R1 M2 Wrong MCQ

Question 1

If taxpayer used the standard deduction in the prior year, can they deduct state tax refunds?

Answer 1

Under the tax benefit rule, refunds are not taxable if they used the standard deduction in the prior year, because they did not deduct the tax last year

Question 2

Is interest income fully taxable?

Answer 2

Yes except interest from state and local government bonds (muni bonds)

Question 3

What does an accruable expense mean?

Answer 3

Services have been performed/received, but have not been paid for by the end of the reporting period

Question 4

When should a cash basis taxpayer report gross income for the year?

Answer 4

When income is either actually or constructively received (cash or in property)

Question 5

Is the use of a company car a non or taxable fringe benefit?

Answer 5

Taxable fringe benefit that is taxable to the employee, regardless of if the spouse only uses it

Question 6

What happens in a nonaccountable plan relating to reimbursements?

Answer 6

Amounts paid under this plan are included in gross income (also part of taxable wages in the W2)

Question 7

What aspects of qualified traditional contribution retirement plans are taxable?

Answer 7

Employer contributions and earnings are not taxable until distributed (401k)

Question 8

What requirements are needed for interest earned on EE bonds to be excluded from gross income?

Answer 8

1. The interest is used to pay tuition and fees for the taxpayer, spouse, or dependent enrolled in higher education
2. Exclusion is reduced by qualified scholarships that are not included in gross income

Question 9

For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on:

Answer 9

Trade date (same for accrual taxpayer)

Question 10

What is an example of a personal loss, and is it included in gross income?

Answer 10

Loss on the sale of a personal residence

It is a non-deductible personal loss

Question 11

Is compensation recieved for non-physical injury included in gross income?

Answer 11

Yes, an example is slander

Question 12

When are scholarships and fellowships excludible from gross income?

Answer 12

1. Money is used for tuition, fees, books, and supplies. NOT room and board
2. The grant is made to a degree-seeking student
3. No services are to be performed as a condition to receiving the grant
4. The grant is not made in consideration for past, present, or future services of the grantee