Tax Planning and Compliance Exam Bank
Course Introduction
Tax Planning and Compliance explores the principles and strategies involved in effectively managing tax obligations while adhering to current regulations. The course covers topics such as income tax law, tax documentation, timing strategies, tax-advantaged investments, and the ethical considerations in tax practice. Students learn to identify opportunities for minimizing tax liability, analyze the impact of tax legislation on financial decisions, and ensure compliance with federal and state requirements. Emphasis is placed on practical applications, including tax return preparation and proactive planning for individuals and businesses.
Recommended Textbook Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Page 2
Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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Q1) State and local taxes levied on either property or sales are examples of progressive taxes.
A)True
B)False
Answer: False
Q2) Which of the following would disqualify a taxpayer from filing a Form 1040EZ?
A)The taxpayer is age 66.
B)The taxpayer is married.
C)The taxpayer received unemployment compensation income of $1,700.
D)The taxpayer has interest income of $1,400.
Answer: A
Q3) IRS Regulations are by far the strongest administrative authority.
A)True
B)False
Answer: True
Q4) Wages,salaries,and tips are compensation for services rendered.However,commissions,bonuses,and severance pay are not taxable.
A)True
B)False Answer: False
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Chapter 2: Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Q1) What qualifications are necessary to file as qualifying widower)?
Answer: The qualifications necessary to file as qualifying widower)are: 1.Taxpayer was eligible to file a joint return in the year the spouse died. 2.Taxpayer did not remarry before the end of the tax year in question. 3.Taxpayer paid more than half the cost of keeping up a household. 4.The household was the principal place of abode for the entire year except for temporary absences)of both the taxpayer and a child,stepchild,or adopted child who can be claimed as a dependent by the taxpayer.
Q2) A qualifying relative must be related to the taxpayer as listed by the IRS),or be a member of the taxpayer's household for the entire year.
A)True
B)False
Answer: True
Q3) What does the withholding amount on a taxable payment made to the taxpayer represent?
Answer: The withheld amount represents an estimate of the amount of income tax that would be due for the year on the taxable payment.The IRS credits withholdings to the account of the appropriate taxpayer.Withholdings serve to reduce the amount otherwise due the IRS on the due date of the return.
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) The initial original issue discount OID)on a bond is equal to the difference between the acquisition price and the maturity value.
A)True
B)False
Answer: True
Q2) When filing their tax returns,almost all individuals use:
A)The cash receipts and disbursements method.
B)The accounting method.
C)The accrual method.
D)The recognition method.
Answer: A
Q3) The taxability of social security benefits depends on the "provisional income" and filing status of the taxpayer.
A)True
B)False
Answer: True
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) Under a divorce agreement executed in 2016,periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.
A)True
B)False
Q2) Which of the following is not a deductible alimony payment?
A)Half of the mortgage payment on a home jointly owned with the ex-spouse when required by the decree of divorce.
B)Payments for life insurance premiums required by the divorce decree.
C)Payments for child support required by the divorce decree.
D)Payments for dental expenses of the ex-spouse under terms of the divorce agreement.
Q3) The deduction for self-employment taxes in 2016 is deductible as an above-the-line deduction at a rate of 7.65% based on the employer's portion of the taxes.
A)True
B)False
Q4) Why is it important to distinguish between a property settlement and alimony?
Q5) Define each of the following: alimony,child support,and a property settlement.
Q6) What is a Health Savings Account HSA)?
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Chapter 5: Itemized Deductions
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Q1) In order for a personal property tax to be deductible as an itemized deduction,what three tests are required?
Q2) Taxes assessed for local benefits,such as a new sidewalk,are deductible as real property taxes.
A)True
B)False
Q3) For the current year,Sheila Jones had adjusted gross income of $100,000.During the year,she contributed $6,000 to her church and an additional $3,000 to qualified charities.She also contributed religious artwork with a fair market value of $60,000 and a basis of $20,000 to her church.The church intends to display the religious artwork in the church foyer.If Sheila chooses to itemize her deductions,what is the amount of her deductible charitable contribution in the current year?
A)$49,000.
B)$39,000.
C)$20,000.
D)$9,000.
Q4) Personal casualty losses resulting from termite damage are deductible.
A)True
B)False
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Which of the following statements is false with respect to the standard mileage rate?
A)The standard mileage rate encompasses depreciation.
B)Section 179 cannot be used on a standard mileage rate auto.
C)The taxpayer can have an unlimited number of autos and use the mileage rate.
D)The standard mileage rate cannot be used on a taxi.
Q2) A sole proprietor's trade or business income or loss is reported on Schedule C,Form 1040.
A)True
B)False
Q3) Which of the following properties is not eligible for the §179 expense election when purchased?
A)Rental property.
B)A business automobile.
C)A business computer.
D)Manufacturing equipment.
Q4) Under MACRS,the straight-line method is required for all depreciable real property.
A)True
B)False
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) In 2011,Terri purchased 260 shares of Flowers R Us stock at a cost of $9,600 as an investment.In 2016,when the fair market value was $11,400,Terri gave the stock to her daughter,Michele.Assuming no gift tax was paid,if Michele sells the stock for $13,800,she will recognize:
A)$2,400 gain.
B)$4,200 gain.
C)$1,800 gain.
D)no gain or loss.
Q2) Leslie buys a sculpture from a collector for resale in her gallery.She purchased the sculpture for $5,000 and sold it 24 months later for $9,000.What are the nature and the amount of the gain on the sale?
A)$4,000 ordinary income.
B)$4,000 gain subject to 28% tax rate.
C)$5,000 ordinary gain and $4,000 Section 1231 gain.
D)$4,000 Section 1245 gain.
Q3) A capital asset includes all of the following except:
A)Inherited property.
B)Real estate used in the taxpayer's trade or business.
C)A taxpayer's home.
D)Real estate held for investment.
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Chapter 8: Rental Property, royalties, and Income From
Flow-Through Entities Line 17, form 1040, and Schedule E
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Q1) Which of the following statements is true with regard to the reporting of royalty income?
A)Royalty income reported on Schedule E is subject to self-employment tax.
B)It can be reported on Schedule C but generally on Schedule E.
C)It must be reported on Schedule E only.
D)It must be reported on Schedule C only.
Q2) When reporting the income and expenses of a rental property,what determines the use of the Schedule C versus the Schedule E?
Q3) Alexis's cabin in the mountains that was rented for 125 days and used by her for 12 days is considered personal/rental property.
A)True
B)False
Q4) In general,losses from passive activities may be deducted only to the extent that there is passive income.
A)True
B)False
Q5) Explain what is considered personal use of a rental property.
Page 10
Q6) What are the different types of income that may be reported on Schedule E?
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Chapter 9: Tax Credits Form 1040, lines 46 Through 54 and Lines 66a Through 73
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Q1) The maximum amount per year of dependent care expenses that can be used for calculating the credit for child and dependent care expenses is $3,000 for one qualifying individual.
A)True
B)False
Q2) Max and Nora have modified AGI of $75,000,and adopted a little boy from San Antonio,Texas,in the current year and incurred a total of $13,000 in qualified adoption expenses.In addition,Max's employer provided the couple with adoption benefits of $4,000.What is the maximum amount of adoption credit they can take this year?
A)$4,000.
B)$9,000.
C)$13,460.
D)$13,000.
Q3) Harrison is single and his son Jack is 12 years old.If his AGI is $195,000,what amount of child tax credit can Harrison claim?
A)$0.
B)$2,000.
C)$2,500.
D)$1,000.
Page 11
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Chapter 10: Payroll Taxes
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Q1) Brenda is a self-employed accountant.She has net earnings profit)from her practice of $74,000.Her self-employment taxes for the year are: Round your answer to 2 decimal places.)
A)$10,450.21.
B)$11,322.00.
C)$10,250.85.
D)$10,455.87.
Q2) Ben has 2 jobs and both employers withhold FICA taxes.From his first job,Ben earned $85,034 and from his second job,he earned $34,496.How much can Ben claim as additional payment on his Form 1040 as excess social security tax paid in 2016?
A)$94.86.
B)$32.86.
C)$0.
D)$63.86.
Q3) The withholding tables are structured so that employers withhold approximately the same amount for a given annual income regardless of how often the employee is paid.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) What is the maximum deductible contribution that can be made to one or more deductible IRAs in each of the following instances?
a.A single person,age 41,who is not an active participant in an employer-sponsored retirement plan with AGI of $97,000.
b.A married couple,ages 33 and 34,neither of whom is an active participant in an employer-sponsored retirement plan.One spouse has W-2 income of $57,000 and the other spouse did not work.
c.A married couple,ages 44 and 48.One spouse is covered under an employer-sponsored retirement plan and the other is not.The covered spouse has W-2 income of $125,000 and the non-covered spouse has W-2 income of $32,000.
Q2) Contributions to a qualified pension plan can be deducted immediately by an employer.
A)True
B)False
Q3) All tax-deferred pension plans have an accumulation period and a distribution period.
A)True
B)False
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Chapter 12: Special Property Transactions
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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) On December 28,2016,Misty sold 300 shares of Low Grade,Inc.a publicly traded company)at a loss of $8,500.On January 5,2017,thinking that the stock price would rebound,Misty purchased 200 shares of Low Grade,Inc.for $7,000.What is the amount of the recognized loss on the December 28,2016 sale and what is Misty's basis in the 200 shares she purchased on January 5,2017?
Q3) To postpone any gain on an involuntary conversion,the taxpayer must purchase qualifying replacement property that is "similar or related in service or use" to the property involuntarily converted.
A)True
B)False
Q4) Dr.and Mrs.Spankle purchased a residence on January 12,2012,for $250,000.On May 15,2016,they sold the residence for $360,000,and paid selling expenses of $18,000.They purchased a new home for $354,000.Determine the Spankles' realized and recognized gain.
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) Elijah owns an apartment complex that he actively manages.Elijah paid $300,000 cash for the apartment complex three years ago.During 2016,the rental activity generated a loss of $30,000.How much of the loss can Elijah deduct in 2016 in both of the following independent cases?
a.Elijah has $80,000 of AGI salary)before considering the loss generated by the apartment building.
b.Elijah has $120,000 of AGI salary)before considering the loss generated by the apartment building.
Q2) The Tara Partnership not involved in real estate)generated income of $75,000 during the year.Since the partnership is involved in an activity that is subject to the at-risk rules,all of Tara's partners must file Form 6198 with their individual income tax returns.
A)True
B)False
Q3) "Active participation" is a much more difficult standard to meet than "material participation."
A)True
B)False
Q4) Identify factors that increase or decrease the at-risk amount.
Page 15
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Chapter 14: Partnership Taxation
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Q1) Cameron has a basis in his partnership interest of $5,000.Cameron's share of partnership income is $5,000.He also receives a cash distribution from the partnership of $13,000.What is his gain or loss as a result of the distribution?
A)$3,000.
B)$0.
C)$5,000.
D)$13,000.
Q2) A partner can recognize a loss on a liquidating distribution.
A)True
B)False
Q3) A partner's share of recourse liabilities increases the partner's basis in his or her partnership interest.
A)True
B)False
Q4) A guaranteed payment is treated as:
A)An ordinary expense.
B)Both a separately stated item and an ordinary expense.
C)A separately stated item.
D)None of these.
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Chapter 15: Corporate Taxation
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Q1) Which of the following items decrease basis for a stockholder of a Subchapter S corporation?
A)Charitable contributions.
B)Net income.
C)Loans from the shareholder to the corporation.
D)Capital contributions.
Q2) When are estimated income tax payments due for a corporation with a fiscal year-end of November? What if the fiscal year-end is June?
Q3) Which of the following will disqualify a corporation from electing Subchapter S status?
A)The election form is signed by 80% of the shareholders.
B)The corporation has 80 shareholders.
C)The corporation has one class of stock.
D)All shareholders are U.S.citizens except for 10% who are resident aliens.
Q4) Corporate distributions in excess of earnings and profits are a capital gain to a stockholder.
A)True
B)False
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