True / False Questions ____ 1. A real estate broker who attends college to get an accounting degree can deduct job education expenses on Schedule A. ___ 2. Social Security Tax and Medicare tax for self-employment income is limited to income of $106,800. ____ 3. The standard mileage rate includes depreciation or lease payments, maintenance and repairs, gasoline, oil, insurance and vehicle registration fees. ____ 4. When business property is lost in a fire, storm, shipwreck, theft or other casualty, the taxpayer normally receives a capital loss deduction. ____ 5. Education expenses are deductible if the education maintains or improves existing skills or if the education helps the taxpayer qualify for a new trade or business. ____ 6. If the property's fair market value at the date of the gift is lower than the adjusted basis, then the property's basis for determining loss is its fair market value on that date. ____ 7. Unused capital losses in any one year carry forward indefinitely to offset any future short-term or long-term gains. ____ 8. A security deposit for a rental property is not reported as income. ____ 9. A taxpayer uses a schedule C to report royalty income. ____ 10. The maximum amount per year of dependent care expenses that can be used for calculating the credit for child and dependent care expenses is $6,000 for two or more qualifying individuals. ____ 11. Maximum allowable American Opportunity education credit is $2,000 per student. ____ 12. A student can only receive the lifetime learning credit if he/she is enrolled in a degreed program. _____ 13. New dishwashers and refrigerators may all qualify for one of the residential energy credits in 2010. ____ 14. The cost of installing solar panels to heat the pool or spa does not qualify for the residential energy efficient property credit. ____ 15. Earned income credit is available for taxpayers with children only. ____ 16. Only wages paid in cash are subject to federal withholding. ____ 17. Although the federal unemployment tax is 6.2% of covered wages, employers receive a 5.4% federal credit if they make accurate and timely state unemployment tax deposits. ____ 18. Schedule H is completed by the household worker and remitted with his/her Form 1040. Multiple Choice and Fill-In the Blank Questions 19. Mandy, a CPA, flew from Raleigh to Seattle to attend an accounting conference that lasted four days. Then she took three days of vacation to go sightseeing. Mandys expenses for the trip are as follows: Airfare $625 Lodging (7 days $145) 1,015 Meals (7 days $75) 525 Taxi from airport to hotel and back 70 Ediths travel expense deduction is a. $1,425. b. $1,575. c. $1,973. d. $2,235. 30. Frank purchased a vehicle for business and personal use. In 2010, he used the vehicle 70% for business (11,000 miles) and calculated his vehicle expenses using the standard mileage rate. Frank also paid $3,000 in interest and $1,000 in county property tax on the car. What is the total business deduction related to business use of the car? a. $4,235. b. $6,050. c. $7,800. d. $8,330. 21. Which of the following properties are not eligible for the 179 expense election when purchased? A. A business automobile B. A business computer C. Rental property D. Manufacturing equipment 22. Cole purchased a car for business and personal use. He used the car 60% for business (13,000 total miles) and used the standard mileage rate to calculate his vehicle expenses. He also paid $1,500 in interest and $360 in county property tax on the car. What is the total business deduction related to business use of the car? ___________________ 23. Shante is employed by a local pharmaceutical company where she earned $48,000 last year. During the year, she also had self-employment income of $18,000. Her self-employment tax is: ___________________ 24. Katherine earned $100,000 from her job at a local business. She also had $42,000 in self-employed consulting income. What is the amount of her self-employment tax? ___________________ 25. Patrice sells a parcel of land for $50,000 cash and the buyer assumes Patrice's liability of $7,000 on the land. Patrice's basis in the land is $40,000. What is the gain or loss she will realize on the sale? A. $3,000 gain B. $10,000 gain C. $17,000 loss D. $17,000 gain 26. Which one of the following is Section 1231 property? A. Accounts Receivable B. Copyright owned by an author C. Inventory D. A building used in a trade or business 27. In 2000, Susan purchased 200 shares of Hi-Style stock as an investment. The stock cost $11,000. In 2010, when the fair market value was $13,000, Susan gave the stock to her daughter Daniele. If no gift tax is paid and Daniele sells the stock for $14,000, she will recognize: A. No gain or loss B. A $1,000 gain C. A $2,000 gain D. A $3,000 gain 28. Hiroko, a single taxpayer, has wage income of $50,000. In addition, she has $6,000 in long-term capital losses, $5,000 in long-term capital gains and $3,000 in short-term capital gains. What is Hiroko's AGI for 2010? A. $38,000 B. $48,000 C. $52,000 D. $55,000 29. Jake purchased a $300,000 earthmover for his business. He sold the earthmover for $245,000 after taking $210,000 of depreciation. What is the nature and amount of the gain or loss on the sale? A. $55,000 Section 1245 ordinary income and $100,000 Section 1231 gain B. $90,000 Section 1245 ordinary income and $65,000 Section 1231 gain C. $155,000 Section 1231 gain D. $155,000 Section 1245 ordinary income 30. Keisha sold 200 shares of Chico's stock in 2010 for $22,500 and received a 1099-B to record the sale of the shares. Keisha's investment portfolio includes the following purchases of Chico's stock: Assuming Keisha does not identify which shares she sold, she will recognize A. No gain or loss B. $500 gain C. $1,000 loss D. $3,125 loss 31. On June 1 last year, Jack and Angie purchased a beach house for $900,000. Of that amount, $600,000 was for the land value. How much depreciation deduction can Jack and Angie take in the current year? (You may need to refer to the depreciation tables.) _______________________ 32. Jamison owns a cabin in Mammoth and travels there for maintenance three times a year. The round trip to Mammoth from San Diego where Jamison lives, is approximately 450 miles. How much travel costs can Jackson deduct per year related to his rental cabin? ______________________ 33. Brad and Kate receive $9,500 for rent from Mike and Janet, who are renting their home in Santa Ana, California. Brad and Kate do not use this property for personal use. The rent covers eight months from August 1 of the current year to March 31 of the following year. The amount also includes a security deposit of $1,500. How much should Brad and Kate report as rental income in the current tax year? A. $1,500 B. $5,000 C. $8,000 D. $9,500 34. Jane and Don own a chalet in Lake Tahoe and rented it for 12 days for $8,000. The rest of the year, the chalet was used by them and their friends and family. What is the proper tax treatment of the $8,000? A. Should be reported on schedule E B. None of the rental income needs to be included in gross income C. The amount should be reported on schedule C D. The amount should be reported as other income 35. Jacqueline owns a condominium at the beach which was rented out all year for $30,000. She incurred the following expenses: Mortgage interest $1,300 Property taxes 800 Insurance 1,500 Utilities 1,800 Repairs 300 Depreciation 4,000 What amount of net income or loss does Jacqueline report from this rental activity? A. $0 B. $9,700 net loss C. $20,300 net income D. $30,000 net income 36. Samantha is a full-time author and recently published her 8th romance novel. The royalty income she receives from the publisher this year should be reported on what schedule? A. Schedule C B. Schedule K-1 C. 1099-MISC D. 1099-INT 37. Royalties can be earned from allowing others the right to use or exploit: A. Copyrights B. Formulas C. Coal mines D. All of the above 38. Alex, Ellen and Nicolas are equal partners in a local restaurant. The restaurant reports the following items for the current year: Revenue $770,000 Business expenses 470,000 Investment expenses 150,000 Each partner receives a Schedule K-1 with one-third of the preceding items reported to him/her. How must each individual report these results on his/her Form 1040? A. $100,000 income on Schedule E; $50,000 investment expense on Schedule A B. $257,667 income on Schedule E; $50,000 investment expense on Schedule A C. $300,000 income on Schedule E; $50,000 investment expense on Schedule A D. $300,000 income on Schedule E; $150,000 investment expense on Schedule A 39. Kobe is a single dad with two dependent children, Lizzie, age 7 and Leslie, age 3. He has an AGI of $51,000 and paid $6,300 to a qualified day care center. What amount of credit can Kobe receive for child and dependent care credit? A. $600 B. $1,200 C. $1,260 D. $6,300 40. Joseph paid $2,000 in qualifying expenses for his daughter who attended college. How much is Joseph's lifetime learning credit without regard to AGI limitations or other credits? A. $2,000 B. $400 C. $825 D. $1,375 41. James and Eunice installed new energy-efficient windows in their home during the current year. The home is their main residence. The cost to replace the windows was $3,000. What amount can they take as energy property credit? A. $900 B. $1,500 C. $0 D. $800 42. Sandra is single and her son Julius is 12 years old. If her AGI is $79,000, what amount of child tax credit can Sandra claim? _______________________ 43. Julia and Omar are married and file a joint tax return. They have two daughters, ages 14 and 18. If their AGI is $98,000, what amount of child tax credit can they claim? ________________________ 44. After 2 and one-half years of working with the orphanage and the government, Walt and Kim adopted a little girl from China. The adoption process, which became final in January 2010, incurred the following qualified adoption expenses. What amount of adoption credit can Walt and Kim claim and in what year? Assume there is no credit limitation due to their AGI amount. Year 2008 $2,000 Year 2009 $4,000 Year 2010 $2,000 A. $6,000 in 2009 and $2,000 in 2010 B. $4,000 in 2009 and $2,000 in 2010 C. $8,000 in 2009 D. $8,000 in 2008 45. Chris and Sarah are married with three qualifying children. Their AGI is $25,000. How much is their EIC? _____________________________ 46. Margie has 2 jobs and both employers withheld FICA tax. From her first job, she earned $88,000 and from her second job she earned $23,000. How much can Margie claim on her Form 1040 as excess social security tax paid in 2010? _______________________________ 47. Form 941 is prepared by the employer on a quarterly basis to record all of the following payroll taxes except: A. FUTA B. Social Security Tax C. Medicare Tax D. Federal Withholding Tax 48. For wages paid in 2010, an employer must send Copy A of each Form W-2 along with the W-3 transmittal form to the SSA no later than: _____________________________ 49. What form is given to an employee to correct incorrect payroll information? A. W-2c B. W-4 C. W-9 D. None. The employee notifies the IRS directly when he or she files a Form 1040 50. Yolanda earned wages of $97,500 during 2010. She is single and claims two withholding allowances. How much FICA tax is Yolanda's employer responsible to pay in 2010? _____________________________