Tax Planning and Compliance Practice Questions
Course Introduction
This course offers an in-depth exploration of tax planning strategies and compliance requirements for individuals and businesses. Students will learn how to analyze tax laws and make informed decisions to minimize tax liabilities while adhering to legal and ethical standards. The curriculum covers key topics such as tax systems, income recognition, deductions, credits, property transactions, and the impact of taxation on business decisions. Emphasis is placed on the preparation of tax returns, understanding reporting requirements, and navigating audits and disputes. Practical case studies and real-world examples help illustrate the complexities of tax planning and the importance of staying current with evolving tax regulations.
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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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) A paid tax preparer who violates the provisions of Circular 230 can be subject to civil, but not criminal, penalties.
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 1099-INC.
D)Form 4070.
Answer: B
Q3) IRS Regulations are by far the strongest administrative authority.
A)True
B)False
Answer: True
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.
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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) A taxpayer can claim a dependency exemption if the person is a qualifying child or a qualifying relative and the person meets three tests. List the three tests this person must meet.
Answer: The three tests that this person must meet to be claimed as a dependent are:
1. Dependent taxpayer test.
2. Joint return test.
3. Citizen or resident test.
Q2) An extension to file a tax return is an extension of time to file and an extension of time to pay.
A)True
B)False Answer: False
Q3) Most taxpayers make payments to the IRS through income tax withholdings and quarterly estimated tax payments.
A)True
B)False
Answer: True
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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) Under a dependent care assistance plan, the exclusion for a head of household taxpayer cannot exceed his or her earned income and:
A) $5,000.
B) $5,250.
C) $2,500.
D)$5,150.
Answer: A
Q2) Discounts provided to employees for food by a restaurant owner are not taxable if the discounts do not exceed the gross profit percentage of the business.
A)True
B)False
Answer: True
Q3) In general, an individual must recognize income on his or her tax return if the transaction has economic benefit, the transaction has reached a conclusion and the income from the transaction is tax-exempt income.
A)True
B)False
Answer: False
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5
Chapter 4: Adjustments for Adjusted Gross Income
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Sample Questions
Q1) Under the terms of a divorce agreement, Bev was to pay her husband Leon $4,000 per month in alimony and $1,500 per month in child support. For a twelve-month period, what is the amount that Bev can deduct from gross income and Leon must include in gross income?
A) $0.
B) $18,000.
C) $48,000.
D)$66,000.
Q2) In 2011 through 2015, Shannon borrowed a total of $35,000 for higher education expenses on qualified education loans while supporting herself with a full-time job. In 2015, she had modified adjusted gross income of $50,000. The first year interest on the loan was $850. The amount that Shannon can claim on her tax return is:
A) $0.
B) $425.
C) $640.
D)$850.
Q3) What is an "eligible educational institution" as it relates to the deductibility of student loan interest?
Q4) 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 Flashcards
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Sample Questions
Q1) In 2015, federal income taxes may not be deducted as an itemized deduction on Schedule A.
A)True
B)False
Q2) In 2014, Roxanne's nephew was her dependent. For 2015, he no longer qualifies as her dependent. However, she paid $650 in 2015 for medical expenses she incurred in 2014 when he was her dependent. Roxanne can include the $650 in figuring her medical expense deduction in 2015.
A)True
B)False
Q3) 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
Q4) Prescription drugs obtained outside the United States, such as from Canada, are never deductible on a U.S. tax return.
A)True
B)False
Q5) Donations to what types of organizations are tax deductible?
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Chapter 6: Self-Employed Business Income
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Sample Questions
Q1) Paola purchased an office building on January 5, 2013, for $450,000. $30,000 of the price was for the land. On September 25, 2015, he sold the office building. What is the cost recovery deduction for 2015 rounded to the nearest dollar?
A) $0.
B) $7,321.
C) $7,628.
D)$10,769.
Q2) Katherine earned $100,000 from her job at a local business in 2015. 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) $0.
B) $3,419.
C) $6,333.
D)$6,426.
Q3) The significance of meeting the "travel away from home" standard is that it allows the deduction of meals, lodging, and other incidental expenses such as dry cleaning.
A)True
B)False
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Chapter 7: Capital Gains and Other Sales of Property
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Sample Questions
Q1) The basis of property transferred to a taxpayer from a spouse or former spouse incident to a divorce is the FMV of the property at the date the divorce was final.
A)True
B)False
Q2) Before the tax implications of asset sales can be determined, which of the following must be determined?
A) assets must be classified as either personal, trade or business, or investment assets.
B) the length of time the taxpayer owned the property.
C) whether the assets are subject to depreciation.
D)all of these.
Q3) A taxpayer can deduct a loss on a security when the market price of the stock is less than the basis at the end of the year.
A)True B)False
Q4) A computer used exclusively in a sole proprietor's business is a capital asset.
A)True
B)False
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9
Chapter 8: Rental Property, Royalties, Income From
Flow-Through Entities
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110 Flashcards
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Sample Questions
Q1) Which of the following statements is incorrect concerning rental properties?
A) Generally, rental activities are reported on Schedule E.
B) All ordinary expenses related to the rental activity are deductible.
C) Capital improvements may be deducted as expense in the year the improvements are made.
D)Travel expenses related to the rental activity are calculated using the standard mileage rate.
Q2) Entities such as partnerships, LLC's, and S Corporations are known as flow-through entities.
A)True
B)False
Q3) Which of the following expense items is(are) deductible as rental expense for a rental property?
A) Travel related to the property
B) Management fees
C) Repairs and maintenance
D)All are deductible expenses
Q4) Explain the difference between the two methods available; the Tax Court's method and the IRS method, to allocate expenses between personal and rental use of property.
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Chapter 9: Tax Credits
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Sample Questions
Q1) Jesus and Mindy have modified AGI of $210,000, adopted a girl from Miami, Florida, and incurred a total of $18,000 in qualified adoption expenses. What is the amount of adoption credit they can claim in the current year? (Do not round interim calculations)
A) $3,012.
B) $10,388.
C) $13,400.
D)$18,000.
Q2) Which of the following statements regarding adoption credits is not true?
A) There is a dollar limit to the maximum credit allowed per adopted child.
B) Form 8839 must be filed to claim the credit.
C) Adoption of foreign country children does not qualify for the credit.
D)Adoption of a child of taxpayer's spouse does not qualify.
Q3) The main goal of Congress in offering tax credits is to collect additional revenues.
A)True
B)False
Q4) The adoption credit is only available for domestic adoptions.
A)True
B)False
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Page 11
Chapter 10: Payroll Taxes
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122 Flashcards
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Sample Questions
Q1) Ebony earned $86,760 during 2015. She is single, paid semimonthly, and claims one withholding allowance. How much will Ebony's employer withhold from her, in total for each pay period for FICA and federal withholding taxes?
A) $939.43.
B) $958.00.
C) $993.43.
D)$1,003.85.
Q2) Employees typically receive a paycheck on a weekly, biweekly, semimonthly or monthly basis.
A)True
B)False
Q3) Employers must prepare and send to employees the multi-part W-3 no later than January 31 of the following year.
A)True
B)False
Q4) Nikki's salary is $209,950 in 2015. How much social security and Medicare taxes will be withheld from Nikki's salary for the year?
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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) The proportion of an annuity payment from a qualified pension plan that is determined to have come from employee contributions is taxed at ordinary income rates.
A)True
B)False
Q2) Annually, up to $2,000 per beneficiary can be contributed to a Coverdell Education Savings Account.
A)True
B)False
Q3) In order to obtain and retain qualified status, a pension or profit-sharing plan must not discriminate in favor of highly compensated employees which include:
A) Employees who own more than 5% of the corporation's stock.
B) Employees who received over $100,000 compensation in the previous year.
C) Employees who were in the top 25% of employees based on compensation.
D)None of these.
Q4) Contributions to a Coverdell Education Savings Account are not subject to AGI phaseout rules.
A)True
B)False
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) Sanjay exchanges a warehouse he uses in his rental business for a building owned by Sidney which he will use in his rental business. The adjusted basis of Sanjay's building is $320,000 and the fair market value is $500,000. The adjusted basis of Sidney's warehouse is $160,000 and the fair market value is $500,000. Which of the following statements is correct?
A) Sanjay's recognized gain is $0 and his basis for the warehouse received is $500,000.
B) Sanjay's recognized gain is $180,000 and his basis for the warehouse received is $320,000.
C) Sanjay's recognized gain is $0 and his basis for the warehouse received is $320,000.
D)Sanjay's recognized gain is $180,000 and his basis for the warehouse received is $500,000.
Q2) On June 15, 2015, Roco sold land held for investment to Scotty for $100,000 cash and an installment note of $500,000 payable in five equal annual installments beginning on June 15, 2016, plus interest at 10%. Roco's basis in the land is $300,000. What amount of gain is recognized in 2015 under the installment method?
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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70 Verified Questions
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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) Identify factors that increase or decrease the at-risk amount.
Q3) A taxpayer's share of nonrecourse debt is considered an amount at-risk.
A)True B)False
Q4) Stuart owns a 20% interest in a partnership (not involved in real estate) in which his at-risk amount was $18,000 at the beginning of the year. The partnership produces a $50,000 loss for the year. What is Stuart's at-risk amount at the end of the year?
A) $0.
B) $8,000.
C) $10,000.
D)($32,000).
Q5) Tax preference items can be either positive or negative.
A)True B)False
Page 15
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Chapter 14: Partnership Taxation
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Sample Questions
Q1) 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
Q2) Which of the following is reported as ordinary income or expense from a partnership?
A) Depreciation expense.
B) Section 179 expense.
C) Gain on the sale of a Section 1231 asset.
D)Dividend income.
Q3) Ordinary income from a partnership is not considered self-employment income.
A)True
B)False
Q4) When dealing with the liquidation of a partnership interest, a partner will:
A) Never recognize a loss.
B) Only recognize a loss when property, inventory, and/or receivables are distributed.
C) Only recognize a loss when money, inventory, and/or receivables are distributed.
D)None of these.
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Chapter 15: Corporate Taxation
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Sample Questions
Q1) Felix transfers land with a FMV of $900,000 to a newly formed corporation in exchange for all of the stock. The land has a basis of $300,000 and debt of $500,000. The basis of the land, in the hands of the corporation is:
A) $300,000.
B) $500,000.
C) $600,000.
D)$900,000.
Q2) Saffron Corporation has book income of $200,000, which includes tax expense of $40,000 and a net capital loss of $10,000. Saffron's taxable income is:
A) $210,000.
B) $230,000.
C) $240,000.
D)$250,000.
Q3) On Schedule M-1, federal income tax must be added back to taxable income.
A)True
B)False
Q4) Corporate distributions to shareholders are called dividends.
A)True
B)False
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