Income Tax Accounting Test
Questions
Course Introduction
Income Tax Accounting is a course that explores the principles, rules, and procedures related to the taxation of individuals, partnerships, and corporations. It examines the structure and application of federal income tax laws, focusing on the concept of taxable income, tax calculations, compliance requirements, and reporting procedures. Students will learn to analyze various types of income, deductions, credits, and tax planning strategies while gaining practical experience in preparing tax returns and interpreting tax regulations. The course also addresses contemporary issues in tax law and emphasizes ethical considerations in tax practice.
Recommended Textbook
Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Page 2
Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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Sample Questions
Q1) Which of the following would disqualify a taxpayer from filing a Form 1040EZ?
A)Have no dependents.
B)Have interest income more than $2,000.
C)Have total taxable income under $100,000.
D)Be under age 65 and not blind.
Answer: B
Q2) Wages,salaries,and tips are compensation for services rendered.However,commissions,bonuses,and severance pay are not taxable.
A)True
B)False
Answer: False
Q3) The marginal tax rate is the total tax liability divided by the taxable income.
A)True
B)False
Answer: False
Q4) The U.S.individual income tax system is an example of a progressive tax rate structure.
A)True
B)False
Answer: True
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Chapter 2: Expanded Tax Formula, forms 1040a
and 1040, and Basic Concepts
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Q1) David and Martha were divorced on December 31,2016.Can they file their 2016 income tax return using married filing jointly? Why or Why not? What other filing status choices do they have,if any?
Answer: No,David and Martha must file as single because they were divorced on December 31.According to the IRS,marital status is determined as of the last day of the tax year.They might be able to file as head of household if certain qualifications are met,including maintaining a household that is the principal place of abode of a qualifying person for more than half the year.
Q2) The IRS can impose a ________ penalty on the tax due on a return where there is negligence.
A)20%
B)75%
C)25%
D)5%
Answer: A
Q3) The personal exemption for 2016 is $4,050.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) Payments under written dependent care assistance plans are tax-free,except that the exclusion for a single person cannot exceed his or her earned income and cannot exceed ________.
A)$5,150
B)$5,000
C)$2,500
D)$5,250
Answer: B
Q2) A taxpayer received a 1099-G for 2016 showing $350 of state income tax refund that he received during the year from 2015 state taxes paid.Does the taxpayer have to report the state income tax refund of $350 in 2016?
Answer: If the taxpayer used the standard deduction in 2015,the refund of $350 does not have to be reported.However,if the taxpayer itemized in 2015,the refund must be reported.But the taxable amount is based on the lesser of a)the amount received,or b)the amount deducted on Schedule A,or c)the amount by which the itemized deductions exceed the standard deduction.
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) In order to meet the distance test criteria for qualifying moving expenses,the new job location must be:
A)at least 50 miles farther than the new residence from the old job location.
B)at least 50 miles farther than the old residence was from the old job location.
C)100 miles from the old residence.
D)100 miles from the old job location.
Q2) Qualifying moving expenses are treated as an itemized deduction for 2016. A)True
B)False
Q3) Maria files her tax return married filing separately.She has not lived with her husband for over two years.Beginning in January 2016,by court ordered decree,she is to pay her husband $600 per month as separate maintenance.For 2016 how much will she be able to deduct as alimony?
A)$3,600.
B)$0.
C)$600.
D)$7,200.
Q4) What is a Health Savings Account HSA)?
Q5) Why is it important to distinguish between a property settlement and alimony?
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Chapter 5: Itemized Deductions
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Q1) Rick and Claudia live in an apartment and have purchased land where they plan to build their home.They have a mortgage on the lot and have received a Form 1098 from the lender showing the interest paid on the note.Interest paid on this loan is deductible as home mortgage interest on their Schedule A.
A)True B)False
Q2) Personal casualty losses resulting from termite damage are deductible. A)True B)False
Q3) The standard business mileage rate for automobiles for 2016 is 54.0 cents per mile. A)True B)False
Q4) For 2016,describe the treatment that taxpayers can elect to take for the amount of either 1)state and local income taxes or 2)state and local general sales taxes paid during the tax year.
Q5) Donations to what types of organizations are tax deductible?
Q6) If the donation is greater than $250,what kind of written acknowledgment must the taxpayer obtain from the recipient organization?
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Beau earned $25,000 of net earnings from a tax preparation business that he runs during tax season.He also earned a salary of $100,000 from his full-time job.How much self-employment tax must he pay for 2016? Round calculations to the nearest dollar)
Q2) The adjusted basis of an asset is:
A)The cost of the asset.
B)The cost basis less any accumulated depreciation.
C)The trade-in value of the asset.
D)The fair market value of the asset.
Q3) Shante is employed by a local pharmaceutical company where she earned $48,000 in 2016.During the year,she also had self-employment income of $18,000.Her self-employment tax rounded to the nearest dollar is:
A)$2,543.
B)$2,754.
C)$0.
D)$2,061.
Q4) The §179 expense deduction is limited to earned income.
A)True
B)False
Q5) Describe each of the depreciation conventions and when each is applicable.
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) The amount realized from a sale or trade of property is the amount received for the asset minus the basis that will be recognized for tax purposes.
A)True
B)False
Q2) Elandra purchased 500 shares in Prompt Messenger Services for $12,000 on November 21,2015.The company went bankrupt on June 12,2016,with no hope of recovery for the shareholders.On what date is the stock deemed to be worthless and what is the nature of the loss?
A)December 31,2016,long-term loss in 2016.
B)December 31,2016,short-term loss in 2016.
C)June 13,2016,short-term loss in 2016.
D)December 31,2015,short-term loss in 2015.
Q3) A taxpayer purchased land in 2008 for $85,000 and sold it in 2016 for $75,000 cash.The buyer also assumed the mortgage of $5,000.What is the amount of gain/loss on the sale of the land?
A)$5,000 gain.
B)$15,000 gain.
C)$20,000 loss.
D)$5,000 loss.
Page 9
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Chapter 8: Rental Property, royalties, and Income From
Flow-Through Entities Line 17, form 1040, and Schedule E
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Q1) Generally,a taxpayer uses Schedule C to report royalty income.
A)True
B)False
Q2) Jonathan and Sandy rented their cabin for 123 days and used the cabin for personal use for 55 days.The cabin is considered personal/rental property.
A)True
B)False
Q3) What is meant by a passive activity? Why is a rental activity classified as a passive activity? Can a rental activity be classified as active? Explain.
Q4) There are two methods available to taxpayers to allocate expenses between personal and rental use of properties.
A)True
B)False
Q5) What is meant by ordinary rental expenses and what criteria must be met to be deductible? Provide some examples of deductible rental expenses.For this question,assume no personal use of the rental property.
Q6) Explain what is considered personal use of a rental property.
Q7) What are the different types of income that may be reported on Schedule E?
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Chapter 9: Tax Credits Form
1040, lines 46 Through 54 and Lines 66a Through 73
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Sample Questions
Q1) Debbie files as head of household and has AGI of $35,500.During the year,she contributed $1,000 to a 401k).What amount of retirement savings contributions credit can Debbie take?
A)$100.
B)$0.
C)$1,000.
D)$200.
Q2) Brooke is single with earned income of $20,354 and one qualifying child.Calculate Brooke's earned income credit using the EIC formula.Round your answer to the nearest dollar)
Q3) Which of the following statements regarding adoption credits is true?
A)Qualified expenses may include reimbursements from employer programs.
B)The maximum credit allowed per adopted child is $16,000.
C)Adoption of foreign children does not qualify for the credit.
D)The adoption credit may be limited if AGI amounts exceed certain levels.
Q4) The earned income credit is adjusted each year for inflation.
A)True
B)False
Page 11
Q5) Name the two credits that are available as education credits and briefly discuss the criteria to claim the credits.
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Chapter 10: Payroll Taxes
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Q1) Form 1040-ES is filed along with the Form 1040 when a taxpayer makes estimated payments during the year.
A)True
B)False
Q2) Failure to furnish a correct TIN to a requester payer)can result in a penalty to the payee of:
A)$500 maximum for failure to complete any W-9 forms as required.
B)$0,it is the responsibility of the payer requester)to have the correct information.
C)$0,but the taxpayer can be subject to fines and/or imprisonment if caught by an IRS agent.
D)$50 for each failure to complete the W-9.
Q3) Mahmet earned wages of $118,700 during 2016.He is single and claims two withholding allowances.How much will Mahmet's employer withhold in Medicare taxes for the year?
A)$1,711.00.
B)$1,718.25.
C)$1,722.60.
D)$1,721.15.
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) SIMPLE and SEP plans are subject to the same nondiscrimination rules that apply to other retirement plans.
A)True
B)False
Q2) A pension or profit-sharing plan must not discriminate in favor of highly compensated employees.What employees meet the definition of "highly compensated" for purposes of these plans?
Q3) Len is entitled to receive monthly payments of $1,500 over his life from his employer's qualified pension plan.The payments begin January 1,2016.He contributed $71,500 to the plan prior to his retirement at age 62.Using the simplified method,how much of the payments will be included in Len's taxable income for 2016?
A)$14,700.
B)$0.
C)$3,300.
D)$18,000.
Q4) Individuals age 50 or older can make greater annual contributions to an IRA.
A)True
B)False
Q5) What is an annuity contract? Who are the parties to an annuity contract?
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) The ownership test for the sale of a personal residence states:
A)That a taxpayer must have lived in the home for at least two years.
B)That a taxpayer be the original owner of the residence.
C)That a taxpayer must have owned the home for at least two years.
D)None of these.
Q2) An apartment building with an adjusted basis of $500,000 was destroyed by a tornado on April 30,2016.On May 10,2016,the insurance company paid the owner $695,000.The owner reinvested $570,000 in a new apartment complex.What is the basis of the new complex if non-recognition of gain from an involuntary conversion is elected?
A)$570,000.
B)$625,000.
C)$500,000.
D)$695,000.
Q3) The holding period of property received in a like-kind exchange:
A)Begins on the date the exchange property is identified.
B)Includes the holding period of the old asset exchanged.
C)Begins on the date of the exchange.
D)Begins up to 180 days prior to the exchange.
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) Gifts to charity are not allowed for AMT purposes.
A)True
B)False
Q2) After computing all tax preferences and AMT adjustments,Adam and his wife Cindy have AMTI of $290,000.If Adam and Cindy file a joint tax return,what exemption amount can they claim for AMT for 2016?
A)$53,900.
B)$51,225.
C)$83,800.
D)$0.
Q3) AMT depreciation of personal property is calculated using which method?
A)Sum-of-the-years digits method.
B)Straight-line method.
C)200% declining balance method.
D)150% declining balance method.
Q4) A loss must first be allowed under the passive activity loss rules and then must pass through the at-risk rules in order to ultimately be deducted on the tax return.
A)True
B)False
Page 15
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Chapter 14: Partnership Taxation
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Q1) Calvin purchased a 30% partnership interest for $53,000 in March 2014.Calvin's share of partnership income was $5,000 in 2014,$25,000 in 2015,and $9,000)in 2016.Calvin made no additional contributions to,or withdrawals from,the partnership.On December 1,2016,Calvin sold his partnership interest for $83,000.What is Calvin's gain or loss on the disposal?
A)$30,000.
B)$83,000.
C)$0.
D)$9,000.
Q2) The sale of a partnership interest is similar to the sale of any capital asset and is reported by the partner on Schedule D of his or her individual tax return.
A)True
B)False
Q3) All income/gain and expense/loss items affect a partner's basis in his or her partnership interest.
A)True
B)False
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16
Chapter 15: Corporate Taxation
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Q1) If a corporation has a net capital loss,it can carry that loss back three years and then forward six.
A)True
B)False
Q2) Saffron Corporation has book income of $200,000,which includes tax expense of $40,000 and a net capital loss of $10,000.Saffron's taxable income is:
A)$230,000.
B)$240,000.
C)$210,000.
D)$250,000.
Q3) There are four characteristics that a C Corporation must meet in order to elect Subchapter S status.List the characteristics.
Q4) The maximum marginal corporate tax rate is 35%.
A)True
B)False
Q5) When are estimated income tax payments due for a corporation with a fiscal year-end of November? What if the fiscal year-end is June?
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