Questions and Answers of Introduction To Federal Income Taxation

Which of the following expenses would be deductible as a miscellaneous itemized deduction subject to the 2% AGI floor?a. The taxpayer’s cost of a special listening device that allows a deaf
Which of the following expenses cannot be deducted as an employee business expense on Schedule A?a. Dues an employee pays to the Chamber of Commerce.b. Dues a teacher pays to belong to the
Which of the following is not a factor that the IRS looks at to determine if a loss is from a hobby or from a business?a. The taxpayer’s expertise in the area.b. The history of the income and loss
Which of the following taxpayers cannot take a deduction for educational expenditures?a. Alan, who is already a CPA, is taking courses in pursuit of a Master in Taxation degree.b. Martha, a business
Which of the following “uniforms” would be considered a deductible employee business expense?a. A cost of a suit a lawyer purchases to wear to court. All lawyers are required to wear a suit when
Stacy’s employer sent her on a domestic business trip. She was away from home for 15 days, of which 12 counted as business days. Stacy’s expenses for the trip are as follows:Airfare $1,400
Tonya’s employer sends her on a business trip to Los Angeles. Tonya is gone a total of 10 days, of which only 5 count as business days. If Tonya is not reimbursed for any of the trip, which of the
Larry has two jobs. On days that he works at both places, he goes home to grab a bite to eat first, before heading out to his second job. The distances between the three locations are as
Which of the following is a correct statement regarding accountable and nonaccountable reimbursement plans?a. Under an accountable reimbursement plan, employers report reimbursements as additional
Which of the following is not required to substantiate an expense under an accountable plan?a. The amountb. The business purposec. The location of where the business took placed. The method of
Gambling losses in excess of gambling winnings are deductible as miscellaneous itemized deductions not subject to the AGI floor.
A college graduate seeking employment at his first job cannot deduct his job search costs as a miscellaneous itemized deduction subject to the 2% AGI floor.
In order for an employee to deduct expenses related to the home office, the use of the home office must be for the employer’s convenience.
Sheila was sent to New York by her employer. She was gone a total of 8 days, of which 4 were spent conducting business. For purposes of deducting the costs of this trip, all of Sheila’s airfare to
George was sent to Paris, France by his employer. He flew out on Tuesday, worked Wednesday through Friday, and then enjoyed sightseeing around Paris Saturday through Monday before returning home on
The 50% limitation on meals and entertainment does not apply if the employer uses the per diem rate to reimburse employees for job-related meals.
Rose accepts a temporary assignment with her current employer in another state that is expected to last 10 months. Because of the temporary nature of the assignment, Rose rents an apartment in the
For the purpose of determining whether a travel expense is allowed, the “tax home” is the place where the taxpayer lives most of the year.
Lee’s employer frequently requires her to use her personal car for business. During 2014, Lee drives 10,000 job-related miles. She also pays $200 for business-related parking and tolls.Assuming Lee
For a reimbursement plan to be considered an accountable plan, the plan must require the employees to return any excess reimbursements over substantiated expenses.
Callie’s filing status is head of household. Callie’s itemized deductions total $26,500, which include deductions for home mortgage interest, real estate taxes and charitable contributions.If
Last year, Beth purchased a motor home for $60,000. In the current year, the motor home was completely destroyed in an accident. The fair market value of the motor home before the accident was
Which of the following may result in a deductible casualty and theft loss?a. Moth damage to a fur coat stored in the taxpayer’s closet.b. Damage to the taxpayer’s roof caused by tree falling on
Danny donated stock to a local Food bank, which is a qualified charity. The stock was worth$1,000 at the time of the donation, but Danny only paid $300 for the stock three months ago. What amount can
Neal owns three homes. His main home is located in Boston. His two vacation homes are located in Boca Grande, Florida and Vail, Colorado. Compute Neal’s home mortgage interest deduction if the
On January 2 of this year, Lance purchased his main home for $150,000. He made a $30,000 down payment and took out a 30-year mortgage from the bank for the rest. In order to obtain the mortgage, he
During the year, Janet paid the following taxes:Real estate taxes on Janet's main home $2,500 Sales taxes 3,000 State income taxes withheld 6,000 Social security and Medicare taxes withheld 8,400
Dana’s main home is located in Chicago. Her vacation home is located in Naples, Florida.Dana also owns a vacant lot she holds as an investment. Compute Dana’s real estate tax deduction if the
Which of the following is not a deductible tax on Schedule A?a. Foreign real estate taxesb. Federal gift taxesc. Personal ad valorem property taxesd. Foreign income taxes
Which of the following is deductible as a medical expense (before considering the AGI floor)?a. A cost of an over-the-counter drug prescribed by the taxpayer’s doctor to treat his acid reflux
Like the phase-out of the exemption deduction for higher-income taxpayers, if AGI gets to be high enough, the taxpayer’s itemized deductions can be reduced to $0.
The charitable contribution deduction for donating property that has declined in value since purchased by the taxpayer is always the property’s value.
The same standard mileage rate is used for medical and for charitable contributions.
Any investment interest expense not deductible in the current year due to the taxpayer not having enough net investment income is carried over to the next year.
Points paid in connection with the refinancing of a loan on the taxpayer’s main home are deductible in full in the year paid.
Interest paid on amounts borrowed to purchase tax-exempt (municipal) bonds is deductible as an investment interest expense.
This year the Hagars received a $600 refund from the State of Arizona resulting from an overpayment of their last year’s state income taxes. As a result of the refund, the Hagars reduce their state
Income taxes the taxpayer pays to a foreign government are deductible as an itemized deduction on Schedule A.
Reimbursements taxpayers receive from their health insurance companies are never taxable if the taxpayer pays 100% of the premiums.
An unmarried 36-year-old taxpayer can only deduct (as an itemized deduction) unreimbursed medical expenses that exceed 10% of the taxpayer’s AGI.
Which of the following statements is an incorrect statement with respect to married taxpayers?a. Married taxpayers must file a joint tax return in order to claim the deduction for student loan
Mattie is 51 and single. She earns $200,000 as a Vice-President of a company that offers a retirement plan in which she participates. How much can Mattie contribute to a traditional IRA for 2014, and
Which of the following expenditures is a deductible moving expense?a. Costs of meals and lodging while in transitb. Loss of the damage deposit on the apartment where the taxpayer lived prior to the
Which of the following is an incorrect statement regarding health savings accounts (HSAs)?a. Only persons with high-deductible health care plans can contribute to an HSA.b. Only persons with earned
Which of the following is an incorrect statement regarding education savings accounts (ESAs)?a. The $2,000 contribution limit is a per beneficiary limit.b. Contributions to an ESA are never
Which of the following statements is correct regarding Roth IRAs?a. The contributions are deductible if an unmarried taxpayer is not an active participant in an employer-sponsored retirement plan.b.
Jules was physically injured in a car accident. She received $4,000 to pay the medical bills associated with the injuries she suffered and $6,000 to compensate her for lost wages during her recovery.
Which of the following statements is incorrect regarding the exclusion for Series EE bond interest?a. To be eligible for the exclusion, married couples must file a joint tax return.b. The exclusion
Dee, a junior at SSU, received an $8,000 scholarship. Dee’s education costs for the year include$4,100 for tuition, $2,900 for room and board, $800 for books, and $600 for course-related supplies.
Which of the following fringe benefits is taxable to the employee receiving the benefit?a. Reduced tuition given to a university employee’s married child who no longer qualifies as the employee’s
In order for a married couple to contribute to a traditional IRA, both spouses must have earned income.
Self-employed persons who are eligible to participate in their spouses' employer-provided health care plan cannot deduct the cost of health insurance they pay as a deduction for AGI.
Taxpayers can deduct the costs of moving their furniture to a new home as long as the new home is at least 50 miles away from the old home.
Cancellation of debt is excluded from gross income if the person who owed the debt is bankrupt or insolvent at the time the debt is forgiven.
Workers’ compensation is always excluded from gross income, even though most of the payments are to pay the worker for lost wages.
Each year, the maximum that employees can exclude from gross income for educational assistance is $5,000.
Jean’s employer pays her $200 each month to cover the cost of parking near a rail station where Jean catches the train to work. Jean is the CEO of the company, and she is the only employee who
A non-key, non-highly paid employee excludes from gross income employer-paid premiums attributable to the first $50,000 of group-term life insurance.
The health insurance premiums employers pay on behalf of their non-key, non-highly paid employees are always excluded from the employee’s gross income.
In order for taxpayers to qualify for the foreign-earned income exclusion, they must be a bona fide resident of the foreign country for the entire year.
An unmarried taxpayer files as single and has modified AGI of $217,340. Included in this amount is $37,300 of net investment income (NII). The taxpayer’s NII tax is:a. $659.b. $1,417.c. $8,259.d.
Which of the following always results in income that is taxed to the taxpayer?a. An interest-free loan of $6,000 from the taxpayer’s employerb. Tips totaling less than $20 received by a hostess
Taxpayers are required to file a Schedule B:a. if they have interest or dividends from more than one source, regardless of the amount.b. if they have any tax-exempt interest, regardless of the
If a couple’s taxable income puts them in the highest 39.6% tax bracket, what tax rate applies to their qualified dividends?a. 0%b. 15%c. 20%d. 39.6%
For 2014, the maximum percentage of Social Security benefits that could be taxable:a. 0%.b. 50%.c. 85%.d. 100%.
To the owner of a purchased annuity, annuity payments are:a. fully includable in gross income.b. fully excluded from gross income.c. considered to be a tax-free return of capital until the original
Which of the following statements is not a correct statement?a. The earnings from traditional IRAs are not taxed when earned, but are eventually taxed.b. None of the amounts withdrawn from a
At that time, she will begin receiving $2,000 a month. How much of the $60,000 Sheila receives in 2014 is taxable?a. $24,000b. $60,000c. $36,000d. $0
In accordance with their 2013 divorce agreement, Sheila receives $5,000 a month for alimony until her son turns
Yoga Now, a yoga studio, is a calendar year business that uses the accrual method. On July 1, 2013, Yoga Now sold, for $500, a punch card that allows the client to attend 50 yoga classes anytime over
This year Syd purchased 500 shares of ABC common stock for $10 per share. At year-end the ABC shares were worth $22 per share. What amount must Syd report as income this year?a. $0b. $10,000c.
Gambling winnings are included in gross income.
Taxpayers must include in gross income any refunds they receive for overpaying their state income taxes.
Children subject to the kiddie tax are required to pay tax on all of their investment income using their parents’ tax rate.
When an employer makes a loan of less than $100,000 to one of its employees, the imputed interest rules do not apply if the employee’s net investment income is less than $1,000.
Carol purchased a life annuity, but died before recovering her entire investment. Since the payments stopped when Carol died, nothing can be done about Carol’s unrecovered cost in the annuity.
Distributions from a traditional IRA funded entirely with deductible contributions are 100% taxable.
Property transfers between former spouses as part of a divorce settlement are not taxable.
Employees must pay social security and Medicare taxes on all unreported tips they receive.
Under the accrual method of accounting, some types of prepaid income are taxed in the year of receipt, regardless of when the income is earned.
Under the general rule for the cash method of accounting, income is recognized in the year the cash or property is received.
Which one of the following taxpayers could never file Form 1040EZ?a. Taxpayers with AGI of $100,001b. Taxpayers taking the additional standard deductionc. Taxpayers claiming the earned income
Which one of the following is never a refundable credit?a. Earned income creditb. Adoption creditc. American opportunity creditd. Child tax credit
Bill and Tina are divorced. Tina is the custodial parent of their 6-year-old son, Josh. Josh lives with Tina most of the year, but in the current year, Tina has signed away her right to claim Josh as
Which of the following credits is available to a married person whose filing status is married filing separately?a. Earned income creditb. Child tax creditc. Child and dependent care creditd.
Donna files as head of household and has AGI of $92,750. Donna’s child tax credit is:a. $1,000b. $2,000c. $1,100d. $100
Donna has two dependent children, ages 13 and
Tyler files his 2014 tax return as a qualifying widow(er). During 2014, Tyler contributes$3,000 to his Roth IRA. If Tyler’s AGI is $25,000, his retirement savings contributions credit is:a. $200.b.
Eileen files as head of household. In 2014, Eileen pays $3,600 of tuition for her dependent daughter, who is a freshman in college. If Eileen’s AGI is $72,000, the refundable and nonrefundable
Craig and Marge Kellogg file a joint tax return. Their only source of income is Craig’s wages of $23,200. The Kelloggs paid a neighbor $5,000 to look after their 2-year-old son while Marge attended
For purposes of the child and dependent care credit, qualified expenses may include:a. payments made for services provided in the taxpayer’s home.b. payments to the taxpayer’s 18-year-old
The difference between a refundable credit and a nonrefundable credit is:a. a refundable credit can only reduce a taxpayer's total tax liability to $0.b. a nonrefundable credit can only reduce a
Taxpayers claiming dependents cannot file Form 1040EZ.
The earned income credit is only available to taxpayers with earned income and at least one qualifying child.
Taxpayers installing alternative energy equipment to their vacation homes may be eligible for the residential energy credit.
The Tanners pay $10,000 in 2014 to adopt a child with special needs. The adoption is finalized in 2014. If the Tanners’ AGI is $100,000, they will be entitled to take an adoption credit of $13,190
The maximum lifetime learning credit is $10,000.
Once a taxpayer’s AGI reaches a high enough level, the taxpayer will no longer be able to claim the child and dependent care credit.
Taxpayers not wanting to take a tax credit for foreign taxes paid during the year can instead deduct their foreign taxes as a deduction for AGI.
The tax rate on net capital gain is always lower than the tax rate on wages and other types of ordinary income.

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