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

$112,000 amount realized - $67,000 carryover basis.

Question 2

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

Accepted Answer

Unemployment compensation is included in the recipient's gross income and must be reported on their tax return. However, food stamps and need-based welfare payments are not included in gross income and are not taxable.

Question 3

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

Because Josh donated a painting worth $115,000 and held it for more than one year, he is allowed to claim a deduction for the full fair market value of the painting as a charitable contribution on his tax return. Since the painting was held for more than one year, Josh is not required to recognize any gain on the transfer of the painting.

Question 4

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 5

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

Accepted Answer

Local property tax on personal automobile can be deducted as an itemized income tax deduction. Federal gift tax, payroll tax on wages paid to a housekeeper, and Social Security tax withheld from salary are not allowed as itemized income tax deductions.

Question 6

Which of the following statements about divorce settlements is false?

Accepted Answer

The answer of Which of the following statements about divorce...

Question 7

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

Accepted Answer

The answer of Which of the following expenditures is not...

Question 8

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

Accepted Answer

Spencer can deduct the local property tax and the greater of state and local income or sales tax.

Question 9

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

Based on the couples' AGI, none of Social Security is included in gross income.

Question 10

James Dean received the following this year.
Scholarship for college tuition and fees $\quad$$\quad$$\quad$$\quad$ $ 20,000
Scholarship for college room and board $\quad$$\quad$$\quad$$\quad$ $ 12,500
Chamber of Commerce citizenship award $\quad$$\quad$$\quad$    $ 1,500
Inheritance from great uncle $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 38,000
Compute James' gross income.

Accepted Answer

Tuition scholarship and inheritance are excluded from gross income.

Question 11

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 12

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 gnome is not a capital asset because the mother received it as a gift from its creator.

Question 13

Dotty Sprauge incurred the following medical expenses this year.
Payments to physicians and dentists $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 4,300
Payment for two-day stay at Mercy Hospital   $\quad$$\quad$$\quad$ $6,250
Payments to physical therapist $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 2,100
Prescription drugs $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 1,010
Dotty's insurance company reimbursed her for $8,800 of these expenses. If Dotty's AGI is $35,400, compute her medical expense deduction.

Accepted Answer

$13,660 total expenses - $8,800 reimbursement - $2,655 (AGI × 7.5%).

Question 14

Mr and Mrs Oliva incurred the following unreimbursed medical expenses this year.
Payments to physicians and dentists $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 2,290
Payment for hospital emergency room visit $\quad$$\quad$$\quad$  $ 3,520
Prescription drugs $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 750
Cost of wheelchair $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 1,800
If the Olivas' AGI is $23,200, compute their medical expense deduction.

Accepted Answer

$8,360 total -$1,740 (AGI × 7.5%).

Question 15

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 $600,000 contribution is limited to 60% AGI. Any charitable contribution in excess of an AGI limitation may be carried forward five years.

Question 16

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's charitable contribution deduction is limited to his cost basis in the inventory.

Question 17

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

Child support is excluded from the recipient's gross income and nondeductible by the payer. The custodial parent is entitled to the child credit for the children.

Question 18

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

Accepted Answer

Only donations made to eligible organizations that have a tax-exempt status qualify as charitable contributions for federal tax purposes. Donating to an individual, like a homeless panhandler, does not qualify.

Question 19

Which of the following is excluded from gross income?

Accepted Answer

The answer of Which of the following is excluded from...

Question 20

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

Based on the couples' AGI, 85% of Social Security is included in gross income.

Quiz 17: Tax Consequences of Personal Activities