Income Tax

Question 1

An individual is required to file an income tax return if her net earnings from self-employment are at least ______.

Answer 1

$400

Question 2

What form do you file to amend your income tax return?

Answer 2

1040x

Question 3

What has to happen in order for a qualified dividend to count towards investment income?

Answer 3

The taxpayer must elect to NOT use the reduced tax rate.

Question 4

Long term capital gains only count towards investment income if __________________?

Answer 4

the taxpayer elects out of using long term rates

Question 5

For 2018-2025, miscellaneous itemized deductions are _______.

Answer 5

repealed

Question 6

Qualified medical expenses are an allowable Schedule A deduction to the extent they exceed ______ of the taxpayer’s current year AGI.

Answer 6

7.5%

Question 7

Under the Tax Cuts and Jobs Act, to claim a casualty loss, the cause of the loss must be from a _________.

Answer 7

federally declared disaster

Question 8

Regarding a personal casualty loss (federally declared disaster):
* Casualty loss is deducted on _______.
* If the taxpayer incurs more than one personal casualty loss in a particular year, he must reduce the aggregate loss by ______.
*The _____ applies separately to the loss from each single casualty loss.

Answer 8

Schedule A

10% of AGI

$100 floor

Question 9

What is on Schedule A of the 1040 that affects AGI?

Answer 9

Itemized Deductions

Question 10

What is on Schedule B of the 1040 that affects Gross Income?

Answer 10

Interest & Ordinary Dividends

Question 11

What is on Schedule C of the 1040 that affects Gross Income?

Answer 11

Business Income or Losses

Question 12

What is on Schedule D of the 1040 that affects Gross Income?

Answer 12

Capital Gains/Losses

Question 13

What is on Schedule E that affects Gross Income on the 1040?

Answer 13

Real Estate

Question 14

What are the main adjustments or deductions for AGI?

Answer 14

IRA Contributions
Keogh or SEP
1/2 of self-employment tax (.07065)
Alimony paid (pre-2019 divorce)
Self-employment health insurance

Question 15

These are examples of __________.
Medical, dental, LTC (above 7.5%)
Casualty losses (federal disaster)
Real estate taxes*
State, local, and sales taxes*
Home Mortgage interest
Charitable expense
Investment interest expense

• limited to max of $10,000

Answer 15

Itemized deductions

Question 16

Unless the taxpayer opted out of reduced rates, qualifying dividends _________ count towards net investment income.

Answer 16

do not

Question 17

Does FICA tax apply on earned income above $160,200?

Answer 17

Yes, at 1.45% for the employee.

FICA covers both Social Security and Medicare.

Question 18

In figuring the credit, qualifying expenses are limited to $3000 for one dependent or $6000 for two or more dependents. Use 20% of the allowable expense on the exam. Nonrefundable. Age limit 13.

Answer 18

Credit for child and dependent care expenses until age 13

Question 19

Individuals may claim this credit of $2000 (2023) for each qualifying child under age 17 (child, stepchild, foster child). Phases out over $400k MAGI MFJ or $200k single. Up to $1600 per child is refundable (2023).

Answer 19

Child tax credit

Question 20

For this credit, qualifying expenses do not include costs of a surrogate parenting arrangement or costs for adopting a spouse’s child. non refundable

Answer 20

Adoption credit

Question 21

§ 179 generally _______ be elected for 1250 (real estate) or for intangible property (goodwill/franchise).

Answer 21

Cannot

§179 is an election to expense up to $1,160,000 of qualifying property in the year of acquisition. Qualifying property is tangible personal property (1245 property - Computers, Autos, and light duty trucks, Office equipment except computers).

Question 22

§197 can be used to amortize __________ .

Answer 22

goodwill and franchise fee.

Question 23

MACRS 1245 Property 5-year depreciation

Answer 23

Computers, Autos, Trucks (light duty)

Question 24

MACRS 1245 Property 7-year depreciation

Answer 24

Office equipment except computers

Question 25

MACRS 1250 property 27.5-year depreciation

Answer 25

Residential rental property

Question 26

MACRS 1250 property 39-year property

Answer 26

Nonresidential real property

Question 27

Boot received = ___________ Boot Paid = __________ Basis _________ from last property

Answer 27

Recognized gain Add to Basis Carries over

Question 28

Realized gain is _______.

Answer 28

Sales is greater than cost

Question 29

Recognized gain is ______

Answer 29

amount of gain that's taxable

Question 30

What are the Alternative Minimum Tax Preference Items?

Answer 30

IPOD excess Intangible drilling costs Private-activity municipal bond Oil and gas percentage depletion (NOT cost depletion) Depreciation - but not straight-line. Oil and gas percentage depletion typically triggers AMT.

Question 31

What are the AMT add back items?

Answer 31

Incentive stock option bargain element Property, state and city /income taxes Home equity indebtedness isn't allowed for AMT purposes unless its used for home improvement

Question 32

A person with a Publicly Traded Partnership (PTP) needs to take advantage of non-deductible losses. How can they do that?

Answer 32

Sell the PTP. To take the loss, there must be a complete disposition. PTP losses cannot escape the "circle".

Question 33

How do you find the deduction-equivalent tax credit?

Answer 33

Calculate tax to determine maximum marginal tax bracket. Multiply deduction by tax bracket percentage to determine equivalent credit. 37% tax bracket Example: $25,000 deduction x 37% = credit of $9250

Question 34

During a storm, tree fell on house. Insurance co denied claim because the tree was infested with termites. AGI is $50k. How much can be claimed as a casualty loss?

Answer 34

$0. Loss not unexpected. Insurance didn't treat as casualty loss, why should IRS? Also, not federally declared disaster.

Question 35

Personal exemptions (an exemption for each qualifying person supported by the taxpayer) was repealed after _______.

Answer 35

2017

Question 36

What is included in self-employment income?

Answer 36

NET Schedule C income General Partnership income (k-1 income) Board of directors fees Part-time earnings (1099)

Question 37

True or False: Court costs, attorneys' fees, and cost of going abroad to adopt a foreign child can qualify for the adoption credit.

Answer 37

True

Question 38

Section 179 of the IRC allows businesses to take an immediate deduction for business expenses related to depreciable assets such as equipment, vehicles, and software. This allows businesses to lower their current-year tax liability rather than capitalizing an asset and depreciating it over time in future tax years. However, it cannot be used to create a _______.

Answer 38

Loss. For example, if a corporation has $25k in taxable income, its 179 deduction is limited to $25k.

Question 39

Your basis will _________ by the amount of major improvements you make to the property and will _________ by the amount of depreciation deductions you take on your tax return.

Answer 39

increase / decrease

Question 40

Qualifying taxpayers may deduct up to _______ per year of net losses from real estate activity from their active or portfolio income. This deduction is phase out for taxpayers whose AGIs are between $100,000 and $150,000 on a $2 for $1 basis.

Answer 40

$25,000 If AGI is above the phaseout of $150,000, losses are not deductible.

Question 41

Low-income housing programs held as passive activity may generate a deduction equivalent tax credit up to ________. There is no income phaseout.

Answer 41

$25,000 Multiply tax bracket percentage by $25k to get credit. Example: 37% x $25,000 = $9250 credit.

Question 42

When there is no alimony paid in the 3rd year, subtract _______ from the total alimony paid in both years 1 and 2.

Answer 42

$37,500 Example: 1st yr $100,000 + 2nd year $85,000 + 3rd year $0 = $185,000 $185,000 - $37,500 = $147,500 subject to recapture

Question 43

Ray and Abby are going thru divorce. Abby is getting custody but her parents will take care of the children in her home. Who gets the tax exemptions for the children?

Answer 43

Nobody. Personal exemptions are repealed after 2017.

Question 44

What is the maximum amount of cash a tax payer can give a public charity and deduct in one year for income tax purposes?

Answer 44

60 % of AGI

Question 45

A tax payer cannot deduct more than 60% of AGI in the contribution year. Any contribution in excess of such a limit is carried forward as an itemized deduction for up to ___________.

Answer 45

five more years or, if sooner, death.

Question 46

The deduction for donation of ordinary income property is limited to _______.

Answer 46

Basis Ordinary income property includes short-term capital gains property and use-unrelated property (watch artwork and collectibles).