Tax Planning for Individuals Review Questions
Course Introduction
This course provides an in-depth exploration of strategies and methodologies used in effective tax planning for individuals. Topics covered include income tax fundamentals, deductions, credits, tax-advantaged investments, retirement planning, and estate considerations. Emphasis is placed on understanding current tax laws, identifying opportunities for minimizing tax liabilities, and utilizing planning techniques tailored to various personal financial situations. Students will analyze case studies and practical scenarios to develop critical thinking and problem-solving skills in personal tax planning, preparing them to make informed decisions for themselves or their clients.
Recommended Textbook
South Western Federal Taxation 2018 Individual Income Taxes 41st Edition by William H. Hoffman
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20 Chapters
2583 Verified Questions
2583 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
Federal Tax Law
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194 Verified Questions
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Sample Questions
Q1) Under state amnesty programs, all delinquent and unpaid income taxes are forgiven. A)True
B)False Answer: False
Q2) A major advantage of a flat tax type of income tax is its simplicity. A)True
B)False
Answer: True
Q3) A deduction for certain income from manufacturing activities. Answer: a
Q4) Mitigation of the annual accounting period concept Answer: b
Q5) Office audit Answer: f
Q6) An inheritance tax is a tax on a decedent's right to pass property at death. A)True
B)False Answer: False
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) A taxpayer who loses in a U.S. District Court may appeal directly to the:
A)U.S. Supreme Court.
B)U.S. Tax Court.
C)U.S. Court of Federal Claims.
D)U.S. Circuit Court of Appeals.
E)All of these.
Answer: D
Q2) The Regulation section of the CPA exam is approximately 80% Taxation and 20% Law & Professional Responsibilities.
A)True
B)False
Answer: True
Q3) The IRS will not acquiesce to the following tax decisions:
A)U.S. District Court.
B)U.S. Tax Court.
C)U.S. Court of Federal Claims.
D)Small Case Division of the U.S. Tax Court.
E)All of these.
Answer: D
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Page 4
Chapter 3: Tax Formula and Tax Determination; an
Overview of Property Transactions
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) Albert buys his mother a TV. For purposes of meeting the support test, Albert cannot include the cost of the TV.
A)True
B)False Answer: False
Q2) $1,050 Answer: c
Q3) The basic and additional standard deductions both are subject to an annual adjustment for inflation.
A)True
B)False Answer: True
Q4) A family friend who is supported by and lives with the taxpayer. Answer: b
Q5) Debby, age 18, is claimed as a dependent by her mother. During 2017, she earned $1,100 in interest income on a savings account. Debby's standard deduction is $1,450 ($1,100 + $350).
A)True
B)False Answer: False
Page 5
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Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) In 2017 Todd purchased an annuity for $150,000. The annuity is to pay him $2,500 per month for the rest of his life. His life expectancy is 100 months. Which of the following is correct?
A)Todd is not required to recognize any income until he has collected 60 payments (60 × $2,500 = $150,000).
B)If Todd collects 20 payments and then dies in 2018, Todd's estate should amend his tax returns for 2017 and 2018 and eliminate all of the reported income from the annuity for those years.
C)For each $2,500 payment received in the first year, Todd must include $1,000 in gross income.
D)For each $2,500 payment received in the first year, Todd must include $1,500 in gross income.
E)None of these.
Q2) Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV. Son had $1,600 interest income from a certificate of deposit for the year. Father is not required to impute interest income.
A)True
B)False
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Page 6
Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Ben was hospitalized for back problems. While he was away from the job, he collected his regular salary from an employer-sponsored income protection insurance policy. Ben's employer-sponsored hospitalization insurance policy also paid for 90% of his medical expenses. Ben also collected on an income protection policy that he purchased. Which of the above sources of income are taxable? Explain the basis for excluding any item or items.
Q2) Cash received by an employee from an employer:
A)Is not included in gross income if it was not earned.
B)Is not taxable unless the payor is legally obligated to make the payment.
C)Must always be included in gross income.
D)May be included in gross income although the payor is not legally obligated to make the payment.
E)None of these.
Q3) In December 2016, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the Spring semester of 2017. However, she did not use the funds to pay the tuition until January 2017. Emily can exclude the $2,500 from her gross income in 2016.
A)True
B)False
Q4) What Federal income tax benefits are provided for college students?
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Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Are there any exceptions to the rule that personal expenditures cannot be deducted?
Q2) The portion of property tax on a vacation home that is attributable to personal use is an itemized deduction.
A)True
B)False
Q3) Investigation of a business unrelated to one's present business never results in a current period deduction of the entire amount if the amount of the investigation expenses exceeds $5,000.
A)True
B)False
Q4) Walt wants to give his daughter $1,800 for Christmas. As an alternative, she suggests that he pay the property taxes on her residence. If Ralph pays the property taxes, he can deduct them.
A)True
B)False
Q5) If a taxpayer operated an illegal business (not drug trafficking), what expenses can be deducted and what expenses are disallowed?
Q6) Under what circumstance can a bribe be deducted?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) If personal casualty gains exceed personal casualty losses (after deducting the $100 floor), there is no itemized deduction.
A)True
B)False
Q2) An NOL carryforward is used in determining the current year's charitable contribution deduction.
A)True
B)False
Q3) In the current year, Amber Corporation has taxable income of $880,000, alternative minimum taxable income of $600,000, and qualified production activities income (QPAI) of $640,000. The total W-2 wages paid to employees engaged in qualified domestic production activities are $116,000. Amber's DPAD for the current year is:
A)$54,000.
B)$57,600.
C)$58,000.
D)$79,200.
E)None of the above.
Q4) Why was the domestic production activities deduction (DPAD) enacted by Congress?
Q5) Discuss the effect of alimony in computing a net operating loss.
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) On June 1 of the current year, Tab converted a machine from personal use to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?
A)$70,000
B)$90,000
C)$120,000
D)$140,000
E)None of the above
Q2) Goodwill associated with the acquisition of a business cannot be amortized. A)True
B)False
Q3) Norm purchases a new sports utility vehicle (SUV) on October 12, 2017, for $60,000. The SUV has a gross vehicle weight of 6,200 lbs. It is used 100% of the time for business and it is the only business asset acquired by Norm during 2017. Compute the maximum deduction with respect to the SUV for 2017. Norm does not take additional first-year depreciation.
Q4) Discuss the requirements in order for startup expenditures to be amortized under § 195.
Page 10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) Lynn determines when the services are to be performed.
Q2) Taylor performs services for Jonathan on a regular basis. There exists considerable doubt as to whether Taylor is an employee or an independent contractor.
a.What can Jonathan do to clarify the matter?
b.Suppose Jonathan treats Taylor as an independent contractor but Taylor thinks she is an employee. What is Taylor's recourse, if any?
Q3) Education expense that is not deductible to maintain or improve existing skills
Q4) James has a job that compels him to go to many different states during the year. It is possible that James was never away from his tax home during the year.
A)True
B)False
Q5) Jackson gives his supervisor and her husband each a $30 box of chocolates at Christmas. Jackson may claim only $25 as a deduction.
A)True
B)False
Q6) Job hunting expenses
Q7) The services are performed at Sue's premises.
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Linda borrowed $60,000 from her parents for a down payment on a condominium. She paid interest of $5,500 in 2015, $0 in 2016, and $9,000 in 2017. The IRS disallowed the deduction. Can you offer any explanation for the disallowance?
Q2) Harry and Sally were divorced three years ago. In July of the current year, their son, Joe, broke his arm falling out of a tree. Joe lives with Sally and Sally claims him as a dependent on her tax return. Harry paid for the medical expenses related to Joe's injury. Can Harry claim the medical expenses he paid for Joe on his tax return?
Q3) A physician recommends a private school for Ellen's dependent child. Because of the physician's recommendation, the cost of the private school will qualify as a medical expense deduction (subject to percentage limitations).
A)True
B)False
Q4) Jack sold a personal residence to Steven and paid points of $3,500 on the loan to help Steven finance the purchase. Jack can deduct the points as interest.
A)True
B)False
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) Wolf Corporation has active income of $55,000 and a passive activity loss of $33,000 in the current year. Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.
A)True
B)False
Q2) Judy incurred $58,500 of interest expense this year related to her investments. Her investment income includes $15,000 of interest, $9,000 of qualified dividends, and a $22,500 net capital gain on the sale of securities. The maximum amount of Judy's investment interest expense deduction for the year is:
A)$15,000.
B)$24,000.
C)$37,500.
D)$46,500.
E)None of the above.
Q3) Treatment of a sale of a passive activity where all of the realized gain or loss is recognized currently.
Q4) Treatment of suspended credits when passive activity is sold at a loss.
Q5) Active participation.
Q6) Significant participation activity.
Page 13
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Chapter 12: Alternative Minimum Tax
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Sample Questions
Q1) After personal property is fully depreciated for both regular income tax purposes and AMT purposes, the positive and negative adjustments that have been made for AMT purposes will net to zero.
A)True
B)False
Q2) On February 1, 2017, Omar acquires used 7-year personal property for $100,000 for use in his business. Omar does not elect § 179 expensing, but he does take the maximum regular cost recovery deduction. As a result, Omar incurs a positive AMT adjustment in 2017 of what amount?
A)$0
B)$3,580
C)$10,710
D)$14,290
E)None of the above
Q3) The sale of business property could result in an AMT adjustment.
A)True
B)False
Q4) What is the relationship between taxable income and AMTI?
Q5) Are the AMT rates for the individual taxpayer the same as those for a corporate taxpayer?
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Chapter 13: Tax Credits and Payment Procedures
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Sample Questions
Q1) The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.
A)True
B)False
Q2) Because current U.S. corporate income tax rates are higher than many foreign corporate income tax rates only infrequently will the credit's, the overall limitation yield a lower foreign tax credit than the amount of foreign taxes actually paid.
A)True
B)False
Q3) Which, if any, of the following correctly describes the earned income credit?
A)Would be available regardless of the amount of the taxpayer's adjusted gross income.
B)Not available to a surviving spouse.
C)A taxpayer must have a qualifying child to take advantage of the credit.
D)Is a refundable credit.
Q4) Only self-employed individuals are required to make estimated tax payments.
A)True
B)False
Q5) Describe the withholding requirements applicable to employers.
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Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Sample Questions
Q1) Noelle received dining room furniture as a gift from her friend, Jane. Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?
A)$0
B)($500)
C)($2,700)
D)$6,500
E)None of the above
Q2) The holding period of property acquired by gift may begin on:
A)The date the property was acquired by the donor only.
B)The date of gift only.
C)Either the date the property was acquired by the donor or the date of gift.
D)The last day of the tax year in which the property was originally acquired by the donor.
E)None of the above.
Q3) Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?
Q4) Define a bargain purchase of property and discuss the related tax consequences.
Page 16
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) To be eligible to elect postponement of gain treatment for an involuntary conversion, what are the three tests for qualifying replacement property?
Q2) The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.
A)True
B)False
Q3) Carl sells his principal residence, which has an adjusted basis of $150,000 for $200,000. He incurs selling expenses of $20,000 and legal fees of $2,000. He had purchased another residence one month prior to the sale for $380,000. What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence)?
A)$0 and $380,000.
B)$0 and $408,000.
C)$28,000 and $352,000.
D)$28,000 and $380,000.
E)None of the above.
Q4) Distinguish between a direct involuntary conversion and an indirect involuntary conversion.
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Page 17
Chapter 16: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) An accrual basis taxpayer accepts a note receivable from a retail customer with a weak credit rating. The taxpayer immediately sells the note to a bank for less than the note's stated value. The taxpayer has an ordinary loss.
A)True
B)False
Q2) Which of the following is correct concerning short sales of stock?
A)At the time the short sale is made, the taxpayer does not deliver to the purchaser the shares sold short.
B)At the time the short sale is made, the taxpayer delivers to the purchaser the shares sold short.
C)At the time the short sale is made, the taxpayer may already own the shares sold short.
D)At the time the short sale is made, the taxpayer always already owns the shares sold short.
E)None of the above.
Q3) All collectibles short-term gain is subject to a potential alternative tax rate of 28%.
A)True B)False
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Chapter 17: Property Transactions: 1231 and Recapture
Provisions
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Sample Questions
Q1) Which of the following assets held by a manufacturing business is a § 1231 asset?
A)Inventory.
B)Office furniture used in the business and held less than one year.
C)A factory building used in the business and held more than one year.
D)Accounts receivable.
E)All of the above.
Q2) Property sold to a related party that is depreciable by the purchaser may cause the seller to have ordinary gain.
A)True
B)False
Q3) Section 1250 depreciation recapture will apply when accelerated depreciation was used on property used outside the United States and the property is sold at a gain.
A)True
B)False
Q4) Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.
A)True
B)False
19
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Chapter 18: Accounting Periods and Methods
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Sample Questions
Q1) The tax year of one of the principal partners may determine the partnership's tax year.
A)True
B)False
Q2) The taxpayer had consistently used the cash method of accounting even though inventories were a material income-producing factor to its business. The taxpayer decided to voluntarily change to the accrual method of accounting. The adjustment to income due to the change was that the correct beginning balances for the year of the change as follows: $60,000 for inventories, $30,000 for accounts receivable, and $12,000 for accounts payable. The adjustment due to the change in accounting method is:
A)A positive adjustment for $102,000.
B)A positive adjustment for $90,000.
C)A positive adjustment for $78,000.
D)A positive adjustment for $60,000.
E)None of the above.
Q3) The ability of the CPA to timely prepare a tax return is a justification for the partnership's use of a particular tax year.
A)True
B)False
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Page 20
Chapter 19: Deferred Compensation
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Sample Questions
Q1) Which statement is true with respect to golden parachute payments?
A)Refers to excess severance pay.
B)Does not include payments from a qualified profit sharing plan.
C)A deduction is denied to the employer.
D)A 20% excise tax is imposed on the recipient.
E)All of the above are true.
Q2) After 2011, income averaging is allowed for Federal income tax purposes.
A)True
B)False
Q3) If a person has funds from sources other than retirement assets when he or she retires, which retirement asset should be spent first?
Q4) If an individual is ineligible to make a deductible contribution to a traditional IRA, nondeductible contributions of any amount can be made to a traditional IRA.
A)True
B)False
Q5) What is a highly compensated employee?
Q6) In a stock bonus plan, contributions are dependent on the employer's profits.
A)True
B)False
Page 21
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Chapter 20: Corporations and Partnerships
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Q1) Citron Company is a wholesale distributor of children's clothing. During the year, it donates clothes (cost of $60,000; retail value of $100,000) to Clothes for Needy (a qualified charitable organization). Disregarding percentage limitations, Citron's charitable contribution deduction is:
A)$80,000 if Citron is a C corporation.
B)$60,000 if Citron is a C corporation.
C)$100,000 if Citron is a C corporation.
D)$80,000 if Citron is an individual.
E)None of the above.
Q2) In order to voluntarily revoke an S election, all of the shareholders must consent to the revocation.
A)True
B)False
Q3) Kestrel is a C corporation that is engaged solely in buying and reselling goods it acquires from Skimmer, another C corporation. Although Kestrel conducts no manufacturing activity and is exclusively involved in a marketing function, it may still be entitled to a domestic production activities deduction (DPAD). Explain how this could be possible.
Q4) Cannot be a shareholder in another corporation.
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