1. All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee). None of the employees has sufficient medical expenses to deduct the premiums. Instead of giving raises next year, United is considering paying the employee's hospitalization insurance premiums. If the change is made, the employee's after-tax and insurance pay will:
a. Increase more for the higher income (35% marginal tax bracket) employees.
b. Increase more for the lower paid employees (10% and 15% marginal tax bracket).
c. Decrease by the same amount for all employees.
d. Increase by the same amount for all employees.
e. None of these choices are correct.
2. Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays, when the number of players on the course is at its lowest. Tom, an employee of the country club played 40 rounds of golf during the year at no charge when the non-employee charge was $20 per round.
a. Tom is not required to include anything in gross income because this is a "no-additional-cost service" fringe benefit.
b. Tom is not required to include the $800 in gross income because the use of the course was a gift.
c. Tom is not required to include anything in gross income because it is a de minimis fringe benefit.
d. Tom must include $800 in gross income.
e. None of these choices are correct.
3. Tonya is a cash basis taxpayer. In 2017, she paid state income taxes of $8,000. In early 2018, she filed her 2017 state income tax return and received a $900 refund.
a. If Tonya itemized her deductions in 2017 on her Federal income tax return, she should amend her 2017 return and reduce her itemized deductions by $900.
b. If Tonya itemized her deductions in 2017 on her Federal income tax return, she must amend her 2017 Federal income tax return and use the standard deduction.
c. If Tonya itemized her deductions in 2017 on her Federal income tax return and her itemized deductions exceeded the standard deduction by more than $900, she must recognize $900 income in 2018 under the tax benefit rule.
d. If Tonya itemized her deductions in 2017 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $900, the refund will not affect her 2018 tax return.
e. None of these choices are correct.
4. Which of the following is a required test for the deduction of a business expense?
a. Ordinary
b. Necessary
c. Reasonable
d. All of these choices are correct.
e. None of these choices are correct.
5. John files a return as a single taxpayer. In 2017, he had the following items:
· Salary of $40,000.
· Loss of $65,000 on the sale of § 1244 stock acquired two years ago.
· Interest income of $6,000.
Determine John's AGI for 2017.
a. ($5,000).
b. $51,000.
c. $0.
d. $45,000.
e. None of these choices are correct.