Questions and Answers of Income Tax Fundamentals

Ramon, a single taxpayer with no dependents, has adjusted gross income for 2016 of $98,000 and his itemized deductions total $19,000. What taxable income will Ramon show in 2016?a. $74,950b.
All of the following are itemized deductions in 2016 except:a. Charitable contributionsb. Alimony paymentsc. Casualty lossesd. Medical expensese. All of the above are itemized deductions
Which of the following is a deduction for adjusted gross income in 2016?a. Personal casualty lossesb. Medical expensesc. Student loan interestd. Charitable contributionse. None of the above
1. The current income tax system was:a. Designed solely to raise money to run the governmentb. Authorized by the founding fathers when the government was formedc. Not designed with social objectives
Indicate the date that the statute of limitations would run out on each of the following 2018 individual tax returns: a. A fraudulent tax return that was filed April 15, 2020 b. A tax
In the 2019 tax year, Michelle paid the following amounts relating to her 2017 tax return: Tax deficiency....................................................$5,000 Negligence
Melodie’s taxable income is $39,000 and she pays income tax of $4,489. If Melodie’s taxable income increases to $41,000, she would pay income taxes of $4,884. What is Melodie’s marginal tax
Glen’s taxable income is $50,000 and he pays income tax of $6,864. If his income were $60,000, he would pay taxes of $9,064. What is Glen’s marginal tax rate? a. 18.23% b.
If a taxpayer’s 2019 individual income tax return was filed on March 3, 2020, the statute of limitations would normally run out on: a. April 15, 2022 b. March 3, 2021 c. April 15,
Cypress Corporation, a calendar year end corporation, has an AMT credit carryforward from 2018 (the credit arose in 2017) in the amount of $43,000. In 2019, Cypress has $170,000 of taxable income.
Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda’s basis in her stock is $21,000. On May 26, 2019, Bill sells his stock, with a basis of $40,000, to
Mallory Corporation has a calendar year-end. The corporation has paid estimated taxes of $10,000 during 2019 but still owes an additional $5,000 for its 2019 tax year. a. When is the 2019 tax
Fisafolia Corporation has gross income from operations of $210,000 and operating expenses of $160,000 for 2019. The corporation also has $30,000 in dividends from publicly traded domestic
For its current tax year, Ilex Corporation has ordinary income of $260,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000. Calculate Ilex Corporation’s tax liability
Ulmus Corporation is an engineering consulting firm and has $1,120,000 in taxable income for 2019. Calculate the corporation’s income tax liability for 2019.
Quince Corporation has taxable income of $485,000 for its calendar tax year. Calculate the corporation’s income tax liability for 2019 before tax credits.
Any corporate AMT credit carryovers that existed at the end of 2017: a. Can be used to offset tax liability generated in 2018 and thereafter b. Do not expire c. Can generate a
Which of the following statements is false regarding corporate tax return due dates? a. Corporate tax returns for 2019 calendar-year corporations are due April 15, 2020. b. Corporate tax
Walnut Corporation owns 6 percent of Teak Corporation, a domestic corporation. During the current year, Walnut Corporation received $20,000 in dividends from Teak Corporation. Assuming that
Mask Corporation generated a net operating loss of $24,000 in 2019 and taxable income of $10,000 in 2020. How much NOL can Mask use in 2020 to reduce taxable income? a. $8,000 b.
Harrison Corporation generates capital gains/(losses) of $30,000, $2,000, ($40,000) in 2017, 2018, and 2019, respectively. Harrison started operating in 2017. What is Harrison’s capital loss
Tayla Corporation generated $400,000 of taxable income in the 2019. What is Tayla’s corporate tax liability? a. $71,400 b. $84,000 c. $115,600 d. $0 e. None of the above
Ironwood Corporation has ordinary taxable income of $65,000 in 2019, and a shortterm capital loss of $15,000. What is the corporation’s tax liability for 2019? a. $7,500 b. $5,250 c.
Emily Jackson (Social Security number 765-12-4326) and James Stewart (Social Security number 466-74-9932) are partners in a partnership that owns and operates a barber shop. The partnership’s first
Van makes an investment in an LLC in 2019. Van’s capital contributions to the LLC consist of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse liability
Van makes an investment in a partnership in 2019. Van’s capital contributions to the partnership consist of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse
Janie owns a 40 percent interest in Chang Partnership. Chang has W-2 wages of $50,000 and qualified property of $450,000 in 2019. a. When computing the W-2 wages limitation, what is the amount
Quince Interests is a partnership with a tax year that ends on September 30, 2019. During that year, Potter, a partner, received $3,000 per month as a guaranteed payment, and his share of partnership
Wilson has a 40 percent interest in the assets and income of the CC&W Partnership, and the basis in his partnership interest is $45,000 at the beginning of 2019. During 2019, the partnership’s
Jay is a 30 percent partner in the Closet Partnership. In 2019, Closet paid W-2 wages of $24,000 and held qualified property of $600,000. In 2019, Jay’s QBI deduction is subject to the wage
In 2019, Gloria, a single taxpayer, receives a Schedule K-1 from a partnership she is invested in. The K-1 reports ordinary business income of $40,000, dividend income of $500, tax-exempt interest of
Telly, age 38, has a $140,000 IRA with Blue Mutual Fund. He has read good things about the management of Green Mutual Fund, so he opens a Green Fund IRA. Telly asked for a distribution rollover and
Thomas is an employer with two employees, Patty and Selma. Patty’s wages are $12,450 and Selma’s wages are $1,310. The state unemployment tax rate is 5.4 percent. Calculate the following amounts
Fiduciary Investments paid its employee, Yolanda, wages of $139,000 in 2019. Calculate the FICA tax: Withheld from Yolanda's wages: Social Security Medicare $- Paid by Fiduciary: Social
Lamden Company paid its employee, Trudy, wages of $52,000 in 2019. Calculate the FICA tax: Withheld from Trudy's wages: Social Security Medicare Paid by Lamden: Social Security Medicare Total
Sherina Smith (Social Security number 785-23-9873) lives at 536 West Lapham Street, Milwaukee, WI 53204, and is self-employed for 2019. She estimates her required annual estimated tax payment for
When taxpayers receive distributions from qualified retirement plans, how much time is allowed to roll over the amount received into a new plan to avoid paying taxes on the distribution in the
Employers generally must file a quarterly tax return showing the amount of wages paid and the amount of income tax and FICA tax withholding due. This tax return is filed on:a. Form 944 or Form
Ran’s wage income is $47,350 in 2019. The combined employer and employee FICA tax rates that apply to Ran’s wages are: a. 15.3% for Social Security and Medicare b. 6.2% for Social
Terry worked for two employers during 2019. The amount of wages paid to Terry by both employers totaled $168,400 and the employers properly withheld both income and employment taxes. As a result of
Which of the following is not true about FICA taxes? a. The FICA tax has two parts, Social Security (Old Age, Survivors, and Disability Insurance) and Medicare. b. In 2019, the maximum wage
Amy is a single taxpayer. Her income tax liability in the prior year was $5,178. Amy earns $50,000 of income ratably during the current year and her tax liability is $4,342. In order to avoid
Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2019, Owen and Lisa exchange land they both held
Carey exchanges land for other land in a qualifying like-kind exchange. Carey’s basis in the land given up is $115,000, and the property has a fair market value of $150,000. In exchange for her
William sold Section 1245 property for $25,000 in 2019. The property cost $38,500 when it was purchased 5 years ago. The depreciation claimed on the property was $19,200. a. Calculate the
Derek purchases a small business from Art on June 30, 2019. He paid the following amounts for the business: Fixed
Tom has a successful business with $100,000 of taxable income before the election to expense in 2019. He purchases one new asset in 2019, a new machine which is 7-year MACRS property and costs
On September 14, 2019, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $40,000, and Jay uses the
On February 2, 2019, Alexandra purchases a personal computer. The computer cost $1,800. Alexandra uses the computer 85 percent of the time in her accounting business, and the remaining 15 percent of
Calculate the following: a. The first year of depreciation on a residential rental building costing $250,000 purchased June 2, 2019. b. The second year (2020) of depreciation on a computer
On March 8, 2019, Holly purchased a residential apartment building. The cost basis assigned to the building is $700,000. Holly also owns another residential apartment building that she purchased on
Jeanie acquires an apartment building in 2008 for $280,000 and sells it for $480,000 in 2019. At the time of sale there is $60,000 of accumulated straight-line depreciation on the apartment building.
During 2019, Paul sells residential rental property for $240,000, which he acquired in 1998 for $160,000. Paul has claimed straight-line depreciation on the building of $60,000. What is the amount
In 2019, Ben purchases and places in service a new auto for his business. The auto costs $57,000 and will be used 100 percent for business. Assuming the half-year convention applies and Ben does not
In 2019, Ben purchases and places in service a new auto for his business. The auto costs $57,000 and will be used 60 percent for business. Assuming the half-year convention applies and Ben elects out
James purchased office equipment for his business. The equipment has a depreciable basis of $7,000 and was put in service on June 1, 2019. James decides to elect straightline depreciation under MACRS
An asset (not an automobile) put in service in June 2019 has a depreciable basis of $40,000 and a recovery period of 5 years. Assuming bonus depreciation is used, half-year convention and no election
An asset (not an automobile) put in service in June 2019 has a depreciable basis of $30,000 and a recovery period of 5 years. Assuming half-year convention, no bonus depreciation, and no election to
Alice purchases a rental house on August 22, 2019, for a cost of $174,000. Of this amount, $100,000 is considered to be allocable to the cost of the home, with the remaining $74,000 allocable to the
George and Amal file a joint return in 2019 and have AGI of $39,800. They each make a $1,600 contribution to their respective IRAs. Assuming that they are not eligible for any other credits, what is
In 2019, Jeff spends $6,000 on solar panels to heat water for his main home. What is Jeff’s credit for his 2019 purchases? SCHEDULE EIC (Form 1040 or 1040-SR) Earned Income Credit OMB No.
Mike bought a solar electric pump to heat his pool at a cost of $2,500 in 2019. What is Mike’s credit?
Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is finalized in 2019. They pay $7,000 in 2018 and $7,500 in 2019 for qualified adoption expenses. In 2019,
Janie graduates from high school in 2019 and enrolls in college in the fall. Her parents pay $4,000 for her tuition and fees. a. Assuming Janie’s parents have AGI of $170,000, what is the
Clarita is a single taxpayer with two dependent children, ages 10 and 12. Clarita pays $3,000 in qualified child care expenses during the year. If her adjusted gross income (all from wages) for the
Calculate the amount of the child and dependent care credit allowed before any tax liability limitations or other credits for 2019 in each of the following cases, assuming the taxpayers had no income
Virginia and Richard are married taxpayers with adjusted gross income of $28,000 in 2019. If Virginia is able to make a $1,500 contribution to her IRA and Richard makes a $1,500 contribution to his
Barbara purchased a new Honda Clarity electric vehicle in 2019 for $36,000. Her federal tax credit will be: a. $0 b. $2,500 c. $5,000 d. $7,500 e. $10,000
In connection with the adoption of an eligible child who is a U.S. citizen and who is not a child with special needs, Sean pays $4,000 of qualified adoption expenses in 2018 and $3,000 of qualified
John and Joan pay $16,500 of qualified adoption expenses in 2019 to finalize the adoption of a qualified child. Their AGI is $197,000 for 2019. What is their adoption credit for 2019? a.
Lucas, a single U.S. citizen, works in Denmark for MNC Corp during all of 2019. His MNC salary is $87,000. Lucas may exclude from his gross income wages of: a. $0 b. $40,000 c.
Joan, a single mother, has AGI of $61,500 in 2019. In September 2019, she pays $5,000 in qualified tuition for her dependent son who just started at Big University. What is Joan’s American
John, a single father, has AGI of $81,000 in 2019. During the year, he pays $4,000 in qualified tuition for his dependent son, who just started attending Small University. What is John’s American
In November 2019, Simon pays $1,000 to take a course to improve his job skills to qualify for a new position at work. Simon’s employer reimbursed him for the cost of the course. For 2019, Simon’s
In September 2019, Sam pays $6,200 to take a course to improve his job skills to qualify for a new position at work. Assuming there is no phase-out of the credit, his lifetime learning credit for
Which of the following costs is not a qualified education expense for the American Opportunity tax credit? a. tuition b. room and board c. course-related books d. lab supplies
Jane graduates from high school in June 2019. In the fall, she enrolls for twelve units at Big State University. Big State University considers students who take twelve or more units to be full-time.
The American Opportunity tax credit is 100 percent of the first____of tuition and fees paid and 25 percent of the next____. a. $600; $1,200 b. $1,100; $550 c. $2,000; $2,000d. $1,100;
Assuming they all meet the income requirements, which of the following taxpayers qualify for the earned income credit in 2019? a. A married taxpayer who files a separate tax return and has a
Jennifer is divorced and files a head of household tax return claiming her children, ages 4, 7, and 17, as dependents. Her adjusted gross income for 2019 is $81,200. What is Jennifer’s total child
Russ and Linda are married and file a joint tax return claiming their three children, ages 4, 7, and 18, as dependents. Their adjusted gross income for 2019 is $415,300. What is Russ and Linda’s
Richard and Christine McCarthy have a 19-year-old son (born 10/2/2000; Social Security number 555-55-1212), Jack, who is a full-time student at the University of Key West. Years ago, the McCarthys
Charlie’s Green Lawn Care is a cash basis taxpayer. Charlie Adame, the sole proprietor, is considering delaying some of his December 2019 customer billings for lawn care into the next year. In
Sally hires a maid to work in her home for $280 per month. The maid is 25 years old and not related to Sally. During 2019, the maid worked 9 months for Sally.a. What is the amount of Social Security
Brian and Kim have a 12-year-old child, Stan. For 2019, Brian and Kim have taxable income of $52,000, and Stan has interest income of $4,500. No election is made to include Stan’s income on Brian
Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2019: a. She makes a deductible contribution to an IRA on April 15,
Explain why the tax law prefers flowthrough entities like partnerships and S corporation to have a year-end that matches the year-end of its owners.
Christine and Doug are married. In 2019, Christine earns a salary of $250,000 and Doug earns a salary of $50,000. They have no other income and work for the same employers for all of 2019. How much
Skylar is single and earns $410,000 in salary during 2019. What is the amount of 0.9 percent Medicare tax for high-income taxpayers that his employer must withhold from his wages? a.
For 2019, Roberta is a self-employed truck driver with earnings of $47,000 from her business. During the year, Roberta received $2,500 in interest income and dividends of $500. She also sold
The alternative minimum tax exemption: a. Is a direct reduction of the tentative minimum tax b. Is a reduction of alternative minimum taxable income for certain taxpayers c. Permits
Generally, the tax rate that applies to the unearned income of a minor under the kiddie tax in 2019 is: a. The same as the parents’ tax rate b. The same as the single taxpayer
Which of the following is not required to subject a taxpayer to the tax on unearned income of minors (kiddie tax) in 2019? a. Must be claimed as a dependent b. 18 years of age or younger
BJT Corporation is owned 40 percent by Bill, 30 percent by Jack, and 30 percent by the Trumpet Partnership. Bill and Jack are father and son. Jack has a 10 percent interest in Trumpet Partnership.
Pekoe sold stock to his sister Rose for $12,000, its fair market value. Pekoe bought the stock 5 years ago for $16,000. Also, Pekoe sold Earl (an unrelated party) stock for $6,500 that he bought 3
Which of the following entities is likely to have the greatest flexibility in choosing a year-end other than a calendar year-end? a. Sole proprietor b. General partnership c.
John Williams (birthdate August 2, 1976) is a single taxpayer. John’s earnings and withholdings as the manager of a local casino for 2019 are reported on his Form W-2: John’s other income
In 2019, Gale and Cathy Alexander hosted an exchange student, Axel Muller, for 9 months. Axel was part of International Student Exchange Programs (a qualified organization). Axel attended tenth grade
While preparing Massie Miller’s 2019 Schedule A, you review the following list of possible charitable deductions provided by Massie: Cash contribution to a family whose house burned
During the 2019 tax year, Irma incurred the following expenses: Union dues.......................................................................$244 Tax return preparation

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