Personal Income Tax
Exam Questions
Course Introduction
This course provides a comprehensive overview of personal income taxation, focusing on federal tax laws and their practical application to individual taxpayers. Students will learn about the principles underlying income determination, deductions, credits, and tax liability. Topics include the computation of taxable income, filing requirements, tax planning strategies, and compliance issues. The course also covers current issues in tax legislation, ethical considerations, and the preparation of individual tax returns, preparing students for both professional practice and informed personal financial management.
Recommended Textbook
McGraw Hills Taxation of Individuals 2017 8th Edition
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14 Chapters
1609 Verified Questions
1609 Flashcards
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Page 2
By Brian C. Spilker
Chapter 1: An Introduction to Tax
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) A use tax is typically imposed by a state on goods purchased within the state.
A)True
B)False
Answer: False
Q2) The main difficulty in calculating an income tax is determining the correct amount of the tax base.
A)True
B)False
Answer: True
Q3) A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.
A)True
B)False
Answer: False
Q4) Dynamic forecasting does not take into consideration taxpayers' responses to a tax change when estimating tax revenues.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Tax Compliance, the Irs, and Tax Authorities
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Andy filed a fraudulent 2014 tax return on May 1, 2015. The statute of limitations for IRS assessment on Andy's 2014 tax return should end:
A) May 1st, 2017.
B) April 15th, 2017.
C) May 1st, 2018.
D) April 15th, 2018.
E) None of these.
Answer: E
Q2) An extension to file a tax return does not extend the due date for tax payments.
A)True
B)False
Answer: True
Q3) The Internal Revenue Code of 1986 is the name of the current tax code. A)True
B)False
Answer: True
Q4) The IRS DIF system checks each tax return for mathematical mistakes.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Tax Planning Strategies and Related Limitations
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Virtually every transaction involves the taxpayer and two other parties that have an interest in the tax ramifications of the transaction.
A)True
B)False
Answer: True
Q2) Which of the following is an example of the timing strategy?
A) A cash basis taxpayer paying all outstanding bills by year end
B) A parent employing her child in the family business
C) A business paying its owner a $30,000 salary
D) A taxpayer investing in a tax preferred investment
E) None of these
Answer: A
Q3) Tax evasion is a legal activity that forms the basis of the basic tax planning strategies discussed in class.
A)True
B)False
Answer: False
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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) Which of the following statements regarding realized income is true?
A) Taxpayers need not include realized income in gross income unless a specific provision of the tax code requires them to do so.
B) Realized income requires some type of transaction or exchange with a second party.
C) Once income is realized it may not be excluded from gross income.
D) None of these statements is true.
Q2) The test for qualifying children includes an age restriction but the test for qualifying relative does not.
A)True
B)False
Q3) Doug and Lisa have determined that their tax liability on their joint return is $3,700. They have made prepayments of $1,000 and also are entitled to child tax credits of $2,000. What is the amount of their tax refund or taxes due?
Q4) It is generally more advantageous from a nontax perspective for a married couple to file separately than it is for them to file jointly.
A)True
B)False
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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) Brad was disabled for part of the year and he received $11,500 of benefits from a disability plan purchased by Brad's employer. Brad must include all $11,500 of benefits in his gross income because Brad was not taxed on the disability insurance premiums paid by his employer.
A)True
B)False
Q2) Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (rounded to the nearest whole dollar)?
A) $18,000
B) $12,000
C) $7,000
D) $1,100
E) Zero - None of these disability pay is included in gross income
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Chapter 6: Individual Deductions
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Which of the following is a true statement?
A) Traveling from a personal residence to a place of business is deducted for AGI as a moving expense.
B) Traveling from a personal residence to a place of business is a miscellaneous itemized deduction subject to the 2 percent of AGI limitation.
C) The standard mileage rate can be used to calculate the deduction for traveling from a personal residence to a place of business.
D) Traveling from a personal residence to a place of business is deductible if reimbursed by an employer.
E) Traveling from a personal residence to a place of business is nondeductible.
Q2) Which of the following is a true statement?
A) A casualty loss can only occur from storm damage.
B) Personal casualty losses can only be deducted to the extent that aggregate casualty losses exceed 10 percent of AGI.
C) Individual casualty losses are only deductible if each individual loss exceeds $5,000.
D) Uninsured thefts of personal assets are not included with casualty losses.
E) All of these are true.
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Page 8
Chapter 7: Individual Income Tax Computation and Tax Credits
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156 Verified Questions
156 Flashcards
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Sample Questions
Q1) Paul and Melissa plan on filing jointly in 2014. For the year, the couple reported taxable income of $130,000. What is their gross tax liability?
Q2) Tax rate schedules are provided for use by (relatively) higher income taxpayers while the tax tables are provided for use by (relatively) lower income taxpayers.
A)True
B)False
Q3) The kiddie tax does not apply to children over 24 years old at the end of the tax year.
A)True
B)False
Q4) The late payment penalty is based on the amount of tax owed and the number of days that the tax is not paid. The maximum amount of the penalty is unlimited.
A)True
B)False
Q5) Tax credits reduce a taxpayer's taxable income dollar for dollar.
A)True
B)False
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Chapter 8: Business Income, Deductions, and Accounting Methods
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99 Verified Questions
99 Flashcards
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Sample Questions
Q1) Jim operates his business on the accrual method and this year he received $4,000 for services that he intends to provide to his clients next year. Under what circumstances can Jim defer the recognition of the $4,000 of income until next year?
A) Jim can defer the recognition of the income if he absolutely promises not to provide the services until next year.
B) Jim must defer the recognition of the income until the income is earned.
C) Jim can defer the recognition of the income if he has requested that the client not pay for the services until the services are provided.
D) Jim can elect to defer the recognition of the income if the income is not recognized for financial accounting purposes.
E) Jim can never defer the recognition of the prepayments of income.
Q2) When a taxpayer borrows money and invests the loan proceeds in municipal bonds, the interest paid by the taxpayer on the debt will not be deductible.
A)True
B)False
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Page 10
Chapter 9: Property Acquisition and Cost Recovery
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) How is the recovery period of an asset determined?
A) Estimated useful life
B) Treasury regulation
C) Revenue Procedure 87-56
D) Revenue Ruling 87-56
E) None of these
Q2) Tax depreciation is currently calculated under what system?
A) Sum of the years digits
B) Accelerated cost recovery system
C) Modified accelerated cost recovery system
D) Straight line system
E) None of these
Q3) The method for tax amortization is always the straight-line method.
A)True
B)False
Q4) In general, major integrated oil and gas producers may take the greater of cost or percentage depletion.
A)True
B)False
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Chapter 10: Property Dispositions
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) All tax gains and losses are ultimately characterized as either ordinary or capital.
A)True
B)False
Q2) Depreciation recapture changes both the amount and character of a gain.
A)True
B)False
Q3) Boot is not like-kind property involved in a like-kind exchange.
A)True
B)False
Q4) The sale of machinery for more than the original cost basis (before depreciation), used in a trade or business, and held for more than one year results in the following types of gain or loss?
A) Capital and Ordinary.
B) Ordinary only.
C) Capital and §1231.
D) §1245 and §1231.
E) None of these.
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Chapter 11: Investments
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) Which of the following is not a tax advantage of a Series EE Saving Bond?
A) taxes are paid as the original issue discount on the bond is amortized
B) interest earned is exempt from state taxation
C) taxes are deferred until the bond is cashed in at maturity
D) interest is exempt from federal taxation when used for qualifying educational expenses
E) None of these
Q2) Which of the following portfolio investments is incorrectly characterized (Investment - Income Type - Timing of Taxation - Tax Rate)?
A) Growth stock - appreciation in capital assets - current - capital gains
B) Municipal bonds - tax-exempt income - never - zero
C) Savings account - taxable interest - current - ordinary income
D) None of these.
Q3) 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 these
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Page 13
Chapter 12: Compensation
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,000 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense). Lina's employer has a 30 percent marginal tax rate. What is the maximum amount of before-tax salary Lina would give up to receive health insurance?
Q2) Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,000 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense). Because of group discounts, her employer can purchase the insurance for $6,000. Lina's employer has a 30 percent marginal tax rate. What would be the after-tax cost to Lina's employer to provide her with health insurance?
Q3) Frederique works for a furniture retailer. The shop allows all employees to purchase 10 pieces of furniture per year at a discount. This year Frederique purchased eight pieces. She gave three pieces as a gift to her brother as a wedding present. Her employer's average gross profit percentage is 25 percent. Each piece was 20 percent off of normal retail prices and in all cases the employee price exceeded the employer's cost. What amount of the discount must be included in Frederique's income?
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Chapter 13: Retirement Savings and Deferred Compensation
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) During 2014 Jacob, a 19 year old full-time student, earned $4,500 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions during 2014 is $5,500. How much of a tax-deductible contribution can Jacob make to an IRA?
A) $0 (Full-time students are not allowed to participate in IRAs)
B) $500
C) $4,500
D) $5,500
Q2) Yvette is a 44-year-old self-employed contractor (no employees). During 2014, her Schedule C net income was 400,000. Assuming Yvette has no contributions to other retirement plans. What is the maximum amount that Yvette can contribute to (1) a SEP IRA and (2) an individual 401(k)?
Q3) Which of the following statements concerning individual 401(k)s is false?
A) In general, individual 401(k)s have higher administrative costs than SEP IRAs.
B) Employees cannot participate in individual 401(k)s.
C) Individual 401(k)s are available only to self-employed taxpayers with 100 or fewer employees.
D) Individual 401(k)s have contribution limitations.
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Chapter 14: Tax Consequences of Home Ownership
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Jorge owns a home that he rents for 360 days and uses for personal purposes for five days. Jorge is not required to allocate expenses associated with the home between rental and personal use.
A)True
B)False
Q2) A tax loss from a rental home is a passive activity loss.
A)True
B)False
Q3) Larry owned and lived in a home for five years before marrying Darlene. Larry and Darlene lived in the home for one year before selling it at a $600,000 gain. Larry was the sole owner of the residence until it was sold. How much of the gain may Larry and Darlene exclude?
A) $0
B) $250,000
C) $500,000
D) $600,000
Q4) A personal residence is not a capital asset.
A)True
B)False
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