Section 4A Flashcards
1
Q
Gross Income Includes both earned income and ___
A
unearned income
2
Q
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.
A
Interest on state and municipal obligations is excluded from gross income.
accrued , surrender
3
Q
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
A
gift
Employees
shareholders
avoidance
4
Q
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.
A
True
payment
5
Q
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.
A
$10,000 , income-producing property
tax avoidance
6
Q
GROSS INCOME - UNEMPLOYMENT
a. All unemployment compensation benefits are __ in income.
b. Company-financed supplemental benefits are __ .
c. Guaranteed annual __ payments are taxed.
A
includible
taxed
wage
7
Q
Under the cash method, a taxpayer generally reports income when __is received
What is Consideration?
A
consideration
Consideration can be cash/ cash equivalent/ property / service
8
Q
A taxpayer using the cash method is required to report income if it is ___received
A
constructively
9
Q
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 ___
A
available
limitations or restrictions.
10
Q
The ___prevents cash-method taxpayers from avoiding income by refusing to accept payment hoping to defer recognition to a future tax year.
A
constructive receipt doctrine
11
Q
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.
A
capitalized and amortized
12
Q
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
A
taxed,
Year-end
more than half
full-time student
livnig
$2,100
Joint
13
Q
The amount of unearned net income that a child can take home without paying any federal income tax (called a “___”) is $___for 2018.
A
kiddie tax, 1,050
14
Q
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?
A
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).
15
Q
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)
A
$50,000. capital loss
common or preferred)
16
Q
To qualify as small business stock, the stock must be issued by a domestic ___
A
C corporation
17
Q
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 ___
A
False - Individuals may receive - not corps.
1 million.
common or preferred stock.
18
Q
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 ___.
A
capital gain.
roll over, 60
over six months
reinvested within 60 days
19
Q
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
A
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.
20
Q
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?
A
After 5 years
59-1/2 (Beneficiary upon death are NOT taxed)
disability
first-time homebuyer
10% penalty will apply to the TAXABLE amount
21
Q
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
A
5,500 50 1,000 $6,500 catch-up amount
False - they are allowed
False - its not required
22
Q
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
A
tax-free
penalty tax-free , income tax (means it is taxable)
23
Q
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
A
$1600
Since the last month’s rent is received in the current year, it is included in income for the current year.
24
Q
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 __
A
rent
rental income
accrual or cash basis.
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.
not included in rental income
income
rental income
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.
15 days
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.
14
personal use and rental use
mortgage , real estate taxes
loss
28
Any prizes won must be reported as taxable. It is reported on Form ___as ___income.
taxable income, 1040, other
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
1. They weren't expecting the award
2. Future Services
3. Gov uniti or charitable org
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
tangible personal , $400
True
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
Up to $250,000 of gain ($500,000 for married persons filing jointly) is excluded on home sales
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 __
$250k, $500k, taxed
2 of 5 years
2 years
Losses
cost.
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
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.
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
True
False - it is taxable
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?
$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.
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?
$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.
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 ___.
income
fair market value
fair market value of the stock
received
38
Any distribution of stock or stock rights made to preferred shareholders is taxable as a __
Property received as a dividend is __
dividend.
| income.
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?
$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)
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 __
100%
fully deductible
41
Fifty percent (50%) of the Social Security benefits is the maximum amount of benefits to be included in gross income T/F
False - 85%
42
Pensions paid to retirees are generally __
taxable.
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
```
Compensatory lawsuit proceeds
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
Rollover of a traditional IRA into a Roth IRA
45
In general, if taxpayers change their accounting period, the change requires:
prior IRS approval.
a short-period tax return.
Both
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
fiscal year
True
True
47
A taxpayer makes the election to use a calendar, 52/53-week, or fiscal year at the time of filing their __
initial tax return.
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?
$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
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 ____.
```
qualified education expenses.
30
half-time
True
taxed , excluded from Income
```
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 ___
2,000 ,nondeductible
18.
April 15 of the following year
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
gross income and taxed
10%
rolled over
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.
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.
53
hich of the following entities may adopt any tax year-end?
C corporation
S corporation
Limited liability company
Trust
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.
54
A C corporation is a tax-paying entity under ___
federal tax laws
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?
$0
In general, life insurance proceeds are not taxable to the beneficiary. There is no amortization of the proceeds over the recipient’s lifetime.
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 __
TRUE
taxable.
not taxed, consideration (PREMIUMS)
Return of premium
fully taxable
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 ___
True
Terminally or chronically ill
58
Regardless of the type of bequest received, bequests are always ___from taxable income. The income produced by the bequest is ___ .
excludable
is taxable
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.
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.
60
The $5,500 maximum deduction is phased out for taxpayers with adjusted gross income over certain amounts. T/F
True
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.
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
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
. 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.
63
Self-employed persons may deduct up to $55,000 in 2018 for contributions to a ___
Qualifie retirement plans are also known was what?
qualified retirement plan
| known as Keough Plan
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?
$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.
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?
$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.
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?
$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
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.)
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).
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?
$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.
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.
tax-exempt (not includible in income)
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 __
not income
condition of employment.
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 ____.
False - no its not
date of exercise.
subscription , basis of the righst
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.
Nowhere - its not taxable
73
Tax shelter annuity rollover T/F
Suspended losses can be carried forward, but not back, until utilized.
Federal Income Taxes are deductible
False
True
False - no they aren't
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?
$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.
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?
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
76
Interest income on U.S. Treasury bonds is reported in ___—Interest and Dividend Income.
Schedule B (on form 1040)
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?
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
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
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.
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.
60% organization, 60% organization
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 ___
100,27, your dependent.
81
The eligibility to participate standard means that a group term life insurance plan is NOT DISCRIMINATING if:
the plan benefits 70% of all employees.
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 ___.
income to the employee.
70%, key employees
83
the personal casualty and theft loss deduction is not available, except for casualty losses incurred in a ___
federally declared disaster.
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
both
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
$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.
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.
Not deductible
87
Premiums paid for insurance against an individual's possible loss of ___are not deductible under the Internal Revenue Code.
loss of earnings
88
medical insurance premiums is available as an ___deduction , subject to a special limitation.
itemized medical expense deduction
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?
Ordinary Income
90
Distributions from a traditional IRA are not/is tax-free
they're not - included in ordinary income.
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:
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.
92
The deduction for home equity interest from 2018 to 2026 is ___—unless the loan is used to ___that secures the loan.
suspended,
buy, build, or substantially improve the home
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?
2500
Royalties received are includible as taxable income. Expenses incurred directly related to those royalties can be deducted against the gross royalty income.
94
Royalties received are includible as taxable income. Expenses incurred directly related to those royalties can be ___against the gross royalty income.
deducted
95
Under the Tax Cuts and Jobs Act of 2017, moving expenses are __
no longer deductible.
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?
350K
Prepaid rents (but not refundable deposits) are treated as income when received, even by an accrual basis taxpayer
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
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.”
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
wash sale rules
False - no they dont
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?
$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.
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?
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
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
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
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
```
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.
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?
$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.
104
Which of the following collectibles are an acceptable investment for an IRA?
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.
105
Which of the following collectibles are an acceptable investment for an IRA?
Artwork
Antiques
Coins and bullion
Coins and bullion
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?
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
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
Both
108
bargain purchase is defined as property purchased at a cost less than the market value by an ___
employee or shareholder.
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
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).
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?
$0
Ann includes no amount as alimony on her tax return
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?
$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.
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.
Workers' Compensation
| suit or settlement
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.
by their employer. T/F
permanently and totally
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?
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.
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?
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.
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?
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
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:
the purchaser of the bond must be the sole owner (or joint with spouse).
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
sole owner
24, issuance
tuition and fees
Joint
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?
$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.
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.
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
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?
$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.
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?
Both
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?
1800
“Found” cash is taxable in the year it is discovered. . Employer-provided lodging is generally taxable, at the fair value of the rent.
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?
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
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?
$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
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.
insured (if son owns policy, son transfers to dad, no tax)
partner
partnership
corporation
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?
$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)).
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?
$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)).
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.
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.
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?
$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.
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
F
T
T
T
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
“Tax Benefit” rule.
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.
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.
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.
50%
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?
April 15
136
An individual has until the___, excluding extensions, to make a deductible IRA or Roth IRA contribution for the preceding year
due date of their return
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
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
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
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
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.
for the year in which income is either actually or constructively received, whether in cash or in property.
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
Constructive receipt
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?
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.
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?
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
143
For 2018, the first $___ of gifts to any person is not included in the total amount of taxable gifts made during the year.
15,000
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?
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.
145
1244 Stock is also known as what
The bond’s basis is reduced by the amortization. T/F
Small Biz stock
True
146
A nonqualified stock option plan requires employee recognition of the bargain element on the___
exercise date
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.
annual marginal tax rate
lower taxable income , marginal rates
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
E
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
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.
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.
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.
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
146K
