You are to assume that each question is independent of the other questions unless you are specifically told otherwise.

You must use the 2019 versions of the applicable forms and schedules. The forms and schedules are: 1) Form 1040; 2) Schedule 1; 3) Schedule 2; 4) Schedule 3; 5) Schedule A; 6) Schedule C; 7) Schedule D; 8) Schedule SE; 9) Form 4562; 10) Form 4797; 11) Form 4868 and 12) Form 8949. Specifically note the required change set forth in Question 3.

You must apply the tax law in effect for tax year 2020.

1). The TP operates a manufacturing business as a sole proprietorship. The TP purchases $70,000 of new equipment in 2020. If the TP desires to elect to use Section 179 expensing for the equipment, the election will be made by entering the appropriate information on:

a. Form 4797, Line 8.

b. Schedule C, Line 13.

c. Form 4562, Line 6, column c.

d. Form 4562, Line 14.

2). The TP’s sole proprietorship had the following revenues and expenses during 2020:

Sales Revenue$484,000

Sales Returns$ 17,000

Cost of Goods Sold$160,000

Interest Expense on business loan$ 4,000

Car/Truck Expense (repairs, gas, oil, etc.)$ 8,300

Taxes and licenses$ 18,300

Depreciation$ 9,500

Utilities$ 3,500

Wages to sales staff$110,000

Fee paid to CPA for Schedule C$ 1,000

The net profit for the sole proprietorship would be $____________________, and it would be reported on _____________________.

a. $154,600, Schedule C, Line 31.

b. $154,600, Schedule C, Line 5.

c. $152,400, Schedule C, Line 31.

d. $152,400, Schedule C, Line 5.

3). NOTE: Because the OASDI limit increased to $137,700 for 2020, you must change Line 5 on Schedule SE to the following:

Line 5. Self-employment tax. If the amount on line 4 is:

$137,700 or less, multiply line 4 by 15.3% (0.153). Enter the result here and on Schedule 2 (Form 1040 or 1040-SR), line 4, or Form 1040-NR, line 55.

More than $137,700, multiply line 4 by 2.9% (0.029). Then, add $17,074.80 to the result. Enter the total here and on Schedule 2 (Form 1040 or 1040-SR), line 4, or Form 1040-NR, line 55.

Based on the information contained in Question 2 above, the only correct entry for the TP to report based on the following choices would be:

a. $10,578 on Schedule 1, Line 14.

b. $16,480 on Schedule SE, Line 5.

c. $10,310 on Schedule SE, Section A, Line 6.

d. $10,450 on Schedule 1, Line 14.

4). The TP had the following personal expenses:

Real Property Taxes$ 4,900

2020 State income tax withholdings$ 3,200

Personal Property Taxes on family car[(2% x FMV of car ($35,000) + flat fee of $100)]$ 800

Medical Bills$10,500

Home Mortgage Interest (from Form 1098) $ 9,000

Charitable contributions - public charities $ 3,000 (cash)

They made quarterly estimated payments toward their 2020 state income taxes: 4/15/20 - $500; 6/14/20 - $500; 9/14/20 - $500; 1/15/21 - $500.

If the TP’s AGI was $100,000, which of the following is correct?

a. Schedule A, Line 11 would be $720.

b. Schedule A, Line 8b would be $9,000.

c. Schedule A, Line 5e would be $10,300.

d. Schedule A, Line 4 would be $3,000.

5). Husband is age 51 and wife is age 49. They have AGI of $114,000. Both of them are active participants in a qualified plan with their employers. The TPs file using the married filing jointly status. If they want to take the maximum combined deduction for contributions to their traditional IRAs, they will deduct $_________________ on ___________________.

a. $12,000; Schedule 1, Line 15.

b. $13,000; Schedule 1, Line 19.

c. $6,000; Schedule 1, Line 15.

d. $6,500; Schedule 1, Line 19.

6). The TPs sold the following stock this year:

300 shares of Adam, Inc.; Purchased on 8/21/18 for $52 per share; Sold on 5/2/20 for $62 per share reported to the TPs on Form 1099-B without basis reported.

1,000 shares of Eve, Inc.; Purchased on 8/24/19 for $176 per share; Sold on 6/30/20 for $166 per share reported to the TPs on Form 1099-B without basis reported.

If only one of the following is a correct entry on the TP’s return, it is:

a. $3,000 on Schedule D, Part I, Line 1, column (h).

b. ($10,000) on Form 8949, Part II, Line 1, column (h).

c. ($3,000) on Form 1040, Line 6.

d. ($7,000) on Schedule D, Part III, Line 21.

7). The TP files Form 4868 on February 1, 2021 to extend the due date for filing his 2020 Federal income tax return and pays $4,300. The appropriate place to enter this amount is on:

a. Form 4868, Line 7, and Schedule 3, Line 8.

b. Form 4868, Line 7, and Schedule 3, Line 10.

c. Form 4868, Line 5, and Schedule 3, Line 8.

d. Form 4868, Line 5, and Schedule 3, Line 10.

8). If the TP in question 4 above had the filing status of married filing jointly, the amount on Form 1040, Line 9 should be:

a. $12,400.

b. $24,800.

c. $25,000.

d. $27,700.

9). If the TP overpays her 2020 Federal income tax liability by $5,200, but wants to apply $3,000 of the overpayment to her 2021 estimated Federal income tax liability, then she should enter $3,000 on:

a. Form 1040, Line 20.

b. Schedule 3, Line 8.

c. Form 1040, Line 17.

d. Form 1040, Line 22.

10). NOTE: For this question, you must read every reference to a year on Form 4562 as that year + 1 (i.e., any 2019 reference is 2019 + 1 or 2020). If the taxpayer is depreciating office furniture that was placed in service in 2019, then the depreciation expense for 2020 in the amount of $2,761 would be entered on:

a. Form 4562, Line 19b.

b. Form 4562, Line 19c.

c. Form 4562, Line 17.

d. Form 4562, Line 14.

11). The taxpayer owns a sole proprietorship and sells only 1 piece of equipment during the year. The equipment was purchased 3 years ago for $90,000. The equipment was sold on September 1, 2020 for $70,000. The combination of Section 179 expense and MACRS depreciation taken on the equipment through the date of sale was $40,000. Which of the following would be a correct entry on the tax return based solely on this information?

a. $40,000 on Form 4797, Part III, Line 23 (for Property A).

b. $20,000 on Form 4797, Part II, Line 13.

c. ($3,000) on Form 1040, Line 6.

d. $20,000 on Schedule D, Part II, Line 11.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 1 The correct answer is c Form 4562 Line 6 column c Form 4562 is used to claim depreciation and amortization deductions Section 179 expensi... View the full answer