Tax Planning
Solved Exam Questions
Course Introduction
Tax Planning is a comprehensive course that explores strategies and techniques for minimizing tax liabilities while complying with legal and regulatory requirements. The course covers fundamental tax principles, the structure of tax systems, and the practical application of tax planning for individuals, businesses, and estates. Students will analyze case studies, learn to identify tax-saving opportunities, and evaluate the impacts of tax laws on financial decision-making. Emphasis is placed on ethical considerations, current tax reforms, and the integration of tax planning in financial and business strategies.
Recommended Textbook
Concepts in Federal Taxation 2014 21st Edition by Kevin E. Murphy
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16 Chapters
2109 Verified Questions
2109 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) Which of the following taxpayers used tax evasion tactics when filing their 2013 tax return?
I.Fern,a cash basis accountant intentionally billed clients for services on December 31,2013,to avoid receiving cash payments from clients until 2014.
II.Samual made a mathematical mistake on a schedule in his tax return that resulted in a $2,000 underpayment of tax.The IRS does not detect the mistake..
III.Beverly accidentally underreported $800 of income she earned providing childcare in her home.
IV.Bo,a cattle rancher,deducted the cost of raising 7 steers that were used by his family and relatives for food during 2013.
A)Statements I and III are correct.
B)Only statement II is correct.
C)Statements II and III are correct.
D)Statemenst III and IV are correct.
E)Only statement IV is correct.
Answer: E
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3
Chapter 2: Income Tax Concepts
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Administrative Convenience
A)Income is subject to tax when it is received without restrictions as to its use or disposition.
B)Income is considered received when it is credited to the taxpayer's account or made unconditionally available to the taxpayer.
C)A concept that is fundamental to the progressive tax rate structure.
D)To be deductible, an expenditure must be made for a business or economic purpose that is greater than any tax avoidance motive of the taxpayer.
E)The amount of a deduction may not exceed its cost.
F)Income should be recognized and a tax paid when the taxpayer has the resources to pay the tax.
G)A type of deductible expenditure that embodies the profit motive requirement.
H)Allows the omission of items from the tax base for which the costs of compliance exceeds the revenue generated.
I)A category of expenses that is specifically disallowed.
Answer: H
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4
Chapter 3: Income Sources
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153 Flashcards
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Sample Questions
Q1) Donna owns a cleaning service.Reed,a customer,receives Donna's bill for October 2013 services of $65 on October 31,2013.Reed pays the $65 on January 4,2014.
I.If Donna is a cash-basis taxpayer,she recognizes the income in 2014.
II.If Donna is an accrual-basis taxpayer,she will recognize the $65 in 2013.
III.Donna will recognize the $65 in 2013 regardless of accounting method,because that is when she earned the income.
A)Only statement I is correct.
B)Only statement II is correct.
C)Only statement III is correct.
D)Statements I and II are correct.
E)Statements I and III are correct.
Answer: D
Q2) One type of imputed income that always escapes taxation is
A)Bargain purchases by employees.
B)Value of growing one's own vegetables for personal consumption.
C)Payment of personal expenses by a corporation in which stock is owned.
D)Interest free loan from parents.
Answer: B
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Page 5
Chapter 4: Income Exclusions
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) Marge,age 35,is an employee of Troy,Inc.Her annual salary is $50,000.After considering the following list of benefits provided Marge,determine her gross income for the year.
Marge has $2,000 of her salary withheld and paid into the company's qualified pension plan.The company matches the contribution at the rate of $.50 for each $1.00 paid in.
Group-term life insurance policy at twice her annual salary paid by the company.Premium cost is $1.08 per $1,000 of coverage.
Health and accident insurance policy costing $1,500 paid by the company.
Marge elects to have $1,800 of her salary paid into a flexible benefits plan to cover childcare costs.She incurs $2,100 of childcare costs during the year.
A)$44,700
B)$44,754
C)$46,254
D)$48,054
E)$50,000
Q2) What are the differences between a cafeteria plan and a flexible benefits (salary reduction)plan?
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Page 6
Chapter 5: Introduction to Business Expenses
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168 Verified Questions
168 Flashcards
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Sample Questions
Q1) List the criteria necessary for an expenditure to be deductible as a trade or business expense or an expense for the production of income.
Q2) Which of the following expenses is/are deductible?
I.Transportation and lodging expenses of $3,000 incurred to monitor state legislation that may affect the taxpayer's business.
II.Lobby expenses of $300 during the year to influence local town legislators to support pro-business legislation.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q3) Business expenses include
I.expenditures that have a business purpose
II.expenditures that are incurred for the production of 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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7
Chapter 6: Business Expenses
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) Which of the following is true regarding the Qualified Production Activities Deduction (QPAD)?
I.The QPAD deduction is limited to 9% of the lessor of taxable income before the QPAD deduction or qualified production activities income
II.The QPAD deduction cannot exceed 50% of W-2 wages allocated to QPAD activities.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) To be deductible,employee compensation must be for services actually performed by the employee and the amount must be reasonable.
A)True
B)False
Q3) Legal expenses are generally deductible if they have a business purpose; they are generally not deductible if they originate from a personal transaction.
A)True
B)False
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Chapter 7: Losses: Deductions and Limitations
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) Constance owns a boutique.During the current year,she has gross income of $400,000 and allowable deductions related to the business of $425,000.
I.Constance has incurred a transaction loss,which represents her unrecovered cost of capital.
II.Constance has suffered an annual loss,which may be carried back 2 years or forward 20 years if not used in the current year.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Frasier sells some stock he purchased several years ago for $10,000 to his brother,Niles,for $6,000.
I.If this is Frasier's only stock transaction,he can deduct only $3,000 of the loss.
II.If Niles sells the stock for $10,000,his taxable gain is $4,000.
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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Page 9
Chapter 8: Taxation of Individuals
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) For purposes of the relationship test for dependents,which of the following does not qualify as a relative?
A)Mother.
B)Nephew.
C)Cousin.
D)Grandfather.
E)Stepbrother.
Q2) Morris and Marianne have a $310,000 mortgage on their personal residence and a $90,000 mortgage on their mountain retreat.The interest on both of them qualifies as deductible qualified home mortgage interest.
A)True
B)False
Q3) Carlos had $3,950 of state taxes withheld from his salary this year.If he deducts the full amount as an itemized deduction and receives a refund in the following year,he must file an amended return and reduce the deduction he received by the amount of the refund.
A)True
B)False
Q4) Explain the support test and the gross income test to be a qualifying relative.
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Chapter 9: Acquisitions of Property
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106 Flashcards
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Sample Questions
Q1) Hilliard receives a gift of stock from Martha on June 1 of the current year.Martha paid $15,000 for the stock several years ago.Martha pays a gift tax of $400 on the transfer.
I.If the fair market value of the stock on June 1 of the current year is $20,000,Hilliard has a basis in the stock of $15,100.
II.If the fair market value of the stock on June 1 of the current year is $14,000,and Hilliard sells the stock for $13,000 on June 2 of the current year,Hilliard realizes a loss on the sale of $1,000.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) When a security is sold at a loss and and a substantially identical security has been purchased within 30 days before the sale date the loss is disallowed because it is classified as a wash sale.
A)True
B)False
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11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) In 2013,Henry purchases $2,050,000 of equipment with a useful life of 7 years.The taxable income of the business is $100,000.What is Henry's maximum depreciation deduction in 2013? (Henry elects out of bonus depreciation.)
A)$335,000
B)$378,655
C)$500,000
D)$678,640
E)$721,495
Q2) In most cases,the taxpayer may continue to use percentage (statutory)depletion after the initial basis has been fully recovered.In other words,the taxpayer's depletion deduction can exceed the cost of the depletable asset.
A)True
B)False
Q3) Amortization
A)Computers, and automobiles.
B)Used to recover the investment in intangible assets.
C)Used to recover the investment in long-lived tangible business-use assets.
D)An attempt to stimulate capital investment by small businesses.
E)Used to recover the investment in assets that waste away through extraction.
Page 12
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Chapter 11: Property Dispositions
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140 Flashcards
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Sample Questions
Q1) Davidson Corporation has the following gains and losses from Section 1231 property during 2013:
\(\begin{array}{lr}
\text {Casualy losses } &\$(6,000) \\
\text {Casualty gains } &7,000 \\
\text { Section 1231 gains } &6,000 \\
\text { Section 1231 losses } &(9,000)
\end{array}\)
No net Section 1231 losses have been deducted as ordinary losses in prior years.How much of the 2013 Section 1231 gains and losses are recognized as long-term capital gains?
A)$ - 0 -
B)$ 1,000
C)$ 2,000
D)$ 3,000
E)$ 6,000
Q2) Matt has a substantial portfolio of securities.As of December 2 of the current year,Matt has a net capital gain position of $22,000.Discuss Matt's optimal tax-planning strategy for capital gains and losses.
Q3) Discuss the general differences between Section 1245 and Section 1250 property.
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Chapter 12: Nonrecognition Transactions
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Sample Questions
Q1) Belinda exchanges investment real estate with Russell.Belinda's adjusted basis in her two-year old property is $280,000.The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell assumes that debt.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell pays Belinda enough in cash to balance the exchange.What is Belinda's basis in the new land?
A)$ 20,000
B)$150,000
C)$280,000
D)$320,000
Q2) Gain deferral is fundamental to the nonrecognition transactions.In which of the following is gain deferral mandatory?
I.Involuntary conversion of business real estate.
II.Like-kind exchange of business real estate.
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 13: Choice of Business Entity - General Tax and
Nontax Factorsformation
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Snoopy Corporation,Garfield Corporation,and Dogbert Corporation are partners in Comic Partnership.The partners' fiscal year ends and ownership interests follow: \(\begin{array}{lll}
\text { Snoopy Corporation } & \text { March 31 FYE } & 15 \% \text { Interest } \\ \text { Garfield Corporation } & \text { May 31 FYE } & 30 \% \text { Interest } \\ \text { Dogbert Corporation } & \text { October 31 FYE } & 55 \% \text { Interest } \end{array}\)
I.Comic Partnership must use a calendar year end,unless the IRS approves an election for a different tax year.
II.Comic Partnership must use a October 31 fiscal year end.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Discuss the characteristics of a personal service corporation (PSC).
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Page 15
Chapter 14: Choice of Business Entity - Operations and Distributions
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Sample Questions
Q1) Abaco Corp.has gross income of $230,000 and taxable income of $50,000.The company did not include any special deductions in the calculation of taxable income.While reviewing the tax return,Abaco's accountant finds $20,000 of charitable contributions improperly classified as advertising and promotion expense.He sends the return back to the tax department for correction.What is Abaco's corrected taxable income?
A)$35,000
B)$55,000
C)$57,000
D)$63,000
E)$65,000
Q2) A partner's basis is increased by the amount of deductible loss that flows through from the partnership.
A)True
B)False
Q3) Sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to the related party rules.
A)True
B)False
16
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Chapter 15: Choice of Business Entity - Other
Considerations
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107 Verified Questions
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Sample Questions
Q1) Sergio is a 15% partner in the Hopkins Group and has net self-employment income of $100,000 in 2013.The maximum amount that Sergio can contribute to a Keogh money purchase plan is
A)$ 3,000
B)$13,045
C)$20,000
D)$25,000
E)$50,000
Q2) Pension plans are subject to excess contribution penalties.Which of the following are correct:
I.There is an excess contribution penalty for IRAs or Roth IRAs that equal 6% of the amount in excess of $5,500 or the value of the individual's IRA whichever is less.
II.A 10% excess contribution penalty applies to IRAs and Roth IRAs.
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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17
Chapter 16: Tax Research
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Sample Questions
Q1) Title 26 of the U.S.Code includes
A)Alcohol and tobacco tax legislation only.
B)Gift tax and estate tax legislation only.
C)Income Tax legislation only.
D)Self employment tax legislation only.
E)All of the tax legislation mentioned above.
Q2) The IRS may acquiesce or nonacquiesce to decisions from which of the following courts:
A)U.S. Tax Court.
B)U.S. District Court.
C)U.S. Court of Appeals.
D)U.S. Court of Federal Claims.
E)All of the above.
Q3) What body prepares a compromise version of tax legislation when the House and Senate versions are not in agreement?
A)Arbitration Committee.
B)Joint Committee on Taxation.
C)House Ways and Means Committee.
D)Judiciary Committee.
E)Joint Conference Committee.
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