1. Which of the following forms may be filed by individual taxpayers?

A. Form 1040
B. Form 1041
C. Form 1065
D. Form 1120
E. None of the above

2. William is a divorced taxpayer who provides a home for his dependent child, Edward. What filing status should William indicate on his tax return?
A. Head of household Married,
B. filing separately
C. Single
D. Qualifying widow
E. None of the above

3. 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

4. An unmarried taxpayer who maintains a household for a dependent child and whose spouse died in the prior year should file as:
A) Single
B) Head of household
C) Qualifying widow or widower
D) Married, filing separately
E) None of the above

5. 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 home for the aged. 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

6. 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 $3,650 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 statements are true.

7. Partnerships:
A) Are not taxable entities
B) Are taxed in the same manner as individuals
C) File tax returns on Form 1120
D) File tax returns on Form 1041

8. Which of the following is correct?
A) An individual is a reporting entity but not a taxable entity
B) A partnership is a taxable entity and a reporting entity
C) A corporation is a reporting entity but not a taxable entity
D) A partnership is a reporting entity but not a taxable entity

9. 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

10. Form 1040 allows a taxpayer to report which of the following items that are not allowed for taxpayers who file form 1040A.

A) Salary income
B) Joint return status
C) Withholding on wages
D) Self-employment income

11. Partnership income is reported on:
A) Form 1040PTR
B) Form 1120S
C) Form 1040X
D) Form 1065

12. Amended returns are filed on:
A) Form 1040X
B) Form 1120S
C) Form 1041
D) Form 1040Amend

13. 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

14. Electronically filed tax returns:
A) May not be transmitted from a taxpayer’s home computer
B) Constitute more than 90% of the returns filed with the IRS
C) Have error rates similar to paper returns
D) Offer faster refunds than paper returns

15. Depending on the amounts of income and other tax information, individuals may report their income on:
A) Form 1040A
B) Form 1065
C) Form 1120
D) Form 1041

16. Which of the following amounts must be included in the gross income of the recipient?
A) Child support payments
B) Welfare payments
C) Gifts
D) Royalties
E) All of the above are included in gross income

17. Which of the following is generally excluded from gross income?

A) Dividends
B) Rewards
C) Disability benefits
D) Passive income
E) None of the above

18. Which of the following is excluded from gross income?
A) Prizes
B) Scholarships for tuition
C) Hobby income
D) Rental income
E) All of the above are included in gross income

19. Which of the following fringe benefits is taxable to the employee receiving the benefit?
A) A subscription to a tax journal provided by the employer to a corporation’s tax accountant
B) A small discount on toys granted to the salesperson for a toy store
C) Incidental use of the company’s copier by an office worker
D) A 15 percent discount on investment real estate granted to the employee of a real estate developer
E) All of the above are tax-free

20. Which of the following is nontaxable income to the recipient for tax purposes?
A) Salary income
B) Income from real estate rental property
C) Income from tips
D) Inheritances
E) None of the above

21. Which of the following is classified as nontaxable income?
A) Unemployment compensation
B) Dividend income
C) Income from real estate rental property
D) Welfare payments
E) None of the above

22. Which of the following would result in life insurance proceeds that are taxable to the recipient?
A) A life insurance policy transferred to a creditor in payment of a debt
B) A life insurance policy in which the insured is the daughter of the taxpayer and the beneficiary is the taxpayer
C) A life insurance policy transferred by a shareholder to a corporation
D) A life insurance policy purchased by a taxpayer insuring his or her business partner
E) A life insurance policy purchased by a corporation insuring an officer.

23. Employer-provided spending accounts:
A) May be set up for tax-free vacation savings
B) Are not allowed for dependent care
C) Do not require that the employee provide receipts for the expenses incurred
D) Allow qualifying expenses to be treated as tax-free reductions in the employees’ salaries

24. Indicate which of the following statements is true.
A) Dependent care plans can only be used to cover the costs of caring for a dependent child.
B) Medical flexible spending accounts can be used to cover some over-the-counter drugs.
C) Public transportation may be covered by an employer-provided spending account, but parking can not be covered.
D) Dependent care accounts may include day care but not preschool

25. In the tax law, the definition of gross income is:
A) All cash payments received unless excluded by the tax code
B) All cash payments received for services performed
C) All income from whatever source derived
D) All income of any kind unless the income is earned illegally

26. Under the Keogh plan provisions, deductible contributions to a qualified retirement plan on behalf of a self-employed individual whose net earned income is $20,000 are limited to:
A) $1,500
B) $2,000
C) $4,000
D) $5,000
E) None of the above

27. Which of the following would be a business debt if it were uncollectible?
A) A taxpayer loans his father $1,000 to start a business
B) A taxpayer loans his son $10,000 to purchase a rental house
C) A dentist, using the accrual basis of accounting, extends credit to a patient for services provided
D) A taxpayer loans his brother $3,000 to purchase a truck for use in his brother’s business
E) None of the above

28. Which of the following statements is true of a distribution rollover (not a trustee-to-trustee transfer) from a retirement plan?
A) The taxpayer must instruct the trustee of the retirement plan to transfer assets to the trustee of another plan.
B) No withholding is required
C) In one year, there is no limit to the number of times a taxpayer can request a distribution rollover from one IRA to another IRA
.D) Assuming there are no unusual events, the taxpayer has a maximum of sixty days in which to transfer funds to a new plan.
F) All of the above are true.

29. The net operating loss (NOL) provisions of the Internal Revenue Code
A) Apply only to individuals with wages, itemized deductions, and personal exemptions.
B) Require the use of a two year carryback in all cases.
C) Are primarily designed to provide relief for trade or business losses.
D) Allow the deduction for home mortgage interest to create an NOL.
E) Would not be necessary if tax rates were progressive.

30. Norm is a real estate professional with a real estate trade or business as defined in the tax law. He has $150,000 of business income and $50,000 of losses from actively managed real estate rentals. How much of the $50,000 in losses is he allowed to claim on his tax return?
A) $25,000
B) None
C) $50,000
D) $20,000

31. Which of the following is deductible as dues, subscriptions or publications?
A) Dues to a health club for a doctor
B) Subscription to “Vogue” magazine for a corporate president
C) Dues to the drama club for a student
D) Subscription to the “Journal of Taxation” for a tax attorney
E) None of the above

32. If an employer chooses a per diem method of substantiation for travel expenses,
A) The Regular Federal Rate method allows employees the same per diem rate no matter where they travel in the United States.
B) The high-low method averages the high-cost locality and low-cost locality per diem rates to arrive at an average rate.
C) The meals and incidental expenses method requires actual cost records to substantiate lodging expenses.
D) Actual expense records substantiating the business reason for the trip and the dates of arrival and departure are not required
.E) The employer need not use an accountable plan for reimbursing employees for travel expenses.

33. To file a Schedule C-EZ, the taxpayer must:
A) Have gross receipts of $25,000 or less from the business.
B) Have business expenses of $5,000 or less.
C) Have inventory of less than $2,000 during the year.
D) Have no more than 2 businesses.
E) Have no more than 5 employees during the year.

34. Which of the following taxpayers may not use the standard mileage method of calculating transportation costs?

A) A self-employed CPA who drives a computer-equipped minivan to visit clients
B) A taxpayer who has a fleet of ten automobiles
C) A real estate salesperson who drives a $70,000 Mercedes while showing houses
D) An attorney who uses his Yaris for calling on clients
E) All of the above taxpayers may use the standard mileage method

35. Which of the following employees may deduct the cost of a uniform?
A) A stock broker required by her employer to wear a business suit
B) A construction worker required by her employer to wear blue jeans
C) A washer repair woman who must wear overalls while on the job
D) A police officer who must wear a uniform while on duty
E) A delivery person who must wear khaki-colored clothes on the job

36. Taxpayers who make a combined business and pleasure trip:
A) Must allocate the travel cost between the business and pleasure parts of the trip if the travel is within the United States
B) Must allocate the travel cost between the business and pleasure parts of the trip if the travel is outside the United States
C) Can deduct the cost of meals, lodging, local transportation, and incidental expenses in full
D) Can take a tax deduction only for the personal part of the trip

37. Deductible transportation expenses:
A) Include meals and lodging
B) Include only costs incurred while away from home
C) Do not include the normal costs of commuting
D) Do not include daily expenses for transportation between the taxpayer’s home and temporary work locations if the taxpayer has a regular place of business

38. What income tax form does a self-employed sole proprietor usually use to report income and expense from business?

A) Schedule C
B) Schedule A, Miscellaneous Itemized Deductions
C) Schedule B
D) Form 2106, Employee Business Expenses
E) None of the above

39. What income tax form does an employee use to report expenses that are not reimbursed by an employer under an accountable plan?
A)Form 2106, Employee Business Expenses
B) No form, the expenses are not deductible to the employee
C) Schedule D
D) Schedule R
E) Schedule C

40. Which of the following is deductible as a miscellaneous itemized deduction?

A) Union dues
B) Professional dues and subscriptions
C) Job hunting expenses
D) Investment expenses
E) All of the above are miscellaneous deductions

41. Which of the following miscellaneous deductions are subject to the 2% of adjusted gross income limitation?
A) Unreimbursed employee business expenses
B) Gambling losses to the extent of gambling winnings
C) Handicapped impairment related work expenses
D) None of the above
E) All of above

42. What is the maximum amount of home equity debt (not acquisition debt) on which interest is fully deductible?
A) $0
B) $50,000
C) $100,000
D) $200,000
E) None of the above

43. Which of the following factors are considered by the IRS in evaluating whether an activity is classified as a business or a hobby?
A) The expertise of the taxpayer
B) The time and effort expended by the taxpayer
C) Financial status of the taxpayer
D) Income and loss history from the activity
E) All of the above

44. Which of the following is a miscellaneous itemized deduction?
A) Casualty losses
B) Job hunting expenses
C) Auto registration fees
D) Property taxes

45. Which of the following itemized deductions may not be deducted in computing the individual alternative minimum tax?
A) Qualified home mortgage interest
B) State income taxes
C) Medical expenses (limited to 10 percent of AGI)
D) Charitable deductions
E) All of the above

46. The earned income credit:
A) Must be calculated on adjusted gross income as well as earned income in some cases
B) Can not exceed the amount of the tax liability
C) Is available only if the taxpayer has qualifying children
D) Is available to married taxpayers who file separate returns

47. The child and dependent care provisions:
A) Apply only to children under age 15
B) Are available only to single parents
C) Are available for spouses incapable of self-care
D) Are allowed only for taxpayers earning less than $43,000

48. The American Opportunity credit
A) Is 50% of the first $1,200 of tuition and fees paid and 100% of the next $1,200.
B) Is available for 2 years of post-secondary education.
C) Is fully refundable even if the credit exceeds the tax liability.
D) Is available for qualifying expenses pain on behalf of the taxpayer and his or her spouse, in addition to those paid for dependents.

49. A tax credit is allowed for qualified adoption expenses paid by taxpayers
A) And an additional credit is allowed for qualified adoption expenses paid for by taxpayers’ employers
B) And an income exclusion is allowed for qualified adoption expenses paid for by taxpayers’ employers
C) And is available each year qualifying expenses are incurred
D) And is not subject to a phase-out based on adjusted gross income

50. A parent may elect to include a child’s income in the parent’s return if:
A) The child is under age 18
B) The child’s income is only from interest and dividend distributions
C) The child’s gross income is more than $950 and less than $9,500
D) All of the above must be met for a parent to elect to include a child’s income in the parent’s return.

51. Which of the following types of income is not subject to the “kiddie tax?”
A) Interest income
B) Dividend income
C) Salary income
D) Capital gains on stock sales
E) All of the above are subject to the “kiddie tax”

52. Which of the following is not an acceptable method of accounting under the tax law?
A) The accrual method
B) The cash method
C) The hybrid method
D) All of the above are acceptable
E) None of the above

53. What is the minimum number of years over which computers may be depreciated under MACRS?
A) Three years
B) Five years
C) Seven years
D) Ten years
E) Fifteen years

54. Section 197 intangibles:
A) Are amortized over a 15-year period.
B) Include goodwill, going-concern value, and information bases.
C) Were defined in the Revenue Reconciliation Act of 1993.
D) Are not amortized over the actual estimated useful life of the intangible asset.
E) All of the above are true

55. If a loss from sale or exchange of property between related parties is disallowed and the property is subsequently sold to an unrelated party,
A) An amended return may be filed to claim the loss previously disallowed.
B) The unrelated party may claim the loss previously disallowed.
C) The disallowed loss may be used to offset gain on the subsequent sale.
D) The disallowed loss may be used if there is a further loss on the subsequent sale.
E) The disallowed loss is lost forever.

56. Which of the following taxpayers is absolutely required to report on a calendar year-end basis?
A) Individuals
B) Partnerships
C) S corporations
D) C corporations
E) None of the above

57. Which of the following is a capital asset?
A) A literary work held by the author
B) Real estate held by a developer
C) A taxpayer’s personal automobile
D) A truck used in a taxpayer’s business
E) None of the above

58. An asset has an original basis of $25,000 and depreciation has been claimed for the asset in the amount of $20,000. If the asset’s adjusted basis is $15,000, what is the amount of capital improvements that have been made to the asset?
A) $5,000
B) $10,000
C) $20,000
D) $30,000
E) None of the above

59. An asset’s adjusted basis is computed as:
A) Original basis + capital improvements – accumulated depreciation
B) Original basis – capital improvements + accumulated depreciation
C) Original basis + capital improvements + accumulated depreciation
D) Original basis + capital improvements + gain or loss realized
E) None of the above

60. The adjusted basis of an asset may be determined by the
A) Selling price + gain realized
B) Selling price – gain realized
C) Selling price + capital improvements – accumulated depreciation
D) Original basis + capital improvements – selling price
E) None of the above

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William is a divorced taxpayer who provides a home for his dependent child, Edward. What filing status should William indicate on his tax return Answer