Questions and Answers of Income Tax Fundamentals

Donna, age 42 and a single taxpayer, has a salary of $100,000 and interest income of $20,000. What is the maximum amount Donna can contribute to a Roth IRA?a. $2,500b. $3,300c. $4,400d. $5,500e. Some
Martha and Rob, a married couple, under 50 years of age, have adjusted gross income on their 2016 joint income tax return of $45,000, before considering any IRA deduction. Martha and Rob have no
Lyndon, age 24, has a nonworking spouse and earns wages of $36,000 for 2016. He also received rental income of $5,000 and dividend income of $900 for the year. What is the maximum amount Lyndon can
All of the following are deductible as moving expenses, except:a. The cost of moving household goodsb. Transportation to the new job locationc. Packing expensesd. Lodging during the movee. All of the
Charlene has self-only coverage in qualifying high-deductible health insurance plan. She is 47 years old and wishes to contribute the maximum amount to her HSA. How much is she allowed to contribute
Which of the following is false about the self-employed health insurance deduction?a. The deduction cannot be claimed when a subsidized employer health insurance plan is also available.b. The
Helen, a single taxpayer, has modified adjusted gross income (before passive losses) of $124,000. During the tax year, Helen’s rental house generated a loss of $15,000. Assuming Helen is actively
John owns a second home in Palm Springs, CA. During the year, he rented the house for $5,000 for 42 days and used the house for 14 days during the summer. The house remained vacant during the
Which of the following is true about the rental of real estate?a. Depreciation and maintenance expenses for an apartment complex are deductible.b. A vacation home is a home that is rented for 15 days
The following additional information is available for the Albert and Allison Gaytor family from Chapters 1 and 2.On September 1, Allison opened a retail store that specializes in sports car
Christopher Crosphit (age 42) owns and operates a health club called “Catawba Fitness.” The business is located at 4321 New Cut Road, Spartanburg, SC 29303. The principal business code is 812190.
Ken (birthdate July 1, 1985) and Amy (birthdate July 4, 1987) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of
Ken (birthdate July 1, 1985) and Amy (birthdate July 4, 1987) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of
Your supervisor has asked you to research a potential tax deduction for a client, Nancy Fradette. Nancy is a seat-filler at a number of the award shows that are filmed in the greater Los Angeles
Pete qualifies for a home office deduction. The amount of space devoted to business use is 300 square feet of the total 1,200 square feet in his apartment. Pete’s total rent for the year is $9,600,
Cooper and Brandy are married and file a joint income tax return with two separate Schedule Cs. Cooper is an independent security specialist who spent $395 on uniforms during the year. His laundry
Go to the IRS website (www.irs.gov) and redo Problem 5, using the most recent interactive Cost of Goods Sold Schedule on Page 2 of Schedule C (Form 1040). Print out the completed Cost of Goods Sold
Go to the IRS website (www.irs.gov) and find the most recent IRS Publication 538, Accounting Periods and Methods. Print out the first two pages of the part on inventories.
Go to the IRS website (www.irs.gov) and find the most recent IRS Publication 538, Accounting Periods and Methods. Print out the first two pages of the part on inventories.
Kevin owns a retail store, and during the current year he purchased $610,000 worth of inventory. Kevin’s beginning inventory was $67,000, and his ending inventory is $77,200. During the year, Kevin
Margaret started her own business in the current year and will report a profit for her first year. Her results of operations are as follows:What is the net income Margaret should show on her Schedule
Go to the IRS website (www.irs.gov) and redo Problem 1 (Chapter 3, Group 2) using the most recent interactive Schedule C (Form 1040) on the IRS website that will allow the required information to be
Jim has a net operating loss in 2016. If he does not make any special elections, what is the first year to which Jim carries the net operating loss?a. 2012b. 2013c. 2014d. 2015e. 2017
Bonita earns $31,000 from her job, and she has $1,000 of interest income. She has itemized deductions and personal exemptions of $35,000. There are no casualty or theft losses in the itemized
Which of the following taxpayers qualifies for a home office deduction?a. An attorney who is employed by a law firm and has a home office in which to read casesb. A doctor who has a regular office
Kathy is a self-employed taxpayer working exclusively from her home office. Before the home office deduction, Kathy has $3,000 of net income. Her allocable home office expenses are $5,000 in total
Which of the following business gifts are fully deductible?a. A gift to a client costing $35b. A gift to an employee, for 10 years of continued service, costing $250c. A gift to a client and her
Which of the following employees are most likely permitted to deduct the cost of their uniform?a. A lawyer who is required by her employer to wear a business suitb. A furnace repairman who must wear
Which of the following is not deductible by the taxpayer?a. A subscription to The CPA Journal by a CPAb. A subscription to The Yale Medical Journal by a doctorc. A subscription to Financial
Which of the following taxpayers may not deduct their educational expense?a. A CPA who attends a course to review for the real estate agents’ examb. A corporate president who attends a management
Which of the following expenses is deductible as an entertainment expense?a. The depreciation on an airplane used to entertain customersb. The cost of a hunting camp used to entertain customersc. The
Joe is a self-employed information technology consultant from San Francisco, CA. He takes a week long trip to Chicago primarily for business. He takes two personal days to go to museums and see the
Which of the following taxpayers is entitled to a travel expense deduction?a. An employee, who worked in the Salt Lake City plant of a company, who is assigned to the Denver plant of the company for
Which of the following taxpayers may use the standard mileage method of calculating transportation costs?a. A taxi driver who owns a fleet of six cars for hireb. A taxpayer who used accelerated
Which of the following taxpayers may use the standard mileage method of calculating transportation costs?a. A taxi driver who owns a fleet of six cars for hireb. A taxpayer who used accelerated
Which of the following formulas represents the proper method of calculating cost of goods sold?a. Beginning inventory + Ending inventory − Purchasesb. Ending inventory − Purchases − Beginning
Daniel is a self-employed consultant. Until this year he was always an employee. He comes to discuss his new business with you. As his tax accountant, you should:a. Discuss setting up a good
Daniel is a self-employed consultant. Until this year he was always an employee. He comes to discuss his new business with you. As his tax accountant, you should:a. Discuss setting up a good
1. The following additional information is available for the family of Albert and Allison Gaytor.In 2016, Albert received a Form W-2 from his employer, Coconut Grove Fishing Charters, Inc.:In
Carl Conch and Mary Duval are married and file a joint return. They live at 1234 Mallory Sq. Apt. 64, Key West, FL 33040. Carl works for the Key Lime Pie Company and Mary is a homemaker after losing
Ray and Maria Gomez have been married for 3 years. They live at 1610 Quince Ave., McAllen, TX 78701. Ray is a propane salesman for Palm Oil Corporation and Maria works as a city clerk for the City of
Bev and Ken Hair have been married for 3 years. They live at 3567 River Street, Springfield, MO 63126. Ken is a full-time student at Southwest Missouri State University (SMSU) and Bev works as an
Bev and Ken Hair have been married for 3 years. They live at 3567 River Street, Springfield, MO 63126. Ken is a full-time student at Southwest Missouri State University (SMSU) and Bev works as an
Go to the IRS website (www.irs.gov) and redo Problem 7, using the most recent interactive “Fill-in Forms” Schedule B. Print out the completed Schedule B.
Karen is a wealthy retired investment advisor who is in the 35 percent tax bracket. She has a choice between investing in a high-quality municipal bond paying 5 percent or a high-quality corporate
Skyler is covered by his company’s health insurance plan. The health insurance costs his company $3,500 a year. During the year, Skyler is diagnosed with a serious illness and health insurance pays
If a taxpayer holding Series I Bonds does not make an election with respect to the taxation of the bonds, how is the interest that accrues each year on the bonds taxed?
For 2016, the minimum percentage of Social Security benefits that could be included in a taxpayer’s gross income is:a. 0%b. 25%c. 50%d. 75%e. 85%
For 2016, the minimum percentage of Social Security benefits that could be included in a taxpayer’s gross income is:a. 0%b. 25%c. 50%d. 75%e. 85%
Which of the following prizes or awards is taxable?a. Professional sports awardsb. Prizes from a television game showc. Awards for superior performance on the jobd. A one-acre lot received as a
Hillary gets divorced in 2015 and is required to pay her ex-spouse $200 per month until her son reaches 18 years of age in 7 years and $120 per month thereafter. How much of her 2016 payments are
Nomi is in the highest individual tax bracket and receives $500 in qualified dividends from Omega Corp. Nomi’s tax liability with respect to these dividends is:a. $0b. $277.20c. $100.00d. $75.00e.
Abigail (Abby) Boxer is a single mother working as a civilian accountant for the U.S. Army. Her Social Security number is 676-73-3311 and she lives at 3456 Alamo Way, San Antonio, TX 78249. Helen,
Leslie and Leon Lazo are married and file a joint return for 2016. Leslie’s Social Security number is 466-47-3311 and Leon’s is 467-74-4451. They live at 143 Snapdragon Drive, Reno, NV 82102. For
Patty Banyan is a single taxpayer living at 543 Space Drive, Houston, TX 77099. Her Social Security number is 466-33-1234. For 2016, Patty has no dependents, and her W-2, from her job at a local
Go to the IRS website (www.irs.gov) and print out a copy of the most recent Instructions for Schedule R of Form 1040.
Jim (age 50) and Martha (age 49) are married with three dependent children. They file a joint return for 2016. Their income from salaries totals $49,500, and theyreceived $10,125 in taxable
Jonathan is a 35-year-old single taxpayer with adjusted gross income of $46,300. He uses the standard deduction and has no dependents.a. Calculate Jonathan’s taxable income. Please show your
What is the formula for computing taxable income as summarized in the textbook?
What is the formula for computing taxable income as summarized in the textbook?
The top tax rate for long-term capital gains is ___ percent, and the net investment income Medicare surtax for high-income taxpayers is ___ percent, for a maximum long-term capital gain tax rate of
Shannon has a long-term capital loss of $7,000 on the sale of bonds in 2016 and no other capital gains or losses. Her taxable income without this transaction is $51,000. What is her taxable income
Alexis purchased a rental house 3 years ago for $290,000. Her depreciation to date is $35,000. Due to a decrease in real estate prices, she sells the house for only $265,000 in 2016. What is her gain
Jayne purchased General Motors stock 6 years ago for $20,000. In 2016, she sells the stock for $35,000. What is Jayne’s gain or loss?a. $15,000 short-term gainb. $15,000 long-term gainc. $15,000
Arthur is 65 years old. He supports his father, who is 90 years old, blind, and has no income. For 2016, how many exemptions should Arthur claim on his tax return?a. 1b. 2c. 3d. 4e. 5
Lyn, age 65, and Robert, age 66, are married and support Lyn’s father (no taxable income) and Robert’s mother, who has $2,200 of gross income. If they file a joint return for 2016, how many
Margaret, age 65, and John, age 62, are married with a 23-year-old daughter who lives in their home. They provide over half of their daughter’s support, and their daughter earned $4,100 this year
Joan, who was divorced in 2016, had filed a joint tax return with her husband in 2015. During 2016, she did not remarry and continued to maintain her home in which her five dependent children lived.
Ben is a single taxpayer with no dependents and is 32 years old. What is the minimum amount of income that he must have to be required to file a tax return for 2016?a. $6,300b. $12,400c. $10,300d.
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

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