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Flashcards in TAX MCQs Deck (56)
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1
Q

Inventory, Accounts Receivable, and Notes Receivable are what type of Assets for tax purposes?

A

Ordinary Assets

2
Q

Depreciable property in used in a trade or business that have been owned for more than a year for are what type of Assets for tax purposes?

A

Section 1231 Assets

Includes Realty and Depreciable Property

3
Q

Assets that include property held for investment use or personal use

A

Capital Assets

4
Q

Realized Gain Formula

A

Amt Realized - Adj Basis = Realized Gain or Loss

5
Q

Any cash received, plus the FV of any property or services received, plus any liabilities assumed by the buyer LESS: selling expenses

A

Amount Realized

6
Q

Cost of the property, which includes any capital improvements

A

Adjusted Basis

7
Q

The adjusted basis the donor had in the property

A

GAIN Basis or Depreciable Basis

A gain is only recognized if the property is later sold for more than the GAIN BASIS

8
Q

The lower of the FMV at the date of the gift or the adjusted basis of the donor

A

LOSS Basis

A loss is only recognized if the property is later sold for less than the loss basis

9
Q

Property is sold is for an amount between the gain and loss basis

A

NO GAIN OR LOSS RECOGNIZED

10
Q

What is the basis in property received from an inheritance?

A

FMV at the date of death

OR

Alternate Valuation Date, FMV 6 months after date of death

11
Q

An individual can deduct how much $ from Ordinary Income due to a Net Capital Loss?

A

$3,000

12
Q

If short term and net long term gains and losses are positive they are taxed as……….

A

ORDINARY INCOME

13
Q

How far can a Corporation carry back/carry forward NET Capital Losses?

A

Back 3 years and forward 5 years

Can only be used to offset Capital Gain Net Income and cannot create a NOL or reduce taxable income

14
Q

Takes gains on personally as ordinary income up to the amount of accumulated depreciation

A

Section 1245 Recapture of Depreciation for Section 1231 Assets

15
Q

Recapture of accumulated accelerated depreciation on Section 1231 assets in excess of straight-line depreciation as ordinary income

A

Section 1250 for Recapture of Depreciation for Section 1231 Assets

16
Q

If 1231 gains exceed 1231 Losses, the net gain is treated as a:

A

LONG TERM CAPITAL GAIN.

17
Q

If 1231 Losses exceed 1231 Gains, the loss is deductible as :

A

ORDINARY LOSS

18
Q

1231 Gains must be offset by net 1231 losses going back 5 years during the look back period, how are the losses absorbed by Gains treated?

A

ORDINARY INCOME

The balance is a 1231 gain

19
Q

Under MACRS what methods are used for depreciation?

A

200% or 150% declining balance for personalty

Straight Line for Realty

20
Q

A company’s Section 179 Deduction is limited to…

A

The amount up to the amount of business income

21
Q

When “like kind” property is exchanged, no gain or loss is recognized unless…

A

Boot is received…which is cash or debt relief

The recognized Gain will be the amount of boot received.

22
Q

An individual or married couple can exclude how much of a gain from the sale of their principal residence?

A

$250,000 if single

$500,000 if married

23
Q

Stocks and dividend SPLITS are….

A

NOT a taxable event UNLESS there is an option to receive cash, which triggers a taxable event regardless if the Cash or Shares option is chosen.

24
Q

Series EE Savings Bonds

A

Excludable from income in the same year that the taxpayer incurs higher education expenses and is ATLEAST 24 years old

25
Q

Child Support is…

A

NOT taxable to the recipient or deductible for the payor

26
Q

If a student is required to work as part of a scholarship…

A

The funds are taxable to the student.

Generally scholarships are not taxable up to the amount of tuition and expenses.

27
Q

If jury duty funds are required to be given back to an employer…

A

They are eligible to be deduction from gross income to arrive at adjusted income

28
Q

The value of an employee discount can be excluded from income if:

A

The value is up to 20% of services

Or No more than the avg gross profit percentage for goods

29
Q

Insurance Premiums paid by the EMPLOYER that can be excluded from gross income:

A

Group term life coverage up $50k
Health Insurance Premiums
Disability Insurance Premiums

30
Q

In a period of rising prices….LIFO will result

A

In a lower tax liability

31
Q

In a period of rising prices…FIFO will result

A

In a higher tax liability

32
Q

C Corps cannot use the cash method of accounting unless…

A

Their average annual gross reciepts for the previous 3 years do no exceed $5million

33
Q

Deductions FROM AGI…

A

Are itemized deductions on schedule A

34
Q

Deductions FOR AGI…

A
Deductions from Gross income to arrive at AGI, above the line items including:
Alimony
Trade or business expenses
Rent or royalties expenses
Losses
50% of self- employment tax
100% of medical insurance if self employed
Moving Expenses
IRA and Keogh Contributions
Student Loan Interest
35
Q

Charitable deduction is limited to….

A

50% of AGI

36
Q

Non-Business Bad Debts are deductible as…

A

A short term capital loss in the year it was determined to be completely worthless

Partial Worthless Non-Business Bad Debts are NOT deductible

37
Q

Business Bad Debts are deductible…

A

using the direct write off method only and they can be deducted to the extent the loan is partially worthless.

38
Q

A taxpayer can deduct Rental Real Estate Passive Losses up to…

A

$25,000 in one year…person must own at least 10%
If the taxpayer’s AGI is above 100k, then the 25k is reduced by 50% of the taxpayer’s AGI above 100k.

So if your AGI is 150k and you have 30 k in rental losses, the 30 is reduced by 25K, half of 50k (150-100).

39
Q

Hobby expense are deducted…

A

as 2% miscellaneous itemized deductions

40
Q

When an activity generates a profit in 3 out of 5 consecutive years…

A

The burden of proof for proving a lack of profit motive can be shifted to the IRS

41
Q

A relative that the taxpayer pays more than 50% of their support and they make less than 4,000 dollars

A

Qualifying Relative

42
Q

The standard deduction is greater than the minimum if…

A

the taxpayer is over 65 or blind

43
Q

What is the Self Employment Tax comprised of?

A

12.4% SS Tax
2.9% Medicare Tax
Capped at 117,000 of income

44
Q

AMT Adjustments

A

Either Increase or Decrease Income for AMT

  1. Difference between AMT cost recovery and regular tax
  2. No installment method allowed
  3. No standard deduction or personal dependency exemption allowed
  4. Medical Expenses only in excess of 10% of AGI
  5. Interest on home equity loans not allowed unless to improve Residence
  6. No Phase out of itemized deductions
45
Q

AMT Preferences

A

Always increase AMT Income

  1. Percentage depleted over adjusted basis
  2. Interest on Private Activity Municipal Bonds
  3. Excess Intangible drilling costs over 10 year straight line
  4. Pre 87 accelerated depreciation over straight line
46
Q

Hope Credit/ American Opportunity Credit

A

2500 credit per year for each eligible student.

  1. 100% of the first 2000
  2. 25% of the next 2000 qualified education expenses
47
Q

Lifetime Learning Credit

A

Up to a max of 2000 per taxpayer for qualified education expenses

48
Q

Earned Income Credit

A

Married taxpayer…credit can result in a refund even if the taxpayer has zero tax liability

49
Q

General Business Credit

A

Combination of several tax credits that are computed separately but combined into one amount to provide uniform rules to offset a taxpayer’s tax liability

50
Q

If Boot is Received…

A

The gain recognized to the shareholder will be the lower of the

Realized Gain or FMV of the boot received

51
Q

Shareholder’s basis in the stock he or she receives…

A

The basis of the transferred property, plus any gain recognized, less any boot received and less any liabilities assumed by the Corp

52
Q

Corporations must accrual accounting UNLESS

A

Average Gross reciepts less than 5 million
Personal Service Corporation
S Corporation

53
Q

Corporation year end

A

Can be chosen at their discretion June to June

S Corps and Personal Service Corps must be Calendar Year

54
Q

M1- Schedule

A

Any non deductible expenses added back to book income to arrive at taxable income

Any non-taxable income would be subtracted

55
Q

Net Operating Loss

A

Carried Back 2 years

Carried Forward 20 years

56
Q

Dividends Received Deduction

A

Less than 20% ownership…70% DRD
20-79………………………………….80% DRD
80% or More………………………100% DRD