Tax Planning
Mock Exam
Course Introduction
Tax Planning is a comprehensive course designed to equip students with the knowledge and skills necessary to optimize individual and business tax obligations within the framework of current tax laws and regulations. The course covers fundamental tax concepts, strategies for minimizing tax liabilities, the implications of various business and investment decisions, and the integration of tax planning into overall financial planning. Through case studies and real-world scenarios, students learn to analyze and apply tax planning techniques, understand the impact of changes in tax legislation, and develop ethical approaches to tax compliance and planning for both short-term and long-term financial goals.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by Kevin E. Murphy
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16 Chapters
2073 Verified Questions
2073 Flashcards
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Chapter 1: Federal Income Taxation-An Overview
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151 Verified Questions
151 Flashcards
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Sample Questions
Q1) All tax practitioners who prepare tax returns for a fee are subject to which of the following?
I.IRS Circular 230
II.AICPA Code of Professional Conduct
III.Statements on Standards for Tax Services
IV.American Bar Association Code of Professional Conduct
A)Only statement I is correct.
B)Statements I, II, and III are correct.
C)Statements II and III are correct.
D)Statements II and IV are correct.
E)Statements I, II, III, and IV are correct.
Answer: A
Q2) Congress is required to insure that the tax law has the following characteristics: equality,certainty,convenience,and economy.
A)True
B)False
Answer: False
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Chapter 2: Income Tax Concepts
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153 Flashcards
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Sample Questions
Q1) Isabel is a self-employed electrician.All cash payments she receives from customers are deposited into a bank account held in the name of her son.Isabel does not have use of the funds.Therefore,she does not think she needs to include the cash receipts in her gross income.What concept or doctrine applies to this situation?
A)Pay As You Go Concept.
B)Assignment of Income Doctrine.
C)Annual Accounting Period Concept.
D)Substance Over Form Doctrine
E)Arms-length Transaction Concept.
Answer: B
Q2) Sam coaches a little league baseball team.He makes 15 copies of the team's schedule to give to the players on his employer's copy machine.The cost of the copies is not income to Sam due to the A)Ability to Pay Concept.
B)Administrative Convenience Concept.
C)Arm's-Length Transaction Concept.
D)Capital Recovery Concept.
E)Pay-as-You-Go Concept.
Answer: B
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Page 4
Chapter 3: Income Sources
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152 Flashcards
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Sample Questions
Q1) James bought an annuity for $42,000 several years ago.The annuity will pay him $250 per month from age 66 until he dies.During the current year,James turns 66 and received his first annuity payment.His life expectancy is 25 years.
I.If James receives more than 260 payments,all payments received after those are totally included in income.
II.James should include $50 of each payment in adjusted gross income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Answer: B
Q2) An accrual basis taxpayer does not have income until there is an actual or constructive receipt of income earned.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Kristine is the controller of Evans Company.Evans provides all management level employees with medical insurance through a self-insured plan.During the current year,Kristine has $2,650 in medical expenses reimbursed by the plan.The income tax effect of the reimbursements Kristine receives is:
I.Kristine excludes the value of the reimbursement.
II.Kristine includes $2,650 in her gross income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) On her 18th birthday,Anna's grandfather gave her stock worth $100,000.During the current year,Anna receives $5,000 of dividends on the stock,which she uses to pay college expenses.The cost of Anna's tuition,fees,and books is $4,000.Anna's income from this event is:
A)$- 0 -
B)$1,000
C)$4,000
D)$5,000
E)$75,000
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Page 6
Chapter 5: Introduction to Business Expenses
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Sample Questions
Q1) Capital expenditure
A)Automobile used 75% for business.
B)Investment expenses on municipal bonds.
C)Cost of investigating a new trade or business that the taxpayer enters.
D)Can be separated into two classifications.
E)Safety-deposit box for taxable investments.
F)Expenditure to influence legislation.
G)Cost of a new roof for office building.
H)Relates to an income producing activity mainly carried on for recreation or personal enjoyment.
I)Deductibility depends on income and amount of personal and rental use.
J)Deductibility depends on whether the area is used exclusively for trade or business activities.
Q2) John decides rather than work late in the office,he does all of his work in an office at home.His employer approves of this arrangement.Since John uses his home office on a regular and exclusive basis,he will be eligible to take a home office deduction even though it was not required as a condition of employment.
A)True
B)False
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Page 7
Chapter 6: Business Expenses
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Sample Questions
Q1) Laura and Jason are married and have 3 children ages 2,6,and 8.Their adjusted gross income for the year is $95,000.The maximum they can contribute to their children's Coverdell Education Savings Accounts is
A)$- 0 -
B)$667
C)$1,500
D)$2,000
E)$6,000
Q2) Alex and Alicia are married and have two children ages 5 and 9.Their adjusted gross income for the year is $86,000.During the year they establish a Coverdell Education Savings Account (CESA)for each child.
I.They can contribute $2,000 to each child's CESA.
II.They can deduct the CESA contributions for their adjusted gross income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) Sullivan,a pilot for Northern Airlines,has adjusted gross income of $92,000 before considering the following losses.The passive activity rules disallow the deduction for a loss in which of the following?
I.Sullivan has a $4,500 loss from his ownership interest in Cowco,a feeder-cattle limited partnership.Sullivan is a general partner and is responsible for day-to-day management decisions.
II.Sullivan has a $7,000 loss from his ownership interest in Swineco,a feeder-pig limited partnership.Sullivan is a limited partner.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Material participation requires that an individual participates in an activity for more than 200 hours per year or spends more than 50 hours a year in the activity and the time spent is more than anyone else spends on the activity.
A)True
B)False
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Hugh donates investment real estate to Habitat for Humanity.The property cost him $10,000 six years ago.The fair market value of the property at the date of the contribution is $18,000.Hugh's AGI is $80,000.What is the maximum amount Hugh can deduct as a charitable contribution?
A)$- 0 -
B)$5,000
C)$10,000
D)$18,000
E)$24,000
Q2) Susan is 17 and is claimed as a dependent by her parents.In 2016,she earns $1,000 from a summer job and receives $2,400 of interest from a savings account.How much of Susan's income is taxable at her parents' marginal rate?
A)$- 0 -
B)$300
C)$2,100
D)$2,400
Q3) Taxpayer contribution of $250 to the Democratic Party.
Q4) Qualified contribution of $6,500 to an IRA by a 52 year old married taxpayer who is covered by his employer's pension plan.Amount: $6,500
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Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Kobe receives a gift of rare books valued at $10,000.The books have an adjusted basis of $6,000 to the donor.Several months later,Kobe sells the books to a professional collector for $7,000.What is Kobe' gain or (loss)on the sale?
A)No gain or (loss) is recognized
B)$1,000 gain
C)$4,000 gain
D)$1,000 loss
E)$3,000 loss
Q2) Pedro purchased all of the stock of Regis Corporation.Since he purchased all of the stock the basis in all of the corporation's assets must be restated to fair market value.
A)True
B)False
Q3) Personal property consists of any property that is held by an individual. A)True
B)False
Q4) Randall is given five acres of land in 2005.At the time of the gift,the land had a fair market value of $182,000,and its adjusted basis to the donor was $160,000.What is Randall's gain if he sells the land for $184,000?
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Page 11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) During 2016,Duncan Company purchases and places in service office equipment with a cost of $40,000.The equipment is 7-year MACRS property with an ADS recovery period of 10 years.Duncan desires to avoid the AMT.What is its minimum 2016 depreciation deduction?
A)$2,000
B)$2,857
C)$3,000
D)$4,000
E)$5,714
Q2) The Section 179 expense deduction is allowed on all depreciable and tangible property used in a trade or business.
A)True
B)False
Q3) Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased)that are used in his business.He may allocate his section 179 deduction to either or both assets.
A)True
B)False
Q4) Discuss why listed property gets special attention.
Page 12
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Chapter 11: Property Dispositions
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Sample Questions
Q1) Which of the following trade or business assets are Section 1245 properties?
I.Racehorses.
II.Livestock held for breeding purposes
III.Manufacturing equipment.
IV.Residential rental property placed in service in 2008.
A)Only statement I is correct.
B)Statements II and IV are correct.
C)Statements I, II, and III are correct.
D)Statements I and IV are correct.
E)Statements I, II, III, and IV are correct.
Q2) Terry receives investment property from her mother as a gift in 2016.Her mother paid $15,000 for the property in 2011,and it is valued at $18,000 on the date of the gift.Terry sells the property eight months later for $16,000.Terry's gain or loss is
A)Short-term ordinary loss.
B)Short-term capital gain.
C)Short-term capital loss.
D)Long-term ordinary gain.
E)Long-term capital gain.
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Page 13
Chapter 12: Non-Recognition Transactions
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112 Flashcards
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Sample Questions
Q1) An involuntary conversion occurs whenever a loss (but not a gain)is realized from a transaction that occurs against the taxpayer's will.
A)True
B)False
Q2) Grant exchanges an old pizza oven from his business for a new oven.In addition to the old oven,which has a basis of $10,000,Grant pays $4,000 cash and takes out a loan on the new oven for $6,000.The new oven is valued at $22,000.What is Grant's recognized gain or loss due on this transaction?
A)$- 0 -
B)$2,000
C)$12,000
D)$16,000
E)$22,000
Q3) Taxpayers are allowed to structure transactions through third parties that qualify as exchanges if they meet certain time requirements for identifying properties and closing the transaction.
A)True
B)False
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Chapter 13: Choice of Business Entity-General Tax and
Nontax Factorsformation
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Gomer is admitted to the Mouton Partnership on July 1,2016.Gomer contributes ABC common stock purchased in 1991 for $20,000 with a fair market value of $100,000 on July 1,2016,for a 25% interest in the partnership.After Gomer's admission to the partnership,Mouton's net asset fair market value is $400,000.What is Gomer's taxable gain or income due to the exchange of ABC stock for the Mouton Partnership interest?
A)$- 0 -
B)$80,000 long-term capital gain.
C)$80,000 ordinary income.
D)$80,000 short-term capital loss.
E)$100,000 ordinary income.
Q2) Which of the following will render a corporation ineligible for S corporation status?
I.The corporation has 95 stockholders.
II.One of the stockholders is a citizen- resident of Canada.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Sample Questions
Q1) Losses flow-through limited to basis plus the amount of any direct loans
A)Sole Proprietorship.
B)Partnership.
C)Corporation.
D)S Corporation.
Q2) During the current year the Newport Partnership is liquidated.Which of the following statements is correct concerning the liquidation of the partnership?
I.If only cash is distributed by the partnership,the partners must recognize a gain but cannot recognize a loss.
II.Gain is recognized only if the amount of cash and property distributed exceeds the partner's basis in the partnership.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
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Chapter 15: Choice of Business Entity-Other Considerations
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Sample Questions
Q1) A taxpayer must begin withdrawals from any type of retirement plan (except a Roth IRA)no later than April 1 of the tax year after the taxpayer reaches age 70<sup>1</sup>/<sub>2</sub> or,if later,the year they retire.
A)True
B)False
Q2) Karl is scheduled to receive an annuity distribution of $10,000 from his pension plan in 2016.Due to his recent success in the stock market,he has requested that he receive only $5,000 in 2016.Because Karl will fail to receive the required annuity distribution in 2016,he is subject to a penalty of
A)$-0-
B)$500
C)$1,000
D)$2,500
E)$5,000
Q3) Thelma can get the 10% penalty on the early withdrawal from her IRA waived if the money is used to pay her son's college tuition.
A)True
B)False
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Chapter 16: Tax Research
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Sample Questions
Q1) Which regulation citation concerns Code Section 469?
A)Reg. Sec. 469
B)Reg. Sec. 469-3
C)Reg. Sec. 1.3-469
D)Reg. Sec. 1.469-3
E)Reg. Sec. 469.72-3
Q2) In planning situations,tax research is undertaken
I.To always attempt to minimize taxes.
II.Considering the client's nontax objectives.
III.To find the best way to accomplish a desired result.
IV.Considering the client's tax objectives.
A)Only statement I is correct.
B)Only statement IV is correct.
C)Statements II and III are correct.
D)Statements II, III, and IV are correct.
E)Statements I, II, III, and IV are correct.
Q3) The first step in tax research is to locate the relevant legal authorities.
A)True
B)False
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