Progress Tests - Becker Flashcards
Smith has an adjusted gross income (AGI) of $120,000 without taking into consideration $40,000 of losses from rental real estate activities. Smith actively participates in the rental real estate activities. What amount of the rental losses may Smith deduct in determining taxable income?
$15,000. Generally, none of the passive losses from real estate are deductible against nonpassive income. However, Smith actively participates, which means that the “mom and pop” exception of up to $25,000 will apply. This exception is phased out over AGI of $100,000 through $150,000. That is 50 cents on the dollar. Smith’s AGI is $120,000. That is $20,000 into the phaseout range. So $10,000 of the $25,000 is phased out and Smith may deduct $15,000 of the $40,000 passive loss.
Mosh, a sole proprietor, uses the cash basis of accounting. At the beginning of the current year, accounts receivable were $25,000. During the year, Mosh collected $100,000 from customers. At the end of the year, accounts receivable were $15,000. What was Mosh’s gross taxable income for the current year?
$100,000. The facts state that cash collections from customers were $100,000 and as a cash basis taxpayer this is the amount of Mosh’s gross taxable income for the year. Note that according to the formula BASE - we can determine the amount of sales = $90,000, but that would give us accrual, not cash basis, income.
Beginning A/R $ 25,000 Add―Sales 90,000 accrual basis taxable income 115,000 Subtract―Cash collections (100,000) cash basis taxable income Ending A/R $ 15,000
Ms. Marsh filed her 20X0 individual income tax return on February 15, 20X1. All her tax was paid during the year through withholding. The return was due on April 15, 20X1. During January 20X2, she discovered that she had not taken a properly substantiated charitable contribution that would have reduced her total tax by $250 on her 20X0 tax return. By what date must she file her amended return to claim a refund of the tax paid?
April 15, 20X4. A taxpayer can file a claim for refund by the later of three years from the time the return was filed, 3 years from the original due date of the return, or two years from the time the tax was paid (if not when the return was filed). Three years from the time the return was filed is February 15, 20X4, 3 years from the original due date of the return is April 15, 20X4, and two years from the time the tax was paid would be December 31, 20X2 (all withholding is deemed paid ratably over the year so the last dollars would be deemed paid December 31, 20X0). The later date is April 15, 20X4.
Which itemized deduction is included in the category of unreimbursed expenses that are deductible only to the extent that the aggregate amount of such expenses exceeds 2% of the taxpayer’s adjusted gross income?
Subscriptions to professional journals are miscellaneous itemized deductions subject to the 2% of AGI limitation (**Not moving expenses…those are adjustments)
The corporate dividends received deduction:
The corporate dividends received deduction is affected by a requirement that the investor corporation must own the investee’s stock for a specified minimum holding period of more than 45 days.
Under the uniform capitalization rules applicable to taxpayers with property acquired for resale, which of the following costs should be capitalized with respect to inventory if no exceptions have been met?
Repackaging costs
Off-site storage costs
Yes, Yes. Direct material, direct labor, and factory overhead (applicable indirect costs) are capitalized with respect to inventory under the uniform capitalization rules for property acquired for resale. Applicable indirect costs include depreciation and amortization, insurance, supervisory wages, utilities, spoilage and scrap, design expenses, repair and maintenance and rental of equipment and facilities (including offsite storage), some administrative costs, costs of bonus and other incentive plans, and indirect supplies and other materials (including repackaging costs).
With regard to the inclusion of social security benefits in gross income, for the Year 8 tax year, which of the following statements is correct?
a. The social security benefits in excess of the modified adjusted gross income over a threshold amount are included in gross income. b. The social security benefits in excess of modified adjusted gross income are included in gross income. c. Eighty-five percent of the social security benefits is the maximum amount of benefits to be included in gross income. d. The social security benefits in excess of one half the modified adjusted gross income are included in gross income.
c. The amount of social security benefits that is taxed is dependent on whether the combined income (AGI plus interest on tax-exempt bonds and 50% of the social security benefits) is greater than a threshold amount. If the combined income is less than the threshold, the amount taxed is the lesser of 1) 50% of the benefits or 2) 50% of the excess of the combined income over the threshold. If the combined income is greater than the threshold, the amount taxed is the lesser of 1) amount calculated above plus 85% of the excess of the combined income over the threshold or 2) 85% of the benefits. Thus, 85% of the benefits is the maximum amount of benefits that may be included in gross income.
Nicole and Andrew Harris contribute to more than half of the support of their three children, Travis, Luke, and John. Travis, age 20, worked full time at the local deli and earned $20,000. Luke, 18, is a part-time college student who earned $5,000 working as a resident assistant in the student dormitory where he lived half of the year. John, age 25, is an aspiring actor who lives at home with Nicole and Andrew. John earned $2,500 for the three commercials he starred in. How many exemptions can Nicole and Andrew claim on their Year 1 joint tax return?
Four. Nicole and Andrew can claim two personal exemptions for themselves.
Travis does not qualify for a dependency exemption. Travis is not a full-time student, so at age 20 he is not a qualifying child. Although Nicole and Andrew provide more than half of his support, Travis makes more than the exemption amount ($3,650), so he is not considered as a qualifying relative, either.
Luke is a qualifying child of Nicole and Andrew because he is under the age of 19 and lives at home at least part of the year. There is no gross income or support test that needs to be satisfied in the case of a qualifying child.
John is a qualifying relative of Nicole and Andrew because they supplied over half of his support and his taxable income is less than the exemption amount.
Tom and Sharlene had the following items of income and expense during the taxable year: Self-Employment Activity Gross income $35,000 Business license fees 500 Marketing Expenses 2,000 Salary paid to Sharlene 10,000 Tom's wages from his Job 67,000 Interest from money market 1,500 Gain from sale of securities owned for 3 months 15,000
What is Tom & Sharlene’s gross income before adjustments?
Tom & Sharlene’s gross income is calculated as follows:
Net self-employment income $ 32,500
Tom’s wages 67,000
Interest 1,500
Gain from sale 15,000
Total gross Income $ 116,000
Note: Sharlene’s salary is not included as income as 100% of the net self-employment activity is taxable to her. Her salary is considered a draw and is not an allowable business deduction against the gross income of the self-employment activity.
A self-employed taxpayer had gross income of $57,000. The taxpayer paid self-employment tax of $8,000, health insurance of $6,000, and $5,000 of alimony. The taxpayer also contributed $2,000 to a traditional IRA. What is the taxpayer’s adjusted gross income?
Adjusted gross income is gross income plus or minus certain other amounts. Half of the $8,000 self-employment tax is an adjustment for AGI, as is the $6,000 self-employed health insurance, the $5,000 alimony, and the $2,000 contribution to a traditional IRA. All of these amounts (total of $17,000) are subtracted from the $57,000 gross income to arrive at AGI. The AGI is thus $40,000.
Frank and Mary Wood have 2 children, Becky, age 10, and Matt, age 14. The Woods incur expenses of $4,000 for after school-care for each child. Their only income is from wages. Frank’s wages are $60,000, and Mary’s wages are $2,500. What amount of Child and Dependent Care Credit may the Woods claim on their joint tax return?
First of all we need to determine the eligible expenses. Only expenses for Becky will qualify because Matt is not under 13 years of age. So of the $8,000 spent, only $4,000 will qualify. The maximum eligible for 1 dependent, though, is $3,000. Then it is further limited because it is limited to the lowest earned income of either spouse. That would be Mary’s $2,500. Due to their combined income level, they are in the 20% credit range. The credit is 20% of $2,500, or $500.
On April 15, Year 2, a married couple filed their joint Year 1 calendar-year return showing gross income of $120,000. Their return had been prepared by a professional tax preparer who mistakenly omitted $45,000 of income, which the preparer in good faith considered to be nontaxable. No information with regard to this omitted income was disclosed on the return or attached statements. By what date must the lnternal Revenue Service assert a notice of deficiency before the statute of limitations expires?
April 15, Year 8 is the last day for IRS to assert a notice of deficiency before the statute of limitations expires, six years after due date because AGI was underreported by more than 25% (45,000 ÷ 165,000).
Which of the following statements is correct with respect to the AICPA’s Statements on Standards for Tax Services (SSTS)?
a. SSTS apply only to federal income tax returns and not to state and local tax returns. b. A tax return position is (1) a position reflected on a tax return on which a preparer has specifically advised a taxpayer and (2) a position about which a preparer has concluded whether the position is appropriate. c. In general, a preparer should recommend a tax return position only if the preparer has a good faith belief that the position has a realistic possibility of being sustained on its merits. d. SSTS apply only to tax returns that are being prepared for external clients and not to those that are being prepared for employers.
In general, a preparer should recommend a tax return position only if the preparer has a good faith belief that the position has a realistic possibility of being sustained administratively or judicially on its merits.
An individual paid taxes 27 months ago, but did not file a tax return for that year. Now the individual wants to file a claim for refund of federal income taxes that were paid at that time. The individual must file the claim for refund within which of the following time periods after those taxes were paid?
When a tax return has not been filed, any claim for refund must be made within two years from the time the tax was paid.
Which of the following disqualifies an individual from the earned income credit?
Rules: Earned income tax credit is a refundable tax credit. It is designed to encourage low-income workers (i.e., those with earned income) to offset the burden of U.S. tax. A claimant can have one qualifying child or two or more qualifying children for this credit. There is a maximum credit available for this purpose. Further:
The taxpayer must meet certain earned low-income thresholds. The taxpayer must not have more than the specified amount of disqualified income. The taxpayer must be over age 25 and less than 65 if there are no qualifying children. If married, the taxpayer must generally file a joint return with his/her spouse (i.e., the married filing separate status disqualifies a taxpayer from claiming the earned income credit). A qualifying child can be up to and including age 18 at the end of the tax year, provided the child shared a residence with the taxpayer for 6 months or more. The taxpayer must be related to the qualifying child (or children) through blood, marriage, or law. The child must be either in the same generation or a later generation of the taxpayer. A foster child qualifies if officially placed with the taxpayer by an agency.
Choice “a” is correct. Based on the above rules, the filing status of married filing separately disqualifies a taxpayer from claiming the earned income credit.
