Taxation for Accountants
Test Preparation
Course Introduction
This course provides a comprehensive overview of taxation principles and practices relevant to professional accountants. Students will explore the framework of federal, state, and local tax systems, emphasizing the application of tax laws to both individuals and business entities. Key topics include income determination, tax compliance, concepts of income recognition, allowable deductions, tax planning strategies, and the preparation of tax returns. The course also introduces ethical considerations and the accountants role in advising clients on tax matters, ensuring statutory compliance, and contributing to effective tax planning.
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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Page 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) Sallie earned $85,000 and paid $5,950 of income tax; Theodore earned $33,000 and paid $2,310 of income tax. The tax rate structure they are subject to is:
A) Progressive.
B) Proportional.
C) Regressive.
D)Recessive.
Answer: B
Q2) Which of the following would disqualify a taxpayer from filing a Form 1040EZ?
A) The taxpayer was single.
B) The taxpayer has interest income of $1,900.
C) The taxpayer was age 63.
D)The taxpayer had no dependents.
Answer: B
Q3) What is the definition of a regressive tax?
Answer: A regressive tax is one in which the tax rate decreases as the tax base increases.
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.
Page 3
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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) The tax liability for a married couple with taxable income of $141,325 is:
A) $35,331.
B) $26,919.
C) $20,276.
D)$21,199.
Answer: B
Q2) A married couple can file a joint return only if both have earned income.
A)True
B)False
Answer: False
Q3) A taxpayer can qualify for head of household even though his or her parents are living in a separate household from that of the taxpayer (assume all other requirements are met).
A)True
B)False
Answer: True
Q4) Marital status of a taxpayer is determined on the last day of the tax year.
A)True
B)False
Answer: True
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Chapter 3: Gross Income: Inclusions and Exclusions
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) When is an original issue discount (OID) created? How is the initial OID computed?
Answer: An original issue discount (OID) is created when someone purchases a debt instrument, such as a bond, from an issuer for an amount less than par. The initial OID is equal to the difference between the acquisition price and the maturity value.
Q2) Constructive receipt means the income is available to or in the control of the taxpayer regardless of whether the taxpayer chooses to utilize the income.
A)True
B)False
Answer: True
Q3) What item should not be included in income?
A) Worker's compensation payments.
B) Jury duty pay.
C) Prizes and awards.
D)Sick pay.
Answer: A
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Chapter 4: Adjustments for Adjusted Gross Income
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) The goal of the alimony recapture rules is to properly define the substance of payments made to a former spouse in order to ensure proper tax treatment. These rules "lookback" to the following years for the calculation:
A) Years 1 and 2.
B) Years 3 and 4.
C) Years 1 through 3.
D)Years 4 through 6.
Q2) Jena is a self-employed fitness trainer who had net earnings from self-employment of $23,500. She paid $525 per month for health insurance over the entire last year. Jena is entitled to a for AGI deduction for health insurance of:
A) $0.
B) $5,250.
C) $6,300.
D)$6,500.
Q3) Which of the following is not deductible as a moving expense?
A) The cost of moving household goods.
B) Lodging for household members during the move.
C) Transportation expenses during the move.
D)Pre-move house hunting expenses.
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Page 6
Chapter 5: Itemized Deductions
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) Which of the following expenses is not deductible as medical expense?
A) Insulin used for diabetes.
B) Wig purchased upon the advice of a physician for the mental health of a patient who has lost all of his/her hair from disease.
C) Swimming lessons, recommended by a doctor for improvement of general health.
D)Acupuncture used to treat migraines.
Q2) Explain the key exception to the general rule concerning the charitable deduction for the contribution of tangible personal property.
Q3) If an accountant in public accounting seeks work as a controller in private industry, the expenses of job hunting may be deductible.
A)True
B)False
Q4) On December 31, 2015, Roger charged a $1,800 contribution to a qualified charitable organization to his credit card. He will not pay the credit card bill until January 2016. The $2,200 contribution is deductible on Roger's 2015 tax return.
A)True
B)False
Q5) Define a personal casualty loss.
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Page 7
Chapter 6: Self-Employed Business Income
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) On November 30, 2015, Constance purchased an apartment building for $750,000. Determine her cost recovery deduction for 2015 rounded to the nearest dollar.
A) $0.
B) $2,400.
C) $3,413.
D)$26,138.
Q2) Which of the following is incorrect regarding luxury automobile limitations?
A) Passenger autos with a gross weight of less than 6,000 pounds are subject to the limits.
B) Light trucks or vans that are less than 6,000 pounds are subject to the limits.
C) The limits are reduced further if the business use is less than 100%.
D)The luxury limitations do not apply to the Section 179 expense deduction.
Q3) Xavier bought furniture and fixtures (7-year property) on September 15, 2015 for $505,000. He elects to expense as much as possible under Section 179 but does not elect the 50% bonus. Xavier's earned income for the year is $500,000. What is the maximum deduction Xavier can take in 2015 for the equipment? (Round answers to the nearest dollar)
Q4) List and define the criteria for an expenditure to be deductible on Schedule C.
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Page 8
Chapter 7: Capital Gains and Other Sales of Property
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of qualified small business stock if held for more than one year.
A)True
B)False
Q2) Sara owns an automobile for personal use. The adjusted basis is $13,500 and the FMV is $10,500. Sara has owned the car for two years.
a. Calculate the realized gain (loss) if Sara sells the vehicle for $12,500.
b. Calculate the recognized gain (loss) if Sara sells the vehicle for $12,500.
c. Calculate the realized gain (loss) if Sara sells the vehicle for $15,000.
d. Calculate the recognized gain (loss) if Sara sells the vehicle for $15,000.
Q3) In 2015, Marty has a net short-term capital loss of $2,400, a net long-term capital loss of $12,000, and wage income of $59,850.
a. What is Marty's capital loss deduction for 2015?
b. What amount of the capital loss qualifies as a carryover?
c. What is Marty's total income for 2015 before additions/deductions for adjusted gross income?
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Page 9
Chapter 8: Rental Property, Royalties, Income From
Flow-Through Entities
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) What are the rules concerning the deductibility of travel as it relates to rental properties? How are travel expenses to and from rental properties calculated?
Q2) If a tenant pays an expense normally paid by the taxpayer (landlord) in lieu of rent (or the full rent), that expense is not considered part of rental income to the taxpayer.
A)True
B)False
Q3) From which of the following flow-through entities is the ordinary income (K-1) considered self-employment income?
A) S corporations
B) Estates
C) Trusts
D)Partnerships
Q4) When royalties are paid, the amount paid is reported to the recipient by the payer at the end of the year on a Schedule K-1.
A)True
B)False
Q5) What are the different types of income that may be reported on Schedule E?
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Chapter 9: Tax Credits
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140 Flashcards
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Sample Questions
Q1) Max paid $2,500 in foreign income taxes to Peru. His total income was $65,000, which included $9,000 of foreign income. His U.S. tax liability is $17,750. How much can Max claim as foreign tax credit? (Do not round interim calculations.)
A) $2,458.
B) $2,500.
C) $3,350.
D)$9,000.
Q2) Juliann reported foreign income tax of $1,000 on foreign income of $8,000. Her worldwide taxable income was $89,000 and her U.S. tax liability was $23,000. What is the amount of foreign tax credit she is allowed? Briefly explain your answer.
Q3) Edward and Ethel are ages 71 and 59, respectively, and file a joint return. They have AGI of $11,000 and received $2,000 in nontaxable social security benefits. How much can Edward and Ethel take as a credit for the elderly or the disabled?
A) $375.
B) $1,125.
C) $2,000.
D)$2,500.
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Chapter 10: Payroll Taxes
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Employees claim withholding allowances on Form W-4. For each withholding allowance claimed, their withholding base is reduced by what amount for calendar year 2015?
A) $3,850.
B) $3,900.
C) $3,950.
D)$4,000.
Q2) Arlene is a college professor earning $90,000 and also has a sole proprietor consulting practice where she earned $28,000 for 2015. How much of her total earnings are subject to self-employment tax for 2015?
A) $25,588.
B) $25,858.
C) $27,000.
D)$28,000.
Q3) Employers withhold income tax only on tips claimed by employees who are tipped. A)True B)False
Q4) FICA taxes are collected equally from the employee and the employer.
A)True B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities:
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Sample Questions
Q1) Roth IRA withdrawals are deemed to first come from contributions followed by earnings.
A)True
B)False
Q2) In 2015, a 48-year-old participant in a 401(k) plan may contribute a maximum of:
A) $5,500.
B) $12,500.
C) $18,000.
D)$23,000.
Q3) Which of the following is not an employer-sponsored retirement plan?
A) Roth IRA.
B) SIMPLE.
C) 401(k).
D)Qualified pension plan.
Q4) Annually, up to $2,000 per beneficiary can be contributed to a Coverdell Education Savings Account.
A)True
B)False
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Q5) Under what circumstances might an individual want to establish an annuity contract in retirement?
Chapter 12: Special Property Transactions
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72 Flashcards
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Sample Questions
Q1) An apartment building with an adjusted basis of $500,000 was destroyed by a tornado on April 30, 2015. On May 10, 2015, the insurance company paid the owner $695,000. The owner reinvested $570,000 in a new apartment complex. What is the basis of the new complex if non-recognition of gain from an involuntary conversion is elected?
A) $500,000.
B) $570,000.
C) $625,000.
D)$695,000.
Q2) Related parties include the taxpayer's spouse, ancestors, lineal descendants, but not brothers and sisters.
A)True
B)False
Q3) The replacement period for an involuntary conversion always ends two years after the close of the first taxable year in which any part of the gain is realized.
A)True
B)False
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14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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70 Verified Questions
70 Flashcards
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Sample Questions
Q1) The general rule concerning passive losses is that passive activity losses can only be deducted to the extent of passive and portfolio income.
A)True
B)False
Q2) Identify factors that increase or decrease the at-risk amount.
Q3) In 2015, Ethan contributes cash of $50,000 and property with a fair market value of $100,000 and basis of $20,000 in exchange for a 20% interest in the EFP Partnership. The partnership is not a passive activity. For 2015, his share of partnership items were an ordinary loss of $80,000, interest income of $2,000, dividends of $5,000, and capital gains of $4,000. How much of the current year loss is deductible by Ethan and what is Ethan's at-risk amount on December 31, 2015?
Q4) Catherine purchased furniture and fixtures (7-year property) for her shop for $80,000 in May. What AMT depreciation adjustment is required for the year?
A) $0.
B) $2,864.
C) $8,568.
D)$11,432.
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Chapter 14: Partnership Taxation
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74 Verified Questions
74 Flashcards
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Sample Questions
Q1) Jose purchased a 30% partnership interest for $38,000 in June 2012. Jose's share of partnership income was $8,000 in 2012, $12,000 in 2013, $28,000 in 2014, and $6,000 in 2015. Jose made no additional contributions to, or withdrawals from, the partnership. On December 29, 2015, Jose sold his partnership interest for $108,000. What is Jose's gain or loss on the sale of his partnership interest?
Q2) 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.
Q3) A partner's basis in his or her partnership interest (outside basis) is the sum of the money contributed plus the adjusted basis of property contributed.
A)True
B)False
Q4) A partner never recognizes a gain or loss on the formation of a partnership.
A)True
B)False
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Chapter 15: Corporate Taxation
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Schedule M-1 reconciles from taxable income to book income.
A)True
B)False
Q2) Parent-subsidiary corporations must file a consolidated tax return.
A)True
B)False
Q3) A corporation can elect to be taxed as a Subchapter S corporation if it meets certain requirements including that it has 100 or fewer shareholders, all of whom are individuals, estates, and certain trusts.
A)True
B)False
Q4) Purple Company makes and sells computer printers. It has taxable income of $1,300,000 before taking into account charitable contributions. The company contributed a parcel of unused land to an art museum to be used to construct a branch museum. The land had a FMV of $50,000 and a basis of $30,000. The company also donated 1,000 of its computer printers to the local community college for use in student computer labs. The printers have a FMV of $200 each and a basis of $120 each. Determine the taxable income of Purple Company and its charitable contribution carryforward, if any.
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Page 17