Tax Planning and Compliance Exam Practice Tests
Course Introduction
Tax Planning and Compliance explores the principles and practices involved in minimizing tax liabilities while ensuring adherence to current tax laws and regulations. The course covers strategies for individual and business tax planning, interpretation of tax codes, ethical considerations in tax management, and the filing and reporting processes required for compliance. Students will develop analytical skills for effective decision-making and gain practical experience in applying tax planning frameworks to various real-world scenarios, including income, corporate, and international taxation.
Recommended Textbook
Fundamentals of Taxation 9th Edition 2016 by Ana Cruz
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15 Chapters
1631 Verified Questions
1631 Flashcards
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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) 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) Alex is single and had W-2 income of $53,989 and interest income of $154. What is his taxable income?
Answer: Alex's taxable income is $53,989 + $154 - $10,300 = $43,843.
Q3) Sallie earned $25,000 and paid $2,000 of income tax; Theodore earned $35,000 and paid $2,900 of income tax. The tax rate structure they are subject to is:
A) Progressive.
B) Proportional.
C) Regressive.
D)Recessive.
Answer: A
Q4) What is the definition of a proportional tax?
Answer: A proportional tax is a tax where the tax rate remains the same regardless of the tax base.
Page 3
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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) Criminal penalties only apply to:
A) Careless disregard for tax authority.
B) Willful failure to file a return.
C) Tax evasion.
D)Willful failure to file a return and Tax evasion.
Answer: D
Q2) Which of the following items would not be considered as support for a dependency exemption?
A) shelter.
B) food.
C) medical and dental care.
D)life insurance premiums.
Answer: D
Q3) A married couple can file a joint return only if both have earned income.
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) Morris redeemed $6,000 (principal of $4,500 and interest of $1,500) of Series I Savings Bonds to pay qualified higher education expenses. His qualified expenses for the year totaled $6,500 and AGI consists of wages of $32,000. What is the amount of interest that Morris can exclude from income?
A) $0.
B) $500.
C) $1,000.
D)$1,500.
Answer: D
Q2) 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
Q3) Almost all individuals use the cash receipts and disbursements method of accounting.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Adjustments for Adjusted Gross Income
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Under a 2015 divorce decree, Antoine is required pay $800 of alimony and $400 of child support each month for the next 10 years. In addition, Antoine makes a voluntary payment of $200 per month. How much of the total monthly payments are deductible by Antoine?
A) $200.
B) $400.
C) $800.
D)$1,000.
Q2) Expenses for home schooling or for non-athletic supplies for health or physical education courses qualify for the education expense deduction.
A)True
B)False
Q3) The cost of self-employed health insurance premiums are deductible above-the line at a rate of 80% of the cost.
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)?
Page 6
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Chapter 5: Itemized Deductions
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Loan fees that are not "points", or prepaid interest, are deductible as interest on Schedule A.
A)True
B)False
Q2) Melissa earned net investment income of $11,000 during 2015 and incurred investment interest expense of $3,000 during the year related to a stock purchase. She incurred other investment interest expenses of $7,000 during the year. Melissa is limited to a deduction of $3,000 of investment interest expense in 2015.
A)True
B)False
Q3) If the donation is greater than $250, what kind of written acknowledgment must the taxpayer obtain from the recipient organization?
Q4) Premiums paid for long-term care insurance policies may be deductible as medical expenses.
A)True
B)False
Q5) The cost of a chiropractor's services does not qualify as a medical deduction.
A)True
B)False
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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) On November 30, 2015, Constance purchased an apartment building for $750,000. Determine her cost recovery deduction for 2015 rounded to the nearest dollar.
A) $0.
B) $2,400.
C) $3,413.
D)$26,138.
Q2) Under MACRS, the half-year convention is used for all real property.
A)True
B)False
Q3) Marion drives 20 miles a day from his first job to his second job. He worked 125 days during 2015 on both jobs. What is Marion's mileage deduction rounded to the nearest dollar assuming he uses the standard mileage rate and mileage is incurred ratably throughout the year?
A) $70.
B) $1,388.
C) $1,400.
D)$1,438.
Q4) Describe each of the depreciation conventions and when each is applicable.
Q5) List and define the criteria for an expenditure to be deductible on Schedule C.
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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) What is the basis of artistic works that have been gifted to another by the creator?
A) Artistic works are not capital assets for the creator or the recipient of the artistic works if given as a gift.
B) Artistic works are not capital assets for the creator but are capital assets in the hands of the recipient if the creator gave the artistic works as a gift.
C) Artistic works are capital assets to the creator if they are sold to an unrelated person. D)Artistic works are capital assets if they were available for sale in an art gallery.
Q3) If Section 1231 losses exceed Section 1231 gains, the excess is treated as an ordinary loss.
A)True
B)False
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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) On June 1 of the current year, Jack and Angie purchased a rental beach house for $900,000 and rented it right away. Of that amount, $600,000 was for the land value. How much depreciation deduction can Jack and Angie take in the current year? (You may need to refer to the depreciation tables.)
A) $5,910
B) $10,909
C) $11,820
D)$17,730
Q2) Royalties can be earned from allowing others the right to use or exploit:
A) Copyrights
B) Formulas
C) Coal mines
D)All of these
Q3) What criteria determine a personal and rental use property as personal/rental? How is net income or loss treated for tax purposes for a personal/rental property?
Q4) All rental properties are depreciated using the straight-line method over 39 years.
A)True
B)False
Page 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) Which of the following statements is not true regarding the credit for the elderly or the disabled?
A) Base amount for the credit calculation for a single individual is $5,000.
B) Base amount for the credit calculation for joint returns is $5,000.
C) The maximum allowable credit is based on 15% of the taxpayer's base amount.
D)Base amount for the credit calculation for a joint individual where only one spouse qualifies is $5,000.
Q2) The retirement savings contributions credit is available regardless of the income level of the taxpayer.
A)True
B)False
Q3) Waseem has $103,000 total taxable income, which includes $11,000 of taxable income from India. He paid $4,000 in foreign income taxes and his U.S. tax liability is $21,610. Waseem's foreign tax credit is: (Do not round interim calculations)
A) $0.
B) $2,200.
C) $2,308.
D)$4,000.
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11
Chapter 10: Payroll Taxes
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Failure to furnish a correct TIN to a requester (payer) can result in a penalty for the payee of:
A) $0, it is the responsibility of the payer (requester) to have the correct information.
B) $25 for each failure to complete a W-9.
C) $50 for each failure to complete a W-9.
D)$500 maximum for failure to complete any W-9 forms as required.
Q2) Ladaris has two jobs. She earned $120,000 from her first job and $10,000 from her second job. How much total FICA taxes will Ladaris have withheld from her wages from working two jobs?
A) $9,065.25.
B) $9,830.25.
C) $9,852.00.
D)$9,945.00.
Q3) Nikki's salary is $209,950 in 2015. She is paid on a biweekly basis, is single and claims zero allowances.
a. What is Nikki's federal tax withholding per pay period?
b. What is Nikki's FICA withholding per pay period before she reaches the social security limit?
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12
Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities:
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123 Flashcards
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Sample Questions
Q1) Jill is single, age 27, and reported AGI of $62,000 in tax year 2015. She is an active participant in her employer's pension plan. What is the maximum deductible Roth IRA contribution she can make in 2015?
A) $0.
B) $1,100.
C) $4,400.
D)$5,500.
Q2) A stream of payments can be called an annuity.
A)True
B)False
Q3) A participant has an adjusted basis of zero in any nondeductible contributions to a traditional IRA.
A)True
B)False
Q4) SIMPLE plans are not subject to the nondiscrimination rules for other qualified plans.
A)True
B)False
Q5) 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 Flashcards
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Sample Questions
Q1) With an involuntary conversion, what is the time limit to purchase replacement property?
A) Two years from the conversion event.
B) It ends two years after the close of the taxable year the gain is realized.
C) There is no time limit.
D)Five years from the conversion event.
Q2) In what instances, concerning involuntary conversions, must a taxpayer file an amended tax return (Form 1040X)?
A) When the taxpayer does not buy replacement property within the replacement period.
B) When the replacement property purchased by the taxpayer costs less than the amount realized for the converted property.
C) When the entire amount of the insurance proceeds is used to purchase replacement property.
D)Both when the taxpayer does not buy replacement property within the replacement period and when the replacement property purchased by the taxpayer costs less than the amount realized for the converted property.
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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) Cory sells his entire interest in a rental property in which he actively participated at a gain of $12,000. The activity has a current year loss of $4,800 and $16,000 in prior year suspended losses. During the year, Cory has $80,000 in salary. What is Cory's AGI for the year?
Q2) Jonathan is married, files a joint return, and has one child. During 2015, Jonathan has $85,000 of taxable income. He has $20,000 of positive AMT adjustments and $28,000 of tax preferences. Since Jonathan rents his home (pays no mortgage interest) and lives in Florida (has no state income tax), he does not itemize his deductions but takes the standard deduction. Calculate Jonathan's AMTI (before exclusion amount).
A) $137,600.
B) $145,000.
C) $145,600.
D)$157,600.
Q3) The at-risk amount is increased each tax year by:
A) Income items.
B) The basis of assets contributed.
C) The share of debt the investor is liable to repay.
D)All of these.
Q4) Identify factors that increase or decrease the at-risk amount.
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Chapter 14: Partnership Taxation
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) Ordinary income includes interest income and dividend income received by the partnership.
A)True
B)False
Q2) Latesha contributes a building with a FMV of $125,000 and a basis of $115,000 to a partnership on January 4, 2012. On December 15, 2015, the partnership distributed the building to Katie, a partner in the same partnership. At distribution, the building had a FMV of $129,000.
a. What is the effect of the distribution on Latesha, if any?
b. What is the effect of the distribution to Katie?
Q3) Nondeductible partnership items do not decrease a partner's basis in the partnership interest.
A)True
B)False
Q4) Which of the following partnership items are not included in the self-employment income calculation?
A) Ordinary income.
B) Section 179 expense.
C) Guaranteed payments.
D)Gain on the sale of partnership property.
Page 16
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Chapter 15: Corporate Taxation
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Andre formed a corporation and owns all of the stock. He contributed property with a FMV of $10,000 and a basis of $7,000 and he received $1,000 cash from the corporation. Andre's taxable gain is:
A) $0.
B) $1,000.
C) $3,000.
D)$10,000.
Q2) Grape Corporation makes a nonliquidating distribution of appreciated property to its shareholders.
A) The shareholders will report a gain.
B) The corporation will report a gain.
C) The shareholders will report dividend income equal to the basis of the property distributed.
D)The corporation will report dividend expense equal to the fair value of the property distributed.
Q3) When the 80% test is met, a stockholder may recognize a gain but will not recognize a loss.
A)True
B)False
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Page 17