Questions: 1. For federal tax purposes, income attributable to the direct efforts of the taxpayer, such as salary, is classified as _____.
portfolio income
active income
passive income
None of the above
2. Which of the following would qualify as a 1031 exchange?
An ice cream maker for inventory of rocky road ice cream
Land for an office building
Office equipment for a common stock
All of the above
3. A business machine valued at $800 was contributed to a charitable organization during the year. The machine cost $1,000 but was depreciated down to $600 before the donation was made. Indicate the correct income tax treatment with respect to the donation.
Contribution of $600 (no income recognized)
Contribution of $1,000 (income of $200 recognized)
Contribution of $800 (income of $200 recognized)
Contribution of $800 (no income recognized)
4. Miscellaneous itemized deductions are deductible only _____.
to the extent that in aggregate, they exceed 2% of AGI
if the taxpayer takes the standard deduction
if they fall below the limit on standard itemized deductions
None of the above
5. If Jerry incurred $750 of business-related meal expenses during the year, how much can he deduct on his Schedule C?
None; it's a personal expense
$375
$750
$675
6. Adam sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Adam received $80,000 cash and a painting with a fair-market value of $20,000 from the buyer. The buyer also assumed Adam's $25,000 loan on the equipment. Adam paid $5,000 in selling expenses. What is the amount of Adam's gain on the sale?
$90,000
$125,000
$80,000
$70,000
7. In October of 2017, David and Betty Bennett sold their residence for $400,000. They purchased it in 2007 for $200,000. They made major capital improvements during their 10-year ownership, which totaled $80,000.
What is their recognized gain?
$200,000
$120,000
$400,000
$0
8. For 2017, Greg Hammer had a short-term capital loss of $4,000, a short-term capital gain of $1,900, a short-term capital loss carryover from 2016 of $700, a long-term capital gain of $800, and a long-term capital loss of $1,000. What is Greg's deductible loss in 2017?
$2,560
$2,800
$2,900
$3,000
9. The term practice before the IRS refers to _____.
tax planning for nonprofit organizations
macro-economic tax projections
representing a client before the IRS
tax planning for timber and forest investments
10. A nonbusiness bad debt is deductible for tax purposes as a(n) _____.
short-term capital loss
itemized deduction
long-term capital loss
ordinary business deduction
11. The art of using existing tax laws to pay the least amount of tax legally possible is known as _____.
tax evasion
tax avoidance
tax elusion
None of the above
12. Which of the following items is not subject to federal income tax?
The interest on California State bonds
Gambling winnings
A $5,000 birthday gift from a family member
Both the interest on California State bonds and the $5,000 birthday gift from a family member
13. Sam owes Bob $8,000. Bob cancels (forgives) the debt. The cancellation is not a gift, and Sam is neither insolvent nor bankrupt. Which of the following statements is correct concerning the impact of this transaction?
Both Bob and Sam recognize $8,000 of taxable income.
Bob recognizes $8,000 of taxable income.
Sam recognizes $8,000 of taxable income.
Neither Bob nor Sam has any taxable income from this transaction.
14. All of the following income items are includible in an employee's gross income except _____.
severance pay for the cancellation of employment
vacation allowance
worker's compensation payment
moving expense reimbursement
15. Job-seeking expenses are deductible if incurred by an individual who is presently employed and looking for work in the same trade or business _____.
only if the individual actually finds a new job
regardless of whether or not the individual finds a new job
if the expenses relate to the individual's first job
Both A and B
16. Terry is a sole proprietorship. He desires to be taxed as a corporation. What does he need to do?
Create a new entity
File Form 4562
Make an S election
File Form 8832
17. Debbie is a 50% owner in MAE Inc., an S corporation. MAE Inc. had the following results from operations in 2017: ordinary business income of $30,000, charitable contributions of $5,000, and long-term capital gain of $3,000. How much income should Debbie report on Schedule E?
$15,000
$30,000
$10,000
$13,000