Individual Taxation Review Questions
Course Introduction
This course provides a comprehensive overview of the federal income tax principles as they apply to individual taxpayers. Students will explore topics such as gross income determination, deductions, tax credits, filing requirements, and tax compliance. The curriculum also covers the treatment of different types of income, the taxation of property transactions, and the implications of tax law changes. Emphasis is placed on understanding the legal framework governing individual taxation and developing practical skills for preparing and analyzing individual tax returns.
Recommended Textbook
McGraw Hills Taxation of Individuals 2018 Edition 9th Edition by Spilker Brian C
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14 Chapters
1589 Verified Questions
1589 Flashcards
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Page 2
Chapter 1: An Introduction to Tax
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) Common examples of sin taxes include the taxes imposed on airline tickets and gasoline.
A)True
B)False
Answer: False
Q2) Which of the following is true regarding real property taxes and personal property taxes?
A) Personal property taxes are assessed on permanent structures and land.
B) Real property taxes are assessed on cars and boats.
C) All U.S. states currently impose personal property taxes.
D) Real property taxes are generally easier to administer than personal property taxes.
E) None of the choices are correct.
Answer: D
Q3) Implicit taxes are indirect taxes on tax-favored assets.
A)True
B)False
Answer: True
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Chapter 2: Tax Compliance, The IRS and Tax Authorities
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Which of the following is not a common tool used in conducting tax research?
A) Citator.
B) Annotated tax service.
C) Topical tax service.
D) Keyword search.
E) None of the choices are correct.
Answer: E
Q2) Temporary Regulations have more authoritative weight than revenue rulings.
A)True
B)False
Answer: True
Q3) The regulation with the lowest authoritative weight is the:
A) Procedural regulation.
B) Interpretative regulation.
C) Proposed regulation.
D) Legislative regulation.
E) None of the choices are correct.
Answer: C
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Chapter 3: Tax Planning Strategies and Related Limitations
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) If Lucy earns a 6% after-tax rate of return,$8,000 received in four years is worth how much today? Use Exhibit 3.1 in the text.(Round present and future value amounts to 3 places)
A) $8,000.
B) $7,544.
C) $8,989.
D) $6,336.
E) None of the choices are correct.
Answer: D
Q2) Which of the following is more likely to receive IRS scrutiny under the assignment of income doctrine?
A) A corporation paying its shareholders a $20,000 dividend.
B) A parent employing her child in the family business.
C) A taxpayer gifting stock to his children.
D) A cash-basis business delaying billing its customers until after year end.
E) None of the choices are correct.
Answer: B
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Chapter 4: Individual Income Tax Overview, Exemptions, and Filing Status
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) Miguel,a widower whose wife died in year 1,maintains a household for himself and his daughter who qualifies as his dependent.Miguel did not remarry.What is the most favorable filing status that Miguel qualifies for in year 3?
A) Single.
B) Qualifying widower.
C) Head household.
D) Married, filing separately.
Q2) Which of the following is not a filing status?
A) Head of household.
B) Unmarried.
C) Qualifying widow or widower.
D) Married filing jointly.
Q3) To be considered a qualifying child of a taxpayer,the individual must be the son or daughter of the taxpayer.
A)True
B)False
Q4) The standard deduction amount varies by filing status.
A)True
B)False
6
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Chapter 5: Gross Income and Exclusions
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Anna received $15,000 from life insurance paid upon the death of her grandmother.Anna can exclude the entire amount of the life insurance from her gross income.
A)True
B)False
Q2) When an asset is sold,the taxpayer calculates the gain or loss on the sale of the asset by subtracting the tax basis of the asset from the proceeds of the sale.
A)True
B)False
Q3) A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.
A)True
B)False
Q4) Worker's compensation benefits are excluded from gross income.
A)True
B)False
Q5) Gross income includes all income realized during the year.
A)True
B)False
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Chapter 6: Individual Deductions
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Sample Questions
Q1) Which of the following is a true statement?
A) Taxpayers may only deduct interest on up to $1,500,000 of acquisition indebtedness.
B) Taxpayers may deduct interest on up to $1,000,000 of home-equity debt.
C) The deduction for investment interest expense is not subject to limitation.
D) Interest on home-equity debt up to $100,000 is deductible, even if the loan proceeds are used to buy a new car.
E) None of the choices are true.
Q2) Which of the following is a true statement?
A) Personal exemptions, but not dependency exemptions, are subject to phase-out.
B) A married filing joint taxpayer with AGI of $500,000 would not be able to deduct personal and dependency exemptions.
C) At most, only 80% of exemptions are subject to phase-out.
D) Itemized deductions, but not exemptions, are subject to phase-out.
E) None of the choices are true.
Q3) To qualify as a charitable deduction the donation must be made by cash or by check.
A)True
B)False
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Chapter 7: Investments
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76 Flashcards
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Sample Questions
Q1) One primary difference between corporate and U.S.Treasury bonds is:
A) Treasury bonds always pay interest periodically.
B) Corporate bonds always pay interest periodically.
C) Interest from Treasury bonds is exempt from federal taxation.
D) Interest from corporate bonds is exempt from state taxation.
E) None of the choices are correct.
Q2) When electing to include long-term capital gains and qualified dividends in net investment income,taxpayers must include all long-term capital gains and dividends recognized for that year.
A)True
B)False
Q3) Losses associated with personal-use assets,sales to related parties,and wash sales are not currently deductible.
A)True
B)False
Q4) Generally,losses from rental activities are considered to be active losses.
A)True
B)False
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Page 9
Chapter 8: Individual Income Tax Computation and Tax Credits
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) Generally,income from an active trade or business is subject to the 3.8% net investment income tax.
A)True
B)False
Q2) Which of the following statements concerning tax credits is true?
A) The tax benefit a taxpayer receives from a credit depends on the taxpayer's marginal tax rate.
B) Refundable tax credits are limited to a taxpayer's gross tax liability.
C) Tax credits are generally more beneficial than tax deductions.
D) None of these is a true statement.
Q3) Which of the following best describes the manner in which self-employed taxpayers may deduct self-employment taxes?
A) Deduct employer portion from AGI.
B) Deduct entire amount from AGI.
C) Deduct employer portion for AGI.
D) Deduct entire amount for AGI.
E) No deduction.
Q4) All capital gains are taxed at preferential rates.
A)True
B)False
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Chapter 9: Business Income, Deductions, and Accounting Methods
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Sample Questions
Q1) Bob operates a clothing business using the accrual method over a calendar year.In October of last year,Bob contracted with his father,Tim,for consulting advice.Tim is a cash basis calendar year taxpayer and he billed Bob for $6,000 of consulting fees.This amount was comparable to amounts charged by other consultants (a reasonable amount).Bob paid $2,500 of the consulting fee by December 31 of last year,but the remaining $3,500 was not paid until January of this year.When can Bob deduct the consulting fee?
Q2) David purchased a deli shop on February 1 of last year and began to operate it as a sole proprietorship.David reports his personal taxes using the cash method over a calendar year,and he wants to use the cash method and fiscal year for his sole proprietorship.He has summarized his receipts and expenses through January 31 of this year as follows:
\[\begin{array} { l r r } & \text { Receipts } & \text { Expenses } \\
\text { February thri. Decermber lastyear } & \$ 112,000 & \$ 84,500 \\ \text { Jarnury this year } & 10,400 & 6,200 \end{array}\] What income should David report from his sole proprietorship?
Q3) All taxpayers must account for taxable income using a calendar year. A)True B)False
Page 11
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Chapter 10: Property Acquisition and Cost Recovery
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Sample Questions
Q1) Beth's business purchased only one asset during the current year (a full 12-month tax year).Beth placed in service machinery (7-year property)on December 1 with a basis of $50,000.Calculate the maximum depreciation expense (ignoring §179 and bonus depreciation).(Use MACRS Table 2 in the text)
A) $1,785.
B) $2,500.
C) $7,145.
D) $10,000.
E) None of the choices are correct.
Q2) Phyllis purchased $8,000 of specialized audio equipment that she uses in her business regularly.Occasionally,she uses the equipment for personal use.During the first year,Phyllis used the equipment for business use 70 percent of the time; however,during the current (second)year the business use fell to 40 percent.Assume that the equipment is seven-year MACRS property and is under the half-year convention.Assume the ADS recovery period is 10 years.What is the depreciation allowance for the current year? (Use MACRS Table 1 in the text)(Round final answer to the nearest whole number)
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12
Chapter 11: Property Dispositions
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Sample Questions
Q1) Accounts receivable and inventory are examples of ordinary assets.
A)True
B)False
Q2) The gain or loss realized on the sale of an asset is the amount realized less the adjusted basis.
A)True
B)False
Q3) Which of the following is true regarding disallowed losses between related taxpayers?
A) The tax laws essentially treat related parties as the same taxpayer.
B) The holding period of the seller carries over to the buyer.
C) The related person always receives a carryover basis.
D) The seller's realized loss is deferred until the buyer sells the assets.
E) None of the choices are correct.
Q4) Bull Run sold a computer for $1,200 on November 10 of the current year.The computer was purchased for $2,800.Bull Run had taken $1,000 of depreciation deductions.What is Bull Run's gain or loss realized on the computer?
Q5) Explain whether the sale of a machine used in a trade or business that is sold at a loss generates an ordinary or capital loss?
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Chapter 12: Compensation
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Sample Questions
Q1) Which of the following regarding the Form W-4 is incorrect?
A) Determines an employee's income tax withholding.
B) Employees can claim more allowances than personal exemptions that will be claimed.
C) Employees can specify additional amounts to be withheld each month.
D) The form can only be adjusted at the beginning of year or start of employment.
Q2) Tasha receives reimbursement from her employer for dependent care expenses for up to $8,000.Tasha applies for and receives reimbursement of $6,000 for her 10-year-old son.How much,if any,is includible in her income?
A) $0.
B) $1,000.
C) $3,000.
D) $6,000.
Q3) An employer always receives a deduction for total compensation paid to a CEO.
A)True
B)False
Q4) Stock options will always provide employees with future compensation.
A)True
B)False
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Chapter 13: Retirement Savings and Deferred Compensation
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115 Flashcards
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Sample Questions
Q1) Darren is eligible to contribute to a traditional 401(k)in 2017.He forgot to contribute before year-end.If he contributes before April 15,2018,he is allowed to treat the contribution as though he made it during 2017.
A)True
B)False
Q2) Both 401(k)plans and Roth 401(k)plans are forms of defined contribution plans.
A)True
B)False
Q3) From a tax perspective,participating in a nonqualified deferred compensation plan is an effective tax planning strategy when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation than when she defers the compensation.
A)True B)False
Q4) Qualified retirement plans include defined benefit plans but not defined contribution plans.
A)True B)False
Page 15
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Chapter 14: Tax Consequences of Home Ownership
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112 Verified Questions
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Sample Questions
Q1) What is the maximum amount of gain on the sale of principal residence a married couple may exclude from gross income?
A) $0.
B) $25,000.
C) $250,000.
D) $500,000.
Q2) Rafael and Sandra Gonzalez purchased a home on January 1 of year 1 for $400,000 by paying $40,000 down and borrowing the remaining $360,000 with a 6 percent loan secured by the home.The loan requires interest-only payments for the first five years.In year 2,when the home was valued at $400,000,Rafael and Sandra took out a second loan secured by the home for $80,000 to fund expenses unrelated to the home.The interest rate on the second loan is 8 percent.In year 2,Rafael and Sandra paid $21,600 of interest expense on the first loan and $6,400 of interest on the second loan.What is the maximum amount of the $28,000 of interest expense may Rafael and Sandra deduct in year 2?
Q3) Taxpayers renting a home would generally report the rental income and expenses on Schedule E.
A)True
B)False
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Page 16