Questions -
Q1. John and Elaine, ages 29 and 28, are married and file a joint return. In addition to having TWO dependent children (Jacqueline and Jesse), John and Elaine have adjusted gross income ("AGI") of $90,000 and itemized deductions of $15,000. What is their taxable income for 2013?
a. $59,400
b. $63,300
c. $75,000
d. $90,000
Q2. In 2013, Dave, age 15, will have $200 of interest from a certificate of deposit and $4,000 from performing landscaping services. Assume Dave is claimed by his parents as a dependent. What is Dave's standard deduction for 2013?
a. $6,100
b. $4,350
c. $4,000
d. $1,000
Q3. What is Pavlina's taxable income for 2013? Assume she is single and claimed TWO dependent children, Andrew and Alexander. Assume further that Pavlina's AGI is $100,000 and that her itemized deductions are $20,000.
a. $68,300
b. $72,200
c. $80,000
d. $100,000
Q4. What is Irma's Taxable Income for 2013? Assume she is 45 years old and is single and has no dependents. Assume further that Irma's AGI is $100,000 and that she made a charitable contribution of $1,000 (which would be her only itemized deduction).
a. $90,000
b. $95,100
c. $99,000
d. $100,000
Q5. A few years ago, Gabriel and Olga formed a partnership called "GO." Which of the following is TRUE regarding the U.S. income taxation of Gabriel, Olga and GO?
a. The GO entity must pay income taxes
b. The GO entity is required to file an informational tax return
c. Olga and Gabriel are not required to pay taxes on their respective shares of GO's income unless (and until) GO distributes its earnings to them
d. None of the above
Q6. Jennifer is a cash-basis taxpayer. Which doctrine will most likely limit Jennifer's ability to choose the year in which to recognize income?
a. The economic benefit doctrine
b. The fruit-of-the-tree doctrine
c. The constructive receipt doctrine
d. None of the above
Q7. During 2013, Gregory was supported by his three wealthy accountant daughters, in the following percentages:
- Jennifer: 25.0%
- Katherine: 8.0%
- Betsy: 30.0%
Which daughter is UNABLE to claim Gregory as a dependent, even if a multiple support agreement is in place and the other daughters agree NOT to claim Gregory as a dependent?
a. Jennifer
b. Katherine
c. Betsy
d. Each daughter would be eligible to claim Gregory as a dependent
Q8. On January 1, 2013, Pavlina signed a four year lease to rent office space from Michael. The lease commenced immediately on January 1, 2013. During 2013, Pavlina will pay Michael, $24,000 for the first year's rent, $2,000 for the last month's rent, and $2,000 as a security deposit. Pavlina and Michael agree that the security deposit will be returned by Michael at the end of the lease. How much gross income should Michael report for 2013 as a result of these items?
a. $30,000
b. $28,000
c. $26,000
d. $24,000
Q9. What is Dennis's taxable income for 2013? Assume Dennis is 29 years old and is single and has no dependents. Assume further that Dennis's 2013 AGI is $50,000 and that he has no itemized deductions.
a. $50,000
b. $46,100
c. $40,000
d. $36,100
Q10. Eric, a single taxpayer, will have 2013 wages of $70,000. What is Eric's AGI if he has the following (and only the following) additional items in 2013?
- Itemized deductions of $10,000
- Exemption amount of $3,900
- Alimony of $12,000 received by Eric (from his former spouse, Katherine)
- Business income of $6,000 from Eric's sole proprietorship
Ignore any deduction that may relate to self-employment taxes.
a. $70,000
b. $76,000
c. $82,000
d. $88,000
Q11. Assume the same facts as in the previous question (again, ignore any deduction that may relate to self-employment taxes). Eric's Taxable Income for 2013 is:
a. $56,100
b. $68,100
c. $70,000
d. $74,100
Q12. Elaine and John are married taxpayers who file a joint return. In 2012, they had AGI of $600,000 and their preliminary itemized deductions totaled $40,000. In 2013, they will also have AGI of $600,000 and preliminary itemized deductions of $40,000. In 2012 and 2013 their itemized deductions include mortgage interest. Which of the following is TRUE?
a. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2013 return
b. When comparing their 2012 and 2013 returns, they will deduct more itemized deductions on their 2012 return
c. When comparing their 2012 and 2013 returns, they will deduct the same amount of itemized deductions on each return
d. They will not deduct any itemized deductions on either their 2012 return or their 2013 return
Q13. Which of the following statements is TRUE?
a. The U.S. government always "breaks-even" with regards to alimony payments (i.e., because the reduction in taxes for the spouse paying the alimony will always equal the increase in taxes for the spouse receiving the alimony)
b. Taxpayers often prefer deductions FROM AGI to deductions FOR AGI
c. The amount of tax-exempt interest received by a taxpayer could impact the amount of his/her Social Security benefits that are subject to taxation
d. A dependent's earned income amount could never impact the size/amount of his/her standard deduction amount
Q14. Assume that Irma received some unique payments in 2013. Which of the following items may Irma exclude from gross income?
a. Punitive damages received from a lawsuit against Big Bad Company, Inc.
b. $20,000 received as a gift from Irma's Aunt
c. $1,700 received from her NCAA basketball pool winnings
d. None of the above
Q15. In early 2013, Yessenia received a gift of a home valued at $400,000 (from Yessenia's mother, Betsy). Betsy also gave Yessenia a $10,000 cash gift. During 2013, Yessenia rented the home to Jennifer. As a result of the lease with Jennifer, Yessenia will earn net rental income of $20,000 (for 2013). What amount of income should Yessenia's 2013 tax return include from these transactions?
a. $0
b. $20,000
c. $30,000
d. $430,000
Q16. In 2013, Jessie, a calendar-year taxpayer, purchased business equipment (5-year property) for $1,000,000. The property was placed in service during 2013 (and is being used exclusively in Jessie's extremely profitable business). No other personal property is purchased by Jessie in 2013. What is the most that Jessie may deduct in 2013 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)?
a. $1,000,000
b. $500,000
c. $200,000
d. $0
Q17. Assume the same facts as in the previous question. However, for this question, assume that Jessie purchased the business equipment for $2,300,000 (instead of $1,000,000). What is the most that may be deducted in 2013 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)?
a. $2,300,000
b. $500,000
c. $200,000
d. $0
Q18. Which of the following is most likely deductible FOR AGI (i.e., PRE-AGI)?
a. Amounts paid for medical expenses
b. Amounts paid for student loan interest
c. Amounts paid for an employee's unreimbursed travel expenses (i.e., the travel was related to taxpayer's fulltime position at a large corporation)
d. Each of the above items would be deducted FROM AGI (i.e., POST-AGI)
Q19. John has AGI of $150,000 in 2013. During 2013, John also had an uninsured personal casualty loss of $20,000 (after the $100 reduction). The personal casualty loss related to an accident that John had with Andrew. John carried no collision insurance and Andrew was also an uninsured motorist. Assume John itemizes deductions in 2013. What is the casualty loss amount that John may deduct on his return?
a. $0
b. $5,000
c. $10,000
d. $20,000
Q20. Refer to the facts in the previous question. However, for purposes of this question assume that John takes the standard deduction in 2013. What is the casualty loss amount that John may deduct on his return?
a. $0
b. $5,000
c. $10,000
d. $20,000
Q21. If Katherine is insolvent with assets of $30,000 and liabilities of $40,000 and one of Katherine's creditors then cancels a debt of $15,000, what amount must Katherine recognize as income?
a. $0
b. $5,000
c. $10,000
d. $15,000
Q22. TXX5761 Inc. paid all of the premiums for a $500,000 group-term life insurance policy on its 62-year-old President, Jacqueline. Assume that pursuant to the applicable table, the cost per $1,000 of protection for a 1-month period is $0.66 (for a person aged 60 to 64). What amount relating to the policy (if any) must be included in Jacqueline's Gross Income for the year (assume Jacqueline was covered for all twelve months)?
a. $500,000
b. $450,000
c. $3,564
d. $0
Q23. On January 1, 2013, Olga purchased a 20-year annuity for $80,000 from SAMIR & ASSOCIATES (an established insurance company). Under the annuity, Olga will receive payments of $740 for each month of annuity's life. What amount of the annuity payments may be excluded from Olga's Gross Income for 2013 (assume all 12 monthly payments are made in 2013)?
a. $0
b. $4,000
c. $4,880
d. $8,880
Q24. Assuming the same facts as in the previous problem, what amount of the annuity payments from SAMIR & ASSOCIATES must be included in Olga's Gross Income for 2013?
a. $0
b. $4,000
c. $4,880
d. $8,880
Q25. In March 2013, Dave, a calendar-year taxpayer, purchased new 7-year property for $1,000,000. The property was immediately placed into service (and is being used exclusively in Dave's extremely profitable business). No other personal property will be purchased by Dave in 2013. Dave wants to take the largest possible tax deduction in 2013 relating to the equipment. Compute the largest tax deduction possible in 2013 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS, if applicable):
a. $1,000,000
b. $ 785,725
c. $500,000
d. $139,000
Q26. During 2013, 5-year MACRS property was placed in service by Samir, a calendar-year taxpayer. Assume that Samir does NOT make a Section 179 election or take any bonus depreciation. The property will most likely be depreciated over:
a. Six calendar years
b. Five calendar years
c. Two and one-half calendar years
d. One calendar year
Q27. Which doctrine will most likely prevent Jennifer from reducing her tax liability by voluntarily assigning her income to another taxpayer?
a. The constructive receipt doctrine
b. The fruit-of-the-tree doctrine
c. The economic benefit doctrine
d. None of the above
Q28. Elaine contributed some inventory from her sole proprietorship to a public charity for its use. On the date of the contribution, Elaine's basis in the inventory was $10,000 and the fair market value was $15,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)?
a. $15,000
b. $10,000
c. $5,000
d. $0
Q29. Which of the following items most resembles an interest free loan from the U.S. government?
a. Student loan interest being deducted
b. Travel expenses being deducted
c. Unreimbursed employee business expenses being deducted
d. Amounts being deducted pursuant to Section 179 of the Code
Q30. Which of the following statements is TRUE about Gregory's hobby activity?
a. A loss from Gregory's hobby activity may be used to offset his dividend income
b. When compared to Gregory's business, Gregory's hobby activity is subject to exactly the same tax laws
c. Expenses relating to Gregory's hobby activity may never be deductible
d. A loss from Gregory's hobby activity may not be used to offset wages from his full-time employment
Q31. What was Katherine's Taxable Income for 2013? Assume Katherine is single and has TWO dependent children, Eric and Dennis. Assume further that Katherine's 2013 AGI is $45,000 and that Katherine had itemized deductions of $10,000.
a. $45,000
b. $35,000
c. $27,200
d. $23,300
Q32. What was Betsy's 2013 Net Operating Loss amount assuming that she had the following items listed on her income tax return?
Business Income $50,000
Interest income on personal investments $5,000
Less: Business Expenses ($70,000)
Less: Personal exemption ($3,900)
Less: Nonbusiness deductions ($7,000)
Loss shown on return ($25,900)
a. $0
b. $10,000
c. $20,000
d. $25,900
Q33. Jeff incurred the following expenses during 2013. Which expense is Jeff LEAST likely to deduct as a medical expense (assume Jeff itemizes and that his medical expenses will exceed 10.0% of his AGI)?
a. Medical insurance premiums (purchased by Jeff with his after-tax dollars)
b. Uninsured expenses relating to eye surgery
c. Cosmetic surgery (to make Jeff's chin look more appealing)
d. Travel expenses to obtain treatment at a clinic in Georgia (assume that the potentially lifesaving procedure to be performed can only be performed at that particular clinic)
Q34. Olga contributes some common stock that she held long-term to a public charity. On the date of the contribution, Olga's basis in the common stock was $12,000 and the fair market value was $7,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)?
a. $0
b. $5,000
c. $7,000
d. $12,000
Q35. Alexander sold stock he owned in a small business that was formed as a corporation. Alexander sold the stock to Jennifer. Which Section of the U.S. Tax Code might allow Alexander to convert what would otherwise be a capital loss into an ordinary loss?
a. Section 1244
b. Section 1231
c. Section 1221
d. Section 1202
Q36. Yessenia's business incurred a casualty loss in 2013. Immediately before the casualty, her business truck had an adjusted basis of $30,000 and a fair market value of $35,000. Immediately after the casualty, the truck had a fair market value of $10,000. Because of the truck damage, Yessenia's insurance company provided $5,000 as a reimbursement in 2013. What was Yessenia's 2013 casualty loss deduction?
a. $30,000
b. $25,000
c. $20,000
d. Unknown (because we must know Yessenia's AGI)
Q37. In 2007, John (a single taxpayer) loaned $10,000 to his friend Gregory. In 2013, Gregory declared bankruptcy, with the result that the debt became totally worthless. How should John treat the loss relating to this debt (assume that the debt is a nonbusiness debt that is a bona fide debt that arose from a debtor-creditor relationship)?
a. John may not take any deduction relating to the debt (it is a nonbusiness debt)
b. As a short-term capital loss
c. As a long-term capital loss
d. As an itemized deduction
Q38. Assume the facts stated in the prior question. Assume further that John has no other capital gains or losses in 2013 (or any prior years). What is the maximum amount (related to the bad debt) that John can deduct in 2013?
a. $10,000
b. $7,000
c. $3,000
d. $0
Q39. Assume the facts stated in the prior two questions. Assume further that for 2013 John will offset his wages (with any deduction related to the debt) to the maximum extent permitted by law. What is the amount of John's capital loss carryover to 2014?
a. $10,000
b. $7,000
c. $3,000
d. $0
Q40. Which of the following is most likely deductible FOR AGI (i.e., PRE-AGI)?
a. Amounts paid for moving expense
b. Amounts paid for state income taxes
c. Amounts paid for medical expenses
d. Each of the above items would be deducted FROM AGI
Q41. Pavlina's boss gave her two tickets to the Counting Crows concert because she met her sales quota. At the time Pavlina received the two tickets, they had a face value of $100 each and were selling on eBay for $300 each. On the date of the concert, the tickets were selling for $400 each. Pavlina and her son attended the concert. How much gross income should Pavlina report as a result of the tickets?
a. $0
b. $200
c. $600
d. $800
Q42. Michael was a professional football player before a career-ending injury caused by a grossly negligent driver. Michael sued the driver and collected $5 million as compensation for lost estimated future income and $4 million for punitive damages. How much gross income should Michael report as a result of the damages he received?
a. $9 million
b. $5 million
c. $4 million
d. $0
Q43. Which of the following is a deduction FROM AGI?
a. Alexander paid alimony to a former spouse
b. Betsy invested $3,000 in a Roth IRA
c. Cliff paid property taxes levied by the county on an SUV used exclusively for business
d. Dennis paid real estate taxes levied by the county on his personal residence
Q44. Compute the casualty loss on Andrew's uninsured rental property under the following facts:
Adjusted basis $150,000
FMV before the loss $200,000
FMV after the loss $0
a. $0
b. $50,000
c. $150,000
d. $200,000
Q45. Jacqueline Corporation acquired new office furniture on July 13, 2013, for $80,000. Jacqueline did not elect immediate expensing under Section 179. Jacqueline also elects not to take the additional first-year depreciation. Determine Jacqueline's cost recovery for 2013.
a. $80,000
b. $11,432
c. $8,000
d. $0
Q46. On August 5, 2013, Pavlina purchased a new office building for $2 million. On October 3, 2013, she began to rent out office space in the building. What is Pavlina's cost recovery for 2013?
a. $0
b. $10,700
c. $51,282
d. $2,000,000
Q47. Assume the same facts as in the previous problem. Assume further that Pavlina sells the office building on July 12, 2017. What is Pavlina's cost recovery for 2017?
a. $51,282
b. $27,777
c. $10,700
d. $0
Q48. Dave performs services for Nova Corporation. In determining whether Dave is an employee or an independent contractor, which factor is MOST likely to suggest that Dave is an employee?
a. Dave uses his own tools
b. Dave's hires his own assistants
c. Nova Corporation sets Dave's daily work schedule
d. Dave determines the details of HOW he performs the applicable work
BACKGROUND INFORMATION FOR QUESTIONS 49-50
Yessenia and Olga recently formed a corporation named YO! Inc. (or "YO!"). On December 31, 2012, YO! issued 800,000 shares of common stock to Olga and 800,000 shares of common stock to Yessenia. Olga and Yessenia each paid $0.01 per share for their stock ($0.01 equaled the per share fair market value on December 31, 2012). Their stock is subject to a 4-year "repurchase option" (at cost) in favor of YO!. Each YO! repurchase option will "lapse" over time so that on December 31 (of 2013, 2014, 2015 and 2016), 200,000 shares will be released from the repurchase option. For example, if Olga quits YO! before December 31, 2016, YO! can repurchase Olga's "unvested shares" for $0.01 per share (no matter what the fair market value is on that date).
Q49. Assume that Olga DID NOT file a timely "83(b) election." On December 31, 2013, Olga is still working at YO! and thus 200,000 of Olga's 800,000 shares are "released" from the YO! repurchase option (i.e., 200,000 of Olga's shares "vest" on December 31, 2013). On that same day, the fair market value of the YO! stock was $1.01 per share. What 2013 income, if any, must Olga report as a result of these events?
a. $800,000
b. $202,000
c. $200,000
d. $0
Q50. Assume that Yessenia DID file a timely "83(b) election." On December 31, 2013, Yessenia is also still working at YO! and thus 200,000 of Yessenia's 800,000 shares are also "released" from the YO! repurchase option (i.e., 200,000 of Yessenia's shares "vest" on December 31, 2013). On that same day, the fair market value of the YO! stock was $1.01 per share. What 2013 income, if any, must Yessenia report as a result of these events?
a. $800,000
b. $202,000
c. $200,000
d. $0