Principles of Taxation
Exam Questions
Course Introduction
Principles of Taxation introduces students to the fundamental concepts, structures, and practices of taxation systems, with a focus on the rationale, objectives, and administration of taxes in modern economies. The course covers the various types of taxes including income, corporate, property, and indirect taxes and explores how tax policy influences economic behavior, income distribution, and government revenue. Through theoretical frameworks and practical examples, students learn about tax compliance, tax evasion and avoidance, ethical considerations, and the impact of taxation on individuals and businesses. By the end of the course, students will have a solid understanding of how tax systems are designed, implemented, and evaluated within both local and global contexts.
Recommended Textbook
Income Tax Fundamentals 2017 35th Edition by Gerald
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12 Chapters
1259 Verified Questions
1259 Flashcards
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E. Whittenburg
Page 2
Chapter 1: The Individual Income Tax Return
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) If an unmarried taxpayer paid more than half the cost of keeping a home which is the principal place of residence of a nephew, who is not her dependent, she may use the head of household filing status.
A)True
B)False Answer: False
Q2) An individual, age 22, enrolled on a full-time basis at a trade school, is considered a student for purposes of determining whether a dependency exemption is permitted.
A)True
B)False Answer: True
Q3) Which one of the following provisions was passed by Congress to meet a social goal of the tax law?
A)The deduction for job hunting expenses.
B)The charitable deduction.
C)The moving expense deduction for adjusted gross income.
D)The deduction for soil and water conservation costs available to farmers.
E)None of the above.
Answer: B
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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) If a taxpayer holding EE bonds makes an election with respect to the taxation of the bonds, how is the interest which accrues on the bonds, but is not paid, taxed each year?
Answer: If an election is made, the annual increase in the redemption value of the bond (or interest accrual as it is commonly called) is included in taxable income each year.
Q2) As a new benefit to employees, the Acme Company is providing a dining allowance every Tuesday for use in one of the twenty restaurants that they own around town. Should this benefit be included in the wages of the employees?
Answer: Yes. The meals are not being provided for the convenience of the employer. Therefore, the value of the meals should be included in the wages of the employees.
Q3) Helga receives a $300,000 life insurance payment when her boyfriend Andy dies. How much of the payment is taxable to Helga?
Answer: None of the payment is taxable. Life insurance proceeds received upon the death of the insured are generally considered to be tax-free and specifically excluded from taxable income.
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Chapter 3: Business Income and Expenses Part I
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Jezebel loaned her friend $7,000 to buy a used car. She had her friend sign a note with repayment terms and set a reasonable interest rate on the note because she wanted her friend to understand that this was purely a loan and not a gift. Her friend is now on disability and has made it clear she has no way of paying back the loan. How should Jezebel treat the bad loan for tax purposes?
Answer: This is a nonbusiness bad debt. Jezebel may claim a $3,000 short-term capital loss in the current year, $3,000 in the next year and $1,000 in the following year, assuming she has no capital gains to offset the capital loss.
Q2) Taxpayers who use their country club more than 50 percent for business may deduct the total amount of their membership dues.
A)True
B)False
Answer: False
Q3) 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
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Page 5
Chapter 4: Business Income and Expenses Part II
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) Warren invested in a limited partnership tax shelter in 2009. During 2016, his losses from the partnership amount to $100,000. If Warren has no passive income, what is the amount of Warren's deduction for passive losses for 2016?
A)$0
B)$10,000
C)$20,000
D)$40,000
E)None of the above
Q2) Johnice's employer contributes $3,000 to a qualified retirement plan in 2016 for Johnice's retirement.
a.Is the $3,000 deductible by Johnice's employer in 2016? Explain.
b.Is the $3,000 income to Johnice in 2016? Explain.
c.Is either the interest or dividend earnings on the $3,000 contribution taxable to Johnice in 2016? Explain.
Q3) 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
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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) Which of the following is deductible as a miscellaneous itemized deduction?
A)Union dues
B)Professional dues and subscriptions
C)Job hunting expenses
D)Investment expenses
E)All of the above are miscellaneous deductions
Q2) Which of the following charitable contributions is not tax deductible?
A)Cash donated to a qualified church.
B)Clothing donated to a qualified veterans' organization.
C)Time donated to a qualified veterans' organization.
D)Donation of a car to a qualified non-profit organization.
E)All of the above are tax deductible.
Q3) If an employee receives a reimbursement for employee business expenses, the amount of the reimbursement is always excluded from gross income and the expenses are deductible as deductions for adjusted gross income.
A)True
B)False
Q4) The adjusted gross income (AGI) limitation on medical expenses is 15 percent.
A)True
B)False
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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) 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?
Q2) In 2016, Alex has income from wages of $16,000, adjusted gross income of $18,000, and tax liability of $300 before the earned income credit. What is the amount of Alex's earned income credit for 2016, assuming he is single and his 5-year-old dependent son lives with him for the full year?
A)$0
B)$1,000
C)$3,274
D)$3,373
E)None of the above
Q3) Carla and Bob finalized an adoption in 2016. Their adoption fees totaled $9,500. They have AGI of $207,920 for 2016. What is their adoption credit?
A)$7,334
B)$8,077
C)$9,500
D)$13,400
Q4) What would reduce income taxes more: a $100 tax credit or a $100 tax deduction?
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Chapter 7: Accounting Periods and Methods and Depreciation
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111 Verified Questions
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Sample Questions
Q1) Kate is an accrual basis, calendar-year taxpayer. On November 1, 2016, Kate leased out a building for $4,500 a month. On that day Kate received 7 months rental income on the building, a total of $31,500 ($4,500 × 7 months). How much income must Kate include on her 2016 tax return as a result of this transaction?
A)$4,500
B)$9,000
C)$31,500
D)$54,000
E)None of the above
Q2) The tax law imposes restrictions on the depreciation of "listed" property such as automobiles and computers.
A)True
B)False
Q3) Joyce purchased a passenger automobile on March 2, 2016. She paid $12,000 for the automobile and can support business use of 85 percent. Calculate the amount of depreciation on the automobile for 2016 using the accelerated MACRS method (if available), assuming Joyce does not make the election to expense or claim bonus depreciation.
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 October of the current year, Mike sold a share of Berkshire-Hathaway for $73,000. He had acquired it several years ago at a cost of $42,000. He also sold Microsoft stock he had held for 3 years at a gain of $17,000. He had a short-term $2,000 loss on the sale of stock of a start-up technology company. He has $85,000 in taxable income before capital transactions are taken into account.
Assuming Mike is single with no dependents, what is the amount of Mike's tax on the capital transactions?
Q2) In the current year, Keyaki Construction Company exchanged an old truck, which cost $53,000 and had accumulated depreciation of $16,000, for a new truck having a fair market value of $65,000. In connection with the exchange, Keyaki paid $28,000 in cash. What is the tax basis of the new truck?
A)$37,000
B)$54,000
C)$65,000
D)$69,000
E)None of the above
Q3) What are capital assets?
Q4) What is the treatment given to personal casualty gains and losses?
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Chapter 9: Withholding Estimated Payments and Payroll Taxes
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Sample Questions
Q1) The two most common methods of determining federal income tax withholding are the percentage method and the wage bracket method.
A)True
B)False
Q2) If an individual taxpayer discovers that his or her original estimate for estimated tax payments was inaccurate, the taxpayer should continue to make payments based on the original estimate and pay any additional amount or request any refund when the tax return is filed.
A)True
B)False
Q3) Mark the incorrect answer. Estimated income tax payments:
A)Need not be filed if the estimated tax, after subtracting withholding, can reasonably be expected to be more than $1,000.
B)If inadequate, may result in nondeductible penalties.
C)May be based on the amount of the tax liability for the prior year.
D)Are made in four installments on April 15, June 15, and September 15 of the tax year and on January 15 of the following year.
Q4) What is the purpose of backup withholding?
Page 11
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Chapter 10: Partnership Taxation
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81 Flashcards
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Sample Questions
Q1) Partnership income is taxed at the same tax rates as the income of corporations.
A)True
B)False
Q2) An equal partnership is formed by Rita and Gerry. Rita contributes cash of $10,000 and a building with a fair market value of $150,000, adjusted basis of $55,000, and subject to a liability of $60,000. Gerry contributes cash of $100,000. What is Rita's basis in her partnership interest immediately after formation of the partnership?
A)$25,000
B)$35,000
C)$65,000
D)$70,000
E)None of the above
Q3) Lucky's original contribution to the Boxwood Partnership was land with a basis of $5,000 and a market value of $55,000. Her share of the taxable income from the partnership since her original contribution has been $95,000 and Lucky has received $45,000 in cash distributions from the partnership. Lucky did not recognize any gains as a result of the distributions. Calculate Lucky's current basis in her partnership interest.
Q4) List three advantages of an LLC.
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Page 12
Chapter 11: The Corporate Income Tax
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80 Verified Questions
80 Flashcards
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Sample Questions
Q1) Which of the following statements is not true of S corporations?
A)S corporations are corporations that receive tax treatment similar to that given partnerships.
B)Section 1231 gains and losses pass through separately to stockholders of an S corporation.
C)The amount of S corporation losses that a shareholder of an S corporation may report on his or her tax return is limited to the basis of the stock plus any loans made by the shareholder to the corporation.
D)If a taxpayer purchases stock in an S corporation from another shareholder during the year, the new shareholder may report the entire amount of any loss for the year attributable to the shares purchased.
E)If a shareholder acquires 40 percent of the stock of an S corporation, the new shareholder cannot cause the corporation to lose its S corporation election.
Q2) Corporations may deduct without limitation any amount of charitable contributions providing the amounts are paid to qualified organizations.
A)True
B)False
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Chapter 12: Tax Administration and Tax Planning
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67 Verified Questions
67 Flashcards
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Sample Questions
Q1) A taxpayer made estimated tax payments in excess of the tax due for the year, but failed to file a tax return. Since the taxes were paid in full, would there be a penalty?
Q2) The IRS determined that John underpaid his 2014 tax liability by $6,000 due to negligence. In 2016, John pays $1,000 of interest related to the underpayment and the full amount of any penalties assessed by the IRS.
a.Calculate the amount of the accuracy-related penalty that could be assessed by the IRS in this situation.
b.What part of the deficiency, income taxes, interest and penalty, is deductible by John on his current tax return? Explain.
Q3) A tax preparer may be subject to a penalty for failing to provide a copy of the taxpayer's tax return to the client.
A)True
B)False
Q4) A taxpayer's average tax rate is determined by dividing the total tax paid by the total income of the taxpayer.
A)True
B)False
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