Individual Income Taxation
Textbook Exam Questions
Course Introduction
This course provides a comprehensive overview of the federal income tax system as it applies to individual taxpayers. Topics include the determination of gross income, exclusions, deductions, credits, tax rates, and filing status. Students will examine tax planning strategies, compliance requirements, and the implications of recent legislative changes. Through case studies and problem-solving exercises, the course emphasizes practical skills in tax preparation, understanding tax liability, and navigating the ethical responsibilities involved in tax practice.
Recommended Textbook Income Tax Fundamentals 2017 35th Edition by
Gerald E. Whittenburg
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12 Chapters
1259 Verified Questions
1259 Flashcards
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Page 2
Chapter 1: The Individual Income Tax Return
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) If a taxpayer's adjusted gross income exceeds certain threshold amounts, he or she may be required to reduce the amount of the otherwise allowable deductions for itemized deductions and personal and dependency exemptions in 2016.
A)True
B)False
Answer: True
Q2) Mark each of the following as a taxable entity, a reporting entity, or both:
a.Individuals
b.Corporations
c.Partnerships
Answer: a. Taxable and reporting entity
b. Taxable and reporting entity
c. Reporting entity
Q3) All taxpayers may use the tax rate schedule to determine their tax liability.
A)True
B)False
Answer: False
Q4) What is the formula for computing taxable income, as summarized in the text?
Answer: 11ea8558_f892_ade6_a343_01102e015e9e_TB2114_00
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Chapter 2: Gross Income and Exclusions
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132 Flashcards
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Sample
Questions
Q1) Peter is required by his divorce agreement to pay alimony of $4,000 a month and child support of $6,000 a month to his ex-wife Stella. What is the tax treatment of these two payments?
To Peter?
To Stella?
Answer: Peter may deduct the alimony of $4,000 per month on his tax return. He cannot deduct the child support.
Stella must report the alimony of $4,000 per month as income on her tax return. The child support is not income to Stella.
Q2) Child support payments
A)Included
B)Excluded Answer: B
Q3) In 2016, what rate would a taxpayer pay on qualified dividend income:
a.If in the 33 percent bracket?
b.If in the 10 percent bracket?
Answer: a. 15 percent
b. 0 percent
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Page 4
Chapter 3: Business Income and Expenses Part I
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Under the specific charge-off method, a deduction for a bad debt is taken when the debt is determined to be worthless.
A)True
B)False
Answer: True
Q2) A gift to a foreman by a worker is considered business related and therefore subject to the $25 limit.
A)True
B)False
Answer: False
Q3) Net operating losses may be carried forward indefinitely.
A)True
B)False
Answer: False
Q4) The IRS has approved only two per diem methods to substantiate travel expenses, the high-low method and the meals and incidental expenses method.
A)True
B)False Answer: False
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Chapter 4: Business Income and Expenses Part II
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Sample Questions
Q1) Jeremy, age 38, has $25,000 in a traditional IRA account and is considering taking the money out to buy himself a new car. What will be the tax consequences to Jeremy if he withdraws the $25,000 from his IRA in 2016 for this purpose? Explain.
Q2) Ellen supports her family as a self-employed attorney. She reports $90,000 of income on her Schedule C and pays $8,000 for health insurance for her family, $2,500 for dental insurance, $4,000 for health insurance for her 23-year-old daughter who is no longer a dependent, and $3,000 for disability insurance for herself. What is Ellen's self-employed health insurance deduction?
A)$8,000
B)$10,500
C)$12,000
D)$14,500
E)$13,500
Q3) Walt and Jackie rent out their residence in San Diego to friends for 10 days while they vacation in Europe. They collect $1,000 of rental income. How is the rental income treated on their tax return? Explain.
Q4) What is the difference between the tax treatment of contributions and distributions from a traditional IRA and a Roth IRA?
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Page 6
Chapter 5: Itemized Deductions and Other Incentives
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143 Flashcards
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Sample Questions
Q1) In 2016, state income taxes may be deducted as an itemized deduction on Schedule A.
A)True B)False
Q2) For a taxpayer with adjusted gross income of $56,000, private mortgage insurance (PMI) is deductible in 2016.
A)True B)False
Q3) During the current year, Hom donates a sculpture that cost $1,000 to a museum for exhibition. The sculpture's fair market value was $1,700 on the date of the donation, and Hom's adjusted gross income is $40,000.
a.
If Hom had held the sculpture for 4 months and the $700 ($1,700 - $1,000) of appreciation would have been a short-term capital gain, calculate the amount of his itemized deduction for the contribution.
b.
If Hom had held the sculpture for 2 years and the $700 gain would have been a long-term capital gain, calculate the amount of his itemized deduction for the contribution.
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Page 7
Chapter 6: Credits and Special Taxes
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Sample Questions
Q1) An individual may claim both a credit and an exclusion from income in connection with the adoption of an eligible child, but may not claim both a credit and an exclusion for the same expense.
A)True
B)False
Q2) The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has not paid any income taxes.
A)True
B)False
Q3) Jeff is a stay-at-home father who earns $600 from odd jobs and takes care of his daughter. His wife, Michelle, is the bread-winner and brings in $60,000 of income a year. In addition to the care provided by Jeff, Michelle pays $4,500 in child care.
In the current year, how much are Jeff and Michelle's qualifying expenses for the child and dependent care credit?
Q4) Most states are community property states.
A)True
B)False
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Chapter 7: Accounting Periods and Methods and Depreciation
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111 Flashcards
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Sample Questions
Q1) What is the maximum depreciation expense deduction for Year 2 (2017) for a passenger automobile, used 100 percent for qualified business use, placed in service on June 15, 2016 and costing $16,000 (the election to expense is not made and no bonus depreciation was taken)?
A)$2,800
B)$3,160
C)$3,200
D)$5,100
E)$5,120
Q2) Section 197 intangibles:
A)Are amortized over a 15-year period.
B)Include goodwill, going-concern value, and information bases.
C)Were defined in the Revenue Reconciliation Act of 1993.
D)Are not amortized over the actual estimated useful life of the intangible asset.
E)All of the above are true.
Q3) Bonus depreciation in 2016 permits taxpayers to deduct 100% of the cost of the asset in the year placed in service.
A)True
B)False
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Chapter 8: Capital Gains and Losses
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Sample Questions
Q1) The first day a capital asset acquired on August 31, 2015 may be sold for long-term capital gain or loss treatment is September 1, 2016.
A)True
B)False
Q2) Accounts receivable are capital assets.
A)True
B)False
Q3) For purposes of determining the adjusted basis of a capital asset at the time of its sale,
A)Capital improvements are added to the basis.
B)Ordinary repairs reduce the adjusted basis.
C)Accumulated depreciation is added to the basis.
D)The basis does not include costs such as title insurance and escrow fees related to the initial purchase.
Q4) Currently, long-term capital gains are not afforded preferential tax treatment. A)True
B)False
Q5) What is the treatment given to personal casualty gains and losses?
Q6) What are capital assets?
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Chapter 9: Withholding Estimated Payments and Payroll Taxes
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Sample Questions
Q1) For each of the following payments, indicate the form (Form W-2, W-4, W-2G, 1099-B, 1099-DIV, 1099-INT, 1099-MISC, or 1099-R) that should be used to report the payment.
a.Dividends from a mutual fund
b.Las Vegas gambling winnings
c.Interest paid by a bank
d.Payment of salary and commissions to an employee
e.Distribution from an IRA account
Q2) Choose the incorrect answer. In completing a Form W-4, employees may claim extra allowances:
A)If they are paying alimony.
B)If they have tax credits.
C)If they expect to have large amounts of itemized deductions.
D)If they have high levels of interest and dividend income.
Q3) What is the purpose of backup withholding?
Q4) Household employers are not required to pay FICA taxes on cash payments of less than $2,000 paid to any household employee in a calendar year.
A)True
B)False
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Chapter 10: Partnership Taxation
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81 Flashcards
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Sample Questions
Q1) Please answer the following questions:
a.What form is used to report income and expenses from a partnership?
b.If a partner's basis at the beginning of the year is $1,000 and the partnership allocates $7,000 of loss to the partner: how much of the loss is deductible in the current year; what is his new basis in the partnership; and what happens to any excess loss not deducted?
c.What is the exemption amount for a partnership?
Q2) A partner's interest in a partnership is decreased by:
A)Capital gains of the partnership.
B)Distributions from the partnership.
C)Taxable income of the partnership.
D)Additional contributions by the partner.
E)None of the above.
Q3) A partnership may deduct a single personal exemption in calculating ordinary taxable income or loss.
A)True
B)False
Q4) List three advantages of an LLC.
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Chapter 11: The Corporate Income Tax
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80 Flashcards
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Sample Questions
Q1) During the current year, the Melaleuca Corporation received dividends from 50-percent-owned domestic corporations in the amount of $100,000.
a.
Assuming that in addition to the dividend income the corporation has gross income from operations of $250,000 and deductible operating expenses of $210,000, calculate the amount of the corporation's dividends received deduction for the current year. b.
If, instead of $250,000 in gross income from operations, the corporation has $200,000 in gross income from operations and the same amount of dividends and expenses, calculate the amount of the corporation's dividends received deduction for the current year.
Q2) A regular corporation with excess charitable contributions may carry the excess forward to the 5 succeeding tax years.
A)True
B)False
Q3) What is the purpose of Schedule M-1?
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13
Chapter 12: Tax Administration and Tax Planning
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Sample Questions
Q1) The IRS charges a fixed 10 percent interest rate on underpayments of taxes.
A)True
B)False
Q2) List three different ways that a tax return may be selected for an audit.
Q3) Tax penalties are not deductible by taxpayers.
A)True
B)False
Q4) In the following independent situations, is it better to make an installment agreement with the IRS, an offer in compromise with the IRS, or ask for an extension of time to pay any taxes owed?
a.A taxpayer is unlikely to pay the tax amount they owe.
b.Using monthly payments, a taxpayer can afford to pay off the tax owed within 2 years.
c.A taxpayer can pay off their tax owed when they sell their boat which is up for sale.
Q5) All paid tax return preparers must sign up with the IRS, pay a fee, and obtain a preparer tax identification number.
A)True
B)False
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