Income Tax Accounting Study Guide
Questions
Income Tax Accounting is a comprehensive course that explores the concepts, rules, and procedures related to the preparation and analysis of income tax returns for individuals and businesses. Students will gain a deep understanding of current tax laws, regulations, and ethical considerations, as well as the impact of federal and, where applicable, state income taxation on different forms of business organizations. The course includes hands-on experience with tax forms, practical problem-solving, income recognition, deductions, credits, and the use of tax software, preparing students for both professional roles and further study in accounting and taxation.
Recommended Textbook
McGraw Hills Taxation of Individuals 2018 Edition 9th Edition by Spilker Brian C
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14 Chapters
1589 Verified Questions
1589 Flashcards
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Chapter 1: An Introduction to Tax
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Sample Questions
Q1) Jackson has the choice to invest in city of Mitchell bonds or Sundial,Inc.corporate bonds that pay 10% interest.Jackson is a single taxpayer who earns $55,000 annually.Assume that the city of Mitchell bonds and the Sundial,Inc.bonds have similar risk. Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 7.8%.How would you advise Jackson to invest his money?
A) Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds.
B) Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds.
C) Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds.
D) Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds.
E) None of the choices are correct.
Answer: D
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Page 3
Chapter 2: Tax Compliance, The IRS and Tax Authorities
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Sample Questions
Q1) Which of the following audits is the most common and typically less comprehensive?
A) Correspondence.
B) Random.
C) Office.
D) Field.
E) None of the choices are correct.
Answer: A
Q2) Temporary Regulations have more authoritative weight than revenue rulings.
A)True
B)False
Answer: True
Q3) The three basic types of IRS examinations are computer exams,office exams,and business exams.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Tax Planning Strategies and Related Limitations
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Q1) Which of the following is more likely to receive IRS scrutiny under the assignment of income doctrine?
A) A corporation paying its shareholders a $20,000 dividend.
B) A parent employing her child in the family business.
C) A taxpayer gifting stock to his children.
D) A cash-basis business delaying billing its customers until after year end.
E) None of the choices are correct.
Answer: B
Q2) The assignment of income doctrine is a natural limitation to the timing strategy.
A)True
B)False
Answer: False
Q3) One limitation of the timing strategy is the difficulties in accelerating a tax deduction without accelerating the actual cash outflow that generates the tax deduction.
A)True
B)False
Answer: True
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Chapter 4: Individual Income Tax Overview, Exemptions, and Filing Status
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Sample Questions
Q1) The character of income is a factor in determining the rate at which the income is taxed.
A)True
B)False
Q2) All of the following represents a type or character of income except:
A) Tax exempt.
B) Capital.
C) Qualified dividend.
D) Normal.
Q3) Anna is a qualifying child of her parents.However,she was recently married.Anna and her husband filed a joint return.If they had filed separately,Anna would have owed no taxes,though her husband would have owed just $5.Because Anna herself owed no taxes,her parents can still claim her as a dependent.
A)True
B)False
Q4) Which of the following series of inequalities is generally most accurate?
A) Gross income adjusted gross income taxable income
B) Adjusted gross income gross income taxable income
C) Adjusted gross income taxable income gross income
D) Gross income taxable income adjusted gross income
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Chapter 5: Gross Income and Exclusions
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Sample Questions
Q1) Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.
A)True B)False
Q2) The tax law defines alimony to include transfers of property (but not cash)between former spouses.
A)True B)False
Q3) Gross income includes:
A) all income from whatever source derived unless excluded by law.
B) excluded income.
C) deferred income.
D) all realized income.
E) All of the choices are correct.
Q4) Anna received $15,000 from life insurance paid upon the death of her grandmother.Anna can exclude the entire amount of the life insurance from her gross income.
A)True B)False
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Chapter 6: Individual Deductions
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Sample Questions
Q1) Brice is a single,self-employed electrician who earns $60,000 per year in self-employment income.Brice paid the following expenses this year.Which of the expenses are deductible for AGI? 1.The cost of health insurance (not purchased through an exchange)
2)The employer portion of self-employment tax paid
3)Penalty on early withdrawal of funds from a certificate of deposit
A) Numbers 1 and 2 only.
B) Numbers 1 and 3 only.
C) Numbers 2 and 3 only.
D) None of the numbers are deductible for AGI.
E) All the numbers are deductible for AGI.
Q2) The phrase "ordinary and necessary" means that an expense must be appropriate and helpful for generating a profit.
A)True
B)False
Q3) Last year Henry borrowed $15,000 to help pay for his dependent daughter's college tuition.This year Henry paid $2,800 of interest on the loan.How much,if any,interest can Henry deduct if he files single with AGI of $72,500?
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Page 8
Chapter 7: Investments
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Sample Questions
Q1) Generally,losses from rental activities are considered to be active losses.
A)True
B)False
Q2) Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset these passive losses or until the taxpayer disposes of that activity.
A)True
B)False
Q3) When a bond is purchased in the secondary bond market at a discount,the amount of discount treated as interest income when the bond is sold prior to maturity is the:
A) market premium.
B) market discount.
C) accrued market premium.
D) accrued market discount.
E) None of the choices are correct.
Q4) Compare and contrast how interest income is reported for the following types of bonds: (a)bond originally issued at a discount,(b)bond originally issued at a premium,(c)bond purchased at a discount in a secondary market,(d)bond purchased at a premium in a secondary market.
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Chapter 8: Individual Income Tax Computation and Tax Credits
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Sample Questions
Q1) Miley,a single taxpayer,plans on reporting $28,950 of taxable income this year (all of her income is from a part-time job).She is considering applying for a second part-time job that would give her an additional $10,000 of taxable income.By how much will the income from the second job increase her tax liability? (use the tax rate schedules in the text)
A) $1,000
B) $1,500
C) $1,600
D) $2,500
Q2) John and Sally pay Janet (Sally's older sister)to watch John and Sally's child Dexter during the day.Janet cares for Dexter in her home.John and Sally may claim a child and dependent care credit based on the amount they pay Janet to care for Dexter.
A)True
B)False
Q3) Generally,income from an active trade or business is subject to the 3.8% net investment income tax.
A)True
B)False
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Chapter 9: Business Income, Deductions, and Accounting Methods
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Sample Questions
Q1) Even a cash method taxpayer must consistently use accounting methods that "clearly reflect income" for tax purposes.
A)True
B)False
Q2) Individual proprietors report their business income and deductions on:
A) Form 1065.
B) Form 1120S.
C) Schedule C.
D) Schedule A.
E) Form 1041.
Q3) In order to deduct a portion of the cost of a business meal which of the following conditions must be met?
A) A client (not a supplier or vendor) must be present at the meal.
B) The taxpayer or an employee must be present at the meal.
C) The meal must occur on the taxpayer's business premises.
D) None of the choices is a condition for the deduction.
E) All of the choices are conditions for a deduction.
Q4) A short tax year can end on any day of any month other than December.
A)True
B)False
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Chapter 10: Property Acquisition and Cost Recovery
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Q1) Which is not an allowable method under MACRS?
A) 150 percent declining balance
B) 200 percent declining balance
C) Straight line
D) Sum of the years digits
E) All of the choices are allowable methods under MACRS.
Q2) Alexandra purchased a $35,000 automobile during 2017.The business use was 70 percent.What is the allowable depreciation for the current year (ignore any possible bonus depreciation)? Exhibit 10-8 in the text
Q3) Which of the following would be considered an improvement rather than a routine maintenance?
A) Oil change
B) Engine overhaul
C) Wiper blade replacement
D) Air filter change
Q4) All taxpayers may use the §179 immediate expensing election on certain property.
A)True
B)False
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Page 12
Chapter 11: Property Dispositions
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Sample Questions
Q1) Butte sold a machine to a machine dealer for $50,000.Butte bought the machine for $55,000 several years ago and has claimed $12,500 of depreciation expense on the machine.What is the amount and character of Butte's gain or loss?
A) $7,500 §1231 loss.
B) $5,000 §1231 loss.
C) $7,500 ordinary gain.
D) $7,500 capital gain.
E) None of the choices are correct.
Q2) Koch traded machine 1 for machine 2.Koch originally purchased machine 1 for $75,000 and machine 1's adjusted basis was $40,000 at the time of the exchange.Machine 2's seller purchased it for $65,000 and machine 2's adjusted basis was $55,000 at the time of the exchange.What is Koch's adjusted basis in machine 2 after the exchange?
A) $40,000.
B) $50,000.
C) $55,000.
D) $75,000.
E) None of the choices are correct.
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Page 13
Chapter 12: Compensation
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Sample Questions
Q1) How is the bargain element for a stock option calculated?
A) The difference between the strike price and the market price on the date of grant.
B) The difference between the market price on the exercise date and the market price on the date of grant.
C) The difference between the market price on the exercise date and the strike price.
D) The difference between the market price on the sale date and the strike price.
Q2) Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share)at the time she started working when the stock price was $13 per share.Three years later,when the share price was $23 per share,she exercised all of her options.If Suzanne holds the shares for ten additional months and sells them when the market price is $30,how much gain will Suzanne recognize on the sale and how much tax will she pay assuming her marginal tax rate is 35 percent?
Q3) Employers computing taxable income receive a deduction for reasonable salary and wages paid to employees.
A)True
B)False
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Chapter 13: Retirement Savings and Deferred Compensation
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Q1) Which of the following statements regarding IRAs is false?
A) Taxpayers who participate in an employer-sponsored retirement plan may be allowed to make deductible contributions to a traditional IRA.
B) The ability to make deductible contributions to a traditional IRA and nondeductible contributions to a Roth IRA may be subject to phase-out based on AGI.
C) A taxpayer may contribute to a traditional IRA in 2017 but deduct the contribution on her 2016 tax return.
D) Taxpayers who have made nondeductible contributions to a traditional IRA are taxed on the full proceeds when they receive distributions from the IRA.
Q2) Deborah (single,age 29)earned $25,000 in 2017.Deborah was able to contribute $1,800 ($150/month)to her employer sponsored 401(k).What is the total saver's credit that Deborah can claim for 2017? Exhibit 13-9 in the text
Q3) An employer may contribute to an employee's traditional 401(k)account but the employer may not contribute to an employee's Roth 401(k)account.
A)True
B)False
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Chapter 14: Tax Consequences of Home Ownership
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Q1) In general,total deductible home office expenses are limited to the gross income derived from the business minus business expenses unrelated to the home (that is,they are limited to net Schedule C income before home office expenses).
A)True
B)False
Q2) Expenses of a vacation home allocated to rental use are deductible for AGI.
A)True
B)False
Q3) A taxpayer who otherwise meets the ownership and use tests may not be allowed to exclude all of her realized gain if the taxpayer has nonqualified use of the home before selling.
A)True
B)False
Q4) The tax laws place a fixed dollar limit on the amount of qualified residence interest a taxpayer may deduct in a particular year.
A)True
B)False
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