Individual Income Tax
Textbook Exam Questions
Course Introduction
This course provides a comprehensive overview of the principles and regulations governing individual income taxation in the United States. Students will learn about the Internal Revenue Code as it applies to individuals, including the determination of gross income, allowable deductions, exemptions, filing status, tax credits, and the computation of tax liability. The course also addresses special topics such as capital gains and losses, alternative minimum tax, and taxation of investments. Through case studies and practical examples, students will develop the skills necessary to prepare individual income tax returns and understand the implications of tax planning strategies for individuals.
Recommended Textbook
Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Chapter 1: Introduction to Taxation, the Income Tax
Formula,
and Form 1040ez
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Sample Questions
Q1) Paid tax preparers must comply with all of the following EXCEPT:
A)Pass a competency examination.
B)Sign all tax returns they prepare.
C)Comply with the provisions of Circular 230.
D)Charge a contingent fee.
Answer: D
Q2) A tax rate that increases as the tax base decreases is an example of what kind of tax rate structure?
A)Proportional.
B)Recessive.
C)Progressive.
D)Regressive.
Answer: D
Q3) A proportional tax rate structure is a tax where the tax rate remains at the same rate regardless of the tax base.
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) Which of the following items would not be considered as support for a dependency exemption?
A)life insurance premiums.
B)food.
C)medical and dental care.
D)shelter.
Answer: A
Q2) The interest charged by the IRS for the first three months of 2016 was: A)3%.
B)4%.
C)6%.
D)5%.
Answer: A
Q3) The basic standard deduction in 2016 for a taxpayer,under 65 and not blind,filing married filing jointly is:
A)$9,300.
B)$12,200.
C)$12,400.
D)$12,600.
Answer: D
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) Constructive receipt means the income is available to or in the control of the taxpayer regardless of whether the taxpayer chooses to utilize the income.
A)True
B)False
Answer: True
Q2) Under the cash method,an individual reports income when:
A)income is received or earned.
B)income is accrued.
C)income is earned.
D)income is received or constructively received.
Answer: D
Q3) When filing their tax returns,almost all individuals use:
A)The cash receipts and disbursements method.
B)The accounting method.
C)The accrual method.
D)The recognition method.
Answer: A
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) What is the amount of self-employment tax that self-employed individuals must pay and what is the proper treatment on their tax return?
Q2) For 2016,taxpayers are eligible to take a student loan interest deduction of up to:
A)$3,000.
B)$2,500.
C)$2,800.
D)$2,150.
Q3) A qualified education loan is one incurred by the taxpayer solely to pay qualified education expenses incurred on behalf of the:
A)taxpayer's spouse.
B)a dependent of the taxpayer.
C)taxpayer.
D)all of these.
Q4) Deductible moving expenses may include moving household goods and personal effects from the old residence to the new residence.
A)True
B)False
Q5) 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) Individual taxpayers may carry forward for five years charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitation.
A)True
B)False
Q2) Explain the change in the tax treatment regarding the limitation of itemized deductions for high-income taxpayers.
Q3) Loan fees that are not "points",or prepaid interest,are deductible as interest on Schedule A.
A)True
B)False
Q4) Unreimbursed employee business expenses for travel qualify as itemized deductions subject to the 2% floor.
A)True
B)False
Q5) If an accountant in public accounting seeks work as a controller in private industry,the expenses of job hunting may be deductible. A)True
B)False
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Sample Questions
Q1) On July 15,2014,Travis purchased some office furniture for $20,000 to be used in his business.He did not elect to expense the equipment under §179 or bonus.On December 15,2016,he sells the equipment.What is his cost recovery deduction for 2016?
A)$1,749.
B)$2,858.
C)$3,498.
D)$0.
Q2) Depreciation is allowed for every tangible asset except land)used either in a trade or business or for the production of income.
A)True
B)False
Q3) Sandy is the owner of ABC Loan Company.On June 2,2015,ABC loaned Randy $80,000.In 2016,Randy filed for bankruptcy.At that time,the bankruptcy court indicated that Randy's creditors could expect to receive 30 cents on the dollar.In August 2017 final settlement was made,and ABC received $20,000.ABC's policy is to deduct losses as soon as permitted.How much loss can ABC deduct and in which year?
Q4) Describe each of the depreciation conventions and when each is applicable.
Q5) List and define the criteria for an expenditure to be deductible on Schedule C. To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Sample Questions
Q1) Shanstella bought a 4-unit apartment building in July 2007 for $360,000 and sold it for $480,000 in 2016.There was $96,541 of accumulated straight-line depreciation on the apartment building.Assuming that Shanstella is in the 33% tax bracket,how much of her gain is taxed at 25%?
A)$120,000.
B)$216,541.
C)$96,541.
D)$0.
Q2) Joe received a parcel of land as a gift from his sister,Lisa,in 2011.At the time of the gift,the land had a FMV of $20,000.Lisa purchased the land in 2007 for $23,000.If Joe sells the land in 2016 for $32,450,he will report a
A)$9,450 ordinary gain.
B)$19,540 capital gain.
C)$12,450 capital gain.
D)$9,450 capital gain.
Q3) When a Section 1231 asset is sold,the gain can be either classified as an ordinary or capital gain.
A)True
B)False
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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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Sample Questions
Q1) If a taxpayer materially participates in his/her rental activity as a real estate professional,the activity is considered a trade or business and not a passive activity.
A)True
B)False
Q2) Rental income may be reported on a Schedule A or a Schedule C.
A)True
B)False
Q3) Flow-through entities file "informational returns."
A)True
B)False
Q4) Flow-through entities include,but are not limited to,LLCs,S Corporations,trusts and estates.
A)True
B)False
Q5) All advance rental payments received,including security deposits for a rental property,must be reported as income when received.
A)True
B)False
Q6) 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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Q1) Credit for child and dependent care expenses can only be claimed on a Form 1040.
A)True
B)False
Q2) Tuan and Marisa are married,file a joint return,and have two dependent children,Zack,age 6 and Aaron,age 5.Tuan has earned income of $72,000.Marisa was a full- time student for nine months)with no income.They paid a qualified day care center
$5,000.How much is Tuan and Marisa's child and dependent care credit for the year?
A)$1,200.
B)$600.
C)$1,000.
D)$900.
Q3) All taxpayers must file Form 1116 to receive the foreign tax credit.
A)True
B)False
Q4) Which of the following statements regarding adoption credits is not true?
A)Adoption of foreign country children does not qualify for the credit.
B)Adoption of a child of taxpayer's spouse does not qualify.
C)Form 8839 must be filed to claim the credit.
D)There is a dollar limit to the maximum credit allowed per adopted child.
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Chapter 10: Payroll Taxes
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Sample Questions
Q1) Eva earned $89 in tips in March.When must she inform her employer of her tips on Form 4070 for federal income tax and FICA withholding purposes?
A)March 31.
B)April 30.
C)April 10.
D)Tips are not subject to payroll taxes if less than $90 in any one month.
Q2) Jan hired Mike to dog sit for her beloved but lonely pooch,Barney while she worked)starting on January 4,2016 at $300 per month.Jan does not withhold any federal taxes.
a.How much payroll tax should Jan pay for the year?
b.If Mike came to Jan's house to walk Barney once a day and also walked other dogs in the neighborhood,is Jan required to complete Schedule H? Explain.
Q3) An employer who is a monthly schedule depositor and accumulates a $100,000 tax liability on any day must pay the tax on the next business day and is allowed by law to remain a monthly schedule depositor until the next year when the employer will become a semiweekly schedule depositor.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) Distributions from a retirement plan are not subject to a 10% additional tax in each of the following instances except when
A)The distribution is used to pay for medical expenses above the 10% AGI threshold.
B)The distribution is made to pay an IRS tax levy on the plan.
C)The distribution is made to an employee or retiree on or after age 59½.
D)The distribution is paid to an employee to be used to pay health insurance premiums.
Q2) Damian is age 79.He purchased a single life annuity contract that will pay him
$4,000 per month for life.The expected return on the contract is:
A)$936,000.
B)$518,400.
C)$480,000.
D)$40,000.
Q3) If a taxpayer pays for an annuity contract with after-tax dollars,all payments received under the contract will be tax-free until the original cost is recovered.
A)True
B)False
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) When a loss is disallowed under the wash sale rules,
A)The loss is carried over indefinitely.
B)The loss is lost forever.
C)The loss is added to the basis of the newly acquired stock.
D)None of these.
Q2) The state condemned Cassidy's land on November 25,2016.The land has a $400,000 basis.Cassidy received insurance proceeds of $610,000 on January 27,2017.Cassidy has until what date to defer the gain under the involuntary conversion rules?
A)December 31,2020.
B)December 31,2018.
C)November 25,2018.
D)December 31,2019.
Q3) On June 15,2016,Roco sold land held for investment to Scotty for $100,000 cash and an installment note of $500,000 payable in five equal annual installments beginning on June 15,2017,plus interest at 10%.Roco's basis in the land is $300,000.What amount of gain is recognized in 2016 under the installment method?
Q4) A dealer of equipment can recognize gains using the installment method.
A)True
B)False
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Sample Questions
Q1) Bailey owns a 20% interest in a partnership not involved in real estate)in which his at-risk amount was $25,000 at the beginning of the year.During the year,Bailey receives a distribution of $20,000 from the partnership.The partnership produces an $80,000 loss during the year.If you ignore the passive loss rules,Bailey's deductible loss for the year is:
A)$25,000.
B)$80,000.
C)$5,000.
D)$20,000.
Q2) Every taxpayer who calculates depreciation on his or her tax return will have a depreciation adjustment for AMT purposes.
A)True
B)False
Q3) Catherine purchased furniture and fixtures 7-year property)for her shop for $80,000 in May.What AMT depreciation adjustment is required for the year?
A)$2,864.
B)$8,568.
C)$11,432.
D)$0.
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Chapter 14: Partnership Taxation
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Sample Questions
Q1) Liquidation occurs when a partner's entire interest is redeemed by the partnership.
A)True
B)False
Q2) Paris,a 60% partner in Omega Partnership,has a basis of $25,000 in her partnership interest.Paris receives a cash distribution of $24,000 at year-end.What is Paris's basis in her partnership interest at the end of the year?
A)$25,000.
B)$24,000.
C)$1,000.
D)$0.
Q3) Which of the following partnership items are not included in the self-employment income calculation?
A)Section 179 expense.
B)Gain on the sale of partnership property.
C)Guaranteed payments.
D)Ordinary income.
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Chapter 15: Corporate Taxation
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Sample Questions
Q1) Sunrise Corporation owns 30% of Sunset Corporation.Both are domestic corporations.Sunset pays a $10,000 dividend to Sunrise.What amount of dividend income will be included in the taxable income of Sunrise Corporation?
A)$2,000.
B)$3,000.
C)$10,000.
D)$8,000.
Q2) Schedule L is a reconciliation of net income per books to net income per the tax law.
A)True
B)False
Q3) A Subchapter S corporation must be a domestic corporation.
A)True
B)False
Q4) A corporation must file Form 1120 2½ months after the end of its fiscal year.
A)True
B)False
Q5) When a corporation is formed,the transaction is tax-free.
A)True
B)False
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