Introduction to Federal Income Taxation
Exam Solutions
Course Introduction
Introduction to Federal Income Taxation provides students with a foundational understanding of the principles and practices of federal income taxation in the United States. The course explores the structure of the Internal Revenue Code, key concepts such as gross income, deductions, exemptions, and credits, and the application of tax law to individuals, partnerships, and corporations. Students examine tax policy, compliance, and ethical considerations while developing practical skills in tax research and return preparation. Through case studies, discussions, and problem-solving exercises, the course equips students with the knowledge necessary to analyze tax issues and understand their impact on financial decision-making.
Recommended Textbook
Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg
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12 Chapters
1259 Verified Questions
1259 Flashcards
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Chapter 1: The Individual Income Tax Return
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Partnership income is reported on:
A)Form 1040PTR
B)Form 1120S
C)Form 1040X
D)Form 1065
Answer: D
Q2) Which of the following relatives will not satisfy the relationship test for the dependency exemption?
A)Sister
B)Adopted child
C)Aunt
D)Parent
E)All of the above satisfy the test
Answer: E
Q3) If your spouse dies during the tax year and you do not remarry, you must file as single for the year of death.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Gross Income and Exclusions
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Employer-provided spending accounts:
A)May be set up for tax-free vacation savings
B)Are not allowed for dependent care
C)Do not require that the employee provide receipts for the expenses incurred
D)Allow qualifying expenses to be treated as tax-free reductions in the employees' salaries
Answer: D
Q2) Amounts received as scholarships for books and tuition may be excluded from the recipient's taxable income.
A)True
B)False
Answer: True
Q3) If a life insurance policy is transferred to the insured's partnership for valuable consideration, the insurance proceeds are taxable when received by the partnership.
A)True
B)False Answer: False
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Page 4
Chapter 3: Business Income and Expenses Part I
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Jasper owns a small retail store as a sole proprietor. The business records show that the cost of the store's inventory items has been steadily increasing. The cost of the end of the year inventory is $200,000 and the cost of the beginning of the year inventory was $250,000. Jasper uses the FIFO method of inventory valuation. Which of the following statements is true?
A)Jasper purchased more inventory during the year than he sold during the same one-year period.
B)Jasper would have a higher net income if he used the LIFO method of inventory valuation instead of the FIFO method.
C)Jasper has apparently decreased the volume of items in his ending inventory as compared to the number of items in his beginning inventory.
D)Since the cost of the store's inventory items is increasing, Jasper will have a greater cost of goods sold figure under FIFO than LIFO.
E)None of the above.
Answer: C
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Chapter 4: Business Income and Expenses Part II
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) If a Section 401(k) plan allows an employee to choose between a direct payment of compensation in cash or a contribution to the retirement plan, the plan is not a "qualified" plan.
A)True
B)False
Q2) Which of the following statements is false about health savings acounts (HSAs)?
A)HSAs must be paired with qualifying high-deductible health insurance.
B)Taxpayers qualifying for Medicare do not qualify to make HSA contributions.
C)Distributions from HSAs which are not used for medical expenses are generally subject to a 20 percent penalty and income taxes.
D)Distributions from HSAs which are used for qualifying medical expenses are not subject to tax or penalty.
E)Contributions to HSAs are deductible as itemized medical deductions.
Q3) What is the difference between the tax treatment of contributions and distributions from a traditional IRA and a Roth IRA?
Q4) Barrett is a 45-year-old political commentator who has self-employed net earned income of $170,000 in 2016. What is the maximum amount he can deduct for contributions to his simplified employee pension (SEP) for the year?
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Page 6
Chapter 5: Itemized Deductions and Other Incentives
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Educational expenses are deductible as a miscellaneous itemized deduction even if the education is required to meet the minimum requirements for the taxpayer's current job.
A)True
B)False
Q2) Which of the following is not an itemized deduction?
A)Medical expenses
B)IRA contribution deduction
C)Personal property taxes
D)Union dues
E)All of the above are itemized deductions
Q3) Foreign income taxes paid are deductible.
A)True
B)False
Q4) Which of the following taxes is not deductible as an itemized deduction?
A)Property tax on second residence
B)Sales tax in a state with no income tax
C)Federal income tax
D)State income tax
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Chapter 6: Credits and Special Taxes
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) Arthur is divorced with two dependent children, ages 8 and 13. His adjusted gross income is $28,000, and he incurs qualified child care expenses of $6,000, $3,000 for each child.
a.What is the amount of Arthur's qualified child care expenses after any limitation?
b.Calculate the amount of Arthur's child and dependent care credit.
Q2) Choose the correct statement:
A)A taxayer may receive a 30-percent credit for installing energy-efficient window shades.
B)A taxpayer may receive a 30-percent credit for installing a windmill, which generates electricity, at his vacation home.
C)A taxpayer may receive a 30-percent credit for installing a solar water-heating panel for his swimming pool.
D)A taxpayer may receive a 30-percent credit for the purchase of a plug-in electric vehicle.
Q3) Brad works at the local pizza shop as a delivery person. He is hoping to change to a position in the kitchen and takes a culinary course at the local community college for $1,400. Assuming he is eligible, Brad's lifetime learning credit is:
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Chapter 7: Accounting Periods and Methods and Depreciation
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) "Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.
A)True
B)False
Q2) The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.
A)True
B)False
Q3) On May 2, 2016, Scott purchased a commercial building. The cost basis assigned to the building is $600,000. Scott also owns a residential apartment building he purchased on June 15, 2015 with a cost basis of $400,000. a.
Calculate Scott's total depreciation deduction for the buildings for 2016, using the Modified Accelerated Cost Recovery System. b.
Calculate Scott's total depreciation deduction for the buildings for 2017, using the Modified Accelerated Cost Recovery System.
Q4) To be depreciated, must an asset actually lose value each year?
Page 9
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Chapter 8: Capital Gains and Losses
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) In 2016, the basis of a taxpayer's replacement residence is equal to the cost of the replacement residence less the gain which was deferred on the sale of the old residence.
A)True
B)False
Q2) Karen received a stock portfolio upon the death of her grandmother. The stock originally cost her grandmother $32,000, but was worth $250,000 when she died. What is Karen's tax basis in the stock portfolio? Explain.
Q3) Which of the following statements is true?
A)A taxpayer's personal residence qualifies for a like-kind exchange.
B)A taxpayer who sells a personal residence may always exclude the realized gain from taxable income.
C)A one-time election is available to taxpayers 55 years of age or older which allows them to sell their personal residences and to exclude all of the realized gain.
D)None of the above are true.
E)All of the above are true.
Q4) What is the treatment given to personal casualty gains and losses?
Q5) What are capital assets?
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Chapter 9: Withholding Estimated Payments and Payroll Taxes
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82 Verified Questions
82 Flashcards
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Sample Questions
Q1) Which of the following forms is used by an employer to report quarterly wages and federal payroll tax withholdings and deposits?
A)Form 940
B)Form 941
C)Form 1099
D)Form W-2
E)None of the above
Q2) If a husband and wife both work, they must divide their withholding allowances equally on their W-4 Forms.
A)True
B)False
Q3) What is the purpose of backup withholding?
Q4) Which one of the following forms must an employer provide to his employee by January 31 of the following year?
A)W-3
B)W-2
C)W-4
D)941
E)1040
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Chapter 10: Partnership Taxation
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) Under which of the following circumstances would a partnership terminate and close its tax year?
A)Divorce of a partner
B)Sale of an interest in a partnership by a partner who holds a 60 percent capital and profits interest
C)Entry of a new partner
D)Distribution of property to a 10 percent partner in complete termination of the partner's interest in the partnership
E)None of the above
Q2) A partner contributes assets with a basis of $50,000 and a fair market value of $80,000 to a partnership. What is the basis of the property to the partnership and what is the general rule for the basis of appreciated property contributed to a partnership?
Q3) If Margo and Bruce purchase and operate an ice cream store, for tax purposes they have formed a partnership.
A)True
B)False
Q4) List three advantages of an LLC.
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12
Chapter 11: The Corporate Income Tax
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) Corporations can elect to deduct up to $5,000 of organizational costs in the year they begin business, assuming their total organizational expenses do not exceed $50,000.
A)True
B)False
Q2) Ashwood Corporation has been in business for 20 years. For the previous 3 years, Ashwood Corporation had annual gross receipts of $3.3 million, $4.2 million and $5.4 million, respectively. For alternative minimum tax purposes, is Ashwood Corporation a small corporation? Give your reasoning and/or the calculation that you based your answer on. Also, why does it matter if they are a small corporation?
Q3) Rob, Bill, and Steve form Big Company. Rob performs $45,000 of services for his shares of the company. Bill transferred property with a basis of $5,000 for $75,000 of stock. Steve contributes cash of $100,000 for his shares. Which of the three must recognize income in the year of the formation?
A)Rob
B)Rob, Bill
C)Bill
D)Steve, Bill
E)Steve, Rob
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Page 13
Chapter 12: Tax Administration and Tax Planning
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67 Flashcards
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Sample Questions
Q1) The tax law is administered by the Federal Trade Commission.
A)True
B)False
Q2) Tax returns are processed at the IRS national office in Washington, D.C.
A)True
B)False
Q3) Tax returns selected for most audits are selected by the Discriminant Function System.
A)True
B)False
Q4) List three things that a preparer needs to do in order to participate in the Annual Filing Season Program.
Q5) Tax penalties are not deductible by taxpayers.
A)True
B)False
Q6) The Wage and Investment Office of the IRS handles small business taxpayers.
A)True
B)False
Q7) What is the difference between tax avoidance and tax evasion?
Q8) List three different ways that a tax return may be selected for an audit.
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