Quizzes Flashcards by Eli Smith

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

I. and III.

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T/F:

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

False

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Which is not a basic tax planning strategy?

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

arms length transaction

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T/F:

The goal of tax planning is tax minimization.

False.

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

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

True

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T/F:

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

True

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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.

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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T/F:

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

True

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

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

Field

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Which of the following is not considered a primary authority?

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

Tax Service

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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

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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T/F:

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

True

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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.

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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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.

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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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

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

False. Debt doesn’t generate economic benefit.

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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.

$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.

T/F:

Prizes and awards are generally taxable.

True

T/F:

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

False

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.

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

Taxpayers exclude inheritances and life insurance proceeds from gross income.

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.

Tax Benefit Rule

T/F:

Gross income includes all income realized during the year.

False

Deferred and excluded income is not included in gross income.

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

$2300

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

T/F:

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

True

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.

False

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.

Gasoline taxes on personal travel are not deductible

T/F: | Taxpayers generally deduct the lesser of their standard deduction or their itemized deductions.

False, generally deduct the greater

T/.F: | Bunching itemized deductions is one form or tax evasion.

False

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.

True

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.

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

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.

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.

T/F: | If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage penalty.

False

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

$4750 Amount Realized = (200 shares × $75) − $150 = $14,850; Adjusted Basis = (200 shares × $50) + $100 = $10,100; Gain = $14,850 − $10,100 = $4,750

T/F: | Qualified dividends are always taxed at a 15 percent preferential rate.

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.

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

$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).

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

Nonrefundable personal, business, refundable This order is taxpayer-favorable.

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

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

T/F: | Capital loss carryovers for individuals are carried forward indefinitely.

True

T/F: All capital gains are taxed at preferential rates.

False. All capital gains are taxed at preferential rates.

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.

False.