Final Exam

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Question #1

Taxes influence business decisions such as where a business should locate or how a business should be structured.,,

A FALSE

B TRUE

Question #2

Baker is single and earned $226,200 of salary as an employee in 2020. How much should his employer have withheld from his paycheck for FICA taxes?

A $12,053

B $11,800

C $17,241

D $10,562

Question #3

Employees are not allowed to deduct FICA taxes they pay.

A TRUE

B FALSE

Question #4

The AMT exemption amount is phased out for high-income taxpayers.

A TRUE

B FALSE

Question #5

In 2020, Campbell, a single taxpayer, has $95,000 of profits (net of the deduction for self-employment taxes, the self-employed health insurance deduction, and the deduction for contributions to qualified self-employment retirement plans) from her general store, which she operates as a sole proprietorship. She has no employees, $40,000 of qualified property, and $50,000 of taxable income before the deduction for qualified business income. How much is Campbell’s deduction for qualified business income?

A $8,000.

B $95,000.

C $10,000.

D $0.

E $19,000.

Question #6

During 2020, Jacob, a 19-year-old full-time student, earned $5,200 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions during 2020 is $6,000. How much of a tax-deductible contribution can Jacob make to an IRA?

A $570.

B $5,200.

C $0 (Full-time students are not allowed to participate in IRAs).

D $6,000.

Question #7

When allocating expenses of a vacation home between personal use and rental use, the amount of depreciation expense allocated to the rental use is always the ratio of rental days over rental days plus personal-use days.

A TRUE

B FALSE

Question #8

Which of the following best describes distributions from a defined benefit plan?

A Distributions from defined benefit plans are partially taxable as capital gains and partially nontaxable as a return of capital.

B Distributions from defined benefit plans are fully taxable as capital gains.

C Distributions from defined benefit plans are partially taxable as ordinary income and partially nontaxable as a return of capital.

D Distributions from defined benefit plans are fully taxable as ordinary income.

Question #9

Kevin bought 200 shares of Intel stock on January 1, 2020, for $50 per share with a brokerage fee of $100. Then, Kevin sells all 200 shares for $75 per share on December 12, 2020. The brokerage fee on the sale was $150. What is the amount of the gain/loss Kevin must report on his 2020 tax return?

A $4,500

B $4,750

C None of the choices are correct.

D $5,000

E $5,250

Question #10

Generally, 85 percent of Social Security benefits are included in income of high-income taxpayers.

A FALSE

B TRUE

Question #11

Sally received $72,300 of compensation from her employer and she received $415 of interest from a corporate bond. What is the amount of Sally’s gross income from these items?

A $72,300.

B $0.

C $72,715.

D $415.

Question #12

Anna is a qualifying child of her parents. However, she was recently married. Anna and her husband filed a joint return. If they had filed separately, Anna would have owed no taxes, though her husband would have owed just $5. Because Anna herself owed no taxes, her parents can still claim her as a dependent.

A TRUE

B FALSE

Question #13

A taxpayer earning income in “cash” and not reporting it as taxable income is an example of:

A conversion.

B None of the choices are correct.

C tax evasion.

D tax avoidance.

E income shifting.

Question #14

Assume that Lavonia’s marginal tax rate is 22 percent. If a city of Tampa bond pays 7.2 percent interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

A 9.20 percent

B 22.00 percent

C 9.23 percent

D 7.20 percent

E 6.10 percent

Question #15

If Joel earns a 10 percent after-tax rate of return, $23,000 received in two years is worth how much today?

A $25,300

B $20,790

C $18,998

D $23,000

E None of the choices are correct.

Question #16

Paying dividends to shareholders is one effective way of shifting income from a corporation to its shareholders.

A FALSE

B TRUE

Question #17

In general, tax planners prefer to defer income. This is an example of the conversion strategy.

A FALSE

B TRUE

Question #18

Manny, a single taxpayer, earns $65,200 per year in taxable income and an additional $12,020 per year in city of Boston bonds. What is Manny’s current marginal tax rate for 2020?

A None of the choices are correct.

B 15.51 percent

C 11.34 percent

D 13.06 percent

E 12.00 percent

Question #19

George recently paid $50 to renew his driver’s license. The $50 payment is considered a tax.

A FALSE

B TRUE

Question #20

An extension to file a tax return does not extend the due date for tax payments.

A FALSE

B TRUE

Question #21

The “90-day” letter gives the taxpayer the opportunity to pay a proposed IRS tax adjustment or file a petition in the U.S. District Court to contest the adjustment and hear the case.

A TRUE

B FALSE

Question #22

Sheryl’s AGI is $250,000. Her current tax liability is $52,068. Last year, her tax liability was $48,722. She will not owe underpayment penalties if her total estimated tax payments are at least which of the following (rounded) amounts? (Assume she makes the required payments each quarter.)

A $51,547

B $53,594

C $48,722

D $46,861

Question #23

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)?

A Refundable, business, nonrefundable personal

B Business, nonrefundable personal, refundable

C Refundable, nonrefundable personal, business

D Nonrefundable personal, business, refundable

Question #24

Baker is single and earned $227,000 of salary as an employee in 2020. How much should his employer have withheld from his paycheck for FICA taxes?

A $11,800

B $17,260

C $10,562

D $12,072

Question #25

The American opportunity tax credit and lifetime learning credit are available to all taxpayers regardless of their income level.

A TRUE

B FALSE

Question #26

Frieda is 67 years old and deaf. If Frieda files as a head of household, what amount of standard deduction can she claim in 2020?

A $19,950.

B $12,400.

C $18,650.

D $20,300.

E $14,050.

Question #27

Margaret Lindley paid $15,000 of interest on her $300,000 acquisition debt for her home (fair market value of $500,000), $4,000 of interest on her $30,000 home-equity debt, $1,000 of credit card interest, and $3,000 of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,000 of interest income this year and no investment expenses. How much of the interest expense may she deduct this year?

A $18,000.

B $19,000.

C None of the choices are correct.

D $23,000.

E $22,000.

Question #28

Which of the following is a true statement?

A None of the choices are true.

B The deduction for investment interest expense is not subject to limitation.

C Taxpayers may deduct interest on up to $1,000,000 of home-equity debt.

D A taxpayer who incurs acquisition indebtedness in 2018 may only deduct interest on up to $750,000 of home acquisition indebtedness.

E Taxpayers may only deduct interest on up to $1,500,000 of home acquisition indebtedness.

Question #29

This year Norma, a single taxpayer, paid $11,200 of real estate taxes on her personal residence and $9,500 of state income taxes. Which of the following is true?

A Norma can deduct $9,500 of state income taxes as a for AGI deduction.

B Norma can deduct $11,200 of real estate taxes as an itemized deduction.

C Norma can deduct $10,000 of taxes as an itemized deduction.

D None of the choices are correct.

E Even if Norma has no other itemized deductions, she should claim the standard deduction.

Question #30

Which of the following taxes will not qualify as an itemized deduction?

A State, local, and foreign income taxes.

B None of the choices qualify as an itemized deduction.

C Real estate taxes on a residence.

D Gasoline taxes on personal travel.

E Personal property taxes assessed on the value of specific property.

Question #31

Which of the following costs is deductible as an itemized medical expense?

A The cost of prescription medicine and over-the-counter drugs.

B None of the costs are deductible.

C Medical expenses incurred to prevent disease.

D The cost of elective cosmetic surgery.

E Medical expenses reimbursed by health insurance.

Question #32

Han is a self-employed carpenter and his wife, Christine, works full time as a grade school teacher. Han paid $525 for carpentry tools and supplies, and Christine paid $3,600 as her share of health insurance premiums (not with pretax dollars) for Han and herself in a qualified plan provided by the school district. Which of the following is a true statement?

A Both expenditures are deductible for AGI.

B The tools and supplies are an itemized deduction but the health insurance is deductible for AGI.

C Neither of the expenditures is deductible.

D Both expenditures are itemized deductions.

E The tools and supplies are deductible for AGI while the health insurance is an itemized deduction.

Question #33

Lisa, age 45, needed some cash so she received a $50,000 distribution from her Roth IRA (not coronavirus-related). At the time of the distribution, the balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed $20,000 to her account. Assume CARES Act applies. What amount of the distribution is taxable and subject to early distribution penalty?

A $50,000

B $5,000

C $0

D $30,000

Question #34

Which of the following statements regarding traditional IRAs is true?

A Taxpayers who participate in an employer-sponsored retirement plan are allowed to deduct contributions to a traditional IRA regardless of their AGI.

B Taxpayers with high income are not allowed to contribute to traditional IRAs.

C A single taxpayer with no earned income is not allowed to deduct contributions to traditional IRAs.

D Once a taxpayer reaches 55 years of age she is allowed to contribute an additional $1,000 a year.

Question #35

During 2020, Jacob, a 19-year-old full-time student, earned $4,500 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions during 2020 is $6,000. How much of a tax-deductible contribution can Jacob make to an IRA?

A $6,000

B $0 (Full-time students are not allowed to participate in IRAs)

C $500

D $4,500

Question #36

Harriet owns a second home that she rents to others. During the year, she used the second home for 10 personal days and for 200 rental days. Assume her mortgage on the second home is $300,000, and that she has no mortgage on her first home. Which of the following statements regarding the manner in which she should account for her income and/or expenses associated with the home is incorrect?

A Harriet will be allowed to deduct all of the mortgage interest on the loan secured by the property.

B Harriet is required to include all of the rental receipts in gross income.

C Harriet’s deductible expenses are not limited to the amount of gross rental income from the property.

D Harriet is required to allocate all expenses associated with the home to rental use or personal use.

Question #37

Excess business losses are carried back and then forward.

A FALSE

B TRUE

Question #38

Shauna received a distribution from her 401(k) account this year. In which of the following situations will Shauna be subject to an early distribution penalty?

A Shauna is 69 years of age but not yet retired when she receives the distribution.

B Shauna is 58 years of age but not yet retired when she receives the distribution.

C Shauna is 60 years of age but not yet retired when she receives the distribution.

D Shauna is 56 years of age and retired when she receives the distribution.

Question #39

Janine’s employer loaned her $5,000 this year (interest-free) to buy a used car. If the federal interest rate was 4 percent, which of the following is correct?

A None of the choices are correct.

B Janine recognizes $200 of imputed compensation income.

C Janine’s employer recognizes $200 of deductible interest expense.

D Janine recognizes $200 of taxable interest income.

E Janine recognizes $200 of imputed dividend income.

Question #40

Bernie is a former executive who is retired. This year Bernie received $250,000 in pension payments and $10,000 of Social Security payments. What amount must Bernie include in his gross income?

A Zero

B $260,000

C $250,000

D $258,500

E $255,000

Question #41

Bad Brad received 20 NQOs (each option gives him the right to purchase 30 shares of stock for $10 per share) from his employer. At the time he started working the stock price was $11 per share. Now that the share price is $25 per share, he exercises all of the options. Two years later Bad Brad sells the stock for $27 per share. What is Bad Brad’s basis in his stock for purposes of calculating the gain or loss?

A $6,000.

B $16,200.

C $9,000.

D $15,000.

Question #42

Which of the following is true regarding stock options?

A A loss is realized when stock options lapse.

B There is typically no tax effect on the grant date.

C The bargain element on a nonqualified option is taxed to employees at capital gain rates.

D Income recognized on the exercise date is greater for incentive stock options than nonqualified options.

Question #43

Filing status determines all of the following except ___________

A the applicable standard deduction amount.

B the AGI threshold for reductions in certain tax benefits.

C the top-stated marginal rate in the tax rate schedule.

D the appropriate tax rate schedule or tax table.

Question #44

Charlotte is the Lucas family’s 22-year-old daughter. She is a full-time student at an out-of-state university but plans to return home when the school year ends. During the year, Charlotte earned $4,000 of income working part time. Her support totaled $30,000 for the year. Of this amount, Charlotte paid $7,000 with her own funds, her parents paid $14,000, and Charlotte’s grandparents paid $9,000. Which of the following statements most accurately describes whether Charlotte’s parents can claim Charlotte as a dependent?

A Yes, Charlotte is a qualifying relative of her parents.

B Yes, Charlotte is a qualifying child of her parents.

C No, Charlotte does not pass the gross income test.

D No, Charlotte fails the support test for both qualifying children and qualifying relatives.

Question #45

Jamison’s gross tax liability is $7,000. Jamison had $2,000 of available credits and he had $4,000 of taxes withheld by his employer. What are Jamison’s taxes due (or taxes refunded) with his tax return?

A $1,000 taxes due.

B $3,000 taxes due.

C $5,000 taxes due.

D $1,000 tax refund.

Question #46

All of the following are for AGI deductions except:

A Business expenses for a self-employed taxpayer.

B Rental and royalty expenses.

C Contributions to qualified retirement accounts.

D Charitable contributions.

Question #47

Joanna received $60,000 compensation from her employer, the value of her stock in ABC company appreciated by $5,000 during the year (but she did not sell any of the stock), and she received $30,000 of life insurance proceeds from the death of her husband. What is the amount of Joanna’s gross income from these items?

A $90,000.

B $60,000.

C $95,000.

D $65,000.

Question #48

Sally received $69,000 of compensation from her employer and she received $425 of interest from a corporate bond. What is the amount of Sally’s gross income from these items?

A $69,425.

B $425.

C $0.

D $69,000.

Question #49

Which of the following series of inequalities is generally most accurate?

A Adjusted gross income ≥ gross income ≥ taxable income

B Gross income ≥ adjusted gross income ≥ taxable income

C Gross income ≥ taxable income ≥ adjusted gross income

D Adjusted gross income ≥ taxable income ≥ gross income

Question #50

A TRUE

B FALSE

Question #51

Assume that Lavonia’s marginal tax rate is 22 percent. If a city of Tampa bond pays 4 percent interest, what interest rate would a corporate bond have to offer for Lavonia to be indifferent between the two bonds?

A 5.13 percent

B 2.90 percent

C 4.00 percent

D 6.00 percent

E 22.00 percent

Question #52

The constructive receipt doctrine:

A causes income to be recognized before it is actually received.

B applies equally to income and expenses.

C None of the choices are correct.

D is particularly restrictive for accrual-basis taxpayers.

E causes income to be recognized after it is actually received.

Question #53

If Julius has a 22 percent tax rate and a 10 percent after-tax rate of return, $25,000 of income in three years will cost him how much tax in today’s dollars?

A $18,775

B $5,500

C $4,131

D $25,000

E None of the choices are correct.

Question #54

If Joel earns a 9 percent after-tax rate of return, $8,000 received in two years is worth how much today?

A None of the choices are correct.

B $6,736

C $7,370

D $8,720

E $8,000

Question #55

Princess, who resides in the 2nd Circuit, recently found a circuit court case that is favorable to her income tax research question. Which of the following circuits would she prefer to have issued the opinion?

A Federal Circuit

B 1st Circuit

C 2nd Circuit or the Federal Circuit

D 2nd Circuit

E None of the choices are correct.

Question #56

If Paula requests an extension to file her individual tax return in a timely manner, the latest she could file her return without a failure-to-file penalty is:

A None of the choices are correct.

B November 15th.

C August 15th.

D October 15th.

E September 15th.

Question #57

Because the U.S. District Court hears a broader set of cases, decisions by the U.S. District Court may be considered to have more authoritative weight than those by the U.S. Court of Federal Claims.

A TRUE

B FALSE

Question #58

For fraudulent tax returns, the statute of limitations for IRS assessment is 10 years.

A FALSE

B TRUE

Question #59

Corporations are required to file a tax return annually regardless of their taxable income.

A FALSE

B TRUE

Question #60

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.

If Leonardo and his wife are married filing jointly in 2020, what is Leonardo and Theresa’s effective tax rate for 2020? (Use tax rate schedule.)

A 20.23 percent

B 12.00 percent

C None of the choices are correct

D 15.63 percent

E 22.00 percent

Question #61

Employers often withhold federal income taxes directly from workers’ paychecks. This is an example of which principle in practice?

A None of the choices are correct

B Convenience

C Certainty

D Economy

E Equity

Question #62

Congress recently approved a new, smaller budget for the IRS. What taxation concept evaluates the cost of administering our tax law?

A None of the choices are correct

B Convenience

C Economy

D Certainty

E Equity

Question #63

Which of the following is not an example of a graduated tax rate structure?

A Progressive tax rate structure

B Proportional tax rate structure

C Regressive tax rate structure

D U.S. federal income tax

E None of the choices are correct

Question #64

Estimated tax payments are one way the federal income tax system addresses the “certainty” criterion in evaluating tax systems

A TRUE

B FALSE

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