Questions and Answers of Income Tax Fundamentals

Which of the following is not a qualified casualty loss?a. Damage to a home from termitesb. An automobile accidentc. A fire lossd. A tornado losse. A flood loss
Which of the following gifts is a deductible contribution?a. A gift of $100 to a homeless personb. A $500 gift to the Democratic National Committeec. $1,000 spent on church bingo gamesd. A $200
In March of 2016, 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
Stanley donates a hotel to a university for use as a conference center. The building was purchased 3 months ago for $1,500,000 and has a fair market value of $1,900,000 on the date the contribution
Which of the following donations are not deductible as a charitable contribution?a. A donation of clothing to Goodwill Industriesb. A cash contribution to a churchc. A contribution of stock to a
Which of the following interest expense amounts is not deductible in the current year?a. Education loan interest of $2,000, assuming the taxpayer has income of $30,000.b. Home equity loan interest of
Carrie finished her undergraduate degree using money from a student loan. She earned $36,000 her first year and paid $2,600 in interest. She can take a deduction for student loan interest in the
Which of the following is deductible as interest on Schedule A?a. Loan fees that are not “points”b. Fees for having a new home inspected prior to purchasec. Interest on a loan for a 90-foot yacht
Ramon, a single taxpayer, has adjusted gross income for 2016 of $208,000 and his itemized deductions total $19,000. The itemized deductions consist of $11,000 in state income taxes and $8,000 of
Which of the following taxes are not deductible as an itemized deduction?a. Property tax on land held for investmentb. State income taxesc. Auto registration fees based on the value of the autod.
Wilma had $3,100 in state income taxes withheld from her paychecks during 2016. In April of 2016, Wilma paid the $50 due for her 2015 state tax return. Wilma’s total tax liability on her state tax
Which of the following taxes may be deducted as itemized deductions for 2016?a. State gasoline taxesb. Fishing license feec. Federal income taxesd. Social Security taxese. Local income taxes
Which of the following is not considered a deductible medical expense?a. Dental workb. Eyeglassesc. Acupunctured. Toothbrush
The cost of which of the following is deductible as a medical expense?a. Travel to a warm climateb. Birth control pillsc. A disability insurance policy that pays $200 for each day the taxpayer is in
The cost of which of the following expenses is not deductible as a medical expense on Schedule A, before the 10 percent of adjusted gross income limitation?a. A psychiatristb. Botox treatment to
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 2016 and
Professor Patricia (Patty) Pâté is retired from the Palm Springs Culinary Arts Academy (PSCAA). She is a single taxpayer and is 68 years old. Patty lives at 98 Colander Street, Henderson, NV 89052.
Dr. George E. Beeper is a single taxpayer born on September 22, 1968. He lives at 45 Mountain View Dr., Apt. 321, Spokane, WA 99210. Dr. Beeper’s Social Security number is 775-88-9531. Dr. Beeper
Rebecca and Walter Bunge have been married for 5 years. They live at 883 Scrub Brush Street, Apt. 52B, Las Vegas, NV 89125. Rebecca is a homemaker and Walt is a high school teacher. Rebecca’s
Dick owns a house that he rents to college students. Dick receives $800 per month rent and incurs the following expenses during the year:Dick purchased the house in 1976 for $48,000. The house is
Betty owns three separate IRA accounts with different banks. She wishes to consolidate her three IRAs into one IRA in 2016. How many distribution rollovers may Betty make in 2016?a. Oneb. Twoc.
Tom quits his job with $120,000 in his employer’s qualified retirement plan. Since he is broke, Tom instructs the plan trustee to pay him the balance in his retirement account. How much will Tom
James’ employer makes a $2,000 contribution to a qualified retirement plan for James in the current year. James is only 45 years old and does not expect to retire until age 65, 20 years from now.
Bob earns $40,000 during the current year. His employer contributes $2,000 (5 percent of Bob’s salary) to a qualified retirement plan for Bob. This pension plan is what kind of plan?a. Defined
Paul, age 37, participates in a Section 401(k) plan which allows employees to contribute up to 16 percent of their salary. His annual salary is $90,000 in 2016. What is the maximum he can contribute,
What is the maximum tax-deferred contribution that can be made to a Section 401(k) plan for an employee under age 50?a. $7,500b. $10,000c. $15,000d. $18,000e. $19,000
What is the deadline for making a contribution to a traditional IRA or a Roth IRA for 2016?a. April 15, 2017b. April 17, 2017c. December 31, 2016d. October 15, 2017
Mindy has a Roth IRA held longer than 5 years to which she has contributed $30,000. The IRA has a current value of $62,000. Mindy is 55 years old and she takes a distribution of $38,000 after
Marge has a Roth IRA held more than 5 years to which she has contributed $30,000. The IRA has a current value of $62,000. Marge is 65 years old and she takes a distribution of $38,000. How much of
Mary has a Roth IRA held more than 5 years to which she has contributed $30,000. The IRA has a current value of $62,000. Mary is 55 years old and she takes a distribution of $40,000. How much of the
Mary has a Roth IRA held more than 5 years to which she has contributed $30,000. The IRA has a current value of $62,000. Mary is 55 years old and she takes a distribution of $40,000. How much of the
Donna, age 42 and a single taxpayer, has a salary of $100,000 and interest income of $20,000. What is the maximum amount Donna can contribute to a Roth IRA?a. $2,500b. $3,300c. $4,400d. $5,500e. Some
Martha and Rob, a married couple, under 50 years of age, have adjusted gross income on their 2016 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 2016. He also received rental income of $5,000 and dividend income of $900 for the year. What is the maximum amount Lyndon can
All of the following are deductible as moving expenses, except:a. The cost of moving household goodsb. Transportation to the new job locationc. Packing expensesd. Lodging during the movee. All of the
Charlene has self-only coverage in 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 contribute
Which of the following is false about the self-employed health insurance deduction?a. The deduction cannot be claimed when a subsidized employer health insurance plan is also available.b. The
Helen, a single taxpayer, has modified adjusted gross income (before passive losses) of $124,000. During the tax year, Helen’s rental house generated a loss of $15,000. Assuming Helen is actively
John owns a second home in Palm Springs, CA. During the year, he rented the house for $5,000 for 42 days and used the house for 14 days during the summer. The house remained vacant during the
Which of the following is true about the rental of real estate?a. Depreciation and maintenance expenses for an apartment complex are deductible.b. A vacation home is a home that is rented for 15 days
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
Christopher Crosphit (age 42) owns and operates a health club called “Catawba Fitness.” The business is located at 4321 New Cut Road, Spartanburg, SC 29303. The principal business code is 812190.
Ken (birthdate July 1, 1985) and Amy (birthdate July 4, 1987) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of
Ken (birthdate July 1, 1985) and Amy (birthdate July 4, 1987) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of
Your supervisor has asked you to research a potential tax deduction for a client, Nancy Fradette. Nancy is a seat-filler at a number of the award shows that are filmed in the greater Los Angeles
Pete qualifies for a home office deduction. The amount of space devoted to business use is 300 square feet of the total 1,200 square feet in his apartment. Pete’s total rent for the year is $9,600,
Cooper and Brandy are married and file a joint income tax return with two separate Schedule Cs. Cooper is an independent security specialist who spent $395 on uniforms during the year. His laundry
Go to the IRS website (www.irs.gov) and redo Problem 5, using the most recent interactive Cost of Goods Sold Schedule on Page 2 of Schedule C (Form 1040). Print out the completed Cost of Goods Sold
Go to the IRS website (www.irs.gov) and find the most recent IRS Publication 538, Accounting Periods and Methods. Print out the first two pages of the part on inventories.
Go to the IRS website (www.irs.gov) and find the most recent IRS Publication 538, Accounting Periods and Methods. Print out the first two pages of the part on inventories.
Kevin owns a retail store, and during the current year he purchased $610,000 worth of inventory. Kevin’s beginning inventory was $67,000, and his ending inventory is $77,200. During the year, Kevin
Margaret started her own business in the current year and will report a profit for her first year. Her results of operations are as follows:What is the net income Margaret should show on her Schedule
Go to the IRS website (www.irs.gov) and redo Problem 1 (Chapter 3, Group 2) using the most recent interactive Schedule C (Form 1040) on the IRS website that will allow the required information to be
Jim has a net operating loss in 2016. If he does not make any special elections, what is the first year to which Jim carries the net operating loss?a. 2012b. 2013c. 2014d. 2015e. 2017
Bonita earns $31,000 from her job, and she has $1,000 of interest income. She has itemized deductions and personal exemptions of $35,000. There are no casualty or theft losses in the itemized
Which of the following taxpayers qualifies for a home office deduction?a. An attorney who is employed by a law firm and has a home office in which to read casesb. A doctor who has a regular office
Kathy is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kathy has $3,000 of net income. Her allocable home office expenses are $5,000 in total
Which of the following business gifts are fully deductible?a. A gift to a client costing $35b. A gift to an employee, for 10 years of continued service, costing $250c. A gift to a client and her
Which of the following employees are most likely permitted to deduct the cost of their uniform?a. A lawyer who is required by her employer to wear a business suitb. A furnace repairman who must wear
Which of the following is not deductible by the taxpayer?a. A subscription to The CPA Journal by a CPAb. A subscription to The Yale Medical Journal by a doctorc. A subscription to Financial
Which of the following taxpayers may not deduct their educational expense?a. A CPA who attends a course to review for the real estate agents’ examb. A corporate president who attends a management
Which of the following expenses is deductible as an entertainment expense?a. The depreciation on an airplane used to entertain customersb. The cost of a hunting camp used to entertain customersc. The
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
Which of the following taxpayers is entitled to a travel expense deduction?a. An employee, who worked in the Salt Lake City plant of a company, who is assigned to the Denver plant of the company for
Which of the following taxpayers may use the standard mileage method of calculating transportation costs?a. A taxi driver who owns a fleet of six cars for hireb. A taxpayer who used accelerated
Which of the following taxpayers may use the standard mileage method of calculating transportation costs?a. A taxi driver who owns a fleet of six cars for hireb. A taxpayer who used accelerated
Which of the following formulas represents the proper method of calculating cost of goods sold?a. Beginning inventory + Ending inventory − Purchasesb. Ending inventory − Purchases − Beginning
Daniel is a self-employed consultant. Until this year he was always an employee. He comes to discuss his new business with you. As his tax accountant, you should:a. Discuss setting up a good
Daniel is a self-employed consultant. Until this year he was always an employee. He comes to discuss his new business with you. As his tax accountant, you should:a. Discuss setting up a good
1. The following additional information is available for the family of Albert and Allison Gaytor.In 2016, Albert received a Form W-2 from his employer, Coconut Grove Fishing Charters, Inc.:In
Carl Conch and Mary Duval are married and file a joint return. They live at 1234 Mallory Sq. Apt. 64, Key West, FL 33040. Carl works for the Key Lime Pie Company and Mary is a homemaker after losing
Ray and Maria Gomez have been married for 3 years. They live at 1610 Quince Ave., McAllen, TX 78701. Ray is a propane salesman for Palm Oil Corporation and Maria works as a city clerk for the City of
Bev and Ken Hair have been married for 3 years. They live at 3567 River Street, Springfield, MO 63126. Ken is a full-time student at Southwest Missouri State University (SMSU) and Bev works as an
Bev and Ken Hair have been married for 3 years. They live at 3567 River Street, Springfield, MO 63126. Ken is a full-time student at Southwest Missouri State University (SMSU) and Bev works as an
Go to the IRS website (www.irs.gov) and redo Problem 7, using the most recent interactive “Fill-in Forms” Schedule B. Print out the completed Schedule B.
Karen is a wealthy retired investment advisor who is in the 35 percent tax bracket. She has a choice between investing in a high-quality municipal bond paying 5 percent or a high-quality corporate
Skyler is covered by his company’s health insurance plan. The health insurance costs his company $3,500 a year. During the year, Skyler is diagnosed with a serious illness and health insurance pays
If a taxpayer holding Series I Bonds does not make an election with respect to the taxation of the bonds, how is the interest that accrues each year on the bonds taxed?
For 2016, 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%
For 2016, 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%
Which of the following prizes or awards is taxable?a. Professional sports awardsb. Prizes from a television game showc. Awards for superior performance on the jobd. A one-acre lot received as a
Hillary gets divorced in 2015 and is required to pay her ex-spouse $200 per month until her son reaches 18 years of age in 7 years and $120 per month thereafter. How much of her 2016 payments are
Nomi is in the highest individual tax bracket and receives $500 in qualified dividends from Omega Corp. Nomi’s tax liability with respect to these dividends is:a. $0b. $277.20c. $100.00d. $75.00e.
Abigail (Abby) Boxer is a single mother working as a civilian accountant for the U.S. Army. Her Social Security number is 676-73-3311 and she lives at 3456 Alamo Way, San Antonio, TX 78249. Helen,
Leslie and Leon Lazo are married and file a joint return for 2016. Leslie’s Social Security number is 466-47-3311 and Leon’s is 467-74-4451. They live at 143 Snapdragon Drive, Reno, NV 82102. For
Patty Banyan is a single taxpayer living at 543 Space Drive, Houston, TX 77099. Her Social Security number is 466-33-1234. For 2016, Patty has no dependents, and her W-2, from her job at a local
Go to the IRS website (www.irs.gov) and print out a copy of the most recent Instructions for Schedule R of Form 1040.
Jim (age 50) and Martha (age 49) are married with three dependent children. They file a joint return for 2016. Their income from salaries totals $49,500, and theyreceived $10,125 in taxable
Jonathan is a 35-year-old single taxpayer with adjusted gross income of $46,300. He uses the standard deduction and has no dependents.a. Calculate Jonathan’s taxable income. Please show your
What is the formula for computing taxable income as summarized in the textbook?
What is the formula for computing taxable income as summarized in the textbook?
The top tax rate for long-term capital gains is ___ percent, and the net investment income Medicare surtax for high-income taxpayers is ___ percent, for a maximum long-term capital gain tax rate of
Shannon has a long-term capital loss of $7,000 on the sale of bonds in 2016 and no other capital gains or losses. Her taxable income without this transaction is $51,000. What is her taxable income
Alexis purchased a rental house 3 years ago for $290,000. Her depreciation to date is $35,000. Due to a decrease in real estate prices, she sells the house for only $265,000 in 2016. What is her gain
Jayne purchased General Motors stock 6 years ago for $20,000. In 2016, she sells the stock for $35,000. What is Jayne’s gain or loss?a. $15,000 short-term gainb. $15,000 long-term gainc. $15,000
Arthur is 65 years old. He supports his father, who is 90 years old, blind, and has no income. For 2016, how many exemptions should Arthur claim on his tax return?a. 1b. 2c. 3d. 4e. 5
Lyn, age 65, and Robert, age 66, are married and support Lyn’s father (no taxable income) and Robert’s mother, who has $2,200 of gross income. If they file a joint return for 2016, how many
Margaret, age 65, and John, age 62, are married with a 23-year-old daughter who lives in their home. They provide over half of their daughter’s support, and their daughter earned $4,100 this year
Joan, who was divorced in 2016, had filed a joint tax return with her husband in 2015. During 2016, 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 2016?a. $6,300b. $12,400c. $10,300d.

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