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Which tax-related website probably gives the best policy-orientation results?
a. taxalmanac.org.
b. irs.gov.
c. taxsites.com.
d. taxanalysts.com.
e. ustaxcourt.gov.
   
Which court decision would probably carry more weight?
a. Regular U.S. Tax Court decision
b. Reviewed U.S. Tax Court decision
c. U.S. District Court decision
d. Tax Court Memorandum decision
e. U.S. Court of Federal Claims
   
Which Regulations have the force and effect of law?
a. Procedural Regulations
b. Finalized Regulations
c. Legislative Regulations
d. Interpretive Regulations
e. All of these
   
Which items tell taxpayers the IRS's reaction to certain court decisions?
a. Notices
b. Revenue Procedures
c. Revenue Rulings
d. Actions on Decisions
e. Legislative Regulations
   
Which court decision carries more weight?
a. Federal District Court
b. Second Circuit Court of Appeals
c. U.S. Tax Court decision
d. Small Cases Division of U.S. Tax Court
e. U.S. Court of Federal Claims
   
Which company does not publish citators for tax purposes?
a. John Wiley & Sons
b. Commerce Clearing House
c. Research Institute of America
d. Westlaw
e. Shepard's
   
Which is not a primary source of tax law?
a. Notice 89-99, 1989-2 C.B. 422.
b. Estate of Harry Holmes v. Comm., 326 U.S. 480 (1946).
c. Rev. Rul. 79-353, 1979-2 C.B. 325.
d. Prop. Reg. § 1.7524T(f).
e. All of these are primary sources.
   
Which statement is incorrect with respect to taxation on the CPA exam?
a. The CPA exam now has only four parts.
b. There are no longer case studies on the exam.
c. A candidate may not go back after exiting a testlet.
d. Simulations include a four-function pop-up calculator.
e. None of these are incorrect.
   
In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?
a. In arriving at taxable income, a taxpayer must choose between the standard deduction and deductions from AGI.
b. In arriving at AGI, personal and dependency exemptions must be subtracted from gross income.
c. In arriving at taxable income, a taxpayer must choose between the standard exemptions.
d. The formula does not apply if a taxpayer elects to claim the standard deduction.
e. None of these.
   
In terms of the tax formula applicable to individual taxpayers, which, if any, of the following statements is correct?
a. In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
b. In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
c. If a taxpayer has deductions for AGI, the standard deduction is not available.
d. In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction.
e. None of these.
   
Regarding the tax formula and its relationship to Form 1040, which,
if any, of the following statements is correct?
a. Most exclusions from gross income are reported on page 2 of Form 1040.
b. An "above the line deduction" refers to a deduction from AGI.
c. A "page 1 deduction" refers to a deduction for AGI.
d. The taxable income (TI) amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040.
e. None of these.
   
Which of the following items, if any, is deductible?
a. Parking expenses incurred in connection with jury duty—taxpayer is a dentist.
b. Substantiated gambling losses (not in excess of gambling winnings) from state lottery.
c. Contributions to mayor's reelection campaign.
d. Speeding ticket incurred while on business.
e. Premiums paid on personal life insurance policy.
   
Which, if any, of the following is a deduction for AGI?
a. Contributions to a traditional Individual Retirement Account.
b. Child support payments.
c. Funeral expenses.
d. Loss on the sale of a personal residence.
e. Medical expenses.
   
Which, if any, of the following is a deduction for AGI?
a. State and local sales taxes
b. Interest on home mortgage
c. Charitable contributions
d. Unreimbursed moving expenses of an employee
e. None of these
   
Which, if any, of the statements regarding the standard deduction is correct?
a. Some taxpayers may qualify for two types of standard deductions.
b. Not available to taxpayers who choose to deduct their personal and dependency exemptions.
c. May be taken as a for AGI deduction.
d. The basic standard deduction is indexed for inflation but the additional standard deduction is not.
e. None of these.
   
Which, if any, of the following statements relating to the standard deduction is correct?
a. If a taxpayer dies during the year, his (or her) standard deduction must be prorated.
b. If a taxpayer is claimed as a dependent of another, his (or her) additional standard deduction is allowed in full (i.e., no adjustment is necessary).
c. If spouses file separate returns, both spouses must claim the standard deduction (rather than itemize their deductions from AGI).
d. If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.
e. None of these.
   
During 2014, Marvin had the following transactions:
Salary $50,000
Bank loan (proceeds used to buy personal auto) 10,000
Alimony paid 12,000
Child support paid 6,000
Gift from aunt 20,000
Marvin's AGI is:
a. $32,000.
b. $38,000.
c. $44,000.
d. $56,000.
e. $64,000.
   
During 2014, Esther had the following transactions:
 
Salary $70,000
Interest income on Xerox bonds 2,000
Inheritance from uncle 40,000
Contribution to traditional IRA 5,500
Capital losses 2,500
 
Esther's AGI is:
 
a. $62,000.
b. $64,000.
c. $67,000.
d. $102,000.
e. $104,000.
   
In 2014, Cindy had the following transactions:
 
Salary                                                                                                                                    $90,000
Short-term capital gain from a stock investment                                                4,000
Moving expense to change jobs                                                                                 (11,000)
Received repayment of $20,000 loan she made to her sister in 2010
(includes no interest)                                                                                                     20,000
State income taxes                                                                                                          (5,000)
 
Cindy's AGI is:
 
a. $114,000.
b. $103,000.
c. $98,000.
d. $94,000.
e. $83,000.
   
Sylvia, age 17, is claimed by her parents as a dependent. During 2014, she had interest income
from a bank savings account of $2,000 and income from a parttime job of $4,200.
Sylvia's taxable income is:
a. $4,200 - $4,550 = $0.
b. $6,200 - $5,700 = $500.
c. $6,200 - $4,550 = $1,650.
d. $6,200 - $1,000 = $5,200.
e. None of these.
c
 
Tony, age 15, is claimed as a dependent by his grandmother. During 2014, Tony had interest
income from Boeing Corporation bonds of $1,000 and earnings from a parttime job of $700.
Tony's taxable income is:
a. $1,700.
b. $1,700 - $700 - $1,000 = $0.
c. $1,700 - $1,050 = $650.
d. $1,700 - $1,000 = $700.
e. None of these.
c
 
Merle is a widow, age 80 and blind, who is claimed as a dependent by her son. During 2014,
she received $4,800 in Social Security benefits, $2,500 in bank interest, and $1,800 in cash dividends
from stocks. Merle's taxable income is:
a. $4,300 - $1,000 - $3,100 = $200.
b. $4,300 - $3,100 = $1,200.
c. $4,300 - $1,000 - $1,550 = $1,750.
d. $9,100 - $1,000 - $3,100 = $5,000.
e. None of these.
a
 
Wilma, age 70 and single, is claimed as a dependent on her daughter's tax return. During 2014,
she had interest income of $2,500 and $800 of earned income from babysitting. Wilma's taxable income is:
a. $750.
b. $900.
c. $1,750.
d. $2,200.
e. None of these.
   
Kyle and Liza are married and under 65 years of age. During 2014, they
furnish more than half of the support of their 19-year old daughter, May, who
lives with them. She graduated from high school in May 2013. May earns $15,000
from a part-time job, most of which she sets aside for future college expenses.
Kyle and Liza also provide more than half of the support of Kyle's cousin who
lives with them. Liza's father, who died on January 3, 2014, at age 90, has for
many years qualified as their dependent.
How many personal and dependency exemptions should Kyle and Liza claim?
a. Two
b. Three
c. Four
d. Five
e. None of these
   
Evan and Eileen Carter are husband and wife and file a joint return for 2014.
 Both are under 65 years of age. They provide more than half of the support of their daughter,
Pamela (age 25), who is a full-time medical student. Pamela receives a $5,000 scholarship
covering her tuition at college. They furnish all of the support of Belinda (Evan's grandmother),
who is age 80 and lives in a nursing home. They also support Peggy (age 66), who is a friend
of the family and lives with them. How many dependency exemptions may the Carters claim?
a. Two
b. Three
c. Four
d. Five
e. None of these
   
A loss from a passive activity is fully deductible as long as the taxpayer has sufficient tax basis in the activity.
False
   
Two advantages of investing in capital assets are (1) gains are
generally deferred and (2) gains are generally taxed at preferential rates.
True
   
Dividend income and interest income are both taxed at preferential
capital gains rates.
False
   
Qualified dividends are always taxed at a 15 percent preferential rate.
False
   
Unrecaptured §1250 gain is taxed at the 28 percent preferential capital gains rate.
False
 
A maximum rate of 25% is assessed on unrecaptured $1250 gain.
   
Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined
contribution plans specify the amounts that employers and employees will (or can) contribute to an employee's plan.
True
   
Darren is eligible to contribute to a traditional 401(k) in 2019. He forgot to contribute before year-end.
If he contributes before April 15, 2020, he is allowed to treat the contribution as though he made it during 2019.
True
   
Qualified distributions from traditional IRAs are nontaxable while qualified distributions from Roth IRAs are fully taxable as ordinary income.
False
   
A taxpayer can only receive a saver's credit if she contributes to a qualified retirement account.
True
   
High-income taxpayers are not allowed to receive the saver's credit.
True
   
Losses associated with personal-use assets, sales to related parties, and wash sales are not currently deductible.
True
   
Distributions from defined benefit plans are taxed as long-term capital gains to beneficiaries.
False
   
Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401(k)
accounts than employees who are not 50 years old by year-end.
True
   
Employee contributions to traditional 401(k) accounts are deductible by the employee, but employee contributions
to Roth 401(k) accounts are not.
True
   
An employer may contribute to an employee's traditional 401(k) account, but the employer may not contribute to
an employee's Roth 401(k) account.
True
   
When an employer matches an employee's contribution to the employee's 401(k) account, the employee
is immediately taxed on the amount of the employer's matching contribution.
False
   
Taxpayers withdrawing funds from an IRA before they turn 59 ½ are generally subject to a 10 percent
penalty on the amount of the withdrawal.
True
   
Heidi retired from GE (her employer) at age 56. At the end of the year, when she was 56 years of age, Heidi received a
distribution from her GE sponsored 401(k) account. Because Heidi was not at least 59½ years of age at the time of the
distribution, she must pay tax on the full amount of the distribution and a 10 percent penalty on the full amount of the distribution.
False
   
On December 1, 2019 Irene turned 71 years old. She is still working for her employer and she participates in her employer's
401(k) plan. Irene is not required to receive a minimum distribution for 2019 from her 401(k) account because she has not yet retired.
True
   
From a tax perspective, participating in a nonqualified deferred compensation plan is an effective tax planning strategy
when the employee anticipates that her marginal tax rate will be higher when she receives the deferred compensation
than when she defers the compensation.
False
   
Participating in an employer-sponsored nonqualified deferred compensation plan is potentially risky because
employers are not required to fund nonqualified plans. If the employer is not able to pay the employee when
the payment is due, the employee usually becomes an unsecured creditor of the employer.
True
   
Just like distributions from qualified retirement plans, distributions from nonqualified deferred compensation plans are
taxed as ordinary income to the recipient.
True
   
Taxpayers who participate in an employer-sponsored retirement plan are not allowed to contribute to individual
retirement accounts (IRAs).
False
   
Taxpayers who participate in an employer-sponsored retirement plan are not allowed to deduct contributions to
individual retirement accounts (IRAs) under any circumstances.
False
   
Capital loss carryovers for individuals are carried forward indefinitely.
True
   
Dave and Jane file a joint return. They sell a capital asset at a $150,000 loss. Even though they have no capital gains,
$6,000 of the loss can still be deducted in the current year.
False
   
Investment interest expense is a for AGI deduction.
False
   
The investment interest expense deduction is limited to the amount of investment income for the year.
True
   
Taxpayers may make an election to include preferentially-taxed capital gains and qualified dividends in investment
income and deduct more investment interest expense currently if they are willing to subject this income to ordinary tax rates.
True
   
When a taxpayer receives a nonqualified distribution from a Roth 401(k) account, the taxpayer contributions are
deemed to be distributed first. If the amount of the distribution exceeds the taxpayer contributions,
the remainder is from the account earnings.
False
   
Employers may choose whom they allow to participate and whom they do not allow to participate in their
nonqualified deferred compensation plans.
True
   
Passive losses that exceed passive income are deferred until the taxpayer generates passive income to offset
these passive losses or until the taxpayer disposes of that activity.
True
   
One primary difference between corporate and U.S. Treasury bonds is:
A. Treasury bonds always pay interest periodically.
B. Corporate bonds always pay interest periodically.
C. Interest from Treasury bonds is exempt from federal taxation.
D. Interest from corporate bonds is exempt from state taxation.
E. None of the choices are correct.
   
Which of the following is not a tax advantage of a Series EE Saving Bond?
A) Taxes are paid as the original issue discount on the bond is amortized.
B) Interest earned is exempt from state taxation.
C) Taxes are deferred until the bond is cashed in at maturity.
D) Interest is exempt from federal taxation when used for qualifying educational expenses.
E) None of the choices are correct.
   
When a bond is purchased in the secondary bond market at a discount, the amount of discount treated
as interest income when the bond is sold prior to maturity is the:
A) market premium.
B) market discount.
C) accrued market premium.
D) accrued market discount.
E) None of the choices are correct.
   
Which of the following types of interest income is not taxed as it is earned?
A. Interest from savings accounts.
B. Original issue discounts on corporate bonds.
C. Accrued market discount on bonds.
D. Interest from money market accounts.
E. All of the choices are correct.
   
When selling stocks, which method of calculating basis provides the greatest opportunity for minimizing
gains or increasing losses?
A) LIFO.
B) FIFO.
C) Weighted average.
D) Specific identification.
E) None of the choices are correct.
   
Long-term capital gains (depending on type) for individual taxpayers can be taxed at a maximum rate of:
A) 20 percent.
B) 25 percent.
C) 28 percent.
D) Both 20 percent and 28 percent.
E) All of the choices are correct.
   
In 2019, Erin had the following capital gains (losses) from the sale of her investments:
$2,000 LTCG, $25,000 STCG, ($9,000) LTCL, and ($15,000) STCL.
What is the amount and nature of Erin's capital gains and losses?
A) $3,000 net short-term capital gain.
B) $3,000 net long-term capital loss.
C) $4,000 net short-term capital gain.
D) $4,000 net long-term capital loss.
E) None of the choices are correct.
 
2,000 - 9,000 = 7,000
25,000 - 15,000 = 10,000
10,000 - 7,000 = 3,000
   
When the wash sale rules apply, the realized loss is:
A) recognized at time of sale.
B) not recognized at time of sale and does not affect basis of newly acquired stock.
C) recognized at time of sale and added to basis of the newly acquired stock.
D) not recognized at time of sale and added to basis of the newly acquired stock.
E) not recognized at time of sale and subtracted from the basis of the newly acquired stock.
   
Ms. Fresh bought 1,000 shares of Ibis Corporation stock for $5,000 on January 15, 2017. On
December 31, 2019 she sold all 1,000 shares of her Ibis stock for $4,500. Based on a hot tip
from her friend, she bought 1,000 shares of Ibis stock on January 23, 2020 for $3,000.
What is Ms. Fresh's recognized loss on her 2019 sale and what is her basis in her 1,000 shares purchased in 2020?
A) $-0- LTCL and $3,500 basis.
B) $200 LTCL and $3,300 basis.
C) $300 LTCL and $3,200 basis.
D) $400 LTCL and $3,100 basis.
E) $500 LTCL and $3,000 basis.
 
5,000 - 4,5000 = 500        *3,000 is given
   
Kevin bought 200 shares of Intel stock on January 1, 2019 for $50 per share with a brokerage fee of $100.
Then, Kevin sells all 200 shares for $75 per share on December 12, 2019. The brokerage fee on the sale was $150.
What is the amount of the gain/loss Kevin must report on his 2019 tax return?
A) $4,500.
B) $4,750.
C) $5,000.
D) $5,250.
E) None of the choices are correct.
 
200 × 75 − 150 = 14,850
200 × 50 + 100 = 10,100
14,850 - 10,100 = 4,750
   
Investment income includes:
A) interest income.
B) net short-term capital gains.
C) non-qualified dividends.
D) royalty income.
E) All of the choices are correct.
   
Investment interest expense does not include:
A) interest expense from loans to purchase municipal bonds.
B) interest expense from loans to purchase corporate bonds.
C) interest expense from loans to purchase stocks.
D) interest expense from loans to purchase corporate bonds.
E) interest expense from loans to purchase stocks.
Expenses incurred to produce tax-exempt income are not deductible.
   
Unused investment interest expense:
A) expires after the current year.
B) is carried back two years.
C) is carried forward twenty years.
D) is carried forward indefinitely.
E) None of the choices are correct.
   
Doug and Sue Click file a joint tax return and decide to itemize their deductions. The Click's income for the
year consists of $90,000 in salary, $2,000 interest income, $800 long-term capital loss. The Click's expenses
for the year consist of $1,500 investment interest expense. Assuming that the Click's marginal tax rate is 35
percent, what is the amount of their investment interest expense deduction for the year?
A) $1,200.
B) $1,500.
C) $2,000.
D) $2,300.
E) None of the choices are correct.
   
Brandon and Jane Forte file a joint tax return and decide to itemize their deductions. The Forte's income for the
year consists of $120,000 in salary, $1,000 interest income, $1,500 nonqualifying dividends, and $1,100 long-term
capital gains. The Forte's expenses for the year consist of $3,000 investment interest expense and $900 tax preparation
fees. Assuming that the Forte's marginal tax rate is 30% and they make no special elections, what is the amount of investment
interest expense deduction for the year?
A) Zero.
B) $1,000.
C) $2,500.
D) $3,000.
E) None of the choices are correct.
 
1,000 + 1,500 = 2,500
   
Assume that Joe (single) has a marginal tax rate of 37 percent and decides to make the election to include preferentially-taxed
capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?
A) 20%
B) 25%
C) 28%
D) 37%
E) None of the choices are correct.
   
Bob Brain files a single tax return and decides to itemize his deductions. Bob's income for the year consists of
$75,000 of salary, $3,000 long-term capital gain, and $1,500 interest income. Bob's expenses for the year consists
of $800 investment advice fees and $250 tax return preparation fees. What is Bob's investment expense deduction?
A) Zero.
B) $800.
C) $250.
D) $1,050.
E) None of the choices are correct.
 
Investment expenses are not deductible.
   
Alain Mire files a single tax return and has adjusted gross income of $304,000. His net investment income is
$53,000. What is the additional tax that Alain will pay on his net investment income for the year?
A) Zero.
B) $2,014.
C) $3,952.
D) $1,938.
E) None of the choices are correct.
 
Net Investment Income Tax (NIIT) is 3.8%
53,000 × 0.038 = 2,014
   
What is the correct order of the loss limitation rules?
A) Tax basis, at-risk amount, passive loss limits.
B) At-risk amount, tax basis, passive loss limits.
C) Passive loss limits, at-risk amount, tax basis.
D) Tax basis, passive loss limits, at-risk amount.
E) Passive loss limits, tax basis, at-risk amount.
   
A taxpayer's at-risk amount in an activity is increased by:
A) a reduction in the amount of debt related to the activity that the taxpayer is responsible for paying.
B) cash contributions to the activity.
C) cash distributions from the activity.
D) a reduction in the amount of debt related to the activity and cash contributions to the activity.
E) a reduction in the amount of debt related cash distributions from the activity.
   
Generally, which of the following does not correctly categorize the type of income?
A) Rental real estate − passive income/loss.
B) Salary − active income/loss.
C) Dividends − portfolio income/loss.
D) Capital losses − passive income/loss.
E) All of the choices are correct.
   
Which taxpayer would not be considered a material participant of an activity?
A) Taxpayer materially participated in the activity for any five of the preceding ten years.
B) Taxpayer participated on a regular, continuous, and substantial basis last year.
C) Taxpayer participated 95 hours last year and participation is not less than any other participants for the year.
D) Taxpayer participated in the activity for 995 hours last year.
E) None of the choices are correct.
   
On the sale of a passive activity, any suspended losses cannot be used to offset income from:
A) active business income.
B) capital gains.
C) interest income.
D) wages and tips.
E) None of the choices are correct.
   
Which of the following describes a defined benefit plan?
A. Provides fixed income to the plan participants based on a formula.
B. Distribution amounts determined by employee and employer contributions
C. Allows executives to defer income for a period of years.
D. Retirement account set up by an individual.
   
Which of the following statements regarding defined benefit plans is False?
A. The benefits are based on a fixed formula.
B. The vesting period can be based on a graded or cliff schedule.
C. Employees bear the investment risks of the plan.
D. Employers are generally required to make annual contributions to meet expected future liabilities.
   
Dean has earned $70,000 annually for the past five years working as an architect for WCC Inc.
Under WCC's defined benefit plan (which uses a 7-year graded vesting schedule) employees earn
a benefit equal to 3.5% of the average of their three highest annual salaries for every full year of
service with WCC. Dean has worked for five full years for WCC and his vesting percentage is 60%.
What is Dean's vested benefit (or annual retirement benefit he has earned so far)?
A. $12,250.
B. $42,000.
C. $7,350.
D. $0.
 
70,000 × 17.5% (3.5% × 5) × 60%
   
Dean has earned $70,000 annually for the past 4½ years working as an architect for MWC.
Under MWC's defined benefit plan (which uses a 5-year cliff vesting schedule) employees earn
a benefit equal to 3.5% of the average of their three highest annual salaries for every full year of
service with MWC. What is Dean's vested benefit (or annual benefit he has earned so far)?
A. $12,250.
B. $42,000.
C. $7,350.
D. $0.
   
Which of the following best describes distributions from a defined benefit plan?
A. Distributions from defined benefit plans are taxable as ordinary income.
B. Distributions from defined benefit plans are partially taxable as
ordinary income and partially nontaxable as a return of capital.
C. Distributions from defined benefit plans are taxable as capital gains.
D. Distributions from defined benefit as a return of capital.
   
Which of the following statements regarding defined contribution plans is False?
A. Employers bear investment risk relating to the plan.
B. Employees immediately vest in their contributions to the plan.
C. Employers typically match employee contributions to the plan to some extent.
D. An employer's vesting schedule is used for employers' benefits the employee is entitled to receive on retirement.
Employees, not employers, bear the investment risk associated with the plan.
   
Which of the following statements regarding contributions to defined contribution plans is True?
A. Employer contributions to a defined contribution plan are not limited by the tax law.
B. Employee contributions to a defined contribution plan are not limited by the tax law.
C. An employee who is at least 60 years of age who has not reached age 60 by year-end.
D. The tax laws limit the sum of the employer and employee contributions to a defined contribution plan.
   
When employees contribute to a traditional 401(k) plan, they ________ allowed to deduct the
contributions and they ________ taxed on distributions from the plan.
A. are; are not
B. are; are
C. are not; are
D. are not; are not
Contributions to a traditional 401(k) plan are deductible and distributions from the plan are fully taxable.
   
When employees contribute to a Roth 401(k) account, they ________ allowed to deduct the contributions
and they ________ taxed on distributions from the plan.
A. are; are not
B. are; are
C. are not; are
D. are not; are not
Employees do not deduct contributions to Roth 401(k) accounts and they are not taxed on distributions from the plans.
   
Which of the following statements describes how a traditional 401(k) account is similar to a Roth 401(k) account?
A. Employees contribute before-tax dollars to both types of accounts.
B. Distributions from a traditional 401(k) account and a Roth 401(k) account are both subject to minimum distribution penalties.
C. Both accounts can receive matching contributions from employers.
D. Employers generally choose how funds in these accounts will be invested.
Both traditional and Roth 401(k)s are subject to minimum distribution penalties.
   
Which of the following best describes distributions from a traditional defined contribution plan?
A. Distributions from defined contribution plans are fully taxable to the recipient as ordinary income.
B. Distributions from defined contribution plans return of capital.
C. Distributions from defined contribution plans are fully taxable to the recipient as long-term capital gains.
D. Distributions from defined contribution plans as a return of capital.
   
Shauna received a $100,000 distribution from her 401(k) account this
year. Assuming Shauna's marginal tax rate is 25%, what is the total
amount of tax and penalty Shauna will be required to pay if she receives
the distribution on her 59th birthday and she has not yet retired?
A. $0.
B. $10,000.
C. $25,000.
D. $35,000.
E. None of the choices are correct.
   
Riley participates in his employer's 401(k) plan. He turns 70 years of
age on February 15, 2017 and he plans on retiring on July 1, 2019. When
must Riley receive his first distribution from the plan to avoid minimum
distribution penalties?
A. By April 1, 2017.
B. By April 1, 2018.
C. By April 1, 2019.
D. By April 1, 2020.
   
Riley participates in his employer's 401(k) plan. He turns 69 years of
age on February 15, 2018, and he plans on retiring on July 1, 2018. When
must Riley receive his first distribution from the plan to avoid minimum
distribution penalties?
A. By April 1, 2018.
B. By April 1, 2019.
C. By April 1, 2020.
D. By April 1, 2021.
   
Which of the following statements regarding Roth 401(k) accounts is False?
A. Employees can make contributions to a Roth 401(k).
B. Employers can make contributions to Roth accounts on behalf of their employees.
C. Contributions to Roth 401(k) plans are not deductible.
D. Qualified distributions from Roth 401(k) plans are not taxable.
   
Heidi, age 45, has contributed $20,000 in total to her Roth 401(k) account over a six-year period.
When her account was worth $50,000 and Heidi was in desperate need of cash, Heidi received a $30,000 nonqualified
distribution from the account. How much of the distribution will be subject to income tax and 10% penalty?
A. $0.
B. $10,000.
C. $12,000.
D. $18,000.
E. $30,000.
   
Which of the following is True concerning employer funding of nonqualified deferred compensation plans?
A. Employers are required to invest salary deferred by employees in investments specified by the employees.
B. Employers are required to annually fund their deferred compensation obligations to employees.
C. Employers annually deduct the amount earned by employees under the plan.
D. Employers may discriminate in terms of who they allow to participate in the plan.
   
Which of the following statements concerning nonqualified deferred compensation plans is True?
A. If an employer doesn't have the funds to pay the employee, the employee becomes an unsecured creditor of the employer.
B. These plans can be an important tax planning tool for employers if they expect their marginal tax rate to decrease over time.
C. These plans can be an important tax planning tool for employees who expect their marginal tax rate to increase over time.
D. Distributions are taxed at the same tax rate as long-term capital gains.
   
Which of the following statements concerning traditional IRAs and Roth IRAs is True?
A. A taxpayer is not allowed to contribute to a traditional IRA after reaching 70½ years of age.
B. The annual contribution limits for a traditional IRA and Roth IRA are the same.
C. Taxpayers with high income are allowed to contribute to traditional IRAs but not to Roth IRAs.
D. All of the choices are True.
   
Which of the following statements regarding Roth IRAs distributions is True?
A. A distribution is not a qualified distribution unless the distribution is at least two years after the taxpayer has opened the Roth IRA.
B. A taxpayer receiving a distribution from a Roth IRA before reaching the age of 55 is generally not subject to an early distribution penalty.
C. A Roth IRA does not have minimum distribution requirements.
D. The full amount of all nonqualified distributions is subject to tax at the taxpayer's marginal tax rate.
A Roth IRA does not have minimum distribution requirements.
A nonqualified distribution is not subject to tax to the extent it is from the taxpayer's contributions to the account.
   
During 2019, Jacob, a 19 year old full-time student, earned $4,500 during the year and was not eligible to
participate in an employer-sponsored retirement plan. The general limit for deductible contributions to an
IRA during 2019 is $5,500. How much of a tax-deductible contribution can Jacob make to an IRA?
A. $0 (Full-time students are not allowed to participate in IRAs).
B. $500.
C. $4,500.
D. $6,000.
Explanation: Tax deductible contributions are limited to the lesser of $6,000 or the amount of earned income.
   
Jessica retired at age 65. On the date of her retirement, the balance in her traditional IRA was $200,000. Over the
years, Jessica had made $20,000 of nondeductible contributions and $60,000 of deductible contributions to the account.
If Jessica receives a $50,000 distribution from the IRA on the date of retirement, what amount of the distribution is taxable?
A. $0.
B. $5,000.
C. $37,500.
D. $45,000.
E. $50,000.
 
10% of the distribution is not taxable ($20,000 nondeductible contributions divided by balance in account of $200,000).
Taxable portion is 90% so taxable amount is $45,000 ($50,000 × 90%).
   
Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses
(which were claimed as itemized deductions on his tax return), he received a $20,000 distribution from his
traditional IRA (he has only made deductible contributions to the IRA). Assuming his marginal ordinary income
tax rate is 15%, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?
A. $3,000 income tax; $2,000 early distribution penalty.
B. $3,000 income tax; $0 early distribution penalty.
C. $0 income tax; $2,000 early distribution penalty.
D. $0 income tax; $0 early distribution penalty.
   
Daniela retired at the age of 65. The current balance in her Roth IRA is $200,000. Daniela established the Roth
IRA 10 years ago. Through a rollover and annual contributions Daniela has contributed $80,000 to her account.
If Daniela receives a $50,000 distribution from the Roth IRA, what amount of the distribution is taxable?
A. $0.
B. $20,000.
C. $30,000
   
Lisa, age 45, needed some cash so she withdrew $50,000 from her Roth IRA. At the time of the distribution, the
balance in the Roth IRA was $200,000. Lisa established the Roth IRA 10 years ago. Over the years, she has contributed
$20,000 to her account. What amount of the distribution is taxable and subject to early distribution penalty?
A. $0.
B. $5,000.
C. $30,000.
D. $50,000.
   
In general, which of the following statements regarding self-employed retirement accounts is True?
A. In general, SEP IRAs have higher contribution limits than individual 401(k)s if the contributing taxpayer is at least 50 years of age at year end.
B. In general, SEP IRAs have higher contribution limits than individual 401(k)s no matter the age of the contributing taxpayer.
C. In general, Individual 401(k)s have higher contribution limits than SEP IRAs.
D. None of the choices are True. In general, both SEP IRAs and individual 401(k)s have exactly the same annual contribution limits.
   
Which of the following statements regarding self-employed retirement accounts is True?
A. A self-employed taxpayer who has hired employees may not set up a SEP IRA.
B. A self-employed taxpayer who has hired employees may set up either a SEP IRA or an individual 401(k).
C. A self-employed taxpayer who has hired employees may not set up an individual 401(k).
D. All of the choices are False.
   
Which of the following is True concerning SEP IRAs?
A. SEP IRAs are difficult to set up and have high administrative costs.
B. Taxpayers may contribute unlimited amounts to SEP IRAs.
C. Employees of the taxpayer cannot be included in SEP IRAs.
D. Taxpayers with a SEP IRA must contribute for their employees.
   
Which of the following taxpayers is most likely to qualify for the saver's credit?
A. A low AGI taxpayer who does not contribute to any qualified retirement plan.
B. A low AGI taxpayer who contributes to her employer's 401(k) plan.
C. A high AGI self-employed taxpayer.
D. A high AGI employee who does not contribute to any qualified retirement plan.
   
Amy is single. During 2019, she determined her adjusted gross income was $12,000. During the year, Amy
also contributed $2,500 to a Roth IRA. What is the maximum saver's credit she may claim for the year?
A. $1,250.
B. $2,500.
C. $1,000.
D. $0.
   
Which of the following is not a goal of the tax law?
a. Encouraging certain social goals such as contributions to charity.
b. Encouraging certain economic goals such as a thriving business community.
c. Encouraging smaller families.
d. Raising revenue to operate the government.
e. None of the above are goals of the tax law.
   
Which one of the following provisions was passed by Congress to meet a social goal of the tax law?
a. The deduction for job hunting expenses.
b. The charitable deduction.
c. The moving expense deduction for adjusted gross income.
d. The deduction for soil and water conservation costs available to farmers.
e. None of the above.
   
Wesley owns and operates the Cheshire Chicken Ranch in Turpid, Nevada. The income from this ranch is
$49,000. Wesley wishes to use the easiest possible tax form. He may file:
a. Form 1040EZ
b. Form 1040A
c. Form 1040
d. Form 1065
e. None of the above
   
When electing to include preferentially-taxed capital gains and qualified dividends in net investment income,
taxpayers must include all preferentially-taxed capital gains and qualified dividends recognized for that year.
False
   
A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.
True
   
To qualify under the passive activity rental real estate exception, the taxpayer must (1) own at least 15 percent
of the property and (2) participate in the process of making management decisions.
False
   
A married couple filing a joint tax return is eligible to exclude up to $500,000 of gain realized on the sale of a
personal residence if both spouses meet the ownership test and at least one spouse meets the use test.
False
   
The ownership test for excluding gain on the sale of a principal residence requires the taxpayer to have owned
the property for three or more years during the five year period ending on the date of sale.
False
   
For determining whether a taxpayer qualifies to exclude gain on the sale of a principal residence, the periods
of ownership and use need not be continuous nor do they need to cover the same two-year period.
True
   
To be allowed to exclude gain on the sale of a principal residence, the taxpayer selling the home must be
using the home as a principal residence at the time of the sale.
False
   
A taxpayer can qualify for the home sale exclusion even if she has moved out of the home and is renting
the home to another at the time of the sale.
True
   
A taxpayer who otherwise meets the ownership and use tests may not be allowed to exclude all of her realized
gain if the taxpayer has nonqualified use of the home before selling.
True
   
A taxpayer who sells a principal residence that has been used as a rental property after 2005 will not be allowed
to exclude the portion of the gain attributable to depreciation even if the taxpayer meets the ownership and use
tests and the gain realized on the sale is lower than the maximum exclusion amount.
True
   
Under the tax law, a taxpayer's itemized deduction for home mortgage interest in any one particular year is limited to $10,000.
False
   
Taxpayers with high AGI are not allowed to deduct home mortgage interest expense.
False
   
A taxpayer who rents out a home for at least one day and does not use a home for personal purposes for at least 15 days
during the year is ineligible to deduct any home mortgage interest expense on a loan secured by the home.
True
   
A corporation is a reporting entity but not a tax-paying entity.
False
   
Partnership capital gains and losses are allocated separately to each of the partners.
True
   
An item is not included in gross income unless the tax law specifies that the item is subject to taxation.
False
   
Married taxpayers may double their standard deduction amount by filing separate returns.
False
   
For taxpayers who do not itemize deductions, the standard deduction amount is subtracted from
the taxpayer's adjusted gross income.
True
   
A taxpayer with self-employment income of $600 must file a tax return.
True
   
A dependent child with earned income in excess of the available standard
deduction amount must file a tax return.
True
   
A single taxpayer, who is not a dependent on another's return, not blind
and under age 65, with income of $8,750 must file a tax return.
False
 
If a taxpayer is due a refund, it will be mailed to the taxpayer
regardless of whether he or she files a tax return.
False
   
Taxpayers with self-employment income of $400 or more must file a tax
return.
True
   
If your spouse dies during the tax year and you do not remarry, you must file as single for the year of death.
False
   
Taxpayers who do not qualify for married, head of household, or qualifying widow or widower filing status must file as single.
True
   
If an unmarried taxpayer paid more than half the cost of keeping a home
which is the principal place of residence of a nephew, who is not her
dependent, she may use the head of household filing status.
False
   
The maximum official individual income tax rate for 2014 is 39.6 percent, not including the Medicare surtax on net investment income.
True
   
All taxpayers may use the tax rate schedule to determine their tax liability.
False
   
The head of household tax rates are higher than the rates for a single taxpayer.
False
   
Most states are community property states.
False
   
If taxpayers are married and living together at the end of the year, they must file a joint tax return.
False
   
A taxpayer who maintains a household with an unmarried child may qualify to file as head of household even if
the child is not the taxpayer's dependent.
False
   
A married person with a dependent child may choose to file as head of household if it reduces his or her tax liability.
False
   
A taxpayer who is living alone and is legally separated from his or her
spouse under a separate maintenance decree at year-end should file as
single.
True
   
An individual, age 22, enrolled on a full-time basis at a trade school, is considered a student for purposes of determining
whether a dependency exemption is permitted.
True
   
A dependency exemption may be claimed by the supporting taxpayer in the year of death of a dependent.
True
   
For 2019, personal and dependency exemptions are $4050.00 each.
True
   
Scholarships received by a student may be excluded for purposes of the support test for determining the availability
of the dependency exemption.
True
   
The two types of exemptions are the personal exemption and the
dependency exemption.
True
   
A child for whom a dependency exemption is claimed on the parents' tax return may also claim a personal exemption
on his or her own tax return.
False
   
If a taxpayer's adjusted gross income exceeds certain threshold amounts, he or she may be required to reduce the amount
of the otherwise allowable deductions for itemized deductions and personal and dependency exemptions in 2014.
True
   
Most taxpayers may deduct the standard deduction amount or the amount of
their itemized deductions, whichever is higher.
True
   
An individual taxpayer with a net capital loss may deduct up to $3,000 per year against ordinary income.
True
   
In 2013, the Affordable Care Act (ACA) added a new Medicare surtax of 3.8 percent on net investment income.
True
   
Taxpayers can download tax forms from the IRS Internet site.
True
   
During 2014, Murray, who is 60 years old and unmarried, provided all of the support of his elderly mother.
His mother was a resident of a home for the aged for the entire year and had no income. What is Murray's
filing status for 2014, and how many exemptions should he claim on his tax return?
a. Head of household and 2 exemptions
b. Single and 2 exemptions
c. Head of household and 1 exemption
d. Single and 1 exemption
e. None of the above
   
Which of the children may be allowed to claim his mother as a dependent, assuming a multiple support agreement exists?
a. Dudley
b. Dudley or Carlton
c. Carlton or Isidore
d. Dudley, Carlton, or Isidore
e. None of the above
If a dependent is supported by two or more and a multiple support agreement is filed, any one member
of the support group with over 10% support may claim to support the dependent.
   
Ronald is 92 years old and in poor health. Clever investing earlier in his life has left him with a sizeable income.
He is able to support his son Ed. Ed is 67 years old and a bit "confused," so he lives in a nursing home. Ed's income
is less than $2,000. How many exemptions should Ronald claim on his tax return?
a. 1
b. 2
c. 3
d. 4
e. None of the above
   
Which of the following is a true statement with respect to the gross income test for the qualifying relative dependency exemption?
a. The relative must receive less than $3,950 of gross income in order to qualify.
b. The gross income test does not have to be met provided the relative is under age 19 at the end of the tax year.
c. The gross income test does not have to be met provided the relative is under age 24 at the end of the tax year.
d. The gross income test does not have to be met provided the relative is a student.
e. All of the above.
   
Albert and Louise, ages 66 and 64, respectively, filed a joint return for 2014. They provided all of the
support for their blind 19 year-old son, who had no gross income. They also provided the total support of
Louise's father, who is a citizen and life-long resident of Peru.
How many exemptions may they claim on their 2014 tax return?
a. 2
b. 3
c. 4
d. 5
e. None of the above
Louise's father may not be claimed since he is not a US citizen or resident of US, Mexico or Canada.
   
Which of the following relatives will not satisfy the relationship test for the dependency exemption?
a. Sister
b. Adopted child
c. Aunt
d. Parent
e. All of the above satisfy the test
   
Which of the following is not a test that must be met for a child to be considered a dependent?
a. Age test
b. Domicile test
c. Citizenship test
d. Relationship test
e. Blood test
   
Mr. and Mrs. Vonce, both age 62, file a joint return for 2014. They provided all the support for their daughter who
is 19 years old, legally blind, and who earns no income. Their son, age 21 and a full-time student at a university, had
$4,200 of income and provided 70 percent of his own support during 2014. How many exemptions may Mr. and Mrs.
Vonce claim on their 2014 tax return?
a. 2
b. 3
c. 4
d. 5
e. None of the above
The Vonce's son does not meet the support test
   
Taxpayers who are blind get the benefit of:
a. An extra exemption.
b. An additional amount added to their standard deduction.
c. Two standard deductions.
d. None of the above.
   
Martin, a 50 year-old single taxpayer, paid the full cost of maintaining his dependent mother in a home
for the aged for the entire year. What is the amount of Martin's standard deduction for 2014?
a. $6,200
b. $9,100
c. $10,150
d. $12,400
e. None of the above
   
Jill is a 16-year-old child who is claimed as a dependent by her parents. Jill's only income is $1,400 from her
bank savings account. What is the amount of Jill's standard deduction for 2014?
a. $1,200
b. $1,000
c. $3,950
d. $6,200
e. None of the above
The standard deduction for a dependent is the greater of $1,000 or $350 plus earned income up to the
 basic standard deduction. Jill's interest income is unearned income.
   
Your standard deduction will be $6,200 in 2014 if you are:
a. Single and 67 years old.
b. Single and 45 years old.
c. Single, 27 years old and blind.
d. A nonresident alien.
e. A married individual filing a separate return and your spouse itemizes his deductions.
B
   
Brian is 60 years old, single and legally blind. Brian supports his father, who is 88 years old and
blind, by paying the rent and other costs of his father's residence. What is the total standard deduction
amount that Brian should claim on his 2014 tax return?
a. $9,100
b. $10,450
c. $10,650
d. $13,050
e. None of the above
9,100 + 1,550
   
Clay purchased Elm Corporation stock 20 years ago for $10,000. In 2014,
he sells the stock for $29,000. What is Clay's gain or loss?
 
a. $19,000 long-term
b. $19,000 short-term
c. $19,000 ordinary
d. $3,000, with the excess carried forward
e. No gain or loss is recognized on this transaction
29,000 - 10,000
   
Alexis has a long-term capital loss of $13,000 on the sale of stock in 2014. She has no
other capital gains or losses for the year. Her taxable income without this transaction is
$57,000. What is her 2014 taxable income considering this capital loss?
a. $44,000
b. $54,000
c. $57,000
d. $70,000
e. Some other amount
57,000 - 3,000 = 54,000
Net capital loss is limited to $3,000 for individuals.
   
Which of the following is not a capital asset?
a. Inventory
b. Stocks
c. A personal automobile
d. Gold
e. Land
   
Bob owns a rental property that he bought several years ago for $260,000. He has taken depreciation
on the house of $35,000 since buying it. He sells it in 2014 for $290,000. His selling expenses were
$12,000 for the year. What was Bob's realized gain on the sale?
a. $18,000
b. $53,000
c. $65,000
d. $77,000
e. None of the above
(290,000 - 12,000) - (260,000 - 35,000) = 53,000
   
The 0.9 percent ACA Medicare surtax applies to:
a. Earned income
b. Tax exempt income
c. Gain on the sale of a principal residence
d. IRA distributions
   
The IRS:
a. requires official tax forms be obtained at the local IRS office.
b. links to the H & R Block Web site.
c. provides information on how to choose a stock.
d. has an app for mobile phones.
   
Internet users can sign on to http://www.irs.gov/ and:
a. Download tax forms and publications.
b. Find links to other useful IRS pages.
c. Use a search function to find forms and publications.
d. All of the above.
   
Electronic filing (e-filing):
a. Reduces the chances that the IRS will make mistakes when inputting tax return information.
b. Generally results in a slower refund.
c. Can be done only by telephone.
d. Requires the services of a professional.
   
Electronically filed tax returns:
a. May not be transmitted from a taxpayer's home computer.
b. Constitute more than 90 percent of the returns filed with the IRS.
c. Have error rates similar to paper returns.
d. Offer faster refunds than paper returns.
   
List two general objectives of the tax code.
The tax code promotes social goals
economic goals and raising revenue.