Question 1.
A sole proprietorship that began business May 1, 2017, incurred $9,000 of start-up expenses. If the business elects to report the maximum amount of start-up costs as a current expense, what is the amortization amount reported as an "other expense" on Schedule C?
$88.00
$134.00
$178
$266
Question 2.
Larry uses an accrual method of accounting and a calendar year. On December 30, 2017, he completed work for a client and submitted his bill. The client had no dispute with the work done or the amount of the bill. The client paid Larry's bill in 2018. In which year should he report the income from this project?
He should report the income in 2018.
He may choose to report the income in either 2017 or 2018.
He should report the income in 2017.
He should report half of the income in 2017 and half in 2018.
Question 3.
Fill in the blank. Generally, when business start-up costs exceed the maximum amount allowed, the remaining costs may be amortized over_____ months.
240
180
120
60
Question 4.
Joel operates his business, Carson Collectibles, by himself. He has made no election with his state regarding his business. What is the most likely form of Joel's business?
Sole Proprietorship.
LLC.
Partnership.
Corporation.
Question 5.
Juan uses his personal vehicle in his sole proprietorship. He keeps no records of any kind regarding his business use of the car and doesn't really know for certain when and where he used the automobile for business. Which of the following is correct?
Juan should deduct a good-faith estimate of his expenses for the auto as a business expense.
Juan should estimate his total vehicle expenses for the year, then deduct 50% of that amount as business expense.
Juan could have leased a comparable vehicle for $3,600 for 2017. Therefore, he should deduct $3,600 as a business expense.
Juan cannot deduct any vehicle expenses because he has no record of his expenses.
Question 6.
Edwina has sponsored, and participated in, a barbeque team for the last ten years. The team enters several contests a year but has never come close to turning a profit. Edwina has told you she doesn't really care if the team makes any money; she just enjoys being able to get away from work and unwind at the contests. Which of the following is most accurate?
Edwina may deduct all the expenses associated with the team.
Edwina may only deduct her proportional share of the expenses of the team.
Edwina may never deduct any of the expenses of the team.
This activity is likely a hobby for Edwina, and her deductions may be limited.
Question 7.
Clarence is a sole proprietor who started his business on July 29, 2017. He has not elected any particular tax year. Generally, when is Clarence's federal income tax return due?
April 15.
June 15.
August 15.
12/15/18
Question 8.
For which of these client scenarios do you need to prepare a Schedule C?
Carlos has a Form W-2G showing $25,000 in winnings from playing blackjack. He has records showing he spent $30,000 playing blackjack.
Soledad has a Form 1099-MISC showing $1,300 in box 3 for winning a neighborhood fundraising raffle. She bought six raffle tickets for $10 each.
Monica has a Form 1099-MISC showing $600 in box 7 as compensation for distributing product samples at neighborhood festivals. She incurred no expenses.
Jarvis sold his car to his neighbor for $2,800 cash. He bought the car ten years ago for $20,000.
Question 9.
Which of the following is a disadvantage of operating as a sole proprietorship?
Sole proprietorships have complex legal and accounting requirements.
The owner of a sole proprietorship generally carries unlimited liability for the debts and liabilities of the business.
A sole proprietorship has only limited flexibility in choosing a tax year.
A sole proprietorship may only use the accrual method of accounting.
Question 10.
Peyton is a self-employed certified financial planner and began his business in 2017. During 2017, he purchased a $500 computer and a $250 desk. He also paid $6,000 in legal/incorporation fees and spent $12,000 for a new roof for the office building he owns. Which purchase(s) can he expense in 2017 without limitation?
Computer, desk, legal/incorporation fees, roof.
Computer, desk, legal/incorporation fees.
Computer and desk.
Legal/incorporation fees, roof.
Question 11.
Brenda does sideline work as a graphic artist for several local businesses. Her primary employment is as a graphic designer for a local corporation. Brenda participates in her corporate employer's health plan. How much of her health insurance premium payment may she deduct as a business expense on her Schedule C?
$0
25%
50%
75%
Question 12.
Which of the following statements is correct with regard to unrecaptured §1250 gain? Unrecaptured §1250 gain is:
Taxed at 28% capital gains tax rate or the taxpayer's lower tax rate, if applicable.
Taxed at 25% capital gains tax rate or the taxpayer's lower tax rate, if applicable.
Taxed at 15% capital gains tax rate or the taxpayer's lower tax rate, if applicable.
Taxed at 0% capital gains tax rate or the taxpayer's lower tax rate, if applicable.
Question 13.
A business-use car held long-term and sold at a LOSS is treated as what section property?
§179
§1231
§1245
§1250
Question 14.
Which convention is used for the year of disposition for a warehouse?
Mid-quarter.
Straight-line.
Half-year.
Mid-month.
Question 15.
A business-use car is classified as what section property?
§179
§1231
§1245
§1250
Question 16.
A taxpayer in the 25% bracket, before considering the sale, sold for a gain of $10,000 a residential rental building purchased and put into service in March 2010. (The sale of land is not included in this question.) No other residential real property was sold in this tax year. The depreciation taken or allowed is $15,635. What is the amount and nature of the gain or loss?
$10,000 gain taxed at a maximum of 15%.
$10,000 gain taxed at a maximum of 25% (or 33% if the gain pushes the taxpayer into a higher tax bracket).
$10,000 gain taxed at a maximum of 25%.
$15,635 gain taxed at a maximum of 25%.
Question 17.
Nonrecaptured §1231 losses are applied against the net §1231 gain beginning with:
Last year's loss and ending with losses from the fifth previous year.
The earliest loss in the five-year period.
The next future year's losses.
Last year's loss and ending with losses from the third previous year.
Question 18.
Which of the following situations involving an exchange of business property exemplifies a fully nontaxable exchange?
Miranda traded a commercial refrigerator plus $5,000 for Patricia's commercial refrigerator.
Lois exchanged a commercial sewing machine for Edwina's commercial sewing machine plus $5,000 in cash.
Harold traded an improved lot for Oliver's rental house. Oliver paid the $2,000 expense incurred with the exchange.
David traded his delivery van with Marcia for a printing press.
Question 19.
Jose purchased and placed in service a rental house in January 2009 for $110,000, which included $10,000 for the land. In August of the eighth year of renting the property, he decided to sell the rental house to the tenant. How much depreciation may he deduct in the eighth year?
$1,364
$2,273
$3,485
$3,636
Question 20.
Ruth sold land she purchased three months earlier for use in her business. Her cost (and adjusted basis) in the land is $75,000. She incurred $5,000 in expenses related to the sale. The buyer paid $80,000 cash and assumed Ruth's $25,000 mortgage on the property. What is the amount of her gain, and where on Form 4797 will she report the sale?
$25,000 on Part I.
$25,000 on Part II.
$30,000 on Part III.
$30,000 on Part IV.
Question 21.
Sue purchased a van for $18,000 to use exclusively in her delivery business. She sold it four months later in the same year for $12,500. What is the amount of gain or loss, and where on Form 4797 does Sue report the sale?
$3,700 loss, Part I.
$5,500 gain, Part II.
$5,500 loss, Part II.
$5,500 loss, Part I.
Question 22.
How is the installment sale of an entire business reported on the tax return?
One Form 6252 reports the entire disposition.
Separate Forms 6252 are completed for each asset.
One Form 6252 is completed for the tangible assets, and another is completed for intangible assets.
Separate Forms 6252 are completed for each asset class and type.
Question 23.
Which of the following statements regarding the installment sale of an entire business is FALSE? The sale price and expense of sale of an entire business must be allocated because:
Real and personal property can be reported on the installment method but inventory cannot.
Any depreciation recapture income from the sale of depreciable property cannot be reported on the installment method.
Assets sold at a loss cannot be reported using the installment method.
Intangible property cannot be reported using the installment method.
Question 24.
Which of the following taxpayers would be most likely to benefit from an installment sale? A taxpayer who sold:
Business-use land, for a gain.
A business-use car, at a net gain that was less than the amount of depreciation claimed.
Rental property, at a gain less than the amount of depreciation allowed.
A fishing boat, at a net loss.
Question 25.
What is the proper application of the lower of cost or market to value inventory?
Apply the method to the inventory as a whole.
Apply the method to each item in inventory.
Apply the method to the average cost of items in inventory.
Apply the method to the items of inventory that exceed the average cost of the inventory as a whole.
Question 26.
Joyce operates a computer store. Which of the following should be included in her inventory?
General office supplies.
Goods sold for which title has passed to the buyer.
Goods consigned to the client.
Goods held for sale away from the place of business.
Question 27.
Maxine lives in a 700-square-foot studio apartment. She runs her own catering business and cooks client meals in her kitchen. Maxine figures the kitchen is approximately 350 square feet. She also cooks her personal meals in the kitchen. What percentage of her rent may Maxine deduct as business-use-of-home expense?
0%
25%
50%
100%
Question 28.
Damon reorganized his office and purchased a new office desk for $2,600 on March 17, 2017. He wanted to depreciate the desk over a longer period of time, so he chose the Alternative Depreciation System (ADS) straight-line method and did not claim bonus depreciation. Using the half-year convention, compute his 2017 depreciation deduction.
$130
$195
$260
$372
Question 29.
Short-year depreciation does not affect which of the following conventions?
Half-year.
Mid-month.
Mid-quarter.
Mid-year.
Question 30.
Judy is a sole proprietor and wishes to use the simplified method for business-use-of-home expenses. Her mortgage interest for 2017 is $3,500, and real estate taxes are $975. Her home office is 400 square feet, and her total home square footage is 1,800 square feet. What is the home office expense deduction?
$4,475
$2,000
$1,500
$994
Question 31.
A sole proprietor with a tentative loss may deduct which of the following for qualified business-use-of-home expenses?
Depreciation.
Mortgage interest.
Rent.
Utilities.
Question 32.
Fill in the blank. Emma purchased a machine in 2015 and claimed a §179 expense deduction on the total purchase price. In 2017, business use dropped below 50%. As a result of this drop, Emma must __________.
Stop taking any depreciation on the machine.
Change from the general MACRS to a straight-line system.
Recapture a prorated portion of that which was expensed.
Change nothing.
Question 33.
Raul purchased a new office computer system on February 15, 2016, at a cost of $8,300. He would like to use the General Depreciation System (GDS) straight-line method to depreciate the system and does not want to claim bonus depreciation. Using the half-year convention, compute his 2016 and 2017 depreciation.
His 2016 depreciation is $1,660, and his 2017 depreciation is $2,656.
His 2016 depreciation is $1,453, and his 2017 depreciation is $1,660.
His 2016 depreciation is $830, and his 2017 depreciation is $1,660.
His 2016 depreciation is $691, and his 2017 depreciation is $1,384.
Question 34.
In April 2017, Reiko purchased and placed a rental house in service. She paid $184,000, including $27,000 for the land. Compute her 2017 depreciation on the rental.
$3,531
$4,044
$4,138
$4,738
Question 35.
Which depreciable property listed below is not eligible for the §179 expense deduction?
Office furnishings.
A computer used exclusively in an office setting.
A machine used in a manufacturer's warehouse.
Furnishings purchased for use in a rental lodging.
Question 36.
Which of the following is passive income?
Salaries and wages.
Income from real estate ventures for a non-real estate professional.
Winnings from gambling.
State and local refunds.
Question 37.
Duane paid $550 for a new washing machine he placed in service in his rental house in May 2016. He did not take the special depreciation allowance and is depreciating the machine using regular MACRS and the half-year convention. Duane sold the rental house with the washing machine in March 2017. How much will he deduct for depreciation on the washing machine in 2017?
$0
$55
$88
$176
Question 38.
What is the IRS method of allocating expenses between rental use and personal use?
All expenses allocated as a percentage of rental-use days to total days owned.
All expenses allocated as a percentage of rental-use days to total days used.
Mortgage interest and casualty losses allocated as a percentage of rental-use days to total days.
Mortgage interest and real estate taxes allocated as percentage of rental-use days to total days used.
Question 39.
Glenn has a rental house that was rented beginning January 1 in the current tax year. On January 1, the tenant paid Glenn a $1,200 security deposit plus $950 rent for January and $950 rent for the last month, whenever that occurs. The tenant timely paid the $950 monthly rent each of the remaining eleven months. How much rental income will Glenn report for the current year?
$11,400
$12,350
$12,600
$13,550.00
Question 40.
David has income from several sources. Which one is considered passive income?
Dividends paid on shares of a mutual fund in his 401(k) account.
Dividends paid on shares of a mutual fund in his Roth IRA.
Unemployment benefits received during a one-month layoff.
Rent received from the full-year rental of his house in the country.
Question 41.
The safe harbor election allows taxpayers to elect to expense improvements if the total amount paid during the year on the eligible property does not exceed the lesser of the following:
- 2% of the unadjusted basis of the eligible building property
- $10,000
Amounts eligible for this election include all of the following EXCEPT:
Utilities.
Repairs.
Maintenance.
Improvements.
Question 42.
Billy is a single taxpayer with modified AGI of $140,000 and an active participation rental real estate loss of $30,000. Assuming he has no other source of passive income, what is his adjusted special loss allowance?
$0
$5,000
$10,000
$15,000
Question 43.
When a taxpayer owns a part rental/part personal-use property, how is mortgage interest on that property treated on the tax return?
Prorated deduction on Schedule E and Schedule C.
Prorated deduction on Schedule E and Schedule A.
The taxpayer can choose to deduct the full amount on either Schedule E or Schedule A.
Fully deducted on Schedule E.
Question 44.
Zack purchased a rental house for $250,000. He put down $50,000 cash and took out a mortgage for the balance of $200,000. At closing, he paid $4,000 in points, $3,500 for transfer taxes and legal fees, and $8,500 for delinquent property taxes left unpaid by the seller. What is Zack's basis in the rental house?
$250,000
$257,500
$262,000
$266,000
Question 45.
Rents received as payment for use of real estate held for investment purposes are:
Not-for-profit income, reported on Form 1040, line 21.
Investment income, reported on Schedule E.
Business earned income, reported on Schedule C.
None of the above.
Question 46.
Generally, for Tax Year 2017, the de minimis safe harbor election allows taxpayers to claim an automatic deduction for property costing:
$500 or less per item.
$750 or less per item.
$1,000 or less per item.
$2,500 or less per item.
Question 47.
Leon sold residential rental property he had owned for three years. As part of this sale, Leon realized gain on the sale of the rental house he was depreciating using regular MACRS. Which Code section describes the gain on the LAND?
§1231.
§1245.
§1250.
§1254.
Question 48.
In the year of disposition, how is the depreciation deduction calculated for real rental property that has been depreciated using the mid-month convention?
The depreciation in the year of disposition will be the same as the depreciation in a regular year.
The deductible amount will be determined by the month in which the asset is disposed.
No deduction is allowed in the year of disposition.
Only the amount of depreciation actually claimed in prior years is allowable.
Question 49.
Which of the following is NOT rental income?
Expenses paid by the tenant for their own enjoyment.
Forfeited security deposit.
Rental expenses directly paid by the tenant.
Advance rental payments.
Question 50.
Eldridge owns a rental house, which he rents at $200 per month. Similar houses in the neighborhood rent for $600 per month. As Eldridge's Tax Professional, how should you treat his rental income?
The income is reported, and all expenses deducted, on Schedule E.
The income is not reported because Eldridge is operating the property as a charity.
The income is reported on the Other Income section on Form 1040, and rental expenses, up to the amount of income, are deducted on Schedule A.
A charitable contribution of $400 is reported on Schedule A for every month Eldridge rents the property at $200.
Question 51.
Pastor Martin received $40,000 in ministerial earnings: $28,000 salary for ministerial services, $2,000 for performing weddings, and $10,000 tax-free parsonage allowance. Pastor Martin incurred $5,000 of unreimbursed expenses connected with his ministerial earnings: $4,500 related to his ministerial salary and $500 related to the weddings performed as self-employed. How much of the expense related to his self-employed earnings is deductible when figuring net income for income tax after allocation to the tax-free parsonage allowance?
$125
$375
$500
$5,000
Question 52.
Mark is an ordained minister. Mark's salary from his employing church last year was $31,000. The church did not designate any of his salary as housing allowance. Mark spent $10,000 to rent his home last year. How much of Mark's salary must be included when figuring net income for self-employment tax?
$21,000
$31,000
$41,000
$51,000
Question 53.
Reverend Lincoln receives an annual salary of $24,000 as a full-time minister. This includes $2,000 designated as rental allowance to pay utilities. Rev. Lincoln is not exempt from self-employment tax. How much must he include when figuring net income for self-employment tax?
$2,000
$22,000
$24,000
$26,000
Question 54.
How are clergy housing allowances and the fair rental value of provided housing treated for tax purposes?
For active clergy, the amounts are included in gross income for self-employment tax, but excluded for income tax.
For active clergy, the amounts are included in gross income for self-employment and income taxes.
For all clergy, the amounts are excluded for self-employment tax, but included for income tax.
For all clergy, the amounts are excluded from gross income for both self-employment and income taxes.
Question 55.
Can a taxpayer claim both the foreign earned income exclusion and the foreign tax credit?
No, the taxpayer must choose one tax benefit or the other.
Yes, but the taxpayer cannot claim the credit for taxes paid on excluded income.
Yes, but the taxpayer cannot claim the credit and exclusion on income from the same country.
Yes, but the taxpayer cannot claim the credit and exclusion on income in the same category.
Question 56.
The foreign earned income exclusion is allowed under IRC Section:
401
411
911
941
Question 57.
To qualify for the foreign earned income exclusion, an expatriate employee must meet one of the following requirements:
The physical presence test only.
The bona fide residence test only.
The physical presence test and the bona fide residence test together.
Either the physical presence test or the bona fide residence test.
Question 58.
What criterion is used to determine the date when foreign taxes accrue for purposes of the foreign tax credit?
U.S. tax law.
Tax laws of the foreign country or U.S. possession.
Tax treaty between the U.S. and the foreign country.
Totalization agreement between the U.S. and the foreign country.
Question 59.
Which of the following circumstances would favor the foreign earned income exclusion over the foreign tax credit?
Income is subject to a high tax rate in the foreign country.
Income is too high to qualify for either the full exclusion or the full credit.
30% of foreign income is considered earned; the other 70% is investment income.
Income is subject to a low tax rate in the foreign country.
Question 60.
When a taxpayer has unused losses from multiple NOL years, reduce taxable income in chronological order for the NOL tax years, beginning with the:
Year that has the smallest loss.
Year that has the largest loss.
Previous tax year.
Earliest allowable tax year.
Mark for follow up
Question 61.
Business capital gains or losses result from the:
Disposition of business equipment that is eligible for §1231 treatment.
Disposition of a personal residence.
Disposition of a personal-use tractor.
Disposition of a vacation home.
Mark for follow up
Question 62.
Which of the following items may create an NOL?
Schedule C loss.
Mortgage interest on the taxpayer's main home that is not used for business.
Charitable contribution.
Medical expense.
Mark for follow up
Question 63.
What happens to credits in the carryback or carryover year?
Credits that are dependent on AGI, MAGI, or tax liability must be recomputed.
No adjustment is needed.
All credits must be recomputed.
None of the above.
Mark for follow up
Question 64.
If the taxpayer carries forward an NOL to a tax year after the NOL year:
The NOL deduction is listed as a negative figure on the form from which the loss derived.
The NOL deduction is listed as a negative figure on the Other Income line of Form 1040 or Form 1040NR.
The NOL deduction is listed as a negative figure on Schedule A not subject to the 2% limitation.
The NOL deduction is listed as a negative figure on Schedule D.
Question 65.
Bronson sustained a $43,290 NOL in 2017. He made no special elections, and his loss is reported on Form 1040, Schedule C. The first year Bronson carries his NOL is:
2012
2013
2014
2015
Question 66.
The NOL year is:
The year in which the NOL is used up.
The year in which the NOL is carried.
The year in which the NOL occurred.
The first carryback year.
Question 67.
A taxpayer may elect to waive the carryback period for an NOL by:
Attaching a statement to the return for the carryforward year.
Filing an amendment for the NOL year return.
Attaching a statement to the tax return for the loss year, filed on or before the due date, including extensions.
Filing an amendment claiming the election for the carryback year.
Question 68.
In 2017, Marilyn had total nonbusiness income of $1,250. Her 2017 adjustments and deductions include:
• Deductible IRA contribution of $4,000
• Property taxes of $1,083
• Real estate tax of $1,831
• Mortgage interest of $3,914
• Employee business expenses of $874
• Charitable contributions of $614
Using the adjustments and deductions listed above, compute the net operating loss (NOL) nonbusiness deductions in excess of nonbusiness income modification.
$6,192
$10,192
$10,452
$11,066
Question 69
Partnership and S corporation returns:
Carry their NOLs back ten years.
Do not carry NOLs back or forward.
Have a choice of carrying their NOLs back three, four, or five years instead of the default two years.
Carry forward their NOLs 15 years.