Question 1

Mr.and Mrs.Trent divorced last year.Pursuant to the divorce,Mr.Trent transferred marketable securities (FMV $100,000; basis $67,000)to Mrs.Trent.This year,Mrs.Trent sold the securities for $112,000.Which of the following statements is true?

Accepted Answer

The answer of Mr.and Mrs.Trent divorced last year.Pursuant to the...

Question 2

Which of the following is excluded from gross income?

Accepted Answer

All the options listed are considered taxable income and are not excluded from gross income according to IRS guidelines.

Question 3

Which of the following statements about divorce settlements is false?

Accepted Answer

Alimony required under a pre-2019 divorce decree is excluded from the recipient's gross income, but it is not an above-the-line deduction for the payer.

Question 4

Dotty Sprauge incurred the following medical expenses this year.  Dotty's insurance company reimbursed her for $8,800 of these expenses.If Dotty's AGI is $26,550,compute her medical expense deduction.

Accepted Answer

The answer of Dotty Sprauge incurred the following medical expenses...

Question 5

Josh donated a painting to the local art museum.He purchased the painting twenty years ago for $34,000,and its appraised FMV at date of gift was $115,000.Which of the following statements about this donation is true?

Accepted Answer

When donating appreciated property like a painting to a qualified charity, the donor does not recognize a gain. The charitable contribution deduction is generally the fair market value of the property at the time of the donation, which in this case is $115,000.

Question 6

James Dean received the following this year.  Compute James' gross income.

Accepted Answer

The answer of James Dean received the following this year....

Question 7

Which of the following expenditures is not a medical expense for federal tax purposes?

Accepted Answer

All of the listed expenditures are considered deductible medical expenses for federal tax purposes.

Question 8

Mr.and Mrs.Shohler received $25,200 Social Security benefits this year.Their only other source of income was Mrs.Shohler's $10,479 taxable pension from her former employer.How much of their Social Security is included in gross income?

Accepted Answer

To determine the taxable portion of Social Security benefits, one must first calculate the combined income, which includes the total of one-half of the Social Security benefits, plus all other taxable income. In this case, the combined income is (1/2 of $25,200) + $10,479 = $12,600 + $10,479 = $23,079. For married couples filing jointly, if the combined income is between $32,000 and $44,000, up to 50% of Social Security benefits may be taxable. If it's below $32,000, then the benefits are not taxable. Since their combined income is below $32,000, none of their Social Security benefits are included in their gross income.

Question 9

Mr.and Mrs.McGraw received $50,160 Social Security benefits this year.They also received $108,000 taxable pension payments and earned $47,300 interest and dividends from their investment portfolio.How much of the McGraws' Social Security is included in gross income?

Accepted Answer

Social Security benefits are included in gross income if the individual's provisional income exceeds a certain threshold. Provisional income is calculated as the sum of adjusted gross income, tax-exempt interest, and one-half of Social Security benefits. In this case, the McGraws' provisional income is calculated as follows:

Adjusted gross income: $108,000 (taxable pension payments) + $47,300 (interest and dividends) = $155,300
Tax-exempt interest: $0 (not provided)
One-half of Social Security benefits: $25,080 (half of $50,160)

Provisional income = $155,300 + $0 + $25,080 = $180,380

Since this is greater than the threshold for married couples filing jointly ($32,000), a portion of the Social Security benefits are included in gross income. The taxable amount is calculated as the lesser of (a) 50% of the Social Security benefits or (b) 50% of the excess of provisional income over the threshold. In this case, the taxable amount is:

(a) 50% of Social Security benefits = $25,080 x 50% = $12,540
(b) 50% of excess over threshold = ($180,380 - $32,000) x 50% = $74,190

The taxable amount is the lesser of these two amounts, which is $12,540. Therefore, the correct answer is (C) $42,636.

Question 10

Which of the following tax payments is allowed as an itemized income tax deduction?

Accepted Answer

Local property taxes on personal property, such as an automobile, can be deducted as an itemized deduction on federal income tax returns.

Question 11

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

Mr. Haugh is allowed a charitable contribution deduction for the cost basis of the inventory items donated, which is $45,700. This is because, for tax purposes, businesses can deduct the cost basis of the inventory donated, not the retail value.

Question 12

Spencer paid the following taxes this year.  Compute Spencer's itemized deduction for taxes.

Accepted Answer

The answer of Spencer paid the following taxes this year....

Question 13

Which of the following donations doesn't qualify as a charitable contribution for federal tax purposes?

Accepted Answer

Cash donated directly to an individual panhandler is not considered a charitable contribution for federal tax purposes.

Question 14

Ms.Bjorn contributed $600,000 cash to qualified public charities this year.Her AGI was $814,000.Which of the following statements is true?

Accepted Answer

The answer of Ms.Bjorn contributed $600,000 cash to qualified public...

Question 15

Which of the following government transfer payments is included in the recipient's gross income?

Accepted Answer

Unemployment compensation is considered taxable income and is included in the recipient's gross income.

Question 16

Mr.and Mrs.Oliva incurred the following unreimbursed medical expenses this year.  If the Olivas' AGI is $43,100,compute their medical expense deduction.

Accepted Answer

The answer of Mr.and Mrs.Oliva incurred the following unreimbursed medical...

Question 17

Three years ago,Suzanne bought a new personal automobile for $26,900.This year,she sold it for $19,000.What is the amount and character of Suzanne's recognized loss?

Accepted Answer

Losses on the sale of personal-use property are not deductible for tax purposes, so no loss is recognized.

Question 18

Ted and Alice divorced in 2014.Pursuant to the divorce decree,Ted pays $5,000 alimony and $7,500 child support to Alice every month.Alice is the custodial parent.Which of the following statements is true?

Accepted Answer

Under the tax law changes effective from 2019, alimony payments are not deductible by the payer nor taxable to the recipient for divorces finalized after December 31, 2018. However, since Ted and Alice divorced in 2014, the old rules apply: Ted can deduct alimony payments, and Alice must include them in her income. Child support is neither deductible by the payer nor taxable to the recipient. Ted is not automatically entitled to child credits just because he pays child support.

Question 19

Which of the following statements about divorce settlements is true?

Accepted Answer

A) Property transfers related to divorce are generally not subject to income tax, allowing for the division of property without immediate tax implications. B) Child support payments are not considered taxable income for the recipient, nor are they deductible for the payer, distinguishing them from alimony payments in tax treatment.

Question 20

Six years ago,Milo Lenz,an amateur artist,sculpted a garden gnome as a gift for his mother.This year,his mother sold the gnome on eBay for $1,200.What is the amount and character of the mother's gain?

Accepted Answer

The answer of Six years ago,Milo Lenz,an amateur artist,sculpted a...

Quiz 17: Tax Consequences of Personal Activities

Mr.and Mrs.Trent divorced last year.Pursuant to the divorce,Mr.Trent transferred marketable securities (FMV $100,000; basis $67,000) to Mrs.Trent.This year,Mrs.Trent sold the securities for $112,000.Which of the following statements is true?