Introduction to Taxation Exam Solutions
Course Introduction
Introduction to Taxation provides students with a foundational understanding of tax concepts, principles, and practices as they apply to individuals and businesses. The course explores the objectives and structure of modern tax systems, focusing on the key types of taxation including income, sales, and property taxes while emphasizing federal, state, and local perspectives. Topics include tax planning, compliance, and the ethical considerations of tax practice, as well as an examination of the economic, legal, and social implications of taxation. By the end of the course, students will be equipped with the knowledge needed to understand tax regulations and their impact on decision-making in personal and professional contexts.
Recommended Textbook Fundamentals of Taxation 9th Edition 2016 by Ana Cruz
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1631 Verified Questions
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Chapter 1: Introduction to Taxation, the Income Tax
Formula, and Form 1040ez
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137 Verified Questions
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Sample Questions
Q1) Individuals who file a Form 1040EZ will determine their tax liability with reference to a tax rate schedule.
A)True
B)False
Answer: False
Q2) Which of the following types of Regulations is the strongest tax authority?
A) Final.
B) Legislative.
C) Temporary.
D)Proposed.
Answer: B
Q3) Employers report wage income to employees on a:
A) Form W-2.
B) Form W-3.
C) Form 1099-E.
D)Form 1099-G.
Answer: A
Q4) Alex is single and had W-2 income of $53,989 and interest income of $154. What is his taxable income?
Answer: Alex's taxable income is $53,989 + $154 - $10,300 = $43,843.
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Chapter
2:
Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Ed's parents can claim him as a dependent on their tax return. In 2015, his only source of income was $1,050 of interest income received from Global Bank. What is Ed's standard deduction?
A) $1,050.
B) $1,000.
C) $4,000.
D)$350.
Answer: A
Q2) A taxpayer can deduct a(an) __________ amount from AGI for each dependent.
A) Deduction
B) Exemption
C) Itemized
D)Adjustment
Answer: B
Q3) If the taxpayer still owes tax after April 15, the IRS assesses interest based on the remaining amount owed.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Gross Income: Inclusions and Exclusions
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120 Flashcards
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Sample Questions
Q1) When an individual's marginal ordinary income tax rate is 25% or more and less than 39.60%, the tax rate on qualified dividends is:
A) 5%.
B) 15%.
C) 0%.
D)10%.
Answer: B
Q2) What item should not be included in income?
A) Worker's compensation payments.
B) Jury duty pay.
C) Prizes and awards.
D)Sick pay.
Answer: A
Q3) Almost all individuals use the cash receipts and disbursements method of accounting.
A)True
B)False
Answer: True
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Chapter 4: Adjustments for Adjusted Gross Income
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108 Flashcards
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Sample Questions
Q1) Self-employed persons are allowed a for AGI deduction equal to one-half of the self-employment tax imposed.
A)True
B)False
Q2) Renee and Thomas obtained a divorce effective May 1, 2015. In accordance with the divorce decree, Thomas was required to pay Renee alimony of $2,500 per month (payments were to stop only in the event of her death or remarriage). Furthermore, he was to transfer title of their house which had a cost of $150,000 and a fair value of $200,000 on the date of transfer, and was to continue making the monthly mortgage payments of $1,500.
(a) Determine the amount of Thomas's alimony deduction in 2015.
(b) Determine the amount of Renee's alimony income in 2015.
(c) Assume that Thomas was required to pay off the remaining mortgage balance in the event Renee died. Does Thomas's alimony deduction in 2015 change? Why or why not?
Q3) A Health Savings Account (HSA) is a tax-exempt savings account to pay for qualified medical expenses.
A)True
B)False
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6
Chapter 5: Itemized Deductions
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115 Flashcards
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Sample Questions
Q1) When are travel costs deductible as medical costs? How are medical travel costs calculated?
Q2) For medical expenses, only expenses in excess of 7.5 percent of adjusted gross income are deductible.
A)True
B)False
Q3) A taxpayer generally has the option of deducting foreign taxes paid on Schedule A or taking a foreign tax credit.
A)True
B)False
Q4) Which of the following miscellaneous deductions are subject to the 2% of adjusted gross income limitation?
A) Unreimbursed employee business expenses.
B) Investment counsel and advisory fees.
C) Safe deposit box fees.
D)All of these.
Q5) What is usually the largest miscellaneous itemized deduction category? Does it require any special treatment?
Q6) Define a personal casualty loss.
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Chapter 6: Self-Employed Business Income
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Sample Questions
Q1) If property is converted from personal-use property to business property, the depreciable cost basis is which of the following?
A) Cost of the asset.
B) FMV of the asset.
C) The cost of a new similar asset at the date of conversion.
D)The lower of the cost or FMV at the date of conversion.
Q2) In July 2015, Cassie purchases equipment for $55,000 to be used in her business. Assuming Cassie has a small net loss from her business prior to the deduction, what is the maximum amount of cost recovery Cassie can deduct?
A) $7,860.
B) $27,500.
C) $31,430.
D)$55,000.
Q3) Depreciation is allowed for every tangible asset (except land) used either in a trade or business or for the production of income.
A)True
B)False
Q4) Describe each of the depreciation conventions and when each is applicable.
Q5) List and define the criteria for an expenditure to be deductible on Schedule C.
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Chapter 7: Capital Gains and Other Sales of Property
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Sample Questions
Q1) The holding period of an asset starts on the date acquired and ends on the day the asset is sold.
A)True
B)False
Q2) Geraldine inherited a piece of land when her father Albert died on July 26, 2014. The FMV of the land at the date of death was $40,000 and cost Albert $20,000 in 2008.
Geraldine sold the land on March 29, 2015 for $45,000. What are the amount and nature of the gain on the sale?
A) $5,000 ordinary gain.
B) $5,000 capital gain.
C) $25,000 ordinary gain.
D)$25,000 capital gain.
Q3) Which one of the following is Section 1231 property?
A) Accounts receivable.
B) Copyright owned by an author.
C) Inventory.
D)A building used in a trade or business.
Q4) Real property held for investment is a capital asset.
A)True
B)False
Page 9
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Chapter 8: Rental Property, Royalties, Income From
Flow-Through Entities
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) If a tenant pays an expense normally paid by the taxpayer (landlord) in lieu of rent (or the full rent), that expense is not considered part of rental income to the taxpayer.
A)True
B)False
Q2) What is meant by a passive activity? Why is a rental activity classified as a passive activity? Can a rental activity be classified as active? Explain.
Q3) Flow-through entities file "informational returns."
A)True
B)False
Q4) Rental properties that are also used as vacation homes fall under one of three categories: (1) primarily rental, (2) primarily personal, and (3) personal/rental.
A)True
B)False
Q5) Assume the same facts as #71, but Meredith rented her house (at fair value) to her brother and his family for 9 days (in addition to her personal use) and total days rented was 180 days. How is the cabin categorized now? Explain your answer.
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Chapter 9: Tax Credits
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Sample Questions
Q1) Conner and Matsuko paid $1,000 and $2,000, in qualifying expenses for their two sons, Jason and Justin, respectively, to attend Montana State University. Jason is a sophomore and Justin is a freshman. Conner and Matsuko's AGI is $195,000. What is their allowable American opportunity tax credit?
A) $0.
B) $2,000.
C) $3,050.
D)$3,700.
Q2) The maximum allowable lifetime learning credit per year is $2,000 per student.
A)True
B)False
Q3) Assume a taxpayer is qualified to receive a premium tax credit. Explain how to calculate the amount of the credit.
Q4) Which of the following is not a qualifying child for purposes of calculating the EIC?
A) Son or daughter.
B) Grandson or granddaughter.
C) Foster child.
D)All of these qualify.
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11
Chapter 10: Payroll Taxes
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Sample Questions
Q1) If on any day during the month, an employer accumulates $100,000 or more in tax liability, the taxes must be deposited:
A) By the next banking day.
B) Before the close of the business day in which the liability occurs.
C) By the last day of the week if the employer is a monthly depositor.
D)By either the following Wednesday or Friday if the employer is a semiweekly schedule depositor.
Q2) Angie earned $120,000 during 2015. She is single, claims two withholding allowances, and is paid monthly. How much will Angie's employer withhold in Medicare taxes for 2015?
A) $1,680.00.
B) $1,711.00.
C) $1,718.25.
D)$1,740.00.
Q3) For semiweekly schedule depositors, taxes withheld from payrolls paid during the week are due to be remitted within three banking days after the date wages are paid.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities:
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Sample Questions
Q1) Felix is age 74 and his wife is age 73. He purchased a single life annuity contract that will pay him $80,000 per year for life. The expected return on the contract is
A) $1,904,000.
B) $1,128,000.
C) $1,112,000.
D)$1,056,000.
Q2) The expected return on an annuity contract that will last for a specified amount of time is determined with reference to the life expectancy tables published by the IRS.
A)True
B)False
Q3) Pension plan distributions are reported to taxpayers on a Form 1099-P. A)True
B)False
Q4) If a retirement plan is funded with dollars that have not been taxed, the distributions will not be taxed.
A)True
B)False
Q5) What is an annuity contract? Who are the parties to an annuity contract?
Page 13
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Chapter 12: Special Property Transactions
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Sample Questions
Q1) A warehouse with an adjusted basis of $125,000 was destroyed by a tornado on April 15, 2016. On June 15, 2016, the insurance company paid the owner $195,000. The owner reinvested $170,000 in a warehouse. What is the basis of the new warehouse if non-recognition of gain from an involuntary conversion is elected?
Q2) The installment method cannot be used to report the gain on which of the following assets?
A) Land used in a trade or business.
B) Stock traded on a securities market.
C) Building used in a trade or business.
D)Stock in a privately-held business.
Q3) An involuntary conversion results in money received. If the replacement property is purchased within the two-year period, the basis of the new property is its cost less the deferred gain.
A)True
B)False
Q4) Related parties include the taxpayer's spouse, ancestors, lineal descendants, but not brothers and sisters.
A)True
B)False
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Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Sample Questions
Q1) Catherine purchased furniture and fixtures (7-year property) for her shop for $80,000 in May. What AMT depreciation adjustment is required for the year?
A) $0.
B) $2,864.
C) $8,568.
D)$11,432.
Q2) Ferris owns an interest in, but does not materially participate in, an activity. He has $30,000 at-risk. The business produced a loss in the current year and Ferris's share of the loss is $45,000. Assuming Ferris has no passive income, how much of the $45,000 loss will be deductible by Ferris?
A) $0.
B) $30,000.
C) $45,000.
D)Cannot be determineD.Only $30,000 of the loss gets through the at-risk rules. However, since there is no passive income, the entire loss is suspended by the passive activity loss rules.
Q3) Itemized deductions are allowed in their entirety for AMT purposes.
A)True
B)False
Page 15
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Chapter 14: Partnership Taxation
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Sample Questions
Q1) In 2014, Angel contributes land to a partnership with a basis of $12,000 and a FMV of $22,000. In 2015, when the FMV of the land is $28,000, the partnership distributes the land to Shelia, another partner. What is the basis of the land to Shelia assuming she has a $40,000 basis in her partnership interest?
A) $0.
B) $12,000.
C) $22,000.
D)$28,000.
Q2) In 2014, Angel contributes land to a partnership with a basis of $12,000 and a FMV of $22,000. In 2015, when the FMV of the land is $28,000, the partnership distributes the land to Shelia, another partner. What is the gain or loss recognized by Angel on the distribution to Shelia?
A) $0.
B) $10,000.
C) $16,000.
D)$28,000.
Q3) A partner can recognize a loss on a liquidating distribution.
A)True
B)False
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Page 16
Chapter 15: Corporate Taxation
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Sample Questions
Q1) Certain items of income or expense are not included in income of a Subchapter S corporation but, instead, are separately stated on Schedule K-1. List some items that are separately stated.
Q2) A corporation can choose to voluntarily revoke a valid Subchapter S election. How do the shareholders accomplish a voluntary revocation and when will the revocation be effective?
Q3) A corporation subject to AMT has AMT income of $190,000. What is the amount of alternative minimum tax?
A) $30,000.
B) $32,000.
C) $37,500.
D)$38,000.
Q4) What is the AMT exemption amount for a corporation with AMT income of $200,000?
A) $0.
B) $12,500.
C) $27,500.
D)$40,000.
Q5) When are estimated income tax payments due for a corporation with a fiscal year-end of November? What if the fiscal year-end is June?
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