Questions and Answers of Income Tax Fundamentals

Telly, age 38, has a $140,000 IRA with Blue Mutual Fund. He has read good things about the management of Green Mutual Fund, so he opens a Green Fund IRA. Telly asked for a distribution rollover and
Thomas is an employer with two employees, Patty and Selma. Patty’s wages are $12,450 and Selma’s wages are $1,310. The state unemployment tax rate is 5.4 percent. Calculate the following amounts
Fiduciary Investments paid its employee, Yolanda, wages of $139,000 in 2019. Calculate the FICA tax: Withheld from Yolanda's wages: Social Security Medicare $- Paid by Fiduciary: Social
Lamden Company paid its employee, Trudy, wages of $52,000 in 2019. Calculate the FICA tax: Withheld from Trudy's wages: Social Security Medicare Paid by Lamden: Social Security Medicare Total
Sherina Smith (Social Security number 785-23-9873) lives at 536 West Lapham Street, Milwaukee, WI 53204, and is self-employed for 2019. She estimates her required annual estimated tax payment for
When taxpayers receive distributions from qualified retirement plans, how much time is allowed to roll over the amount received into a new plan to avoid paying taxes on the distribution in the
Employers generally must file a quarterly tax return showing the amount of wages paid and the amount of income tax and FICA tax withholding due. This tax return is filed on:a. Form 944 or Form
Ran’s wage income is $47,350 in 2019. The combined employer and employee FICA tax rates that apply to Ran’s wages are: a. 15.3% for Social Security and Medicare b. 6.2% for Social
Terry worked for two employers during 2019. The amount of wages paid to Terry by both employers totaled $168,400 and the employers properly withheld both income and employment taxes. As a result of
Which of the following is not true about FICA taxes? a. The FICA tax has two parts, Social Security (Old Age, Survivors, and Disability Insurance) and Medicare. b. In 2019, the maximum wage
Amy is a single taxpayer. Her income tax liability in the prior year was $5,178. Amy earns $50,000 of income ratably during the current year and her tax liability is $4,342. In order to avoid
Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2019, Owen and Lisa exchange land they both held
Carey exchanges land for other land in a qualifying like-kind exchange. Carey’s basis in the land given up is $115,000, and the property has a fair market value of $150,000. In exchange for her
William sold Section 1245 property for $25,000 in 2019. The property cost $38,500 when it was purchased 5 years ago. The depreciation claimed on the property was $19,200. a. Calculate the
Derek purchases a small business from Art on June 30, 2019. He paid the following amounts for the business: Fixed
Tom has a successful business with $100,000 of taxable income before the election to expense in 2019. He purchases one new asset in 2019, a new machine which is 7-year MACRS property and costs
On September 14, 2019, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $40,000, and Jay uses the
On February 2, 2019, Alexandra purchases a personal computer. The computer cost $1,800. Alexandra uses the computer 85 percent of the time in her accounting business, and the remaining 15 percent of
Calculate the following: a. The first year of depreciation on a residential rental building costing $250,000 purchased June 2, 2019. b. The second year (2020) of depreciation on a computer
On March 8, 2019, Holly purchased a residential apartment building. The cost basis assigned to the building is $700,000. Holly also owns another residential apartment building that she purchased on
Jeanie acquires an apartment building in 2008 for $280,000 and sells it for $480,000 in 2019. At the time of sale there is $60,000 of accumulated straight-line depreciation on the apartment building.
During 2019, Paul sells residential rental property for $240,000, which he acquired in 1998 for $160,000. Paul has claimed straight-line depreciation on the building of $60,000. What is the amount
In 2019, Ben purchases and places in service a new auto for his business. The auto costs $57,000 and will be used 100 percent for business. Assuming the half-year convention applies and Ben does not
In 2019, Ben purchases and places in service a new auto for his business. The auto costs $57,000 and will be used 60 percent for business. Assuming the half-year convention applies and Ben elects out
James purchased office equipment for his business. The equipment has a depreciable basis of $7,000 and was put in service on June 1, 2019. James decides to elect straightline depreciation under MACRS
An asset (not an automobile) put in service in June 2019 has a depreciable basis of $40,000 and a recovery period of 5 years. Assuming bonus depreciation is used, half-year convention and no election
An asset (not an automobile) put in service in June 2019 has a depreciable basis of $30,000 and a recovery period of 5 years. Assuming half-year convention, no bonus depreciation, and no election to
Alice purchases a rental house on August 22, 2019, 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
George and Amal file a joint return in 2019 and have AGI of $39,800. They each make a $1,600 contribution to their respective IRAs. Assuming that they are not eligible for any other credits, what is
In 2019, Jeff spends $6,000 on solar panels to heat water for his main home. What is Jeff’s credit for his 2019 purchases? SCHEDULE EIC (Form 1040 or 1040-SR) Earned Income Credit OMB No.
Mike bought a solar electric pump to heat his pool at a cost of $2,500 in 2019. What is Mike’s credit?
Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is finalized in 2019. They pay $7,000 in 2018 and $7,500 in 2019 for qualified adoption expenses. In 2019,
Janie graduates from high school in 2019 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 $170,000, what is the
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
Calculate the amount of the child and dependent care credit allowed before any tax liability limitations or other credits for 2019 in each of the following cases, assuming the taxpayers had no income
Virginia and Richard are married taxpayers with adjusted gross income of $28,000 in 2019. If Virginia is able to make a $1,500 contribution to her IRA and Richard makes a $1,500 contribution to his
Barbara purchased a new Honda Clarity electric vehicle in 2019 for $36,000. Her federal tax credit will be: a. $0 b. $2,500 c. $5,000 d. $7,500 e. $10,000
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 2018 and $3,000 of qualified
John and Joan pay $16,500 of qualified adoption expenses in 2019 to finalize the adoption of a qualified child. Their AGI is $197,000 for 2019. What is their adoption credit for 2019? a.
Lucas, a single U.S. citizen, works in Denmark for MNC Corp during all of 2019. His MNC salary is $87,000. Lucas may exclude from his gross income wages of: a. $0 b. $40,000 c.
Joan, a single mother, has AGI of $61,500 in 2019. In September 2019, she pays $5,000 in qualified tuition for her dependent son who just started at Big University. What is Joan’s American
John, a single father, has AGI of $81,000 in 2019. 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
In November 2019, 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 2019, Simon’s
In September 2019, Sam pays $6,200 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
Which of the following costs is not a qualified education expense for the American Opportunity tax credit? a. tuition b. room and board c. course-related books d. lab supplies
Jane graduates from high school in June 2019. 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.
The American Opportunity tax credit is 100 percent of the first____of tuition and fees paid and 25 percent of the next____. a. $600; $1,200 b. $1,100; $550 c. $2,000; $2,000d. $1,100;
Assuming they all meet the income requirements, which of the following taxpayers qualify for the earned income credit in 2019? a. A married taxpayer who files a separate tax return and has a
Jennifer is divorced and files a head of household tax return claiming her children, ages 4, 7, and 17, as dependents. Her adjusted gross income for 2019 is $81,200. What is Jennifer’s total child
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 2019 is $415,300. What is Russ and Linda’s
Richard and Christine McCarthy have a 19-year-old son (born 10/2/2000; Social Security number 555-55-1212), Jack, who is a full-time student at the University of Key West. Years ago, the McCarthys
Charlie’s Green Lawn Care is a cash basis taxpayer. Charlie Adame, the sole proprietor, is considering delaying some of his December 2019 customer billings for lawn care into the next year. In
Sally hires a maid to work in her home for $280 per month. The maid is 25 years old and not related to Sally. During 2019, the maid worked 9 months for Sally.a. What is the amount of Social Security
Brian and Kim have a 12-year-old child, Stan. For 2019, 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
Amy is a calendar-year taxpayer reporting on the cash basis. Please indicate how she should treat the following items for 2019: a. She makes a deductible contribution to an IRA on April 15,
Explain why the tax law prefers flowthrough entities like partnerships and S corporation to have a year-end that matches the year-end of its owners.
Christine and Doug are married. In 2019, 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 2019. How much
Skylar is single and earns $410,000 in salary during 2019. What is the amount of 0.9 percent Medicare tax for high-income taxpayers that his employer must withhold from his wages? a.
For 2019, Roberta is a self-employed truck driver with earnings of $47,000 from her business. During the year, Roberta received $2,500 in interest income and dividends of $500. She also sold
The alternative minimum tax exemption: a. Is a direct reduction of the tentative minimum tax b. Is a reduction of alternative minimum taxable income for certain taxpayers c. Permits
Generally, the tax rate that applies to the unearned income of a minor under the kiddie tax in 2019 is: a. The same as the parents’ tax rate b. The same as the single taxpayer
Which of the following is not required to subject a taxpayer to the tax on unearned income of minors (kiddie tax) in 2019? a. Must be claimed as a dependent b. 18 years of age or younger
BJT Corporation is owned 40 percent by Bill, 30 percent by Jack, and 30 percent by the Trumpet Partnership. Bill and Jack are father and son. Jack has a 10 percent interest in Trumpet Partnership.
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
Which of the following entities is likely to have the greatest flexibility in choosing a year-end other than a calendar year-end? a. Sole proprietor b. General partnership c.
John Williams (birthdate August 2, 1976) is a single taxpayer. John’s earnings and withholdings as the manager of a local casino for 2019 are reported on his Form W-2: John’s other income
In 2019, 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
While preparing Massie Miller’s 2019 Schedule A, you review the following list of possible charitable deductions provided by Massie: Cash contribution to a family whose house burned
During the 2019 tax year, Irma incurred the following expenses: Union dues.......................................................................$244 Tax return preparation
On January 3, 2019, Carey discovers his diamond bracelet has been stolen. The bracelet had a fair market value and adjusted basis of $7,500. Assuming Carey had no insurance coverage on the bracelet
Helen paid the following amounts of interest during the 2019 tax year: Mortgage interest on Dallas residence (loan balance $50,000)...$1,600 Automobile loan interest (personal use
Mary paid $2,000 of state income taxes in 2019. She paid $1,500 of state sales tax on the purchase of goods and she also purchased a car in 2019 and paid sales tax of $3,000. How should Mary treat
Laura is a single taxpayer living in New Jersey with adjusted gross income for the 2019 tax year of $35,550. Laura’s employer withheld $3,410 in state income tax from her salary. In April of 2019,
During 2019, Jill, age 39, participated in a Section 401(k) plan which provides for maximum employee contributions of 12 percent. Jill’s salary was $80,000 for the year. Jill elects to make the
Tony is a 45-year-old psychiatrist who has net earned income of $300,000 in 2019. What is the maximum amount he can contribute to his SEP for the year?
What is the maximum amount a 45-year-old taxpayer and 45-year-old spouse can put into a Traditional or Roth IRA for 2019 (assuming they have sufficient earned income, but do not have an income
Serena is a 38-year-old single taxpayer. She operates a small business on the side as a sole proprietorship. Her 2019 Schedule C reports net profits of $15,624. Her employer does not offer health
Which of the following is deductible as a miscellaneous itemized deduction in 2019? a. Tax preparation fees b. Gambling losses in excess of gambling winnings c. Losses from Ponzi-type
Which of the following would typically be deductible as a casualty loss in 2019? a. Long-term damage to a home from termites b. An automobile accident during the daily commute c. A
In March of 2019, Thomas makes a $5,000 cash contribution to a public university. In that month, he also donates $20,000 to an organization subject to the 30 percent limitation. Thomas has adjusted
Carrie, a single taxpayer, finished h3er undergraduate degree using money from a student loan. She earned $126,000 her first year and paid $2,600 in interest in 2019. She can take a deduction for
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 mortgage b. Fees for having a new home
The itemized deduction for state and local taxes in 2019 is a. Total taxes less 10 percent of AGI b. Limited to no more than $10,000 c. Unlimited d. Only deductible if the taxes
Antonio is a small business owner and files jointly with his spouse. In 2019, he generates $100,000 of net profits from his business. His spouse, Maria, has $4,000 of state income tax withheld from
In April 2019, Fred paid $60 of state income tax that was due when he filed his 2018 income tax return. During 2019, Fred’s employer withheld $1,500 of state income tax from his pay. In April 2020,
Which of the following taxes may be deducted as itemized deduction? a. State gasoline taxes b. Local property taxes c. Federal income taxes d. Social Security taxes e.
Which of the following is not considered a deductible medical expense? a. Once daily multivitamin b. Prescription eyeglasses c. Acupuncture d. Filling a tooth cavity
Jessica is a U.S. Army Reservist and in 2019 traveled 130 miles each way to serve duty at a local military installation. She was required to report four times in 2019. Her normal route from home to
What is the maximum tax-deferred contribution that can be made to a Section 401(k) plan by an employee under age 50 in 2019? a. $19,000 b. $20,000 c. $18,500 d. $18,000 e.
What is the deadline for making a contribution to a traditional IRA or a Roth IRA for 2019? a. April 15, 2020 b. April 17, 2019 c. December 31, 2019 d. October 15, 2020
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? a. $5,000 b. $3,850 c.
Martha and Rob, a married couple, under 50 years of age, have adjusted gross income on their 2019 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 2019. He also received rental income of $5,000 and dividend income of $900 for the year. What is the maximum amount Lyndon can
Charlene has self-only coverage in a 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
Julie, a single taxpayer, has completed her 2019 Schedule C and her net loss is $40,000. Her only other income is wages of $30,000. Julie takes the standard deduction of $12,200 in 2019. a.
Tyler, a single taxpayer, generates a net operating loss of $12,000 in 2017 and elects to forego any carryback. He also generates a net operating loss of $6,000 in 2018. Finally, in 2019, Tyler’s
Clifford Johnson has a limited partnership investment and a rental condominium. Clifford actively manages the rental condominium. During 2019, his share of the loss from the limited partnership was
Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1993. He also acquired a rental house in 2019, which he actively manages. During 2019, Walter’s share of the
On July 1, 2019, Ted, age 73 and single, sells his personal residence of the last 30 years for $368,000. Ted’s basis in his residence is $48,776. The expenses associated with the sale of his home
Larry Gaines, a single taxpayer, age 42, sells his personal residence on November 12, 2019, for $151,200. He lived in the house for 7 years. The expenses of the sale are $9,072, and he has made

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