1. Gross income may be realized when a taxpayer receives economic benefit even if no cash is received. T or F
2. Which of the following is not excluded from income? (Assume that any amounts received by the taxpayer were kept).
a. fair market value of prize won on a game show
b. qualified adoption expenses paid by the employer
c. life insurance proceeds paid by reason of death
d. public assistance payments
3. Jordan paid $30,000 for equipment two years ago and has claimed depreciation deductions of $15,600 for the two years. The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000. What is Jordan's basis in the equipment at the end of the two-year period?
4. Self-employed individuals may claim, as a deduction for adjusted gross income, 50 percent of their
a. traditional IRA contributions.
b. disability insurance premiums.
c. health insurance premiums.
d. self-employment tax.
5. Matt paid the following taxes:
Real estate taxes on rental property he owns $4,000
Real estate taxes on his own residence 3,500
Federal income taxes 7,000
State income taxes 2,500
Local city income taxes 500
State sales taxes 700
What amount can Matt deduct as an itemized deduction on his tax return?
6. All of the following losses are deductible except
a. total worthlessness of securities.
b. sale or exchange of business property.
c. destruction of personal use property by fire, storm, or casualty.
d. decline in value of securities.
7. Mr. and Mrs. South's adjusted gross income was $85,000. During the year they incurred and paid the following:
and related to employment) $ 500
Tax return preparation fee 1,000
Professional dues 1,200
Fees for will preparation (no tax advice) 800
Life insurance premiums 1,400
Assuming they can itemize, how much should the South's claim as miscellaneous itemized deductions (after limitations have been applied)?
8. When depreciating 5-year property, the final year of depreciation will be year
9. All of the following statements are true except:
a. Taxpayers who change from one accounting period to another must annualize their income for the resulting short period.
b. Taxpayers filing an initial tax return are required to annualize the year's income and prorate exemptions and credits.
c. An existing partnership can change its tax year without prior approval if the partners with a majority interest have the same tax year to which the partnership changes.
d. Once adopted, an accounting period normally cannot be changed without approval by the IRS.
10. In a like kind exchange, both the property transferred and the property received must be held either for productive use in a trade or business or for investment. T or F
11. Blair, whose tax rate is 35%, sells land at a gain of $19,000 and other land at a gain of $11,000. Both tracts of land are Sec. 1231 property. She has never had any other Sec. 1231 transactions. How are the gains taxed?
a. A net capital gain of $30,000 taxed at 5%.
b. A net capital gain of $30,000 taxed at 15%.
c. Ordinary income of $30,000 taxed at 25%.
d. Ordinary income of $30,000 taxed at 35%.
12. In computing the alternative minimum taxable income, no deduction is allowed for
a. moving expenses.
b. personal exemptions.
c. individual retirement accounts.
1. Economic benefit is one of the definitional parts of the doctrine of constructive receipt. The answer is true.
2. The fair market value of a prize won on a game show is taxable income to the recipient. There is no provision to exclude, but there can be a discussion about the value of the gift (and therefore the amount of income).
3. The major overhaul satisfies the requirement of upgrading the asset and extending its life. The basis in the equipment at the end of year two would be 30,000 - 15,600 + 7000 = ...
The solution has a sentence or two in explanation for each of the questions including calculations, as appropriate.