Tax Planning and Compliance Exam Practice Tests
Course Introduction
This course provides an in-depth exploration of tax planning strategies and compliance requirements for individuals, businesses, and organizations. Students will learn how to analyze tax laws, regulations, and rulings to develop effective tax-saving techniques while ensuring adherence to legal and ethical standards. Topics include income tax fundamentals, tax minimization, corporate and partnership taxation, the use of tax credits and incentives, and the preparation and submission of accurate tax returns. The course also covers the latest developments in tax legislation and their implications for compliance, risk management, and strategic decision-making. Practical case studies and real-world examples are used to enhance students' ability to navigate the complexities of the evolving tax landscape.
Recommended Textbook
Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Chapter 1: Introduction to Taxation, the Income Tax
Formula,
and Form 1040ez
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Sample Questions
Q1) The amount of tax liability calculated using the tax tables will always be the same as the amount calculated using the tax rate schedules.
A)True
B)False
Answer: False
Q2) Interest payers banks,savings and loans,insurance companies,etc.)report interest earnings to taxpayers on a:
A)Form W-2-INT.
B)Form 1099-INT.
C)Form 4070.
D)Form 1099-INC. Answer: B
Q3) A tax rate that remains the same as the tax base increases is an example of what kind of tax rate structure?
A)Recessive.
B)Progressive.
C)Regressive.
D)Proportional.
Answer: D
Page 3
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Chapter
2:
Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Sample Questions
Q1) Severin,who is 20 years old and a full- time student,is claimed by his parent as a dependent.However,in 2016,he earned $5,350.What is the amount of the personal exemption that he can claim on his tax return?
A)$5,400.
B)$0.
C)$4,050.
D)$1,050.
Answer: B
Q2) To be a qualifying child,the taxpayer must meet three general tests and five specific tests.Which one is not part of the three general tests?
A)Dependent taxpayer test.
B)Support test.
C)Joint return test.
D)Citizen or resident test.
Answer: B
Q3) Marital status of a taxpayer is determined on the last day of the tax year.
A)True
B)False
Answer: True
4
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Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) If a taxpayer is economically better off because of a transaction,the person must normally record income.
A)True
B)False
Answer: True
Q2) Receipt of property or services will trigger income recognition.
A)True
B)False
Answer: True
Q3) Name three items that are exempt from income under the umbrella of compensation for injuries or sickness.
Answer: The following items are exempt from income under the umbrella of compensation for injuries or sickness: 1.Payments received under workers' compensation acts. 2.Damages other than punitive damages)received as a result of personal physical injuries or sickness. 3.Pensions or annuities received for personal injuries or sickness from active service in the armed forces,coast guard,public health service,or foreign service. 4.Disability income resulting from a terrorist attack while in the employ of the United States engaged in official duties outside the United States.
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) For the interest on a student loan to qualify for the student loan interest deduction,the student must be enrolled full-time.
A)True
B)False
Q2) Sam is a freshman in the UC-Davis degree program in veterinary medicine.In 2016,Sam paid $3,000 in tuition,$500 for books,and $250 for supplies for class.Sam also paid room and board of $3,500.What is the total qualifying education expense for the student loan interest deduction for Sam in 2016?
A)$3,000.
B)$3,750.
C)$7,250.
D)$3,500.
Q3) Roberto files his tax return as married filing separately.He has not lived with his wife for over three years.In the current year,by order of the court,he paid her $500 per month for 12 months as separate maintenance.He will be able to deduct $6,000 as alimony for the year.
A)True
B)False
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Chapter 5: Itemized Deductions
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Q1) Rick and Claudia live in an apartment and have purchased land where they plan to build their home.They have a mortgage on the lot and have received a Form 1098 from the lender showing the interest paid on the note.Interest paid on this loan is deductible as home mortgage interest on their Schedule A.
A)True
B)False
Q2) Which of the following interest expenses incurred by Juanna is treated as personal interest expense and,therefore,not deductible as an itemized deduction?
A)Interest expense on personal credit cards.
B)Interest on a home mortgage acquired in 2006.
C)Bonds purchased with accrued interest.
D)Interest expense incurred by a partnership in which Juanna is a limited partner.
Q3) The interest paid on a loan used to acquire municipal bonds is deductible as investment interest expense.
A)True
B)False
Q4) How is the medical expense deduction calculated? How is it limited?
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Sample Questions
Q1) Under MACRS,5-year property includes:
A)Fruit-bearing trees.
B)Warehouse.
C)Apartment complex.
D)Automobiles and light trucks used in a trade or business.
Q2) What form is filed to report the self-employment tax?
A)Schedule SE.
B)Form 1040.
C)Schedule C.
D)Schedule D.
Q3) Katherine earned $100,000 from her job at a local business in 2016.She also had $42,000 in self-employed consulting income.What is the amount of her self-employment tax rounded to the nearest dollar?
A)$6,426.
B)$0.
C)$3,419.
D)$6,333.
Q4) The §179 expense deduction is limited to earned income.
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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Sample Questions
Q1) In 2016,Linda gave her son,Jonathan 425 shares of School Products Inc.,common stock.Linda paid $9,350 for the stock in 2010.At the date of the gift,the FMV of the stock was $6,800.Assuming that there is no gift tax paid,if Jonathan sells the stock for $6,000,he will recognize:
A)$3,350 loss.
B)no gain or loss.
C)$3,450 loss.
D)$800 loss.
Q2) Real property held for investment is a capital asset.
A)True
B)False
Q3) In 2010,Niveen purchased land for $88,000 for use in her landscape business.She sold it in 2016 for $94,000.If Niveen has no other sales of business or trade property,how will this gain be taxed?
A)$6,000 long-term capital gain.
B)$6,000 short-term capital gain.
C)$6,000 ordinary income.
D)$6,000 Section 1231 gain.
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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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Sample Questions
Q1) All advance rental payments received,including security deposits for a rental property,must be reported as income when received.
A)True
B)False
Q2) Lois and Benjamin own a chalet in New Mexico and rented it for 12 days for $6,000.The rest of the year,the chalet was used by them and their friends and family.What is the proper tax treatment of the $6,000 income?
A)the amount should be reported as other income.
B)none of the rental income needs to be reported as part of gross income.
C)the amount should be reported on Schedule C.
D)the amount should be reported on Schedule E.
Q3) Kirk and Amy live in Augusta,Georgia.Every year during the Masters Golf Tournament,they rent their primary personal residence for 10 days for $10,000 to a large corporation that uses it to entertain clients.The rest of year,they reside full-time in their home.How should Kirk and Amy treat the rental income? Explain.
Q4) What are the criteria that determine an amount as capital improvement rather than repair and maintenance expense? What is the proper tax treatment of a capital improvement for rental properties?
Page 10
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Chapter 9: Tax Credits Form 1040, lines 46 Through 54 and Lines 66a Through 73
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Sample Questions
Q1) Kylie is a single mom with two dependent children,Tanner,age 7 and Olivia,age 11.She has AGI of $38,000 and paid $5,300 to a qualified day care center for the two children.What amount of credit can Kylie receive for the child and dependent care credit?
A)$5,300.
B)$600.
C)$1,200.
D)$1,219.
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)$2,980.
C)$2,700.
D)$3,600.
Q3) What is the definition of qualifying child for purposes of the earned income credit?
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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Q1) An employee who works for multiple employers will likely be under-withheld for federal income tax purposes and can owe additional taxes when filing his/her return.
A)True
B)False
Q2) If on any day during the month,an employer accumulates $100,000 or more in tax liability,the taxes must be deposited:
A)By either the following Wednesday or Friday if the employer is a semiweekly schedule depositor.
B)By the last day of the month if the employer is a monthly schedule depositor.
C)Before the close of the business day on which the liability occurs.
D)By the next banking day.
Q3) Irene earned wages of $119,200 during 2016.How much will Irene's employer withhold in social security taxes for the year?
A)$7,316.00.
B)$7,347.00.
C)$7,390.40.
D)$7,254.00.
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) In 2016,a 52-year-old participant in a 401k)plan may contribute a maximum of:
A)$24,000.
B)$6,000.
C)$18,000.
D)$53,000.
Q2) Annually,up to $2,000 per beneficiary can be contributed to a Coverdell Education Savings Account.
A)True B)False
Q3) Retirement accounts include traditional IRAs,Roth IRAs,Keoghs,and Coverdell Education Savings Accounts.
A)True B)False
Q4) What is a good rule of thumb you should use when thinking about the taxability of retirement plan distributions?
Q5) If an individual or spouse)is an active participant in an employer-sponsored retirement plan,he or she cannot make a deductible IRA contribution.
A)True B)False
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Chapter 12: Special Property Transactions
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Q1) The holding period of property received in a like-kind exchange:
A)Begins on the date the exchange property is identified.
B)Includes the holding period of the old asset exchanged.
C)Begins on the date of the exchange.
D)Begins up to 180 days prior to the exchange.
Q2) Matt and Opal were married in April of 2016.Matt has lived in his personal residence for fifteen years and Opal moved into the house after the marriage.Matt died in October 2016.Opal sold the house at a $300,000 gain in December,2016.How much of the gain can Opal exclude?
A)$250,000.
B)$300,000.
C)$0.
D)None of these.
Q3) The installment method cannot be used to report the gain on which of the following assets?
A)Stock traded on a securities market.
B)Land used in a trade or business.
C)Stock in a privately-held business.
D)Building used in a trade or business.
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Sample Questions
Q1) Heather purchased furniture and fixtures 7-year property)for her retail shop for $50,000.What is the AMT depreciation adjustment required in 2016 if the property was purchased in May 2016,assuming no bonus depreciation was taken?
A)$1,790.
B)$7,145.
C)$0.
D)$5,355.
Q2) What form must a taxpayer file if he or she is at-risk in an activity?
A)Form 8582.
B)Form 4797.
C)Form 1040,Schedule D.
D)Form 6198.
Q3) In 2016,Nigel contributes cash of $10,000 in exchange for a 20% interest in the NDP Partnership.The partnership is not a passive activity.For 2016,the partnership had an ordinary loss of $80,000,interest income of $2,000,dividends of $5,000,and capital gains of $4,000.How much of the current year loss is deductible by Nigel and what is Nigel's at-risk amount on December 31,2016?
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) Paris,a 60% partner in Omega Partnership,has a basis of $25,000 in her partnership interest.Paris receives a cash distribution of $24,000 at year-end.What is Paris's basis in her partnership interest at the end of the year?
A)$25,000.
B)$24,000.
C)$1,000.
D)$0.
Q2) A partner can recognize a loss on a liquidating distribution. A)True
B)False
Q3) Upon the sale of a partnership interest,a partner must recognize ordinary income if the partnership has substantially appreciated inventory or unrealized receivables. A)True B)False
Q4) Guaranteed payments are always determined with regard to partnership income. A)True B)False
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Chapter 15: Corporate Taxation
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Q1) Keisha is a shareholder in a corporation.She received a distribution of property from the earnings and profits of the corporation.Keisha will report dividend income equal to the FMV of the property received.
A)True
B)False
Q2) Keisha owns 100% of DEF Company and has a basis of $10,000 in its stock.DEF has earnings and profits of $9,000 and distributes a cash dividend to Keisha of $12,000.Keisha has a:
A)Dividend of $12,000.
B)Nontaxable distribution of $3,000.
C)Capital gain of $2,000.
D)Nontaxable distribution of $1,000.
Q3) There are four characteristics that a C Corporation must meet in order to elect Subchapter S status.List the characteristics.
Q4) A Subchapter S corporation must be a domestic corporation.
A)True B)False
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