Question 1

Congress provides an indirect subsidy to charities by allowing a deduction for charitable contributions.

Accepted Answer

A) True 
 B)False  True

Question 2

Twelve years ago, Mr. Drake incurred a $790,000 mortgage to purchase his principal residence. Last year, he took out a $32,000 loan secured by his considerable equity in the residence and used the proceeds to send his daughter to Stanford University. Which of the following statements is true?

Accepted Answer

A)  Mr. Drake can report the interest paid on both his first and second mortgages as an itemized deduction. 
B)  Mr. Drake can deduct the interest paid on both his first and second mortgages as an above-the-line deduction. 
C)  Mr. Drake can report the interest paid on his first mortgage as an itemized deduction. 
D)  Mr. Drake can report the interest paid on his first mortgage as an above-the-line deduction and the interest paid on his second mortgage as an itemized deduction. 
A)  Mr. Drake can report the interest paid on both his first and second mortgages as an itemized deduction. 
B)  Mr. Drake can deduct the interest paid on both his first and second mortgages as an above-the-line deduction. 
C)  Mr. Drake can report the interest paid on his first mortgage as an itemized deduction. 
D)  Mr. Drake can report the interest paid on his first mortgage as an above-the-line deduction and the interest paid on his second mortgage as an itemized deduction. C

Question 3

Sue, a single taxpayer, purchased a principal residence in 2009 for $415,000. In 2012, she paid $18,000 to add a sunroom. This year, Sue sold the residence for $686,000. Her selling expenses were $5,000. How much gain must Sue recognize on the sale?

Accepted Answer

A)  $0 
B)  $3,000 
C)  $16,000 
D)  $25,000 
A)  $0 
B)  $3,000 
C)  $16,000 
D)  $25,000 A

Question 4

Which of the following is excluded from gross income?

Accepted Answer

A)  $50,000 slot machine winnings 
B)  $13,900 value of Hawaiian vacation won on a game show 
C)  $85,000 Pulitzer prize for journalism 
D)  None of these choices areexcluded. 
A)  $50,000 slot machine winnings 
B)  $13,900 value of Hawaiian vacation won on a game show 
C)  $85,000 Pulitzer prize for journalism 
D)  None of these choices areexcluded.

Question 5

For federal income tax purposes, a taxpayer may deduct state and federal employment taxes ($10,000 maximum) as itemized deductions.

Accepted Answer

A) True 
 B)False

Question 6

Mr. and Mrs. King had only one casualty loss this year when a tornado (a federally declared disaster) damaged their home, decreasing its value by $70,000. The couple received a $48,000 reimbursement from their insurance company. Compute the Kings' itemized deduction for casualty losses if their AGI was $98,200.

Accepted Answer

A)  $22,000 
B)  $21,900 
C)  $12,080 
D)  $60,080 
A)  $22,000 
B)  $21,900 
C)  $12,080 
D)  $60,080

Question 7

Which of the following statements about divorce settlements is false?

Accepted Answer

A)  Alimony required under a pre-2019 divorce decree is excluded from the recipient's gross income. 
B)  Child support is excluded from the recipient's gross income. 
C)  Alimony required under a pre-2019 divorce decree is an above-the-line deduction for the payer. 
D)  None of these choices arefalse. 
A)  Alimony required under a pre-2019 divorce decree is excluded from the recipient's gross income. 
B)  Child support is excluded from the recipient's gross income. 
C)  Alimony required under a pre-2019 divorce decree is an above-the-line deduction for the payer. 
D)  None of these choices arefalse.

Question 8

Which of the following is not a tax incentive for individuals to purchase a home instead of renting?

Accepted Answer

A)  Real property taxes on the home are deductible. 
B)  Premiums paid on homeowner's insurance are deductible. 
C)  Interest paid on a home mortgage is deductible. 
D)  All of these choices are tax incentives. 
A)  Real property taxes on the home are deductible. 
B)  Premiums paid on homeowner's insurance are deductible. 
C)  Interest paid on a home mortgage is deductible. 
D)  All of these choices are tax incentives.

Question 9

In 2009, Mr. and Mrs. Violet took out a $900,000 mortgage to purchase their personal residence. They can deduct the annual mortgage interest payments as an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 10

Mr. and Mrs. Oliva incurred the following unreimbursed medical expenses this year. $\begin{array}{llr}
  \text { Payments to physicians and dentists } &\$2,250\
 \text {  Eayment for hospital emergency room visit} &\$3,520\
 \text { Prescription drugs } &\$750\
 \text { Cost of wheelchair } &\$1,800
\end{array}$
 If the Olivas' AGI is $43,150, compute their medical expense deduction.

Accepted Answer

A)  $0 
B)  $90 
C)  $3,236 
D)  $5,124 
A)  $0 
B)  $90 
C)  $3,236 
D)  $5,124

Question 11

Spencer paid the following taxes this year. $\begin{array}{llr}
  \text {Federal income tax  } &\$12,034\
 \text { Federal employee payroll tax } &\$4,590\
 \text { State and local income tax } &\$5,725\
 \text {state and local sales tax  } &\$2,998\
 \text { Local property tax on personal residence } &\$3,300\
\end{array}$
 Compute Spencer's itemized deduction for taxes.

Accepted Answer

A)  $5,725 
B)  $13,615 
C)  $9,025 
D)  $10,000 
A)  $5,725 
B)  $13,615 
C)  $9,025 
D)  $10,000

Question 12

Recipients of the Nobel Peace Prize must include the prize in gross income.

Accepted Answer

A) True 
 B)False

Question 13

A thief broke into Kate's condominium and stole her laptop computer and $725 cash. Kate may be allowed a casualty loss deduction because of the theft.

Accepted Answer

A) True 
 B)False

Question 14

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

Accepted Answer

A) True 
 B)False

Question 15

Over the course of the year, Mr. Soo won $8,200 and lost $5,900 gambling in the local casino. Mr. Soo does not itemize deductions on his federal tax return. What is the net effect of his gambling on Mr. Soo's taxable income?

Accepted Answer

A)  No effect on taxable income. 
B)  $8,200 increase in taxable income. 
C)  $2,300 increase in taxable income. 
D)  None of these choices are correct. 
A)  No effect on taxable income. 
B)  $8,200 increase in taxable income. 
C)  $2,300 increase in taxable income. 
D)  None of these choices are correct.

Question 16

Mr. and Mrs. Blake suffered two casualty losses this year. Mr. Blake's wallet containing $1,300 cash was stolen, and their uninsured sailboat (basis $67,000; FMV $50,000) was destroyed by a tsunami (federally declared disaster). Compute the Blakes' itemized deduction for casualty losses if their AGI was $112,200.

Accepted Answer

A)  $39,880 
B)  $55,680 
C)  38,680 
D)  None of these choices are correct. 
A)  $39,880 
B)  $55,680 
C)  38,680 
D)  None of these choices are correct.

Question 17

Mr. Haugh owns a sporting goods store as a sole proprietorship. This year, he donated baseball equipment (bats, gloves, balls) to the local YMCA to use in their community sports programs. His cost basis in the inventory items was $45,700, and their retail value was $68,200. Which of the following statements about this donation is true?

Accepted Answer

A)  Mr. Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 business deduction. 
B)  Mr. Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 charitable contribution deduction. 
C)  Mr. Haugh is allowed a $45,700 charitable contribution deduction. 
D)  Mr. Haugh is allowed a $68,200 charitable contribution deduction. 
A)  Mr. Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 business deduction. 
B)  Mr. Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 charitable contribution deduction. 
C)  Mr. Haugh is allowed a $45,700 charitable contribution deduction. 
D)  Mr. Haugh is allowed a $68,200 charitable contribution deduction.

Question 18

Which of the following items is included in the recipient's gross income?

Accepted Answer

A)  Life insurance death benefit 
B)  Legal award for personal injury 
C)  Legal award for punitive damages 
D)  Scholarship for college tuition, fees, and books 
A)  Life insurance death benefit 
B)  Legal award for personal injury 
C)  Legal award for punitive damages 
D)  Scholarship for college tuition, fees, and books

Question 19

Which of the following events will result in a deductible casualty loss?

Accepted Answer

A)  Theft of a family's automobile. 
B)  Fire in a blocked fireplace resulting in smoke damage. 
C)  Electrical lightning strike that destroys a family's electronic devices. 
D)  None of these events. 
A)  Theft of a family's automobile. 
B)  Fire in a blocked fireplace resulting in smoke damage. 
C)  Electrical lightning strike that destroys a family's electronic devices. 
D)  None of these events.

Question 20

Mrs. Kronin received $16,200 child support payments from her former husband. These payments are excluded from Mrs. Kronin's gross income.

Accepted Answer

A) True 
 B)False

Congress provides an indirect subsidy to charities by allowing a deduction for charitable contributions.

Twelve years ago, Mr. Drake incurred a $790,000 mortgage to purchase his principal residence. Last year, he took out a $32,000 loan secured by his considerable equity in the residence and used the proceeds to send his daughter to Stanford University. Which of the following statements is true?

Sue, a single taxpayer, purchased a principal residence in 2009 for $415,000. In 2012, she paid $18,000 to add a sunroom. This year, Sue sold the residence for $686,000. Her selling expenses were $5,000. How much gain must Sue recognize on the sale?

Which of the following is excluded from gross income?

For federal income tax purposes, a taxpayer may deduct state and federal employment taxes ($10,000 maximum) as itemized deductions.

Which of the following statements about divorce settlements is false?

Which of the following is not a tax incentive for individuals to purchase a home instead of renting?

In 2009, Mr. and Mrs. Violet took out a $900,000 mortgage to purchase their personal residence. They can deduct the annual mortgage interest payments as an itemized deduction.

Mr. and Mrs. Oliva incurred the following unreimbursed medical expenses this year. Payments to physicians and dentists \2 ,250 Eayment for hospital emergency room visit \3 ,520 Prescription drugs \7 50 Cost of wheelchair \1 ,800 If the Olivas' AGI is $43,150, compute their medical expense deduction.

Spencer paid the following taxes this year. Federal income tax \1 2,034 Federal employee payroll tax \4 ,590 State and local income tax \5 ,725 state and local sales tax \2 ,998 Local property tax on personal residence \3 ,300 Compute Spencer's itemized deduction for taxes.

Recipients of the Nobel Peace Prize must include the prize in gross income.

A thief broke into Kate's condominium and stole her laptop computer and $725 cash. Kate may be allowed a casualty loss deduction because of the theft.

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

Over the course of the year, Mr. Soo won $8,200 and lost $5,900 gambling in the local casino. Mr. Soo does not itemize deductions on his federal tax return. What is the net effect of his gambling on Mr. Soo's taxable income?

Which of the following items is included in the recipient's gross income?

Which of the following events will result in a deductible casualty loss?

Mrs. Kronin received $16,200 child support payments from her former husband. These payments are excluded from Mrs. Kronin's gross income.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

The Tax Compliance Process

Filters

Exam 17: Tax Consequences of Personal Activities

Congress provides an indirect subsidy to charities by allowing a deduction for charitable contributions.

Twelve years ago, Mr. Drake incurred a $790,000 mortgage to purchase his principal residence. Last year, he took out a $32,000 loan secured by his considerable equity in the residence and used the proceeds to send his daughter to Stanford University. Which of the following statements is true?

Sue, a single taxpayer, purchased a principal residence in 2009 for $415,000. In 2012, she paid $18,000 to add a sunroom. This year, Sue sold the residence for $686,000. Her selling expenses were $5,000. How much gain must Sue recognize on the sale?

Which of the following is excluded from gross income?

For federal income tax purposes, a taxpayer may deduct state and federal employment taxes ($10,000 maximum) as itemized deductions.

Which of the following statements about divorce settlements is false?

Which of the following is not a tax incentive for individuals to purchase a home instead of renting?

In 2009, Mr. and Mrs. Violet took out a $900,000 mortgage to purchase their personal residence. They can deduct the annual mortgage interest payments as an itemized deduction.

Spencer paid the following taxes this year. Federal income tax \1 2,034 Federal employee payroll tax \4 ,590 State and local income tax \5 ,725 state and local sales tax \2 ,998 Local property tax on personal residence \3 ,300 Compute Spencer's itemized deduction for taxes.

Recipients of the Nobel Peace Prize must include the prize in gross income.

A thief broke into Kate's condominium and stole her laptop computer and $725 cash. Kate may be allowed a casualty loss deduction because of the theft.

An activity will be classified as a hobby if the taxpayer fails to make a profit from the activity.

Over the course of the year, Mr. Soo won $8,200 and lost $5,900 gambling in the local casino. Mr. Soo does not itemize deductions on his federal tax return. What is the net effect of his gambling on Mr. Soo's taxable income?

Which of the following items is included in the recipient's gross income?

Which of the following events will result in a deductible casualty loss?

Mrs. Kronin received $16,200 child support payments from her former husband. These payments are excluded from Mrs. Kronin's gross income.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

The Tax Compliance Process

Filters