Taxation for Individuals Mock Exam
Course Introduction
This course provides a comprehensive overview of the fundamental principles and practices of taxation as they apply to individuals. Students will explore key topics such as gross income, exclusions, deductions, credits, filing requirements, and tax liability calculations. Emphasis is placed on understanding current tax laws, compliance obligations, and ethical considerations in personal tax planning and reporting. Through the analysis of real-world scenarios and completion of tax forms, students will gain practical skills in preparing individual tax returns and applying tax concepts to everyday financial decisions.
Recommended Textbook
South Western Federal Taxation 2015 Individual Income Taxes 38th Edition by William H. Hoffman
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Sample Questions
Q1) A parent employs his twin daughters,age 17,in his sole proprietorship.The daughters are not subject to FICA coverage.
A)True
B)False
Answer: True
Q2) Export taxes
A)Deferral of gains from involuntary conversions
B)Carryback and carryforward of net operating losses
C)"No change" is one possible result
D)State income tax applied to visiting nonresident
E)IRS special agent
F)Undoing the "piggyback" result
G)Ideal budget goal as to new tax legislation
H)Every state that has a general sales tax has one
I)Imposed by all states and the Federal government
J)Imposed by some states but not the Federal government
K)Imposed only by the Federal government
L)No correct match provided
Answer: L
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Chapter 2: Working With the Tax Law
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Sample Questions
Q1) The following citation can be a correct citation: Rev.Rul.95-271,1995-64 I.R.B.18.
A)True
B)False
Answer: False
Q2) Which of the following indicates that a decision has precedential value for future cases?
A)Stare decisis
B)Golsen doctrine
C)En banc
D)Reenactment doctrine
E)None of these
Answer: A
Q3) Determination letters usually involve finalized transactions.
A)True
B)False
Answer: True
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Chapter 3: Tax Formula and Tax Determination;an
Overview of Property Transactions
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Sample Questions
Q1) In terms of the tax formula applicable to individual taxpayers,which,if any,of the following statements is correct?
A)In arriving at AGI,a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
B)In arriving at taxable income,a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
C)If a taxpayer has deductions for AGI,the standard deduction is not available.
D)In arriving at taxable income,a taxpayer must elect between deductions for AGI and the standard deduction.
E)None of these.
Answer: E
Q2) Under the Federal income tax formula for individuals,the determination of adjusted gross income (AGI)precedes that of taxable income (TI).
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) Jim and Nora,residents of a community property state,were married in early 2013.Late in 2013 they separated,and in 2014 they were divorced.Each earned a salary,and they received income from community owned investments in all relevant years.They filed separate returns in 2013 and 2014.
A)In 2014,Nora must report only her salary and one-half of the income from community property on her separate return.
B)In 2014,Nora must report on her separate return one-half of the Jim and Nora salary and one-half of the community property income.
C)In 2014 Nora must report on her separate return one-half of the Jim and Nora salary for the period they were married as well as one-half of the community property income and her income earned after the divorce.
D)In 2014,Nora must report only her salary on her separate return.
E)None of these.
Q2) The fact that the accounting method the taxpayer uses to measure income is consistent with GAAP does not assure that the method will be acceptable for tax purposes.
A)True
B)False
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Page 6
Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Evaluate the following statements:
A)Only I is true.
B)Only III is true.
C)Only I and III are true.
D)I,II,and III are true.
E)None of these.
Q2) Nicole's employer pays her $150 per month towards the cost of parking near a railway station where Nicole catches the train to work.The employer also pays the cost of the rail pass,$75 per month.Nicole can exclude both of these payments from her gross income.
A)True
B)False
Q3) Employers can provide numerous benefits to their employees and the employees are permitted to exclude the value of these benefits from gross income.What are the effects of the exclusions on:
a.The progressiveness of the tax system?
b.The complexity of the tax system?
Q4) What Federal income tax benefits are provided for college students?
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Chapter 6: Deductions and Losses: in General
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Sample Questions
Q1) Which of the following are deductions for AGI?
A)Mortgage interest on a personal residence.
B)Property taxes on a personal residence.
C)Mortgage interest on a building used in a business.
D)Fines and penalties incurred in a trade or business.
E)None of these.
Q2) Which of the following is not a related party for constructive ownership purposes under § 267?
A)The taxpayer's aunt.
B)The taxpayer's brother.
C)The taxpayer's grandmother.
D)A corporation owned more than 50% by the taxpayer.
E)None of these.
Q3) Which of the following is a deduction for AGI (itemized deduction)?
A)Contribution to a traditional IRA.
B)Roof repairs to a personal use home.
C)Safe deposit box rental fee in which stock certificates are stored.
D)Property tax on personal residence.
E)All of these.
Q4) Briefly discuss the disallowance of deductions for capital expenditures.
Page 8
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) If an election is made to defer deduction of research expenditures,the amortization period is based on the expected life of the research project if less than 60 months.
A)True
B)False
Q2) When a net operating loss is carried back to a non-loss year,the net operating loss can affect the medical expense deduction of the carryback year.
A)True
B)False
Q3) Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.
Q4) If personal casualty gains exceed personal casualty losses (after deducting the $100 floor),there is no itemized deduction.
A)True
B)False
Q5) Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.
Q6) How is qualified production activities income (QPAI)calculated?
Page 9
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Chapter
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Sample Questions
Q1) Discuss the reason for the inclusion amount with respect to leased automobiles.
Q2) If a taxpayer uses regular MACRS for all property,an alternative minimum tax adjustment is made with respect to the depreciation on all property,regardless of the class life.
A)True
B)False
Q3) Land improvements are generally not eligible for cost recovery.
A)True
B)False
Q4) On June 1,2014,Sam purchased used farm machinery for $150,000.Sam used the machinery in connection with his farming business.Sam does not elect to expense assets under § 179.Sam has,however,made an election to not have the uniform capitalization rules apply to the farming business.Determine the cost recovery deduction for 2014.
A)$5,000
B)$7,500
C)$10,000
D)$78,750
E)None of these
10
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Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) Distance test (for moving expenses)not satisfied
A)Cover charge paid to entertain client at a night club.
B)Deductible even if taxpayer does not take the new job
C)Company picnic sponsored by employer
D)Use of Federal per diem allowance to substantiate meals while in travel status
E)Does not have to be job related
F)Can include cost of car insurance and automobile club dues
G)Distribution from plan is taxable
H)Distribution from plan is not taxable
I)Expatriate (U.S.person who is employed overseas)returns home to retire
J)Taxpayer moves to a new residence 55 miles closer to his present job
K)Country club membership fee
L)Correct match not provided
Q2) Madison is an instructor of fine arts at a local community college.If she spends $600 (not reimbursed)on art supplies for her classes,$250 of this amount can be claimed as a deduction for AGI.
A)True
B)False
Q3) In terms of income tax treatment,what is the difference between common law and statutory employees?
Page 11
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Letha incurred a $1,600 prepayment penalty to a lending institution because she paid off the mortgage on her home early.The $1,600 is deductible as interest expense.
A)True
B)False
Q2) In 2015,Rhonda received an insurance reimbursement for medical expenses incurred in 2014.She is not required to include the reimbursement in gross income in 2015 if she claimed the standard deduction in 2014.
A)True
B)False
Q3) Brian,a self-employed individual,pays state income tax payments of:
$900 on January 15,2014 (4th estimated tax payment for 2013)
$1,000 on April 15,2014 (1st estimated tax payment in 2014)
$1,000 on June 16,2014 (2nd estimated tax payment in 2014)
$1,000 on September 15,2014 (3rd estimated tax payment in 2014)
$800 on January 15,2015 (4th estimated tax payment of 2014)
Brian had a tax overpayment of $500 on his 2013 state income tax return and applied this to his 2014 state income taxes.What is the amount of Brian's state income tax itemized deduction for his 2014 Federal income tax return?
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Chapter 11: Investor Losses
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Sample Questions
Q1) Dena owns interests in five businesses and has full-time employees in each business.She participates for 100 hours in Activity A,120 hours in Activity B,130 hours in Activity C,140 hours in Activity D,and 125 hours in Activity E.
A)All five of Dena's activities are significant participation activities.
B)Dena is a material participant with respect to all five activities.
C)Dena is not a material participant in any of the activities.
D)Dena is a material participant with respect to Activities B,C,D,and E.
E)None of these.
Q2) Gray Company,a closely held C corporation,incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is not a personal service corporation,it may deduct $34,000 of the passive loss.
A)True
B)False
Q3) Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.
A)True
B)False
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Page 13
Chapter 12: Alternative Minimum Tax
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Sample
Questions
Q1) Frederick sells land and building whose adjusted basis for regular income tax purposes is $345,000 and for AMT purposes is $380,000.The sales proceeds are $850,000.Determine the effect on:
a.Taxable income.
b.AMTI.
Q2) What effect do deductible gambling losses for regular income tax purposes have in calculating AMTI?
Q3) Kerri,who had AGI of $120,000,itemized her deductions in the current year.She incurred unreimbursed employee business expenses of $8,500.Kerri must make a positive AMT adjustment of $2,400 in computing AMT.
A)True
B)False
Q4) Kay had percentage depletion of $119,000 for the current year for regular income tax purposes.Cost depletion was $60,000.Her basis in the property was $90,000 at the beginning of the current year.Kay must treat the percentage depletion deducted in excess of cost depletion,or $59,000,as a tax preference in computing AMTI.
A)True
B)False
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Page 14
Chapter 13: Tax Credits and Payment Procedures
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Sample Questions
Q1) In the event that overwithholding of FICA tax occurs because the taxpayer has more than one employer,the excess amount should be claimed as a credit on the Federal income tax return of the employee.
A)True
B)False
Q2) The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.
A)True
B)False
Q3) An employee with outside income may be able to avoid the penalty for underpayment of estimated tax by having his employer increase income tax withholdings.
A)True B)False
Q4) For purposes of computing the credit for child and dependent care expenses,the qualifying employment-related expenses are limited to an individual's actual or deemed earned income.
A)True B)False
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Chapter 14: Property Transactions: Determination of Gain or
Loss and Basis Considerations
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Sample Questions
Q1) Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000.If the property is going to be given to Stuart's nephew,Alex,it is preferable for the transfer to be by inheritance rather than by gift.
A)True
B)False
Q2) If a seller assumes the buyer's liability on the property acquired,the buyer's adjusted basis for the property is increased by the amount of the liability assumed.
A)True
B)False
Q3) If the alternate valuation date is elected by the executor of the estate,the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.
A)True
B)False
Q4) For a corporate distribution of cash or other property to a shareholder,when does dividend income or a return of capital result?
Q5) What is the general formula for calculating the adjusted basis of property?
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Chapter 15: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) Which of the following statements is correct?
A)In a nontaxable exchange in which gain is realized,the transaction results in a permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
B)In a nontaxable exchange in which loss is realized,the transaction results in a permanent recovery of less than the taxpayer's cost or other basis for tax purposes.
C)In a tax-free transaction in which gain is realized,the transaction results in the permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
D)All of these.
E)None of these.
Q2) What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?
Q3) If there is an involuntary conversion (i.e. ,casualty,theft,or condemnation)of the taxpayer's principal residence,the realized gain may be postponed as a § 1033 involuntary conversion and/or excluded as a § 121 sale of a principal residence.
A)True
B)False
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Chapter 16: Property Transactions: Capital Gains and Losses
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Q1) Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.
A)True
B)False
Q2) An individual taxpayer with 2014 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2015.
A)True
B)False
Q3) A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long-term capital gain or 0%/15%/20% net long-term capital gain. A)True
B)False
Q4) Since the Code section that defines "capital asset" says what is not a capital asset,other Code sections have to help determine what is and what is not a capital gain or loss.
A)True B)False
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Chapter 17: Property Transactions: 1231 and Recapture
Provisions
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Q1) The maximum amount of the unrecaptured § 1250 gain (25% gain)is the depreciation taken on real property sold at a recognized gain.
A)True
B)False
Q2) Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill)that are eligible for amortization and held for more than one year.
A)True
B)False
Q3) For § 1245 recapture to apply,accelerated depreciation must have been taken on the property.
A)True
B)False
Q4) If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 gain.
A)True B)False
Q5) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
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Chapter 18: Accounting Periods and Methods
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Q1) Brown Corporation had consistently reported its income by the cash method.The corporation should have used the accrual method because inventories are material to the business.In 2014,Brown timely filed a request to change to the accrual method.At the beginning of 2014,Brown had accounts receivable of $75,000.Also,Brown had merchandise on hand with a cost of $150,000 and accounts payable for merchandise of $45,000.The accounts receivable,inventory,and accounts payable balance per books were zero.Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2014.
Q2) A calendar year,cash basis corporation began business on April 1,2014,and paid $2,400 for a 24-month liability insurance policy.An accrual basis,calendar year taxpayer also began business on April 1,2014,and purchased a 24-month liability insurance policy.The accrual basis taxpayer must amortize the premiums over 24 months but the cash basis taxpayer may deduct the total premiums in 2014.
A)True
B)False
Q3) A doctor's incorporated medical practice may end the last day of any month of the year.
A)True
B)False
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Page 20
Chapter 19: Deferred Compensation
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Q1) Pony,Inc. ,issues restricted stock to employees in July 2014,with a two-year vesting period and an SRF.An employee must remain a full-time employee of Pony for two years after the restricted stock is issued.The stock is trading at $10 per share when the stock is issued.An employee,Sam,decides to make the § 83(b)election with his 1,000 shares.At the end of 2014,the stock is selling for $13 per share.What amount,if any,can Pony take as a compensation deduction?
A)$0.
B)$10,000 in 2014.
C)$13,000 in 2014.
D)$10,000 when stock is sold.
E)$13,000 when stock is sold.
Q2) Traditional IRA contributions made after an individual reaches the age of 65 are treated as excess contributions and are subject to a nondeductible 6% excise penalty tax.
A)True
B)False
Q3) In a profit sharing plan,a separate account is not maintained for each participant.
A)True
B)False
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Page 21
Chapter 20: Corporations and Partnerships
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Sample Questions
Q1) A distribution to a shareholder could result in dividend income even if the corporation had a deficit in current E & P.
A)True
B)False
Q2) In the current year,Rose Corporation,a calendar year corporation,has taxable income from operations of $95,000 and a long-term capital gain of $10,000.
a.What is Rose Corporation's Federal income tax liability?
b.What if Rose Corporation is a personal service corporation?
Q3) Which of the following statements,if any,is characteristic of constructive dividends?
A)They must be available to the shareholders on a pro rata basis.
B)They can occur even if the corporation has no earnings and profits.
C)They must be formally declared and paid (i.e. ,declaration date,record date,payment date).
D)They are not deductible by the corporation.
E)None of these.
Q4) The domestic production activities deduction (DPAD)is handled differently for a partnership than for a C corporation.Explain
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