Basic Taxation Exam Solutions
Course Introduction
Basic Taxation introduces students to the fundamental principles and concepts of taxation, focusing on the structure and function of tax systems with an emphasis on individual and business taxation. The course covers essential topics such as the purpose and types of taxes, tax administration, computation of taxable income, tax compliance, and the ethical responsibilities of taxpayers. Students will learn how taxes are assessed and collected, understand key provisions of tax law, and explore the impact of taxation on individuals, businesses, and society. By the end of the course, students will have a foundational understanding needed to navigate and apply basic tax rules in personal and professional contexts.
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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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) John, age 25, is a full-time student at a state university.John lives with his unmarried sister, Ann, who provides over half of his support.His only income is $4,200 of wages from a part-time job at the college book store.What is Ann's filing status for 2018?
A)Single
B)Head of household
C)Married, filing separately
D)Qualifying widow(er)
E)None of the above
Answer: A
Q2) Taxpayers who are blind get the benefit of:
A)An extra exemption.
B)An additional amount added to their standard deduction.
C)Two standard deductions.
D)None of the above.
Answer: B
Q3) Taxpayers with self-employment income of $400 or more must file a tax return.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Gross Income and Exclusions
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) Answer the following questions regarding the taxability of Social Security payments.
a.Will a taxpayer with no income other than Social Security have to include the Social Security in taxable income?
b.Will a taxpayer with a large amount of municipal bond income, but no taxable income, likely have to pay tax on part of his or her Social Security?
c.What is the maximum percentage of Social Security benefits which may be subject to tax on an individual's tax return?
Answer: a.No.The taxpayer's income is below the threshold amount used in the formula to determine whether Social Security is taxable.b.Yes.Tax-free municipal bond income is added to AGI in the formula to determine the amount of taxable Social Security.
c.85 percent.High-income taxpayers must include 85 percent of Social Security receipts in taxable income.
Q2) Bonnie receives salary income of $32,000, unemployment compensation of $4,400, and interest income of $1,200 and a gift of $7,000 in cash from her aunt.How much gross income does Bonnie have?
Answer: $37,600 = $32,000 + $1,200 + $4,400
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4
Chapter 3: Additional Income Part 1
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Which of the following is not a test to deduct business expenses:
A)The expense must be ordinary and necessary
B)The expense must have a legitimate business purpose
C)The expense must be reasonable
D)The expense must be lavish and extravagant
Answer: D
Q2) A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.
A)True
B)False Answer: False
Q3) Schedule C or Schedule C-EZ may be used to report the net profit or loss from a partnership with business expenses of $2,500 or less.
A)True
B)False Answer: False
Q4) The cost of a blue wool suit for an accountant is a deductible expense.
A)True
B)False Answer: False
Page 5
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Chapter 4: Additional Income Part 2
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2018.The gross rental income from the home is $4,500.For the entire year, real estate taxes are $800, interest is $3,000, utilities and maintenance expenses are $2,200, and depreciation expense on the entire home would be $4,000.What is Lester's allowable net loss from renting his vacation home?
A)$5,500 loss
B)$3,000 loss
C)$500 loss
D)$250 loss
E)None of the above
Q2) The net operating loss (NOL)provisions of the Internal Revenue Code
A)Apply only to individuals with wages and itemized deductions.
B)Require the use of a 2-year carryback in all cases.
C)Are primarily designed to provide relief for trade or business losses.
D)Allow the deduction for home mortgage interest to create an NOL.
E)Would not be necessary if tax rates were progressive.
Q3) Net short-term capital gains may be offset by net long-term capital losses.
A)True
B)False
Q4) What are capital assets?
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Chapter 5: Deductions and Adjustments to Income
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) In 2018, which of the following miscellaneous deductions are not subject to the 2 percent of adjusted gross income limitation and remain deductible?
A)Unreimbursed employee business expenses
B)Investment expenses
C)Unrecovered annuity costs at death
D)Union dues
E)None of the above
Q2) Stan, a single taxpayer, has $1,700 of state income taxes withheld from his wages in the current year.In the current year, he also received a $320 refund on his prior year state income tax.Stan did not itemize last year but he intends to do so this year.Stan used the sales tax estimate tables and determined his sales tax deduction amount is $1,600.What amount should Stan deduct for state taxes?
A)$0
B)$1,380
C)$1,600
D)$1,700
E)None of the above
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Chapter 6: Accounting Methods and Taxes
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Emily is a self-employed attorney.
a.Assuming that Emily earns $20,000 from her practice, calculate the total amount of her self-employment tax liability for 2018.
b.Assuming that Emily earns $145,000 from her practice, calculate the total amount of her self-employment tax liability for 2018.
Q2) Peter and Joan are married and Joan has self-employment income of $240,000.Peter is retired.How much additional 0.9% Medicare tax will Peter and Joan owe with their 2018 income tax return?
A)$360
B)$2,160
C)$0
D)They will receive a $90 refund
Q3) In general, accrual basis taxpayers recognize income when it is earned, regardless of when it is received.
A)True
B)False
Q4) Karen is single and earns wages of $250,000 in 2018.She has no other income.How much is her 0.9 percent Medicare tax on earned income?
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Page 8
Chapter 7: Tax Credits
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) Household income for purpose of the premium tax credit includes all of the following except:
A)AGI of the taxpayer
B)AGI of the taxpayer's dependents if required to file a return
C)Any tax-exempt income
D)Nontaxable Social Security benefits
E)All of the above are included in household income
Q2) Maxine is a 29-year-old single mother.Her tax liability before any credits is $1,000 and her earned income credit is $2,500.What is the amount of Maxine's refund? Explain.
Q3) The foreign tax credit applies only to foreign corporations.
A)True
B)False
Q4) In 2018, Brady purchases a 2018 Nissan Leaf electric vehicle for his personal use.He is eligible to claim a credit of $7,500.He is in the 35 percent marginal tax bracket and his regular tax liability before credits is $14,800.What is the tax benefit Brady realizes from this purchase?
Q5) Explain what type of educational expenses qualify for the American Opportunity tax credit and what type of educational expenses qualify for the lifetime learning credit.
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Chapter 8: Depreciation and Sale of Business Property
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) After 4 years of life in the slow lane, Doug decided to give up his goat ranch and move back to the big city.He sold the goat milking machine for $1,000.The machine originally cost $1,200 and had $820 of accumulated depreciation at the time of sale.
a.What is the total gain or loss on the sale of the goat milking machine?
b.Is the gain or loss treated as capital or ordinary? Explain.
Q2) In the current year, Penny exchanges an investment property in Santa Barbara with a mountain view for a lot with an ocean view in a qualifying like-kind exchange.Penny's basis in the land given up is $100,000 and the property has a fair market value of $250,000.In exchange for her property, Penny receives land with a fair market value of $200,000 and cash of $20,000.In addition, the other party to the exchange assumes a mortgage loan on Penny's property of $30,000.
a.Calculate Penny's realized gain, if any, on the exchange.
b.Calculate Penny's recognized gain, if any, on the exchange.
c.Calculate Penny's basis in the property received.
Q3) Automobiles generally have a 3-year cost recovery period under the Modified Accelerated Cost Recovery System (MACRS).
A)True
B)False
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10
Chapter 9: Payroll, Estimated Payments, and Retirement Plans
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) Mark the incorrect answer.Estimated income tax payments:
A)Need not be filed if the estimated tax, after subtracting withholding, can reasonably be expected to be more than $1,000.
B)If inadequate, may result in nondeductible penalties.
C)May be based on the amount of the tax liability for the prior year.
D)Are made in four installments on April 15, June 15, and September 15 of the tax year and on January 15 of the following year.
Q2) If a husband and wife both work, they must divide their withholding allowances equally on their W-4 Forms.
A)True
B)False
Q3) For each of the following payments, indicate the form (Form W-2, W-4, W-2G, 1099-B, 1099-DIV, 1099-INT, 1099-MISC, or 1099-R)that should be used to report the payment.
a.Dividends from a mutual fund
b.Las Vegas gambling winnings
c.Interest paid by a bank
d.Payment of salary and commissions to an employee
e.Distribution from an IRA account
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Chapter 10: Partnership Taxation
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83 Verified Questions
83 Flashcards
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Sample Questions
Q1) The tax year of a partnership generally closes upon entry of a new 20% partner.
A)True
B)False
Q2) Which of the following is a not true about an LLC?
A)LLCs are not required to have a general partner.
B)LLC members can participate in the management of the business.
C)Taxable income and losses pass through to the owners.
D)An LLC must have at least two members.
Q3) Partnership income is taxed at the same tax rates as the income of corporations.
A)True
B)False
Q4) The "at-risk" rule does not apply to activities involving real estate.
A)True
B)False
Q5) A partnership may not show a loss as a result of deducting guaranteed payments made to the partners.
A)True B)False
Q6) List three benefits of an LLC.
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Chapter 11: The Corporate Income Tax
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) If a corporation is unable to deduct a capital loss against capital gains for a particular tax year, it loses the tax benefit since the loss may not be carried to other tax years.
A)True
B)False
Q2) During the current year, the Melaleuca Corporation received dividends from 50-percent-owned domestic corporations in the amount of $100,000.
a.Assuming that in addition to the dividend income the corporation has gross income from operations of $250,000 and deductible operating expenses of $210,000, calculate the amount of the corporation's dividends received deduction for the current year.
b.If, instead of $250,000 in gross income from operations, the corporation has $200,000 in gross income from operations and the same amount of dividends and expenses, calculate the amount of the corporation's dividends received deduction for the current year.
Q3) A regular corporation with excess charitable contributions may carry the excess forward to the five succeeding tax years.
A)True
B)False
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Chapter 12: Tax Administration and Tax Planning
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) All paid tax return preparers must sign up with the IRS and obtain a preparer tax identification number.
A)True
B)False
Q2) The statute of limitations for a tax return generally is 3 years.
A)True
B)False
Q3) A tax preparer may be subject to a penalty for failing to provide a copy of the taxpayer's tax return to the client.
A)True
B)False
Q4) Which of the following is not a preparer penalty?
A)Tax preparers may be assessed a penalty for failing to give the taxpayer the preparer's workpapers.
B)Tax preparers may be assessed a penalty for failing to keep a copy of the prepared return.
C)Tax preparers may be assessed a penalty for endorsing or cashing a refund check issued to a taxpayer.
D)Tax preparers may be assessed a penalty for failing to sign a tax return.
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