years.

How much income must Paula report for these payments?

$ 0

$5,000

$12,000

$17,000


Nathaniel was recently diagnosed with a brain tumor and it has been determined by his doctor that he is "terminally ill" and has less than 2 years to live. Nathanial owns a life insurance policy with a face value of $500,000. He sells his insurance policy for $440,000. How much income must Nathaniel report related to his sale?

$ 0

$440,000

$500,000

$220,000


Lissi is a student at Apple University and she received the following payments during the year to help support her education:

  • $2,000 scholarship from Apple University.

  • $3,000 scholarship from a scholarship fund at her mother's place of employment.

  • $2,500 from her parents.

The funds were used to pay $4,000 of tuition and fees and $800 for books for her courses. The remaining amounts were used for her living expenses.

How much gross income does Lissi have from these transactions?

$ 200

$1,000

$5,000

$7,500

Damon received a gift of stock from a friend as a graduation gift. At the date of gift the stock had a basis of $1,200 and fair market value of $800. Damon's friend had owned the stock for four years. Three months after receiving the gift Damon sells the stock for $1,000. What is Damon's recognized gain or loss from the sale?

$1,000 gain

$ 200 gain

$ 200 loss

No gain or loss.






Kristi and Van adopted a two-year old child this year. They incurred $9,500 of qualified adoption expenses related to the adoption. Van's employer, GH Industries, maintains an adoption assistance program and reimbursed Van $7,000 for these costs. Kristi and Van's adjusted gross income for the year is $52,000. How much income do Kristi and Van need to report on their federal income tax return?

$ 0

$3,500

$7,000

$9,500



Vet, Inc. provides an award to its employees who have achieved consecutive years of service of 5, 10, 15, 20, and 25 years through a qualified plan. All awards are given at the company picnic in July. Barney has worked as a receptionist for Vet for 15 years and received a new clock which has a fair market value of $2,100. How much income must Barney report for the receipt of the boots?

$2,100

$1,600

$ 500

$ 0


Which of the following is an example of a completely nontaxable fringe benefit for Lori, an employee of WORK, Inc.? WORK owns a division that operates an airline and another division that owns vacation resorts. Lori works for the airline division.

Group term life insurance of $200,000

Reimbursement of $225 for her subscription to Air Travel Business Journal.

Free lodging at a resort in Florida when the resort had an occupancy rate of 65%.

Free use of a company owned vehicle for three weeks while her car was being repaired.






Wang is a 43-year old computer programmer who earns an annual salary of $80,000. His employer provides group-term life insurance coverage at twice the annual salary for all employees. The annual amount of income for each $1,000 of taxable insurance coverage for an individual 43 years old is $1.20. How much gross income must Wang report for this benefit?

$ 0

$96

$132

$192


Valerie receives 100 incentive stock options from her employer in Year 1 when the underlying stock has a value of $20 per share. In Year 2 she exercises all the options at the option price of $25 when the value of the stock is $28. In Year 5, the current year, Valerie sells all 100 shares for $30. How much gross income must Valerie report in Year 2 and in Year 4 when computing regular taxable income?

Year 2

Year 4

$300

$  700

$500

$  500

$ 0

$1,000

$ 0

$  500












Which of the following businesses must use the accrual method of accounting?

I.  Chicken, Inc., a restaurant chain with annual gross receipts of $6,000,000.

II.  Tours, a general partnership with annual gross receipts of $450,000, that provides tours of the Sedona mountains.

III.  Appraisers, Inc., a real estate appraising company, that has had average gross receipts of $900,000 since its inception three years ago.

I only.

I and II only.

I and III only.

I, II, and III.

Betty owns a duplex that she has used for rental property for the last 12 years. During the current tax year the tenants broke their lease in April and moved out. Therefore, they lost the right to receive a refund of their $400 security deposit. New tenants moved in during November and paid $600 rent for November and $600 for December, $600 for the last month of their one-year lease (non-refundable), and a $500 refundable security deposit. How much gross income does Betty recognize from these transactions?

$1,200

$1,800

$2,200

$2,700


Which of the following statements is correct with regard to changes in accounting methods for federal income tax purposes?

A taxpayer can never change a method of accounting, unless the taxpayer is changing from an incorrect method to a correct method.

A taxpayer does not need the permission of the Internal Revenue Service to change accounting methods.

Any adjustment to income required due to a voluntary change in accounting method is spread over five years beginning with the year of change.

If the change is initiated by an Internal Revenue Service examination and the change increases income, 100% of the change must be included in income for the year of the change.




Which of the following statements is false with regard to inventory valuation for federal income tax purposes?

The lower of cost or market method can be used to value inventory in certain circumstances.

A taxpayer can use FIFO to value inventory for tax purposes only if FIFO is also used for financial reporting purposes.

A taxpayer can use LIFO to value inventory for tax purposes only if LIFO is also used for financial reporting purposes.

The weighted-average method is a permissible method to use to value inventory for federal tax purposes.



Which of the following statement is false with regard to methods of accounting for tax purposes?

Regular corporations do not have restrictions on the year-end that they can choose, but partnerships and S corporations do have restriction.

Under the cash method of accounting, the taxpayer has no basis in its accounts receivables.

In general, all C corporations have the opportunity to use the cash method of accounting if they choose to do so.

Prepaid interest is usually taxed when received, even by accrual basis taxpayers.


Samuel invested $10,000 a year into his retirement plan from his before tax earnings (that is, he received a deduction for these contributions and was not taxed on the income). His employer contributed $5,000 a year to Samuel's retirement fund. After 30 years of contributions, Samuel retires and receives a distribution of $900,000, the balance in his retirement fund. Samuel must include what amount in gross income?

$ 0

$450,000

$600,000

$900,000




Which of the following statements is correct with regard to traditional IRAs and Roth IRAs?

The maximum amount of contributions allowed for any given tax year is the same for traditional and Roth IRAs.

The taxation of distributions is the same for traditional and Roth IRAs.

The rules governing the deductibility of contributions to traditional and Roth IRAs are the same.

The deadline for making contributions to IRAs is different for traditional and Roth IRAs.


Melinda has been making contributions to her daughter's 529 plan for several years to help fund her college education expenses. She has contributed $100,000 to the plan since creating it. In the current tax year her daughter, age 19, begins her undergraduate college studies at UNA University and Melinda withdraws $18,000 from the plan to pay her tuition for the year. At the time of withdrawal the balance in the plan is $150,000. How much of the distribution must Melinda include in her gross income?

$ 0

$6,000

$9,000

$18,000


Withdrawals from retirement plans before the age specified by the tax law can result in a 10% penalty unless certain requirements are met. Which of the following is not a valid reason for the 10% penalty to be waived for such distributions?

Distributions made due to death of taxpayer.

Distributions made so taxpayer could make mortgage payments on principal residence.

Distributions made due to disability of taxpayer.

Distribution made so funds could be used for first-time homebuyer expenses.







In the current tax year Rocky was nominated to receive an award for service to the local school system. No action was required on his part, either to apply for the award or if he received the award. When it was announced at a school board meeting that Rocky has been selected to receive the $1,000 award, he declined to accept the award. Rather, he asked that the funds be given to the local United Way chapter, a qualified charitable organization. Which of the following statements is true?

Rocky reports no gross income for the award and does not take a charitable contribution deduction.

Rocky reports no gross income for the award and takes a $1,000 charitable contribution deduction.

Rocky reports $1,000 gross income for the award and does not take a charitable contribution deduction.

Rocky reports $1,000 gross income and takes a $1,000 charitable contribution deduction.


Which of the following statements is correct with respect to the taxation of Social Security benefits for federal income tax purposes?

Social Security benefits received by the taxpayer are never included in gross income.

Social Security benefits received by the taxpayer may be included in gross income, but the inclusion will never exceed 85% of the benefits received.

Social Security benefits received by the taxpayer may be included in gross income, but the inclusion will never exceed 50% of the benefits received.

100% of the Social Security benefits received are included in income for all taxpayers.


Which of the following benefits provided to the employees must be included in taxable income?

SKY Airlines allows employees to fly for free if seats have not been sold within 15 minutes of the flight's departure time.

FUN Hotels allows its hotel managers to live at no charge in a hotel room directly connected to the registration area. If the managers choose to not live at the hotel they do not receive any additional cash compensation instead.

SUN has a gift shop and employees of SUN can purchase merchandise at a 30 % discount. SUN's gross profit percentage on the merchandise is 35%.

CPA Services allows employees free access to coffee and/or soda during the workday.

Lina has had several unusual events happen to her during the current tax year. Which of the following will cause her gross income to increase for tax purposes?

Her husband died this year and she received $100,000 in life insurance proceeds from a policy owned by her husband.

After having her leg severely damaged in an automobile accident, she received $50,000 for these damages from the driver who hit her car.

As a result of an automobile accident, the driver who hit her car paid Lina $25,000 in punitive damages, as ordered by the court, because the driver had been texting while driving.

Lina received $20,000 of disability income during the year on a disability policy that she took out five years ago and for which she pays the premiums.

Kaitlin paid several legal expenses during the current tax year. She paid $1,000 to have a will prepared, $500 related to a divorce, $300 for tax advice, and $400 for legal work related to a business that she operates as a sole proprietorship. What are her total deductions allowed for these expenditures?

$400

$700

$1,400

$2,200


Which of the following expenses is deductible for federal tax purposes?

A fine paid due to violation of federal safety standards.

Contributions made to a political organization.

Pest control expenses for a warehouse where inventory is stored.

Expenses made to a lobbyist representing your company on a bill under consideration by the United States Senate.


Sanjay took out a loan on November 1, Year 1, for $100,000 to purchase inventory for his clothing store, which he operates as a cash basis sole proprietorship. His annual interest rate is 6%. On December 31, Year 1, he pays the $1,000 of interest due for Year 1 and also prepays $3,000 of interest for the first six months of Year 2. What is his deduction on his Year 1 tax return for interest expense?

$ 0

$1,000

$3,000

$4,000











Which of the following expenses is NOT a deduction FOR adjusted gross income?

Charitable contributions

Interest on student loans, subject to certain limitations.

One-half of self-employment taxes paid.

Attorney's fees for discrimination lawsuits.


Bronnie moved from San Francisco to Dallas, Texas in hopes of finding a new job. During his first 12 months in Dallas, his only work was as a full-time researcher at a marketing firm for 5 months. His moving expenses included:

  • $2,500 for moving his personal possession.

  • $500 for an airline ticket for him to fly to Dallas.

  • $1,200 of temporary living expenses before he found an apartment in Dallas.

What is his moving expense deduction?

$ 0

$2,500

$3,000

$4,200


Which of the following is not deductible? Assume that the deductions are not phased-out because of high income.

Interest paid of $2,200 on student loans.

Qualified higher education expenses for one's spouse of $3,500.

A high school teacher spends $250 buying supplies to decorate his classroom.

Child support payments paid to a former spouse.










Felicia, age 42, incurred the following medical expenses for 2013:

Physician charges

$ 2,000

Hospital charges

$10,000

Prescription medicine

$ 1,000

Non-prescription medicine

$  500

Eyeglasses

$  300

Health club membership

$ 1,200

Her adjusted gross income is $50,000. Her health insurance company reimbursed her $8,000 for the above expenses. What is her medical expense deduction?

$ 300

$ 1,550

$13,300

$15,000


Tiffany is a cash basis taxpayer whose records show the following:

Year 4 federal income taxes withheld 

$3,500

Year 4 state and local income taxes withheld 

1,200

Year 4 state estimated income taxes paid during Year 4

1,000

Year 4 state and local income taxes paid on April 10, Year 5

400

Year 2 state and local income taxes paid on February 25, Year 4

500

How much can Tiffany deduct for taxes on her Schedule A (Itemized Deductions) of Form 1040 for Year 4?

$2,200

$2,700

$3,100

$6,600






Which of the following taxes is not deductible as an itemized deduction?

Property taxes paid to the local government based on the value of an automobile.

Real estate taxes paid on a principal residence to the state government.

Fees paid to the local government for sidewalks to be installed in one's neighborhood.

State income taxes paid.


Jerry and Elaine own a home that has a fair market value of $250,000 on which they have a mortgage of $190,000. They took out an $80,000 home equity loan and used the proceeds to buy a new boat. Interest paid on the home equity loan in the current tax year is $2,200. What amount of the home equity loan is eligible for the interest paid on it to be deductible as an itemized deduction?

$ 0

$40,000

$60,000

$80,000


Which of the following types of interest expense is not deductible as an itemized deduction?

Interest expense on a principal residence.

Investment interest expense, subject to certain limitations.

Student loan interest.

Interest on a home equity loan.













Rodney is single and has adjusted gross income of $100,000. He qualifies to itemize deductions for the current tax year. Rodney's only charitable contribution this year is an antique car that he had owned for 30 years that had a fair market value of $50,000 and adjusted basis of $15,000. What is the amount of charitable contributions deductible on Rodney's current year income tax return?

$ 0

$15,000

$30,000

$50,000


Ron and Willie's home was damaged by a flood this year. The fair market value of the home before the flood was $300,000 and was $180,000 after the flood. Their flood insurance on the property reimbursed them $50,000 for this damage since this was the maximum allowed under the policy. Ron and Willie had purchased the home 10 years ago for $200,000. Their adjusted gross income for the year is $ 150,000. What is their casualty loss deduction after all reductions are considered?

$54,900

$55,000

$120,000

$200,000


Which of the following statements is true with regard to the deduction for charitable contributions?

Charitable contributions disallowed due to the 50% of AGI limitation can be carried forward indefinitely.

A canceled check is sufficient documentation for a cash contribution of $500 to a charity.

An attorney who provides free legal advice to a qualified charitable organization can deduct the fair market value of his services.

Taxpayers may be able to deduct the fair market value of stock given to a qualified charitable organization.






Which of the following expenses does not qualify as a deductible 2% miscellaneous itemized deduction?

Tax return preparation fees of $300.

Gambling losses to the extent of gambling winnings.

Fees paid to an investment advisor to manage one's stock portfolio.

Employee business expenses of $500 not reimbursed by the employer.


Tobias owns a bowling alley which was completely destroyed this year by a tornado. The fair market value of the bowling alley was $230,000 before the tornado and its adjusted basis was $100,000. Tobias received $220,000 from his insurance company but he decided to not rebuild the alley. What is Tobias' recognized gain or loss from this transaction?

$ 0

Loss of $230,000

Gain of $120,000

Gain of $220,000


Churyk is an attorney (sole proprietor) who is attending a legal seminar in Los Angeles. The seminar is three days, and he will be staying an extra two days for vacation. His airfare for the trip was $700. He spent $50 on food and $120 for his hotel for each of the five days. The cost of the seminar was $750. What amount of educational expenses can Churyk deduct on his Schedule C?

$ 750

$1,450

$1,885

$2,300









Kathy owns her own marketing firm and incurred the following expenses this year related to meetings with clients and potential clients. Assume that all entertainment expenses were directly associated with a business discussion.

Dues to Golf & Country Club

$3,000

Green fees for playing golf with clients

$2,000

Meals and drinks with clients after golf

$1,200

Tickets to NCAA Basketball Tournament (face value = $400)

$2,000

How much of these expenses are deductible for the current year?

$1,800

$2,600

$3,600

$8,200


Which of the following statements with regard to accountable plans is not true?

Reimbursements of employee business expenses under an accountable plan have no impact on the employee's adjusted gross income.

Reimbursements of employee business expenses under an accountable plan always increase the employee's adjusted gross income.

Employee business expenses that are not reimbursed by the employer are deductible as 2% miscellaneous itemized deductions.

Employee business expenses that are reimbursed but not under an accountable plan are deductible as 2% miscellaneous itemized deductions.


Which of the following expenses would be deductible as education expenses on Schedule C for a self-employed individual?

Raymond pays $8,000 tuition expenses towards completing his undergraduate degree in education, the minimum requirements needed for the job he will begin after graduation.

Anthony pays $500 to take the bar exam so that he can practice law in his state.

Leigh currently works as a nurse and pays $5,000 in tuition while earning a graduate degree in business.

Natalia is a CPA and pays $1,000 to attend a four-day update on accounting and auditing.

In which of the following situations would Travis be able to deduct meal expenses incurred while engaged in activity related to his job? Travis is an information technology consultant who works for IT, Inc. and his business home is in Charlotte, North Carolina.

IT assigns Travis to a job in Chicago on an indefinite basis.

IT assigns Travis to a job in Chicago which will last for six months.

IT assigns Travis to a job in Chicago which will last for 18 months.

Travis drives to Raleigh, North Carolina for a business meeting and returns to Charlotte later that evening.


Which of the following statements is true with regard to the deduction for losses?

Trent loaned $2,000 to his friend to pay his tuition. If Trent discovers that the debt is partially worthless he can take a deduction for the partial bad debt.

Trent loaned $2,000 to his friend to pay his tuition. If Trent discovers that the debt is completely worthless he can take an ordinary deduction for the loss.

Trent owns stock in LOSER Corporation which he has not sold. To take a deduction for a loss this year related to LOSER the stock must be completely worthless.

Trent owns stock in LOSER Corporation which he has not sold. If the stock is completely worthless it is treated as if it was sold on the day it became worthless.



Which of the following expenses is not deductible or depreciable for a self-employed country-music singer on his Schedule C for his sole proprietorship?

Denim jeans, t-shirt, and boots that he only wears when he sings on stage.

$2,000 for a new guitar that he uses to perform and write songs.

$200,000 for a bus that is used to travel to concerts.

Salary expenses to his manager of $150,000.










Cole has a net operating loss for the current year, 20x5, of $80,000. His taxable income for prior years, computed without regard to the net operating loss, were as follows:

20x2

$50,000

20x3

$40,000

20x4

$30,000

Which of the following statements is true with regard to this net operating loss?

Cole cannot carryback any of the NOL since it is less than $100,000.

If Cole carries the NOL back for two years his carryforward to the future will be $10,000.

Cole cannot elect to use the NOL only as a carrforward. He must carry it back to previous years first.

If Cole's itemized deductions had been greater for the year his NOL definitely would have been larger.



Bruce is single and has adjusted gross income for the current year of $90,000 before any deduction for passive activity losses. He owns a duplex that he uses as rental property and this year his rental loss was $13,000. Bruce has no income from passive activities. Which of the following statements is true?

If Bruce actively participates in managing the rental property, he can deduct the $13,000 loss against his other income.

Bruce will not be able to deduct the $13,000 loss against his other income unless he materially participates in managing the property.

Since Bruce's income does not exceed $150,000, he can deduct the loss against his other income regardless of his role in managing the property.

In no circumstance will Bruce be able to deduct the loss this year since he does not have any passive income.









Martin is a 20% limited partner in the BBC limited partnership. His share of the current year's ordinary loss is $30,000. Martin also works as an attorney and has taxable wages this year of $200,000. He has investment income of $15,000 and his only deduction for AGI is alimony of $40,000. Which of the following statements is true?

Martin can deduct the alimony payments of $40,000 but cannot reduce AGI for the partnership loss of $30,000.

Martin can deduct the alimony payments of $40,000 and can reduce AGI for the partnership loss of $30,000.

Martin can deduct the partnership loss but only to the extent of his investment income, or $15,000.

Martin can deduct the partnership loss of $30,000 but cannot deduct the alimony payments.


Jordan owns a beach house that she used 60 days for personal use this year. She also rented the beach house to others for 50 days this year. Her rental income collected was $8,000 and expenses allocated to the rental use were $10,000. How much net income or loss must Jordan report on her income tax return for the rental use of this property?

$8,000 income.

No income or loss.

$2,000 loss.

$2,000 income.

















Charles is a CPA who owns his own accounting firm. He has developed a very successful practice and this year his firm had net income of $500,000. For many years he has enjoyed NASCAR car racing and began to race his own car on the weekends five years ago. During the current tax year he had winnings from races of $40,000. This was the first year that he had earned any revenue from racing. His racing expenses totaled $100,000 for the year. Charles competed in three races during the current tax year. Which of the following statements is false with regard to his race car activities?

Since Charles has never had any net income from car racing, the presumption is that this activity is a hobby.

Since the car racing activity is a hobby, Charles can deduct expenses only to the extent of his winnings of $40,000.

If Charles wants to increase the likelihood that his car racing will not be classified as a hobby in future years, he will need to increase the number of races in which he competes.

Since the car racing activity is a hobby, Charles cannot deduct any expenses related to this hobby but must report all winnings of $40,000.


Which of the following taxpayers will qualify for a deduction for her home office expenses?

Sheila is a college professor who maintains an office at home that she uses on the weekends to grade papers and prepare course lectures.

Tonya is a real estate appraiser who runs her business completely from her home. She uses her home office 60% of the time for business purposes and 40% for personal activities.

Chao is self-employed and provides dance lessons and classes to children. She rents space at a local shopping center for her dance studio but does not have an office there. She uses a room in her house exclusively to complete the administrative tasks for her business.

Tanya is a salesperson for a clothing manufacturer and uses her home office often during the week so she does not have to drive to her office at the company's headquarters which is 20 miles from her home.










Benjamin is an active investor in stocks and bonds. During the current tax year he earned interest and dividend income totaling $18,000. He frequently borrows money to purchase his investments and this year Benjamin paid investment interest of $14,000. His only other investment expense during the year was $5,000 paid to a professional investment advisor. How much of the investment interest expense can be deducted on Benjamin's tax return this year as an itemized deduction?

$ 0

$ 9,000

$13,000

$14,000

Greg and Jan are married and file a joint tax return. They have two children: Ben and Kaitlin. Ben, age 20, was a full-time student during the current year and had scholarships of $12,000. Greg and Jan provided $8,000 to Ben for the rest of his support. Kaitlin, age 16, is in high school and has a part-time job at the mall where she made $2,200 this year. Greg and Jan provided $6,000 for her remaining support. How many exemptions may Greg and Jan claim on their tax return?

1

2

3

4


Walter provided $7,000 of the support of his mother, who lives in a nursing home. Her only other income is Social Security benefits of $6,900. What is Walter's filing status and how many exemptions may he claim?

Single and one.

Single and two.

Head of household and one.

Head of household and two.


Which one of the following items is not included in the support test, assuming that the funds received are actually spent by the taxpayer?

Social security benefits.

Aid provided by the state which is used to purchase food.

University scholarships for academic excellence.

Purchase of a car by her parents for a student to use.












Felicia, who is single, received support from the following individuals and sources during the current year:

Dividend income

$1,300

Social security benefits

2,200

Funds from grandparents

3,500

Funds from aunt

1,500

Funds from uncle

500

Which of these individuals may claim a dependency exemption for Felicia under a multiple support agreement.

Grandparents, aunt, and uncle.

Only the grandparents.

The grandparents or the aunt.

None of the individuals.


Daryl and Linda divorced two years ago and Linda was given custody of their son, Thomas. During the current year Daryl provided $8,000 of Thomas's support and Linda provided $5,000. Which of the following statements is true?

Daryl may claim the dependency exemption because he provided more than 50 percent of Thomas's support.

If Linda completes the proper forms to waive the dependency exemption, Daryl may take the dependency exemption.

If Linda does not complete the proper forms to waive the dependency exemption, then she is entitled to the dependency exemption.

Both B. and C.


Which of the following is not true of the gross income test for the dependency exemption?

The gross income test applies only to qualifying relatives.

A qualifying relative of the taxpayer under age 19 is exempted from the test.

Social security benefits are always included in the gross income test.

Generally, a dependent's gross income may not exceed the exemption amount.

Ximena is single and allows her friend, Kate, to live in her home for the entire year and provides all of her support. Kate is not related to Ximena. Kate is single, has no income, and is a United States citizen. What is Ximena's filing status and how many exemptions can she claim for the current year?

Single and one.

Single and two.

Head of household and one.

Head of household and two.


Wendy is a full-time college student who is claimed as a dependent by her parents. During 2013 she had wages of $2,000 and interest income of $1,200. What is her standard deduction for 2013?

$1,000

$2,350

$3,500

$5,700


Sharon's husband passed away in year 10. Which of the following statements is not true?

Sharon may file as married filing joint in year 10.

If Sharon's dependent son lives with her during year 11 and she provides the support for her household, she may file as married filing joint in year 11.

If Sharon's dependent son lives with her during year 12 and she provides the support for her household, she may file as married filing joint in year 12.

Assuming Sharon lives alone after her husband's death in year 10, she must file as single for year 10.

Wendy is a full-time college student who is claimed as a dependent by her parents. During the current year she had wages of $2,000 and interest income of $1,200. What is the personal exemption amount that she can claim on her return?

$ 0

$2,000

$3,200

$3,650

Brett is a single taxpayer who had $100,000 in taxable income (before personal exemptions) for the current tax year. His itemized deductions are as follows:

Local property taxes

$3,000

Home mortgage interest on loan to acquire residence

8,000

Miscellaneous deductions that exceed 2% of AGI

1,500

What is Brett's alternative minimum taxable income before the AMT exemption?

$100,000

$103,000

$104,500

$112,500


Which of the following statements is not true with regard to the alternative minimum tax?

The starting point for computing the alternative minimum tax is regular taxable income.

The AMT credit can be carried forward indefinitely.

The AMT exemption is completely phased-out for high income taxpayers.

Taxpayers that do not have tax-exempt interest income are not subject to the alternative minimum tax.


Which of the following statements is not true with regard to the self-employment tax?

Self-employment income must exceed $400 for this tax to apply.

The self-employment tax is imposed only on individuals that operate a sole proprietorship.

One-half of the self-employment tax is deductible for AGI.

A portion of the self-employment tax is not capped at a certain level of income.









Tyrone received 100 incentive stock options in Year 1 from his employer that have an exercise price of $20. In Year 2 he exercises the options when the stock is selling for $26. In Year 4 he sells the stock for $30 per share. Which of the following statements is true?

For AMT purposes Tyrone has income/gain of $600 in Year 2.

For AMT purposes Tyrone has income/gain of $1.000 in Year 4.

For AMT purposes Tyrone has income/gain of $2,000 in Year 1.

Tyrone has no income for AMT purposes with regard to these options.


For the current tax year Reba has a regular tax liability of $12,000 and a tentative minimum tax of $13,500. Reba's alternative minimum tax for this year is:

$ 0

$ 1,500

$12,000

$13,500


Robin is single and maintains a household for her two dependent children who are ages 7 and 9. She has adjusted gross income of $28,000 which consists of wages of $26,000 and a long-term capital gain of $2,000. She paid her mother $3,000 to care for her children in her home and also paid $2,000 for daycare during the summer. Her child care credit for this year is:

$ 560

$ 840

$1,400

$1,750










Which one of the following expenditures will qualify as an expense for the child or dependent care credit?

After-school expenses for your 10-year old daughter to be supervised until you can pick her up when you get off work.

Tuition for your 12 year old son to go to a private elementary school.

Payments to a nursing home for a 35 year old dependent who needs to be cared for but is not mentally or physically incapacitated.

Payments to a housekeeper who cleans your home and supervises your children while your spouse goes to the spa twice each (spouse does not work).

Which of the following statements concerning the comparison of the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Tax Credit (LLTC) is not true?

The AOTC can be claimed for four years but the LLTC is not limited in the number of years it can be claimed.

The AOTC can be claimed only for expenses of the taxpayer, but the LLTC can be claimed for the taxpayer, the taxpayer's spouse, and the taxpayer's dependents.

To qualify for the AOTC the student must be in a degree program, but that is not the case for the LLTC.

The maximum annual credit that can be claimed is greater for the AOTC than for the LLTC.


Ming is a single taxpayer who began working as an accountant this year after graduating from school. Her only income was from wages of $15,000. She contributed $3,000 to an Individual R

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