Question 1

Income from illegal activities is taxable.

Accepted Answer

According to the Internal Revenue Service (IRS), income from illegal activities, such as drug trafficking or embezzlement, is taxable and must be reported on a tax return. However, the IRS does not require individuals to specify the illegal source of their income on the tax return.

Question 2

Jing, who is single, paid educational expenses of $16,000 in 2018. He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000. Jing has other adjusted gross income of $83,550. With respect to the $3,000 of bond interest, Jing must include in taxable income

Accepted Answer

The answer of Jing, who is single, paid educational expenses...

Question 3

Tarik, a single taxpayer, has AGI of $55,000 which includes $1,000 of qualified dividends. Tarik does not of itemize deductions. What is his 2018 federal income tax?

Accepted Answer

For 2018, the standard deduction for a single filer is $12,000. Tarik's taxable income is $55,000 - $12,000 = $43,000. The tax on $42,000 of ordinary income is calculated using the tax brackets for 2018. The qualified dividends are taxed at a lower rate. The total tax is approximately $5,330.

Question 4

In December of this year, Jake and Stockard, a married couple, redeemed qualified Series EE U.S. Savings Bonds. The proceeds were used to help pay for their daughter's college tuition. Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000. The qualified higher educational expenses they paid this year totaled $6,000. Their AGI is below the threshold for phase- out of the exclusion. What is the amount of interest income Jake and Stockard can exclude from their income this year?

Accepted Answer

The exclusion is calculated by multiplying the interest by the ratio of qualified expenses to total proceeds: ($3,000 interest) x ($6,000 expenses / $8,000 proceeds) = $2,250.

Question 5

Amy's employer provides her with several fringe benefits. Which of the following are included in her taxable income?

Accepted Answer

A year-end bonus check is considered taxable income as it is a form of compensation for services rendered.

Question 6

Natasha is a single taxpayer with $100,000 of taxable income. Included in the taxable income is distributions of e this year as follows:  How much of the $6,000 distribution will be taxed at the 15% tax rate?

Accepted Answer

The answer of Natasha is a single taxpayer with $100,000...

Question 7

Carla redeemed EE bonds which qualify for the educational exclusion. The redemption consisted of $14,000 principal and $6,000 interest. The net qualifying educational expenses are $10,000. Her AGI is below the threshold for phase- out of the exclusion. The taxable interest is

Accepted Answer

The answer of Carla redeemed EE bonds which qualify for...

Question 8

Which of the following is not included in gross income when received?

Accepted Answer

Refundable security deposits are not included in gross income because they are not considered income; they are expected to be returned to the payer.

Question 9

Derek, a single taxpayer, has AGI of $55,000 which includes $5,000 of qualified dividends. Derek does not itemize deductions. What is his 2018 federal income tax?

Accepted Answer

Derek's taxable income is $55,000 - $12,000 (standard deduction for 2018) = $43,000. The qualified dividends are taxed at 0% up to $38,600 (2018 threshold for single filers), and the remaining $4,400 is taxed at 15%. The rest of the income is taxed at ordinary rates. Calculating the tax results in $5,030.

Question 10

Distributions from corporations to the shareholders in a nonliquidating distribution will usually be classified as a dividend up to the amount of the corporation's

Accepted Answer

Distributions are classified as dividends to the extent of the corporation's earnings and profits (E&P).

Question 11

Unemployment compensation is exempt from federal income tax.

Accepted Answer

Unemployment compensation is subject to federal income tax, and possibly state income tax.

Question 12

Tyler has rented a house from Camarah since last year. The rent is usually $1,200 per month, but Camarah reduced the monthly rent down to $200 for all twelve months this year in exchange for Tyler putting in an inground pool in the backyard. The improvement has a fair market value of $20,000. How much total rental income must Camarah report this year?

Accepted Answer

Camarah must report the fair market value of the improvement ($20,000) plus the actual rent received ($200 x 12 = $2,400), totaling $22,400 as rental income.

Question 13

Bridget owns 200 shares of common stock of Jones Corporation. During the current year, Jones gives its shareholders the choice of receiving cash of $2 per share or one additional share of Jones common stock for each 5 shares of stock owned. The stock has a fair market value of $10 per share. Bridget chooses to take the additional shares of stock. How much income does Bridget have from the stock dividend?

Accepted Answer

The answer of Bridget owns 200 shares of common stock...

Question 14

Which of the following statements is false?

Accepted Answer

Municipal bond interest is generally not taxable at the federal level, making statement A false.

Question 15

In December 2018, Max, a cash- basis taxpayer, rents an apartment to Kadeem. Max receives both the first and last months' rent totaling $1,800 plus a security deposit of $400. The amount of income reported by Max as taxable in 2018 is

Accepted Answer

As a cash-basis taxpayer, Max must report income when it is received. The first and last months' rent totaling $1,800 is considered income received in 2018. The security deposit is not income unless it is forfeited or used for rent.

Question 16

Which of the following bonds do not generate tax- exempt federal income?

Accepted Answer

U.S. Treasury bonds generate federal taxable income, whereas municipal bonds like those issued by school districts, cities, and fire districts typically offer tax-exempt federal income.

Question 17

In 2018, Richard, a single taxpayer, has adjusted gross income of $40,200. His AGI includes $4,000 of qualified dividends. Richard does not itemize deductions. What is his 2018 federal income tax?

Accepted Answer

Richard's taxable income is $40,200 - $12,000 (standard deduction for single filers in 2018) = $28,200. The qualified dividends are taxed at 0% up to $38,600 for single filers, so they are not taxed. The remaining $24,200 is taxed at the 2018 tax rates: 10% on the first $9,525 and 12% on the remaining $14,675, resulting in a total tax of $2,714.

Question 18

Social Security benefits are excluded from taxation for all taxpayers.

Accepted Answer

Social Security benefits can be subject to taxation for certain taxpayers depending on their income level.

Question 19

Hoyt rented office space two years ago to Harris, receiving the first and last months' rent plus a security deposit of $1,000. In early January of this year, Harris moves and Hoyt refunds $250 of the deposit and keeps the remainder to cover $500 which is spent for repairs to the office space and one week of unpaid rent that amounts to $250. How would this information be reflected on Hoyt's tax return this year?

Accepted Answer

Hoyt received $750 from the security deposit, which is considered income since it was used for repairs and unpaid rent. The $500 spent on repairs is deductible as an expense.

Question 20

Jacob, who is single, paid educational expenses of $16,000 in 2018. He redeemed Series EE bonds and received principal of $8,000 and interest of $3,000. Jacob has other adjusted gross income of $83,550. The $3,000 exclusion must be reduced by

Accepted Answer

The answer of Jacob, who is single, paid educational expenses...

Quiz 16: Tax Deductions and Travel Expenses for Employees and Self-Employed Individuals