1. Tim earns a salary of $40,000. This year, Tim’s employer establishes a cafeteria plan under which Tim signed a salary reduction of $2,500 for which $1,500 is to cover his health insurance premiums and $1,000 is available to reimburse medical expenses. During the year, he is reimbursed $900 for medical expenses. What is the total taxable to Tim this year?
A) $37,500 B) $38,400 C) $40,000 D) $37,600
2. For 2013, the maximum foreign-earned income exclusion is
A) $97,600. B) $95,100. C) $92,900. D) $91,500.
3. The discharge of certain student loans is excluded from income if all of the following are present except for
A) the loan proceeds must have been used to pay the cost of attending an education institution or used to refinance outstanding student loans.
B) the loan forgiveness must be contingent upon the individual’s working for a specified period of time in certain professions.
C) the loan must have been made by governmental, educational, or charitable organizations.
D) the loan forgiveness is based on age.
4. Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a
A) proportional tax. B) progressive tax.
C) regressive tax. D) None of the above.
5. Which of the following taxes is progressive?
A) sales tax B) income tax C) property tax D) excise tax
6. Steve Greene is divorced, age 66, has good eyesight, and lives alone. He claims his son Dylan, who is blind, as his dependent. In 2013 Steve had income and expenses as follows:
Gross income from salary $80,000
Total itemized deductions 5,500
A) $63,100. B) $64,600.
C) $60,700. D) $59,200.
7. In September of 2013, Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000. She had held the stock for 7 months. Forty-five days after the sale she purchased other qualified small business stock for $1,100,000. How much of the gain will she recognize?
A) $100,000 B) $900,000 C) $800,000 D) $ -0-
8. Jacob, who is single, paid educational expenses of $16,000 in the current year. He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000. Jacob has other adjusted gross income of $78,700. The $3,000 exclusion must be reduced by
A) $3,000. B) $0. C) $1,600. D) $1,400.
9. Which of the following advance payments cannot qualify for income tax deferral?
A) advance collection of rent with associated services
B) advance collection of rent without associated services
C) advance collection for merchandise
D) advance collection for services
10. Thomas and Sally were divorced last year. As a result, Thomas must pay Sally alimony of $100,000 per year starting this year and relinquish the house and car with a combined value of $170,000 and a combined cost basis of $155,000. The house and car are given as a property settlement. As a result of these transactions Thomas has a deduction of
A) $170,000. B) $100,000. C) $155,000. D) $270,000.
11. While using a metal detector at the beach during spring break, Toni uncovered some rare coins with a current fair market value of $9,000. What are her tax consequences regarding this find?
A) Since she “found” the coins, she does not have to report any amount of income until she sells the coins.
B) Under the discovery rules in the tax law, she will never report any amount as taxable since the value is under $10,000.
C) Because it was a “find” she only reports half of the FMV as income.
D) She reports the entire FMV as income.
12. Annisa, who is 28 and single, has adjusted gross income of $55,000 and itemized deductions of $5,000. In 2013, Annisa will have taxable income of
A) $51,100. B) $45,000. C) $48,900. D) $42,150.
13. Which of the following types of itemized deductions are included in the category of miscellaneous expenses that are deductible only if the aggregate amount of such expenses exceeds 2% of the taxpayer’s adjusted gross income?
A) medical expenses
B) charitable contributions
C) home mortgage interest expense
D) unreimbursed employee business expenses
14. All of the following items are deductions for adjusted gross income except
A) rent and royalty expenses. B) trade or business expenses.
C) alimony paid. D) state and local income taxes.
15. Charlie is claimed as a dependent on his parents’ tax return in 2013. He received $8,000 during the year from a part-time acting job, which was his only income. What is his standard deduction?
A) $8,350 B) $6,100 C) $8,000 D) $1,000
16. Helen, who is single, is considering purchasing a residence that will provide a $28,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 25% and her effective tax rate is 20%, what is the amount of Helen’s tax savings from purchasing the residence?
A) $21,000 B) $5,600 C) $7,000 D) $22,400
17. Ben, age 67, and Karla, age 58, have two children who live with them and for whom they provide total support. Their daughter is 21 years old, blind, is not a full-time student and has no income. Her twin brother is 21 years old, has good sight, is a full-time student and has income of $4,500. Ben and Karla can claim how many personal and dependency exemptions on their tax return?
A) 2 B) 3 C) 4 D) 5
18. You may choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. Which of the following facts would prevent you from being considered married for filing purposes?
A) You were married for several years, but your divorce became final in December.
B) Your spouse died during the year but the executor of the estate has agreed to the filing of a joint return.
C) You are married but living apart until some problems can be solved.
D) None of the above.
19. Sarah contributes $25,000 to a church. Sarah’s marginal tax rate is 35% while her average tax rate is 25%. After considering her tax savings, Sarah’s contribution costs
A) $6,250. B) $18,750. C) $16,250. D) $8,750.
20. Paul makes the following property transfers in the current year:
• $22,000 cash to his wife
• $34,000 cash to a qualified charity
• $220,000 house to his son
• $3,000 computer to an unrelated friend
The total of Paul’s taxable gifts, assuming he does not elect gift splitting with his spouse, subject to the unified transfer tax is
A) $214,000. B) $206,000. C) $234,000. D) $279,000.
21. Which of the following is not a social objective of the tax law?
A) an exclusion for interest earned by large businesses
B) a deduction for charitable contributions
C) creation of tax-favored pension plans
D) prohibition of a deduction for illegal bribes, fines and penalties
22. Healthwise Ambulance requires its employees to be on 24-hour call and consequently gives them $800 per month housing allowance and a $200 per month food allowance. Ron, an employee of Healthwise, receives a salary of $40,000 per year (this does not include the allowances). Ron will be taxed each year on
A) $49,600. B) $40,000. C) $52,000. D) $42,400.
23. Which of the following is not excluded from income? (Assume that any amounts received by the taxpayer were kept.
A) gifts and inheritances.
B) fair market value of prize won on a game show.
C) life insurance proceeds paid by reason of death.
D) public assistance payments.
24. Which of the following statements regarding the qualified tuition plans (QTP) is incorrect?
A) Distributions can be made tax-free to pay for room and board at college.
B) Distributions made from the QTP for college tuition will be tax-free in addition to qualifying for the American Opportunity credit or lifetime learning credit.
C) Distributions of income not used for qualified higher education expenses are taxable and subject to a 10% penalty.
D) Katie’s parents had established a QTP for Katie, but she has received a “full-ride” scholarship. Katie’s parents can name her sister as a replacement beneficiary of the QTP.
25. Ms. Marple’s books and records for 2013 reflect the following information:
|Salary earned this year||$65,000|
|Interest on savings account (credited to her account
in 2013, withdrawn in 2014)
|Interest on county bonds earned and collected in 2013||2,000|
What is the amount Ms. Marple should include in her gross income in 2013?
A) $68,000 B) $67,000 C) $65,000 D) $66,000
26. During 2013, Christiana’s employer withheld $1,500 from her wages for state income taxes. She claimed the $1,500 as an itemized deduction on her 2013 federal income tax return which included $8,000 of itemized deductions. Christiana is single. On her 2013 state income tax return, her state income tax was $900. As a result, Christiana received a $600 refund in 2014. What amount must Christiana include in income in 2014?
A) $0 B) $1,500 C) $900D) $600
27. During 2013, Mark’s employer withheld $2,000 from his wages for state income tax. Mark claimed the $2,000 as an itemized deduction on his 2013 federal income tax return. His total itemized deductions for 2013 were $6,000. Mark’s taxable income for 2013 was a negative $20,000 due to substantial business losses. Mark received the $2,000 as a refund from the state during 2014. What amount must Mark include in income in 2014?
A) $0 B) $1,000 C) $6,000 D) $2,000
28. During 2013, Robert and Cassie had $2,600 withheld from their pay for state income taxes. They file a joint return for 2013 and claimed the $2,600 taxes withheld as an itemized deduction on their federal tax return. Their itemized deductions totaled $12,800 on their 2013 tax return. Their 2013 state income tax was only $1,000 and they received a refund of $1,600 when they filed their state income tax return in 2014. As a result, Robert and Cassie must
A) reduce their deduction for state income taxes for 2014 by $1,600.
B) amend 2013’s federal tax return.
C) report income of $1,600 in 2014.
D) report income of $600 in 2014.
29. Michelle purchased her home for $150,000, and subsequently added a garage costing $25,000 and a new porch costing $5,000. Repairs to the home’s plumbing cost $1,000. The adjusted basis in the home is
A) $181,000. B) $180,000. C) $150,000. D) $151,000.
30. Allison buys equipment and pays cash of $50,000, signs a note of $10,000 and assumes a liability on the property for $3,000. Also, Allison pays an installation cost of $500 and a delivery cost of $800. Allison’s basis in the asset is
A) $63,500. B) $64,300. C) $63,000. D) $60,000.
31. Edward purchased stock last year as follows:
In April of this year, Edward sells 80 shares for $250. Edward cannot specifically identify the stock sold. The basis for the 80 shares sold is
A) $160. B) $240.C) $216. D) $184.
32. How long must a capital asset be held to qualify for long-term treatment?
A) one year B) 6 months
C) one year and one dayD) same trade date one year from purchase
33. On July 25, 2012, Marilyn gives stock with a FMV of $7,500 and a basis of $5,000 to her nephew Darryl. Marilyn had purchased the stock on March 18, 2012. Darryl sold the stock on April 18, 2013 for $7,800. As a result of the sale, what will Darryl report on his 2013 tax return?
A) $2,800 STCGB) $2,800 LTCG C) $300 LTCG D) $300 STCG
34. On July 25, 2012, Karen gives stock with a FMV of $7,500 and a basis of $8,000 to her nephew Bill. Karen had purchased the stock on March 18, 2012. Bill sold the stock on April 18, 2013 for $6,000. As a result of the sale, what must Bill report on his 2013 tax return?
A) ($1,500) LTCL B) ($1,500) STCL C) ($2,000) LTCL D) ($2,000) STCL
35. Rita died on January 1, 2013 owning an asset with a FMV of $730,000 that she purchased in 2007 for $600,000. Bert inherited the asset from Rita. When Bert sells the asset for $800,000 on August 20 of this year, he must recognize a
A) LTCG of $200,000. B) LTCG of $70,000.
C) STCG of $70,000. D) STCG of $200,000.
36. Amanda, who lost her modeling job, sued her employer for age discrimination. She was awarded $75,000 in lost wages, $25,000 for emotional distress, and $150,000 punitive damages. The amount taxable is
A) $225,000. B) $150,000. C) $-0-. D) $250,000.
37. Hope receives an $18,500 scholarship from State University. The university specifies that $8,500 is for tuition, books, supplies, and equipment, while $10,000 is for room and board. In addition, Hope works part-time at the campus library and earns $5,000. Hope’s gross income is
A) $23,500. B) $15,000. C) $5,000. D) $18,500.
38. Miranda is not a key employee of AB Corporation. AB provides Miranda with group term life insurance coverage of $140,000. The premiums attributable to the excess coverage are $1,300. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Miranda include in income?
A) $1,300 B) $1,080 C) $0 D) $1,680
39. Which of the following item(s) must be included in the income of the respective employees?
A) ABC Hospital Corporation provides free meals in the hospital cafeteria to employees while on duty in order that they be available for emergency calls.
B) More than one, but not all, of the amounts must be included in income.
C) IBX Corporation requires its employees to work overtime three evenings each year when the company takes inventory. The corporation pays to provide catered dinners on its premises on these evenings.
D) The state of California highway patrol organization provides its officers with a daily meal allowance to compensate them for meals eaten at any location while they are on duty.
TRUE/FALSE. Bubble “A” for True and “B” for False on the Scantron
40. Except as otherwise provided, gross income means all income from whatever source derived.
41. For federal income tax purposes, income is allocated between a husband and wife depending on the state of residence.
42. Ellen, a CPA, prepares a tax return for Frank, a farmer, in exchange for twenty bushels of rice. Since no cash changed hands, neither taxpayer reports income.
43. Distributions in excess of a corporation’s current and accumulated earnings and profits are treated as a nontaxable recovery of capital unless they exceed the basis of the stock.
44. Corporate taxpayers may offset capital losses only against capital gains and may carry excess losses back three years and then forward five years.
45. The wherewithal-to-pay concept provides that a tax should be collected when the taxpayer has the financial resources to pay the tax.