Individual Taxation Pre-Test Questions
Course Introduction
Individual Taxation provides a comprehensive overview of the principles and practices of federal income taxation as it applies to individuals. The course covers key topics such as gross income, exclusions, deductions, tax credits, filing status, and the calculation of taxable income and tax liability. Students will analyze Internal Revenue Code provisions, Treasury regulations, and related case law, learning how to apply tax rules to practical scenarios. Emphasis is placed on tax planning strategies, ethical considerations, and the preparation of individual tax returns. The course equips students with the foundational knowledge required for personal financial planning and for further study in tax and accounting fields.
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) Taxpayers can file a Form 1040EZ if they file using which of the following:
A)Married filing separately.
B)Qualifying widower).
C)Head of household.
D)Married filing jointly.
Answer: D
Q2) Which of the following statements is true with respect to marginal and average tax rates under a progressive tax structure?
A)Marginal rates are always larger than average rates.
B)Average rates can only be calculated for taxpayers with income over $100,000.
C)Marginal rates are always smaller than average rates.
D)Average rates are never more than marginal rates.
Answer: D
Q3) Employers report wage income to employees on a:
A)Form 1099-E.
B)Form W-2.
C)Form W-3.
D)Form 1099-G.
Answer: B
3
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Chapter 2: Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Q1) A taxpayer may request an automatic seven-month extension of time to file his or her tax return.
A)True
B)False
Answer: False
Q2) Criminal penalties only apply to:
A)Willful failure to file a return and tax evasion.
B)Careless disregard for tax authority.
C)Willful failure to file a return.
D)Tax evasion.
Answer: A
Q3) Elisa is 21 years of age and a full-time student living with her parents.She had wages of $680 $70 of income tax withholding)for 2016.Can Elisa claim her exemption on her return even though her parents will claim her as a dependent on their tax return?
A)No one can claim the exemption for Elisa.
B)No,Elisa cannot claim the exemption.
C)Yes,Elisa can claim the exemption.
D)Elisa and her parents can both claim the exemption.
Answer: B
Page 4
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Chapter 3: Gross Income: Inclusions and Exclusions
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Sample Questions
Q1) Employer-paid premiums on life insurance are not taxable to the employees,unless the coverage is in excess of ________.
A)$50,000
B)$5,000
C)$5,250
D)$51,000
Answer: A
Q2) Interest on state bonds is tax-exempt if the bonds were issued for private activities,such as convention centers,industrial parks,or stadiums.
A)True
B)False
Answer: False
Q3) An individual must complete Schedule B Forms 1040A or 1040)if the following situation occurs:
A)Received interest income of $1,300.
B)Received interest income of $600.
C)Received interest income of $1,500.
D)Received interest income of $1,750.
Answer: D
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Page 5
Chapter 4: Adjustments for Adjusted Gross Income
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Q1) A Health Savings Account HSA)is a tax-exempt savings account to be used for qualified medical expenses.
A)True
B)False
Q2) For the interest on a student loan to qualify for the student loan interest deduction,the student must be enrolled full-time.
A)True
B)False
Q3) Self-employment tax is calculated on the gross earnings of the business.
A)True
B)False
Q4) The student loan interest deduction may be limited based on the modified AGI of the taxpayer.
A)True
B)False
Q5) Unreimbursed qualifying moving expenses are an above-the-line deduction for 2016.
A)True
B)False
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Chapter 5: Itemized Deductions
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Q1) In 2016,federal income taxes may not be deducted as an itemized deduction on Schedule A.
A)True
B)False
Q2) If the donation is greater than $250,what kind of written acknowledgment must the taxpayer obtain from the recipient organization?
Q3) Malika and Henry's vacation home was completely destroyed by fire.They had no insurance to cover the loss.On which of the following forms would they report their loss?
A)Schedule A,Itemized Deductions,only.
B)Form 4684,Casualties and Thefts,and Form 1040,U.S.Individual Income Tax Return,as an adjustment to gross income.
C)Form 4684,Casualties and Thefts,and Schedule A,Itemized Deductions.
D)Form 4684,Casualties and Thefts,only.
Q4) What are the general limits or floors placed on deductible personal casualty losses?
Q5) Personal casualty losses resulting from termite damage are deductible.
A)True
B)False
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Page 7
Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Sample Questions
Q1) The cost of all personal property is recovered using a 200% declining-balance rate under MACRS.
A)True
B)False
Q2) If an activity is characterized as a hobby,expenses are deductible only to the extent of income from the hobby,subject to certain ordering rules.
A)True
B)False
Q3) Education expenses are deductible if the education maintains or improves existing skills or if the education helps the taxpayer qualify for a new trade or business.
A)True
B)False
Q4) The §179 expense deduction is limited to earned income.
A)True
B)False
Q5) Meals and entertainment expenses are limited to 50%.
A)True
B)False
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Sample Questions
Q1) Majoo inherited property from his uncle on August 15,2016.His uncle purchased the property on December 10,2014 for $100,000.At the date of his death,the property's FMV was $102,000.Majoo sold the property on September 30,2016 for $105,000.
a.What is the gain on the sale of the property?
b.What is the nature of the gain?
Q2) In 2011,Terri purchased 260 shares of Flowers R Us stock at a cost of $9,600 as an investment.In 2016,when the fair market value was $11,400,Terri gave the stock to her daughter,Michele.Assuming no gift tax was paid,if Michele sells the stock for $13,800,she will recognize:
A)$2,400 gain.
B)$4,200 gain.
C)$1,800 gain.
D)no gain or loss.
Q3) In 2016,Carmen had a net capital loss of $10,000 and taxable income of $100,000.What is Carmen's loss carryforward to 2017?
A)$7,000.
B)$5,000.
C)$0.
D)$3,000.
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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Sample Questions
Q1) Explain the difference between the two methods available; the Tax Court's method and the IRS method,to allocate expenses between personal and rental use of property.
Q2) Meredith has a vacation rental house in the Sierra Mountains.During the year,she and her immediate family used the house for 12 days for a personal vacation.Meredith spent two more weekends 4 days in total)repairing the deck.The house was rented for 120 days.How should the cabin be categorized this year for tax purposes? Explain your answer.
Q3) Paul is a 45-year-old stockbroker.When he was in his 20s,he was a member of a band called the Zombies and wrote several hit songs.Paul should report the royalty income he receives in the current year from his songs on what schedule?
A)Schedule D.
B)Schedule A.
C)Schedule C.
D)Schedule E.
Q4) A personal/rental property that is not a trade or business)may report its income and expenses on Schedule A.
A)True
B)False
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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) Nick and Katelyn paid $1,600 and $2,100 in qualifying expenses for their two daughters,Nicole and Naomi,respectively,to attend the University of Nevada.Nicole is a sophomore and Naomi is a freshman.Nick and Katelyn's AGI is $202,000.What is their allowable American opportunity tax credit?
A)$2,000.
B)$3,700.
C)$3,060.
D)$0.
Q2) Tai and Song are ages 69 and 59,respectively,and file a joint return.They have AGI of $20,000 and received $2,000 in nontaxable social security benefits.How much can Tai and Song take as a credit for the elderly or the disabled?
A)$2,000.
B)$1,125.
C)$7,500.
D)$0.
Q3) A student can only receive the lifetime learning credit if he/she is enrolled in a degree program.
A)True
B)False
Page 11
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Chapter 10: Payroll Taxes
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Sample Questions
Q1) Esmeralda is single and is paid $759 per week claiming two allowances.What is the amount of federal income tax withheld on Esmeralda's gross wages for the week? Use the wage bracket table in Appendix A at the end of the chapter.
A)$86.
B)$75.
C)$74.
D)$88.
Q2) Irene earned wages of $119,200 during 2016.What share of FICA tax is Irene's employer responsible for in 2016?
A)$9,075.40.
B)$9,065.25.
C)$9,118.80.
D)$9,108.65.
Q3) Employers with a payroll tax liability of less than $2,500 at the end of a quarter can pay the payroll tax liability at the end of the next month following the quarter with Form 941.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Sample Questions
Q1) Which of the following statements is correct?
A)All of the statements are correct.
B)Individuals or companies usually establish a pension plan with a trustee.
C)Retirement plans are generally not tax-free,only tax-deferred.
D)In part,Congress established pension plan rules to encourage individuals to save for retirement.
Q2) A participant has an adjusted basis of zero in any nondeductible contributions to a traditional IRA.
A)True
B)False
Q3) Under a qualified profit-sharing plan,contributions must be made at least annually whether or not the employer has positive net income for the year.
A)True
B)False
Q4) An annuity is a series of payments made pursuant to a contract.
A)True
B)False
Q5) What are some of the significant tax benefits for both employees and employers associated with a qualified pension plan?
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) A wash sale occurs when:
A)A taxpayer sells stock and buys substantially identical stock within 30 days before or after the sale.
B)A taxpayer sells stock and buys substantially identical stock within 60 days before or after the sale.
C)A taxpayer sells and buys substantially identical stock.
D)A taxpayer sells stock at the end of the year to offset a gain recognized earlier in the year.
Q2) The "similar or related in service or use" requirement for property involuntarily converted is less restrictive than the like-kind exchange requirements.
A)True
B)False
Q3) An installment sale of a building used in a trade or business is reported on what form?
A)Originally on Form 6252,transferred to Form 4797,then to Schedule D.
B)Originally on Form 6252 and transferred to Form 4797.
C)Originally on Form 6252 and transferred to Schedule D.
D)Originally on Form 4797 and transferred to Schedule D.
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Sample Questions
Q1) In 2016,Ethan contributes cash of $50,000 and property with a fair market value of $100,000 and basis of $20,000 in exchange for a 20% interest in the EFP Partnership.The partnership is not a passive activity.For 2016,his share of partnership items were an ordinary loss of $80,000,interest income of $2,000,dividends of $5,000,and capital gains of $4,000.How much of the current year loss is deductible by Ethan and what is Ethan's at-risk amount on December 31,2016?
Q2) The at-risk amount is increased each tax year by:
A)The share of debt the investor is liable to repay.
B)Income items.
C)The basis of assets contributed.
D)All of the above.
Q3) When determining whether a limited partnership loss is deductible,a taxpayer must first:
A)Apply only the at-risk rules.
B)Apply the passive activity loss rules and then the at-risk rules.
C)Apply only the passive activity loss rules.
D)Apply the at-risk rules and then the passive activity loss rules.
Q4) Adjustments to AMTI can be either positive or negative.
A)True
B)False
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Chapter 14: Partnership Taxation
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Sample Questions
Q1) Jeremy and Juan are equal partners in the JJ Partnership.Jeremy receives a guaranteed payment of $120,000.In addition to the guaranteed payment,Jeremy withdraws $30,000 from the partnership.The partnership has $78,000 in ordinary income during the year.
a.How much income must Jeremy report from JJ partnership?
b.What is the effect on Jeremy's partnership basis?
Q2) The term "step-into-the-shoes" means that the partnership starts a new depreciation period for any depreciable asset contributed to the partnership.
A)True
B)False
Q3) If Josh's partnership basis was $5,000 and he received a distribution of land that had a basis of
$10,000,Josh would be required to recognize a $5,000 gain. A)True
B)False
Q4) A partner can recognize a loss on a liquidating distribution.
A)True
B)False
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Chapter 15: Corporate Taxation
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Sample Questions
Q1) When reconciling from book income to taxable income on Schedule M-1,which of the following statements is correct?
A)A charitable contribution carryforward realized in the current year is a positive adjustment.
B)A charitable contribution above the 10% tax limitation is a positive adjustment.
C)The difference between accelerated depreciation on the books and straight-line depreciation on the tax return in the later years of asset life is a negative adjustment.
D)Federal income tax expense on the books is a positive adjustment.
Q2) If a corporation would like a Subchapter S election to be valid for the current year,a Form 2553 must be filed:
A)Before the 15<sup>th</sup><sup> </sup>day of the third month of the current fiscal year.
B)Before the 15<sup>th</sup><sup> </sup>day of the fourth month of the current fiscal year.
C)Before the 15<sup>th</sup><sup> </sup>day of the third month of the current fiscal year or in the prior fiscal year.
D)In the prior fiscal year.
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Page 17