Questions and Answers of Income Tax Fundamentals

In September 2020, Sam pays $1,100 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
John Fuji (birthdate June 6, 1981) received the following Form W-2 from his employer related to his job as a manager at a Washington apple-processing plant:John’s other income includes interest on
James Dangell (birthdate August 2, 1976) is a single taxpayer. Jim’s earnings and withholdings as the manager of a local casino for 2020 are reported on his Form W-2:Jim’s other income includes
You recently received the following e-mail from a client and friend:Hey Great Student,I cannot believe it is almost year end! Only a few days before it’s 2021. As you recall, I was lucky enough to
Bea Jones (birthdate March 27, 1985) moved from Texas to Florida in January 2020 after divorcing her spouse in 2019. She and her daughter, Dee Jones (birthdate 5/30/2010, Social Security number
In 2020, Tracy generates a $10,000 loss from an otherwise qualified business activity. Fortunately, she also works as an employee and has taxable wages of $40,000. Tracy’s 2020 QBI deduction isa.
While preparing Massie Miller’s 2020 Schedule A, you review the following list of possible charitable deductions provided by Massie:What would you say to Massie regarding her listed deductions? How
In 2020, 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
Martha and Rob, a married couple, under 50 years of age, have adjusted gross income on their 2020 joint income tax return of $45,000, before considering any IRA deduction. Martha and Rob have no
Donna, age 42 and a single taxpayer, has a salary of $104,500 and interest income of $20,000. What is the maximum amount Donna can contribute to a Roth IRA for 2020?a. $5,000b. $3,850c. $5,800d.
Marge has a Roth IRA held more than 5 years to which she has contributed $38,000. The IRA has a current value of $62,000. Marge is 65 years old and she takes a distribution of $40,000. How much of
What is the deadline for making a contribution to a traditional IRA or a Roth IRA for 2020?a. April 15, 2021b. July 15, 2020c. December 31, 2020d. October 15, 2021
Which of the following statements with respect to a qualified retirement plan is accurate?a. Self-employed individuals are not eligible to be members of a SEP.b. Contributions to SIMPLE IRAs are
What is the maximum tax-deferred contribution that can be made to a Section 401(k)plan by an employee under age 50 in 2020?a. $19,000b. $20,000c. $19,500d. $26,000e. $56,000
Paul, age 37, participates in a Section 401(k) plan which allows employees to contribute up to 15 percent of their salary. His annual salary is $125,000 in 2020. What is the maximum he can
Eliza is a kindergarten teacher for Alexander Hamilton Elementary School. Eliza decorates her classroom with new artwork, posters, bulletin boards, etc. In 2020, she spends $470 on materials and
Jessica is a U.S. Army Reservist and in 2020 traveled 130 miles each way to serve duty at a local military installation. She was required to report four times in 2020. Her normal route from home to
In April 2020, Fred paid $40 of state income tax that was due when he filed his 2019 income tax return. During 2020, Fred’s employer withheld $1,200 of state income tax from his pay. In April 2021,
Charlie’s Green Lawn Care is a cash-basis taxpayer. Charlie Adame, the sole proprietor, is considering delaying some of his December 2020 customer billings for lawn care into the next year. In
Antonio is a small business owner and files jointly with his spouse. In 2020, he generates $100,000 of net profits from his business. His spouse, Maria, has $4,000 of state income tax withheld from
The itemized deduction for state and local taxes in 2020 isa. Total taxes less 10 percent of AGIb. Limited to no more than $10,000c. Unlimitedd. Only deductible if the taxes are business relatede.
Which of the following is deductible as interest on Schedule A?a. Fees for having the home’s value assessed by the bank for purposes of getting a mortgageb. Purchase mortgage insurance paid in
Carrie, a single taxpayer, finished her undergraduate degree using money from a student loan. She earned $56,000 her first year and paid $2,600 in interest in 2020. She can take a deduction for
Stanley donates a hotel to a university for use as a conference center. The building was purchased 3 years ago for $1,500,000 and has a fair market value of $1,900,000 on the date the contribution is
Richard McCarthy (born 2/14/1966; Social Security number 100-10-9090) and Christine McCarthy (born 6/1/1968; Social Security number 101-21-3434) have a 19-year-old son Jack, (born 10/2/2001; Social
Rico makes $5,000 of cash donations in 2020. His itemized deductions exceed his standard deduction. What amount will Rico deduct as a for AGI deduction for charitable contributions? His AGI in 2020
Which of the following would typically be deductible as a casualty loss in 2020?a. Long-term damage to a home from termitesb. An automobile accident during the daily commutec. A theft of a big screen
Which of the following is deductible as a miscellaneous itemized deduction in 2020?a. Tax preparation feesb. Gambling losses in excess of gambling winningsc. Losses from Ponzi-type schemesd.
Warner and Augustine Robins, both 35 years old, have been married for 9 years and have no dependents. Warner is the president of Jaystar Corporation located in Macon, Georgia. The Jaystar stock is
Yolanda is a cash-basis taxpayer with the following transactions during the year: Cash received from sales of products Cash paid for expenses (except rent and interest) Rent prepaid on a leased
Geraldine is an accrual-basis taxpayer who has the following transactions during the current calendar tax year: Accrued business income (except rent) Accrued business expenses (except rent) Rental
Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2020: a. She makes a deductible contribution to an IRA on April 15, 2021. b.
Using the same facts as in Question 7, how much can B Corporation deduct on its 2021 tax return?a. $0b. $4,000c. $15,000d. $19,000e. $12,000Data From Question 7B Corporation, a calendar year-end,
James Felon is a self-employed surfboard maker in 2020. His Schedule C net income is $126,503 for the year. He also has a part-time job and earns $20,900 in wages subject to FICA taxes. Calculate
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
Brian and Kim have a 12-year-old child, Stan. For 2020, 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
B Corporation, a calendar year-end, accrual basis taxpayer, is owned 75 percent by Bonnie, a cash basis taxpayer. On December 31, 2020, the corporation accrues interest of $4,000 on a loan from
Which of the following is required for a taxpayer to be subject to the tax on unearned income of minors (kiddie tax) in 2020?a. Must have no earned incomeb. 21 years of age or youngerc. Both parents
Generally, the tax rate that applies to the unearned income of a minor under the kiddie tax in 2020 is:a. The same as the parents’ tax rateb. The same as the single taxpayer ratec. The same as the
For 2020, Roberta is a self-employed truck driver with earnings of $48,728 from her business. During the year, Roberta received $2,500 in interest income and dividends of $500. She also sold
Margaret and David Simmons are married and file a joint income tax return. They have two dependent children, Margo, 5 years old (Social Security number 316-31-4890), and Daniel, who was born during
Ann hires a nanny to watch her two children while she works at a local hospital. She pays the 19-year-old nanny $180 per week for 42 weeks during the current year. a. What is the employer's portion
Sally hires a maid to work in her home for $250 per month. The maid is 25 years old and not related to Sally. During 2020, the maid worked 9 months for Sally. a. What is the amount of Social Security
Which of the following is not a COVID-19 tax relief provision available to a self employed taxpayer?a. Payroll tax deferralb. Sick leave creditc. Family leave creditd. Self-employment tax rate
David and Darlene Jasper have one child, Sam, who is 6 years old (birthdate July 1, 2014). The Jaspers reside at 4639 Honeysuckle Lane, Los Angeles, CA 90248. David’s Social Security number is
Skylar is single and earns $410,000 in salary during 2020. What is the amount of 0.9 percent Medicare tax for high-income taxpayers that his employer must withhold from his wages?a. $1,890b. $1,800c.
Married taxpayers Otto and Ruth are both self-employed. Otto earns $352,000 of self employment income and Ruth has a self-employment loss of $13,500. How much 0.9 percent Medicare tax for high-income
Calculate the total child and other dependent credit for the following taxpayers.Please show your work. a. Jeremy is a single (head of household) father with $80,100 of AGI and has a dependent
Christine and Doug are married. In 2020, 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 2020. How much
David Fleming is a single taxpayer living at 169 Trendie Street, Apartment 6B, La Jolla, CA 92037. His Social Security number is 865-68-9635 and his birthdate is September 18, 1975. David was
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 2020 is $421,400. What is Russ and Linda’s
Steve Jackson (birthdate December 13, 1967) is a single taxpayer living at 3215 Pacific Dr., Apt. B, Pacific Beach, CA 92109. His Social Security number is 465-88-9415. In 2020, Steve’s earnings
Jennifer is divorced and files a head of household tax return claiming her children, ages 4, 7, and 11, as dependents. Her adjusted gross income for 2020 is $81,200. What is Jennifer’s total child
Assuming they all meet the income requirements, which of the following taxpayers qualify for the earned income credit in 2020?a. A married taxpayer who files a separate tax return and has a dependent
Diane is a single taxpayer who qualifies for the earned income credit. Diane has two qualifying children who are 3 and 5 years old. During 2020, Diane’s wages are $18,900 and she receives dividend
Calculate the amount of the child and dependent care credit allowed before any tax liability limitations or other credits for 2020 in each of the following cases, assuming the taxpayers had no income
Jane graduates from high school in June 2020. 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.
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
Jeanie acquires an apartment building in 2009 for $280,000 and sells it for $480,000 in 2020. At the time of sale there is $60,000 of accumulated straight-line depreciation on the apartment building.
Steve Drake sells a rental house on January 1, 2020, and receives $90,000 cash and a note for $55,000 at 7 percent interest. The purchaser also assumes the mortgage on the property of $30,000.
Which of the following is not considered a limit on the immediate expensing election of Section 179?a. Fifty percent of qualified improvement propertyb. Total Section 179-eligible property acquired
In November 2020, 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 2020, Simon’s
John, a single father, has AGI of $83,000 in 2020. 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
Joan, a single mother, has AGI of $72,000 in 2020. In September 2020, she pays $5,000 in qualified tuition for her dependent son who just started at Big University. What is Joan’s American
Lucas, a single U.S. citizen, works in Denmark for MNC Corp during all of 2020. His MNC salary is $187,000. Lucas may exclude from his gross income wages of:a. $0b. $40,000c. $107,600d. $187,000
Susan and Stan Collins live in Iowa, are married and have two children ages 6 and 10. In 2020, Susan’s income is $43,120 and Stan’s is $12,000 and both are self-employed. They also have $500 in
Using the information in the previous question, assume that the Collins’ Form 1095-A also indicated that the total advance payment of the premium tax credit was $9,200. Calculate the excess advance
John and Joan pay $16,500 of qualified adoption expenses in 2020 to finalize the adoption of a qualified child. Their AGI is $197,000 for 2020. What is their adoption credit for 2020?a. $0b.
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 2019 and $3,000 of qualified
Janie graduates from high school in 2020 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 $172,000, what is the American
Barbara purchased a new Honda Clarity electric vehicle in 2020 for $36,000. Her federal tax credit will be:a. $0b. $2,500c. $5,000d. $7,500e. $10,000
Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is finalized in 2020. They pay $7,000 in 2019 and $7,500 in 2020 for qualified adoption expenses. In 2020,
Mike bought a solar electric pump to heat his pool at a cost of $2,500 in 2020. What is Mike’s credit?$____________
In 2020, Jeff spends $6,000 on solar panels to heat water for his main home. What is Jeff’s credit for his 2020 purchases? $______________
George and Amal file a joint return in 2020 and have AGI of $38,200. They each make a $1,600 contribution to their respective IRAs. Assuming that they are not eligible for any other credits, what is
Alice purchases a rental house on June 22, 2020, 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
Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2020, Owen and Lisa exchange land they both held
Trish Himple owns a retail family clothing store. Her store is located at 4321 Heather Drive, Henderson, NV 89002. Her employer identification number is 95- 1234321 and her Social Security number is
Tsate Kongia (birthdate 02/14/1954) is an unmarried high school principal. Tsate received the following tax documents:During the year, Tsate paid the following amounts (all of which can be
An asset (not an automobile) put in service in June 2020 has a depreciable basis of $25,000 and a recovery period of 5 years. Assuming half-year convention, no bonus depreciation, and no election to
An asset (not an automobile) put in service in June 2020 has a depreciable basis of $28,000 and a recovery period of 5 years. Assuming bonus depreciation is used, half-year convention and no election
Mike purchases a new heavy-duty truck (5-year class recovery property) for his delivery service on March 30, 2020. No other assets were purchased during the year. The truck is not considered a
James purchased office equipment for his business. The equipment has a depreciable basis of $14,000 and was put in service on June 1, 2020. James decides to elect straight-line depreciation under
On July 8, 2020, Holly purchased a residential apartment building. The cost basis assigned to the building is $750,000. Holly also owns another residential apartment building that she purchased on
On July 20, 2020, Kelli purchases office equipment at a cost of $24,000. Kelli elects out of bonus depreciation but makes the election to expense for 2020. She is selfemployed as an attorney, and, in
Calculate the following:a. The first year of depreciation on a residential rental building that cost $250,000 purchased June 2, 2020.b. The second year (2021) of depreciation on a computer that cost
During 2020, Pepe Guardio purchases the following property for use in his calendar year-end manufacturing business:Pepe uses the accelerated depreciation method under MACRS, if available, and does
Nadia Shalom has the following transactions during the year:Sale of office equipment on March 15 that cost $21,500 when purchased on July 1, 2018. Nadia has claimed $21,500 in depreciation and sells
Michele is single with no dependents and earns $32,000 this year. Michele claims exempt on her Form W-4. Which of the following is correct concerning her Form W-4?a. Michele may not under any
On September 14, 2020, Jay purchased a passenger automobile that is used 75 percent in his business. The automobile has a basis for depreciation purposes of $45,000, and Jay uses the accelerated
Tom has a successful business with $100,000 of taxable income before the election to expense in 2020. He purchases one new asset in 2020, a new machine which is 7-year MACRS property and costs
Derek purchases a small business from Art on June 30, 2020. He paid the following amounts for the business:a. How much of the $250,000 purchase price is for Section 197 intangible
In 2020, Mary sells for $24,000 a machine used in her business. The machine was purchased on May 1, 2018, at a cost of $22,000. Mary has deducted depreciation on the machine of $6,000. What is the
During 2020, Paul sells residential rental property for $240,000, which he acquired in 1999 for $160,000. Paul has claimed straight-line depreciation on the building of $60,000. What is the amount
Pat sells land for $25,000 cash and a $75,000 5-year note. If her basis in the property is $30,000 and she receives only the $25,000 down payment in the year of sale, how much is Pat’s taxable gain
The process for employee withholding involves:a. Using only a 2020 Form W-4 for all employees to calculate income tax withholding.b. Using a 2020 Form W-4 for new employees (all existing employees
Abbe, age 56, started a new job in 2020. At Abbe’s previous employer she had filed a Form W-4 with 5 allowances. Abbe’s new employer will:a. Use a copy of Abbe’s previous Form W-4 to calculate
Using the information from Problem 11, complete Form 941 and Worksheet 1 located on Pages 9-55 to 9-58 for Drew for the second quarter of 2020.Assume the following additional information:• Drew was
Eric, your friend, received his Form W-2 from his employer (below) and has asked for your help. Eric’s 2020 salary was $146,000 and he does not understand why the amounts in Boxes 1, 3, and 5 are
William sold Section 1245 property for $25,000 in 2020. The property cost $40,000 when it was purchased 5 years ago. The depreciation claimed on the property was $21,000.a. Calculate the adjusted

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