Question1. The tax benefit received from a tax credit is affected by the tax rate of the taxpayer.
True
False
Question 2. If the shareholders of a calendar year C corporation elect S status on April 13, 2007, the election is effective for all of 2007.
True
False
Question3. Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.
True
False
Question4. In April 2007 Bertie, a calendar year cash basis taxpayer, had to pay the state of Michigan additional income tax for 2006. Even though it relates to 2006, for federal income tax purposes the payment qualifies as a tax deduction for tax year 2007.
True
False
Question 5. An eligible taxpayer may elect to receive advance payments of the earned income credit from his or her employer.
True
False
Question 6. Mindy paid an appraiser to determine how much a capital improvement made for medical reasons increased the value of her personal residence. The appraisal fee qualifies as a deductible medical expense.
True
False
Question 7. The education tax credits are not available to help defray the cost of higher education if the income level of the taxpayer exceeds certain thresholds.
True
False
Question 8. When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold, he may choose which lot of stock is deemed to be sold.
True
False
Question 9. bPartnerships are considered to be separate taxable entities and, consequently, do not avoid taxation at the entity level.
True
False
Question 10. bAn education expense deduction is not allowed if the education results in a promotion or pay raise for the employee.
True
False
Question 11. The § 179 deduction can exceed $112,000 in 2007 if the taxpayer had a § 179 amount that exceeded the taxable income limitation in the prior year.
True
False
Question 12. In computing the NOL of a corporation, the dividends received deduction can be claimed.
True
False
Question 13 A partner's basis in the partnership interest is decreased by his or her share of the tax-exempt income received by the partnership.
True
False
Question 14. Although partnerships are not subject to income tax, they are required to file income tax returns.
True
False
Question 15. Both education tax credits are available for qualified tuition expenses and, in certain instances, may also be available for room, board, and book costs.
True
False
Question 16. If Wal-Mart stock decreases in value during the tax year by $4,500, the amount realized is a negative $4,500.
True
False
Question 17. One indicia of independent contractor (rather than employee) status is when the individual performing the services is paid based on time spent (rather than tasks performed).
True
False
Question 18. Under the automatic mileage method, depreciation is not taken into account in the mileage rate allowed.
True
False
Question 19. Refundable credits are those that result in a payment to the taxpayer even when the amount of the credit (or credits) exceeds the taxpayer's tax liability.
True
False
Question 20. Personal use property that is subject to wear and tear is eligible for cost recovery.
True
False
Question 21. On May 30, 2007, Jane signed a 20-year lease on a building to use for her business. The lease begins on June 1, 2007. In August of 2007, Jane paid $100,000 for improvements to the building. Determine Jane's cost recovery for the improvements for 2007.
$0
$963
$1,391
$1,605
None of the above
Question 22. Roger is considering making a $3,000 investment in a venture that its promoter promises will generate immediate tax benefits for him. Roger, who does not anticipate itemizing his deductions, is in the 30% marginal income 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 Roger's tax liability decline because of the investment?
$0
$900
$1,100
$1,200
None of the above.
Question 23. On June 1 of the current year, Tab converted a machine to rental property. At the time of the conversion, the machine was worth $90,000. Five years ago Tab purchased the machine for $120,000. The machine is still encumbered by a $50,000 mortgage. What is the basis of the machine for cost recovery?
$70,000
$90,000
$120,000
$140,000
None of the above.
Question 24. Dan entertains several of his clients on January 1 of the current year. Expenses paid by Dan are as follows:
Cab fare
$ 60
Cover charge at supper club
150
Dinner at club
330
Tips to waiter
70
Presuming proper substantiation, what is Dan's deduction?
$230
$260
$305
$335
None of the above.
Question 25. Albert purchased a tract of land for $140,000 in 2003 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2007 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2007?
$40,000
$60,000
$80,000
$100,000
None of the above.
Question 26. On June 1, 2007, Irene places in service a new automobile that cost $21,000. The car is used 70% for business and 30% for personal use. (Assume this percentage is maintained for the life of the car.) Determine the cost recovery deduction for 2008.
$2,960
$3,290
$3,360
$6,720
None of the above
Question 27. Tom, unmarried, pays Heloise (a housekeeper) $4,900 to care for his physically incapacitated mother so that he can be gainfully employed. He has AGI of $40,000 and claims his mother as a dependent. Tom may claim a credit for child and dependent care expenses of:
$0
$660
$1,050
$1,078
None of the above
Question 28. Which of the following items would be an itemized deduction on Schedule A of Form 1040 subject to the 2% of AGI floor?
professional dues to membership organizations
work uniforms that cannot be used for normal wear
job-hunting costs
hobby losses up to the amount of hobby income
All of the above.
Question 29. Allison performs services for Lila. Which, if any, of the following factors would indicate that Allison is an employee (rather than an independent contractor)?
Allison provides her own helpers.
Allison files a Schedule SE with her Form 1040.
Allison acquired her job skills from the training provided by Lila.
Allison performs the services at her own location.
None of the above.
Question 30. Your friend Scotty informs you that he received a "tax-free" reimbursement in 2007 of some medical expenses he paid in 2006. Which of the following statements best explains why Scotty is NOT required to report the reimbursement in gross income?
Scotty itemized deductions in 2006.
Scotty did not itemize deductions in 2006.
Scotty itemized deductions in 2007.
Scotty did not itemize deductions in 2007.
Scotty itemized deductions in 2007 but not in 2006
Question 31. Hazel purchased a new business asset (five-year property) on November 30, 2007, at a cost of $100,000. This was the only asset acquired by Hazel during 2007. On January 7, 2008, Hazel placed the asset in service. She did not elect to expense any of the asset cost under § 179, nor did she elect straight-line cost recovery. On October 25, 2009, Hazel sold the asset. Determine the cost recovery for 2009.
$9,600
$16,000
$26,000
$38,000
None of the above.
Question 32. Which, if any, of the following correctly describes the earned income credit?
It would be available regardless of the amount of the taxpayer's adjusted gross income.
It is not available to a surviving spouse.
A taxpayer must have a qualifying child to take advantage of the credit.
It is a refundable credit.
None of the above.
Question 33. Kate sells property for $120,000. The buyer pays $2,000 in property taxes that had accrued during the year while the property was still legally owned by Kate. In addition, Kate pays $6,000 in commissions and $2,000 in legal fees in connection with the sale. How much does Kate realize from the sale of her property?
$112,000
$114,000
$116,000
$120,000
None of the above.
Question 34. Which, if any, of the following expenses are not subject to the 2%-of-AGI floor?
safety shoes purchased by a self-employed plumber
unreimbursed employee expenses
reimbursed employee expenses (taxpayer-employee does not render an adequate accounting to the employer)
tax return preparation fee paid by a nonemployed retiree
None of the above
Question 35. Katie sells her personal use automobile for $12,000. She purchased the car three years ago for $25,000. What is Katie's recognized gain or loss?
$0
$12,000
($13,000)
($25,000)
None of the above.