Income Tax

Question 1

The Primary Source of Tax Law

Answer 1

Internal Revenue Code

Question 2

A source of tax law, law until overturned by a court

Answer 2

Treasury Regulations

Question 3

Indicate the intent of Congress. May not be cited as precedent

Answer 3

Congressional Committee Reports

Question 4

The ruling applied to a specific taxpayer and situation

Answer 4

Private Letter Ruling

Question 5

Whose decisions interpret law and/or facts

Answer 5

Judicial Sources

Question 6

Publishers of reference books on federal income tax

Answer 6

The Research Institute of America & Commerce Clearing House

Question 7

The penalty is __________ for a Frivolous return

Answer 7

$5,000

Question 8

The penalty is __________ for Civil Fraud

Answer 8

75% of the portion of the tax underpayment attributable to fraud

Question 9

The penalty is __________ for Failure to File

Answer 9

5% of the tax due per month with a maximum of 25%

Question 10

The penalty is __________ for Failure to Pay

Answer 10

.5% per month each month the tax is unpaid with a max of 25%

Question 11

Estimated Tax

No penalty will apply for 2018 if the taxpayer pays _____ of the current year’s tax liability or _____ of the prior year’s tax liability

Answer 11

90% of the current year’s tax liability

100% of the prior’s year’s tax liability (110% if the previous year’s AGI exceeded $150,000.

Question 12

Gross Income Inclusions

12

Answer 12

1. Wages, salaries, Tips
2. Taxable Interest
3. Ordinary Dividends
4. Alimony Received
5. Business Income or Losses
6. Taxable Social Security
7. Capital Gains or Losses
8. IRA Distributions
9. Pensions and Annuities
10. Real Estate
11. Unemployment Income
12. Punitive Damages

Question 13

Adjustments to Gross Income–Bottom Front of the 1040

5

Answer 13

1. IRA Contributions
2. Keogh or SEP
3. 1/2 Self-Employment Tax (.07065)
4. Alimony Paid (pre-2019)
5. Self-Employment Health Insurance
   _____________________________
6. $2,500 Student Loan Interest
7. Contributions to HSA
8. Penalty for Early Withdrawal of savings
9. Moving Expenses (Active Military Only)

Question 14

Are qualified Dividends added to AGI?

Answer 14

Yes

Question 15

What qualifies as Investment Income

4

Answer 15

Income from property held for investment such as:

1. Interest
2. Dividends
3. Royalties
4. Short-Term Gains

Question 16

Is the home office deduction available for an employee? Self-Employed?

Answer 16

Employee = NO

Self-Employed = YES if solely used for business on a regular basis and no other fixed location of the trade or business where the taxpayer conducts substantial admin or management activities

Question 17

Only who can file on a Schedule C

Answer 17

Self-Employed

Question 18

Standard Deduction for a child with earned and unearned income

Answer 18

GREATER OF

1. $1,100 unearned income or
2. Earned Income plus $350 capped at $12,200

Question 19

Activities that are not included in Self-Employment Income

4

Answer 19

1. Real Estate income or rents paid
2. Distributive share of income or loss of a limited partner
3. Wages from an S corporation (FICA wages)
4. Distributions (K-1 income) from an S corporation

Question 20

What’s included in Self-Employment Income?

4

Answer 20

1. Net Schedule C Income
2. General Partnership Income (K-1 income)
3. Board of Directors Fees
4. Part-time earnings (1099)

Question 21

What does FICA tax cover?

Answer 21

Social Security and Medicare

Question 22

How is FICA Tax calculated?

Answer 22

7.65% up to $132,900 + 1.45% on earnings above $132,900

SS = 6.2%; capped at 132,900
Medicare = 1.45%

Question 23

Credit for Child and Dependent Care Expenses is applicable until child is how old?

Answer 23

13

Question 24

How is the Credit for Child and Dependent Care Expenses determined?

Answer 24

Limited to:

$3,000 for 1 Dependent and
$6,000 for 2 Dependents OR MORE

Credit Percentage is then 20% of the allowable expenses

Question 25

How is the Child Tax Credit Calculated?

Answer 25

Individuals may claim a child tax credit of $2,000 for each qualifying child under age 17.

Question 26

How much of the Child Tax Credit is refundable?

Answer 26

$1,400

Question 27

What tax credits are refundable (partially or in full)?

Answer 27

1. Child Tax Credit | 2. Earned Income Credit

Question 28

What tax credits are Nonrefundable?

Answer 28

1. Credit for child and dependent care expenses 2. Elderly and Disabled Credit 3. Foreign Tax Credit

Question 29

While non-refundable credits can reduce tax liability to _____, only refundable credits can generate a _____

Answer 29

1. Zero | 2. Tax Refund

Question 30

Calculate Gross Profit Percentage

Answer 30

GPP = Profit / Total Contract Price Profit = Gain - Basis

Question 31

A net operating loss (NOL) is allowed for what entities?

Answer 31

1. Self-Employed 2. Corporations 3. Estates 4. Trusts

Question 32

A NOL may be carried back for how long? What about carried forward?

Answer 32

Carried back 0 years | Carried forward indefinitely

Question 33

Section 1244 stock can be applied to _______ of stock (C or S) initially issued

Answer 33

the first $1,000,000

Question 34

If an individual borrows money for business purposes relating to his sole proprietorship, the interest paid on the debt is deductible on the Schedule ____. At what limit?

Answer 34

Schedule C, NO LIMIT

Question 35

Cash distributed by an S corporation is a nontaxable return of investment that _____ basis.

Answer 35

Reduces

Question 36

MACRS Table

Answer 36

5 Year: Year 1: 20% Year 2: 32% 7 Year: Year 1: 14.29% Year 2: 24.49% STRAIGHT LINE 5 Year: Year 1: 10% Year 2: 20% 7 Year: Year 1: 7.14% Year 2: 14.29%

Question 37

Non-Qualifying Property for a like-kind exchange | 4

Answer 37

1. Inventory of business 2. Non-business tangible/personal property 3. Personal Residence 4. Marketable Securities

Question 38

For the sale of a residence, the Realized and Recognized gain go on what schedule?

Answer 38

Schedule D

Question 39

Are financial fees an add-back item?

Answer 39

NO

Question 40

PIGs and PALs netting process is shown on what schedule?

Answer 40

Schedule E

Question 41

PTP/MLP income is ____ income and reported on the Schedule _____

Answer 41

Portfolio Income, Schedule B

Question 42

How do you take a loss on a PTP/MLP?

Answer 42

SELL IT

Question 43

Qualifying taxpayers may deduct up to _____, per year, of net losses from real estate activity from their active or portfolio income. This deduction is phased out for taxpayers with AGIs between _____ and _____ on a _ for _ basis.

Answer 43

1. $25,000 | 2. $100K-150K on a $2 for $1 basis

Question 44

How many days can you rent a personal residence while still excluding the rental income from gross income?

Answer 44

15 days

Question 45

How many days can you personally use a rented vacation home and still have it be treated as rental property for tax purposes?

Answer 45

GREATER of 14 days or 10% of the rental use

Question 46

Transfers of non-cash items including services, property or the use of property, or promissory notes _____ as alimony?

Answer 46

Do not qualify as alimony.

Question 47

Cash payments to third parties _____ if made pursuant to the divorce instrument for an obligation of the spouse ie. payment of the spouse's rent, mortgage, tax, or tuition liabilities.

Answer 47

DO qualify as alimony

Question 48

Any payments to maintain property owned by the payor spouse and used by the payee spouse will ____ as alimony payments made on behalf of a spouse. Even if required under the terms of the divorce instrument?

Answer 48

will NOT qualify as alimony. Even if required by terms of a divorce.

Question 49

If the payee spouse owns the life insurance policy on the life of the payor, the policy payments made by the payor will _____ as alimony if the payments are made under the divorce instrument

Answer 49

WILL qualify

Question 50

Child support payments are _____ to the payee and _____ by the payor

Answer 50

Nontaxable to the payee | Nondeductible by the payor

Question 51

When valuing a gift at FMV the individual can only deduct _____ of AGI

Answer 51

30%

Question 52

When valuing a gift at Basis the individual can only deduct _____ of AGI

Answer 52

50%

Question 53

Calculating a Charitable Bargain Sale

Answer 53

Gain must be allocated between the portion of the property that is "sold" and the portion that is "gifted" to charity, based on the FMV of each portion. Step 1: Find adjusted basis (Amount of Sale / FMV of property) x Basis = Adj. Basis Step 2: Find the Taxable Gain Sale - Adj. Basis = Taxable Gain

Question 54

What credit can be claimed either as an itemized deduction or a tax credit?

Answer 54

Foreign Tax Credit

Question 55

Schedule A

Answer 55

Itemized Deductions

Question 56

Schedule B

Answer 56

Interest and Dividend Income

Question 57

Schedule C

Answer 57

Profit/Loss from Business

Question 58

Schedule D

Answer 58

Capital Gains/Losses

Question 59

Schedule E

Answer 59

Rental and Royalty Income

Question 60

Schedule H

Answer 60

Household Employment Taxes

Question 61

Schedule SE

Answer 61

Self-Employment Tax

Question 62

Life Settlements are subject to ordinary or capital gains?

Answer 62

Capital Gains

Question 63

An amended return is made on the _____

Answer 63

1040X

Question 64

A Section 179 election is best described as _____ avabilable for _____ personal property

Answer 64

1. An election to expense | 2. Tangible personal property