Individual Taxation Solved Exam Questions
Course Introduction
Individual Taxation explores the principles and practices governing the taxation of individuals in accordance with the prevailing tax laws and regulations. The course covers topics such as gross income, exclusions, deductions, credits, filing status, and tax liability computation. Students will develop an understanding of the federal income tax system as it applies to individuals, learning how to apply tax rules to various scenarios, recognize tax planning opportunities, and navigate compliance requirements. Case studies and practical examples equip students with the analytical skills needed to prepare individual tax returns and advise on basic tax strategies.
Recommended Textbook Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg
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Chapter 1: The Individual Income Tax Return
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Sample Questions
Q1) Jill is a 16-year-old child who is claimed as a dependent by her parents. Jill's only income is $1,400 from her bank savings account. What is the amount of Jill's standard deduction for 2016?
A)$1,200
B)$1,050
C)$4,000
D)$6,300
E)None of the above
Answer: B
Q2) Gerald is single and earns $80,000 in dividend income and $180,000 in wage income in 2016. Compute his additional ACA Medicare surtax on net investment income. Answer: $2,280 = 3.8% x [the lesser of ($260,000 - $200,000) or $80,000]
Q3) The two types of exemptions are the personal exemption and the dependency exemption.
A)True
B)False
Answer: True
Q4) List two general objectives of the tax code. Answer: The tax code promotes social goals, economic goals and raising revenue.
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Chapter 2: Gross Income and Exclusions
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Sample Questions
Q1) In regards to Social Security benefits:
A)The Social Security inclusion formula is the same amount for each filing status.
B)Social Security benefits are always excluded because wages are subject to Social Security tax when earned.
C)Tax-free interest income must be included in the formula used to determine if Social Security is included in taxable income.
D)Up to 100 percent of Social Security benefits received may be included in taxable income.
Answer: C
Q2) Unemployment compensation
A)Included
B)Excluded
Answer: A
Q3) The value of lodging provided to a professor to enable him to live near the campus is excluded from gross income.
A)True
B)False
Answer: False
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Chapter 3: Business Income and Expenses Part I
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Sample Questions
Q1) The home office deduction is an easy way for a taxpayer to show a loss on his or her tax return.
A)True
B)False
Answer: False
Q2) What is the purpose of Schedule C?
Answer: Schedule C is used by self-employed taxpayers to report the income or loss from a trade or business. Taxpayers who use Schedule C include self-employed accountants, attorneys, plumbers, gardeners, manufacturers, restaurant owners, and hundreds of other businesses owned by individuals as sole proprietorships. The type of business and the address where the business is operated are shown on Schedule C. Schedule C reports gross income from the business and expenses, which must be broken down by category. If the business holds inventory, information related to the beginning and ending inventory, as well as cost of goods sold, must also be reported. If the business requires the use of the owner's automobile, additional information related to the auto must be reported as well.
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Chapter 4: Business Income and Expenses Part II
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Sample Questions
Q1) Wages are considered "active income."
A)True
B)False
Q2) Debbie is 63 years old and retired in 2014. She receives Social Security payments of $12,000 a year and interest income of $30,000. She wishes to put the maximum allowed into an IRA. How much can she contribute to her IRA?
Q3) What percentage of medical insurance payments can self-employed taxpayers deduct for adjusted gross income on their 2016 tax returns, assuming their self-employment income exceeds their medical insurance payments?
A)60 percent
B)70 percent
C)50 percent
D)90 percent
E)100 percent
Q4) In most cases, an individual taxpayer reports rental income and the related expenses on Schedule E.
A)True
B)False
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Chapter 5: Itemized Deductions and Other Incentives
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Q1) Shellie, a single individual, received her Bachelor's degree in 2015, and took a job with a salary of $45,000 per year. In 2016, she began paying interest on qualified education loans. She was able to pay $1,500 in 2016. Which of the following statements is correct?
A)The full $1,500 is deductible in arriving at adjusted gross income (AGI).
B)If her payment had been $3,000, only $2,000 would have been deductible in arriving at AGI and the $1,000 excess would have been treated as nondeductible consumer interest.
C)If her income had been $60,000, the deductible amount would have been phased out.
D)Taxpayers are not allowed a deduction for education loan interest in 2016.
Q2) Taxpayers are permitted to take an itemized deduction for the lesser of state income taxes paid or state sales taxes paid.
A)True
B)False
Q3) Meade paid $5,000 of state income taxes in 2016. The total actual sales taxes paid during 2016 was $4,500, which did not include $3,000 for the sales taxes paid in 2016 on Meade's new boat. How should Meade treat the taxes paid in his 2016 tax return?
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Chapter 6: Credits and Special Taxes
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Q1) Daddy Warbucks is in the process of adopting Annie from a New York orphanage. He pays $5,000 in 2014, $7,000 in 2015, and $4,500 in 2016. Daddy Warbucks' AGI for 2016 is $165,000.
a.How much is the adoption credit that Daddy Warbucks may claim for 2016 if the adoption becomes final in 2016?
b.How much is the adoption credit that Daddy Warbucks may claim for 2016 if the adoption becomes final in 2017?
c.How much is the adoption credit that Daddy Warbucks may claim for 2016 if the adoption falls through and is never finalized?
Q2) If the net unearned income of a minor child is to be taxed at the parents' tax rate, the parents may elect, under certain conditions, to include the child's gross income on their tax return.
A)True
B)False
Q3) What is the maximum investment income a taxpayer is allowed to have and still be allowed to claim the earned income credit? Why is there an earned income credit in the law?
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Chapter 7: Accounting Periods and Methods and Depreciation
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Sample Questions
Q1) Depreciation on property in the five-year MACRS class is claimed over a period of six tax years due to the half-year convention.
A)True
B)False
Q2) Expenditures incurred to maintain an asset in good operating condition must be depreciated over the remaining useful life of the asset.
A)True
B)False
Q3) An asset is placed in service on May 15, 2016 and has a depreciable basis of $40,000. The asset is in the 7-year recovery class and the half-year convention applies. What is the maximum depreciation deduction that may be claimed for 2016, excluding the election to expense and bonus depreciation?
A)$2,572
B)$5,144
C)$5,716
D)$25,000
E)None of the above
Q4) To be depreciated, must an asset actually lose value each year?
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Chapter 8: Capital Gains and Losses
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Sample Questions
Q1) Verlin sells a commercial building and receives $50,000 in cash and a note for $60,000 at 10 percent interest. Verlin's adjusted basis in the building on the date of sale is $45,000 and he collects only the $50,000 down payment in the year of the sale.
a.
If Verlin elects to recognize the total gain on the property in the year of sale, calculate the taxable gain.
b.
Assuming Verlin uses the installment sale method, calculate the taxable gain he must report for the year of the sale.
c.
Assuming Verlin collects $10,000 (not including interest) of the note principal in the year following the year of sale, calculate the amount of income recognized under the installment sale method.
Q2) The condemnation of property is not an involuntary conversion, since it is done pursuant to a government decree.
A)True
B)False
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Chapter 9: Withholding Estimated Payments and Payroll Taxes
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Q1) If taxpayers fail to provide their bank with a taxpayer identification number, they are subject to backup withholding on interest payments.
A)True
B)False
Q2) Gordon is 60 years old and Mary is 55 years old. They are married with three dependent children over age 17, and Gordon has one job. Assuming that Mary is unemployed, how many allowances should Gordon claim on his Form W-4, assuming no extra allowances for deductions or adjustments?
A)Five
B)Six
C)Seven
D)Eight
E)Nine
Q3) Taxpayers with self-employment income who also have Form W-2 wage income from employment may be able to avoid making estimated tax payments by filing a Form W-4 and increasing the amount of their withholding.
A)True
B)False
Q4) What is the purpose of backup withholding?
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Chapter 10: Partnership Taxation
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Sample Questions
Q1) Loretta contributes property to a partnership in exchange for a 25 percent partnership interest. The property contributed has a fair market value of $45,000 and a basis of $35,000 on the date of the contribution to the partnership. In addition, Loretta receives a 10 percent partnership interest, valued at $18,000, in exchange for services rendered to the partnership. What is Loretta's basis in her partnership interest, immediately after these transactions?
A)$35,000
B)$45,000
C)$53,000
D)$63,000
E)None of the above
Q2) Limited liability companies may operate in more than one state.
A)True B)False
Q3) Partnership income is taxed at the same tax rates as the income of corporations.
A)True
B)False
Q4) The "at-risk" rule does not apply to activities involving real estate.
A)True
B)False
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Chapter 11: The Corporate Income Tax
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Q1) The Peach Corporation is a regular corporation that contributes $25,000 cash to qualified charitable organizations during the current year. The corporation has net taxable income of $190,000 before deducting the contributions. a.
What is the amount of Peach Corporation's allowable deduction for charitable contributions for the current year?
b.What may the corporation do with any excess amount of contributions?
Q2) Terry forms the Camphor Corporation during the current year. She transfers property with a value of $700,000 to Camphor Corporation in exchange for 100 percent of the stock in the corporation. Terry's basis in the property transferred was $400,000 and the corporation assumed a $275,000 mortgage on the property. If the fair market value of the stock received by Terry is $450,000, what is the corporation's basis in the property received from Terry?
A)$125,000
B)$275,000
C)$400,000
D)$450,000
E)$700,000
Q3) What is the purpose of Schedule M-1?
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Chapter 12: Tax Administration and Tax Planning
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Q1) A taxpayer with an average tax rate of 20 percent who receives additional income of $20,000 will pay additional taxes of $4,000.
A)True
B)False
Q2) At which of the following IRS locations are tax returns processed?
A)Regional offices
B)IRS Campus Processing Sites
C)Local offices
D)National office
E)None of the above
Q3) An "office audit" is an audit in which the revenue agent visits the taxpayer's office.
A)True
B)False
Q4) Tax evasion involves the use of illegal methods to reduce or avoid income tax.
A)True
B)False
Q5) List three things that a preparer needs to do in order to participate in the Annual Filing Season Program.
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