Income Tax

Question 1

All assets are capital assets except ACID

Answer 1

accounts receivable, copyrights and creative works, inventory, and depreciable property used in a trade or business

Question 2

The holding period for inherited property capital gains:

Answer 2

always long-term

Question 3

Only way to have Section 1231 Gain on Section 1245 Property?

Answer 3

to sell it for more than it was originally purchased for

Question 4

Any sale amount in excess of the original purchase price of a Section 1245 asset is a:

Answer 4

section 1231 gain

Question 5

Charitable deduction: Ordinary income property / STCG / All Loss:

Answer 5

lesser of adjusted basis or FMV. Limited to 50% AGI

Question 6

Charitable deduction: cash:

Answer 6

60% AGI

Question 7

Charitable deduction: LTCG / Stocks, Bonds / Real property / Tangible (related use):

Answer 7

FMV or adjusted basis. 30% AGI if FMV, 50% AGI if basis

Question 8

Charitable deduction: LTCG tangible (unrelated use):

Answer 8

50% AGI

Question 9

Child tax credit:

Answer 9

$2000 for each qualifying child under 17

Question 10

Child and Dependent Care Credit

Answer 10

20% x eligible costs ($3000 for one child, $6000 for 2 max eligible costs)

Question 11

Kidde tax:

Answer 11

only applies to “unearned income” in excess of $2300

Question 12

3-year depreciation:

Answer 12

tractor, rent-to-own property

Question 13

5-year depreciation:

Answer 13

autos, computers, office equipment

Question 14

7-year depreciation:

Answer 14

office furniture and fixtures

Question 15

27.5 year depreciation:

Answer 15

rental home

Question 16

39 year depreciation:

Answer 16

office building

Question 17

The gross income test is a requirement for a:

Answer 17

qualifying relative, not a qualifying child

Question 18

A person who rents their home for less than 15 days:

Answer 18

is not required to include the income as it is considered personal property

Question 19

The holding period for a gift utilizing the loss basis (where a double basis rule applies):

Answer 19

starts the holding period at the date of the gift

Question 20

Primary advantage of using the section 179 deduction:

Answer 20

by deducting more currently, total tax liability is reduced and the present value of cash flows is increased

Question 21

Transfers between divorcing spouses ALWAYS:

Answer 21

transfer their basis and holding period

Question 22

A C Corp is not appropriate for a business expected to:

Answer 22

incur losses initially because the losses do not flow through to the owners

Question 23

Section 1231 gain occurs when:

Answer 23

the sale price exceeds the original purchase price

Question 24

Non-dividend distributions are taxable to the extent:

Answer 24

they exceed basis

Question 25

The basis of personal property converted to business use will be the taxpayers:

Answer 25

adjusted basis as of the date of conversion or the FMV if lower

Question 26

Section 1245 recapture is treated as:

Answer 26

ordinary income for the gain realized resulting from depreciation taken being greater than economic reality

Question 27

MACRS:

Answer 27

provides the most depreciation, and will yield the greatest expense in the early portion of the assets life

Question 28

Staight-line depreciation:

Answer 28

will provide the least depreciation expense for a given period

Question 29

Flow-through taxation and limited liability:

Answer 29

LLC

Question 30

S-Corps are prohibited from:

Answer 30

having more than one class of stock and may NOT have non-resident aliens as shareholders

Question 31

The best source for gathering information about the intent of recent changes in tax law:

Answer 31

Congressional Committee reports

Question 32

A cash basis taxpayer does not:

Answer 32

recognize income not received. Bad debt cannot be recognized as a loss or bad debt expense

Question 33

The effective tax rate:

Answer 33

the average tax rate an individual pays

Question 34

The IRS 3 classifications of income:

Answer 34

active, passive, & portfolio

Question 35

The 5 elements of the qualified dependent test are:

Answer 35

gross income, support, member of household or family, citizenship, & joint return