Basic Income Tax Final Exam
Course Introduction
Basic Income Tax introduces students to the fundamental concepts of federal income taxation in the United States. The course examines the structure and application of the Internal Revenue Code, focusing on topics such as gross income, exclusions, deductions, tax credits, and the taxation of individuals, families, and small business entities. Students will explore tax policy considerations, analyze relevant case law and statutory materials, and develop practical skills in interpreting tax statutes and preparing basic tax returns. The course lays a foundation for advanced tax studies and provides critical insights for those pursuing careers in law, accounting, business, or public administration.
Recommended Textbook Income Tax Fundamentals 2019 37th Edition by Gerald E. Whittenburg
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12 Chapters
1187 Verified Questions
1187 Flashcards
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Chapter 1: The Individual Income Tax Return
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Sample Questions
Q1) Fran bought stock in the FCM Corporation 4 years ago at a price of $18,000.She sold it this year for $22,225 and paid her broker $225 from the proceeds of the sale.
a.What is Fran's amount realized?
b.What is Fran's adjusted basis?
c.What is Fran's realized gain or loss?
d.What is Fran's recognized gain or loss?
e.How much of the gain or loss should be included in her tax return?
Answer: a.Amount realized: $22,000 = $22,225 $225
b.Adjusted basis: $18,000
c.Realized gain: $22,225 $225 $18,000 = $4,000
d.Recognized gain: $22,225 $225 $18,000 = $4,000
e.$4,000.There is no limit on the amount of capital gain to be included in tax returns
Q2) Scholarships received by a student may be excluded for purposes of the support test for determining the availability of the dependency exemption.
A)True
B)False Answer: True
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Chapter 2: Gross Income and Exclusions
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Sample Questions
Q1) Child support payments are deductible by the spouse making the payments.
A)True
B)False
Answer: False
Q2) For the current year, the maximum percentage of Social Security benefits which might be included in a taxpayer's gross income is?
A)0%
B)50%
C)65%
D)85%
E)100%
Answer: D
Q3) A scholarship for room and board granted in 2018 is fully taxable to the recipient.
A)True
B)False
Answer: True
Q4) Reimbursement of hospital expenses from a health insurance plan
Answer: b
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Chapter 3: Additional Income Part 1
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114 Flashcards
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Sample Questions
Q1) If a taxpayer takes a trip within the United States which is primarily for business, the cost of travel to and from the destination need not be prorated between the business and personal portion of the trip.
A)True
B)False
Answer: True
Q2) Donald, a cash basis dentist, had $7,000 of uncollectible accounts receivable in 2018.Because Donald had always been a cash basis taxpayer, he had not reported the $7,000 in taxable income when the services were performed.How much of the $7,000 bad debt can Donald take as a bad debt deduction on his 2018 tax return? Explain. Answer: $0.Because the income from the services provided had never been taxed, the write-off of the bad debt (unrealized income)cannot be used as a tax deduction.
Q3) If the taxpayer does not maintain adequate records of car expenses (i.e., gas, tires, car insurance, etc.), the standard mileage rate cannot be used.
A)True
B)False
Answer: False
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Chapter 4: Additional Income Part 2
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Sample Questions
Q1) Nick received a gift of stock from his father.Nick's father had purchased the stock 2 years earlier and his father's basis in the stock was $30,000.On the date of the gift, the stock had a fair market value of $25,000.
a.If Nick sells the stock for $33,000, calculate the amount of Nick's gain or loss on the transaction.
b.If Nick sells the stock for $22,000, calculate the amount of Nick's gain or loss on the transaction.
c.If Nick sells the stock for $27,000, calculate the amount of Nick's gain or loss on the transaction.
Q2) The first day a capital asset acquired on August 31, 2017 may be sold for long-term capital gain or loss treatment is September 1, 2018.
A)True
B)False
Q3) Under the passive loss rules, real estate rental activities are specifically defined as passive, even if the taxpayer actively manages the property.
A)True
B)False
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Chapter 5: Deductions and Adjustments to Income
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Sample Questions
Q1) Which of the following is not an exception to the 10% early withdrawal penalty of a traditional IRA:
A)Paying the costs of higher education, including tuition, fees, books, and room and board for a dependent child
B)Withdrawing up to $30,000 of first-time home-buying expenses
C)Using the withdrawals for medical expenses in excess of 7.5 percent of their AGI, for persons younger than 59½ years old
D)Over 59½ years old
Q2) Bill has a mortgage loan on his personal residence.He decides to pay 18 months of interest in advance on October 1, 2018.The total advanced interest payment is $36,000.How much of the advance interest payment can he deduct in 2018?
A)$6,000
B)$24,000
C)$36,000
D)Mortgage interest is not deductible.
E)If a taxpayer makes an advance payment, he may not deduct any interest.
Q3) Don donates his old car to a qualified charity.The charity then sells the car at an auction.Describe the tax treatment of the donation.
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Chapter 6: Accounting Methods and Taxes
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Sample Questions
Q1) In 2018, household employers are not required to pay FICA taxes on cash payments of less than $2,100 paid to any household employee in a calendar year.
A)True
B)False
Q2) Which of the following types of income is subject to the self-employment tax?
A)Interest income
B)Gain on sale of real estate
C)Income from a sole proprietor's law practice
D)Dividends from stock
E)None of the above
Q3) The Dot Corporation has changed its year-end from a calendar year-end to August 31.The income for its short period from January 1 to August 31 is $54,000.The tax for this short period is:
A)$2,040
B)$6,250
C)$8,667
D)$10,527
Q4) In 2018, Tom had net earnings of $80,000 from the plant nursery he owns.What is his liability for self-employment taxes on his earnings?
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Chapter 7: Tax Credits
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Sample Questions
Q1) Taxpayers are required to wait until they file their tax return to receive the premium tax credit.
A)True
B)False
Q2) Avery is a single, 26-year-old graduate student at State University with no children.She is a US citizen with a valid Social Security number.Her only income is from a part-time job on campus from which she earned wages of $6,000.Avery qualifies for the earned income credit.
A)True
B)False
Q3) Sheila and Jerry are married taxpayers with $600 of foreign tax withholding from the dividends in a mutual fund.They have enough foreign income from the mutual fund to claim the full $600 as a foreign tax credit.They are in the 35% tax bracket and they itemize deductions.Should they claim the foreign tax credit on the Form 1040 or a deduction for foreign taxes on their Schedule A? Why?
Q4) What would generally reduce income taxes more: a $100 tax credit or a $100 tax deduction?
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Chapter 8: Depreciation and Sale of Business Property
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Q1) Which one of the following is true about Modified Accelerated Cost Recovery System (MACRS)?
A)A building is depreciated using 200 percent declining balance depreciation.
B)Buildings and autos both have the same depreciation life.
C)A light duty business truck is depreciated using accelerated depreciation.
D)All of the above are false.
Q2) If the proceeds from the sale of property will be collected over a period of more than one year, a taxpayer is required to use the installment method.
A)True
B)False
Q3) Under MACRS, the same method of depreciation (accelerated or straight-line)must be used for all property in a given class placed in service during a tax year.
A)True
B)False
Q4) Gain recognized on the sale of a Section 1245 asset is classified as ordinary income up to the amount of depreciation claimed.
A)True
B)False
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Chapter 9: Payroll, Estimated Payments, and Retirement Plans
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Q1) Employers must provide employees with their Form W-2 by February 15 of the year following the calendar year of payment of the wages.
A)True
B)False
Q2) Which of the following statements is true with regard to the reimbursement of employee business expenses?
A)Reimbursements of ordinary and necessary expenses are subject to federal income tax withholding.
B)Excess reimbursements of ordinary and necessary expenses are never subject to withholding.
C)Reimbursements received by an employee under a plan which contains a requirement to return excess amounts, and the employee does so on a timely basis, are excluded from the definition of wages subject to withholding.
D)Provided that reimbursements are received by an employee under a plan which requires the employee to substantiate the expenses to his employer, the amounts are excluded from the definition of wages subject to withholding, without regard to whether the employee actually substantiates the expenditures.
E)All of the above are true statements.
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Chapter 10: Partnership Taxation
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Sample Questions
Q1) A partner's interest in a partnership is decreased by:
A)Capital gains of the partnership.
B)Distributions from the partnership.
C)Taxable income of the partnership.
D)Additional contributions by the partner.
E)None of the above.
Q2) Jack and Jill decided to pool their money and start a water delivery business.Since they trust each other so much, they did not draw up any legal documents for the business.During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment.During the second year of business, they decided to limit their liability exposure by forming an LLC.
a.Was a partnership formed during the first year?
b.If a partnership was formed, how much income will be taxed at the partnership level?
c.For the second year, do they need to file a partnership tax return?
Q3) If Margo and Bruce purchase and operate an ice cream store, for tax purposes they have formed a partnership.
A)True
B)False
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Chapter 11: The Corporate Income Tax
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Sample Questions
Q1) Which of the following is true with respect to capital gains and losses of a corporation?
A)A corporation can offset ordinary income with capital losses.
B)A corporation pays 15 percent long-term capital gains rate, just like an individual.
C)A corporation can carry a capital loss back 5 years.
D)A corporation can carry a capital loss forward 5 years.
Q2) Corporations are granted favorable tax treatment for short-term capital losses.
A)True
B)False
Q3) In the current year, Parvifolia, Inc.had $400,000 of revenue from operations and $160,000 of dividends from nonaffiliated 15-percent-owned domestic corporations.The corporation's deductible operating expenses totaled $410,000.What is Parvifolia, Inc.'s dividends received deduction for the current year?
A)80,000
B)$75,000
C)$120,000
D)$160,000
E)None of the above
Q4) What is the purpose of Schedule M-1?
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Chapter 12: Tax Administration and Tax Planning
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Sample Questions
Q1) If a taxpayer has too much income tax withheld from his salary during the tax year, the IRS will pay interest on the excess amount.
A)True
B)False
Q2) Indicate in the blank space the date the statute of limitations would run out on each of the following individual tax returns.
a.A 2018 tax return filed on April 15, 2019 which omitted $20,000 of income.The total gross income shown on the tax return was $40,000
b.A 2018 tax return filed April 15, 2019 which contained a large bad debt deduction
c.A 2015 tax return that was never filed
d.A 2018 tax return filed on April 15, 2019
e.A fraudulent 2018 tax return filed April 15, 2019
Q3) Interest paid on an underpayment of taxes (other than an underpayment of estimated taxes)is not subject to the consumer interest limitation.
A)True
B)False
Q4) List three different ways that a tax return may be selected for an audit.
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