Course Introduction
Individual Taxation Final Exam Questions
Individual Taxation explores the fundamental principles and practices governing the taxation of individuals in the United States. The course covers topics such as gross income, exclusions, deductions, and credits, with an emphasis on federal income tax law. Students will examine filing requirements, tax rates, the computation of taxable income, and the reporting of various types of income and expenses. Practical applications include preparing basic individual tax returns and analyzing current tax policy issues, providing students with a comprehensive understanding of how tax rules affect personal financial decisions.
Recommended Textbook
Concepts in Federal Taxation 2019 26th Edition Kevin E. Murphy
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16 Chapters
2071 Verified Questions
2071 Flashcards
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Page 2
Chapter 1: Federal Income Taxation-An Overview
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Q1) Which of the following is/are categorized as itemized deduction(s)?
I.Trade or business expenses.
II.Rental expenses.
III.Property taxes on personal residence.
IV.Investment interest expense.
A)Only statement I is correct.
B)Only statement IV is correct.
C)Statements I and III are correct.
D)Statements III and IV are correct.
E)Statements I, II, and IV are correct.
Answer: D
Q2) Pay-as-you-go withholding is consistent with Adam Smith's criteria of A)Certainty.
B)Convenience.
C)Economy.
D)Fairness.
E)Transparency.
Answer: B
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Page 3
Chapter 2: Income Tax Concepts
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Q1) Drew Corporation purchased machinery costing $825,000 in 2017. Drew paid $5,000 for installation and testing of the machinery. Under a special election, Drew expensed $500,000 of the cost of the machinery in 2017. Drew also deducted depreciation on the machinery of $46,443 in 2017 and $79,593 in 2018. Drew's repair and maintenance costs on the machinery were $10,200 in 2017 and $13,300 in 2018. What is Drew Corporation's adjusted basis in the machinery at the end of 2018?
A)$175,468
B)$198,964
C)$203,964
D)$325,000
E)$698,964
Answer: C
Q2) Any deduction taken in a prior year that is recovered in a subsequent year is reported as income in the year it is recovered, to the extent that a tax benefit was received from the deduction.
A)True
B)False
Answer: True
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Chapter 3: Income Sources
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Q1) Glenn and Vera divorce during 2018. Per their 2018 divorce agreement, Glenn receives their former personal residence valued at $180,000 with a basis of $100,000. Also, Glenn will pay Vera $5,000 annually for eight years. If Vera dies before the end of the eight years, the balance of the payments is to be paid to Vera's estate in a lump sum. The couple has not lived together for the past two years.
A)Glenn can deduct $5,000 annually for alimony paid to Vera.
B)Vera can deduct $40,000 (1/2 of the unrealized gain on the house).
C)Vera does not recognize any income from the property and/or cash transactions.
D)Vera must recognize $40,000 as a gain on the disposition of her interest in the house.
E)Vera must recognize all the cash received as alimony income.
Answer: C
Q2) According to the U.S. Supreme Court, income may be defined as the gain derived from capital, from labor, or from both combined provided it is understood to include profit gained through sale or conversion of capital assets.
A)True
B)False
Answer: True
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Chapter 4: Income Exclusions
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Sample Questions
Q1) Frank receives $1,000 interest income from City of St Louis bonds.
A)Fully excluded from gross income.
B)Fully included in gross income.
C)Partially excluded from gross income.
Q2) A college student who is a candidate for a degree may exclude the value of a scholarship received for I.Meals.
II.Books.
III.Computer.
IV.Tuition.
V.Housing.
A)Statements I and V are correct.
B)Statements II, III, and IV are correct.
C)Only statement IV is correct.
D)Statements II and IV is correct.
E)Statements I, II, III, IV, and V are correct.
Q3) What are the differences between a cafeteria plan and a flexible benefits (salary reduction) plan?
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Mario paints landscape portraits, and he treats the activity as a hobby. During the current year, Mario incurred the following expenses while earning $2,500 from sales of paintings: ?
\[\begin{array} { l r }
\text { Paints and supplies } & \$ 2,200 \\
\text { Utiliti es expenses for his studio } & 1,000 \\
\text { Advertising } & 300 \\
\text { Insurance on his studio and equipment } & 700 \end{array}\]
Mario uses the standard deduction and never itemizes his deductions. How should Mario report all of the items related to his hobby on his tax return?
A)Report no income and no deductions.
B)Report a $400 loss as a deduction for AGI.
C)Include $2,500 in gross income and deduct $2,500 for AGI.
D)Include $2,500 in gross income and deduct nothing.
E)Include $2,500 in gross income and deduct $1,700 for studio expenses.
Q2) Explain the rationale for disallowing the deduction for interest expense attributable to money borrowed to acquire tax-exempt municipal bonds.
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Chapter 6: Business Expenses
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Q1) Kyle is married and a self-employed landscaper. During the current year, Kyle pays $3,000 for health insurance coverage for himself. He pays another $400 for coverage for his employee, Tabatha. How should Kyle deduct the health insurance cost?
i.Kyle deducts a total of $3,400 for AGI.II.Kyle cannot deduct any portion of his premium of $3,000 for AGI if his spouse is covered by a health plan through her employer.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Deductions for adjusted gross income include
I.Contribution to a Roth IRA.
II.Contribution to conventional IRA
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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8
Chapter 7: Losses-Deductions and Limitations
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Q1) Small business stock
A)A loss that is generally not deductible.
B)The borrower is personally liable for the debt.
C)The loss is used to offset income in future periods.
D)A liability that is only secured by the underlying property.
E)The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.
Q2) Why did Congress enact the at-risk rules?
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Explain the non-support test and the principle residence test to be a qualifying child.
Q2) For each of the following situations, determine whether or not the item is deductible, how it would be deducted on the taxpayer's return (if there are alternatives possible, discuss the conditions which would determine the treatment) and any limitations which might be placed on the deduction.
a.Rickie, who is 35, pays $1,800 for dental work during the current year.
b.Jamie incurs $1,400 of employee business expenses during the current year. Her employer reimburses all of the expenses.
Q3) The American Opportunity Scholarship Tax Credit provides for a 100% tax credit on the first $2,000 of qualifying expenses and a 50% tax credit for the next $2,000 of qualifying expenses paid during the year for each qualifying student.
A)True
B)False
Q4) Federal quarterly estimate of $3,000 paid by a self-employed taxpayer.
A)Not Deductible
B)Deductible - For AGI
C)Deductible - From AGI
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Page 10
Chapter 9: Acquisitions of Property
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Q1) Determine the proper classification(s) of the asset discussed in the following scenario: Judge Ruiz purchased a new brass-trimmed gavel to use in her courtroom.
I.Personal use property.
IV.Intangible property.
II.Business use property.
V.Real estate.
III.Tangible property.
VI.Personal property.
A)Statements I and III are correct.
B)Only statement VI is correct.
C)Statements II and III are correct.
D)Statements II, III, and VI are correct.
E)Statements II and VI are correct.
Q2) The split basis rule for determining the basis of gifts allows for one basis for determining losses and another for calculation of gains.
A)True
B)False
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, Depletion,
and Amortization
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Q1) During 2018, Williams Company purchases and places in service office equipment with a cost of $40,000. The equipment is 7-year MACRS property. What is its 2018 depreciation deduction for purposes of the alternative minimum tax?
A)$2,000
B)$2,857
C)$3,000
D)$4,000
E)$5,714
Q2) Cruz Copy Shop purchases a new copy machine in July 2018 for $30,000. No other depreciable assets are placed in service in 2018. Since Cruz Copy Shop expects to be in a much higher tax bracket in future years, it desires to minimize its current cost recovery amount to the fullest extent possible. What is the amount of Cruz Copy Shop's MACRS straight-line depreciation for 2018?
A)$1,500
B)$2,143
C)$3,000
D)$3,213
E)$4,500
Q3) Discuss why listed property gets special attention.
Page 12
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Chapter 11: Property Dispositions
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Q1) Unrecaptured Section 1250 gain is taxed at a maximum rate of 25%.
A)True
B)False
Q2) The amount realized equals the gross selling price less any selling expenses.
A)True
B)False
Q3) Harry sells an apartment building for $117,000. The building was held as an investment, it cost $95,000 and had an basis of $83,000 at the date of the sale. If Harry is in the 32% marginal tax rate bracket without considering the effect of the sale, how much tax is paid on the gain on the sale of the apartment building?
A)$5,100
B)$6,300
C)$7,140
D)$10,880
Q4) What incentive provisions or preferential treatments exist for capital gains?
Q5) Section 1245 property is subject to a full recapture of all depreciation taken as ordinary income.
A)True
B)False
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Chapter 12: Non-Recognition Transactions
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Q1) Office building for office equipment.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
Q2) Which of the following qualify as replacement property under the involuntary conversion rules?
I.Smooth Yogurt Company's warehouse for storing its yogurt curds is condemned by the port authority. The warehouse will be replaced with a new office building in a neighboring community.
II.Smooth Yogurt Company's other warehouse, which was fully leased to another company, is destroyed by a tornado. The warehouse will be replaced with a rental office building adjacent to the company's new office building and will be leased to various tenants.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Personal residence for an apartment building.
A)qualifies as a like-kind exchange
B)does not qualify as a like-kind exchange
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Chapter 13: Choice of Business Entity-General Tax and
Nontax
Factorsformation
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Q1) Limited Liability Company
A)An entity with conduit tax characteristics that provides limited liability to its owners.
B)An organization of two or more persons operating a business that is not taxed.
C)A general partnership that offers limited liability to the partners.
D)An association created under the laws of a state giving owners limited liability.
E)Retains legal characteristics while obtaining tax characteristics of a conduit.
F)A partnership in which the liability of at least one partner is limited.
Q2) Discuss the characteristics of a personal service corporation (PSC).
Q3) Santana Corporation operates a golf shop. It properly elected Subchapter S status on March 1 of the current year. Taxable income for the current year is $120,000. What is Santana Corporation's income tax liability?
A)$- 0 -
B)$3,000
C)$18,000
D)$25,200
E)$40,800
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Page 15
Chapter 14: Choice of Business Entity-Operations and Distributions
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Q1) Bronco Corporation realizes $270,000 from sales during the current year. Bronco also receives $20,000 of dividends from a 2% owned corporation. Operating expenses totals $275,000. Bronco's taxable income is
A)$(15,000)
B)$(5,000)
C)$5,000
D)$7,500
E)$15,000
Q2) Although nontaxable income and nondeductible expenditures are not included in the computation of taxable income, they do affect the shareholder's basis in their S corporation stock.
A)True
B)False
Q3) Corporations that sell depreciable real property are not subject to depreciation recapture rules
A)True B)False
Q4) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
16
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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) A Keogh plan must be established as a defined contribution plan, and the rules are similar to those of a qualified pension plan.
A)True
B)False
Q2) IRA
A)A separate, parallel tax system designed to ensure a taxpayer pays some tax.
B)A compensation tool that is based on potential price increases of the company's stock.
C)An individual trust account maintained for the exclusive benefit of an individual or beneficiary.
D)A type of defined contribution pension plan in which the company and the employee contribute a fixed percentage of the employee's salary to the plan.
E)A pension plan in which the benefits are based on the number of years an employee has worked for a company and on the employee's annual salary.
F)A pension plan whose benefits are determined by the amount of contributions the employee and the company contribute to the plan and the earnings of the plan.
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Chapter 16: Tax Research
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Q1) What body oversees the operation and administration of the tax system as a whole, and prepares a general explanation of any tax bill signed by the president?
A)Joint Conference Committee.
B)Joint Committee on Taxation.
C)House Ways and Means Committee.
D)Judiciary Committee.
E)Senate Finance Committee.
Q2) The most important source of current federal income tax law is the A)Internal Revenue Code of 1986, as amended.
B)IRS.
C)U.S. Supreme Court.
D)U.S. Tax Court.
Q3) Which of the following sources of tax law authority has the highest tax validity?
A)Cumulative Bulletin.
B)Tax Court Decision.
C)Revenue Ruling.
D)Internal Revenue Code Section.
E)Regulation Section.
Q4) Describe the steps of the tax research process.
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