Questions and Answers of Fundamentals Taxation 2019

Alan is a CPA who works long hours at his accounting practice in the city. He has been researching two issues for his client and cannot find absolute tax law on how to treat the positions. Discuss
While reviewing a new client’s prior year tax returns, a CPA became aware that the client did not properly file all required federal income tax returns in the past. What should the CPA do in this
Melba is a tax client of CPA Buck. Melba is not a great record keeper, and Buck would like to save Melba some money by using estimates rather than by incurring great expense in recovering or
CPA Sanjay has been representing his client, Dee, before the IRS on an audit of Dee’s 2021 individual tax return. Most issues have been resolved, but one major issue is still in disagreement. What
Holly, age 17, models and makes over $100,000 in the current year. Holly’s mom prepares the tax return and signs the return for Holly. If you were Holly’s tax accountant, what advice might you
Butch has been working with the IRS to resolve issues pertaining to his 2022 individual income tax return. The tax liability being disputed is $24,000 and he has received a 90-day letter (Statutory
A husband prepared his own taxes as married filing separately. His wife hired a CPA to prepare her tax return as married filing separately and asked the CPA not to disclose the information to anyone.
Bob and Shan have been married for 26 years and Bob has been responsible for paying all the bills and handling the preparation of their tax return himself. He did not hire a CPA to review his work.
Sly and Suzy own a bar and restaurant that specializes in serving local breweries’ beverages. They frequently visit their vendors and pay for the meals and entertainment.Sly and Suzy have hired you
Sheila Shady is a self- employed CPA who has been practicing for ten years and is a licensed CPA in her state. Sheila prepares approximately 300 individual tax returns during tax season and is under
Clint and Claudia Collins are a married couple who filed a joint return for the 2023 tax year. The Collins were out of the country on the due date for filing their 2022 tax return, so they asked
Why is it still important to understand the dependency rules even though the tax law does not currently allow a deduction for personal and dependency exemptions?
For the relationship test, who is considered a qualifying child?
If two individuals are parents of the same child, but they do not file a joint return and all of the other dependency tests are met, who typically can claim the child as a dependent?
Discuss two of the differences between the qualifying child test and qualifying relative test.
Antonio, Sofia, and Julio each provide 25% of their momʼs support, with the remaining support coming from their momʼs pen-sion. Can any of the children claim their mom as a dependent on their tax
On what date is filing status determined?
Why might a spouse need to file married filing separately?
Novak provides 90% of the support for his dependent father who lives in a nursing home. Can Novak file as head of household? Why?
Define an abandoned spouse.
If Dylan is a dependent on his parents’ income tax return, can he claim his own standard deduction? Explain.
What age subjects a child to the kiddie tax?
Zeke, age 16, earns $$3,200$ from a summer job at Target and $$500$ of interest income from a savings account in his name.Will Zeke have any taxable income? If so, what tax rate applies to his
In what circumstance may a taxpayer want to file a tax return even though they are not required to do so?
The amount of personal and dependency exemption that can be deducted in 2023 is:a. $0b. $500c. $1,000d. $2,000
Which of the following tests must be considered in determining if a person is a qualifying child?a. Relationship testb. Age testc. Not self-supporting testd. All of these
Which test is not considered in determining if a person is a qualifying child?a. Relationship testb. Age testc. Not self-supporting testd. Gross income test
Which one of the following items is not included in the support test, assuming that the funds received are actually spent by the taxpayer?a. Social Security benefitsb. Aid provided by the state that
Daryl and Linda divorced two years ago, and Linda was given custody of their son, Thomas. During the current year, Daryl provided $$8,000$ of Thomasʼs support, and Linda provided $$5,000.Which$
Keanu Anderson, a computer engineer, and his spouse, who is unemployed, provides more than half of the support for their child Cindy, age 23, who is a full-time student and earns $7,000.They also
Which of the following is the correct filing status if youʼre considered unmarried and you donʼt qualify for any other filing status?a. Singleb. Head of householdc. Surviving spoused. None of the
Kerry and Candy were married on June 5.They filed for divorce on October 10 and were legally separated with a separate maintenance agreement on December 15.The divorce was finalized on January 3 of
Sharonʼs husband passed away in Year 10.Which of the following statements is not true?a. Sharon may file as married filing joint in Year 10.b. If Sharonʼs dependent son lives with her during Year
Which of the following is not an acceptable filing status?a. Singleb. Qualifying widow(er)c. Divorcedd. Head of household
For head of household filing status, which of the following costs are considered in determining whether the taxpayer has contributed more than one-half the cost of maintaining the household? a. Food
Trina was married until October 10, 2023, when her husband was killed in a car accident. She continues to provide for her two young children in 2023 and the next ten years. What is Trinaʼs filing
Josiah, age 17, is claimed as a dependent on his parentʼs tax return. In 2023, Josiah received interest income of $$1,400$ and wages of $$5,000.$ What is Josiahʼs eligible standard
If Amos, age 15, receives $$3,600$ of dividend income and earns $$4,800$ from a part-time job, parts of his income can be taxed at whose tax rate?a. Amosʼs rateb. Parents’ ratec. Trust income
In 2023, George and Gladys file a joint return and are 76 and 75 years old, respectively. What is their standard deduction?a. $13,850b. $27,700c. $29,200d. $30,700
Why is it important to distinguish between a trade or business, investment, or personal activity?
What facts are important in determining whether rental real estate is a business activity or an investment?
Distinguish between realty and personalty.
Why is it important to differentiate between an ordinary asset, a Section 1231 asset, and a capital asset?
When is an asset deemed long term for holding period purposes?Why is this important?
Provide the definition of cost basis and adjusted basis and what is included to calculate basis.
If you find a $20 bill on the sidewalk, is this taxable income?
What is needed in order to deduct a business expense on a tax return?
Provide two examples of personal expenses that are deductible on an individual’s tax return.
What is the difference between realized gain or loss and recognized gain or loss?
What does the tax law include in amount realized?
Provide a definition for boot.
Provide two reasons why gain might be deferred on a tax return.
How does a tax- deferred transaction impact the holding period of an asset?
Describe three differences between the calculation of tax- deferred gains and losses and excluded gains and losses.
Describe the goal of tax planning.
What is the formula to calculate an individual’s taxable income?
What form(s) is (are) used to file an individual’s income tax return?
Explain why a taxpayer with higher income does not have as large of a behavioral response to an increase in the tax rate as a lower-income taxpayer.
Differentiate between tax compliance and tax planning.
Differentiate between an open transaction and a closed transaction.
What is the marginal tax rate? The average tax rate? The effective tax rate?
Explain why a taxpayer would want to delay receipt of income or accelerate expenses into the current year.
In what circumstances would it be better to accelerate income into the current year?
Name three tax planning opportunities that taxpayers need to be familiar with.
Discuss why the jurisdiction of a business might affect its after-tax cash flow.
Why is it important to identify the type of income earned or losses incurred?
Which entity, an individual or a corporation, would pay more income tax on a net long-term capital gain of $10,000?
Explain static versus dynamic forecasting.
Discuss the phrase “A dollar earned today is worth more than a dollar earned in the future.”
Which term describes a legal method of reducing taxes?
Why must a CPA practicing tax be ethical when providing tax advice to others?
Why are there two different sets of rules to govern the preparation of financial statements and the preparation of the tax return?
Provide an example of a social objective of the tax law.
Provide an example of an economic objective of the tax law.
Describe horizontal equity and vertical equity.
Name three other types of taxes besides the income tax that an individual may have to pay.
Hoffman Inc.’s tax liability increased by $$55,000$ this year, so it decided to reduce the dividend paid to its shareholders by $$55,000.$ Who bears the incidence of the increase in tax
Discuss the different specialty areas that a person may work in as a tax professional.
Which of the following forms is used to complete and file an individual tax return?a. Form 1120b. Form 1040c. Form 1065d. Form 709
Which of the following statements is true?a. A taxpayer is always guaranteed a refund.b. Form 1065 is used to complete and file an individual tax return.c. A taxpayer can deduct the greater of
What tax rate is best to use in tax planning?a. Marginal tax rateb. Average tax ratec. Effective tax rated. None of the these
Which of the following does not present a tax planning opportunity?a. Difference in tax rates across jurisdictionsb. Difference in tax rates across time periodsc. Difference in tax rates across
Which of the following is an example of tax evasion?a. Taxpayer A accelerates her deductible expenses into Decem-ber of the current year because she anticipates that her tax rate will be lower next
Which of the following is not an objective of the federal income tax system?a. Raise revenueb. Ensure the tax law is equitablec. Tax only the rich and never the poord. Meet specified social objectives
Which of the following policy objectives describes the disallowance of entertainment expenses?a. Politicalb. Equityc. Economicd. Social
All of the following are examples of taxes that might be paid by individuals to the government except:a. Implicit taxb. Income taxc. Sales taxd. Gift tax
Which certification is most popular among tax accountants?a. Certified Financial Plannerb. Certified Public Accountantc. Attorneyd. Certified Estate Planner
Which of the following is a possible career in taxation?a. Corporate accountingb. Public accountingc. Government accountingd. All of the these
Narayani is single and has taxable income in 2023 of $$90,000.$ She is considering working as a freelance designer and will earn an additional $$20,000.$ Disregarding self-employment tax, what is
Briefly describe supporting Schedules 1, 2, and 3 for Form 1040.
Jasmine is single and in the 35% marginal tax bracket.She gifts stock to her father with a fair market value of $$50,000$ that earns non-qualified dividend income of $$4,300$ in 2023 (meaning
Discuss why tax evasion is a significant issue for the federal government.
What is the main purpose of GAAP and the main purpose of the tax laws?
List the five main goals that policymakers attempt to achieve with the income tax system.
Dexter earns wages of $88,000 in 2023. What are the total employment taxes paid on the wages?
List five characteristics of a successful tax professional.
Calculate the tax liability for the following taxpayers in 2023:a. Darius is single and has taxable income of $100,000.b. Henry and Harriet are married and file a joint tax return. They have taxable
What is the after-tax income in the following situations for a single taxpayer in 2023?a. Taxable income received of $$100,000.b.$ Taxable income received of $$75,000,$ tax-exempt revenue
What is the after-tax cost in the following situations if the taxpayer has additional deductions as stated? Assume the taxpayer is in the 24% marginal tax bracket.a. Deductible expense paid of
Dre owns Kratum Company and has the following revenue and expenses. Calculate the after-tax net profit (ignoring self- employment tax) for Dre who is single in 2023. Taxable revenue received

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