Tax Planning and Compliance
Midterm Exam
Course Introduction
Tax Planning and Compliance explores the principles and strategies involved in effective tax management for individuals and businesses. The course examines current tax laws, regulations, and ethical considerations, focusing on methods to minimize tax liabilities while ensuring adherence to legal requirements. Students will learn how to analyze various financial transactions, identify tax-saving opportunities, and prepare accurate tax returns. Emphasis is placed on practical application through case studies, real-world scenarios, and the development of planning techniques that align with both short-term and long-term financial goals.
Recommended Textbook
McGraw Hills Taxation of Individuals 2019 Edition 10th Edition by Brian Spilker
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14 Chapters
1576 Verified Questions
1576 Flashcards
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Page 2
Chapter 1: An Introduction to Tax
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) In a proportional (flat) tax rate system, the marginal tax rate will always equal the average tax rate.
A)True
B)False
Answer: True
Q2) The two components of the tax calculation are the tax rate and the taxpayer's status.
A)True
B)False
Answer: False
Q3) Taxes influence many types of business decisions but generally do not influence personal decisions.
A)True
B)False Answer: False
Q4) Regressive tax rate structures are typically considered to be vertically equitable.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Tax Compliance, the IRS, and Tax Authorities
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Ramon's tax return was randomly selected for audit. Which IRS program likely selected Ramon's return for audit?
A) DIF System.
B) National Research Program.
C) Document perfection.
D) Information matching.
E) None of the choices are correct.
Answer: B
Q2) Which of the following is not a common tool used in conducting tax research?
A) Citator.
B) Annotated tax service.
C) Topical tax service.
D) Keyword search.
E) None of the choices are correct.
Answer: E
Q3) Corporations are required to file a tax return annually regardless of their taxable income.
A)True
B)False Answer: True
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Chapter 3: Tax Planning Strategies and Related Limitations
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) A taxpayer instructing her son to collect rent checks for the taxpayer's property and to report this as taxable income on the son's tax return violates which doctrine?
A) Constructive receipt doctrine.
B) Implicit tax doctrine.
C) Assignment of income doctrine.
D) Step-transaction doctrine.
E) None of the choices are correct.
Answer: C
Q2) Implicit taxes may reduce the benefits of the conversion strategy.
A)True
B)False
Answer: True
Q3) The income shifting and timing strategies are examples of:
A) tax avoidance.
B) tax evasion.
C) illegal taxpayer strategies.
D) All of the choices are correct.
E) None of the choices are correct.
Answer: A
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Page 5
Chapter 4: Individual Income Tax Overview, Dependents, and Filing Status
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) Joanna received $60,000 compensation from her employer, the value of her stock in ABC company appreciated by $5,000 during the year (but she did not sell any of the stock), she received $30,000 of life insurance proceeds from the death of her husband. What is the amount of Joanna's gross income from these items?
A) $60,000.
B) $65,000.
C) $95,000.
D) $90,000.
Q2) Charles, who is single, pays all of the costs of maintaining a home for himself and Damarcus. Charles and Damarcus have no family relationship but Damarcus lives with Charles for the entire year. Damarcus qualifies as a qualifying relative for Charles (Charles claims Demarcus as a dependent on his tax return). Charles qualifies for head of household filing status.
A)True
B)False
Q3) The relationship requirement for qualifying relative includes cousins.
A)True
B)False
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Chapter 5: Gross Income and Exclusions
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:
A) Tax refund rule.
B) Constructive receipt.
C) Return of capital principle.
D) Tax benefit rule.
E) None of the choices are correct.
Q2) When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.
A)True
B)False
Q3) Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income. A)True
B)False
Q4) Gross income includes all income realized during the year. A)True
B)False
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Chapter 6: Individual Deductions
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) This year, Benjamin Hassell paid $20,000 of interest on a mortgage on his home (Benjamin borrowed $600,000 in 2015 to buy the residence and it is currently worth $1,000,000), $12,000 on a $150,000 home equity loan on his home, and $10,000 of interest on a mortgage on his vacation home (loan of $300,000; home purchased for $400,000 in 2016). How much interest expense can Benjamin deduct as an itemized deduction?
Q2) Qualified education expenses for purposes of the deduction of interest on educational loans are expenses paid for the education of the taxpayer, the taxpayer's spouse, or a taxpayer's dependent to attend a post-secondary institution of higher education.
A)True
B)False
Q3) Max, a single taxpayer, has a $270,000 loss from his sole proprietorship. How much of this loss is deductible after considering the excess business loss rules?
A) $270,000.
B) $250,000.
C) $20,000.
D) $0.
E) None of the choices are correct.
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Chapter 7: Investments
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2016. On December 31, 2018 she sold all 1,000 shares of her Ibis stock for $4,500. Based on a hot tip from her friend, she bought 1,000 shares of Ibis stock on January 23, 2019 for $3,000. What is Ms. Fresh's recognized loss on her 2018 sale and what is her basis in her 1,000 shares purchased in 2019?
A) $-0- LTCL and $3,500 basis.
B) $200 LTCL and $3,300 basis.
C) $300 LTCL and $3,200 basis.
D) $400 LTCL and $3,100 basis.
E) $500 LTCL and $3,000 basis.
Q2) Cory recently sold his qualified small business stock for $90,000 after holding it for ten years. His basis in the stock is $40,000. Applying the rules as if the stock were acquired in 2018 and assuming his marginal tax rate is 32 percent, how much tax will he owe on the sale?
A) $3,750.
B) $7,000.
C) $7,500.
D) $14,000.
E) None of the choices are correct.
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Page 9
Chapter 8: Individual Income Tax Computation and Tax Credits
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156 Verified Questions
156 Flashcards
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Sample Questions
Q1) Demeter is a single taxpayer. Her AGI in 2018 is $209,200. Demeter may claim a child tax credit for her daughter Persephone. What amount of child tax credit is Demeter entitled to claim after any applicable phase-out?
Q2) Which of the following is not a taxpayer filing status for purposes of determining the appropriate tax rate schedule?
A) Head of Household.
B) Qualifying Widow or Widower.
C) Married Filing Separately.
D) Single.
E) All of the these are taxpayer filing statuses
Q3) The amount of expenditures eligible for the child and dependent care credit is the least of three amounts. Which of the following is not one of those amounts?
A) The total amount of child and dependent care expenditures for the year.
B) $3,000 for one qualifying person or $6,000 for two or more qualifying persons.
C) The dependent's earned income for the year.
D) The taxpayer's earned income for the year.
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Chapter 9: Business Income, Deductions, and Accounting Methods
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99 Verified Questions
99 Flashcards
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Sample Questions
Q1) Which of the following types of expenditures is not subject to capitalization under the UNICAP rules?
A) Selling expenditures
B) Cost of manufacturing labor
C) Compensation of managers who supervise production
D) Cost of raw materials
E) All of the choices are subject to capitalization under the UNICAP rules
Q2) Sandy Bottoms Corporation generated taxable income (before depreciation, interest expense and any tax loss carryovers) of $3 million this year. Taxable income included $75,000,000 of revenue and $350,000 of interest income. What is Sandy Bottom's domestic maximum interest expense deduction for the year?
Q3) The Internal Revenue Code authorizes deductions for trade or business activities if the expenditure is "ordinary and necessary."
A)True
B)False
Q4) Employees cannot deduct the cost of uniforms if the uniforms are also appropriate for normal wear.
A)True
B)False
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Chapter 10: Property Acquisition and Cost Recovery
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Tax depreciation is currently calculated under what system?
A) Sum-of-the-years-digits.
B) Accelerated cost recovery system.
C) Modified accelerated cost recovery system.
D) Straight-line system.
E) None of the choices are correct.
Q2) The mid-month convention applies to real property in the year of acquisition and disposition.
A)True
B)False
Q3) Olney LLC only purchased one asset this year. Olney LLC placed in service on July 19, 2018 machinery and equipment (7-year property) with a basis of $1,330,000. Assume that Olney has sufficient income to avoid any limitations. Calculate the maximum depreciation expense including §179 expensing, (but ignoring bonus expensing).
(Use MACRS Table 1) (Round final answer to the nearest whole number.)
Q4) Goodwill and customer lists are examples of §197 amortizable assets.
A)True
B)False
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Page 12
Chapter 11: Property Dispositions
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) §1239 recharacterizes 50 percent of the gain on sales to a related party as ordinary income.
A)True
B)False
Q2) The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?
A) Capital.
B) Ordinary.
C) §1231.
D) §1245.
E) None of the choices are correct.
Q3) Losses on sales between related parties are realized but not recognized.
A)True
B)False
Q4) Generally, the amount realized is everything of value received in a sale less selling expenses.
A)True
B)False
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Page 13
Chapter 12: Compensation
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Employees complete a Form W-2 to specify their income tax withholding.
A)True B)False
Q2) Stock options will always provide employees with future compensation.
A)True
B)False
Q3) Which of the items is not correct regarding withholding?
A) Employees that also have self-employment income can have additional amounts of federal tax withheld to avoid estimated tax payments.
B) Employees cannot claim an allowance for a child unless they are entitled to claim the child as a dependent.
C) Employees can claim exempt status and avoid withholding.
D) Married employees can choose to have income tax withholding on wages withheld at the higher single rates.
Q4) The employee's income for restricted stock is typically measured on the grant date. A)True B)False
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14
Chapter 13: Retirement Savings and Deferred Compensation
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Which of the following statements regarding IRAs is False?
A) Taxpayers who participate in an employer-sponsored retirement plan may be allowed to make deductible contributions to a traditional IRA.
B) The ability to make deductible contributions to a traditional IRA and nondeductible contributions to a Roth IRA may be subject to phase-out based on modified AGI.
C) A taxpayer may contribute to a traditional IRA in 2018 but deduct the contribution on her 2017 tax return.
D) Taxpayers who have made nondeductible contributions to a traditional IRA are taxed on the full proceeds when they receive distributions from the IRA.
Q2) Which of the following statements regarding defined benefit plans is False?
A) The benefits are based on a fixed formula.
B) The vesting period can be based on a graded or cliff schedule.
C) Employees bear the investment risks of the plan.
D) Employers are generally required to make annual contributions to meet expected future liabilities.
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Chapter 14: Tax Consequences of Home Ownership
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) Ilene rents her second home. During the year, Ilene reported a net loss of $15,000 from the rental. If Ilene is an active participant in the rental and her AGI is $140,000, how much of the loss can she deduct against ordinary income in the year?
A) $15,000.
B) $10,000.
C) $5,000.
D) $0.
Q2) Jason and Alicia Johnston purchased a home in Austin, Texas for $500,000. They moved into the home on September 1, year 0. They lived in the home as their primary residence until July 1 of year 5 when they sold the home for $800,000. What amount of the $300,000 gain are they allowed to exclude? (Assume not married filing separately.)
Q3) A taxpayer is not allowed to deduct home mortgage interest on debt unless the debt was incurred to acquire or construct the home.
A)True
B)False
Q4) Renting a residence may have nontax advantages over owning a home.
A)True
B)False
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Page 16