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ACC 405 - Tax > Quizzes > Flashcards

Quizzes Flashcards

1
Q

To calculate a tax, you need to know which of the following:

I. the tax base
II. the taxing agency
III. the tax rate
IV. the purpose of the tax

A

I. and III.

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2
Q

T/F:

The value of a tax deduction is higher for a taxpayer with a lower tax rate.

A

False

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3
Q

Which is not a basic tax planning strategy?

conversion.
income shifting.
arms length transaction.
timing.
None of these.
A

arms length transaction

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4
Q

T/F:

The goal of tax planning is tax minimization.

A

False.

The goal of tax planning is the maximization of after-tax wealth while achieving the taxpayer’s nontax goals.

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5
Q

T/F:
The effective tax rate expresses the taxpayer’s total tax as a percentage of the taxpayer’s taxable and nontaxable income.

A

True

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6
Q

T/F:

The Internal Revenue Code and tax treaties are examples of statutory authorities.

A

True

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7
Q

Bill filed his 2015 tax return on March 15th, 2016. The statute of limitations for IRS assessment on Bill’s 2015 tax return should end:

  • None of these.
  • March 15th, 2019.
  • March 15th, 2018.
  • April 15th, 2018.
  • April 15th, 2019.
A

April 15th, 2019.
The SOL ends three years from the later of (1) the date the tax return was filed or (2) the tax return’s original due date.

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8
Q

T/F:

An extension to file a tax return does not extend the due date for tax payments.

A

True

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9
Q

Which of the following audits is the least common, broadest in scope, and typically most complex?

  • None of these.
  • Office.
  • Field.
  • Correspondence.
  • Targeted.
A

Field

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10
Q

Which of the following is not considered a primary authority?

  • Tax service.
  • Regulation.
  • Tax Court case.
  • Revenue Ruling.
  • None of these.
A

Tax Service

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11
Q

Which of the following series of inequalities is generally most accurate?

  • Gross income ≥ adjusted gross income ≥ taxable income
  • Adjusted gross income ≥ taxable income ≥ gross income
  • Adjusted gross income ≥ gross income ≥ taxable income
  • Gross income ≥ taxable income ≥ adjusted gross income
A

Gross income ≥ adjusted gross income ≥ taxable income

Gross income less for AGI deductions equals adjusted gross income. Adjusted gross income less from AGI deductions equals taxable income.

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12
Q

T/F:

The character of income determines the rate at which the income is taxed.

A

True

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13
Q

Which of the following statements regarding personal and dependency exemptions is true?

  • To qualify as a dependent of another, an individual must have a family relationship with the other person.
  • To qualify as a dependent of another, an individual may not file a joint return with the individual’s spouse under any circumstance.
  • To qualify as a dependent of another, an individual must be a resident of the United States.
  • To qualify as a dependent of another, an individual must be either a qualifying child or a qualifying relative of the other person.
A

To qualify as a dependent of another, an individual must be either a qualifying child or a qualifying relative of the other person.

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14
Q

Which of the following is NOT a from AGI deduction?

  • None of these. All of these are from AGI deductions.
  • Standard deduction.
  • Itemized deduction.
  • Personal exemption.
A

None of these. All of these are FROM AGI deductions.

From AGI deductions consist of the greater of the standard deduction or itemized deductions and personal and dependency exemptions.

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15
Q

Which of the following shows the correct relationship among standard deduction amounts for the respective filing statuses?

  • Head of Household > Married Filing Separately > Married Filing Jointly
  • Married Filing Jointly > Head of Household > Single
  • Single > Head of Household > Married Filing Jointly
  • Married Filing Jointly > Married Filing Separately > Head of Household
A

Married Filing Jointly > Head of Household > Single

The standard deduction for single and MFS taxpayers is half that of MFJ taxpayers.

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16
Q

T/F:
A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.

A

False. Debt doesn’t generate economic benefit.

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17
Q

Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($3,700), her emotional distress ($6,000 - she now fears peanut butter), and punitive damages ($44,000). What amount must Pam include in her gross income?

  • $50,000.
  • $47,700.
  • Zero - None of these benefits is included in gross income.
  • $44,000.
  • $9,700.
A

$44,000

The tax laws specify that any payments (other than punitive damages) on account of a physical injury or physical sickness are nontaxable. Damages taxpayers receive for emotional distress associated with a physical injury are also excludable. Punitive damages are fully taxable, however, because they are intended to punish the harm-doer rather than to compensate the taxpayer for injuries.

18
Q

T/F:

Prizes and awards are generally taxable.

A

True

19
Q

T/F:

Recognized income may be in the form of cash or property received (but not services received).

A

False

20
Q

Irene’s husband passed away this year. After his death, Irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husband’s stock portfolio worth $750,000. What amount must Irene include in her gross income?

  • Zero but only if Irene does not opt to receive the life insurance proceeds in a lump sum.
  • Zero - None of these benefits is included in gross income.
  • $500,000.
  • $1 million.
  • $750,000.
A

Zero - None of these benefits is included in gross income.

Taxpayers exclude inheritances and life insurance proceeds from gross income.

21
Q

dentify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

  • Tax benefit rule.
  • None of these.
  • Tax refund rule.
  • Constructive receipt.
  • Return of capital principle.
A

Tax Benefit Rule

22
Q

T/F:

Gross income includes all income realized during the year.

A

False

Deferred and excluded income is not included in gross income.

23
Q

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes)?

  • General Motors $1,450
  • City of New York 900
  • State of New Jersey 1,200
  • U.S. Treasury 850
A

$2300

Interest on bonds issued by state and local governments is excluded from gross income.

24
Q

T/F:

Excluded income will never be subject to the federal income tax.

A

True

25
Q

T/F:
When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

A

False

26
Q

Which of the following taxes will not qualify as an itemized deduction?

  • None of these qualifies as an itemized deduction.
  • personal property taxes assessed on the value of specific property.
  • real estate taxes on a residence.
  • state, local, and foreign income taxes.
  • gasoline taxes on personal travel.
A

Gasoline taxes on personal travel are not deductible

27
Q

T/F:

Taxpayers generally deduct the lesser of their standard deduction or their itemized deductions.

A

False, generally deduct the greater

28
Q

T/.F:

Bunching itemized deductions is one form or tax evasion.

A

False

29
Q

T/F:
In general, taxpayers are allowed to deduct the fair market value of capital gain property on the date of the donation to a qualified charitable organization.

A

True

30
Q

Which of the following is a true statement?

  • Employees can claim business expense deductions as miscellaneous itemized deductions subject to the 2 percent of AGI limitation.
  • None of these is true.
  • Employees can claim business expense deductions for AGI.
  • Employees cannot claim business expense deductions.
  • Employees can claim business expense deductions as miscellaneous itemized deductions not subject to the 2 percent of AGI limitation.
A

Employees can claim business expense deductions as miscellaneous itemized deductions subject to the 2 percent of AGI limitation.

31
Q

Which of the following statements concerning tax credits is true?

  • Refundable tax credits are limited to a taxpayer’s gross tax liability.
  • The tax benefit a taxpayer receives from a credit depends on the taxpayer’s marginal tax rate.
  • Tax credits are generally more beneficial than tax deductions.
  • None of these is a true statement.
A

Tax credits are generally more beneficial than tax deductions.

Credits reduce taxes payable dollar for dollar while deductions reduce taxes payable at the marginal tax rate.

32
Q

T/F:

If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.

A

False

33
Q

Kevin bought 200 shares of Intel stock on January 1, 2015 for $50 per share with a brokerage fee of $100. Then, Kevin sells all 200 shares for $75 per share on December 12, 2015. The brokerage fee on the sale was $150. What is the amount of the gain/loss Kevin must report on his 2015 tax return?

  • $4,750
  • $4,500
  • $5,250
  • $5,000
  • None of these
A

$4750

Amount Realized = (200 shares × $75) − $150 = $14,850; Adjusted Basis = (200 shares × $50) + $100 = $10,100; Gain = $14,850 − $10,100 = $4,750

34
Q

T/F:

Qualified dividends are always taxed at a 15 percent preferential rate.

A

False.

Qualified dividends may be taxed at a rate as low as 0 percent or as high as 20 percent depending on the taxpayer’s ordinary income tax rate.

35
Q

In X8, Erin had the following capital gains (losses) from the sale of her investments: $2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL. What is the amount and nature of Erin’s capital gains and losses?

  • $3,000 net long-term capital loss
  • $4,000 net short-term capital gain
  • $4,000 net long-term capital loss
  • $3,000 net short-term capital gain
  • None of these
A

$3,000 net short-term capital gain

$2,000 (LTCG) + ($9,000) (LTCL) = ($7,000) (NLTCL); $25,000 (STCG) + ($15,000) (STCL) = $10,000 (NSTCG); ($7,000) (NLTCL) + $10,000 (NSTCG) = $3,000 (NSTCG).

36
Q

Which of the following represents the correct order in which credits are applied to gross tax liability (from first to last)?

  • Refundable, nonrefundable personal, business
  • Refundable, business, nonrefundable personal
  • Business, nonrefundable personal, refundable
  • Nonrefundable personal, business, refundable
A

Nonrefundable personal, business, refundable

This order is taxpayer-favorable.

37
Q

When the wash sale rules apply, the realized loss is:

  • recognized at time of sale
  • recognized at time of sale and added to basis of the newly acquired stock
  • not recognized at time of sale and added to basis of the newly acquired stock
  • not recognized at time of sale and subtracted from the basis of the newly acquired stock
  • not recognized at time of sale and does not affect basis of newly acquired stock
A

not recognized at time of sale and added to basis of the newly acquired stock

38
Q

T/F:

Capital loss carryovers for individuals are carried forward indefinitely.

A

True

39
Q

T/F:

All capital gains are taxed at preferential rates.

A

False.

All capital gains are taxed at preferential rates.

40
Q

T/F:

Alton reported net income from his sole proprietorship of $90,000. To determine his self employment tax, he would multiply $90,000 by the self-employment tax rate.

A

False.

ACC 405 - Tax (2 decks)

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