1. Wayne was recently promoted to regional manager for the East Coast.His new responsibility requires monthly trips to meet with district managers.His employer does not reimburse his travel expenses.Which of the following would be disallowed as a travel and transportation expense?

a) Airfare

b) Hotel expenses

c) Taxis

d) Phone call home

2. Wayne's overnight travel expenses include meals.Which of the following best describes the limit on his deduction for business meal expenses?

a) $30 per meal

b) 50% of the total meal expenses

c) 50% of the employee's meals only

d) Meals for everyone except the employee - potential clients only

3. Brad began using an office in home in August of 2016.The cost of his home was $135,000, of which, the land value was $20,000.The business percentage of the area used is 20%.What is the amount of depreciation Brad is eligible to deduct on his 2016 tax return?(Round to the nearest dollar.)

a) $1,300

b) $221

c) $1,107

d) $260

4. In order for Wayne, the regional manager, to be able to claim his travel expenses as business related, he must meet certain criteria.Which of the following is incorrectly listed as a characteristic of business related travel expenses?

a) Business related travel must be ordinary and necessary.

b) Business related travel must be expenses incurred for travel away from home for business, professional, or job related reasons.

c) Business related travel must not be extravagant or lavish. d) Business related travel must be for the convenience of the employer.

5. Helen is a nurse and takes night classes at the community college.Which of the following is an incorrect statement with respect to education expenses as deductible employee business expenses?

a) Education expenses for which an education credit was claimed are taxable.

b) Education that qualifies the taxpayer for his first job in that field is not deductible.

c) Education that enables the taxpayer to change jobs is not deductible.

d) Education must be required by the employer or the law to keep one's salary, status, or job, or maintain or improve skills required in his present job in order to be deductible

6.Annie gave each of her clients a birthday gift this year.She has a total of 35 clients.She spent exactly $48 on each client.At Christmas, she gave her top 10 clients a gift valued at $85 each.What is her allowable deduction?

a) $875

b) $1,265

c) $1,680

d) $2,530

7. Rick is an insurance salesman who often entertains prospective clients and claims the expenses on his tax return.Which of the following is incorrectly listed as information Rick should keep regarding his business entertainment expenses?

a) Amount paid

b) Time, date, place and people who were present

c) Purpose of business discussion or nature of business benefit expected to be derived

d) Estimated revenue expected from each business prospect

8. During 2016, Jessica has the following unreimbursed employee business expenses:

Business mileage7,433 miles (7,433 x .54 = $4,014) Business meals$952 ($952 x 50% = $476) Tolls$65 Gas$1,437 Parking$98 Business long distance calls$125 Gifts for clients$45 per gift for 27 clients ($25 x 27 = $675) Entertainment$1,112 ($1,112 x 50% = $556)

Calculate Jessica's business expense deduction prior to the 2% limit.(Round to nearest dollar.)

a) $7,446

b) $7,158

c) $5,846

d) $6,009

9. Charlene had the following expenses.Which would be disallowed as a deduction?

a) Attorney's fees to collect pay from a former employer of $1,000

b) Custodial fees to maintain her investment funds of $245

c) Administrative fees for a trust of $250

d) Funeral expenses of $8,985

10. Corey had the expenses listed below.Calculate the amount he is entitled to deduct on line 27, Schedule A.(His AGI is $35,985.)

Investment account custodial fees$1,575 Safe deposit box rental (contains stocks)$35 Investment counselor fees$780 Appraisal fees paid for a jewelry collection$380

a) $2,770

b) $2,390

c) $2,050

d) $1,670

11. Russ rented a house to his best friend's daughter, Diana (a not-for-profit rental).The fair market rental of the house was $850 per month; however, Russ rented the house to Diana for $500 per month.Diana rented the house for the entire year.Russ' AGI is $45,000.He had expenses as follows:

Mortgage interest $4,200 Repairs $3,850 Utilities $3,100 Insurance $325 Real estate taxes $1,050

What is the amount of rental expense Russ may deduct on his return?

a) $12,525

b) $9,425

c) $6,000

d) $8,675

12. Grace paints pictures as a hobby and often gives them to her family as gifts.Family members also buy them to give to others.Grace earned $2,250 selling paintings.Her expenses are as follows:

Paints for paintings she sold$679 Paints for paintings she gave as gifts850 Canvas for paintings she sold1,200 Canvas for the paintings she gave as gifts1,450 Brushes for the paintings she sold350 Brushes for the paintings she gave as gifts450 Frames for the paintings she gave as gifts980

What is the amount Grace should report as hobby expenses on Schedule A before applying the limit?

a) $2,229

b) $2,250

c) $5,959

d) $0

13. Natalie had an AGI of $70,000 and the following miscellaneous itemized deductions:

Employee business expenses$898 Tax preparation fees154 Investment expenses100

What is the amount of Natalie's miscellaneous itemized deductions on line 27, Schedule A?

a) $1,554

b) $1,400

c) $1,152

d) $0

14. Sarah wants to start a Coverdell ESA for her grandson's education.Where should a taxpayer establish a Coverdell ESA?

a) At the IRS

b) A local loan company

c) Any bank in the U.S.

d) An online loan company

15. Sarah is also considering a qualified tuition plan (QTP) as an alternative to the Coverdell ESA for her grandson's education.What is another name for a QTP?

a) A 529 plan

b) A savings account

c) A government loan

d) A savings bond

16. John plans to take an early distribution from his IRA to help pay for his son's education.What percentage early distribution penalty should John expect to pay?

a)0%

b)10%

c)25%

d) 100%

17. To maintain his skills, Danny is taking a course at the local college to learn how to upgrade computer hardware.Danny works as a web-designer at a local company.Danny is paying all of the fees required to take the 2-year course.Is he allowed to deduct his education expenses and if so, on which form?

a) No; these expenses are not deductible.

b) Yes; only on Schedule A as employee business expense

c) Yes; on Form 1040 as Tuition and Fees adjustment or on Schedule A

d) Yes; on Schedule A or on Form 1040 either as a Tuition and Fees adjustment or as a Lifetime Learning Credit depending on Danny's AGI

18. Al's father and mother were placed in a nursing home.They gave him the family farm prior to their admission.The farm has been in the family for as long as his father can remember.His father has no idea what the original purchase price of the farm was.Al's parents have made the following improvements to the land while it was in their possession. Installed fencing $6,000 Built 2 new barns $45,000 Installed a new well $2,250 Addition to the house $35,000 Paved driveway $1,100 Installed storm windows $3,000 The farm's Fair Market Value was $335,000 at the time of changing hands.What is Al's basis in the farm?

a) $0

b) $83,000

c) $92,350

d) $335,000

19. Jimmy purchased 1,000 shares of Adco on 6/23/2016 for $25 per share.During the time he owned the stock, he received $1,900 in dividends that resulted in an additional 60 shares of stock.For 2016, Jimmy received a 1099-DIV statement for taxable capital gains in the amount of $460.What is the adjusted basis of the stock?

a) $25,000

b) $27,360

c) $26,900

d) $25,460

20. Based on Jimmy's investment history, what is the average cost basis per share of Adco stock?

a) $25.00

b) $25.81

c) $25.38

d) $23.58

21. Jack purchased a house in January 2013 for $119,000.The house was not his primary residence.During the time Jack owned the house, he deducted $13,000 for depreciation.The county installed water and sewer connections (valued at $7,000).Jack had to rewire the house, which cost $1,500.He has lived in the house since January of 2016.What is Jack's adjusted basis in the house?

a) $114,500

b) $106,000

c) $127,500

d) $119,000

22. Using the same information in the previous question, calculate Jack's adjusted basis in the home as he prepares to sell it.Jack has the following expenses in the final year that he owns the house:

Replace the roof $5,000 Outside security lights $200 Replace broken window pane $50 Landscaping $345 Patch the kitchen wall $125 Replace gravel in the driveway $220

a) $120,265

b) $120,045

c) $119,500

d) $133,045

23. Larry's personal residence was damaged by fire and he was forced to buy a new home.Which of the following is listed incorrectly as an adjustment that must be made to the basis of a replacement property that resulted from an involuntary conversion?

a) Decrease the basis by any loss recognized on the conversion.

b) Decrease the basis by any money received that the taxpayer did not spend on similar property.

c) Decrease the basis by any gain recognized on the conversion.

d) Increase the basis by any cost of acquiring the replacement property.

24. With home replacement due to fire, Larry experienced an involuntary conversion, which must be reflected in his tax return.Which of the following is incorrectly included as an example of an involuntary conversion?

a) Inheritance

b) Casualty

c) Theft

d) Condemnation

25. Paul loaned his friend money to buy a home and has not been repaid as agreed.Which of the following is incorrectly shown as an item needed in a bad debt statement to the IRS?

a) Description of the debt (amount and date due)

b) Name of the debtor and any business or family relationship between the taxpayer and the debtor

c) Efforts made by the taxpayer to collect the debt

d) Copy of the loan agreement signed by the taxpayer and the debtor

26. Assuming Paul has the necessary documentation, where on his tax return does Paul report the nonbusiness bad debt?

a) Line 21, Form 1040

b) Schedule A, miscellaneous itemized deductions

c) As an adjustment on line 36, Form 1040

d) Form 8949 as a short-term capital loss

27. Lonzo is single.He sold his house and connecting property in July for $395,000.The house was purchased in 1956 by Lonzo and his wife (now deceased) for $35,000.Lonzo's wife has been deceased for four years.Calculate the exclusion on the sale of Lonzo's house.Lonzo completed the following work/purchases to the house during the time he lived there. Purchase of connecting property $30,000 Repaired heat pump $800 Addition of 1,200 square feet $55,000 Installed central heat/air $4,250 In-ground pool $15,000 Cleaned all plumbing pipes $950 Repaired slate shingles $2,000

a) $255,750

b) $260,000

c) $250,000

d) $395,000

28. Assume that Lonzo owned the property as rental property beginning in 1995.During the time the house was rental property, Lonzo had $16,000 in depreciation and completed the same work/purchases listed in the previous question.Calculate Lonzo's gain on the sale of the house.

a) $268,000

b) $271,750

c) $250,000

d) $255,750

29. To avoid paying taxes on the entire gain in the year of sale, Lonzo sold his rental property through an installment arrangement.On which form is an installment sale first reported?

a) Form 1040

b) Schedule D

c) Form 4797

d) Form 6252

30. Lonzo realized a loss on his rental property sold with the installment sale.If the taxpayer realized a loss on an installment sale, he should report the loss on which form first?

a) Form 1040

b) Schedule D

c) Form 4797

d) Form 6252

31. The Browns are both managers and file jointly with modified AGI of $166,000.Their dependent son Gary is a full-time college student.During the tax year, they paid $10,500 in qualifying education expenses for his second year of college.On their tax return, how will the Browns claim the tax benefit for Gary's education expenses?

a) They are not eligible to claim a tax benefit for the education expenses.

b) They can claim an education credit, specifically the Lifetime Learning Credit.

c) They can claim the American Opportunity Credit.

d) They can claim the Tuition and Fees deduction, an adjustment to income.

32. Geoffrey was age 23 on 12/31/16.He was a full-time student and completed his 4th year of college in May of 2016.His Spring semester was paid for in December of the prior year and credit on those expenses has been claimed on the prior year's return.After graduation, he was unable to find employment, so he moved back in with his parents and entered graduate school in the fall of 2016.Although a full-time student, he also worked part-time as a waiter.Geoffrey's parents are claiming him as a dependent on their tax return and had an AGI of $56,000.Geoffrey received a 1098-T from the college with Box 9 checked (grad student).

Which of the following statements is correct?

a) Geoffrey's parents will claim him as a dependent and are eligible to take a Lifetime Learning Credit.

b) Geoffrey's parents will claim him as a dependent and are eligible to take an American Opportunity Credit.

c) Geoffrey's parents will claim him as a dependent and may take an American Opportunity Credit for the expenses for Geoffrey's 4th year in college and take a Lifetime Learning Credit for Geoffrey's graduate school expenses in 2016.

d) Geoffrey's parents will claim him as a dependent, but are ineligible to claim either an American Opportunity Credit or Lifetime Learning Credit for 2016.

33. The Greens are filing jointly with modified AGI of $84,000.During the tax year, they paid $9,500 in qualified education expense for their only son Eric's first year of college.They have no education expenses for themselves.What is the Greens' maximum allowable education credit?

a) $0

b) $1,500

c) $1,900

d) $2,500

34. Darla graduated from college two years ago, but at age 26 was still paying principal plus interest on her student loans during the current tax year.She took a full-time academic workload throughout her college career, except for her last year when she took only half the normal full-time workload.Her modified AGI for the current tax year is $48,000 and she will not itemize deductions.Can Darla claim a student loan interest deduction on her tax return?

a) She cannot claim a student loan interest deduction because she took less than a normal full-time workload her last year of college.

b) She cannot claim a student loan interest deduction because she did not attend college during the current tax year.

c) She can claim a student loan interest deduction for the current tax year.

d) She cannot claim a student loan interest deduction because she is not itemizing.

35. Darla is now age 29 and her modified AGI has increased to $70,000.She still paid principal plus interest on her student loans during the current tax year.Can Darla claim a student loan interest on this year's tax return?

a) She can claim a student loan interest deduction, but the amount is subject to phase-out as her income increases.

b) She cannot claim the student interest deduction due to her income level.

c) She cannot claim a student loan interest deduction because she took less than a normal full-time workload her last year of college.

d) She cannot claim a student loan interest deduction because she did not attend college during the current tax year.

36. The Grays took out a student loan for their son, Joel, each year he was in college.They have taken all allowable tax benefits throughout his college career.Joel graduated in June of the tax year, turned age 24, and provided more than half of his own support.The Grays paid principal plus interest on the student loan throughout the tax year and will continue until it is paid off in three years.The Grays file jointly with modified AGI of $136,000.Can the Grays claim a student loan interest deduction on their tax return?

a) They can claim a student loan interest deduction for the current tax year.

b) They cannot claim a student loan interest deduction because they cannot claim Joel as their dependent.

c) They cannot claim a student loan interest deduction due to their income level.

d) They cannot claim a student loan interest deduction because Joel did not attend college for more than half the current tax year.

37. Regarding the Grays with $136,000 modified AGI and their son Joel, age 24, with $26,000 modified AGI, who can claim a tax benefit for tuition and fees paid during the current tax year?(Exclude Student Loan Interest Deduction from this question.)

a) Only the Grays can claim the Lifetime Learning Credit, American Opportunity Credit (if Joel qualifies), or the Tuition and Fees Deduction, whichever is more beneficial.

b) Only Joel can claim the Lifetime Learning Credit, the American Opportunity Credit (if he qualifies), or the Tuition and Fees Deduction, whichever is more beneficial.

c) Either the Grays or Joel (but not both) can claim the education tax benefit.

d) Neither the Grays nor Joel can claim an education tax benefit.

38. Rick is a project manager for a construction company and has significant unreimbursed employee business mileage between job sites.Which of the following is a false statement regarding how he can claim a deduction for his business mileage?

a) If he itemizes deductions, he must first report his business mileage expense on Form 2106.

b) If he does not itemize deductions, he can claim his business mileage expense as an adjustment to income.

c) If he itemizes deductions, the total expense from Form 2106 is carried to Schedule A under Job Expenses and is subject to the 2% AGI limitation.

d) He must itemize deductions to claim a deduction for employee business mileage.

39. Linda claims an exemption for her daughter Judy.She will claim an education credit on her tax return for both Judy's and her own college expenses.Which of the following statements about the American Opportunity Credit and the Lifetime Learning Credit is incorrect?

a) The maximum credit per eligible student is $2,500 for the American Opportunity Credit and the maximum credit per return is $2,000 for the Lifetime Learning Credit.

b) The American Opportunity Credit is claimed for only the first four years of postsecondary education and there is no limit on the number of years the Lifetime Learning Credit can be claimed for each student.

c) The MAGI limit for the current tax year for the American Opportunity Credit is $90,000 or $180,000 if MFJ and the Lifetime Learning Credit is $65,000 or $131,000 if MFJ.

d) The American Opportunity Credit and the Lifetime Learning Credit may not be claimed if the student has a felony drug conviction.