Questions and Answers of Income Tax Fundamentals

On January 3, 2019, Carey discovers his diamond bracelet has been stolen. The bracelet had a fair market value and adjusted basis of $7,500. Assuming Carey had no insurance coverage on the bracelet
Helen paid the following amounts of interest during the 2019 tax year: Mortgage interest on Dallas residence (loan balance $50,000)...$1,600 Automobile loan interest (personal use
Mary paid $2,000 of state income taxes in 2019. She paid $1,500 of state sales tax on the purchase of goods and she also purchased a car in 2019 and paid sales tax of $3,000. How should Mary treat
Laura is a single taxpayer living in New Jersey with adjusted gross income for the 2019 tax year of $35,550. Laura’s employer withheld $3,410 in state income tax from her salary. In April of 2019,
During 2019, Jill, age 39, participated in a Section 401(k) plan which provides for maximum employee contributions of 12 percent. Jill’s salary was $80,000 for the year. Jill elects to make the
Tony is a 45-year-old psychiatrist who has net earned income of $300,000 in 2019. What is the maximum amount he can contribute to his SEP for the year?
What is the maximum amount a 45-year-old taxpayer and 45-year-old spouse can put into a Traditional or Roth IRA for 2019 (assuming they have sufficient earned income, but do not have an income
Serena is a 38-year-old single taxpayer. She operates a small business on the side as a sole proprietorship. Her 2019 Schedule C reports net profits of $15,624. Her employer does not offer health
Which of the following is deductible as a miscellaneous itemized deduction in 2019? a. Tax preparation fees b. Gambling losses in excess of gambling winnings c. Losses from Ponzi-type
Which of the following would typically be deductible as a casualty loss in 2019? a. Long-term damage to a home from termites b. An automobile accident during the daily commute c. A
In March of 2019, Thomas makes a $5,000 cash contribution to a public university. In that month, he also donates $20,000 to an organization subject to the 30 percent limitation. Thomas has adjusted
Carrie, a single taxpayer, finished h3er undergraduate degree using money from a student loan. She earned $126,000 her first year and paid $2,600 in interest in 2019. She can take a deduction for
Which of the following is deductible as interest on Schedule A? a. Fees for having the home’s value assessed by the bank for purposes of getting a mortgage b. Fees for having a new home
The itemized deduction for state and local taxes in 2019 is a. Total taxes less 10 percent of AGI b. Limited to no more than $10,000 c. Unlimited d. Only deductible if the taxes
Antonio is a small business owner and files jointly with his spouse. In 2019, he generates $100,000 of net profits from his business. His spouse, Maria, has $4,000 of state income tax withheld from
In April 2019, Fred paid $60 of state income tax that was due when he filed his 2018 income tax return. During 2019, Fred’s employer withheld $1,500 of state income tax from his pay. In April 2020,
Which of the following taxes may be deducted as itemized deduction? a. State gasoline taxes b. Local property taxes c. Federal income taxes d. Social Security taxes e.
Which of the following is not considered a deductible medical expense? a. Once daily multivitamin b. Prescription eyeglasses c. Acupuncture d. Filling a tooth cavity
Jessica is a U.S. Army Reservist and in 2019 traveled 130 miles each way to serve duty at a local military installation. She was required to report four times in 2019. Her normal route from home to
What is the maximum tax-deferred contribution that can be made to a Section 401(k) plan by an employee under age 50 in 2019? a. $19,000 b. $20,000 c. $18,500 d. $18,000 e.
What is the deadline for making a contribution to a traditional IRA or a Roth IRA for 2019? a. April 15, 2020 b. April 17, 2019 c. December 31, 2019 d. October 15, 2020
Donna, age 42 and a single taxpayer, has a salary of $104,500 and interest income of $20,000. What is the maximum amount Donna can contribute to a Roth IRA? a. $5,000 b. $3,850 c.
Martha and Rob, a married couple, under 50 years of age, have adjusted gross income on their 2019 joint income tax return of $45,000, before considering any IRA deduction. Martha and Rob have no
Lyndon, age 24, has a nonworking spouse and earns wages of $36,000 for 2019. He also received rental income of $5,000 and dividend income of $900 for the year. What is the maximum amount Lyndon can
Charlene has self-only coverage in a qualifying high-deductible health insurance plan. She is 47 years old and wishes to contribute the maximum amount to her HSA. How much is she allowed to
Julie, a single taxpayer, has completed her 2019 Schedule C and her net loss is $40,000. Her only other income is wages of $30,000. Julie takes the standard deduction of $12,200 in 2019. a.
Tyler, a single taxpayer, generates a net operating loss of $12,000 in 2017 and elects to forego any carryback. He also generates a net operating loss of $6,000 in 2018. Finally, in 2019, Tyler’s
Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2019, his share of the loss from the limited partnership was
Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1993. He also acquired a rental house in 2019, which he actively manages. During 2019, Walter’s share of the
On July 1, 2019, Ted, age 73 and single, sells his personal residence of the last 30 years for $368,000. Ted’s basis in his residence is $48,776. The expenses associated with the sale of his home
Larry Gaines, a single taxpayer, age 42, sells his personal residence on November 12, 2019, for $151,200. He lived in the house for 7 years. The expenses of the sale are $9,072, and he has made
In 2019, Michael has net short-term capital losses of $1,500, a net long-term capital loss of $27,000, and other ordinary taxable income of $45,000. a. Calculate the amount of Michael’s
Jocasta owns an apartment complex that she purchased 6 years ago for $750,000. Jocasta has made $50,000 of capital improvements on the complex, and her depreciation claimed on the building to date is
During 2019, Tom sold Sears stock for $10,000. The stock was purchased 4 years ago for $13,000. Tom also sold Ford Motor Company bonds for $35,000. The bonds were purchased 2 months ago for $30,000.
Martin sells a stock investment for $26,000 on August 2, 2019. Martin’s adjusted basis in the stock is $15,000. a. If Martin acquired the stock on November 15, 2018, calculate the amount and
In 2019, Tracy generates a $10,000 loss from an otherwise qualified business activity. Fortunately, she also works as an employee and has taxable income of $40,000. Tracy’s 2019 QBI deduction
Jim has a net operating loss in 2019. If he does not make any special elections, what is the first year to which Jim carries the net operating loss? a. 2015 b. 2016 c. 2017 d.
Kevin purchased a house 20 years ago for $100,000 and he has always lived in the house. Three years ago Kevin married Karen, and she has lived in the house since their marriage. If they sell
Susan, a single taxpayer, bought her home 25 years ago for $30,000. She has lived in the home continuously since she purchased it. In 2019, she sells her home for $200,000. What is Susan’s taxable
Jim, a single taxpayer, bought his home 20 years ago for $25,000. He has lived in the home continuously since he purchased it. In 2019, he sells his home for $300,000. What is Jim’s taxable gain on
Oscar, a single taxpayer, sells his residence of the last 10 years in January of 2019 for $190,000. Oscar’s basis in the residence is $45,000, and his selling expenses are $11,000. If Oscar does
In 2019, Tim, a single taxpayer, has ordinary income of $29,000. In addition, he has $2,000 in short-term capital gains, long-term capital losses of $10,000, and long-term capital gains of $4,000.
In 2019, what is the top tax rate for individual long-term capital gains and the top tax rate for long-term capital gains of collectible items assuming that the Medicare tax does not apply. a.
Yasmeen purchases stock on January 30, 2018. If she wishes to achieve a long-term holding period, what is the first date that she can sell the stock as a long-term gain? a. January 20,
Your supervisor has asked you to research a potential tax deduction for a client, Randall Stevens. Randall is a bank loan officer that lives in Portland, Maine. His specialty is marine loans; in
Carey opens a law office in Chicago on January 1, 2019. On January 1, 2019, Carey purchases an annual subscription to a law journal for $170 and a 1-year legal reference service for $1,500. Carey
Go to the U.S. General Services Administration (GSA) website. For the month of September 30, 2019, what is the per diem rate for each of the following towns: a. Flagstaff, AZ b. Palm
Business with gross receipts of $25 million or less may treat inventory as nonincidental materials and supplies. Find Regulation Section 1.162-3 and read paragraphs (a)(1) and (a)(2) to help answer
Joe is a self-employed information technology consultant from San Francisco, CA. He takes a week-long trip to Chicago primarily for business. He takes two personal days to go to museums and see the
Heather drives her minivan 953 miles for business purposes in 2019. She elects to use the standard mileage rate for her auto expense deduction. Her deduction will be a. $510 b. $515 c.
Beverly and Ken Hair have been married for 3 years. Beverly works as an accountant at Cypress Corporation. Ken is a full-time student at Southwest Missouri State University (SMSU) and also works
Lydia, a married individual, was unemployed for a few months during 2019. During the year, she received $3,250 in unemployment compensation payments. How much of her unemployment compensation
In 2019, Van receives $20,000 (of which $4,000 is earnings) from a qualified tuition program. He uses the funds to pay for his college tuition and other qualified higher education expenses. How much
How are qualified dividends taxed in 2019? Please give the rates of tax which apply to qualified dividends, and specify when each of these rates applies.
Greg died on July 1, 2019, and left Lea, his wife, a $45,000 life insurance policy which she elects to receive at $9,000 per year plus interest for 5 years. In the current year, Lea receives $9,500.
For each of the following independent cases, indicate the amount of gross income that must be included on the taxpayer’s 2019 income tax return. a. Malchia won a $4,000 humanitarian
How much of each of the following is taxable? a. Cheline, an actress, received a $6,400 gift bag for attending the Academy Awards Ceremony during 2019. b. Jon received a gold watch worth
Linda and Richard are married and file a joint return for 2019. During the year, Linda, who works as an accountant for a national airline, used $2,100 worth of free passes for travel on the airline;
Kristen, a single taxpayer, receives two 2019 Forms W-2 from the two employers she worked for during the year. One Form W-2 lists her wages in Boxes 1, 3, and 5 as $18,700. Her other employer’s
Indicate whether each of the items listed below would be included (I) in or excluded (E) from gross income for the 2019 tax year. a. Welfare payments b. Commissions c. Hobby
Which of the following conditions need not be satisfied in order for a married taxpayer, residing in a community property state, to be taxed only on his or her separate salary? a. The husband
Dana and Larry are married and live in Texas. Dana earns a salary of $45,000 and Larry has $25,000 of rental income from his separate property. If Dana and Larry file separate tax returns, what
Generally, modified adjusted gross income (MAGI) is adjusted gross income (without Social Security benefits): a. Less tax-exempt interest b. Less personal and dependency exemptions c. Less
For 2019, the minimum percentage of Social Security benefits that could be included in a taxpayer’s gross income is: a. 0% b. 25% c. 50% d. 75% e. 85%
Alicia loses her job part way through 2019. Her employer pays her wages of $15,450 up through her date of termination. After that, she received $3,400 of unemployment compensation from the state
During 2019, Carl (a single taxpayer) has a salary of $91,500 and interest income of $11,000. Calculate the maximum contribution Carl is allowed for an educational savings account. a. $0 b.
For married taxpayers filing a joint return in 2019, at what AGI level does the phaseout limit for contributions to Qualified Tuition Programs start? a. $110,000 b. $190,000 c.
In 2019, Amy receives $8,000 (of which $3,000 is earnings) from a qualified tuition program. She does not use the funds to pay for tuition or other qualified higher education expenses. What amount is
Jason and Mary Wells, friends of yours, were married on December 30, 2019. They know you are studying taxes and have sent you an e-mail with a question concerning their filing status. Jason and Mary
What is the total dollar amount of personal and dependency exemptions which a married couple with two children (ages 11 and 14, both of which are qualified children) and $80,000 of adjusted gross
Jessica and Carl were married on July 1, 2019. What are their options for filing status for their 2019 taxes?
Melissa and Aaron are married taxpayers with taxable income of $105,000. a. When you calculate their tax liability, are you required to use the tax tables or the tax rate schedules, or does it
For each of the following situations (none of the taxpayers claim dependents), indicate whether the taxpayer(s) is (are) required to file a tax return for 2019. Explain your answer. a. Helen is
Nicoula is a server at a La Jolla restaurant. Nicoula received $1,200 in unreported tips during 2019 and owes Social Security and Medicare taxes on these tips. Her total income for the year,
Frank, age 35, and Joyce, age 34, are married and file a joint income tax return for 2019. Their salaries for the year total $84,800 and they have taxable interest income of $3,900. They have no
Alicia, age 27, is a single, full-time college student. She earns $13,200 from a parttime job and has taxable interest income of $1,450. Her itemized deductions are $845. Calculate Alicia’s taxable
Ulysses and Penelope are married and file separate returns for 2019. Penelope itemizes her deductions on her return. Ulysses’ adjusted gross income was $17,400, his itemized deductions were $2,250.
Diego, age 28, married Dolores, age 27, in 2019. Their salaries for the year amounted to $47,230 and they had interest income of $3,500. Diego and Dolores’ deductions for adjusted gross income
In 2019, Lou has a salary of $53,300 from her job. She also has interest income of $1,600 and dividend income of $400. Lou is single and has no dependents. During the year, Lou sold silver coins held
Leslie is a single taxpayer who is under age 65 and in good health. For 2019, she has a salary of $24,000 and itemized deductions of $1,000. Leslie allows her mother to live with her during the
Jason and Mary are married taxpayers in 2019. They are both under age 65 and in good health. For 2019 they have a total of $41,000 in wages and $700 in interest income. Jason and Mary’s deductions
Electronically filed tax returns: a. May not be transmitted from a taxpayer’s home computer b. Constitute more than 90 percent of the returns filed with the IRS c. Have error rates
Arthur is 65 years old and single. He supports his father, who is 90 years old, blind, and has no income. What is Arthur’s standard deduction? a. $12,200 b. $13,850 c.
Robin and Howie file married filing jointly and have a 13-year-old daughter. They also provide all the support for Howie’s 82-year-old mother, who lives in a nursing home nearby. The amount of the
Yasmine and her spouse Carlos, who file married filing jointly, provide all the support for their 17-year-old son, Miguel. If Miguel qualifies as a qualifying child under the dependent rules, Yasmine
Joan, who was divorced in 2019, had filed a joint tax return with her husband in 2018. During 2019, she did not remarry and continued to maintain her home in which her five dependent children lived.
Ben is a single taxpayer with no dependents and is 32 years old. What is the minimum amount of income that he must have to be required to file a tax return for 2019? a. $4,200 b.
Ramon, a single taxpayer with no dependents, has adjusted gross income for 2019 of $98,000 and his itemized deductions total $19,000. What taxable income will Ramon show in 2019? a.
All of the following are itemized deductions in 2019 except: a. Charitable contributions b. Alimony payments c. State and local taxes d. Medical expenses e. All of the above
Which of the following tax forms are used by individuals in 2019? a. 1040A b. 1040-EZ c. 1040-SR d. 1120
Which of the following recent tax changes is not scheduled to expire after 2025? a. Suspension of personal exemptions b. General lowering of individual tax rates c. Restrictions on the
The following additional information is available for the Albert and Allison Gaytor family. The Gaytors own a rental beach house in Hawaii. The beach house was rented for the full year during 2018
The following additional information is available for the Albert and Allison Gaytor family from Chapters 1 and 2. On September 1, Allison opened a retail store that specializes in sports car
Go to the IRS website (www.irs.gov/newsroom) and note the name of the most recent news release.
Albert Gaytor and his wife Allison are married and file a joint return for 2018. The Gaytors live at 12340 Cocoshell Road, Coral Gables, FL 33134. Captain Gaytor is a charter fishing boat captain but
Noah and Joan Arc’s Tax Return Noah and Joan Arc live with their family in Dayton, OH. Noah’s Social Security number is 434-11-3311. Noah was born on February 22, 1983 and Joan was born on July
Which of the following have privileged communication with a client in a noncriminal tax matter? a. CPAs.b. Enrolled agents.c. Attorneys.d. a and c.e. a, b, and c.
The burden of proof remains on the taxpayer for corporations, trusts, and partnerships with net worth exceeding: a. $1 million b. $3 million c. $5 million d. $7 million e.
If the IRS owes a taxpayer a refund, the law generally provides that the IRS must pay interest on the refund if it is not paid within days of the date the taxpayer filed his or her tax return or
The IRS does not have to furnish the taxpayer with information concerning which of the following items? a. The way the taxpayer’s return was selected for audit. b. The procedures for

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