Taxation for Individuals Exam Review
Course Introduction
Taxation for Individuals provides an in-depth exploration of the fundamental principles and procedures involved in the assessment and payment of taxes by individuals. The course covers topics such as federal and state income tax laws, the calculation of taxable income, allowable deductions and credits, tax return preparation, and recent legislative changes affecting individual taxpayers. Students will gain practical knowledge of compliance requirements, tax planning strategies, and the ethical considerations relevant to personal taxation. Through case studies and real-world scenarios, learners will develop the analytical skills necessary to navigate the complexities of the tax system and make informed financial decisions.
Recommended Textbook
Pearsons Federal Taxation 2018 Individuals 31st Edition by Timothy J. Rupert
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18 Chapters
2328 Verified Questions
2328 Flashcards
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Chapter 1: An Introduction to Taxation
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Sample Questions
Q1) Larry and Ally are married and file a joint return.They are considering purchasing a personal residence that will generate two deductions: $10,000 in home mortgage interest and $8,000 in real estate taxes.Their marginal tax rate is 25%.What is the total tax savings if Larry and Ally purchase the residence?
Answer: ($10,000 + $8,000) × .25 = $4,500
Q2) The marginal tax rate is useful in tax planning because it measures the tax effect of a proposed transaction.
A)True
B)False
Answer: True
Q3) What does the statute of limitations mean? Describe the different statutes of limitations that apply to tax returns.
Answer: The statute of limitations is the period of time in which the taxpayer and/or the IRS can revise a tax return.Typically the statute of limitations is three years from the later of the filing date or due date of the return.If 25% or more of income is omitted from the return,the statute of limitations is six years from the later of the date filed or return's due date.For a return that has not been filed or involves fraud,the statute of limitations is never closed.
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Chapter 2: Determination of Tax
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Sample Questions
Q1) Which of the following credits is considered a refundable credit?
A) child and dependent care credit
B) earned income credit
C) adoption expense credit
D) lifetime learning credit
Answer: B
Q2) In 2017 Carol and Robert have salaries of $35,000 and $27,000,respectively.Their itemized deductions total $8,000.They are married,under 65,and live in a common law state.
a.Compute their taxable income assuming that they file a joint return.
b.Compute their taxable income assuming that they file separate returns and that Robert claims all of the itemized deductions.
Answer: 11ea7e84_1f26_7bb4_9a0a_0dda1d0db4ec_TB1260_00
Q3) A married couple in the top tax bracket has a new baby.Due to the birth of the baby their taxable income will be reduced in 2017 by $4,050.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Gross Income: Inclusions
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Sample Questions
Q1) Bridget owns 200 shares of common stock of Jones Corporation.During the current year,Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned.The stock has a fair market value of $10 per share.Bridget chooses to take the additional shares of stock.How much income does Bridget have from the stock dividend?
A) $0
B) $200
C) $400
D) $1,000
Answer: C
Q2) Which of the following criteria is not required to be met under the tax concept of income?
A) There must be economic benefit.
B) Income must be realized.
C) Income must be recognized.
D) Cash must be received.
Answer: D
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Page 5
Chapter 4: Gross Income: Exclusions
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Sample Questions
Q1) Adam purchased stock in 2006 for $100,000.He is considering selling it in 2017.It is currently worth $2,100,000 so he would realize a $2,000,000 gain.Adam is in the top tax bracket.Determine the taxes due under the following independent situations (ignore any additional Medicare taxes on investment income):
(a) Adam sells the stock,and no special circumstances apply.
(b) The stock is qualified small business corporation stock.
(c) The stock is qualified small business corporation stock.Within 60 days Adam invests $2,500,000 in new qualifying small business corporation stock.
(d) The stock is qualified small business corporation stock.Within 60 days Adam invests $2,000,000 in new qualifying small business corporation stock.
Q2) "No additional cost" benefits are excluded from an employee's gross income if the services are the same type that are sold to customers and in the line of business in which the employee works.
A)True
B)False
Q3) Discuss briefly the options available for avoiding double taxation for the U.S.citizen earning income from sources outside the United States.
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Page 6
Chapter 5: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) Margaret died on September 16,2017,when she owned securities with a basis of $50,000 and a FMV of $60,000.Caroline inherited the property and sold it on December 19,2017 for $67,000.What is Caroline's reported gain on this sale?
A) $7,000 STCG
B) $7,000 LTCG
C) $17,000 STCG
D) $17,000 LTCG
Q2) If the stock received as a nontaxable stock dividend is not the same type as the stock owned prior to the dividend,the allocation of basis is based on relative fair market values of the stock.
A)True
B)False
Q3) A taxpayer owns 200 shares of stock in a corporation purchased in two blocks of 100 shares for different amounts and at different dates.The taxpayer sells 100 shares.Barring any specific instructions,the brokerage firm will report the cost basis using the higher cost block of stock first.
A)True
B)False
Q4) What are arguments for and against preferential treatment of capital gains?
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Chapter 6: Deductions and Losses
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Sample Questions
Q1) During the current year,Ivan begins construction of an office building and a hotel.He incurs $10,000 in property taxes during the construction of the office building and $15,000 for the hotel.Which of the following statements is true of the property taxes during the construction period?
A) Ivan must capitalize the property taxes on both properties each year if an election is made.
B) Ivan must deduct the property taxes on both properties each year.
C) Ivan may elect to capitalize the property taxes on one of the properties while deducting the property taxes on the other for each year.
D) Ivan may elect to capitalize the property taxes for the properties in one year and then deduct the property taxes on the properties the next year.
Q2) Losses on sales of property between a taxpayer and his/her siblings are disallowed.
A)True
B)False
Q3) Hobby expenses are deductible as for AGI deductions.
A)True
B)False
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Chapter 7: Itemized Deductions
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Sample Questions
Q1) Don's records contain the following information:
1.Donated stock having a fair market value of $3,600 to a qualified charitable organization.He acquired the stock five months previously at a cost of $2,400.
2.Paid $700 to a church school as a requirement for the enrollment of his daughter.
3.Paid $200 for annual homeowner's association dues.
4.Drove 400 miles in his personal auto.The travel was directly related to volunteer services he performed for his church.
How much can Don deduct as a charitable contribution?
A) $2,456
B) $3,156
C) $3,356
D) $3,656
Q2) Explain under what circumstances meals and lodging en route to a medical facility may be deductible.
Q3) Discuss the timing of the allowable medical expense deduction.
Q4) What is the treatment of charitable contributions in excess of the applicable limits for the current year?
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Chapter 8: Losses and Bad Debts
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Q1) What is or are the standards that must be present to warrant a casualty loss deduction?
Q2) A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.
A)True
B)False
Q3) Aretha has AGI of less than $100,000 and a 25% marginal tax rate.During the year,she reports a $36,000 loss from Activity A and a $24,000 loss from Activity B.Additionally,Activity A generates $8,000 of tax credits.Both activities A and B are passive real estate rental activities in which Anita actively participates and owns over 10% of each activity.
a.How much loss can be recognized from each activity?
b.What is the amount of Aretha's suspended loss from each activity?
c.How much of the tax credits can be applied this year?
Q4) A net operating loss can be carried back three years or carried forward five years. A)True
B)False
Q5) What are some factors which indicate that a debt may be worthless?
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Chapter 9: Employee Expenses and Deferred Compensation
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Sample Questions
Q1) Corporations issuing incentive stock options receive a tax deduction for compensation expense.
A)True
B)False
Q2) Jack takes a $7,000 distribution from his Health Savings Account.$2,000 is used to pay for X-rays and dental surgery.The other $5,000 is used to make a down payment on a new car.What are the tax consequences to Jack?
Q3) In-home office expenses which are not deductible in the year in which the costs were incurred due to income limitations may be carried forward to subsequent years.
A)True
B)False
Q4) Assuming AGI below the threshold,a contributor may make a deductible contribution to a Coverdell Education Savings Account for a qualified designated beneficiary of up to $2,000.
A)True
B)False
Q5) What factors are considered in determining whether an expense is a deductible travel expense?
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Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) All of the following are true with regard to the alternative depreciation system except A) the principal type of property for which ADS is required is any tangible property which is used predominantly outside of the United States.
B) the ADS election is available to real property on a property by property basis.
C) the ADS election is available to personal property on a property by property basis.
D) once the ADS election is made for specified property, it is irrevocable.
Q2) The election to use ADS is made on a year-by-year,property-class by property-class basis for real and personal property.
A)True
B)False
Q3) The basis of an asset must be reduced by the depreciation allowable. A)True
B)False
Q4) In January of 2017,Brett purchased a Porsche for $100,000 to be used in his business.Brett drove the car 83 percent of the time for business.What is the maximum amount that Brett may deduct in 2017?
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Page 12
Chapter 11: Accounting Periods and Methods
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Sample Questions
Q1) In 2017,Modern Construction Company entered into a contract to construct a building for $5,000,000.The estimated cost to complete the building is $4,000,000 and the project will be completed in 2018.Modern incurred actual construction costs of $1,600,000 and $1,800,000 in 2017 and 2018,respectively.How much gross profit is recognized using the percentage-of-completion method in 2017 and 2018?
Q2) Under the accrual method of accounting,the two tests to determine when income must be reported and expenses deducted are the all-events test and the economic performance test.
A)True
B)False
Q3) Malea sold a machine for $140,000.The machine originally cost $90,000 and $10,000 of MACRS depreciation had been allowable.The buyer assumed an existing loan of $40,000,paid $20,000 cash down and agreed to pay $10,000 per year for eight years plus interest.Selling expenses are $10,000.The contract price is
A) $40,000.
B) $80,000.
C) $100,000.
D) $130,000.
Q4) Discuss the purpose of the imputed interest rules.
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Chapter 12: Property Transactions: Nontaxable Exchanges
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Q1) Discuss the rules regarding the holding period for like-kind property received in a nontaxable exchange.
Q2) The $250,000/$500,000 exclusion for gain on the sale of a personal residence is only available to taxpayers who are age 55 or older.
A)True B)False
Q3) Cheryl owns 200 shares of Cornerstone Corporation common stock which has an adjusted basis of $60,000 and a fair market value of $75,000.John owns 200 shares of Cable Corporation with a $75,000 fair market value.
a.If Cheryl and John exchange their stock,what is the amount of Cheryl's realized gain?
b.If Cheryl and John exchange their stock,what is the amount of Cheryl's recognized gain?
Q4) For purposes of nontaxable exchanges,cash and non-like-kind property constitute boot.
A)True B)False
Q5) Discuss the basis rules of property received in a nontaxable like-kind exchange.
Q6) Discuss why a taxpayer would want to avoid like-kind exchange provisions.
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Chapter 13: Property Transactions: Sec1231 and Recapture
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Sample Questions
Q1) Frisco Inc.,a C corporation,placed a building in service in 2002 and deducted straight-line depreciation under the MACRS system in the normal manner.It sold the building this year for a substantial gain.Because straight-line depreciation was used,Frisco will not need to recognize any ordinary gain.
A)True
B)False
Q2) For a business,Sec.1231 property does not include A) timber, coal, or domestic iron ore. B) inventory purchased 24 months ago.
C) an office building purchased five years ago. D) land used in the business that was purchased two years ago.
Q3) On June 1,2014,Buffalo Corporation purchased and placed in service 7-year MACRS tangible property costing $100,000.On November 10,2017,Buffalo sold the property for $102,000 after having taken MACRS $47,525 in depreciation deductions.What is the amount and character of Buffalo's gain?
Q4) When gain is recognized on an involuntary conversion,gain is subject to recapture under Sec.1245 or Sec.1250.
A)True
B)False
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Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Q1) A self-employed individual has earnings from his business of $300,000 in 2017.For the earnings in excess of $127,200,he will only have to pay the 2.9% Medicare Tax.
A)True
B)False
Q2) A taxpayer who paid AMT in prior years,but is not subject to the AMT in the current year,may be entitled to an AMT credit against his regular tax liability in the current year.
A)True
B)False
Q3) The alternative minimum tax applies to individuals only if it exceeds the taxpayer's regular income tax liability.
A)True
B)False
Q4) Lara started a self-employed consulting business in the last part of the year and earned $60,000 of self- employment earnings.She had been employed as manager in a consulting firm prior to starting her own business and had earned $175,000.
(a) What is Lara's Additional Medicare Tax for 2017,if any?
(b) What is Lara's deduction for AGI for the Additional Medicare Tax?
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Chapter 15: Tax Research
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Q1) According to the AICPA's Statements on Standards for Tax Services,what duties does the tax practitioner owe the client?
Q2) Describe the appeals process in tax litigation.
Q3) The acquiescence policy of the IRS extends to the
A) U.S. Supreme Court decisions.
B) U.S. Tax Court regular decisions.
C) U.S. District Court decisions.
D) both B and C
Q4) You need to locate a recent tax case that was tried in a Federal district court.The decision is an "unreported" decision.This means the decision was
A) not published in the Federal Supplement.
B) not published in American Federal Tax Reports.
C) not published in United States Tax Cases.
D) settled out of court.
Q5) Regulations are
A) equal in authority to legislation.
B) equal in authority to legislation if statutory.
C) presumed to be valid and to have almost the same weight as the IRC.
D) equal in authority to legislation if interpretative.
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Chapter 16: Corporations
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Q1) By calculating its depreciation on personal property using the most accelerated method available,a corporation increases the likelihood that it will be subject to the alternative minimum tax.
A)True
B)False
Q2) The term "thin capitalization" means that the corporation is financed primarily with capital stock rather than debt.
A)True
B)False
Q3) A U.S.-based corporation produces cereal in Niagara Falls,NY,and in Niagara Falls,Ontario.The corporation will be allowed the qualified production activities deduction based on all of its production.
A)True
B)False
Q4) How does the treatment of a liquidation of a subsidiary into its parent corporation differ from the general rule?
Q5) What factors are considered in determining whether a redemption will be treated as an exchange subject to capital gain or loss treatment?
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Chapter 17: Partnerships and S Corporations
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Q1) When a partnership interest is sold,ordinary income may result if a partnership has unrealized receivables or inventory items.
A)True
B)False
Q2) Which of the following statements regarding voluntary revocation of the S election is incorrect?
A) In order for the revocation to be effective retroactively to the first day of the tax year, the revocation must be filed by March 15 of the affected year.
B) All of the shareholders must consent to the revocation.
C) The corporation cannot reelect S corporation status for five years.
D) The revocation can provide a specified effective date to occur mid-year, requiring two tax returns to be filed for the year.
Q3) A partnership's liabilities have increased by year-end.As a result,partners' bases in their partnership interests will increase.
A)True
B)False
Q4) What are special allocations of partnership items and when are they permitted?
Q5) Discuss the concept of partnership guaranteed payments.
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Chapter 18: Taxes and Investment Planning
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Q1) Discuss the decision rules for current salary versus deferred compensation.
Q2) The general form of the annualized after-tax rate of return (annualized ATROR) for the Deferred Model can be expressed as
A) r<sub>ann</sub> = [(1 + R)<sup>n</sup>(1 - t<sub>n</sub>) + t<sub>n</sub>]<sup>1/n</sup> - 1.
B) r<sub>ann</sub> = [(1 - R)<sup>n</sup>(1 - t) + t]<sup>1/n</sup> - 1.
C) r<sub>ann</sub> = [(1 + R)<sup>n</sup>(1 + t) + t]<sup>1/n</sup> - 1.
D) r<sub>ann</sub> = [(1 + R)<sup>n</sup>(1 + t) - t]<sup>1/n</sup> - 1.
Q3) One of the characteristics of the Exempt Model is that earnings on the investment are exempt from explicit taxation.
A)True
B)False
Q4) The Deferred Model investment outperforms the Current Model investment if interest rates and tax rates are constant over time because the interest on the Deferred Model investment grows tax free until withdrawal.
A)True
B)False
Q5) What are the characteristics of the Pension Model?
Q6) Compare the characteristics of the Current and Deferred Models.
Page 20
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