Practice Assessment

Question 1

14. A single individual with two dependents works at a bank and earns wages of $50,000. She received a $6,000 gift from a parent to go to Europe and inherited $10,000 from an uncle when he died. Her municipal bond paid $500 interest. This individual has itemized deductions of $7,000.

What is the tax liability?

$3,568
$3,628
$4,288
$4,768

Answer 1

$3,568

Question 2

15. A married individual with one dependent earned wages of $63,000. The individual won $2,000 at a casino, inherited $5,000, and has itemized deductions of $4,100.

What is the tax liability?

$4,539
$4,899
$5,139
$5,368

Answer 2

$4,539

Question 3

24. Which two expenses are a tax-free use of a qualified tuition plan (QTP) distribution?

Choose 2 answers

Rent
Textbooks
Travel expenses
Student health insurance deductible

Answer 3

Rent

Textbooks

Question 4

25. Which event would result in taxable income?

Cancellation of debt while the taxpayer is insolvent
Forgiveness of mortgage debt on rental property
Discharge of debt in bankruptcy
Forgiveness of student loan debt after the individual’s public service

Answer 4

Forgiveness of mortgage debt on rental property

Question 5

52. An individual bought 200 shares of stock in a company for $80 per share in January. By September of that year, the stock had declined to $50 per share, whereupon the individual sold 100 shares and held the other 100 shares. In November of that year, the stock returned to $78 per share, and the individual sold the remaining 100 shares.

Assume the shares paid no dividends during the course of the year.

What is the maximum amount this individual can deduct as a capital loss when preparing this year’s tax return?

$200
$3,000
$3,200
$6,000

Answer 5

$3,000

Question 6

An individual bought a piece of land for $50,000 as an investment. A few years later, the individual wants to sell the land. The individual has the land appraised and finds out it is only worth $45,000. The individual decides not to sell the land that year but paid $500 in appraisal fees.

The land has a $15,000 mortgage on it, and the property tax bill is $250 for the year.

What capital losses may this individual deduct when preparing taxes?

$0
$500
$5,500
$5,750

Answer 6

$0

Question 7

54. Which tax status is most beneficial for a divorced single parent with sole custody of a child?

Single
Married filing jointly
Qualifying widow(er)
Head of household

Answer 7

Head of household

Question 8

58. An individual has three children living with her,–ages 3, 13, and 18–and the children meet the other criteria for the Child Tax Credit.

What is the maximum Child Tax Credit that can be claimed?

$1,000
$2,000
$3,000
$4,000

Answer 8

$4,000

Question 9

Which IRS form must an employee file with his or her employer to determine the amount of federal tax to be withheld from the employee’s pay?

Form W-4
Form W-2
Form 1099
Form 1040

Answer 9

Form W-4

Question 10

64. A business buys a $10,000 computer on February 1. The business buys $200,000 worth of other equipment in November.

What is the MACRS depreciation deduction for the computer? (Ignore section 179 and any applicable bonus depreciation.)

$1,500
$2,000
$2,500
$3,500

Answer 10

$3,500

Question 11

35. Which item is classified as an itemized deduction?

Mortgage interest
Property taxes paid by a business
Contribution to an individual retirement account
Theft of a personal car

Answer 11

Mortgage interest

Question 12

37. What is deductible as an investment expense?

Purchase of a car to drive to a broker’s office
Lobby expenses to obtain permits on investment land
Travel expenses to attend an annual company stockholder meeting
Interest on a loan to purchase land for an investment

Answer 12

Interest on a loan to purchase land for an investment

Question 13

39. A taxpayer runs an automotive repair business in a building he owns. The income and expenses are reported on Form 1040, Schedule C. There was no section 179 election made.

Which action represents a deductible business expense for the current tax year, and is therefore not subject to capitalization and depreciation?

Purchasing new car lifts
Expanding building area by adding a service bay
Repairing a leak in the roof of the building
Installing a new air conditioning and heating system

Answer 13

Repairing a leak in the roof of the building

Question 14

40. Which item is a deductible business expense?

Purchase of a 12-month liability insurance policy
Replacement of a machine with a newer, faster model
Installation of a fire suppression system in the computer room
Conversion of part of the warehouse to office space for the manager

Answer 14

Purchase of a 12-month liability insurance policy

Question 15

43. An individual is calculating his deductions for a given year.

He examines his records and finds that in the last calendar year, he paid $2,000 in property taxes, paid $40,000 towards his mortgage ($30,000 of which was payments on the principal), spent $5,100 on medical expenses, paid $250 for tax preparation services, and spent $100 on professional publications last year.

What would be his itemized deductions total if the individual’s adjusted gross income is $80,000?

$5,450
$12,000
$17,350
$47,350

Answer 15

$12,000

Question 16

44. A 50-year old individual is calculating his deductions for a given year.

The individual examines his records and finds that in the last calendar year he donated $500 to charity, paid state income taxes of $600, received a local tax refund of $100, spent $5,600 on medical expenses, paid $1,250 for tax preparation services, and spent $50 on professional publications last year.

What would be his itemized deductions total if this individual’s adjusted gross income is $50,000?

$1,850
$2,000
$6,200
$2,950

Answer 16

$2,950

Question 17

26. Which type of gain does a taxpayer have if the taxpayer owns stock that has appreciated in value?

A capital gain
An unrealized gain
A realized and recognized gain
A realized and unrecognized gain

Answer 17

An unrealized gain

Question 18

27. What is true about realized and recognized gains and losses?

Realized gains may be less than recognized gains.
Realized losses and recognized losses on personal use items are deductible.
Realized losses may be more than recognized losses.
Realized losses may be less than recognized losses on items of personal use.

Answer 18

Realized losses may be more than recognized losses.

Question 19

30. What is an example of a noncapital asset?

Inventory
Personal residence
Furniture in a taxpayer’s personal residence
Shares of stock a taxpayer has owned for two years

Answer 19

Inventory

Question 20

31. Which three items are capital assets?

Choose 3 answers

A personal residence		
A business warehouse		
Land held for personal use		
Business inventory held for sale		
Supplies used in conduct of business		
Investment in common stock held by a business

Answer 20

A personal residence
Land held for personal use
Investment in common stock held by a business

Question 21

47. Which tax qualifies as an itemized deduction?

State income tax
Unemployment tax
Social Security tax
Gambling income tax

Answer 21

State income tax

Question 22

48. Which type of interest qualifies as an itemized deduction?

Home mortgage interest
Interest for a vacation loan
Rental house mortgage interest
Interest on a flat screen television

Answer 22

Home mortgage interest

Question 23

50. What is the limit on the amount of charitable contribution that can be deducted if the contribution was paid in cash to a public charity?

10% of adjusted gross income
30% of adjusted gross income
50% of adjusted gross income
60% of adjusted gross income

Answer 23

60% of adjusted gross income

Question 24

68. Which statement describes the authoritative weight carried by financial treasury regulations?

They have the highest authoritative weight of the administrative sources.
They are guidelines issued for the taxpayer and carry no authoritative weight.
They carry more authoritative weight than the revenue rulings.
They are considered a secondary source and do not carry as much authoritative weight as the Internal Revenue Code.

Answer 24

They have the highest authoritative weight of the administrative sources.

Question 25

12. Which tax practice component includes understanding the facts, identifying the issues, locating and analyzing tax authorities, and documenting and communicating the results?

Tax research
Tax planning and consulting
Tax compliance and procedure
Financial planning

Answer 25

Tax research