Section 4A

Question 1

Gross Income Includes both earned income and ___

Answer 1

unearned income

Question 2

What type of interest is excluded from Gross income?

Interest on U.S. savings bonds may be reported in the year ___or postponed until the year of ___by a cash-basis taxpayer.

Answer 2

Interest on state and municipal obligations is excluded from gross income.

accrued , surrender

Question 3

Imputed interest applies to the following types of below-market loans:

(a) Loans made out of love, affection, or generosity (_loans)
(b) Loans to employees or Employers
(c) Loans to __
(d) Tax __loans

Answer 3

gift
Employees
shareholders
avoidance

Question 4

IMPUTED INTEREST
T/F … The lender must recognize interest income, and the borrower will have interest expense.

The amount of the imputed interest will be considered as a ____from the lender to the borrower. In most situations, this payment will be treated as a gift, as compensation, or as a dividend between the two parties.

Answer 4

True

payment

Question 5

IMPUTED INTEREST EXCEPTIONS
No interest is imputed on gift loans of $___ or less between individuals, unless the loan proceeds are used to purchase ____

Employee and shareholder loans of $10,000 or less are also exempt unless ___is the principal purpose of the loan.

Answer 5

$10,000 , income-producing property

tax avoidance

Question 6

GROSS INCOME - UNEMPLOYMENT

a. All unemployment compensation benefits are __ in income.
b. Company-financed supplemental benefits are __ .
c. Guaranteed annual __ payments are taxed.

Answer 6

includible
taxed
wage

Question 7

Under the cash method, a taxpayer generally reports income when __is received

What is Consideration?

Answer 7

consideration

Consideration can be cash/ cash equivalent/ property / service

Question 8

A taxpayer using the cash method is required to report income if it is ___received

Answer 8

constructively

Question 9

A taxpayer using the cash method is required to report income if it is constructively received. For constructive receipt to exist:

(1) the amount must be made ___to the taxpayer and
(2) receipt of consideration by the taxpayer is not subject to any substantial ___

Answer 9

available

limitations or restrictions.

Question 10

The ___prevents cash-method taxpayers from avoiding income by refusing to accept payment hoping to defer recognition to a future tax year.

Answer 10

constructive receipt doctrine

Question 11

However, if a cash-method taxpayer prepays expenses that cover a period substantially beyond the end of the tax year, such amounts must be___over the period to which they relate.

Answer 11

capitalized and amortized

Question 12

Unearned income of minor children may be ___
The provision applies if:
((((1 of the following 3 exist)))))
(1) The child is under 18 at _
(2)the child is age 18 at year-end and did not have earned income that was ___of the child’s support
(3)the child is over age 18 and under age 24 at year-end, and a ____, and did not have earned income that was more than half of the child’s support;

Child has at least one ___ parent
Child has net unearned income of at least $__
Child doesn’t file a ___ return

Answer 12

taxed,

Year-end
more than half
full-time student

livnig
$2,100
Joint

Question 13

The amount of unearned net income that a child can take home without paying any federal income tax (called a “___”) is $___for 2018.

Answer 13

kiddie tax, 1,050

Question 14

In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Section 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Section 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?

Answer 14

The taxpayer is allowed to deduct a maximum of $50,000 as an ordinary loss under IRC Section 1244. The balance of the loss would then be a capital loss (($48,000 + $20,000) - $50,000 = $18,000).

Question 15

The taxpayer is allowed to deduct a maximum of $___ as an ordinary loss under IRC Section 1244
Any additional loss receives ___treatment.

IRC Section 1244 stock is corporate stock (either ___ 0)

Answer 15

$50,000. capital loss

common or preferred)

Question 16

To qualify as small business stock, the stock must be issued by a domestic ___

Answer 16

C corporation

Question 17

T/F Only Corporations may receive this treatment, and the stock must have been acquired from the corporation.

(1) At the time the stock is issued, contributions of paid-in capital cannot exceed $____
(2) The stock may be ___

Answer 17

False - Individuals may receive - not corps.
1 million.
common or preferred stock.

Question 18

If Section 1244 stock is sold at a gain, the gain is ___

(1) Individuals may elect to __(postpone) the gain by reinvesting in other small business stock within ___days after the sale. (IRC Section 1045)
(2) To qualify for the rollover treatment, the stock must have been held for ___before it was sold.
(3) Gain is recognized to the extent the sale proceeds are not ___.

Answer 18

capital gain.
roll over, 60
over six months
reinvested within 60 days

Question 19

Tom Lewis, age 50, withdraws an amount from his IRA to purchase a race horse. All contributions to his IRA by Tom were deductible contributions. Which of the following are the tax consequences for Tom in regard to this IRA withdrawal?

Withdrawal amount included in gross income
10% early withdrawal penalty added to total tax

Answer 19

Both

Tom had an early withdrawal from his IRA since he received a distribution before the age of 59-1/2. He does not qualify for any of the other exceptions to the early withdrawal penalty. Therefore, he is subject to the 10% early withdrawal penalty. He also must include the full amount of the distribution in gross income for the year.

Question 20

Distributions from a qualified Roth IRA will be tax-free and penalty-free if the distributions are made:

..After ___ years the first contribution was made, and
..on or after the date the taxpayer attains age __, or
to a beneficiary as a result of the taxpayer’s death, or
..on account of the taxpayer’s __, or
..or _____expenses ($10,000 limit).

If they dont meet the criteria above, what happens?

Answer 20

After 5 years
59-1/2 (Beneficiary upon death are NOT taxed)
disability
first-time homebuyer

10% penalty will apply to the TAXABLE amount

Question 21

ROTH
taxpayers who qualify may make nondeductible contributions of up to $___each year to a Roth IRA. A qualifying taxpayer over age ___may add $___to that amount for a total contribution of $___. That $1,000 is referred to as a “___.”

Contributions from taxpayers over 70 1/2 are NOT allowed—-T/F
Distributions before death is required

Answer 21

5,500 
50 
1,000 
$6,500
catch-up amount

False - they are allowed
False - its not required

Question 22

ROLLOVER CONTRIBUTIONS IRA ROTH
Funds in one Roth IRA can be rolled over ___ to another Roth IRA.
Funds in a traditional IRA can be rolled over ___to a Roth IRA, but ___ (this means it is ___)must be paid on the distribution from the traditional IRA

Answer 22

tax-free

penalty tax-free , income tax (means it is taxable)

Question 23

In December of Year 4, John (a cash-basis taxpayer) received a $2,000 payment from Tom who signed a year’s lease to rent John’s house. The $2,000 payment consisted of the following:

1st Month’s Rent (for the month of December, Year 4) $800
Last Month’s Rent (for the month of December, Year 5) 800
Security Deposit (to be returned at end of lease) 400
How much should John include as rental income on his Year 4 tax return as a result of the $2,000 payment?

$800
$1600

Answer 23

$1600

Since the last month’s rent is received in the current year, it is included in income for the current year.

Question 24

Any amount received from a tenant to cancel a lease is treated as ___and included in income.
If a tenant pays any of the taxpayer’s expenses, the payments are ___and included in income.
Prepaid rental income (i.e., advance rent) is recognized in the year received whether the taxpayer is on the ___ or __

Answer 24

rent
rental income
accrual or cash basis.

Question 25

Security deposits are ___if the amount is to be returned to the tenant at the end of the lease.

If the taxpayer keeps part or all of the security deposit during any year because the tenant does not live up to the terms of the lease, the amount retained becomes __for that year.

If an amount called a security deposit is to be used as a final payment of rent, it is advance rent, and as such, it is included as ___in the year that it is received.

Answer 25

not included in rental income

income

rental income

Question 26

When a personal residence is rented out for less than ___, no rental income is recognized and expenses are not required to be prorated between personal use and rental use.

Answer 26

15 days

Question 27

When a personal residence is rented out for more than __days, the rental income is recognized and the expenses must be allocated between __ use and ___ use.

A portion of ___ interest and ____taxes must be allocated to reduce the rental income. Taxpayers cannot deduct a ___from renting a personal residence.

Answer 27

14
personal use and rental use

mortgage , real estate taxes
loss

Question 28

Any prizes won must be reported as taxable. It is reported on Form ___as ___income.

Answer 28

taxable income, 1040, other

Question 29

Awards given in recognition of achievement in religious, charitable, scientific, educational, artistic, literary, or civic areas are generally taxable. These types of awards may be excluded from gross income if:

1. Taxpayer is selected through no action of the taxpayer’s part – What does this mean?
2. Taxpayer doesn;t need to perform any future ___for the award
3. Award is transferred to a ___or ____before the taxpayer receives any benefit

Answer 29

1. They weren’t expecting the award
2. Future Services
3. Gov uniti or charitable org

Question 30

Awards given in recognition of safety achievement or length of service are not taxable if the award is ____ ___ property valued at not more than $___

Tangible property does not include: cash/cash equivalent/gift card, coupons, vacation, meals, lodging, tickets, securities T/F

Answer 30

tangible personal , $400

True

Question 31

John Larken is a single taxpayer. He sells the home he has owned and lived in for the past 31 years for a gain of $200,000 on October 5, Year 33. How much of this gain may he exclude?

$200,000

Answer 31

Up to $250,000 of gain ($500,000 for married persons filing jointly) is excluded on home sales

Question 32

Individuals may exclude $___($__ on a joint return) of gain on the sale or exchange of a principal residence. Gains in excess of the excludible amount will be __

TP must have lived there for the last __ of __ years
Exclusion may be used only once every __ year(s)
__are not recognized; neither are they postponed.
The basis of any new residence is its __

Answer 32

$250k, $500k, taxed

2 of 5 years
2 years
Losses
cost.

Question 33

Which payment(s) is (are) included in a recipient’s gross income?

Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement toward obtaining the degree.
A grant to a Ph.D. candidate for his or her participation in a university-sponsored research project for the benefit of the university

Answer 33

Both
Also, when a Ph.D. candidate receives a grant for his or her participation in a university-sponsored research project for the benefit of the university, it must be included in his or her income.

Question 34

A degree candidate may exclude scholarships and fellowships to the extent the amount received is used for tuition, course fees, books, and supplies. T/F

Amounts used for room and board are not taxable. T/F

Answer 34

True

False - it is taxable

Question 35

Alice Lewis received $3,000 in unemployment benefits in the current year. In addition, her employer made a $200 contribution to the unemployment insurance fund on her behalf during the year. How much should Alice include in gross income in the current year as a result of the unemployment benefit payments?

Answer 35

$3,000

All unemployment compensation received by a taxpayer is taxable in the year received by a taxpayer. Contributions to the unemployment insurance fund on the behalf of an employee by an employer do not affect the taxable compensation amount of the employee.

Question 36

Tom Lewis, a single taxpayer, received a stock dividend from ABC Corp. He had the option to receive either cash or ABC stock with a fair market value of $1,000 as of the date of distribution. The par value of the stock on the date of distribution was $600. Tom must include what amount in gross income as a result of the stock dividend?

Answer 36

$1000

Since Tom had the option to receive either cash or the ABC Corp. stock with a fair market value of $1,000, the fair market value of the stock received is included in income by Tom.

Question 37

If the taxpayer has a choice of stock or cash:

(1) Any cash received is ___.
(2) Any stock received is income to the extent of the ___of the stock on the date received.
(a) The basis of the new stock is also the ___.
(b) The holding period for the new stock begins on the date the dividend is ___.

Answer 37

income
fair market value
fair market value of the stock
received

Question 38

Any distribution of stock or stock rights made to preferred shareholders is taxable as a __
Property received as a dividend is __

Answer 38

dividend.

income.

Question 39

Lane, Inc., an S corporation, pays single coverage health insurance premiums of $4,800 per year and family coverage premiums of $7,200 per year for each eligible employee. Mill is a 10% shareholder-employee in Lane. On Mill’s behalf, Lane pays Mill’s family coverage under the health insurance plan. What amount of insurance premium is includible in Mill’s gross income?

Answer 39

$7200

Since Mill owns more than 2% of the company, the insurance premiums paid by the S corporation are fully taxable.

(IF less than 2% owned, it would be $0)

Question 40

Self-employed taxpayers may deduct ___% of the medical insurance premiums paid for themselves and their families.

TP who are not otherwise covered by health insurance may choose to establish a health savings account (HSA). Contributions to such accounts are __

Answer 40

100%

fully deductible

Question 41

Fifty percent (50%) of the Social Security benefits is the maximum amount of benefits to be included in gross income T/F

Answer 41

False - 85%

Question 42

Pensions paid to retirees are generally __

Answer 42

taxable.

Question 43

Which of the following is not a gross income item that is typically included in an individual’s tax return?

Annuities
Compensatory lawsuit proceeds
Business income from a sole proprietorship
Rental income
Punitive Damages

Answer 43

Compensatory lawsuit proceeds

Question 44

Which of the following retirement plan rollovers is taxable?

Rollover by a surviving spouse
Rollover incident to a divorce
Tax shelter annuity rollover
Rollover of a traditional IRA into a Roth IRA

Answer 44

Rollover of a traditional IRA into a Roth IRA

Question 45

In general, if taxpayers change their accounting period, the change requires:

prior IRS approval.
a short-period tax return.

Answer 45

Both

Question 46

Individuals subject to United States income tax law are generally not permitted to use a ___

Taxpayers who established a fiscal year before becoming subject to U.S. tax law, and who keep adequate books and records, are generally permitted to use a fiscal tax year. If adequate books and records are not kept, the taxpayer generally must use a calendar tax year. T/F

Certain taxpayers may elect to use a 52/53-week tax year T/F

Answer 46

fiscal year

True

True

Question 47

A taxpayer makes the election to use a calendar, 52/53-week, or fiscal year at the time of filing their __

Answer 47

initial tax return.

Question 48

In Year 6, Amanda set up Coverdell education savings accounts for each of her four grandchildren, aged 7, 9, 14, and 16. She would like to contribute the annual maximum to each savings account when she usually makes other annual-election gifts every year on December 31. The annual maximum for Year 6 is $2,000. How much can she contribute in total to the Coverdell education savings accounts in Year 6 and each of the next four years?

Answer 48

$32K —- Contributions to Coverdell education savings accounts must be made before the account beneficiaries are 18 years old.

 7-year-old  (5 x $2,000)  = $10,000 
 9-year-old  (5 x $2,000)  = $10,000 
14-year-old  (4 x $2,000)  = $ 8,000
16-year-old  (2 x $2,000)  = $ 4,000
                             $32,000

Question 49

Distributions from a Coverdell Education Savings Account are excluded from the income of the student (beneficiary of the account) if the funds are used to pay ___
Student must be under age __
For room and board to qualify, the student must attend school on at least a ___basis in a program leading to a recognized education credential.
Tuition to both public and private schools qualifies. T/F
When distributions exceed qualified educational expenses, some of the distributed earnings are __and some are ____.

Answer 49

qualified education expenses.
30
half-time 
True
taxed , excluded from Income

Question 50

Setting up a Coverdell Education Savings Account:
axpayers may contribute up to $___per child (beneficiary) per year to a Coverdell Education Savings Account. The amount is __
Contributions must be for a child of the taxpayer or any other child under the age of _
The deadline for making contributions is ___

Answer 50

2,000 ,nondeductible
18.
April 15 of the following year

Question 51

COVERDELL - UNUSED BALANCE
When the beneficiary reaches age 30, any unused amount in the savings account must be distributed to the beneficiary, unless the beneficiary has special needs. This is included in ___ and __

An additional \_\_% penalty tax on the earnings will also apply to the beneficiary. 

Unused amounts may be ___tax- and penalty-free into a Coverdell Education Savings Account of a child or a sibling or spouse of the beneficiary

Answer 51

gross income and taxed

10%

rolled over

Question 52

Micro Corp., a calendar-year accrual-basis corporation, purchased a 5-year, 8%, $100,000 taxable corporate bond for $108,530, on July 1, Year 11, the date the bond was issued. The bond paid interest semiannually. Micro elected to amortize the bond premium. For Micro’s Year 15 tax return, the bond premium amortization for Year 15 should be:

computed under the constant yield to maturity method.
treated as an offset to the interest income on the bond.

Answer 52

Both

premium amortization is calculated under a “constant yield method.”

Since Micro elected to amortize the bond premium, the premium amortization should be computed under the “constant yield to maturity method” and treated as an offset to the interest income on the bond.

Question 53

hich of the following entities may adopt any tax year-end?

C corporation
S corporation
Limited liability company
Trust

Answer 53

C Corp

C corporation may adopt any tax year-end. An S corporation is generally required to adopt a calendar year-end. An LLC with two or more members is taxed as a partnership in the absence of an election otherwise. The partnership’s taxable year must correspond to the partner’s taxable year and they are, therefore, generally calendar years. A trust may only adopt a calendar year.

Question 54

A C corporation is a tax-paying entity under ___

Answer 54

federal tax laws

Question 55

Bob Beck was the owner and beneficiary of a $325,000 life insurance policy on his mother. He is 55 when his mother passes and is expected to live another 25 years. How much of the $325,000 should Bob Beck include in his taxable income?

Answer 55

$0

In general, life insurance proceeds are not taxable to the beneficiary. There is no amortization of the proceeds over the recipient’s lifetime.

Question 56

Life insurance proceeds paid by reason of death are not taxed as income t/f

The interest portion of any installment payments is \_\_\_

Dividends received on unmatured policies are \_\_\_unless the amount received exceeds the \_\_\_(\_\_) paid.

• **Dividends recv’d before maturity date are considered as a ___ of ___
• ***Dividends collected after maturity of the policy are __

Answer 56

TRUE
taxable.

not taxed, consideration (PREMIUMS)

Return of premium
fully taxable

Question 57

Qualified individuals may generally “cash out” their life insurance policies before death and receive tax-free treatment for the amount received. T/F

To qualify, insured person must be ___ or ___

Answer 57

True

Terminally or chronically ill

Question 58

Regardless of the type of bequest received, bequests are always ___from taxable income. The income produced by the bequest is ___ .

Answer 58

excludable

is taxable

Question 59

Which of the following statements related to a traditional IRA is not correct?

10% penalty tax applies to any withdrawal made prior to age 59-1/2.
The $5,500 maximum deduction is phased out for taxpayers with adjusted gross income over certain amounts.

Answer 59

10% penalty tax applies to any withdrawal made prior to age 59-1/2.

The 10% penalty does not apply to all withdrawals made prior to age 59-1/2. Withdrawals may be made for qualified education expenses and by first-time homebuyers with no penalty.

Question 60

The $5,500 maximum deduction is phased out for taxpayers with adjusted gross income over certain amounts. T/F

Answer 60

True

Question 61

Wilson, CPA, uses a commercial tax software package to prepare clients’ individual income tax returns. Upon reviewing a client’s computer-generated Year 1 itemized deductions, Wilson discovers that the schedule’s deductible investment interest expense is less than the amount paid by the taxpayer and the amount that Wilson entered into the computer. After analyzing the entire tax return, Wilson determines that the computer-generated investment interest expense deduction is correct. Why is the computer-generated investment interest expense deduction correct?

The client’s investment interest expense exceeds net investment income.
The client’s qualified residence interest expense reduces the deductible amount of investment interest expense.

Answer 61

The computer generated software calculated that the interest expense is different.

The CPA originally had the investment interest expense exceed investment income. This is wrong, therefore the calculation by the computer is right due to this reason.

This quesiton is horribly worded

Question 62

Davis, a sole proprietor with no employees, has a Keogh profit-sharing plan to which he may contribute 20% of his annual earned income. For this purpose, “earned income” is defined as net self-employment earnings reduced by the:

deductible Keogh contribution and a portion of the self-employment tax…..WHY

Answer 62

. The maximum contribution is 20% of the taxpayer’s annual net self-employment income reduced by the deductible Keogh contribution and 50% of self-employment tax.

Question 63

Self-employed persons may deduct up to $55,000 in 2018 for contributions to a ___
Qualifie retirement plans are also known was what?

Answer 63

qualified retirement plan

known as Keough Plan

Question 64

Rich is a cash-basis, self-employed air-conditioning repairman with gross business receipts of $20,000. Rich’s cash disbursements were as follows:

Air-conditioning parts $2,500
Yellow Pages listing 2,000
Estimated federal income taxes on self-employment income 1,000
Business long-distance telephone calls 400
Charitable contributions 200

What amount should Rich report as net self-employment income?

Answer 64

$15,100

Estimated federal income tax on self-employment income cannot be considered as a deduction in determining net self-employment income. Charitable contributions are an itemized deduction on Schedule A of IRS Form 1040 and not considered in determining self-employment income.

Question 65

Lake Corp., an accrual-basis calendar-year corporation, had the following Year 5 receipts:

Year 6 advanced rental payments
where the lease ends in Year 6 $125,000
Lease cancellation payment from
a 5-year lease tenant 50,000
Lake had no restrictions on the use of the advanced rental payments and renders no services. What amount of income should Lake report on its Year 5 tax return?

Answer 65

$175K

Although the $125,000 is for advanced rental payments, it is considered revenue when received. There were no restrictions on the use of the advanced payments and Lake Corp. renders no services. Therefore, all of the $175,000 is taxable income.

Question 66

Tom Lewis, a single taxpayer, received $8,400 in gross receipts from his rental property. The expenses for the residential rental property were:

 Bank mortgage interest        $1,200
 Real estate taxes                700
 Insurance                        500
 MACRS depreciation             3,500 Tom's total income on his individual tax return will be increased by what amount as a result of the rental activities?

Answer 66

$2,500

Rental income is included in gross income by individuals and the expenses used to generate the rental income are deductible by the individual as rental expenses. For this question, all the expense items shown are deductible rental expenses. Tom’s net rental income is calculated as follows:

Gross Receipts $8,400
less:
mortgage interest (1,200)
real estate taxes (700)
insurance (500)
depreciation (3,500)
——-
Net Rental Income $2,500

Question 67

2019, Jensen had the following items:

Salary $50,000
Inheritance 25,000
Alimony from ex-spouse 12,000
Child support from ex-spouse 9,000
Capital loss on investment stock sale 6,000

What is Jensen’s AGI for the current year? (Assume for this question that Jensen was divorced in 2019.)

Answer 67

Gross income includes all sources of income unless specifically excluded. Inheritances and child support are both specifically excluded from income.

A net capital loss for individuals is limited to $3,000 for any taxable year

There is no adjustment for alimony under the Tax Cuts and Jobs Act of 2017 (TCJA); it is not a deduction for the payor and it is not taxable for the payee. Therefore, adjusted gross income is $47,000 ($50,000 − $3,000).

Question 68

A minister lives in the parsonage at his employer’s premises—the church. The house would normally be rented to a tenant for $1,200 per month. How much should the minister include on his tax return for the value of the housing?

Answer 68

$0
If housing is provided on the premises of the employer for the convenience of the employer, then the housing provided is tax-exempt. In this case, a minister living on the grounds of the church would be for the convenience of the church and would therefore be tax-exempt.

Question 69

If housing is provided on the premises of the employer for the convenience of the employer, then the housing provided is ____. In this case, a minister living on the grounds of the church would be for the convenience of the church and would therefore be tax-exempt.

Answer 69

tax-exempt (not includible in income)

Question 70

If meals are served on the premises of the employer and are for the convenience of the employer, the value of such meals is ___.

To exclude lodging from income, lodging on the premises must also be a \_\_

Answer 70

not income

condition of employment.

Question 71

NON TAX STOCK RIGHTS
T/F Income is recognized when stock rights are received

he holding period for stock acquired through the exercise of the rights begins at the ___

The basis of the stock acquired through the exercise of the rights is equal to the ___ price plus the ____.

Answer 71

False - no its not

date of exercise.

subscription , basis of the righst

Question 72

Green is self-employed as a human resources consultant and reports on the cash basis for income tax purposes. Select the appropriate tax treatment on Form 1040 (U.S. Individual Income Tax Return) for death benefits received from term life insurance policy on parent.

Answer 72

Nowhere - its not taxable

Question 73

Tax shelter annuity rollover T/F

Suspended losses can be carried forward, but not back, until utilized.

Federal Income Taxes are deductible

Answer 73

False

True

False - no they aren’t

Question 74

Stone owns 100% of an S corporation and materially participates in its operations. The stock basis at the beginning of the year is $5,000. During the year, the corporation makes a distribution of $3,500 and passes through a loss from operations of $2,000 for the year. What loss can Stone deduct on Stone’s personal tax return?

Answer 74

$1500

A taxpayer’s loss deduction from an S corporation is limited to amounts “at risk” in a trade or business or income-producing activity under IRC Section 465 losses. The amount at risk is the total of the taxpayer’s basis in the S corporation plus any loans that the taxpayer has made to the S corporation. In this case, the basis begins as $5,000. The basis is reduced by the $3,500 distribution, leaving a final basis of $1,500. Therefore, the allowed loss is $1,500.

Question 75

Tom Lewis, a single taxpayer, received $8,400 in gross receipts from his rental property. The expenses for the residential rental property were:

 Bank mortgage interest        $1,200
 Real estate taxes                700
 Insurance                        500
 MACRS depreciation             3,500 Tom's total income on his individual tax return will be increased by what amount as a result of the rental activities?

Answer 75

2500

Rental income is included in gross income by individuals and the expenses used to generate the rental income are deductible by the individual as rental expenses

Question 76

Interest income on U.S. Treasury bonds is reported in ___—Interest and Dividend Income.

Answer 76

Schedule B (on form 1040)

Question 77

Matthews was a cash-basis taxpayer whose records showed the following:

Year 5 state and local income taxes withheld $1,500
Year 5 state estimated income taxes paid
December 30, Year 5 400
Year 5 federal income taxes withheld 2,500
Year 5 state and local income taxes paid
April 15, Year 6 300
What total amount was Matthews entitled to claim for taxes on her Year 5 Schedule A of Form 1040?

Answer 77

Schedule A of Form 1040 is the “itemized deductions” schedule for an individual. Since Matthews is a cash-basis taxpayer, she is allowed to deduct all state income taxes paid in Year 5. These are:

Year 5 state and local income taxes withheld $1,500
Year 5 state estimated income taxes paid
December 30, Year 5 400
Total $1,900

Question 78

Schedule A of Form 1040 is the “itemized deductions” schedule for an individual. Since Matthews is a cash-basis taxpayer, she is allowed to deduct all state income taxes paid in Year 5. These are:

Year 5 state and local income taxes withheld $1,500
Year 5 state estimated income taxes paid
December 30, Year 5 400
Total $1,900

Not deductible on Form 1040
Deductible on Schedule A—Itemized Deductions, subject to a limitation of 60% of adjusted gross income

Answer 78

Deductible on Schedule A—Itemized Deductions, subject to a limitation of 60% of adjusted gross income

A contribution to a church or a convention or association of churches is considered to be a contribution to a “60% organization.” This means that the charitable deduction is limited to 60% of an individual’s adjusted gross income.

Question 79

A contribution to a church or a convention or association of churches is considered to be a contribution to a “___.” This means that the charitable deduction is limited to __% of an individual’s adjusted gross income.

Answer 79

60% organization, 60% organization

Question 80

If you’re self-employed and your business has a net profit, you can deduct ___% of your medical, health, and qualified long-term care insurance premiums for yourself, your spouse, and your dependents. The insurance can also cover your child who was under the age of ___ at the end of the year, even if the child was not ___

Answer 80

100,27, your dependent.

Question 81

The eligibility to participate standard means that a group term life insurance plan is NOT DISCRIMINATING if:

Answer 81

the plan benefits 70% of all employees.

Question 82

When the employer pays the premiums on nondiscriminatory group-term life insurance for its employees, the cost of insurance coverage in excess of $50,000 is considered ___

A group-term life insurance plan is nondiscriminatory if it benefits \_\_70% or more of all employees and at least 85% of all employees who are participants under the plan are not \_\_\_.

Answer 82

income to the employee.

70%, key employees

Question 83

the personal casualty and theft loss deduction is not available, except for casualty losses incurred in a ___

Answer 83

federally declared disaster.

Question 84

Tom Lewis, age 50, withdraws an amount from his IRA to purchase a race horse. All contributions to his IRA by Tom were deductible contributions. Which of the following are the tax consequences for Tom in regard to this IRA withdrawal?

Withdrawal amount included in gross income
10% early withdrawal penalty added to total tax

Answer 84

both

Question 85

An individual taxpayer reports the following information:

  U.S. Treasury bond income     $  100
  Municipal bond income            200
  Rental income                    500
  Investment interest expense    1,000
What amount of investment interest can the taxpayer deduct in the current year?

$100

Answer 85

$100

a person cannot deduct interest incurred to produce tax-exempt income (municipal bonds) and passive activity or rental real estate activity (rental income).

he interest that the taxpayer pays is investment interest and it can be deducted up to the amount of investment income.

Question 86

Tom Lewis, an individual taxpayer and employee of ABC Corp., paid insurance premiums this year that covered the possible loss of earnings resulting from disability. Select the appropriate tax treatment for the payment of these premiums.

Answer 86

Not deductible

Question 87

Premiums paid for insurance against an individual’s possible loss of ___are not deductible under the Internal Revenue Code.

Answer 87

loss of earnings

Question 88

medical insurance premiums is available as an ___deduction , subject to a special limitation.

Answer 88

itemized medical expense deduction

Question 89

Sanderson has made deductible contributions to his traditional IRA for many years. Sanderson recently retired at age 60 and received a distribution of $150,000. In which way, if any, will the distribution be taxed?

Answer 89

Ordinary Income

Question 90

Distributions from a traditional IRA are not/is tax-free

Answer 90

they’re not - included in ordinary income.

Question 91

The Browns borrowed $20,000, secured by their home, to pay their son’s college tuition. At the time of the loan, the fair market value of their home was $400,000, and it was unencumbered by other debt. The interest on the loan qualifies as:

Answer 91

nondeductible interest.

he deduction for home equity interest from 2018 to 2026 is suspended—unless the loan is used to buy, build, or substantially improve the home that secures the loan.

Question 92

The deduction for home equity interest from 2018 to 2026 is ___—unless the loan is used to ___that secures the loan.

Answer 92

suspended,

buy, build, or substantially improve the home

Question 93

Mort regularly receives royalties for a song he wrote in 2000. He received $3,000 in royalties in the current year. He also incurred expenses related to those royalties of $500. How much income, if any, should he include on his current-year tax return?

Answer 93

2500

Royalties received are includible as taxable income. Expenses incurred directly related to those royalties can be deducted against the gross royalty income.

Question 94

Royalties received are includible as taxable income. Expenses incurred directly related to those royalties can be ___against the gross royalty income.

Answer 94

deducted

Question 95

Under the Tax Cuts and Jobs Act of 2017, moving expenses are __

Answer 95

no longer deductible.

Question 96

Pierce Corp., an accrual-basis, calendar-year C corporation, had the following receipts in Year 5:

Year 6 advance rental payments for a lease ending in Year 7 $250,000
Lease cancellation payment from a 5-year lease tenant 100,000
Pierce had no restrictions on the use of the advance rental payments and renders no services in connection with the rental income. What amount of gross income should Pierce report on its Year 5 tax return?

Answer 96

350K

Prepaid rents (but not refundable deposits) are treated as income when received, even by an accrual basis taxpayer

Question 97

On March 23, Year 6, Tom Lewis sold 50 shares of ABC Corp. stock at a $3,500 loss. He had purchased the stock three years earlier. He repurchased 50 shares of ABC Corp. on April 15, Year 6. Tom had no other stock transactions for the year. Select the appropriate tax treatment for the capital loss.

Not deductible…. WHY

Answer 97

A loss sustained upon a sale or other disposition of stock or securities is not allowed if, within a period beginning 30 days before the date of the sale or disposition and ending 30 days after that date, the taxpayer has acquired, or has entered into a contract or option to acquire, substantially identical stock or securities. This is known as the “wash sale rules.”

Question 98

A loss sustained upon a sale or other disposition of stock or securities is not allowed if, within a period beginning 30 days before the date of the sale or disposition and ending 30 days after that date, the taxpayer has acquired, or has entered into a contract or option to acquire, substantially identical stock or securities. This is known as the “___.”

T/F - wash sales apply to dealers

Answer 98

wash sale rules

False - no they dont

Question 99

Mike and Jane Lewis, a married couple, file a joint federal income tax return. They have one child, age 15, whom they support 100%. Both are under age 65. They have the following income and expenses for the year:

Mike’s wages $65,000
Jane’s wages 60,000
Total allowable itemized deductions 13,000
Mike’s contribution to an IRA 4,000
Jane’s contribution to an IRA 4,000
Mike is not covered by a pension plan at work, while Jane is covered by a plan at her employer.

Assume that the standard deduction amount for married filing jointly is $24,000, and the IRA contribution limit is $120,000.

What is the Lewises’ taxable income amount?

Answer 99

$101K

Lewises’ taxable income amount is calculated as follows:

 Mike's wages                $ 65,000 
 Jane's wages                  60,000 
 Adjusted gross income       $125,000 
 Less: Standard deduction     (24,000)
 Taxable income              $101,000 
                             =========

Mike may not take an IRA deduction because they are over the threshold in AGI. Jane’s IRA contribution is not deductible since they are above the threshold of $120,000 in AGI and she is covered by a pension plan at work.

Question 100

Spencer, who itemizes deductions, had adjusted gross income of $60,000 this year. The following additional information is available:

Cash contribution to church $4,000
Purchase of art object at church bazaar
(with a fair market value of $800 on
the date of purchase) 1,200
Donation of used clothing to Salvation
Army (fair value evidenced by receipt
received) 500

What is the maximum amount Spencer can claim as a deduction for charitable contributions this year?

Answer 100

Spencer can deduct the following charitable contributions in the current year:

Cash to church                                        $4,000
FMV of clothing donated to the Salvation Army            500
Purchase of an art object ($1,200 amount paid less
 $800 FMV of the work of art)                            400
Maximum charitable contribution                       $4,900

Question 101

Which one of the following will result in an accruable expense for an accrual-basis taxpayer?

A repair completed prior to year-end but not invoiced

Answer 101

Expenses are accruable for an accrual-basis taxpayer in the tax year in which all the events have occurred to establish the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred

Question 102

A sole proprietor of a farm implement store sold a truck for $15,000 that had been used to make service calls. The truck cost $30,000 three years ago, and $21,360 depreciation was taken. What is the appropriate classification of the $6,360 gain for tax purposes?

Ordinary gain
Section 1231 (property used in the trade or business and involuntary conversions) gain

Answer 102

IRC Section 1231 property is defined as an asset used in a trade or business subject to depreciation and capital gain treatment would be available. But IRC Section 1231 is modified by IRC Section 1245, which states that personal (versus real) property’s depreciation taken must be recaptured as ordinary income first. If a gain still remains after the depreciation recapture, then capital gain treatment is applied. In this example, total depreciation taken of $21,360 is greater than the total gain of $6,360. Therefore, all of the $6,360 gain is ordinary.

Question 103

On December 1, Year 5, Krest, a self-employed cash-basis taxpayer, borrowed $200,000 to use in her business. The loan was to be repaid on November 30, Year 6. Krest paid the entire interest amount of $24,000 on December 1, Year 5. What amount of interest was deductible on Krest’s Year 5 income tax return?

Answer 103

$2K
TP is CASH BASIS
In this case, there was $24,000 interest paid for a 12-month loan. The current-year deduction would be computed as follows:

$24,000 ÷ 12 months = $2,000 per month
The loan was outstanding for one month of the tax year, so $2,000 is deductible. The balance would be carried forward and could be deducted next year.

Question 104

Which of the following collectibles are an acceptable investment for an IRA?

Answer 104

Money can be invested in certain platinum coins, coins issued under the laws of any state, and in certain gold, silver, platinum, or palladium bullion. This is in addition to the gold and silver coins previously allowed in IRA accounts. The bullion must be in the physical possession of a trustee.

Question 105

Which of the following collectibles are an acceptable investment for an IRA?

Artwork
Antiques
Coins and bullion

Answer 105

Coins and bullion

Question 106

Gene and Olive Olson are married, under age 50, and file a joint return in 2018. The Olsons are both active participants in qualified retirement plans. The Olsons have adjusted gross income of $111,000 for 2018 and each contributed $5,500 to a traditional IRA. What is the deduction for IRA contributions for the Olsons in 2018?

Answer 106

In 2018, the phaseout of the IRA deduction for married taxpayers participating in another pension plan filing jointly exists for AGI between $101,000 and $121,000. Since their AGI is halfway between $101,000 and $121,000, only half of the combined contribution of $11,000 is deductible.

answer: $5500

Question 107

Which of the following assets generally will be distributed outside of the probate estate and regardless of intestacy laws, provided the estate is not the named beneficiary?

Totten trusts
Proceeds from insurance policies

Answer 107

Both

Question 108

bargain purchase is defined as property purchased at a cost less than the market value by an ___

Answer 108

employee or shareholder.

Question 109

Flowers, a married taxpayer, purchased an annuity for $64,400 that will pay $700 per month over the life of Flowers and Flowers’ spouse. At the time of purchase the couple’s joint life expectancy was 23 years. Flowers received payment beginning April 1, year 1, amounting to $6,300 in the first year of the annuity contract. How much is includible in Flowers’ gross income in the first year?

$4,200
$0

Answer 109

If a taxpayer has a cost to recover from their pension or annuity plan, the taxpayer can exclude part of each annuity payment from income as a recovery of their cost

Flowers has an expected return of $193,200 ($700 per month × (23 years × 12 months per year)) and a cost recovery of 33.33% per payment ($64,400 ÷ $193,200). Thus, each payment is reduced by $233 ($700 × 0.3333).

In year 1, Flowers would include $4,203 (($700 − $233) × 9 months), which is rounded to $4,200 (or $4,200 (rounded) = $6,300 × 2/3).

Question 110

Ed and Ann Ross were divorced on January 2, 2019. In accordance with the divorce decree, Ed trans­ferred the title in their home to Ann. The home, which had a fair market value of $150,000, was subject to a $50,000 mortgage that had 20 more years to run. Monthly mortgage payments amounted to $1,000. Under the terms of settlement, Ed is obligated to make the mortgage payments on the home for the full remaining 20-year term of the indebtedness, regardless of how long Ann lives. Ed made 12 mortgage pay­ments in 2019. What amount is taxable as alimony in Ann’s 2019 return?

Answer 110

$0

Ann includes no amount as alimony on her tax return

Question 111

During Year 4, Ash had the following cash receipts:

Wages $13,000
Interest income from U.S. Treasury bonds 350
Workers’ compensation following a job-related injury 8,500
What is the total amount that must be included in gross income on Ash’s income tax return?

Answer 111

$13,350

Interest on state or local governmental bonds is tax exempt. However, interest income from federal government bonds is taxable.

Workers’ compensation is excluded from income because it represents insurance proceeds received for physical injury.

Question 112

Benefits received for physical injury and sickness are excluded if received:
under the ___Act,
as compensatory damages from a ___, or
under self-purchased accident and health insurance.

Answer 112

Workers’ Compensation

suit or settlement

Question 113

If a taxpayer retired on disability, they must include in income any disability pension received under a plan that is paid for ___

The taxpayer may be entitled to a tax credit if ___ and___ disabled when they retired.

Answer 113

by their employer. T/F

permanently and totally

Question 114

Robbe, a cash-basis single taxpayer, reported $50,000 of adjusted gross income last year and claimed itemized deductions of $5,500, consisting solely of $5,500 of state income taxes paid last year. Robbe’s itemized deduction amount, which exceeded the standard deduction available to single taxpayers for last year by $1,150, was fully deductible and it was not subject to any limitations or phaseouts. In the current year, Robbe received a $1,500 state tax refund relating to the prior year. What is the proper treatment of the state tax refund?

Answer 114

Under the tax benefit rule, a refund or credit of prior-year state or local income taxes is taxable to the extent that the payment of that amount in the prior year reduced your taxable income.

If you itemized in the year to which the refund or credit relates, the amount of income you have to report is the lesser of:

the excess of your itemized deductions for the year the taxes were paid over the amount of your standard deduction in that year had you not itemized, or
the lesser of your deduction for state taxes shown on that return or the amount of the refund.

Question 115

Contributions made by employers and employees to a company’s retirement plan are excluded from taxation. What are the tax implications when those funds are withdrawn from the plan?

Answer 115

Both employer and employee contributions are taxable, as well as the earnings on those contributions when withdrawn. There is no difference made between employer and employee contributions.

Question 116

Kant, a cash-basis individual, owns and operates an office building. Kant received the following payments during the current year:

Current rents $30,000
Advance rents for the next year 10,000
Security deposits held in a segregated account 5,000
Lease cancellation payments 15,000
What amount is included in gross income?

Answer 116

Generally, security deposits held in a segregated account will not be taxable in the year received because they may be refunded to a renter in a future period.

$55k

Question 117

Amy purchased a Series EE US savings bond for her dependent daughter’s college tuition. One of the conditions that must be met for tax exemption of the accumulated interest on the bond is that:

Answer 117

the purchaser of the bond must be the sole owner (or joint with spouse).

Question 118

A taxpayer may be able to exclude the interest earned on a Series EE U.S. savings bond if the following conditions are met:

the purchaser of the bond must be the ___
the owner must be at least ___years old at the date of ___;
to exclude the interest on the bond, the proceeds must be used to pay the ___ and __
If married, a ___ return is required

Answer 118

sole owner
24, issuance
tuition and fees
Joint

Question 119

In a divorce that was settled in December 2018, the ex-husband was required by court order to pay his ex-wife $36,000 in alimony. She received $25,000 in cash, a painting valued at $10,000, and the use of his beach house, valued at $3,000. What amount of gross income should the wife report?

Answer 119

$36,000
For any divorce or separation agreement executed prior to January 1, 2019, alimony and separate maintenance payments are deductible by the payor spouse and includible in income of the payee spouse.

Question 120

FARMING INCOME
Schedule \_\_\_(IRS Form 1040, Farm Income and Expenses) is the schedule that all farmers should file. 

The income from a sale of a crop should be included in the year the crop is ___.

The farmer may have pledged his crop to secure a Commodity Credit Corporation loan; the farmer may then report the loan proceeds in the ___

Crop insurance proceeds may be included in \_\_\_\_ if the taxpayer can prove that the destroyed crop's income would have been included in next year's income.

Answer 120

F

sold

in the year received rather than when the crop was sold.

year received rather than when the crop was sold.next year’s income

Question 121

Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a fringe benefit, group term-life insurance at twice Johnson’s salary. The annual IRS-established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson include in gross income?

Answer 121

$100,414

Gross income includes group-term life insurance premiums carried by his or her employer to the extent that the cost exceeds the sum of the cost of $50,000 of such insurance.

Johnson received a $200,000 ($100,000 × 2) policy. This is $150,000 above the tax-exempt amount.

Therefore, $150,000 ÷ $1,000 × the $2.76 factor = $414 of taxable income as a result of the benefit from the employer.

Question 122

Tom Lewis, an individual taxpayer, had the following income items in Year 5:

Unemployment compensation
College scholarship in which funds were used exclusively for tuition and books
Which of the items are included in Tom’s gross income on Tom’s Year 5 tax return?

Answer 122

Both

Question 123

Jensen reported the following items during the current year:

Fair rent value of a condominium owned by Jensen’s employer $ 1,400
Cash found in a desk purchased for $30 at a flea market 400
Inheritance 11,000

The employer allowed Jensen to use the condominium for free in recognition of outstanding achievement. Based on this information, what is Jensen’s gross income for the year?

Answer 123

1800

“Found” cash is taxable in the year it is discovered. . Employer-provided lodging is generally taxable, at the fair value of the rent.

Question 124

A 33-year-old taxpayer withdrew $30,000 (pretax) from a traditional IRA. The taxpayer has a 33% effective tax rate and a 35% marginal tax rate. What is the total tax liability associated with the withdrawal?

Answer 124

When the 33-year-old taxpayer withdraws $30,000 from an IRA, a penalty of 10% is imposed (0.10 × $30,000 = $3,000). The $30,000 is added to taxable income and will be taxed not at the effective rate but at the marginal rate of 35% (0.35 × $30,000 = $10,500). The total tax liability as a result of the withdrawal is $13,500 ($3,000 + $10,500).

$13,500 is the answer

Question 125

Fuller was the owner and beneficiary of a $200,000 life insurance policy on a parent. Fuller sold the policy to Decker, for $25,000. Decker paid a total of $40,000 in premiums. Upon the death of the parent, what amount must Decker include in gross income?

Answer 125

$135,000
Although life insurance death proceeds are generally not taxable to the recipient, there are special rules if the policy is transferred for value.

n this case, Fuller’s taxable amount from the death proceeds is computed as follows:

Death proceeds $200,000
Less basis in policy:
Consideration paid for policy - 25,000
Premiums paid - 40,000
Interest disallowed 0
——–
Taxable amount $135,000

Question 126

For life insurance transfers, when do they NOT apply

to transfers to the ___, or
to transfers to a ___of the insured,
transfers to a ___in which the insured is a partner,
transfers to a ____in which the insured is a shareholder or officer.

Answer 126

insured (if son owns policy, son transfers to dad, no tax)
partner
partnership
corporation

Question 127

Logan, an employee of Argon Industries, earned a salary of $60,000 in year 2. In addition, the following two transactions between Logan and Argon occurred in year 2: Logan received a bonus of 100 shares of publicly traded stock worth $13,000 with a basis to Argon of $8,000, and Logan purchased 1,000 shares of unrestricted Argon stock pursuant to a nonqualifying stock option plan for $10 per share when stock was valued at $25 per share. What amount of compensation should Argon report in Logan’s Form W-2 for year 2?

Answer 127

$88,000

f the nonstatutory stock option has a readily determinable FMV at the time the option is granted, the option is treated like other property received as compensation. That is, the FMV of the option is included in gross income less any amount paid by the taxpayer. In this case, the 1,000 shares of stock for $10 but an FMV of $25 is income to Logan in the amount of $15,000 (1,000 shares × ($25 − $10 per share)).

Question 128

Logan, an employee of Argon Industries, earned a salary of $60,000 in year 2. In addition, the following two transactions between Logan and Argon occurred in year 2: Logan received a bonus of 100 shares of publicly traded stock worth $13,000 with a basis to Argon of $8,000, and Logan purchased 1,000 shares of unrestricted Argon stock pursuant to a nonqualifying stock option plan for $10 per share when stock was valued at $25 per share. What amount of compensation should Argon report in Logan’s Form W-2 for year 2?

Answer 128

$88,000

f the nonstatutory stock option has a readily determinable FMV at the time the option is granted, the option is treated like other property received as compensation. That is, the FMV of the option is included in gross income less any amount paid by the taxpayer. In this case, the 1,000 shares of stock for $10 but an FMV of $25 is income to Logan in the amount of $15,000 (1,000 shares × ($25 − $10 per share)).

Question 129

Taxpayers using a flexible spending account are allowed:

a “use it or lose it” policy.
a $500 carryover balance to the following year only.
a grace period for the unused balance through March 15 of the following year only.
a $500 carryover balance to the following year or a grace period for the unused balance through March 15 of the following year.

Answer 129

A taxpayer’s company is able to choose an allowance of either a $500 carryover balance OR a grace period through March 15 of the following year on flexible spending accounts.

Question 130

Charles and Marcia are married, cash-basis taxpayers. In Year 2, they had interest income as follows:

$500 interest on federal income tax refund
$600 interest on state income tax refund
$800 interest on federal government obligations
$1,000 interest on state government obligations
What amount of interest income is taxable on Charles and Marcia’s Year 2 joint income tax return?

Answer 130

$1900

All interest received by any taxpayer is included in gross income unless specifically exempt by law.

Interest on all state and local bonds (sometimes called “municipal bond interest”) is exempt from federal income tax. The $1,000 interest on state government obligations which Charles and Marcia received is not taxable.

Question 131

T/F
State gov. obligations are included in Gross Income
Fed Gov Obligations are included in Gross Income
Interest on Fed income tax refund is included in Gross income
Interest on State Income Tax Refunds are included in Gross Income

Answer 131

F
T
T
T

Question 132

If the recovery amount exceeds the difference between the taxpayer’s total itemized deduction amount and the standard deduction amount, only that smaller difference amount will be included in income. This is known as the ___ rule

Answer 132

“Tax Benefit” rule.

Question 133

In the absence of an election to adopt an annual accounting period, the required tax year for a partnership is:

a tax year that results in the greatest aggregate deferral of income.
a calendar year.
a tax year of one or more partners with a more than 50% interest in profits and capital.
a tax year of a principal partner having a 10% or greater interest.

Answer 133

a tax year of one or more partners with a more than 50% interest in profits and capital

Generally, a partnership must adopt a tax year that is used by a partner or partners who hold more than a 50% interest in the partnership.

Question 134

Generally, a partnership must adopt a tax year that is used by a partner or partners who hold more than a ___interest in the partnership.

Answer 134

50%

Question 135

A calendar-year individual is eligible to contribute to a deductible IRA. The taxpayer obtained a 6-month extension to file until October 15 but did not file the return until November 1. What is the latest date that an IRA contribution can be made in order to qualify as a deduction on the prior year’s return?

Answer 135

April 15

Question 136

An individual has until the___, excluding extensions, to make a deductible IRA or Roth IRA contribution for the preceding year

Answer 136

due date of their return

Question 137

Nan, a cash-basis taxpayer, borrowed money from a bank and signed a 10-year interest-bearing note on business property on January 1 of the current year. The cash flow from Nan’s business enabled Nan to prepay the first 3 years of interest attributable to the note on December 31 of the current year. How should Nan treat the prepayment of interest for tax purposes?

Deduct the current year’s interest and amortize the balance over the next 2 years….WHY

Answer 137

Although Nan is a cash-basis taxpayer, prepaid expenses of over a year are handled differently. Nan paid 3 years of the interest, so she will only expense the first year in the current year and the next 2 years will not be deducted until years 2 and 3

Question 138

Which of the following taxpayers is required to use a calendar year?

A taxpayer that keeps no records
A grantor trust
A personal service corporation
An S corporation

Answer 138

Taxpayer that keeps no records

Generally, trusts must use a calendar year; however, grantor trusts are not required to do so.

Although personal service corporations and S corporations are generally required to use a calendar year, if they meet certain requirements they can elect to have a fiscal year

Question 139

A cash-basis taxpayer should report gross income:

only for the year in which income is actually received in cash.
only for the year in which income is actually received, whether in cash or in property.
for the year in which income is either actually or constructively received in cash only.
for the year in which income is either actually or constructively received, whether in cash or in property.

Answer 139

for the year in which income is either actually or constructively received, whether in cash or in property.

Question 140

___ is deemed to have occurred if the income has been credited to the taxpayer’s account or if the income is unconditionally available to the taxpayer, the taxpayer is aware of the income’s availability, and there are no restrictions on the taxpayer’s control over the income

Answer 140

Constructive receipt

Question 141

Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year, Mel informs Easel that the only business expense incurred was for business mileage of 12,000 at a rate of 57.5 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $480 to refund the overpayment to Easel. What amount should be reported in Mel’s gross income for the year?

Answer 141

Under the Tax Cuts and Jobs Act of 2017 (TCJA), work-related business expenses are no longer deductible; all $4,800 ($400 × 12) is reported in gross income.

Question 142

In Year 9, Smith paid $6,000 to the tax collector of Wek City for realty taxes on a two-family house owned by Smith’s mother. Of this amount, $2,800 covered back taxes for Year 8, and $3,200 covered Year 9 taxes. Smith resides on the second floor of the house, and his mother resides on the first floor. In Smith’s itemized deductions on his Year 9 return, what amount was Smith entitled to claim for realty taxes?

Answer 142

The legal owner of the property is Smith’s mother. Smith is not entitled to a deduction to realty taxes as he is not legally obligated to pay. This applies even though Smith resides in the property.

$0 is the answer

Question 143

For 2018, the first $___ of gifts to any person is not included in the total amount of taxable gifts made during the year.

Answer 143

15,000

Question 144

Alex, single, incorporated his business by investing $80,000 for which he received Section 1244 stock. Alex also loaned the corporation $20,000. The corporation became bankrupt and Alex lost the entire $100,000. What should Alex report as a result of the bankruptcy?

Answer 144

A loss from Section 1244 stock is treated as an ordinary loss (up to $50,000 if single). Any loss in excess of $50,000 is treated as a capital loss.

Question 145

1244 Stock is also known as what

The bond’s basis is reduced by the amortization. T/F

Answer 145

Small Biz stock

True

Question 146

A nonqualified stock option plan requires employee recognition of the bargain element on the___

Answer 146

exercise date

Question 147

Annualization is required for a short tax period to ensure:
the appropriate ____tax rate applies.

A short tax period is required to prevent taxpayers from receiving the benefit of having ___as the result of a tax year shorter than 12 months. By annualizing, the taxpayer must use the __applicable to what income would have been for 12 months.

Answer 147

annual marginal tax rate

lower taxable income , marginal rates

Question 148

Green is self-employed as a human resources consultant and reports on the cash basis for income tax purposes. Select the appropriate tax treatment on Form 1040 (U.S. Individual Income Tax Return) for oil royalties received.

Reported in Schedule ___—Supplemental Income and Loss

Answer 148

E

Question 149

Smith is a member of the U.S. Armed Forces (an enlisted person) and is assigned to service in Iraq (a designated combat zone) for a period that begins on January 20 of the current year and ends on May 5 of the current year. How many months of military pay may Smith exclude from gross income for the current year?

3
4
5
12

Answer 149

5

Smith may exclude from gross income his monthly military pay received for any month or portion of a month that he was a member of the U.S. Armed Forces and serving in Iraq.

Question 150

hen a corporation has a group term life insurance plan available for employees, the following is considered to be discriminatory:

the plan can exclude employees who have worked for the corporation less than two years.
the plan will offer $3,000 of group term life insurance, up to a maximum of $50,000, for each $10,000 of salary earned by the employee.
the plan will offer $50,000 of group term life insurance to officers and $10,000 of group-term life insurance to all nonofficers.
the plan can exclude part-time employees.

Answer 150

the plan will offer $50,000 of group term life insurance to officers and $10,000 of group-term life insurance to all nonofficers.

Since the plan offers $50,000 of group term life insurance to officers and $10,000 of group term life insurance to nonofficers, this plan would discriminate in favor of key employees.

Question 151

Lite-Mart, a C corporation, had a beginning credit balance in its warranty reserve account of $120,000. During the year, Lite-Mart accrued estimated warranty expense of $16,000. At the end of the year, Lite-Mart’s warranty reserve had a $90,000 credit balance. What amount of warranty expense should Lite-Mart deduct

Answer 151

146K