1. Dividend payments made by an insurance company that are based on an policy and that exceed the total amount of premiums paid by the insured are taxable to the insured.
a. True
b. False
2. On a business-related life insurance policy, if it is cashed out during the life of a terminally-ill or chronically-ill person, the amount is excluded from gross income.
a. True
b. False
3. Which of the following is false?
a. Taxability of the recovery of damages can be determined, in part, by identifying the nature of the injury.
b. An annuity is a contract that pays a fixed income at set regular intervals for a specific period of time.
c. Gross income includes amounts from the forgiveness of loans made by educational organizations to refinance existing student loans.
d. Insurance policy dividends used to purchase additional life insurance are not taxable to the policyowner.
e. all of the above are true.
4. On February 10, 2012, Rose was in an automobile accident while she was going to work. The doctor advised her to stay home for six months due to her injuries. On February 25, 2012, she files a lawsuit. On July 20, 2012, Rose returned to work. On December 15, 2012 the lawsuit was settled received the following amounts:
Compensation for lost wages
$25,000
Personal injury damages awarded (none of which was for punitive damages)
40,000
How much of the settlement must Rose include in ordinary income on her 2012 tax return?
a. $0
b. $25,000
c. $40,000
d. $65,000
5. All of the following would be excluded from income as a qualified scholarship by an individual who is a candidate for a degree at a qualified educational institution, except:
a.Tuition
b. Student fees
c. Course books
d. Room and board
6. To be deductible for tax purposes, trade or business expenses must be:
a. Ordinary and necessary
b. Reasonable in amount
c. Related to an activity which is deemed to be a trade or business
d. All of the above
7. Business depreciable property placed in service prior to what year is not eligible for ACRS depreciation?
a. 1978
b. 1980
c. 1981
d. 1982
8. A nonbusiness bad debt is deductible for tax purposes as a(n):
a. Short-term capital loss
b. Itemized deduction
c. Long-term capital loss
d. Ordinary business deduction
9. The IRS takes the position that a taxpayer's tax home, for purposes of determining travel expenses, is at the location of the taxpayer's:
a. Principal place of business
b. Personal residence
c. Principal place of business or personal residence, whichever results in a lower tax deduction
d. Personal residence if located in excess of 50 miles from principal place of business
10. If a taxpayer has two places of business in different areas, the IRS usually considers the following factors in determining the taxpayer's principal place of business: (Choose the wrong answer.)
a. Taxpayer's preference for principal place of business
b. Degree of business activity at each location
c. Amount of income at each location
d. Amount of time spent at each location