1.
Passive losses are fully deductible as long as they do not exceed $50,000 during the year.
A) True
B) False
2.
Wages are considered "active income."
A) True
B) False
3.
A deduction for a business bad debt is allowed only to the extent that income related to the debt was previously included in taxable income.
A) True
B) False
4.
A taxpayer who adopts the LIFO method of inventory valuation for tax purposes may use the FIFO method for preparing financial statements.
A) True
B) False
5.
If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty.
A) True
B) False
6.
In some cases, a taxpayer may deduct an otherwise allowable contribution to an IRA, even though the contribution is made after the close of the tax year.
A) True
B) False
7.
Most taxpayers must use the specific charge-off method in calculating the bad debt deduction.
A) True
B) False
8.
Subject to the annual dollar limitation and the earned income limitation, deductible IRA contributions are allowed for all taxpayers who do not participate in a qualified retirement plan.
A) True
B) False
9.
A taxpayer must make contributions to a regular or Roth IRA prior to the end of the year in order to claim the deduction for that year.
A) True
B) False
10.
If under 50 years of age, a taxpayer may make a nondeductible contribution to an IRA, subject to the earned income limitation and the $5,000 annual limitation.
A) True
B) False
11.
In most cases, a taxpayer reports rental income and the related expenses on Schedule E.
A) True
B) False
12.
When a residence is rented for less than 15 days during the year, the rental income is excluded from gross income.
A) True
B) False
13.
If a residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, no allocation of expenses is required and the taxpayer may claim a deduction for the full amount of the expenses.
A) True
B) False
14.
Without regard to their involvement in the management of the rental property, individual taxpayers may deduct up to $25,000 of rental real estate losses against other income, provided their income does not exceed certain limits.
A) True
B) False
15.
Under the passive loss rules, real estate rental activities are specifically defined as passive, even if the taxpayer actively manages the property.
A) True
B) False
16.
Passive losses of one activity may not be used to offset passive income from another activity.
A) True
B) False
17.
When a taxpayer uses the FIFO inventory valuation method, the assumption on which the method is based is that the inventory on hand at the end of the year consists of the most recently acquired items.
A) True
B) False
18.
Since a contribution to an IRA is a voluntary action, a taxpayer may withdraw amounts from an IRA at any time without penalty.
A) True
B) False
19.
If an employer makes a contribution to a qualified retirement plan on behalf of an employee, the amount is currently deductible by the employer, and the employee must include the amount in gross income at the time the contribution is made.
A) True
B) False
20.
If a Section 401(k) plan allows an employee to choose between a direct payment of compensation in cash or a contribution to the retirement plan, the plan is not a "qualified" plan.
A) True
B) False
21.
In order for a pension plan to be considered a "qualified" retirement plan, the plan must satisfy certain minimum vesting requirements.
A) True
B) False
22.
Under the specific charge-off method, a deduction for a bad debt is taken when the debt is determined to be worthless.
A) True
B) False
23.
In 2010, all taxpayers may make a deductible or nondeductible contribution to an IRA.
A) True
B) False
24.
In a distribution rollover from an IRA, the recipient must contribute 80 percent of the distributed amount to the new trustee in order for the rollover to be tax free.
A) True
B) False
25.
Net operating losses may be carried forward indefinitely.
A) True
B) False
26.
Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2010. The gross rental income from the home is $4,500. For the entire year, real estate taxes are $800, interest is $3,000, utilities and maintenance expenses are $2,200, and depreciation expense on the entire home would be $4,000. What is Lester''s allowable net loss from renting his vacation home?
A) $5,500 loss
B) $3,000 loss
C) $500 loss
D) $250 loss
E) None of the above
27.
Bill is the owner of a house with two identical apartments. He resides in one apartment and rents the other apartment to a tenant. The tenant made timely monthly rental payments of $500 per month for the months of January through December, 2010. The following expenses were incurred on the entire building:
Utilities
$3,600
Maintenance and repairs
800
Insurance on building
600
In addition, depreciation allocable to the rented apartment is $1,500. What amount should Bill report as net rental income for 2010?
A) $6,000
B) $2,750
C) $2,000
D) $1,500
E) None of the above
28.
Donald owns a two-family home. He rents out the first floor and resides on the second floor. The following expenses attributable to the total building were incurred by Donald for the year ended December 31, 2010:
Real estate taxes
1,800
Mortgage interest
1,200
Utilities
1,000
Repairs (first floor)
300
Painting (second floor)
400
In addition, the depreciation attributable to the entire building would be $2,000. What is the total amount of the expenses that Donald can deduct on Schedule E of Form 1040 (before any limitations)?
A) $3,300
B) $3,350
C) $4,000
D) $5,300
E) None of the above
29.
Arnold purchased interests in two limited partnerships 6 years ago. During 2010, Arnold had income of $22,000 from one of the partnerships. He had a loss from the other partnership of $32,000, salary income of $35,000, and dividend income of $2,000. What is the amount of net passive losses that Arnold may deduct for 2010?
A) $0
B) $800
C) $1,000
D) $8,000
E) None of the above
30.
Under the Keogh plan provisions, deductible contributions to a qualified retirement plan on behalf of a self-employed individual whose net earned income is $20,000 are limited to:
A) $1,500
B) $2,000
C) $4,000
D) $5,000
E) None of the above
31.
Acacia Corporation had inventory of $100,000 on December 31, 2010. Other information is as follows:
Purchases
$1,500,000
Sales
3,000,000
Inventory 1/1/2010
300,000
What is the amount of Acacia''s cost of goods sold for 2010?
A) $1,300,000
B) $1,600,000
C) $1,700,000
D) $3,000,000
E) None of the above
32.
Jody is a physician (not covered by a retirement plan) with a salary of $40,000 from the hospital where she is employed. She supports her husband, Andre, who sells art work and has no earned income. Both are in their twenties. What is the maximum total amount that Jody and Andre may contribute to their IRAs and deduct for the 2010 tax year?
A) $5,000
B) $4,500
C) $10,000
D) $9,000
E) None of the above
33.
Which of the following taxpayers qualifies for the maximum individual retirement account deduction for 2010?
A) Married taxpayers, neither of whom is covered by a qualified retirement plan, with total adjusted gross income, all earned, of $85,000
B) A single taxpayer, who is covered by a qualified retirement plan, with adjusted gross income of $80,000
C) A single taxpayer, who is not covered by a qualified retirement plan, with no earned income but with unearned income of $12,000
D) Married taxpayers, only one of whom is covered by a qualified retirement plan, with total adjusted gross income of $180,000
E) None of the above qualify for the maximum deduction
34.
Which of the following would be a business debt if it were uncollectible?
A) A taxpayer loans his father $1,000 to start a business
B) A taxpayer loans his son $10,000 to purchase a rental house
C) A dentist, using the accrual basis of accounting, extends credit to a patient for services provided
D) A taxpayer loans his brother $3,000 to purchase a truck for use in his brother''s business
E) None of the above
35.
Contributions by a self-employed individual to a Keogh plan for 2010 are limited to the lesser of 20 percent of net earned income or
A) $44,000
B) $43,000
C) $49,000
D) $47,000
E) None of the above
36.
Splashy Fish Store allows qualified customers to purchase items on credit. During 2010, Lisa, the owner of the store, determines that $3,500 of accounts receivable are not collectible. Which of the following statements is true with respect to Lisa''s deduction for the uncollectible accounts receivable?
A) Lisa is not allowed a deduction for the uncollectible accounts if she has not previously included the income arising from the accounts in taxable income
B) Any deduction for the uncollectible accounts receivable will be treated as a short-term capital loss
C) Only $3,000 of the uncollectible accounts receivable may be deducted in the current year
D) All of the above statements are true
E) Two of the above statements are true
37.
Which of the following statements is true of a distribution rollover (not a trustee-to-trustee transfer) from a retirement plan?
A) The taxpayer must instruct the trustee of the retirement plan to transfer assets to the trustee of another plan.
B) No withholding is required.
C) In one year, there is no limit to the number of times a taxpayer can request a distribution rollover from one IRA to another IRA.
D) Assuming there are no unusual events, the taxpayer has a maximum of 60 days in which to transfer funds to a new plan.
E) All of the above are true.
38.
Tim loaned a friend $4,000 to buy a used car. In the current year, Tim''s friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?
A) $4,000 ordinary loss
B) $4,000 short-term capital loss
C) $2,000 short-term capital loss
D) $3,000 ordinary loss
E) $3,000 short-term capital loss
39.
Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000. What is the maximum amount Donald can contribute to a Roth IRA?
A) $550
B) $610
C) $1,220
D) $3,000
E) $5,000
40.
Monica has a Roth IRA to which she contributed $15,000. The IRA has a current value of $37,500. She is 54 years old and takes a distribution of $25,000. How much of the distribution will be taxable to Monica?
A) $-0-
B) $10,000
C) $15,000
D) $25,000
E) $37,500
41.
A 42-year-old single taxpayer earning a salary of $125,000 a year can make which of the following IRA contributions if he is not covered by a plan at work?
A) $5,000 to either a traditional IRA, a Roth IRA, or a nondeductible IRA
B) $4,500 to either a traditional IRA, a Roth IRA, or a nondeductible IRA
C) $5,000 to a Roth IRA only
D) $5,000 to either a traditional IRA or a nondeductible IRA, but no contribution is allowed to a Roth IRA
42.
Choose the correct statement. Passive losses
A) May not be used to offset passive income
B) May be used to offset portfolio income
C) Often result from the rental of real estate
D) If unused, are lost forever.
43.
Which of the following statements is correct?
A) Contributions to Keogh plans by self-employed taxpayers are generally limited to the lesser of 15 percent of their net earned income (before the Keogh deduction) or $45,000.
B) The contribution limits for SEPs (Simplified Employee Pension) are the lesser of 20 percent of net self-employment income or $49,000 for a self-employed taxpayer
C) Employees may elect to make annual contributions to 401(k) plans up to the lesser of 15 percent of their net earned income (before the 401(k) deduction) or $45,000.
D) The contribution limits for SEPs are a maximum of $16,500 ($22,000 for taxpayers 50 or older).
44.
Nancy has active modified adjusted gross income before passive losses of $125,000. She has a loss of $10,000 on a rental property she actively manages. How much of the loss is she allowed to take against the $125,000 of other income?
A) None
B) $2,500
C) $5,000
D) $10,000
45.
Norm is a real estate professional with a real estate trade or business as defined in the tax law. He has $150,000 of business income and $50,000 of losses from actively managed real estate rentals. How much of the $50,000 in losses is he allowed to claim on his tax return?
A) $25,000
B) None
C) $50,000
D) $20,000
46.
What is the deadline for making a contribution to traditional IRA or a Roth IRA for 2010?
A) April 15, 2011
B) December 15, 2010
C) April 15, 2010
D) October 15, 2010
47.
Patrick owns a home on the beach in Daytona. He lives in the house for most of the year but leaves town during the big motor sports race that comes through every year. During that time he rents his home out for 3 weeks to race fans for $5,000. Which of the following is true?
A) Because Patrick rents the house for such a short period of time, the rental income is not taxable but he may deduct a percentage of expenses such as utilities and depreciation on the home.
B) Patrick did not rent the house for a long enough period of time to deduct a percentage of expenses such as utilities and depreciation on the home. The rental income he receives is taxable.
C) Because Patrick rented the home for more than 14 days, he must report the income. He is also allowed to deduct a percentage of expenses such as utilities and depreciation to the extent of the income.
D) If you live in your house for more than 50 percent of the year, then it is treated as a personal residence and you cannot deduct any expenses such as utilities and depreciation on the home.
E) None of the above is true.
48.
Ellen loans Nicole $45,000 to start a hair salon. Unfortunately, the business fails in 2010 and she is unable to pay back Ellen. In 2010, Ellen also had $20,000 of income from her part-time job and $12,000 of capital gain from the sale of stock. How much of the $45,000 bad debt can Ellen claim as a capital loss in 2010?
A) $45,000, with $33,000 carried forward to 2011
B) $12,000
C) $32,000
D) $45,000, with $30,000 carried forward to 2011
E) $0
49.
Patricia is a business owner who is trying to determine her cost of goods sold for 2010. She bought 20 units of inventory at $11, then 26 units at $9, and finally 18 units at $14. She sold 30 units in 2010 and uses FIFO for her inventory valuation. What was her cost of goods sold in 2010 assuming that there was no inventory at the beginning of the year?
A) $706
B) $310
C) $360
D) $330
E) None of the above is correct.
50.
Steven is 27 years old and has a total AGI of $110,000 in 2010. In 2010, he gets pneumonia and has a medical bill that totals $7,500. He withdraws $7,500 from his traditional IRA to pay for the bill. Which of the following is true?
A) He is not subject to penalties on the IRA withdrawal because it was for medical expenses.
B) He is not subject to penalties on the IRA withdrawal because he was disabled by pneumonia for 2 weeks.
C) He is subject to penalties on the IRA withdrawal because a person may not take a withdrawal from a traditional IRA until they are 59 years old no matter what.
D) He is subject to penalties on the IRA withdrawal because the medical bill was not greater than 7.5 percent of his AGI.
E) None of the above is correct.