Deck 3: Taxable Entities, Tax Formula, Introduction to Property Transactions

Question 1

John, a widower of four years who is supporting his two young (under age 19) daughters, will have a larger standard deduction in 2012 than will Kate, who is single and sharing an apartment with two friends.

Answer 1

True

Question 2

The standard deduction is an amount that one deducts in addition to one's itemized deductions.

Answer 2

False

Question 3

V is single for tax purposes, has itemized deductions totaling $5,600 and is entitled to one $3,800 exemption deduction for 2012.V should itemize her deductions in 2012.

Answer 3

False

Question 4

The partnership entity does not pay a Federal income tax on its taxable income.

Question 5

The income of a child under age 19 is taxed to the parent.

Question 6

For 2012, the highest income tax rate for corporations with the highest incomes is the same as the highest marginal individual income tax rate.

Question 7

Citizens and residents of the United States generally are taxed on income earned in a foreign country.

Question 8

A single taxpayer will pay the same amount of tax (or less) as a head of household when their taxable incomes are equal.

Question 9

B and D are beneficiaries of a trust that distributed $6,000 out of its taxable earnings to each of them in 20X0.The trust had $11,000 of taxable net income in 20X0.The trust is not required to pay income tax for 20X0.

Question 10

Gross income is total income before subtracting exclusions.

Question 11

A corporation is generally entitled to an income tax deduction for cash dividends paid to shareholders because the shareholders are required to include the dividend in gross income.

Question 12

A corporation does not distinguish between deductions for adjusted gross income and itemized deductions.

Question 13

The sole proprietorship business of an individual taxpayer is treated as a separate entity for tax purposes.

Question 14

F operates his computer repair business as a sole proprietorship.His sole proprietorship's taxable income is subject to tax using the corporate tax rates since it is a business.

Question 15

An increase in adjusted gross income can cause a decrease in certain otherwise allowable itemized deductions.

Question 16

A partnership is taxed at the same rates as estates and trusts for Federal income tax purposes.

Question 17

All employee business deductions of an individual are deductions for adjusted gross income.

Question 18

A taxpayer who itemizes receives no special tax break for being 65 years of age or older.

Question 19

Deductions for adjusted gross income (A.G.I.) can only be deducted if they exceed the standard deduction.

Question 20

An S corporation generally pays no tax on the taxable income it generates.

Question 21

F's share of income from various sources is as follows for the current year: F's A.G.I, (ignoring the deduction for one-half of any self-employment tax) is how much?

A)$89,000
B)$156,000
C)$86,000
D)$56,000

Question 22

Sandy and Dave formed a law partnership, agreeing to split the income 50:50.The partnership had net income of $100,000.Dave withdrew $35,000 throughout the year, and Sandy withdrew $30,000.Dave and Sandy had no other income.Because of the partnership activities, Sandy's A.G.I, increased by

A)$100,000
B)$80,000
C)$50,000
D)$30,000

Question 23

Long-term capital gains may be taxed at 15 percent for a taxpayer whose gains would otherwise be taxed at 31 percent.

Question 24

Capital losses of individuals in excess of the $3,000 annual limit may be carried forward indefinitely to future tax years, but may not be carried back to prior years.

Question 25

W, a U.S.citizen, earned $6,000 from foreign sources on which she paid tax of $1,200 to the foreign government.W's U.S.tax was $4,000, $1,500 of which was on the foreign income.W must pay $2,800, after the foreign tax credit, to the United States.

Question 26

Sandy and Dave formed a law partnership, agreeing to split the income 50:50.The partnership had net income of $100,000.Dave withdrew $55,000 throughout the year, and Sandy withdrew $50,000.Dave and Sandy had no other income.Because of the partnership activities, Dave's A.G.I, increased by

A)$100,000
B)$55,000
C)$50,000
D)$35,000

Question 27

The exemption amount is the same for both personal and dependency exemptions.

Question 28

Which of the following is not a tax-paying entity under the Federal income tax?

A)The regular corporation
B)The estate of a deceased individual
C)The partnership entity
D)A trust for the benefit of a minor child

Question 29

The amount realized on the sale of property is reduced by any related selling costs.

Question 30

Brent, a 19-year-old student at Private University, is financially supported by his parents and does not have a regular job.Brent most likely cannot claim any personal exemption on his return for the current year.

Question 31

A taxpayer's motor home, which is used for personal enjoyment, is a capital asset.

Question 32

H and W are married with twins, eight years of age.H and W can elect to claim either exemption deductions for each of their dependents or a child tax credit for each child but not both exemptions and credits.

Question 33

A trust established for the benefit of A, age 23, and B, age 13, generated $8,000 of dividend income.The trustee distributed $2,000 to A and $1,500 to B.The taxable income of the trust (before the exemption deduction) is

A)$8,000
B)$6,000
C)$4,500
D)$0

Question 34

G is an 11-year-old heiress whose share of income from various sources is as follows for the current year: G's A.G.I, (ignoring the deduction for one-half of any self-employment tax, if any) is how much?

A)$178,000
B)$605,000
C)$251,000
D)$236,000

Question 35

Assuming the selling price remains constant, the gain realized on the sale of a property decreases if the adjusted basis of the property sold increases.

Question 36

Which one of the following is not true of the tax treatment of fiduciaries?

A)Income is taxed to the beneficiary of the trust or estate to the extent of current distributions of income.
B)The trust or estate is entitled to a deduction for current distributions of income.
C)Distributions to beneficiaries are treated like corporate dividends.
D)Distributions from corpus generally are not taxable to beneficiaries.

Question 37

Short-term capital gains in excess of capital losses are treated just like other income.

Question 38

T sold the family car at a $400 loss.T can claim the $400 loss as an itemized deduction.

Question 39

Sandy and Dave formed a law partnership, agreeing to split the income 50:50.The partnership had net income of $100,000.Dave withdrew $35,000 throughout the year, and Sandy withdrew $30,000.Dave and Sandy had no other income.The partnership must pay taxes on income of

A)$0
B)$35,000
C)$65,000
D)$100,000

Question 40

An S corporation's tax treatment is most similar to the

A)Sole proprietorship
B)Partnership
C)Individual
D)Corporation

Question 41

Ralph and Lauren incorporated their bagel business this year.For tax purposes, the corporation operates as a regular C corporation.For the year, the corporation was profitable, making $300,000 before the owners took any money out of the business.Assuming the corporation paid Ralph a salary of $40,000 and Lauren a salary of $60,000 and also paid each a dividend of $20,000 to each ($40,000 in total), what is the corporation's taxable income? (Ignore payroll taxes)

A)$200,000
B)$300,000
C)$160,000
D)$340,000
E)Some other amount

Question 42

The following represent elements of the tax formula for individual taxpayers: A.Income from any source
B)Personal and dependency exemptions
C)Itemized deductions
D)Deductions for A.G.I.
E)Exclusions from gross income
F)Standard deduction amount
Which of the above are not included in the formula for corporate taxpayers?

A)B, D, and E
B)B, C, and F
C)B, C, and E
D)B, D, and F

Question 43

Jim Smith and Bob Jones recently decided to start their own car wash business.Jim's spouse and Bob's spouse both work for the same law firm each receives a salary exceeding $200,000 annually.Jim and Bob anticipate that the business will not be profitable for a few years but rather operate at a loss.Both Jim and Bob will both be working in the business.Based on these facts, the best form of business organization for the car wash would be:

A)A limited liability company
B)AC corporation
C)A partnership
D)A sole proprietorship

Question 44

M, age 65 and single, has no dependents and an A.G.I, of $50,000 and these expenses: medical expenses of $2,200, personal casualty losses of $5,000, real estate taxes of $2,000, and residence mortgage interest of $1,000.In 2012 the taxpayer should deduct which of the following total amounts from A.G.I.?

A)$10,200
B)$14,000
C)$11,200
D)Some other amount

Question 45

Which one of the following is not true of itemized deductions of an individual taxpayer?

A)Any deductions other than personal and dependency exemptions and those for adjusted gross income are itemized deductions.
B)Itemized deductions are deductible only if they exceed a taxpayer's standard deduction.
C)Residential interest is a common example of an itemized deduction.
D)All employee trade or business expenses are itemized deductions.

Question 46

J and Z, husband and wife, created a trust for J's aging mother, Betty.This year the trust received dividend income of $15,000 and distributed $10,000 to Betty.The taxable income of the trust and Betty is?

A)Trust $15,000, Betty $10,000
B)Trust $0, Betty $15,000
C)Trust $5,000, Betty $10,000
D)Trust $15,000, Betty $0
E)None of the above

Question 47

After his great performance for the U.S.soccer team in the World Cup, Alex, a U.S.citizen, signed a contract to play with the Italian team, Parma, earning over $500,000 per year.While there, he met the great English star, David.Which of the following statements is correct?

A)Assuming that Alex lives in Italy during all of the next year, his Italian income (salary and interest from his Italian bank account) would probably be subject to Italian taxes but he would not be required to report any of his Italian income for U.S.income tax purposes since he lived in Italy.
B)Assuming that Alex lives in Italy only for a few months during all of next year, his income earned in Italy would effectively be taxed twice, i.e., he would pay taxes to the Italian government and taxes to the U.S.government, unless a treaty provided otherwise.
C)Assume David, the English star, comes to the U.S.in the next to play in the U.S.professional soccer league.David would not be required to file a regular income tax return on income earned in the U.S.if he is considered a resident alien.
D)None of the above is correct.

Question 48

Which of the following is not a correct observation related to the comparison between a deduction and a credit?

A)A deduction of $100 is less valuable than a credit of $100.
B)A deduction of $100 is more valuable to a 40 percent bracket taxpayer than is a $30 credit.
C)A deduction of $100 is more valuable to a 40 percent bracket taxpayer than it is to a 30 percent bracket taxpayer.
D)A credit of $100 is more valuable to a 40 percent bracket taxpayer than it is to a 30 percent bracket taxpayer.

Question 49

Why are deductions of individual taxpayers broken down into these two groups: (1) deductions for A.G.I.and (2) deductions from A.G.I.?

A)To separate business and nonbusiness deductions
B)To distinguish self-employment expenses from employee expenses
C)To provide for simplification and reduce the number of taxpayers who itemize their deductions
D)To distinguish corporate taxpayers from non-corporate taxpayers

Question 50

The following represent elements of the tax formula for individual taxpayers: A.Income from any source
B)Personal and dependency exemptions
C)Itemized deductions
D)Deductions for A.G.I.
E)Exclusions from gross income
F)Standard deduction amount
Which of the above are subtracted from A.G.I, in the computation of taxable income?

A)B, D, and F
B)B, C, and F
C)B and C or B and F
D)C and F or B and C

Question 51

The following represent elements of the tax formula for individual taxpayers: A.Income from any source
B)Personal and dependency exemptions
C)Itemized deductions
D)Deductions for A.G.I.
E)Exclusions from gross income
F)Standard deduction amount
Which of the items listed are considered in arriving at A.G.I.?

A)A, D, and E
B)A, D, E, and F
C)A, B, and D
D)A, E, and F

Question 52

Which one of the following individuals likely would not have to make quarterly estimated payments?

A)A child with $10,000 trust income
B)An individual whose only income is salaries and wages
C)A self-employed individual with net income of $15,000
D)An individual with a large stock and bond portfolio

Question 53

Each of the following individual taxpayers is planning on making a deductible $500 payment (e.g., a fully deductible charitable contribution) either in December 20X1 or in January 20X2.Assume the standard deduction for both years for joint filers is $10,000 and for single filers is $4,000.Ignore the time value of money. Assuming that between years there are no changes in tax rates and other items (e.g., standard deduction, personal exemption, etc.) and ignoring the time value of money, who would gain the greatest tax savings by making the payment in 20X2 instead of 20X1?

A)Abe
B)Ben
C)Cathy
C)Earl
D)Diane

Question 54

Last year, Ben and Jeri (unrelated) formed a partnership to operate a restaurant.Ben contributed all of the money, $2,000,000, to the venture for a 50% interest while Jeri agreed to work for the partnership for five years without pay for her 50% interest.According to the agreement, Jeri would receive 50% of the profits (or losses) of the business.During the year, Jeri worked tirelessly, often 80 hours per week.On the other hand, Ben did little, sitting back and watching the fruits of Jeri's efforts.For the year, the partnership reported a $900,000 loss (revenues $600,000, deductible expenses $1,500,000).Ben and Jeri are both married and their spouses have salaries from their jobs.Neither Ben nor Jeri have any other investments.Which of the following statements is true?

A)None of the loss can be used by either Ben or Jeri; rather the loss is carried forward to offset future profits of the partnership.
B)Both Ben and Jeri can use their share of the loss as a deduction to offset their other income they might have on their own individual tax return (Form 1040) such as the salary income of their spouses.
C)Ben can use his share of the loss as a deduction to offset his other income he might have on his individual tax return (Form 1040) such as the salary income of his spouse because he took the risk of investing in the venture while Jeri did not take a similar risk.
D)Jeri can use her share of the loss as a deduction to offset her other income she might have on her individual tax return (Form 1040) such as the salary income of her spouse because she was regularly and continuously involved on a substantial basis.
E)None of the above is correct.

Question 55

Which of the following income is generally excluded from gross income?

A)Alimony
B)Unemployment compensation
C)Hobby income
D)Social Security benefits
E)All of the above

Question 56

Which one of the following taxes does not have to be reported and paid with the Federal income tax?

A)Alternative minimum tax
B)Federal excise tax
C)Self-employment tax
D)More than one of the above

Question 57

Barnum and Bailey incorporated their circus this year and elected to be treated as an S corporation.Barnum owns 60% of the corporation's stock while Bailey owns the remaining 40%.This year, the corporation had net income of $300,000 before the owners took any money out of the business (e.g., before salaries, dividend distributions, etc.).Assuming the corporation paid Barnum a deductible salary of $100,000 for managing the business and made dividend distributions of $12,000 to Barnum and $8,000 to Bailey, what is the amount of taxable income to be reported by Barnum?

A)$220,000
B)$192,000
C)$180,000
D)$108,000
E)None of the above

Question 58

Which of the following is true of the standard deduction amounts?

A)The amount is standard for all individual tax returns; that is, the amount deducted on all individual tax returns is the same.
B)The standard deduction does not affect adjusted gross income.
C)The standard deduction for all taxpayers who file a joint return provides the same tax benefit.
D)All of the above are true.

Question 59

Which of the following is not true of A.G.I.?

A)A.G.I, is not computed for corporations.
B)The deduction for personal and dependency exemptions affects the taxpayer's A.G.I.
C)A.G.I, is sometimes referred to as "the line.'
D)The amount of certain deductions varies with A.G.I.

Question 60

G had income and expenses as follows for the current taxable year: Total income $\quad$$\$ 32,400$
Exclusions (municipal bond interest) $\quad$ 2,000
Deductions for A.G.I. $\quad$$\quad$$\quad 1,200$
Total itemized deductions $\quad$$\quad$ 9,920
Standard deduction $\quad$$\quad$ 5,150
Exemption deductions $\quad 6,600$ What are G's adjusted gross income and her taxable income, respectively? Assume all amounts are correct.

A)$29,200; $12,680
B)$31,200; $14,680
C)$29,200; $17,050
D)$28,000; $12,680

Question 61

W sold a parcel of land that he had owned for three years for $4,000 cash, and the buyer assumed a note secured by the property in the amount of $6,000.W originally paid $7,500 for the land.What is his gain (or loss) realized on the sale?

A)$10,000
B)$6,000
C)$2,500
D)$(3,500)

Question 62

Which one of the following losses is not at least partially deductible?

A)Earthquake damage to a vacation home
B)Loss on sale of 100 shares of A Corporation stock held for investment
C)Theft of silver coin collection
D)Loss on sale of personal residence

Question 63

In 20X2, T, an individual taxpayer, had a net short-term capital loss of $3,000 and a net long-term capital loss of $3,000.The capital loss carryover is

A)$3,000 net short-term capital loss
B)$3,000 net long-term capital loss
C)$1,500 net short-term and $1,500 net long-term capital loss
D)$0; losses cannot be carried over

Question 64

Which of the following is not true of capital gains and losses?

A)Capital gains and losses are always netted before the treatment of the excess is determined.
B)Net short-term capital gains in excess of net long-term capital losses are subject to tax at ordinary rates.
C)Net capital losses in excess of net capital gains are fully deductible within an annual limitation.
D)A capital gain deduction is allowed for a portion of net long-term capital gains in excess of net short-term capital losses.

Question 65

J sold the following capital assets during the current year: 100 shares of X Corp. held 14 months $\$ ( 500 )$ loss
50 shares of $\mathrm { T }$ Corp. held four months (240) loss
City lot held seven years for speculation $\quad$$\quad 900$ gain How much is J's overall net capital gain, if any?

A)$740
B)$660
C)$400
D)$160

Question 66

Which of the following is a capital asset?

A)A camera used in a trade or business
B)A computer held for sale to customers
C)A taxpayer's principal residence
D)An account receivable from a client of an attorney

Question 67

A sold 100 shares of F corporation stock for $32,500.A had to pay a sales commission of $940.F had originally paid $14,750 for the shares and a purchase commission of $420.How much are A's amount realized and gain realized, respectively?

A)$32,500; $16,390
B)$31,140; $16,390
C)$31,560; $16,390
D)$31,140; $17,750

Question 68

Susan sold her car at a $5,000 loss and her stereo for a $500 loss.Susan is a factory worker.Susan will be able to deduct how much?

A)$5,500 loss
B)$5,000 loss
C)$3,000 loss
D)$0