Taxation of Individuals Practice Exam
Course Introduction
This course provides an in-depth exploration of federal income tax principles as they apply to individuals. Students will examine the structure of the tax system, identification of taxable income, deductions, credits, and the filing process. Special topics include capital gains, alternative minimum tax, self-employment income, and planning strategies to minimize tax liability. Real-world scenarios, case studies, and current tax law changes are integrated to develop practical skills in tax preparation and compliance. The course is essential for those pursuing careers in accounting, financial planning, or any field requiring a thorough understanding of individual tax obligations.
Recommended Textbook Income Tax Fundamentals 2017 35th Edition by Gerald
E. Whittenburg
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12 Chapters
1259 Verified Questions
1259 Flashcards
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Chapter 1: The Individual Income Tax Return
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Partnership income is reported on:
A)Form 1040PTR
B)Form 1120S
C)Form 1040X
D)Form 1065
Answer: D
Q2) If taxpayers are married and living together at the end of the year, they must file a joint tax return.
A)True
B)False
Answer: False
Q3) Mary is age 33 and a single taxpayer with adjusted gross income for 2016 of $29,400. Mary maintains a home for three dependent children and has itemized deductions of $3,000. Calculate the following amounts for Mary's 2016 income tax return:
a.The number of exemptions claimed
b.Mary's standard or itemized deduction amount
c.Mary's taxable income
Answer:
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Page 3
Chapter 2: Gross Income and Exclusions
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Under the terms of a property settlement executed during the current year, Cindy transferred a house worth $350,000 to her ex-husband, Carl. The property has a tax basis to Cindy of $300,000.
a.How much taxable gain or loss must be recognized by Cindy at the time of the transfer?
b.What is Carl's tax basis in the property he received from Cindy?
Answer:
11ea8558_f88c_9361_a343_c54746c0c497_TB2114_00
Q2) Sam died on January 15, 2006 and left his wife, Terry, an insurance policy with a face value of $100,000. Terry elected to receive the proceeds over a 10-year period ($10,000 plus interest each year). This year Terry receives $11,500 ($10,000 proceeds plus $1,500 interest) from the insurance company. How much income must Terry report from this payment?
A)$0
B)$500
C)$1,500
D)$11,500
E)None of the above
Answer: C
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Page 4
Chapter 3: Business Income and Expenses Part I
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Which of the following items incurred while on travel is not considered a travel expense?
A)The cost of meals
B)The cost of lodging
C)Transportation costs
D)Cost of entertaining clients
E)None of the above
Answer: D
Q2) If the taxpayer does not maintain adequate records of car expenses (i.e., gas, tires, car insurance, etc.), the standard mileage rate cannot be used.
A)True
B)False
Answer: False
Q3) A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements.
A)True
B)False
Answer: False
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Chapter 4: Business Income and Expenses Part II
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97 Verified Questions
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Sample Questions
Q1) Which of the following statements is true?
A)A distribution rollover from a retirement plan can only be done as a direct transfer from one account to another account.
B)The trustee must withhold 10 percent of the amount distributed whenever assets are transferred from one retirement plan to another retirement plan.
C)If a taxpayer decides to rollover an IRA to a new account, then the whole IRA must be rolled over.
D)A taxpayer is allowed only one direct transfer each year from one retirement account to another retirement account.
E)There are no current-year tax consequences for a direct transfer.
Q2) Christine is a self-employed graphics artist who has net earned income of $160,000 from her business. Christine has a defined contribution SEP Plan and plans to contribute the amount that provides the maximum deduction allowable. How much can Christine contribute?
Q3) What is the maximum amount a 55-year-old taxpayer and a 48-year-old spouse can put into a Traditional or Roth IRA for 2016, assuming they earn $85,000 in total and are not participants in pension plans?
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Page 6
Chapter 5: Itemized Deductions and Other Incentives
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) During the current year, Hom donates a sculpture that cost $1,000 to a museum for exhibition. The sculpture's fair market value was $1,700 on the date of the donation, and Hom's adjusted gross income is $40,000.
a.
If Hom had held the sculpture for 4 months and the $700 ($1,700 - $1,000) of appreciation would have been a short-term capital gain, calculate the amount of his itemized deduction for the contribution.
b.
If Hom had held the sculpture for 2 years and the $700 gain would have been a long-term capital gain, calculate the amount of his itemized deduction for the contribution.
Q2) Jake developed serious health problems and had his bathroom remodeled so it is wheelchair-accessible and had a handicapped shower installed, based on a written prescription by his doctor. The cost of the remodel is $15,000 and is deemed to add no value to his house by a real estate appraiser. How is the cost of the remodel treated on Jake's tax return?
Q3) All taxpayers may deduct up to $4,000 of higher education tuition expenses.
A)True B)False
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Page 7
Chapter 6: Credits and Special Taxes
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) In 2016, Alex has income from wages of $16,000, adjusted gross income of $18,000, and tax liability of $300 before the earned income credit. What is the amount of Alex's earned income credit for 2016, assuming he is single and his 5-year-old dependent son lives with him for the full year?
A)$0
B)$1,000
C)$3,274
D)$3,373
E)None of the above
Q2) In 2016, Brady purchases a 2016 Nissan Leaf electric vehicle for his personal use. He is eligible to claim a credit of $7,500. He is in the 35 percent marginal tax bracket and his regular tax liability before credits is $14,800. What is the tax benefit Brady realizes from this purchase?
Q3) All taxpayers are required to have minimum essential health coverage.
A)True
B)False
Q4) Salary earned by minors may be taxed at their parents' tax rate.
A)True
B)False
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Chapter 7: Accounting Periods and Methods and Depreciation
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Goodwill is considered to be a Section 197 asset amortized over 15 years for tax purposes.
A)True
B)False
Q2) On June 1, 2016, Sandalwood Corporation purchases a passenger automobile for 100 percent use in its business. The automobile is in the 5 year cost recovery class and has a basis for depreciation of $30,000. Assuming that the corporation elects the accelerated method of cost recovery for the asset and does not elect to expense any of its cost or take bonus depreciation, what is the total tax depreciation deduction for the 2016 calendar tax year (Year 1)?
A)$3,060
B)$3,160
C)$4,287
D)$6,000
E)None of the above
Q3) The annual automobile depreciation limitations apply only to the first four years of the asset's recovery period.
A)True
B)False
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Chapter 8: Capital Gains and Losses
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109 Flashcards
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Sample Questions
Q1) Sol purchased land as an investment on February 12, 2015 for $85,000. On January 31, 2016, Sol sold the land for $90,000 cash. What is the nature of the gain or loss?
A)Long-term capital loss
B)Long-term capital gain
C)Short-term capital gain
D)Short-term capital loss
E)None of the above
Q2) Net short-term capital gains may be offset by net long-term capital losses.
A)True
B)False
Q3) An asset's adjusted basis is computed as:
A)Original basis + capital improvements - accumulated depreciation.
B)Original basis - capital improvements + accumulated depreciation.
C)Original basis + capital improvements + accumulated depreciation.
D)Original basis + capital improvements + gain or loss realized.
E)None of the above.
Q4) In a like-kind exchange, relief from a liability is treated as boot.
A)True
B)False
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Chapter 9: Withholding Estimated Payments and Payroll Taxes
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82 Flashcards
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Sample Questions
Q1) Dividends paid to a shareholder by a corporation should be reported on which of the following forms?
A)1099-INT
B)1099-DIV
C)1099-MISC
D)1099-R
E)None of the above
Q2) Melody and Todd are married and have employee wages of $250,000 each in 2016. They have no other income. How much additional 0.9% Medicare surtax will Melody and Todd have to pay or receive as a refund when they file their 2016 income tax return?
A)$1,350 will be due with their return in addition to amounts withheld.
B)$1,350 will be refunded with their return.
C)$900 will be refunded with their return.
D)$3,600 will be due with their return in addition to amounts withheld.
Q3) The FUTA tax for 2016 is based on 6.2 percent of each employee's wages up to $10,000.
A)True
B)False
Q4) What is the purpose of backup withholding?
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Chapter 10: Partnership Taxation
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Sample Questions
Q1) Losses on transactions between a partnership and its partners are always disallowed.
A)True
B)False
Q2) Which one of the following is not true about partnerships?
A)There must be two or more owners.
B)General partners assume more risk of legal liability than limited partners.
C)An LLC limits certain liability risks.
D)A partnership is taxed like a corporation.
E)All of the above are true.
Q3) Lucky's original contribution to the Boxwood Partnership was land with a basis of $5,000 and a market value of $55,000. Her share of the taxable income from the partnership since her original contribution has been $95,000 and Lucky has received $45,000 in cash distributions from the partnership. Lucky did not recognize any gains as a result of the distributions. Calculate Lucky's current basis in her partnership interest.
Q4) There is no general partner required in a limited liability company (LLC).
A)True
B)False
Q5) List three advantages of an LLC.
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Chapter 11: The Corporate Income Tax
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80 Flashcards
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Sample Questions
Q1) During the current year, the Melaleuca Corporation received dividends from 50-percent-owned domestic corporations in the amount of $100,000.
a.
Assuming that in addition to the dividend income the corporation has gross income from operations of $250,000 and deductible operating expenses of $210,000, calculate the amount of the corporation's dividends received deduction for the current year. b.
If, instead of $250,000 in gross income from operations, the corporation has $200,000 in gross income from operations and the same amount of dividends and expenses, calculate the amount of the corporation's dividends received deduction for the current year.
Q2) Corporations may be subject to the alternative minimum tax.
A)True
B)False
Q3) What is the purpose of Schedule M-1?
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Page 13
Chapter 12: Tax Administration and Tax Planning
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67 Verified Questions
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Sample Questions
Q1) What type of audit (office, field or correspondence) is demonstrated in the following examples?
a.An IRS agent views Microsoft's books and records at the Microsoft headquarters.
b.Susie receives a letter from the IRS asking her to provide documentation to support her charitable contributions on her tax return filed in the prior year.
c.Mr.and Mrs.John Doe are asked to bring their supporting documents to the downtown IRS office so that an IRS agent may review their tax return which was filed 2 years ago.
Q2) An "office audit" is an audit in which the revenue agent visits the taxpayer's office. A)True
B)False
Q3) Tax penalties are not deductible by taxpayers. A)True
B)False
Q4) List three things that a preparer needs to do in order to participate in the Annual Filing Season Program.
Q5) What is the difference between tax avoidance and tax evasion?
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