Exam 1: Introduction to Taxation

Harold has a 50% interest in a general partnership that has a $14,000 loss for the year. He materially participates in the partnership, his basis in the partnership is $10,000 at the beginning of the year. He also has salary from other employment of $46,000. If he is single and claims the standard deduction, what are his taxable income and tax liability, respectively, in 2018?

Jason purchased a 20 percent interest in JKL Partnership for $20,000 at the beginning of the year. At year-end, the partnership reported net income of $15,000 and distributed $2,000 cash to Jason. What is Jason's year-end basis?

All interest paid to a taxpayer must be included in gross income.

A $100 tax deduction is more valuable to a taxpayer than a $100 tax credit.

What is Jerry's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as a partnership?

Ethan received $135,000 in salary in 2018. What is his FICA tax if the Medicare rate is 1.45%, the Social Security rate is 6.2% on the 2018 maximum of $128,400, and the FUTA rate is 6% on a $7,000 maximum?

William lives in Delaware but works for a company that has offices in both Maryland and Pennsylvania. William spent four months working in Pennsylvania and 8 months working in Maryland.

Harold is a 40 percent partner in HDT Partnership. At the beginning of the year, his partnership interest basis was $20,000. The partnership had net income of $58,000 for the year and it made an $8,000 distribution to Harold. What is Harold's basis at the end of the year?

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. What is Matt's stock basis at the end of the second year if they organize the business as an S corporation?

Which of the following is a tax?

Name and describe two types of taxes other than the income tax. Give example of each.

Two married persons with moderately high incomes will pay more taxes than two single persons with the same income. This is commonly called:

Which of the following statements is false?

There are three basic taxable entities: the individual, the fiduciary, and the C corporation.

What are Adam Smith's four canons of taxation? Briefly describe each.

Identify the following with an E if all or part of the item could be an exclusion from gross income or D if all or part of the item could be a deduction. -Scholarship f. State income taxes b. Medical expense g. Tax exempt interest c. Charitable contribution h. Student loan interest d. Life insurance proceeds i. Social Security benefits e. Inheritances j. The value of food stamps

Ethan and Mia are married and file a joint tax return. Their taxable income is $200,000 in 2018. What is their marginal tax rate?

A corporation incurring a net operating loss in 2018 can only carry that loss forward to offset profits in future years.

Mason owns 45% of an S corporation that reported net income of $105,000 for the year. During the year, $20,000 was distributed to Mason from the corporation. How much should Mason include in his taxable income for the year?

Which of the following is not a tax credit allowed a corporation?