Residence of the taxpayer or spouse


Question 1: Merle furnishes more than 50% of the support of her son and daughter-in-law, who live with her. If the son and daughter-in-law file a joint return, then Merle might be able to claim them as dependents under certain circumstances.

A. True
B. False

Question 2: Albert is in the 33 percent marginal tax bracket. On a particular Saturday, he had planned to paint a room in his house, but his employer requested that he work that day. Because Albert had to work, it was necessary for him to hire a painter. By working and hiring a painter, Albert will:

A. Have an after-tax economic loss if his employer pays him $200 and the painter charges $120 for labor.
B. Have an after-tax economic gain if his employer pays him $180 and the painter charges $140 for labor.
C. Have an after-tax economic loss if his employer pays him $150 and the painter charges $100 for labor.
D. Have an after-tax economic gain if his employer pays him $200 and the painter charges $120 for labor.
E. None of the above.

Question 3: Tommy is an automobile mechanic who works for an auto dealership, but he is considering opening a fast food franchise. If Tommy decides not to acquire the fast food franchise, the investigation expenses are:

A. Classified as a deduction for AGI
B. Classified as a deduction from AGI, subject to the 2 percent floor
C. Classified as a deduction from AGI, not subject to the 2 percent floor
D. Not deductible
E. None of the above

Question 4: Earl entertains one of his clients on January 1 of the current year. Expenses paid by Earl are as follows:

Cab fare                                  $22
Cover charge at supper club        40
Dinner at club                           190
Tips to waiter                             38

Presuming proper substantiation, Earl’s deduction is:

A. $126
B. $136
C. $145
D. $156
E. None of the above

Question 5: For purposes of computing the deduction for qualified residence interest, a qualified residence includes the taxpayer’s principal residence and one other residence of the taxpayer or spouse.

A. True
B.  False

Question 6: Ken’s AGI is $90,000. He contributed $72,000 in cash to a public charity. What is Ken’s charitable contribution deduction for AMT purposes?

A. $18,000
B. $27,000
C. $45,000
D. $70,000
E. None of the above

Question 7: Carol has a tentative general business credit of $110,000 for 2007. Her net income tax is $125,000, her net regular tax liability before the general business credit is $125,000, and her tentative minimum tax is $100,000. She has no other tax credits. What is Carol’s allowable general business credit for the year?

A. $110,000
B. $15000
C. $100,000
D. $25,000
E. None of the above

Question 8: Which of the following decreases adjusted basis?

A. Amortization of bond premium
B. A corporate distribution to a shareholder treated as a return of capital in which gain is recognized to the shareholder
C. Depreciation
D. Only A and B
E. A, B, and C

Question 9: Rea is a songwriter. She wrote a song, copyrighted it, and sold it for $10,000 cash. The song had a zero tax basis. The purchaser was a national song brokerage company. Rea is in the business of songwriting. The $10,000 received by Rea is:

A. Long-term capital gain
B. Short-term capital gain
C. Ordinary income
D. Excludible from gross income
E. None of the above

Question 10: Jerome is considering making a $30,000 investment in a venture which its promoter promises will generate immediate tax benefits for him.  Jerome, who does not anticipate itemizing his deductions, is in the 33% marginal tax bracket.  If the investment is of a type that produces a tax credit of 40% of the amount of the expenditure, by how much will Jerome's tax liability decline because of the investment?

a. $-0-.
b. $9,000.
c. $12,000.
d. $30,000.
e. None of the above.

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Accounting Basics: Residence of the taxpayer or spouse
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