Principles of Taxation Test Preparation
Course Introduction
Principles of Taxation provides a comprehensive introduction to the fundamental concepts, structures, and functions of tax systems. The course explores the rationale for taxation, various types of taxes (such as income, corporate, property, and consumption taxes), tax administration, and the legal and ethical considerations surrounding tax policy. Students will examine the impact of taxation on individuals, businesses, and the broader economy, alongside the principles of equity, efficiency, and simplicity in tax design. Emphasis is placed on understanding tax legislation, compliance requirements, and the role of taxation in government revenue generation and public policy.
Recommended Textbook
Fundamentals of Taxation 9th Edition 2016 by Ana Cruz
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15 Chapters
1631 Verified Questions
1631 Flashcards
Source URL: https://quizplus.com/study-set/3923 Page 2
Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) All individual income tax returns follow the structure of the simplified tax formula. A)True
B)False
Answer: True
Q2) Employers report wage income to employees on a:
A) Form W-2.
B) Form W-3.
C) Form 1099-E.
D)Form 1099-G.
Answer: A
Q3) Victoria determined her tax liability was $6,451. Her employer withheld $6,145 from her paychecks during the year. Victoria's tax return would show
A) A refund of $306.
B) A refund of $6,451.
C) Tax due of $306.
D)Tax due of $6,145.
Answer: C
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Page 3
Chapter 2: Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) A qualifying relative must earn less than _____ for the year 2015.
A) $1,050
B) $6,300
C) $9,250
D)$4,000
Answer: D
Q2) Even though the taxpayer is claimed as a dependent on another tax return, he or she can still receive an exemption amount for himself or herself when filing his or her tax return.
A)True
B)False
Answer: False
Q3) A taxpayer who has income that is not subject to withholding is never required to make estimated payments during the year.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Gross Income: Inclusions and Exclusions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Dividends are generally taxed at capital gains rates if they are made from the corporation's current earnings and profits or accumulated earnings and profits.
A)True
B)False
Answer: True
Q2) For most individuals, interest income comes from interest-earning deposits at banks, savings and loans, or credit unions.
A)True
B)False
Answer: True
Q3) Almost all individuals use the cash receipts and disbursements method of accounting.
A)True
B)False
Answer: True
Q4) In what form can a taxpayer realize income?
Answer: A taxpayer can realize income in any form, i.e., money, property, or services. Even for a cash-basis taxpayer, receipt of property or services serves to trigger income recognition.
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Chapter 4: Adjustments for Adjusted Gross Income
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Sharon is a self-employed hair stylist and had net earnings from self-employment of $4,100. She paid $375 per month for health insurance over the last year. Sharon is entitled to a for AGI deduction for health insurance premiums of:
A) $0.
B) $375.
C) $4,100.
D)$4,500.
Q2) The amount of self-employed health insurance premiums that are deductible as a for AGI deduction is:
A) 100%.
B) 80%.
C) 70%.
D)50%.
Q3) If a taxpayer incurs an early withdrawal of savings penalty, the taxpayer is entitled to report the penalty as a for AGI deduction on Form 1040.
A)True
B)False
Q4) What is a Health Savings Account (HSA)?
Q5) Define each of the following: alimony, child support, and a property settlement.
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Chapter 5: Itemized Deductions
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Which of the following miscellaneous itemized deductions is not subject to the 2% of adjusted gross income limitation?
A) Unreimbursed employee business expenses.
B) Gambling losses up to the amount of gambling winnings.
C) Union or professional dues and subscriptions.
D)Tax return preparation fees.
Q2) If a taxpayer's personal property is completely destroyed, the casualty loss deduction is still reduced by a required floor amount.
A)True
B)False
Q3) During 2015, Manuel and Gloria incurred acquisition debt on their new residence of $1,150,000. On their joint tax return, what is the amount of their qualified acquisition debt on which they can deduct interest?
A) $900,000.
B) $1,000,000.
C) $1,050,000.
D)$1,150,000.
Q4) When are travel costs deductible as medical costs? How are medical travel costs calculated?
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Chapter 6: Self-Employed Business Income
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) Kiri acquires equipment (7-year property) on August 14, 2015, for $80,000. She does not elect to expense the asset under Section 179 or the 50% bonus. She sells the asset on January 15, 2019.
a. What is Kiri's cost recovery deduction related to the equipment in 2015 and 2019?
b. What is Kiri's cost recovery deduction related to the equipment in 2015 and 2019 if the 50% bonus is elected?
Q2) "Listed property" includes only passenger automobiles.
A)True
B)False
Q3) The standard mileage rate includes parking fees, tolls, and property taxes on the vehicle.
A)True
B)False
Q4) Describe each of the depreciation conventions and when each is applicable.
Q5) If property is inherited, the property's basis for purposes of depreciation is the same as the decedent's basis.
A)True
B)False
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Chapter 7: Capital Gains and Other Sales of Property
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) To figure the gain or loss from the sale of property received as a gift, the donee must know the donor's adjusted basis as well as the FMV at the date of the gift.
A)True
B)False
Q2) In 2015, Marty has a net short-term capital loss of $2,400, a net long-term capital loss of $12,000, and wage income of $59,850.
a. What is Marty's capital loss deduction for 2015?
b. What amount of the capital loss qualifies as a carryover?
c. What is Marty's total income for 2015 before additions/deductions for adjusted gross income?
Q3) Keiko sells a piece of equipment used in her business for $14,853 on August 10, 2015. The equipment was purchased on January 4, 2014 at a cost of $12,849. Keiko has taken $3,855 of depreciation on the equipment. What is the amount and classification of the gain on the sale by Keiko?
A) $5,859 ordinary income under Section 1245.
B) $5,859 Section 1231 gain.
C) $3,855 ordinary income under Section 1245 and $2,004 Section 1231 gain.
D)$3,855 Section 1231 gain and $2,004 ordinary income under Section 1245.
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Page 9
Chapter 8: Rental Property, Royalties, Income From
Flow-Through Entities
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) What is meant by ordinary rental expenses and what criteria must be met to be deductible? Provide some examples of deductible rental expenses. For this question, assume no personal use of the rental property.
Q2) Explain the three categories that a rental activity may fall under if used for both personal and rental purposes. How are the categories determined?
Q3) Royalties can be earned from allowing others the right to use: A) patents. B) plays. C) songs.
D)all of these.
Q4) The income from a partnership to its partner is considered self-employment income.
A)True B)False
Q5) Joey and Susan rented their house for 2 weeks and used it for personal use for the remainder of the year. The house is considered personal/rental property.
A)True
B)False
10
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Chapter 9: Tax Credits
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Victoria is single with two qualifying children and AGI of $24,000. What is her EIC?
A) $3,359.
B) $4,308.
C) $5,002.
D)$5,548.
Q2) Arturo and Deena are married with two dependents. They enrolled in a qualified plan through the Marketplace at a cost of $2,700 per year. Their household income was $31,000. Their SLCSP premium is $3,600. What is their premium tax credit?
A) $620.
B) $2,700.
C) $2,980.
D)$3,600.
Q3) The maximum contribution amount for the retirement savings contributions credit for each tax year is 20% of a taxpayer's AGI.
A)True
B)False
Q4) Taxpayers can claim a child tax credit for each qualifying child. How is a qualifying child defined?
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Chapter 10: Payroll Taxes
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Angie earned $120,000 during 2015. She is single, claims two withholding allowances, and is paid monthly. How much FICA tax must Angie's employer remit to the federal government in 2015?
A) $18,130.05.
B) $18,174.00.
C) $18,288.00.
D)$18,360.00.
Q2) What is the maximum state unemployment credit allowed for FUTA purposes?
A) None.
B) 5.4% if all state unemployment taxes have been paid.
C) 6.0% if all state unemployment taxes have been paid.
D)90% of the maximum rate allowed for state unemployment.
Q3) Bonita is married and claims four exemptions on her W-4. Using the percentage method, what is Bonita's federal income tax withholding under the following independent conditions? (Round your answers two decimal places)
a. Bonita is paid semimonthly and her gross pay is $6,500 per paycheck.
b. Bonita is paid monthly and her gross pay is $16,000 per paycheck.
c. Bonita is paid biweekly and her gross pay is $4,500 per paycheck.
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities:
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Pierre retired in 2015 at age 62. During the year he received distributions of $27,000 from his IRA. He made nondeductible contributions of $60,000 to the IRA in prior years and has never received a nontaxable distribution. As of December 31, 2015, the value of his IRA was $450,000. Calculate the taxable portion of Pierre's distribution.
A) $3,396.
B) $3,600.
C) $23,400.
D)$23,604.
Q2) Regarding a full or partial rollover of assets from one retirement plan to another retirement plan:
A) Rollovers are normally taxable to the beneficiary.
B) Rollovers are permitted only in unusual circumstances.
C) A tax-free rollover can be made from a traditional IRA to another traditional IRA.
D)A tax-free rollover can be made from a traditional IRA to a Roth IRA.
Q3) Under what circumstances might an individual want to establish an annuity contract in retirement?
Q4) What is an annuity contract? Who are the parties to an annuity contract?
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Chapter 12: Special Property Transactions
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72 Verified Questions
72 Flashcards
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Sample Questions
Q1) On an involuntary conversion, gain is recognized to the extent of the lower of gain realized or the proceeds not used for replacement.
A)True
B)False
Q2) Libby exchanges a building she uses in her rental business for a building owned by Randy which she will use in her rental business. The adjusted basis of Libby's building is $80,000 and the fair market value is $125,000. The adjusted basis of Randy's building is $40,000 and the fair market value is $125,000. What is Libby's recognized gain on the transaction and her adjusted basis in the building she receives?
Q3) Raymond and Susan are married and 55 years old. They sell their personal residence for $850,000 cash. They purchased the house fifteen years ago for $200,000. What is the amount of gain that Raymond and Susan should recognize on the sale?
A) $0.
B) $150,000.
C) $500,000.
D)$650,000.
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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70 Verified Questions
70 Flashcards
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Sample Questions
Q1) How much, in rental losses, can an individual earning a salary of $125,000 per year offset against salary if he or she owns at least 10% of a rental activity and actively participates in the rental activity?
A) $0.
B) $2,500.
C) $12,500.
D)$25,000.
Q2) A loss must first be allowed under the passive activity loss rules and then must pass through the at-risk rules in order to ultimately be deducted on the tax return.
A)True
B)False
Q3) To be considered a material participant in an activity, a taxpayer must meet all of the seven tests prescribed in the regulations.
A)True
B)False
Q4) An equipment leasing activity is not subject to the at-risk rules.
A)True
B)False
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Chapter 14: Partnership Taxation
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) Typically, a partner does not recognize a gain when he or she receives a current distribution.
A)True
B)False
Q2) If Josh's partnership basis was $5,000 and he received a distribution of land that had a basis of $10,000, Josh would be required to recognize a $5,000 gain.
A)True
B)False
Q3) Nondeductible partnership items do not decrease a partner's basis in the partnership interest.
A)True
B)False
Q4) All income and expense items of a partnership that may be treated differently at the partner level must be "separately stated."
A)True
B)False
Q5) A partner can recognize a loss on a liquidating distribution. A)True B)False
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Chapter 15: Corporate Taxation
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) A corporation subject to AMT has AMT income of $270,000. What is the amount of alternative minimum tax?
A) $57,500.
B) $54,000.
C) $52,000.
D)$46,000.
Q2) PQR Corporation has taxable income before DRD of $60,000 that includes a dividend of $10,000 from a large publicly-traded domestic corporation. What is the tax liability of PQR Corporation?
A) $7,500.
B) $8,000.
C) $8,250.
D)$10,000.
Q3) Schedule L is a reconciliation of net income per books to net income per the tax law.
A)True
B)False
Q4) Large C corporations must use the accrual basis of accounting.
A)True
B)False
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