Taxation for Financial Planners Exam Practice Tests
Course Introduction
This course introduces students to the principles and practices of taxation relevant to financial planners, with a focus on the Canadian tax system. Students will analyze personal and corporate tax structures, tax implications of investment decisions, and strategies for tax-efficient wealth management and estate planning. The course covers the Income Tax Act, tax planning for retirement, business owners, and families, as well as compliance, reporting requirements, and ethical considerations. Through case studies and real-world scenarios, students will gain practical skills to provide tax-informed financial advice to clients.
Recommended Textbook
South Western Federal Taxation 2014 Individual Income Taxes 37th Edition by William Hoffman
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20 Chapters
2434 Verified Questions
2434 Flashcards
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Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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155 Verified Questions
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Sample Questions
Q1) States impose either a state income tax or a general sales tax,but not both types of taxes.
A)True
B)False
Answer: False
Q2) If property tax rates are not changed,the amount of ad valorem taxes imposed on realty will remain the same.
A)True
B)False
Answer: False
Q3) Indicate which,if any,statement is incorrect.State income taxes:
A) Can piggyback to the Federal version.
B) Cannot apply to visiting nonresidents.
C) Can decouple from the Federal version.
D) Can provide occasional amnesty programs.
E) None of the above.
Answer: B
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Page 3
Chapter 2: Working With the Tax Law
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Sample Questions
Q1) A U.S.District Court is the lowest trial court.
A)True
B)False
Answer: True
Q2) The Index to Federal Tax Articles (published by Warren,Gorham,and Lamont)is available in print and electronic formats.
A)True
B)False
Answer: False
Q3) A Revenue Ruling is a judicial source of Federal tax law.
A)True
B)False
Answer: False
Q4) Which court decisions are published in paper format by the U.S.government?
A) U.S. Tax Court Memorandum decision.
B) U.S. Tax Court regular decision.
C) Fifth Circuit U.S. Court of Appeals decision.
D) Court of Federal Claims decision.
E) All of the above.
Answer: B
Page 4
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Chapter 3: Tax Formula and Tax Determination; an
Overview of Property Transactions
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153 Flashcards
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Sample Questions
Q1) The additional standard deduction for age and blindness is not the same amount for single as for married taxpayers.
A)True
B)False
Answer: True
Q2) Pedro is married to Consuela,who lives with him.Both are U.S.citizens and residents of Nebraska.Pedro furnishes all of the support of his parents,who are citizens and residents of Mexico.He also furnishes all of the support of Consuela's parents,who are citizens and residents of El Salvador.Consuela has no gross income for the year.If Pedro files as a married person filing separately,how many personal and dependency exemptions can he claim on his return?
Answer: Four.A personal exemption for Pedro and Consuela and dependency exemptions for Pedro's parents.Consuela can be claimed because she has no income.Presumably she is not being claimed as a dependent by another.Although Pedro's parents are neither U.S.citizens nor residents,they are residents of Mexico.Consuela's parents meet neither the citizenship nor residency tests.
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Page 5
Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) An advance payment received in June 2012 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.
A)True
B)False
Q2) The annual increase in the cash surrender value of a life insurance policy:
A) Is taxed when the individual dies and the heirs collect the insurance proceeds.
B) Must be included in gross income each year under the original issue discount rules.
C) Reduces the deduction for life insurance expense.
D) Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.
E) None of the above.
Q3) If the alimony recapture rules apply,the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.
A)True B)False
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Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) All employees of United Company are covered by a group hospitalization insurance plan,but the employees must pay the premiums ($8,000 for each employee).None of the employees has sufficient medical expenses to deduct the premiums.Instead of giving raises next year,United is considering paying the employee's hospitalization insurance premiums.If the change is made,the employee's after-tax and insurance pay will:
A) Increase by the same amount for all employees.
B) Increase more for the highly paid employees (35% marginal tax bracket).
C) Increase more for the low income (10% and 15% marginal tax bracket) employees.
D) Decrease by the same amount for all employees.
E) None of the above.
Q2) The exclusion of interest on educational savings bonds:
A) Applies only to savings bonds owned by the child.
B) Applies to parents who purchase bonds for which the proceeds are used for their child's education.
C) Means that the child must include the interest in income if the bond is owned by the parent.
D) Does apply even if used to pay for room and board.
E) None of the above.
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Page 7
Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) The income of a sole proprietorship are reported on Schedule C (Profit or Loss from Business).
A)True
B)False
Q2) During the year,Martin rented his vacation home for three months and spent one month there.Gross rental income from the property was $5,000.Martin incurred the following expenses: mortgage interest,$3,000; real estate taxes,$1,500; utilities,$800; maintenance,$500; and depreciation,$4,000.Compute Martin's allowable deductions for the vacation home.
Q3) Tommy,an automobile mechanic employed by an auto dealership,is considering opening a fast food franchise.If Tommy decides not to acquire the fast food franchise,any investigation expenses are:
A) A deduction for AGI.
B) A deduction from AGI, subject to the 2 percent floor.
C) A deduction from AGI, not subject to the 2 percent floor.
D) Deductible up to $5,000 in the current year with the balance being amortized over a 180-month period.
E) Not deductible.
Q4) Are all personal expenses disallowed as deductions?
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) "Other casualty" means casualties similar to those associated with fires,storms,or shipwrecks.
A)True
B)False
Q2) If a taxpayer has an NOL in 2012 of $20,000,of which $8,000 is attributable to a theft of rental use property,the taxpayer may:
A) Carry all of the NOL of $20,000 back 5 years.
B) Carry all of the NOL of $20,000 back 3 years.
C) Carry $8,000 of the NOL back 3 years and the remainder of the NOL of $12,000 back 2 years.
D) All of the above.
E) None of the above.
Q3) When a net operating loss is carried back to a non-loss year,the net operating loss will affect the charitable contribution deduction of the carryback year.
A)True
B)False
Q4) A bona fide debt cannot arise on a loan between father and son.
A)True
B)False
Page 9
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Chapter 8: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) When lessor owned leasehold improvements are abandoned because of the termination of the lease,a loss can be taken for the unrecovered basis.
A)True
B)False
Q2) A taxpayer may elect to use the alternative depreciation system (ADS)on property used predominantly outside the United States.
A)True
B)False
Q3) For real property,the ADS convention is the mid-month convention.
A)True
B)False
Q4) All personal property placed in service in 2012 and used in a trade or business qualifies for additional first-year depreciation.
A)True
B)False
Q5) Discuss the tax consequences of listed property being used for the production of income compared to being used in a trade or business.
Page 10
Q6) Discuss the reason for the inclusion amount with respect to leased automobiles.
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) Carolyn is single and has a college degree in finance.She is employed as a loan officer at a bank; her yearly AGI approximates $50,000.During the year,she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $3,900 (tuition),$300 (books),$200 (other school supplies),and $200 (transportation to and from campus).Disregarding the 2%-of-AGI limitation,as to the MBA program,Carolyn has a:
A) Deduction for and deduction from AGI of $0.
B) Deduction for AGI of $4,000 and deduction from AGI of $600.
C) Deduction for AGI of $3,900 and deduction from AGI of $700.
D) Deduction for AGI of $4,100 and deduction from AGI of $500.
E) None of the above.
Q2) Cathy takes five key clients to a nightclub and incurs the following costs: $320 limousine rental,$460 cover charge,$920 drinks and dinner,and $200 tips.Several days after the function,Cathy mails each client a pen costing $25.To the cost must be added $4 for engraving of the client's name.Assuming adequate substantiation and a business justification,what is Cathy's deduction?
Q3) For tax purposes,"travel" is a broader classification than "transportation."
A)True
B)False
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Emily,who lives in Indiana,volunteered to travel to Louisiana in March to work on a home-building project for Habitat for Humanity (a qualified charitable organization).She was in Louisiana for three weeks.She normally makes $500 per week as a carpenter's assistant and plans to deduct $1,500 as a charitable contribution.In addition,she incurred the following costs in connection with the trip: $600 for transportation,$1,200 for lodging,and $400 for meals.What is Emily's deduction associated with this charitable activity?
A) $600.
B) $1,200.
C) $1,800.
D) $2,200.
E) $3,700.
Q2) Interest paid or accrued during the tax year on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns)is deductible as qualified residence interest.
A)True
B)False
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) Discuss the treatment given to suspended passive activity losses and credits.What happens to an activity's unused losses and credits when the activity is sold?
Q2) Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.
A)True
B)False
Q3) Tony is married and files a joint tax return for 2012.He has investment interest expense of $95,000 for a loan made to him in 2012 to purchase a parcel of unimproved land.His income from investments [dividends (not qualified)and interest] totaled $18,000.Tony paid $3,600 of real estate taxes on the unimproved land.Tony also has a $4,500 net long-term capital gain from the sale of stock held as an investment.Calculate Tony's maximum investment interest deduction for 2012.
A) $95,000.
B) $22,500.
C) $18,900.
D) $18,000.
E) None of the above.
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Page 13
Chapter 12: Alternative Minimum Tax
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Sample
Questions
Q1) If circulation expenditures are amortized over a ten-year period for regular income tax purposes,there will be no AMT adjustment.
A)True
B)False
Q2) Which of the following can produce an AMT preference rather than an AMT adjustment?
A) Standard deduction.
B) Research and experimental expenditures.
C) Percentage depletion.
D) Incentive stock options (ISOs).
E) None of the above.
Q3) What is the purpose of the AMT exemption amount? What is the maximum amount for each filing status for an individual taxpayer and for a corporate taxpayer?
Q4) Income from some long-term contracts can be reported using the completed contract method for regular income tax purposes,but the percentage of completion method is required for AMT purposes for all long-term contracts.
A)True
B)False
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Chapter 13: Tax Credits and Payment Procedures
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Sample Questions
Q1) Some foreign taxes do not qualify for the foreign tax credit.
A)True
B)False
Q2) Which of the following best describes the treatment applicable to unused business credits?
A) Unused amounts are carried forward indefinitely.
B) Unused amounts are first carried back one year and then forward for 20 years.
C) Unused amounts are first carried back one year and then forward for 10 years.
D) Unused amounts are first carried back three years and then carried forward for 15 years.
E) None of the above.
Q3) The low-income housing credit is available to low-income tenants who reside in qualifying low-income housing.
A)True
B)False
Q4) The child tax credit is based on the number of the taxpayer's qualifying children under age 17.
A)True
B)False
Q5) Discuss the treatment of unused general business credits.
Page 15
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Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Sample Questions
Q1) If the alternate valuation date is elected by the executor in 2012,the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.
A)True
B)False
Q2) Taylor inherited 100 acres of land on the death of his father in 2012.A Federal estate tax return was filed and this land was valued therein at $650,000,its fair market value at the date of the father's death.The father had originally acquired the land in 1966 for $112,000 and prior to his death he had expended $20,000 on permanent improvements.Determine Taylor's holding period for the land.
A) Will begin with the date his father acquired the property.
B) Will automatically be long-term.
C) Will begin with the date of his father's death.
D) Will begin with the date the property is distributed to him.
E) None of the above.
Q3) Peggy uses a delivery van in her business.The adjusted basis is $39,000,and the fair market value is $34,000.The delivery van is stolen and Peggy receives insurance proceeds of $34,000.Determine Peggy's realized and recognized gain or loss.
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency,the basis of the replacement property will be more than its cost (cost plus realized gain).
A)True
B)False
Q2) Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30,2012.Sam is a calendar year taxpayer.He receives a condemnation award of $875,000 on March 1,2013.He builds a new office building at a cost of $845,000 which is completed and paid for on December 31,2015.What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?
A) $0; $720,000.
B) $30,000; $750,000.
C) $30,000; $845,000.
D) $150,000; $750,000.
E) None of the above.
Q3) What kinds of property do not qualify under the like-kind provisions?
Q4) Discuss the treatment of losses from involuntary conversions.
Q5) Define an involuntary conversion.
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Chapter 16: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) The tax law requires that capital gains and losses be separated from other types of gains and losses because there are limitations on the deduction of net capital losses.
A)True
B)False
Q2) A business taxpayer sells depreciable business property with an adjusted basis of $40,000 for $32,000.The taxpayer held the property for more than a year.The taxpayer has an $8,000 § 1231 loss.
A)True
B)False
Q3) An individual taxpayer with 2012 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2013.
A)True
B)False
Q4) To compute the holding period,start counting on the day the property was acquired and include the day of disposition.
A)True
B)False
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Chapter 17: Property Transactions: Section 1231 and Recapture Provisions
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Sample Questions
Q1) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
Q2) Which of the following would not be included in the netting of § 1231 gains and losses?
A) Personal use property net casualty gain.
B) Section 1231 loss.
C) Section 1231 gain.
D) All of the above.
E) b. and c.
Q3) Nonrecaptured § 1231 losses from the seven prior tax years may cause current year net § 1231 gain to be treated as ordinary income.
A)True
B)False
Q4) Section 1245 generally recaptures as ordinary income the portion of the gain that is equal to the sale price minus the original cost.
A)True
B)False
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Chapter 18: Accounting Periods and Methods
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Sample Questions
Q1) Ivory Fast Delivery Company,an accrual basis taxpayer,frequently has claims for damages to property the company delivered.Often the claim is not filed until a month after the delivery.In the past,approximately 80% of the claims are paid by Ivory.In 2012,claims for $80,000 were filed.The company refused to pay $20,000 of the claims (because they were not valid),and paid $50,000.The remaining $10,000 in claims were processed and paid in January 2013.Also,in January 2013,claims for $8,000 were filed for deliveries made in 2012,and $6,000 was paid on these claims by March 15,2013.Ivory has not elected to use the recurring item exception to economic performance.Under the all-events and economic performance tests,Ivory can accrue as an expense for 2012:
A) $68,000.
B) $66,000.
C) $60,000.
D) $50,000.
E) None of the above.
Q2) If an installment sale contract does not charge interest on the sale of a capital asset,the IRS will impute interest and thereby increase the taxpayer's capital gain and interest income.
A)True
B)False
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Page 20
Chapter 19: Deferred Compensation
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Sample Questions
Q1) Contributions to a Roth IRA can be made up to the due date (excluding extensions)of the taxpayer's income tax return.
A)True
B)False
Q2) If a NQSO does not have a readily ascertainable value,an employee recognizes income on the grant date.
A)True
B)False
Q3) A participant has an adjusted basis of $0 in any nondeductible contributions to a traditional IRA.
A)True
B)False
Q4) Income earned by a qualified pension plan trust grows at a tax-free rate.
A)True
B)False
Q5) An employer obtains a tax deduction at the same time and to the extent that ordinary income is recognized by the employee who receives nonqualified stock options. A)True B)False
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Chapter 20: Corporations and Partnerships
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Q1) Crimson Corporation owns stock in other C corporations as follows: 90% of Gray; 30% of Mocha; and 10% of Saffron.During the current year,it receives dividends from the corporations as follows: $80,000 from Gray; $60,000 from Mocha; and $100,000 from Saffron.Presuming no taxable income limitations,what is Crimson's dividends received deduction?
Q2) Which of the following will help avoid the thin capitalization problem?
A) Avoid any provision for interest.
B) Do not provide for a definite maturity date.
C) Make repayment contingent on the corporation's earnings.
D) Subordinate the debt to other liabilities.
E) None of the above.
Q3) In completing Schedule M-1 (reconciliation of income per books with income per tax return)of Form 1120,to net income per books:
A) Add tax-exempt interest.
B) Add excess of capital loss over capital gain.
C) Add proceeds of term life insurance received by the corporation due to the death of a key employee.
D) Subtract Federal income tax.
E) None of the above.
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Page 22