Individual Income Tax
Chapter Exam Questions
Course Introduction
This course provides an in-depth examination of the federal income tax system as it applies to individual taxpayers. Topics include the determination of gross income, deductions, and credits; the tax treatment of capital gains and losses; tax implications of personal and business expenditures; and the calculation of tax liabilities. Students will explore tax planning strategies, the filing process, and relevant provisions of the Internal Revenue Code. The course emphasizes practical application through the analysis of case studies and preparation of individual tax returns, equipping students with the foundational knowledge necessary for tax compliance and planning.
Recommended Textbook MP Fundamentals of Taxation 2015 8th 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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Q1) The amount of tax liability calculated using the tax tables will always be the same as the amount calculated using the tax rate schedules.
A)True
B)False
Answer: False
Q2) Which of the following statements is true?
A) Compensation for services includes bonuses and severance pay.
B) Taxpayers who use a Form 1040EZ are not required to report any interest income in excess of $1,500.
C) If income tax withholding is less than the calculated tax liability,there will be tax due with the return.
D) Gross income is the "tax base" used to determine the amount of tax.
Answer: A
Q3) Which of the following refers to an income tax regulation?
A) Reg.§1.162-1.
B) Reg.§20.2032-1.
C) Reg.§25.2503-4.
D) Reg.§31.3301-1.
Answer: A
Page 3
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Chapter
2:
Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
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Q1) What is the limit on the social security amount for 2014?
A) $117,000.
B) $106,800.
C) $113,700.
D) $110,100.
Answer: A
Q2) The early withdrawal penalty is a for AGI deduction.Which form can the taxpayer use to claim this benefit?
A) 1040EZ.
B) 1040A.
C) 1040.
D) 1040A or 1040.
Answer: C
Q3) In a multiple support agreement,the taxpayer who will receive the exemption must file all the forms 2120 with his or her tax return.
A)True
B)False
Answer: True
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) Life insurance proceeds because of the death of the insured are fully excludable from the gross income of the recipient if the payment is made:
A) It does not matter how these payments are made.
B) Over time.
C) As a lump sum.
D) It does not matter how these payments are made and Over time.
Answer: C
Q2) The following items under compensation for sickness or injury are exempt from income and do not have to be reported on the taxpayer's tax return:
A) Sick pay.
B) Welfare payments.
C) Workers' compensation payments.
D) Welfare payments and workers' compensation payments.
Answer: C
Q3) All federal and state unemployment compensation benefits are not subject to income tax.
A)True
B)False
Answer: False
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) Why is it important to distinguish between a property settlement and alimony?
Q2) In order to qualify for a moving expense deduction,taxpayers must meet three tests.What are they?
Q3) Under a divorce agreement executed in 2014,periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.
A)True
B)False
Q4) A Health Savings Account (HSA)is a tax-exempt savings account to pay for qualified medical expenses.
A)True
B)False
Q5) The cost of self-employed health insurance premiums are deductible above-the line at a rate of 80% of the cost.
A)True
B)False
Q6) What are the two limitations associated with the deduction for health insurance for self-employed individuals?
Q7) Define each of the following: alimony,child support,and a property settlement.
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Chapter 5: Itemized Deductions
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Q1) On April 3rd,Megan discovers that her diamond broach has been stolen.The broach had a fair market value and adjusted basis of $15,000.The broach was not covered by Megan's insurance policy and her adjusted gross income for the year was $65,000.What would be her casualty loss deduction for the year?
Q2) Which of the following is deductible as a miscellaneous itemized deduction?
A)Job-hunting expenses.
B)Union dues.
C)Professional dues and subscriptions.
D)All of the above are considered miscellaneous deductions.
Q3) For investment interest expense in 2014,the deduction by a taxpayer is:
A)Limited to the investment interest expense paid in 2014.
B)Limited to the taxpayer's net investment income for 2014.
C)Not limited.
D)Limited to the taxpayer's gross investment income for 2014.
Q4) A taxpayer receives a deduction for services rendered to a charitable organization.
A)True
B)False
Q5) Donations to what types of organizations are tax deductible?
Q6) What are four major categories of deductible taxes for individual returns?
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Chapter 6: Self-Employed Business Income
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Q1) A sole proprietor's trade or business income or loss is reported on Schedule C,Form 1040.
A)True
B)False
Q2) Oscar bought an $800,000 apartment building on July 28,2014.On August 15,2014,he purchased $300,000 of 5-year class assets.Oscar elects to take the maximum expense on every asset.What is the maximum cost recovery deduction Oscar can take in 2014?
Q3) If inventory is a material amount,what method of accounting is acceptable for a sole proprietorship to use?
A) The cash method.
B) Accrual method.
C) Hybrid method.
D) Both Accrual method and Hybrid method.
Q4) For an expense to be ordinary,it must be customary or usual in the taxpayer's particular business.
A)True
B)False
Q5) Tonia acquires the following 5-year class property in 2014:
Q6) Bart has the following income and expenses for his Schedule C:
Page 8
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Chapter 7: Capital Gains and Other Sales of Property
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Q1) Aneta sold an apartment building for $713,470 in 2014.She purchased the building in 2008 for $600,000 and has taken $151,806 in depreciation on the building.Assuming Aneta is in the 33% tax bracket,how is her gain taxed?
A) $113,470 at 0% and $151,806 at 28%.
B) $113,470 at 25% and $151,806 at 15%.
C) $151,806 at 28% and $113,470 at 15%.
D) $151,806 at 25% and $113,470 at 15%.
Q2) The forms used to report a gain or loss on the sale of an asset depend on the classification of the asset being sold rather than on how the asset was used prior to sale.
A)True B)False
Q3) Sara owns an automobile for personal use.The adjusted basis is $13,500 and the FMV is $10,500.Sara has owned the car for two years.
a.Calculate the realized gain(loss)if Sara sells the vehicle for $12,500.
b.Calculate the recognized gain (loss)if Sara sells the vehicle for $12,500.
c.Calculate the realized gain (loss)if Sara sells the vehicle for $15,000.
d.Calculate the recognized gain (loss)if Sara sells the vehicle for $15,000.
Q4) Jim,the owner of a sole proprietorship,sold the following assets in 2014:
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Chapter 8: Rental Property, Royalties, and Income From
Flow-Through Entities
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Q1) When royalties are paid,the amount paid is reported to the recipient by the payer on a Form 1099-MISC.
A)True
B)False
Q2) If a taxpayer materially participates in a real estate activity as a real estate professional,the income and expenses of the activity should be reported on:
A) Schedule A
B) Schedule C
C) Schedule E
D) None of these
Q3) Kirk and Amy live in Augusta,Georgia.Every year during the Masters Golf Tournament,they rent their primary personal residence for 10 days for $10,000 to a large corporation that uses it to entertain clients.The rest of year,they reside full-time in their home.How should Kirk and Amy treat the rental income? Explain.
Q4) 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.
Q5) What are the different types of income that may be reported on Schedule E?
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Chapter 9: Tax Credits
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Q1) Andrew and Eunice are married filing jointly with AGI of $48,000.They contributed $1,800 to a qualified retirement plan.How much is their retirement savings contributions credit?
A) $0.
B) $180.
C) $900.
D) $1,800.
Q2) Brendan paid $950 to Brazil in foreign income taxes.His total income was $52,500,which included $12,000 of investment income from Brazil.His U.S.tax liability is $8,000.Brendan's foreign tax credit is:
A) $0.
B) $950.
C) $1,829.
D) $12,000.
Q3) The retirement savings contributions credit is available for married filing joint taxpayers only.
A)True
B)False
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11
Chapter 10: Payroll Taxes
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Q1) Ladaris has two jobs.She earned $118,000 from her first job and $10,000 from her second job.How much total FICA taxes will Ladaris have withheld from her wages from working two jobs?
A) $8,965.00.
B) $9,110.00.
C) $9,730.00.
D) $9,792.00.
Q2) Mahmet earned wages of $118,650 during 2014.He is single and claims two withholding allowances.How much will Mahmet's employer withhold in Medicare taxes for the year?
A) $1,696.50.
B) $1,696.60.
C) $1,703.43.
D) $1,720.43.
Q3) FICA taxes are collected equally from the employee and the employer.
A)True B)False
Q4) Only wages paid in cash are subject to federal withholding. A)True B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) Which of the following statements is incorrect?
A) Individual-based retirement plans include a Roth IRA.
B) Distributions from a pension plan may be made in a lump sum or may be spread out in payments over many years.
C) Tax-deferred plans can be created for purposes other than retirement.
D) If a pension plan is funded with contributions that have not been taxed,the distributions will not be taxed.
Q2) To calculate the taxable amount of an annuity payment,the taxpayer must determine the expected return under the contract.
A)True
B)False
Q3) With a Roth IRA,contributions are deductible,the account grows tax-free,and distributions are not taxable.
A)True
B)False
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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Q1) The installment method cannot be used to report gain from the sale of stock or securities that are traded on an established securities market.
A)True
B)False
Q2) The gross profit percentage is typically the gross profit divided by the contract price.
A)True
B)False
Q3) If a taxpayer trades a personal-use asset for another asset,the exchange does not qualify as a like-kind exchange.
A)True
B)False
Q4) When a loss is disallowed under the wash sale rules,
A) The loss is lost forever.
B) The loss is carried over indefinitely.
C) The loss is added to the basis of the newly acquired stock.
D) None of these.
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) Identify factors that increase or decrease the at-risk amount.
Q2) 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
Q3) Libby owns and operates Mountain View Inn,a bed and breakfast.Libby's inn is not considered a passive activity.
A)True
B)False
Q4) The term "passive activity" includes any activity for the production of income in which the taxpayer does not materially participate.
A)True
B)False
Q5) "Active participation" is a much more difficult standard to meet than "material participation."
A)True
B)False
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Chapter 14: Partnership Taxation
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Q1) Which of the following items decreases a partner's basis in his or her partnership interest?
A) A cash distribution from the partnership.
B) A nondeductible expense that flows through from the partnership.
C) A release from partnership liabilities.
D) All of these.
Q2) Partner Jamie has a basis of $10,000 in a partnership at the beginning of the year.She receives $5,000 in cash distributions,her distributive share of income is $3,000,and she receives an equipment distribution with a basis of $6,000 (FMV $12,000).Jamie's basis in her partnership interest at the end of the year is:
A) $0.
B) $2,000.
C) $8,000.
D) $13,000.
Q3) A guaranteed payment is treated as:
A) A separately stated item.
B) An ordinary expense.
C) Both a separately stated item and an ordinary expense.
D) None of these.
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Chapter 15: Corporate Taxation
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Q1) Purple Company makes and sells computer printers.It has taxable income of $1,300,000 before taking into account charitable contributions.The company contributed a parcel of unused land to an art museum to be used to construct a branch museum.The land had a FMV of $50,000 and a basis of $30,000.The company also donated 1,000 of its computer printers to the local community college for use in student computer labs.The printers have a FMV of $200 each and a basis of $120 each.Determine the taxable income of Purple Company and its charitable contribution carryforward,if any.
Q2) A corporation subject to AMT has AMT income of $270,000.What is the amount of alternative minimum tax?
A) $57,500.
B) $54,000.
C) $52,000.
D) $46,000.
Q3) Corporations are not subject to alternative minimum tax.
A)True B)False
Q4) Parent-subsidiary corporations must file a consolidated tax return.
A)True B)False
Page 17
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