Personal Tax Planning Review
Questions
Course Introduction
Personal Tax Planning explores the principles, strategies, and techniques involved in managing individual tax obligations efficiently and legally. The course covers the fundamentals of income tax laws, tax compliance, tax deductions and credits, and methods for minimizing personal tax liabilities. Students will examine tax planning opportunities throughout the life cycle, including issues related to employment, investments, retirement, and estate planning. By analyzing current tax regulations and applying practical scenarios, students develop the skills to create comprehensive personal tax strategies and advise clients or themselves on effective tax planning decisions.
Recommended Textbook
Prentice Halls Federal Taxation 2014 Individuals 27th Edition by Timothy J. Rupert
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18 Chapters
2027 Verified Questions
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Page 2
Chapter 1: An Introduction to Taxation
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Sample Questions
Q1) A proportional tax rate is one where the rate of the tax is the same for all taxpayers,regardless of income levels.
A)True
B)False
Answer: True
Q2) Which of the following individuals is most likely to be audited?
A)Lola has AGI of $35,000 from wages and uses the standard deduction.
B)Marvella has a $145,000 net loss from her unincorporated business (a horse farm).She also received $350,000 salary as a CEO of a corporation.
C)Melvin is retired and receives Social Security benefits.
D)Jerry is a school teacher with two children earning $45,000 a year.He also receives $200 in interest income on a bank account.
Answer: B
Q3) Individuals are the principal taxpaying entities in the federal income tax system.
A)True
B)False
Answer: True
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3
Chapter 2: Determination of Tax
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Sample Questions
Q1) Rob is a taxpayer in the top tax bracket,with over a million in taxable income.He plans to sell stock held long-term for a $100,000 gain.This sale will result in an increase to his tax liability of
A)$15,000.
B)$20,000.
C)$39,600.
D)$23,800.
Answer: D
Q2) Vincent,age 12,is a dependent of his parents.During 2013,Vincent's earned income from wages is $2,600 and Vincent received $3,000 of interest income.The parent's marginal rate is 28% and Vincent's marginal rate is 10%.Vincent's tax is A)$265.
B)$308.
C)$445.
D)none of the above.
Answer: C
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Chapter 3: Gross Income: Inclusions
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Sample Questions
Q1) Homer Corporation's office building was destroyed by fire.Homer collected insurance of $250,000,which equaled the building's basis,and $150,000 for profits lost during the time the company was rebuilding the office building.What is the amount taxable this year?
A)$0
B)$150,000
C)$250,000
D)$400,000
Answer: B
Q2) Thomas and Sally were divorced last year.As a result,Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000.The house and car are given as a property settlement.As a result of these transactions Thomas has a deduction of
A)$100,000.
B)$155,000.
C)$170,000.
D)$270,000.
Answer: A
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Page 5
Chapter 4: Gross Income: Exclusions
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Sample Questions
Q1) Payments received from a workers' compensation plan are taxable.
A)True
B)False
Q2) Meals may be excluded from an employee's gross income provided they are furnished on the employer's business premises and are for the convenience of the employer.
A)True
B)False
Q3) While payments received because a person has been physically injured are excluded from gross income,payments on account of non-physical injury must be included in gross income.
A)True
B)False
Q4) Ahmad's employer pays $10,000 in tuition this year for Ahmad to attend a graduate business program.How much of the employer-provided tuition is taxable to Ahmad?
A)$0
B)$4,750
C)$5,250
D)$10,000
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Chapter 5: Property Transactions: Capital Gains and Losses
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Sample Questions
Q1) When a taxpayer has NSTCL and NLTCG,the loss is offset against NLTCG from the 28% group,then NLTCG from the 25% group,and finally against NLTCG from the 15% or 20% group.
A)True
B)False
Q2) Jessica owned 200 shares of OK Corporation with a basis of $12,000 and a FMV of $24,000.Jessica received 20 stock rights as a nontaxable distribution with a total FMV of $8,000.Jessica sold the stock rights for $4,000.Jessica's gain or loss on the sale was
A)$1,000.
B)$3,000.
C)$4,000.
D)($4,000).
Q3) Normally,a security dealer reports ordinary income on the sale of securities unless it is specifically identified as a security being held for investment.
A)True
B)False
Q4) What are arguments for and against preferential treatment of capital gains?
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Chapter 6: Deductions and Losses
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Sample Questions
Q1) An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business.
A)True B)False
Q2) Generally,Section 267 requires that the deduction of unpaid (accrued)expenses be deferred until the year in which the related payee recognizes the amount as income.
A)True
B)False
Q3) Laura,the controlling shareholder and an employee of Southwest Corporation,receives an annual salary of $750,000.Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparably-sized corporations,the IRS contends that Laura's salary should be no higher than $600,000.The Court upheld the IRS's position.As a result,which of the following is true?
A)$600,000 is deductible by the corporation; $600,000 is taxable to Laura.
B)$600,000 is deductible by the corporation; $750,000 is taxable to Laura.
C)$750,000 is deductible by the corporation; $750,000 is taxable to Laura.
D)$750,000 is deductible by the corporation; $600,000 is taxable to Laura.
Q4) Discuss when expenses are deductible under the accrual method of accounting.
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Chapter 7: Itemized Deductions
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Sample Questions
Q1) Wayne and Maria purchase a home on April 1 of the current year.In order to obtain a thirty-year mortgage,they are required to pay $7,200 in points at closing.Charging points is a customary business practice in the area.In addition,they pay $4,400 of interest during the year.What is their current year deduction related to their home?
A)$4,400
B)$4,580
C)$7,200
D)$11,600
Q2) In February of the current year (assume a non-leap year),Ken and Kelsey received their property tax statement for last calendar-year taxes of $1,600,which they paid to the taxing authority on March 1 of the current year.They had purchased their home on May 1 last year.What amount of property tax on this statement may they claim as an itemized deduction this year?
A)$0
B)$1,069
C)$1,074
D)$1,600
Q3) Discuss the timing of the allowable medical expense deduction.
Q4) When are points paid on a loan deductible as interest expense?
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Chapter 8: Losses and Bad Debts
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Sample Questions
Q1) If an NOL is incurred,when would a taxpayer elect to forgo the carryback period and only carry the loss deduction forward?
Q2) Amy,a single individual and sole shareholder of Brown Corporation,sold all of the Brown stock for $30,000.The stock basis was $150,000.Amy had owned the stock for 3 years.Brown Corporation meets the Section 1244 requirements.Amy has
A)a $50,000 ordinary loss and $70,000 LTCL.
B)a $50,000 STCL and a $70,000 LTCL.
C)a $100,000 ordinary loss and a $20,000 LTCL.
D)a $100,000 LTCL and a $20,000 ordinary loss.
Q3) Jamie sells investment real estate for $80,000,resulting in a $15,000 loss.Jamie's loss is
A)an ordinary loss.
B)a capital loss.
C)a Sec.1231 loss.
D)a Sec.1244 loss.
Q4) Individual taxpayers can offset portfolio income with passive losses.
A)True
B)False
Q5) What are some factors which indicate that a debt may be worthless?
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Chapter 9: Employee Expenses and Deferred Compensation
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Sample Questions
Q1) In determining whether travel expenses are deductible,a general rule is that if a person is reassigned for an indefinite period,the individual's tax home shifts to the new location and travel expenses are not deductible.
A)True
B)False
Q2) Corporations issuing incentive stock options receive a tax deduction for compensation expense.
A)True
B)False
Q3) Frank is a self-employed CPA whose 2012 net earnings from his trade or business (before the H.R.10 plan contribution but after the deduction for one-half of self-employment taxes)is $240,000.What is the maximum contribution that Frank can make on his behalf to his H.R.10 (Keogh)plan in 2013?
A)$62,500
B)$48,000
C)$51,000
D)$60,000
Q4) What factors are considered in determining whether an expense is a deductible travel expense?
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Chapter 10: Depreciation, cost Recovery, amortization, and Depletion
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Sample Questions
Q1) On June 30,2013,Temika purchased office furniture costing $259,000 and computers with a cost of $400,000.She uses Sec.179.Her business income is $900,000 without considering Sec.179.How should she allocate the 179 election in order to maximize her total cost recovery deductions (depreciation and Sec.179)for 2013 (assume that bonus depreciation is not available)?
Q2) Eduardo is planning to purchase some new pizza ovens for his business.He knows that there are various incentives in the tax law to acquire new assets in 2013.Discuss the tax incentives available and the issues to consider in deciding whether to elect them.
Q3) Under the MACRS system,the same convention that applies in the year of acquisition (e.g.,half-year,mid-quarter,or mid-month)also applies in the year of disposition.
A)True
B)False
Q4) Unless an election is made to expense or defer and amortize research and experimental expenditures,these costs must be capitalized.
A)True
B)False
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Page 12
Chapter 11: Accounting Periods and Methods
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Sample Questions
Q1) The installment method is not applicable to sales of inventory and marketable securities.
A)True
B)False
Q2) In year 1 a contractor agrees to build a building for $2,500,000 by the end of year 2.The builder's cost is estimated to be $1,800,000.The actual costs year 1 are $900,000 and year 2's actual costs are $1,300,000.Under the completed contract method the gross profit for year 1 is
A)$0.
B)$300,000.
C)$350,000.
D)$700,000.
Q3) What is the significance of the Thor Power Tool Co.case?
Q4) Under the accrual method of accounting,the two tests to determine when income must be reported and expenses deducted are the all-events test and the economic performance test.
A)True
B)False
Q5) Discuss the purpose of the imputed interest rules.
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Chapter 12: Property Transactions: Nontaxable Exchanges
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Sample Questions
Q1) Vector Inc.'s office building burns down on October 31,2013.Vector,a calendar year taxpayer,finally settles with the insurance company on February 3,2014.In order to defer the gain realized on the building,Vector must acquire another office building by February 3,2016.
A)True
B)False
Q2) An office building owned by Abby and used in her business was destroyed in a fire.Abby's adjusted basis in the building was $145,000 and its FMV was $180,000.Abby filed an insurance claim and she was reimbursed $160,000.In that same year,Abby invested $150,000 of the insurance proceeds in another business building.
a.Assume Abby made the proper election with regard to the involuntary conversion.What is the amount of gain to be recognized by Abby?
b.What is Abby's basis in the new building?
Q3) May a taxpayer elect under Sec.1033 to defer recognition of loss resulting from an involuntary conversion?
Q4) Discuss the basis rules of property received in a nontaxable like-kind exchange.
Q5) Discuss the rules regarding the holding period for like-kind property received in a nontaxable exchange.
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Chapter 13: Property Transactions: Section 1231 and Recapture
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Sample Questions
Q1) Jesse installed solar panels in front of his office building in 2011.The panels are not attached to the building.After using the solar panels for 13 months,Jesse decided to replace them with a newer model to obtain a greater savings on electricity costs.Jesse sold the old solar panels for an amount greater than his original purchase price.What tax issues should be considered with purchase,use and sale of the original solar panels?
Q2) With respect to residential rental property
A)80% or more of the gross rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. B)hotels are not included in this category if less than half of the units are used on a transient basis.
C)80% or more of the net rental income from the building or structure must be rental income from dwelling units in order for it to be classified as residential rental property. D)gain is not subject to the depreciation recapture provisions if the property is held more than one year.
Q3) What is the purpose of Sec.1245 and what is its significance?
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Page 15
Chapter 14: Special Tax Computation Methods, tax Credits, and Payment of Tax
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Sample Questions
Q1) Which one of the following is a refundable credit?
A)earned income credit
B)child and dependent care credit
C)lifetime learning credit
D)credit for the elderly and disabled
Q2) Which of the following is not a qualifying property for the residential energy efficient property (REEP)credit?
A)geothermal heat pumps
B)residential wind property
C)metal or asphalt roofs with special coatings
D)solar hot water heaters
Q3) Tyne is single and has AGI of $25,000 in 2013.During the year,she contributes $3,000 to her Roth IRA.What is the amount of Tyne's qualified retirement savings contributions credit?
Q4) The earned income credit is refundable only if a tax has been withheld.
A)True
B)False
Q5) Discuss when Form 6251,Alternative Minimum Tax,must be filed.
Page 16
Q6) Discuss the tax planning techniques available to a U.S.citizen who is on a foreign job assignment.
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Page 17
Chapter 15: Tax Research
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Sample Questions
Q1) George's case was handled under the "small tax case procedure." He does not agree with the findings of the Tax Court.He would like to appeal the decision.Which one of the following is true?
A)There is no appeal.
B)He can appeal the case,but only if the amount of tax involved is greater than $5,000.
C)He would appeal first to the U.S.Court of Appeals for the Federal Circuit.
D)He would appeal first to the U.S.Court of Federal Claims.
Q2) Regulations are
A)equal in authority to legislation.
B)equal in authority to legislation if statutory.
C)presumed to be valid and to have almost the same weight as the IRC.
D)equal in authority to legislation if interpretative.
Q3) Does Title 26 contain statutory provisions dealing only with income taxation? Explain.
Q4) Which regulation deals with the gift tax?
A)Reg.Sec.1.165-5
B)Reg.Sec.20.2014-5
C)Reg.Sec.25.2518-5
D)Reg.Sec.301.7002-5
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Page 18
Chapter 16: Corporations
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Sample Questions
Q1) One requirement of a personal holding company is that more than 50% of the value of the outstanding stock must be owned by five or fewer individuals at some time during the last 6 months of the tax year.
A)True
B)False
Q2) Whaler Corporation makes a liquidating distribution of land with a $70,000 adjusted basis and a $100,000 FMV to shareholder Horton,who surrenders his Whaler stock (adjusted basis $60,000)to the corporation.Alice,another shareholder,receives $100,000 cash for her shares ($115,000 adjusted basis).What are the tax consequences to both Horton and Alice and what is Horton's basis in the land?
Q3) If certain requirements are met,Sec.351 permits deferral of recognition of gain or loss on the transfer of property to a corporation solely in exchange for stock of the corporation.
A)True
B)False
Q4) The corporate AMT is similar to that applicable to individuals.
A)True
B)False
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Page 19
Chapter 17: Partnerships and S Corporations
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Q1) All costs of organizing a partnership can be deducted in the year in which the partnership begins business.
A)True
B)False
Q2) James and Sharon form an equal partnership in the current year.No special allocation is provided for in the partnership agreement.During the year James contributes land having a $80,000 basis and a $100,000 FMV in exchange for the initial partnership interest.In addition,the partnership earns $80,000 of ordinary income while partnership liabilities increase from zero to $60,000 by the end of the tax year.Also,the partnership earns $10,000 of tax-exempt interest during the year and makes charitable contributions of $6,000.James withdraws $30,000 from the partnership. What is James's basis at the end of the current year?
Q3) Oliver receives a nonliquidating distribution of land having a $25,000 adjusted basis and a $32,000 FMV from the OK Partnership.At the time of the distribution,Oliver's basis in his partnership interest is $30,000.
a.What is the amount of recognized gain or loss on the distribution?
b.What is Oliver's basis in his partnership interest following the distribution?
c.What is Oliver's basis in the land?
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Chapter 18: Taxes and Investment Planning
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Sample Questions
Q1) Which of the following concerning implicit taxes and clienteles is not true?
A)Market forces drive down the BTROR of tax-favored assets.
B)The reduced return of tax-favored assets is an implicit tax.
C)Investors whose tax rate exceeds that of the marginal investor can reap some benefit through the clientele effect.
D)Marginal investors will always benefit from the implicit tax on tax-favored investments.
Q2) Earl invests $7,000 in a tax-exempt bond yielding 4% which matures in 15 years.What is Earl's after-tax accumulation at maturity?
Q3) The difference between the BTRORs of fully-taxable and tax-favored investments is called
A)an explicit tax.
B)an implicit tax.
C)an effective tax.
D)a marginal tax.
Q4) In the Deferred Model,only after-tax dollars are invested.
A)True
B)False
Q5) Compare the characteristics of the Current and Deferred Models.
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