259576
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Flashcards by derekwilson272, updated more than 1 year ago
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Created by derekwilson272
over 10 years ago
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| Question | Answer |
| 2003 Part 1 1. Generally, if an unmarried dependent child, John, earns $4,200 wages during the summer, has no tips, has $200 in interest/dividends, and no income tax withheld, he would not be required to file a tax return for 2002. | True |
| 2003 Part 1 2. Mary’s husband died in 1999. Her son Bob is her dependent and has lived in her house since his birth in 1992. In 2002, Mary may file as qualifying widow because she has not remarried. | False |
| 2003 Part 1 3. Peter’s unmarried daughter lived with him in his house for the entire year 2002. Peter owns the home and pays all the costs of upkeep for that home. His ex-wife did not live in the home at any time during the year. Peter can file as head of household in the year 2002. | True |
| 2003 Part 1 4. If a taxpayer files his 2002 Form 1040 by January 31, 2003 and pays the balance due with the return; he will not receive an underpayment of estimated tax penalty for the fourth quarter estimated tax payment that was due on January 15, 2003. | True |
| 2003 Part 1 5. Ted is an ordained minister. He owns his own home and receives a housing allowance that is less than the fair rental value of the home. Because he owns his home, the must include the housing allowance as income for income tax and self-employment tax purposes. | False |
| 2003 Part 1 6. A regulated investment company (mutual fund) or real estate investment trust (REIT) declares a dividend in November 2002 payable to shareholders of record on November 15. If the dividends are actually paid on January 5, 2003, the dividends are taxable in 2002. | True |
| 2003 Part 1 7. There is no difference in the tax treatment of short term capital gains, dividends, and long-term capital gains on your federal return. | False |
| 2003 Part 1 8. Rosemary’s home is used exclusively as her residence all year except for 10 days. During this time, Rosemary rents out her home to alumni while the local college has its homecoming celebration. The rent does not need to be included in income. | True |
| 2003 Part 1 9. Cory owns an apartment building. In addition to providing the utilities for his tenants, he also cleans the halls and utility room and picks up the trash. Because of these added services, Cory must report the rentals on Schedule C, Profit or Loss from Business instead of reporting them on the Schedule E. (He is not a real estate professional.) | False |
| 2003 Part 1 10. A property received as a gift has a basis greater than its fair market value. Generally, if it is sold at a loss, the fair market value becomes the basis for computing the loss. | True |
| 2003 Part 1 11. Fred bought ten shares of stock on October 1, 2001. He sold them for a $20 loss on October 1, 2002. This is a short term capital loss. | True |
| 2003 Part 1 12. Derek is a self-employed carpenter and is also an employee of Krispy, Inc. His self-employment net income is $35,000, and he received a W-2 for salaries and wages of $25,000. He is covered by his employer’s pension plan. Derek is not eligible to take a deduction for an IRA but he can deduct 50% of his self-employment tax and 70% of his health insurance premiums for 2002. | True and False |
| 2003 Part 1 13. Jim files his tax return as married filing separately. He has not lived with his wife for two years. In tax year 2002, by court order, he paid her $500 per month as separate maintenance. He will be able to deduct $6,000 as alimony. | True |
| 14. Carleen paid $1,000 U. S. dollar equivalent in Deutsche Marks to Germany on income earned while working there. She qualified for the income earned abroad exclusion on the $40,000 wages she earned. She can take a credit or a deduction for the foreign tax paid to Germany. | True & False |
| 2003 Part 1 15. Generally, those claiming earned income credit cannot have investment income greater than $2,550 for tax year 2002. | True |
| 2003 Part 1 16. George and Jean, a married couple living together, have no income other than their wages. George earned $12,000 and Jean earned $9,000. They have two minor children and have decided to file married filing separate tax returns, each claiming one child as a dependent. This way they will both qualify for the earned income credit. | False |
| 2003 Part 1 17. To qualify for the earned income credit, the taxpayer must have a dependent child. | False |
| 2003 Part 1 18. Anthony, filing single, has one household employee, and attaches Schedule H to his individual tax return for reporting. He may use his W-2 withholdings to offset the Schedule H tax liabilities. | True |
| 2003 Part 1 19. Two years ago, Mark sold property (basis of $250,000) for $500,000. He received a down payment of $50,000 plus regular monthly payments of principal and interest until 10 months ago. The buyer failed to make further payments resulting in Mark repossessing the property. Mark may have a tax consequence as a result of repossessing the property. | True |
| 20. The President and CEO of Online, Inc., who had no direct or indirect ownership interest in Online, Inc., personally advanced $50,000 to the corporation as a temporary loan. Online, Inc. declared bankruptcy and was discharged from bankruptcy without repaying the $50,000. This should be treated as a nonbusiness bad debt. | True & False |
| 2003 Part 1 21. Form 4868, Application for Automatic Extension of Time to File U. S. Individual Income Tax Return, will provide the individual taxpayer with the following: A. An automatic extension of 2 months for taxpayers out of the country on April 15th. B. An automatic extension of 4 months to pay the taxes due. C. An automatic extension of 4 months to file the return. D. An automatic extension of 6 months to file the return. | C |
| 2003 Part 1 22. The following statements about dividends received from a dividend reinvestment plan are correct except: A. Reinvested dividends are not taxable if not removed from the account. B. Reinvested dividends are not taxable until the related stock is sold. C. Reinvested dividends automatically receive capital gains treatment when received. D. Reinvested dividends are treated as normal dividends on Schedule B. | Any Answer |
| 2003 Part 1 23. An individual taxpayer has capital gain distributions only, and no other capital gains. Which of the following satisfies the reporting requirements: A. All capital gain distributions must be entered on Schedule B. B. No Schedule D is required and the amount is entered directly on Form 1040. C. Dividends and capital gains distributions are totaled on Schedule B and carried to the front page of Form 1040. D. If there are no other capital gains, capital gain distributions must be combined with interest on the Schedule B. | B |
| 2003 Part 1 24. Tom, a single taxpayer, determines that he has both a short term capital loss of $2,000 and a nontaxable distribution of $1,000 from an investment. The following statements are correct, except: A. The basis of the investment is reduced by the non-taxable distribution. B. Non-taxable distribution is a return of capital. C. The short term capital loss can be used to offset capital gains (if any) for the year. D. Any unused short term capital loss may be carried back three years. | D |
| 2003 Part 1 25. During the year 2002, Dan had these expenses for his rental house: 1. Replaced a screen in the storm door. 2. Replaced the heating system. 3. Sowed grass seed in some bare spots on the lawn. 4. Built a detached two-car garage. 5. Installed a new dishwasher. 6. Bought a welcome mat for the front stoop. Which of these items must be depreciated rather than deducted as an expense on his Schedule E? A. 1, 3, 4, and 5. B. 2, 4, 5, and 6. C. 2, 4, and 5. D. 3, 4, and 6. | C |
| 2003 Part 1 26. Jeremy owns a duplex. He lives in one half and rents out the other half at fair rental value. He wants to take depreciation on the building, the appliances, and major remodeling in the bathroom on the rental side. What depreciation may be taken? A. 27.5 year MACRS on both sides of the duplex, 7 year MACRS on the appliances and remodeling. B. 27.5 year MACRS on the rental side, 0 on the personal side, and 7 year MACRS on the appliances and remodeling. C. 27.5 year MACRS on both sides of the duplex, 5 year MACRS on the appliances and remodeling. D. 27.5 year MACRS on the rental and remodeling, 5 year MACRS on the appliances, and no depreciation on the personal side. | D |
| 2003 Part 1 27. Which of the following is the depreciable basis in rental property that is placed in service after receiving it as a gift, if the donor’s basis was more than the fair market value of the property? A. The fair market value on the date of the gift. plus or minus any required adjustments to basis. B. The fair market value of the property on the date you converted it to rental property. C. The donor’s basis of the property plus or minus any required adjustments to basis. D. All of the above. | C |
| 2003 Part 1 28. Connor purchased Flora stock in 1996 and sold it in 2002. In 2002, he also traded in a copy machine that he had been using in his business since 1998 for a new model. On December 15, 2002, he inherited 35 shares of Fauna Laboratories stock. What is the holding period for these properties? A. All short term. B. Flora stock long term, copy machine and Fauna stock short term. C. Flora and Fauna stock long term; copy machine short term. D. All long term. | D |
| 2003 Part 1 29. James sells stock that he purchased in 1990, to his brother John for a $500 loss. He also sells a truck, purchased in 2000, to ABC Corporation, his 100% owned C corporation, for a profit of $800, including $500 of depreciation recapture. What is the effect of these transactions on James’s 2002 tax return? A. A loss of $500 on the stock and no gain on the truck. B. A disallowed loss on the stock, $500 ordinary gain and $300 long-term capital gain on the truck. C. A loss of $500 on the stock and $800 ordinary gain on the truck. D. A disallowed loss on the stock and $800 ordinary gain on the truck. | D |
| 2003 Part 1 30. Generally, if you own stock in a small corporation that meets the requirements of Section 1244 (small business) stock and you sell that stock at a loss, the loss is reported as: A. Short term loss on Schedule D limited to $3,000. B. Ordinary loss on Form 4797 limited to $25,000 for a single individual and limited to $50,000 for those filing a joint return. C. Long term loss on Schedule D limited to $3,000. D. Ordinary loss on Form 4797 limited to $50,000 for a single individual and limited to $100,000 for those filing a joint return. | D |
| 2003 Part 1 31. David is an interstate truck driver subject to Department of Transportation hours of service, but is not an employee. In 2002, he is allowed to deduct what percent of his meals he had while working as an interstate truck driver? A. 0%. B. 50%. C. 65%. D. 80%. | C |
| 2003 Part 1 32. Generally, which of the following expenses paid by Kathy, a salesperson, are deductible as entertainment expenses? A. Chamber of Commerce dues. B. Cover charges and cost of meals for taking a client to a nightclub. C. Country club dues where she entertains clients. D. Weekly meals with business associates at local restaurants (they take turns paying). | B |
| 2003 Part 1 33. In order to qualify as an accountable plan for reimbursement of travel expenses, the employer plan must satisfy all of the following except: A. The expenses have a business connection. B. The employee must make an adequate and timely accounting to the employer. C. The employer must pay a per diem for meals. D. The employee must timely return any excess reimbursements. | C |
| 2003 Part 1 34. Generally, the taxpayer may deduct the cost of medical expenses on Schedule A for which of the following: A. Doctor prescribed birth control pills. B. Controlled substances like marijuana that are in violation of federal law. C. Trips for general health improvement. D. Marriage counseling. | A |
| 2003 Part 1 35. To qualify for a medical expense deduction as your dependent, a person must be your dependent either at the time the medical services were provided or at the time you paid the expenses. A person generally qualifies as your dependent for purposes of the medical expense deduction if: A. The person would qualify as a dependent except for the amount of gross income. B. The person was a foreign student staying briefly at your home. C. The person is your sibling’s unmarried adult child. D. The person is the unrelated caregiver for your elderly parents. | A |
| 36. Which of the following costs are deductible on Form 1040, Schedule A as taxes? 1. Personal property tax on an airplane. 2. Garbage pickup itemized on the real estate bill. 3. Real estate tax on property owned in Canada. 4. Sales tax paid on the purchase of your personal car. A. None of the above. B.1 and 3. C. 2 and 4. D. All of the above. | B |
| 2003 Part 1 37. Some contributions may be limited to 50% of the taxpayer’s adjusted gross income. Deductions to the following organizations are subject to the 50% limitation on deductible contributions: A. Churches and conventions of organizations of churches and educational organizations with regular faculty and curriculum and regularly enrolled students. B. Hospitals and certain medical research organizations associated with these hospitals. C. Kiwanis, Rotary, and Lions Club who raise money for public causes. D. Both A and B. | D |
| 2003 Part 1 38. Which of the following organizations qualify for deductible contributions (not dues)? A. A Public Library in your city. B. Salvation Army. C. Churches. D. All of the above. | D |
| 2003 Part 1 39. In 2002, the U. S. President declared a federal disaster due to the flooding in Minnesota. Lisa lives in that area and lost her home in the flood. What choice does she have regarding when she can claim the loss on her tax return? A. It must be claimed in 2001 if the return has not been filed by the date of the loss. B. It must be claimed in 2002 if the loss is greater than the modified adjusted gross income. C. It may be claimed in 2003 if an election is filed with the 2002 return. D. It may be claimed in 2001 or 2002. | D |
| 2003 Part 1 40. Which of the following will qualify for an educational deduction on Schedule A? A. The employer reimburses your expenses under a tuition reimbursement (nontaxable) program. B. The education maintains or improves skills needed in your present work. C. The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer. D. Both B and C. | D |
| 2003 Part 1 41. Which of the following expenses are deductible, but subject to the 2% limitation on Form 1040, Schedule A, Job Expenses and Most Other Miscellaneous Itemized Deductions? A. License of a self-employed plumber. B. Appraisal fees on the sale of your personal residence. C. Uniforms for a UPS delivery person. D. The cost of hauling tools to work in the trunk of your car. | C |
| 2003 Part 1 42. Carol, an individual taxpayer, received a Form 1099-Div from her global mutual fund that showed dividend income of $500 and foreign taxes withheld of $67. This is the only foreign source income she received for the year. Her income tax before any credits is $4,320. On which of the following forms may Carol elect to claim a credit for the foreign tax paid? A. Form 1040, Line 68, Other Payments, with a disclosure statement. B. Directly on Form 1040, Tax and Credits, Foreign Tax Credit. C. Form 1040, Schedule A, Itemized Deductions, Line 8, “Other Taxes.” D. Form 1040, Schedule B, by electing to reduce the dividend income by $134 ($67 x 2). | B |
| 2003 Part 1 43. Hollie filed as head of household and would like to take the child tax credit for Amanda in 2002. Which of the following statements is incorrect regarding the child tax credit? A. Amanda must be under 18 at the end of the tax year. B. Hollie must claim Amanda as a dependent. C. All or part of the child tax credit may be refundable. D. If Hollies' adjusted gross income is above $75,000, her credit will be reduced or eliminated. | A |
| 2003 Part 1 44. Elton declared bankruptcy in the current year. Included in the liabilities discharged in the bankruptcy was a $15,000 personal loan Elton had received from his friend, Edward two years ago. How would Edward treat this for tax purposes? A. Ordinary loss on Form 4797. B. Long-term capital loss on Schedule D. C. Short-term capital loss on Schedule D. D. Investment expense subject to 2% miscellaneous itemized deduction limitation. | C |
| 2003 Part 1 45. Which of the following is earned income for earned income tax credit purposes? A. Unemployment compensation. B. Alimony. C. The wages of a minister who has an exemption from self-employment tax. D. The wages of an inmate working in the prison laundry. | C |
| 2003 Part 1 46. Jill and John, married filing jointly, have provided more than 50% of the support for two minor children and Jill’s mother. The children each had interest income of less than $700. Jill’s mother received a taxable pension of $2,500, dividends of $1,500 and interest of $1,000. How many exemptions can the taxpayers claim, including themselves, on their 2002 tax return? A. 3. B. 5. C. 4. D. 2. | C |
| 2003 Part 1 47. In meeting the “Gross Income” test for claiming his father as a dependent, the taxpayer had to consider the income received by his father. This income included gross rents of $4,000 (expenses were $2,000), mutual fund municipal bond interest of $1,200, corporate bond interest of $1,000, dividends of $1,400, wages of $2,000 and Social Security of $4,000. What is the father’s gross income for dependency test purposes? A. $2,000. B. $8,400. C. $9,600. D. $11,600. | B |
| 2003 Part 1 48. A taxpayer had adjusted gross income of $98,000 and a total tax liability in 2001 of $20,000. In 2002, the taxpayer has a tax liability of $25,000. The taxpayer’s withholding was increased to $23,500. He will file his tax return for 2002 on April 10, 2003. To avoid the underpayment of estimated tax penalty, the taxpayer must: A. Pay the additional $1,500 due by April 15, 2003. B. Pay an additional $1,500 by January 15, 2003. C. File an annualized estimated tax computation. D. Do nothing, as he has satisfied the minimum tax payment requirements. | D |
| 2003 Part 1 49. Sandy received the following income in 2002: Wages (Box 1 of W-2) $50,000 Money won at weekly poker games $1,000 Christmas ham (fair market value) $22 Dependent care benefits (Box 10 of W-2) $2,000 (Spent $3,000 for childcare) Group term life insurance ($40,000 death benefit) $50 How much gross income must be reported by Sandy for tax year 2002? A. $50,022. B. $53,000. C. $51,000. D. $53,072. | C |
| 2003 Part 1 50. Susan is a waitress and earned $15,000 in wages, not including any tips she received in 2002. She received tips of $17 in March, which she did not report to her employer. Because she became ill in February and did not return to work until late March, she also forgot to report the $58 for tips that she received in February. She did report the $7,000 she received as tips for the rest of the year. How much income must she report as wages, tips and other compensation for tax year 2002? A. $22,185. B. $22,075. C. $15,260. D. $15,183. | B |
| 2003 Part 1 51. Scott and Marie, husband and wife, are equal partners in a law firm. They had gross receipts of $120,000, less expense of $40,000 resulting in net income of $80,000 for the law firm. Marie received an inheritance of $20,000. In addition, they had municipal bond interest of $3,000 and savings account interest of $2,000. What is their adjusted gross income on a married filing joint return? A. $105,000. B. $142,000. C. $ 82,000. D. $102,000. | C |
| 2003 Part 1 52. Maria had municipal bond interest of $6,000, certificate of deposit interest of $4,000, reinvested corporate bond interest of $2,000, mutual fund municipal bond interest of $7,000 and savings account interest of $1,000. What is Maria’s taxable interest? A. $3,000. B. $7,000. C. $20,000. D. $16,000. | B |
| 2003 Part 1 53. Paul owns a second home at the lake. During 2002, he spent three weeks (21 days) at the lake home, rented it to his daughter for three threeday weekends for a total of $220, and rented it to friends for ten weeks (70 days) at fair rental value of $300 per week. His expenses for the year include: Depreciation $2,000 Insurance $ 100 Mortgage interest $1,000 Real estate taxes $2,000 Utilities $1,000 What amount may he deduct for expenses on his Schedule E, Rental Income? A. $2,100. B. $3,000. C. $3,220. D. $4,620. | B / C |
| 2003 Part 1 54. Cyril, who is 68 years of age, received Social Security benefits of $12,000, wages of $5,000, interest and dividends of $4,000, unemployment compensation of $3,000 and municipal bond interest of $1,500. Calculate Cyril’s adjusted gross income. A. $22,200. B. $25,500. C. $19,200. D. $12,000. | D |
| 2003 Part 1 55. John and Mary, a married couple, have a wide variety of investments and are cash basis taxpayers. Because their self-employment earnings are considerable, they reinvested the following: $4,000 of mutual fund dividends and $5,000 of certificate of deposit interest. They also earned dividends on corporate stock of $12,000 that they received and spent. Interest of $2,000 that had accrued on a loan to a friend was not paid until the following year. What is the amount of interest and dividends currently taxable to them? A. $21,000. B. $14,000. C. $16,000. D. $23,000. | A |
| 2003 Part 1 56. A taxpayer purchases real estate rental property for $150,000. She pays $25,000 cash and obtains a mortgage for $125,000. She pays closing costs of $8,000, which includes $4,000 in points on the mortgage and $4,000 for bank fees and title costs. The basis in the property is: A. $33,000 depreciation, $125,000 amortization. B. $158,000, depreciation only. C. $154,000 depreciation, $4,000 amortization. D. $150,000 depreciation, $8,000 amortization. | C |
| 2003 Part 1 57. Sandra joins Sam in forming a partnership. Sandra invests $50,000 in cash. Sam will work for $70,000 a year as a guaranteed payment to partner. Of the $70,000 payment, $50,000 will be retained by the partnership. Assuming the partnership had zero net income and expenses, Sam’s basis in the partnership and taxable income at the end of the year are: A. Sam’s basis in the partnership is $50,000 and taxable income is $20,000. B. Sam’s taxable income is $50,000 and his basis in the partnership is $20,000. C. Sam’s taxable income is $70,000 and his basis is $50,000. D. Sam’s basis in the partnership is $70,000 and taxable income of $70,000. | C |
| 2003 Part 1 58. Charles gave his daughter, Jane, a residential house. He had purchased the house for $250,000 in 1990. The fair market value on the date of the gift was $300,000. Charles had added a $25,000 roof the year before he gave it to Jane. Jane converts the house to a residential rental property within one year of the gift. Jane’s basis in the property is: A. $300,000. B. $250,000. C. $225,000. D. $275,000. | D |
| 2003 Part 1 59. Sue gave Jennifer a rental house. Sue had purchased the property in 1993 for $60,000 and has taken $17,000 in depreciation. Just before the transfer she also paid $5,000 for a room addition. Gift tax of $18,200, attributed to the increased value, was paid. The fair market value of the rental house on the day of transfer was $90,000. Jennifer’s basis in the property will be: A. $90,000. B. $60,000. C. $66,200. D. $42,000. | C |
| 2003 Part 1 60. Nature Corporation declared and distributed a stock dividend of 1 share for each 10 shares held by stockholders. Donna had 100 shares ($5.50 per share basis) and received 10 additional shares with a fair market value of $6.00 per share. Which of the following is most applicable to the stock dividend? A. 100 shares at $5.50 per share basis and 10 shares at zero basis per share. B. 110 shares at $5 per share basis and $55 taxable income. C. 110 shares at $5 per share. D. 100 shares at $5 per share basis and 10 shares at $6 per share basis. | C |
| 2003 Part 1 61. Rose has the following transactions during the year of 2002: Sale of ACB stock (basis $400) $800 Commission paid on sale of ACB stock. $50 Received 200 extra shares of DEF in stock split (fair market value) $800 Decrease in value of GHI mutual Fund. $600 JKL stock declared worthless (basis $700). (no stock value) $ 0 What is the net gain or loss Rose will claim on her Schedule D? A. $350 loss. B. $1,000 gain. C. $300 gain. D. $650 loss. | A |
| 2003 Part 1 62. Clyde, a single person, sold his principal residence for $700,000. He purchased his home in 1995 for $150,000 and lived there until he sold it. He paid for capital improvements of $75,000, paid real estate commissions of $36,000 and other settlement costs of $4,000. How much taxable gain must Clyde report? A. None B. $185,000 C. $435,000 D. $225,000 | B |
| 2003 Part 1 63. Robert purchased his home for $150,000 in 1992. He sold it for $350,000 (including $100,000 for the land) in 2002. This was his primary residence until it was sold. However, Robert claimed onefifth of his home as an office for his self-employed business. He claimed a total of $6,000 depreciation over the years. The $150,000 purchase was assessed at $90,000 building and $60,000 land. Calculate Robert’s taxable income as a result of the sale of this primary residence. A. $6,000. B. $38,000. C. $200,000. D. None. | A, B, C or D |
| 2003 Part 1 64. Emma’s brother purchased 100 shares of Clockwork, Inc. stock for $10 per share on December 30, 2001. Emma inherited the shares of Clockwork stock from her brother on September 15, 2002 when it had a fair market value of $15 per share. On December 20, 2002, she sold the stock for $20 per share. What is the amount and character of her gain? A. The gain of $1,000 is short-term capital gain. B. The gain of $1,000 is long-term capital gain. C. The gain of $500 is long-term capital gain. D. The gain of $500 is short-term capital gain. | C |
| 2003 Part 1 65. Albina purchased 1,000 shares of Global Tech Growth mutual fund on February 15, 2002 for $15 per share. On January 31, 2003, she sold the 1,000 of Global Tech Growth mutual fund for $4.50 per share. Albina had no other capital transactions in 2003. Which of the following is correct? A. Albina has a short-term capital loss of $10,500 on her 2003 tax return and she will be allowed to offset $10,500 of her earnings. B. Albina has a short-term capital loss of $3,000 on her 2003 tax return and no carryover. C. Albina has a short-term capital loss of $10,500 in 2003 and will deduct $3,000 on her tax return. She will carry-forward a short-term loss of $7,500 to 2004. D. Albina has a short-term capital loss of $10,500 in 2003 and will deduct $3,000 on her tax return. She will carry forward a long-term loss of $7,500 to 2004. | C |
| 2003 Part 1 66. During the year 2002, Ted drives his car 5,000 miles to visit clients, 10,000 miles to get to his office, and 500 miles to attend business-related seminars. He also spent $300 for airfare to another business seminar and $200 for parking at his office. Using 36.5 cents per mile, what is his deductible transportation expense? A. $300. B. $2,308. C. $2,508. D. $5,958. | B |
| 2003 Part 1 67. Bernie is a self-employed accountant in 2002. He reported net income of $50,000 on his Schedule C for 2002. During the year Bernie paid the following: $5,200 child support, $5,000 in alimony, $6,000 in medical insurance premiums, self-employment tax of $7,065 and $2,000 to his IRA plan. What amounts are deductible in arriving at adjusted gross income for 2002? A. $19,933. B. $40,267. C. $14,733. D. $25,265. | C |
| 2003 Part 1 68. In 2002, Gene is 85 years of age and single. He received Social Security payments totaling $14,000 (this includes Medicare premium of $600), dividend and interest income of $21,000, a pension of $30,000 and a taxable IRA benefits of $16,000. What is Gene’s adjusted gross income for 2002? A. $80,400. B. $78,900. C. $78,390. D. $67,000. | B |
| 2003 Part 1 69. A taxpayer is a cash basis taxpayer. During the year, he paid the following medical expenses for himself and his daughter, Johanna, whom he claims as a dependent on his tax return. •$310 for glasses for Johanna and $290 for himself; •$650 for a dental root canal procedure for him; •$900 for hospital emergency services; of which $700 was paid by insurance in the same year; •$1,250 for Johanna’s braces which he charged to his credit card in December and paid in January of the next year; •$500 for prescriptions for allergies •$2,200 cosmetic plastic surgery The taxpayer’s medical expense deduction before limitations is: A. $6,100. B. $4,150. C. $3,200. D. $5,400. | C |
| 2003 Part 1 70. George had the following income and expenses: • Interest and dividend income of $8,000. • Gross wages of $100,000 • Margin interest of $10,000 • Mortgage interest of $6,000 • Interest on a mobile home used as a second home $3,000 • Credit card interest of $2,000. How much interest can George deduct on Schedule A? A. $21,000. B. $18,000. C. $17,000. D. $19,000. | C |
| 2003 Part 1 71. Chester and Mary, a married couple, have interest and dividends (investment income) of $14,000. They have margin interest of $16,000, home mortgage interest of $12,000, equity loan interest of $3,000 on a $50,000 loan, credit card interest of $4,500 and automobile loan interest of $2,000. They have no tax-exempt investments. What amount can they take as interest deductions after limitations? A. $29,000. B. $52,500. C. $31,000. D. $37,500. | A |
| 2003 Part 1 72. If the taxpayer makes a contribution by cash, check, credit card or payroll deduction to a qualified organization, what record of the contribution is the taxpayer required to obtain from the organization? A. If the amount is for some item or service, like a charity dinner, and over $100, the taxpayer must have a separate acknowledgement for each contribution. B. For annual payroll deductions over $250, the taxpayer must have a separate acknowledgement for each contribution. C. Weekly contributions of $50 to the taxpayer’s church must have a separate acknowledgement for each contribution. D. For contributions under $250, the taxpayer must keep an account, statement, receipt or other reliable written record. | D |
| 2003 Part 1 73. Alona is a student, and her personal car was stolen in May, 2002. It was found several days later severely damaged. The decrease in fair market value (less than her adjusted basis) was $3,500. In addition, a personal lap top computer in the car at the time was never recovered (fair market value $500, also less than her adjusted basis). What is the amount and treatment of the casualty loss after considering the $100 minimum floor, but before the AGI limitation? A. Schedule A loss of $3,800 for the car and computer. B. Schedule D loss of $3,500 for the car and a Schedule A loss of $500 for the computer. C. Schedule A loss of $3,900 for the car and the computer. D. Schedule D loss of $4,000 for the car and the computer. | C |
| 2003 Part 1 74. During the year, Ron paid $85 to have his tax return prepared. He also paid a lawyer $215 to prepare his will. At work, he paid union dues of $650, bought safety boots for $200, and contributed $75 to collections for sick co-workers. What is Ron’s miscellaneous deduction on his Schedule A, before the 2% limitation? A. $935. B. $1,010. C. $1,150. D. $1,225. | A |
| 2003 Part 1 75. Paula won $5,000 in the lottery in 2002. She also won $200 playing bingo at her lodge hall. She is not a professional gambler. She kept meticulous records of the $6,550 she spent on gambling expenses. How much may she deduct on her Schedule A, as a miscellaneous deduction not subject to the 2% limitation. A. $0. B. $200. C. $5,200. D. $6,550. | C |
| 2003 Part 1 76. Zach and Myra have four children ranging in age from two to ten. Zach has wages of $80,000 and Myra $25,000. Two of the children went to Child Nursery School, Inc. at a total cost of $8,000. The two older children attended a qualified afterschool program that costs $2,500. What amount of childcare expenses can be used to determine the credit on their 2002 return? A. $10,500. B. $2,500. C. $4,800. D. $6,000. | C |
| 2003 Part 1 77. Ruth had wages of $34,000 and her husband John’s wages were $27,000. They have three children ages 3, 6 and 9. They paid a total of $6,000 to Creative Child Care School, Inc. Assuming a 20% credit rate, what will be their child care credit? A. $960. B. $1,200. C. $6,000. D. $4,800. | A |
| 2003 Part 1 78. Liz has adjusted gross income of $65,000, no foreign source income and a tax before credits of more than $3,000. Her dependents include her son Ben, who turned 17 in September 2002, her daughter, Sheila, who is 12 and her niece, Abigail, who is 6. All of the children are U.S. citizens and lived with her all year. What is the amount of child tax credit she may claim on her 2002 return filed April 15, 2003? A. 0. B. $600. C. $1,200. D. $1,800. | C |
| 2003 Part 1 79. Jerry has two dependent children, Greg and Mandy, who are attending an accredited college in 2002. Greg is a senior who spent $7,000 for tuition and fees. Mandy, a freshman with no prior postsecondary education, had tuition expenses of $4,000. Jerry meets all the income and filing status requirements for the education credits. There is no tax-free assistance to pay these expenses. Jerry’s tax liability before credits equals $14,000. What is the maximum credit that Jerry may claim on his 2002 tax return? A. $2,200 Lifetime Learning Credit. B. $3,000 Hope Credit. C. $1,500 Hope Credit and $1,000 Lifetime Learning Credit. D. $1,500 Hope Credit and $1,400 Lifetime Learning Credit. | C |
| 2003 Part 1 80. Mildred and John purchased 40 acres of undeveloped land in 1960 for $120,000. They paid personal real estate taxes of $50,000, which they elected to add to the property’s basis. They sold the property for $600,000, having total settlement costs of $70,000. The settlement costs are allowable as an expense of sale. Mildred and John received a down payment of $100,000 with the balance to be paid over 15 years. What is their gross profit percentage? A. 60% B. 72% C. 68.33% D. 82% | A |
| 2004 Part 1 1. April is age 18 and single. Her only income in 2003 was $600 of self employment income from selling cosmetics. April is not required to file a return for 2003. | False |
| 2004 Part 1 1. April is age 18 and single. Her only income in 2003 was $600 of self employment income from selling cosmetics. April is not required to file a return for 2003. | False |
| 2004 Part 1 3. No estimated tax payments are required if enough tax is paid through withholding to keep the amount owed with the return under $2,000. | False |
| 4. Ms. Winter owns an apartment complex. She received $5,000 in December 2003 to cover the January rents for tenants who will be on vacation January 15, 2004, when the rent is due. Although she is a cash basis taxpayer for purposes of filing her return she uses the accrual method of accounting to maintain her books on the rental property. Since she uses the accrual method of accounting, she should report the $5,000 in 2004. | False |
| 2004 Part 1 5. Ms. Flyer owns a house and rents it to a painter. The painter lost his job in April and volunteered to paint the outside of the house in lieu of rent for the months of May and June. Ms. Flyer determines the $1,000 rent due from her renter is approximately the amount she would have to pay someone else to paint the house. She decides to accept his offer. Since she did not receive any cash rent for the months of May and June, she need not include the $1,000 in income. | False |
| 2004 Part 1 6. Interest was credited to Jane’s savings account on December 31, 2003. As long as Jane leaves the interest in the account and does not withdraw it, the interest is not taxable to her. | False |
| 2004 Part 1 7. Jack, a U.S. citizen, was a resident of England for all of 2003. He received $100,000 in wages from an English corporation, and paid taxes to England on this income. The entire $100,000 is exempt from U.S. income tax. | False |
| 2004 Part 1 8. Mr. Barley, an accountant, accepted a painting for his office from his client in lieu of payment of his customary fee of $400 for preparation of a tax return. He must include the $400 in income. | True |
| 2004 Part 1 9. Basis in property inherited from a decedent is generally the same as the decedent’s basis at the date of death. | False |
| 2004 Part 1 10. Upon the death of her mother, Janice inherited a home. At the time of her mother’s death, the fair market value of the home was $100,000. Her mother had purchased the home as a primary residence in 1980 at a cost of $35,000. Janice’s basis in the property is $100,000. | True |
| 2004 Part 1 11. Sandy bought investment property on March 1, 2002, and sold it on March 1, 2003. The character of her gain or loss is longterm. | False |
| 2004 Part 1 12. Mr. and Mrs. Black purchased their primary residence in 1995 and lived in it until they sold it in 2003. They purchased the home for $250,000 and sold it for $650,000. Since their home was sold for more than the maximum exclusion of $500,000, they are required to report the sale of their home on their 2003 tax return. | False |
| 2004 Part 1 13. The sale of Section 1244 stock can be deducted as an ordinary loss. | True |
| 2004 Part 1 14. Jasmine is paid a flat rate of $5,000 a year to cover any business expenses. She is not required to give her employer any accounting of these expenses. Her employer includes the $5,000 in her W-2. If she wishes to deduct her business expenses, she must complete Form 2106. | True |
| 2004 Part 1 15. Jim’s W-2 comprises his entire adjusted gross income of $9,000. In 2003, he files as single and has no qualifying child. If all other Earned Income Credit rules are met, Jim can claim the credit. | True |
| 16. Franz and Hilda are married and file a joint return. They have one qualifying child. Franz worked as a gardener and earned $9,000 in 2003. Hilda is a non-citizen and cannot get a social security number. They can claim the Earned Income Credit. | False |
| 2004 Part 1 17. All amounts paid to a person who both cares for a qualifying child and provides household services, such as cleaning or cooking, while the parents work, are included in the computation of the child care credit. | True |
| 2004 Part 1 18. You may be able to take a credit against your regular tax if you had unused alternative minimum tax credit that you are carrying forward from 2002 to 2003. | True |
| 2004 Part 1 19. If property is repossessed after making an installment sale, a gain or loss may be realized on the repossession. | True |
| 2004 Part 1 20. Sam is a used car dealer and sells his cars to the public. He takes a 20% down payment and receives the remaining amount in equal monthly payments for the three years following the sale. Sam can report these sales using the installment method. | False |
| 2004 Part 1 21. Which of the following is true regarding the filing of Form 4868, Application for Automatic Extension of Time to File a U.S. Individual Income Tax Return? A. Filing Form 4868 provides an automatic 2-month extension of time to file and pay income tax. B. Any U.S. citizen who is out of the country on April 15, 2004 is allowed an automatic 4-month extension of time to file his/her 2003 return and pay any federal income tax due. C. Interest is charged on tax not paid by the due date of the return even if an extension is obtained. D. Electronic filing cannot be used to get an extension of time to file. | C |
| 2004 Part 1 22. Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, will provide the taxpayer with the following: A. An automatic extension of 2 months for taxpayers out of the country on April 15 B. An automatic extension of 4 months to pay the taxes due C. An automatic extension of 4 months to file the return D. An automatic extension of 6 months to file the return | C |
| 2004 Part 1 23. Who would not be a qualifying person for purposes of filing as Head of Household in 2003? A. Your mother whom you can claim as a dependent. B. Your adopted child who lives with you, is married, and can be claimed as your dependent C. Your foster child who lived with you all year and is your dependent D. Your aunt, related to you by blood. She does not live with you but is your dependent | D |
| 2004 Part 1 24. Mr. & Mrs. Rose are both over 65. Their adjusted gross income is $100,000. During the year their 35-year-old single son, Tom, lived with them while attending college and earned $4,000. Mr. Rose’s mother, Ivy, lived with them until June 1 when she was placed in a nursing home for an indefinite period of time to receive medical care. Ivy received no income and was supported solely by Mr. and Mrs. Rose. Determine the number of exemptions Mr. and Mrs. Rose can claim on their 2003 joint return. A. 2 B. 3 C. 4 D. 6 | B |
| 2004 Part 1 25. Holly and Harp Oaks were divorced in 2002. The divorce decree was silent regarding the exemption for their 12-year-old daughter, June in 2003. Holly has legal custody of her daughter and did not sign a statement releasing the exemption. Holly earned $8,000 and Frank earned $80,000. June had a paper route and earned $3,000. June lived with Harp 4 months of the year and with Holly 8 months. Who may claim the exemption for June in 2003? A. June may, since she had gross income over $3,000 and files her own return. B. Since June lived with both Holly and Harp during the year, they both may claim her as an exemption. C. Holly may, since she has legal custody and physical custody for more than half the year. D. Harp may, since he earned more than Holly and, therefore, is presumed to have provided more than 50% of June’s support. | C |
| 2004 Part 1 26. Violet made no estimated tax payments for 2003 because she thought she had enough tax withheld from her wages. In January 2004, she realized that her withholding was $2,000 less than the amount needed to avoid a penalty for the underpayment of estimated tax so she made an estimated tax payment of $2,500 on January 10. Violet filed her 2003 return on March 1, 2004, showing a refund due her of $100. Which of the following statements is not true regarding the estimated tax penalty? A. Violet will not owe a penalty for the quarter ending December 31,2003, because she made sufficient payment before January 15,2004. B. Violet will not owe a penalty for any quarter because her total payments exceed her tax liability. C. Violet could owe a penalty for one or all of the first 3 quarters even though she is due a refund for the year. D. If Violet owes a penalty for any quarter, the underpayment will be computed from the date the amount was due to the date the payment is made. | B |
| 2004 Part 1 27. Sherwood received disability income of $6,000 for 2003. All premiums on the health and accident policy were paid by his employer and included in Sherwood’s income. In addition, he received compensatory damages of $10,000 as a result of inadvertent poisoning at a local restaurant. He received no other income this year. How much income must Sherwood include on his 2003 tax return? A. $16,000 B. $10,000 C. $6,000 D. $0 | D |
| 2004 Part 1 28. Mr. Bus paid $950,000 for an office building and furnishings on January 1, 2003. He plans to use the General Depreciation System (GDS) under MACRS for the depreciation of his property. What recovery period must he use for the following items? ·$900,000 for the building ·$50,000 for office desks and file cabinets A. 27.5 years for the entire asset, building and furniture B. 39 years for the building and 5 years for the office furniture. C. 27.5 years for the building and 7 years for the office furniture D. 39 years for the building and 7 years for the office furniture | D |
| 2004 Part 1 29. The cost basis of rental property includes: A. Fees paid to the settlement attorney B. Recording fees and transfer taxes C. Real estate taxes paid to the seller without reimbursement D. All of the above | D |
| 2004 Part 1 30. Ms. Miller set up a computer system for Mr. Town’s business. In return, Mr. Town gave Ms. Miller a storage facility. Ms. Miller plans to use this facility for business purposes and plans to depreciate it. The fair market value of Ms. Miller’s services and the storage facility was $50,000. Mr. Town’s basis in the storage facility was $30,000. How should Ms. Miller treat the transaction and what is her depreciable basis for the property. A. Ms. Miller should include the $50,000 in income and use $30,000 as the depreciable basis for the storage facility she received. B. Mr. Town should include the $30,000 in his income and use the $50,000 as the depreciable basis for the storage facility. C. Ms. Miller should include $30,000 in income and $50,000 as the depreciable basis for the storage facility. D. Ms. Miller should include $50,000 in income and use $50,000 as the basis for the storage facility. | D |
| 2004 Part 1 31. Jerry received two acres of land valued at $10,000 as a gift. The donor’s adjusted basis was $12,000. Jerry subsequently sold the land for $20,000. For purposes of computing his gain, what is Jerry’s basis in the land? A. $12,000 B. $10,000 C. $ 8,000 D. $ 2,000 | A |
| 2004 Part 1 32. Harry purchased one share of common stock in a computer company for $90. Shortly after he purchased it, the corporation distributed two new shares of common stock for each share held. What is his basis for each of the three shares of common stock? A. $90 B. $180 C. $30 D. $0 | C |
| 2004 Part 1 33. Arthur lived and worked in Florida for 8 months in 2003 and earned $30,000. He then worked in California at a seasonal job at a race track the last 4 months of the year and earned $12,000 before returning to Florida. What is Arthur’s “tax home?” A. Since he does not have a regular place of business, he is considered a transient and his tax home is wherever he works. B. Since Arthur was working in California at the end of the year, it is his tax home for 2003. C. Since Arthur had significant earnings at two locations, it is impossible to determine his tax home. D. Since most of his time and income were from the job in Florida, it is considered his tax home. | D |
| 2004 Part 1 34. Sam uses his personal vehicle to make business deliveries. He submits the number of miles he drives to his employer and is reimbursed an amount per mile which exceeds the federal rate. Sam’s actual expenses are more than the federal rate. His employer includes the amount up to the federal rate in box 12 of Form W-2 where it is not taxable to Sam. The excess allowance is included in box 1 of the Form W-2 as wages. How should Sam report or claim this mileage? A. File Form 2106 to deduct the excess expenses. B. Repay the excess to his employer. C. He cannot claim any of the expenses since his employer reimbursed him for all expenses. D. If he files Form 2106 he need not reduce his mileage expense by his reimbursed amount. | A |
| 2004 Part 1 35. Which of the following in not a payment deductible as alimony? A. Payments for life insurance premiums required by the divorce decree. B. Payments for medical expenses of your spouse under the terms of the divorce decree.C. Half of the mortgage payment on a home jointly owned with your ex-spouse when required by the divorce decree D. Payments for child support required by the divorce decree | D |
| 2004 Part 1 36. Which of the following may not be deducted as medical expenses? (Disregard any limitations which may apply.) A. $1,000 long-term care insurance. B. $600 for eyeglasses. C. $300 for maternity clothes. D. $3,000 to a family physician for medical care. | C |
| 2004 Part 1 37. Which of the following statements is not true regarding documentation requirements for charitable contributions? A. If the total deduction for all noncash contributions for the year is more than $500, Section A of Form 8283, Noncash Charitable Contributions, must be completed. B. A noncash contribution of less than $250 must be supported by a receipt or other written acknowledgement from the charitable organization. C. A deduction of more than $1,000 for one property item generally requires that a written appraisal be obtained and attached to the return. D. A contribution charged to a credit card is a noncash contribution for purposes of documentation requirements. | C/D |
| 2004 Part 1 38. In 2003, Jorge’s pleasure boat was destroyed by a flood. He had purchased the boat in 2001 for $30,000. His insurance policy had lapsed at the time of the flood. On what form(s) will Jorge report this loss? A. Schedule A, Itemized Deductions, and Form 4684, Casualties and Thefts B. Schedule D, Capital Gains and Losses, and Form 4684, Casualties and Theft C. Schedule D, Capital Gains and Losses, and Form 4797, Sales of Business Property and Involuntary Conversions D. On the first page of Form 1040 | A |
| 2004 Part 1 39. Which of the following taxpayers may claim earned income credit for 2003? A. Ginger, 50 years of age, who has a qualifying child for whom she provides sole support. She received $15,000 in Social Security benefits and $500 in interest income in 2003. B. Cinnamon, 42 years old, who was divorced the entire year. She had investment income of $2,500 and had W-2 wages of $7,000. C. Woody, age 51, who is single and lived in a homeless shelter during 2003 and received retirement benefits of $5,000. D. Cherrie, age 35, who is single and has one qualifying child. She had $35,000 in wages and her adjusted gross income is $37,000. | B |
| 2004 Part 1 40. Which of the following are miscellaneous itemized deductions not subject to the 2% adjusted gross income limitation? A. Federal estate tax on income in respect of a decedent B. Gambling losses up to the amount of gambling winnings C. Casualty and theft losses from income-producing property D. Burial and funeral expenses | A, B, C, or D |
| 2004 Part 1 41. Mr. and Mrs. Pine both work full time. They have three children ages 18, 6, and 3. For purposes of claiming the Child Care Credit, which of the following expenses qualify? A. Payments to the taxpayer’s 18-year-old daughter to care for her 3-year-old sister B. Payments to the taxpayer’s 20-year-old niece who lives with them and can be claimed as their dependent C. Payments to the taxpayer’s mother who lives with them but does not qualify as their dependent D. Payments to a private school for their 6-year-old to attend first grade | C |
| 2004 Part 1 42. For purposes of claiming the Child Tax Credit, which of the following is not a requirement for a qualifying child: A. Child must be under age 16 at the end of the year. B. Child must be a citizen or resident of the United States. C. Child must be claimed as your dependent. D. Child must be an eligible foster child. | A/D |
| 2004 Part 1 43. Which of the following statement is not true regarding tax benefits for education? A. The Hope credit may be claimed for tuition expenses incurred in the first 2 years of post-secondary education. B. The dollar limitations for the Hope credit are calculated on a per student basis. C. The Lifetime Learning Credit is allowed for tuition paid for graduate program studies. D. Room and board are qualifying expenses for the Hope credit. | D |
| 2004 Part 1 44. Which of the following is true regarding a nonbusiness bad debt? A. It is deductible as a short-term capital loss. B. It is not deductible. C. It is deductible only if you itemize. D. It is deductible as a long-term capital loss. | A |
| 2004 Part 1 45. Which of the following items are not adjustments or tax preference items for computing alternative minimum tax? A. Personal exemptions. B. Standard deduction. C. Interest income. D. Itemized deduction for state and local taxes. | C |
| 2004 Part 1 46. Phil is unmarried in 2003. His dependent daughter, Susan, lived with him all year. Property taxes of $2,500 and mortgage interest of $5,000 on the home where he and Susan live are divided equally with his ex-wife. Phil paid the utilities of $200 per month. What amount may Phil use as the costs of keeping up a home to qualify for head of household filing status? A. $6,150 B. $4,950 C. $3,750 D. $9,900 | A |
| 2004 Part 1 47. Thomas and Rebecca are the parents of four children, ages 10, 12, 15, and 22. Their 22-year-old child is a full-time student with income of $5,600. Thomas and Rebecca provided more than 50% of the support for all their children. If they file a joint return, how many exemptions can they claim for the above family members? A. 5 B. 4 C. 6 D. 3 | C |
| 2004 Part 1 48. In meeting the gross income test for claiming his father as a dependent, Doug considered the income received by his father. This income included gross rents of $4,000 (expenses were $2,000), municipal bond interest of $1,200, dividends of $1,400, and Social Security of $4,000. What is Doug’s father’s gross income for dependency test purposes? A. $3,400 B. $5,400 C. $9,400 D. $8,600 | B |
| 2004 Part 1 49. Mr. and Mrs. Black received the following income for 2003. How much income should be reported on their 2003 joint return? · W-2 income for Mrs. Black for wages of $30,000 · W-2 for Mrs. Black for $2,000, the value of fringe benefits not included in the above W-2. Mrs. Black did not pay for the fringe benefits. · Benefits of $5,000 paid to Mr. Black from a health and accident plan for which the premiums were paid by his employer but included in his income. A. $30,000 B. $32,000 C. $37,000 D. $35,000 | B |
| 2004 Part 1 50. Pastor Green received an annual salary of $20,000 as a fulltime minister in 2003. The church also paid him $1,000 designated as a housing allowance to pay for his utilities. His church owns a parsonage that has a fair rental value of $6,000 in which he lives rent free. Neither the rental allowance nor the rental value of the parsonage is included in his W-2. All amounts are considered provided for services he renders as a licensed pastor. He is not exempt from self employment tax. Compute the amount of Pastor Green’s income that is subject to income tax on his 2003 return. A. $ 19,000 B. $ 20,000 C. $ 27,000 D. $ 26,000 | B |
| 2004 part 1 51. Mr. and Mrs. Apple received the following income during 2003: ·$200 in interest credited to their bank account but not withdrawn or used by them during the year ·$2,000 in interest received as a beneficiary in a trust established by Mr. Apple’s father and included on Schedule K-1 from the trust ·$100 in interest on a bond issued by the state of Georgia ·$1,000 bond interest, City of Atlanta municipal bond. How much taxable interest income must Mr. and Mrs. Apple report on their 2003 tax return? A. $3,300 B. $0 C. $2,200 D. $1,300 | C |
| 2004 Part 1 52. Mr. and Mrs. Beet own a house which they rent to non-related parties. They had some major expenses during 2003 as follows: ·$2,000 to replace the cabinets in the kitchen ·$500 to replace the stove ·$600 to replace the built-in dishwasher ·$400 to resurface the tub in the master bathroom What is the amount and character of their expenses? A. $2,000 capital improvements and $1,500 repairs expense. B. $2,600 capital improvements and $900 repairs expense. C. $400 capital improvements and $3,100 repairs expense. D. $3,100 capital improvements and $400 repairs expense. | D |
| 2004 Part 1 53. Mr. Brown is a college student working on a degree in accounting. He received the following in 2003: ·A $4,000 scholarship used for tuition at State University ·A $1,000 scholarship used for fees and books ·An $8,000 fellowship used for his room and board Compute the amount Mr. Brown must include in income for 2003. A. $8,000 B. $5,000 C. $13,000 D. $9,000 | A |
| 2004 Part 1 54. Mr. and Mrs. Garden filed a joint return for 2003. Mr. Garden received $8,000 in Social Security benefits and Mrs. Garden received $4,000. Their income also included $10,000 taxable pension income and interest income of $2,000. What part of their Social Security benefits will be taxable for 2003? (The base amount for married filing jointly is $32,000 for 2003.) A. $ 0 B. $6,000 C. $24,000 D. $12,000 | A |
| 2004 Part 1 55. Ms. Red, age 28, is single and received $10,000 in unemployment benefits from the state for 2003. She also received $3,000 from the state to reduce the costs of her winter fuel bill. What amount of income should Ms. Red report for 2003? A. $10,000 B. $13,000 C. $3,000 D. $0 | A |
| 2004 Part 1 56. John, a cash basis taxpayer, had a $5,000 loan from his local credit union. He lost his job and was unable to make the payments on this loan. The credit union determined that the legal fees to collect might be higher than the amount John owed so they canceled the $3,000 remaining amount due on the loan. John did not file bankruptcy nor was he insolvent. How much must John include in his income as a result of this occurrence? A. $5,000 B. $3,000 C. $0 D. $8,000 | B |
| 2004 Part 1 57. A taxpayer purchases rental property for $160,000. She uses $25,000 cash and obtains a mortgage for $135,000. She pays closing costs of $10,000, which includes $5,000 in points on the mortgage and $5,000 for bank fees and title costs. Her initial basis in the property is: A. $35,000 B. $170,000 C. $165,000 D. $160,000 | C |
| 2004 Part 1 58. Mr. Rabbitt purchased a home for $200,000. He incurred the following additional expenses: ·$200 fire insurance premiums ·$500 mortgage insurance premiums ·$400 recording fees ·$250 owner’s title insurance Compute his basis in the property. A. $201,350 B. $200,000 C. $200,650 D. $201,150 | C |
| 2004 Part 1 59. Tom gave Fred a rental house. Tom had purchased the property in 1993 for $80,000 and has taken $9,000 in depreciation. Tom’s adjusted basis was $71,000. The fair market value of the rental house on the day of transfer was $90,000. If Fred sells the house at a gain, his basis in the property will be: A. $90,000 B. $80,000 C. $71,000 D. $81,000 | C |
| 2004 Part 1 60. Maggie trades stock in ABC Company with an adjusted basis of $7,000 for DEF Company stock with a fair market value of $10,000. She had no other transactions during the year. What is the amount realized and what is her gain or loss on this transaction? A. The amount realized is $10,000 and the amount of gain is $3,000. B. The amount realized is $10,000 and the amount of loss is $3,000. C. The amount realized is $7,000 and the amount of gain is $4,000. D. The amount realized is $17,000 and the amount of gain is $3,000. | A |
| 2004 Part 1 61. A married couple, who are both self-employed, and work out of their home, purchased a new home in July 2000 for $420,000. In September 2000, they converted two bedrooms into office space where they meet clients in their home. In April 2002, they sold their home, on which they had taken $40,000 depreciation. Their home sold for $600,000. What amount of the gain is includable in their income on their joint return? A. $0 B. $40,000 C. $180,000 D. $220,000 | D |
| 2004 Part 1 62. Karen, who is single, paid $150,000 for her residence in January 1998 and lived in it until January 2002. She then moved away and rented her home from February 2002 until she sold it August of 2003 for $240,000. While it was rental property, she deducted $20,000 of depreciation. What amount of gain on the sale of her residence is excludable from income? A. $250,000 B. $90,000 C. $110,000 D. $240,000 | B |
| 2004 Part 1 13 63. Anne, who is single, owned and used her house as her main home from January 1998 until January 2002. She then moved away and rented her home from February 2002 until she sold it in August 2003. Her home sold for $240,000, which included $20,000 of depreciation and $12,000 of selling expenses. Using a zero basis, compute the amount that is excludable from income. A. $208,000 B. $220,000 C. $228,000 D. $240,000 | A |
| 2004 Part 1 64. Herb files single and had the following capital gains and losses in 2003: ·$500 loss on the sale of stock he purchased on January 14, 2003 and sold on August 10, 2003. ·$5,000 loss on the sale of stock purchased October 1, 2002 and sold November 1, 2003. ·$1,000 gain on the sale of a vacant lot held for 5 years. How should Herb’s capital gains and losses be initially reported on Schedule D? A. $4,500 long term loss. B. $4,000 long term loss and $500 short term loss. C. $4,500 long term loss and $1,000 short term loss. D. $5,500 long term loss and $1,000 short term gain. | B |
| 2004 Part 1 65. Bill and Gladys sold securities in 2003. The sale resulted in a capital loss of $7,000. They had no other capital transactions. The taxable income on their joint return was $26,000. What amount of the loss can they carry over to 2004? A. $7,000 B. $3,000 C. $0 D. $4,000 | D |
| 2004 Part 1 66. Lisa travels to various locations during her work week. Using the following data, determine the number of miles she may claim as transportation expenses for this period: ·Monday – 40 miles, round trip, from home to her full-time job ·Tuesday – 20 miles from home to her full-time job, then 10 miles from her full-time job to her part-time job, then 30 miles to her home ·Wednesday – 60 miles, round trip, from her home to her part-time job; she did not work at her full-time job A. 160 miles B. 40 miles C. 60 miles D. 10 miles | D |
| 2004 Part 1 67. James works in sales and does not receive any reimbursement for his entertainment expenses from his employer. In May, he had the following expenses: ·$500 for use of a yacht for a day’s fishing with two clients. ·$50 lunch with a client with whom he discusses a new product line. ·$200 for dues to the country club where he plays golf with a client who provides James with 40% of his commissions. ·$50 for a cheese package given to one of his clients on the client’s birthday. Before the consideration of any limitations, what is the total of his deductible expenses for May? A. $75 B. $100 C. $800 D. $600 | B |
| 2004 Part 1 68. The following items are reported on Mr. and Mrs. Spice’s 2003 joint return: ·Net profit on Mrs. Spice’s Schedule C of $40,000 ·Mr. Spice paid court-ordered alimony of $5,000 ·Self-Employment Tax of $6,120 on Mrs. Spice’s Schedule profit Compute their adjusted gross income for 2003. A. $31,940 B. $35,000 C. $28,880 D. $40,000 | A |
| 2004 Part 1 69. Mr. Cedar broke his hip and must now use a wheelchair. He modified his home to accommodate the wheelchair. He had his home appraised for refinancing just before the improvements to his home. The value of his home was $200,000. After he made the modifications and improvements listed below, the value was $202,000. Mr. Cedar incurred the following expenses during the year. Without consideration of adjusted gross income limitations, compute the amount Mr. Cedar may claim on his 2003 tax return as a medical expense: ·$3,000 to construct a ramp in the entrance of his home to accommodate his wheelchair ·$4,000 for installation of a lift to transport the wheelchair from the first to the second floor of his house ·$1,000 for adding handrails around his tub ·$200 to repair his chimney A. $8,200 B. $6,200 C. $6,000 D. $8,000 | C |
| 2004 Part 1 70. Jill divorced her husband, James, in 2002. Their son, Harry, lived with Jill for all of 2003 and qualified as her dependent. However, the divorce decree indicates James can take the exemption. Jill paid $1,200 in expenses for Harry and James paid $2,000. Jill entered into a multiple support agreement with her 3 brothers to assist with their mother’s care. Jill provided onefourth of her mother’s support and paid $1,500 in medical expenses, which was her quarter share. Without regard to adjusted gross income limitations, compute Jill’s medical expense deduction for 2003. A. $1,200 B. $1,500 C. $2,700 D. $0 | A/D |
| 2004 Part 1 71. Jeremy decided to itemize on his 2003 return. He has the following receipts. Compute the amount of taxes deduction he can take on his Schedule A, Itemized Deductions. ·State income tax $3,000. ·Federal income tax $12,000. ·County real estate tax $2,000. ·Fee for his car inspection that he uses only personally $50. ·Homeowners’ association fees on his personal home $500. ·Self- employment tax of $1,000 A. $18,550 B. $6,000 C. $5,000 D. $5,500 | C |
| 2004 Part 1 72. Matt paid interest in 2003 as follows: ·$100 on his personal credit card ·$200 on funds borrowed in order to purchase $6,000 in taxexempt securities ·$500 interest on his personal car loan. He does not use his car for business ·$10,000 on his home mortgage What is the amount of Matt’s deductible interest in 2003? A. $17,400 B. $10,600 C. $10,000 D. $10,800 | C |
| 72. Matt paid interest in 2003 as follows: ·$100 on his personal credit card ·$200 on funds borrowed in order to purchase $6,000 in taxexempt securities ·$500 interest on his personal car loan. He does not use his car for business ·$10,000 on his home mortgage What is the amount of Matt’s deductible interest in 2003? A. $17,400 B. $10,600 C. $10,000 D. $10,800 | D |
| 2004 Part 1 74. Trudy, age 46, is single. Her 2003 wages were $14,600. Her permanently disabled child, Brandy, age 26, and her 10- year-old son, Juniper, lived with her the entire year. Use the following excerpt of the Earned Income Tax Credit table to compute Trudy’s earned income credit for 2003. 2003 Earned Income Credit Table – (Excerpt, not full table) Income: At Least But Less Than For Single, Head of Household, Widower and you have----- No Children One Child Two Children 14,450 14,500 0 2,428 4,047 14,500 14,550 0 2,420 4,037 14,550 14,600 0 2,412 4,026 14,600 14,650 0 2,404 4,016 14,650 14,700 0 2,396 4,005 A. $2,412 B. $4,026 C. $4,016 D. $2,396 | C |
| 2004 Part 1 75. Jack received $3,000 in educational assistance benefits from his employer during 2003 to reimburse him for the cost of course tuition and fees for him to earn a degree. The benefits were paid under an accountable plan and were not included in Jack’s W-2. He has a modified adjusted gross income of $20,000 and he files single. A list of Jack’s 2003 expenses follows. What is Jack’s deductible tuition and fee expense? ·$500 for a bowling class not required for his degree ·$2,000 for accounting courses required for his degree ·$1,000 for room and board ·$500 for textbooks ·$500 for lab fees for courses required for his degree. A. $0 B. $4,500 C. $4,000 D. $3,000 | A |
| 2004 Part 1 76. Ms. Hazelnut works in sales. None of her expenditures are reimbursed by her employer. Her adjusted gross income is $100,000. She has the following expenditures during 2003: ·Cost of computer class needed for her job, $500. ·Business liability insurance ,$250. ·Dues to chamber of commerce where she obtains leads for her business, $250. ·Airfare to visit her mother, $1,000. ·Cost of two new business suits, $500. Compute Ms. Hazelnut’s miscellaneous itemized deductions after limitations. A. $0 B. $500 C. $1,000 D. $2,500 | A |
| 2004 Part 1 77. Virginia‘s earned income for 2003 was $24,000. She paid $3,000 to a qualifying child care center for the care of her 2-year-old son while she worked. She received $2,000 from Social Services to assist with her child care expenses. Compute Virginia’s child care credit for 2003 from the following excerpt from the child and dependent care table: IF your adjusted gross income is: THEN the percentage is: Over But not over $ 0 $15,000 35% $15,000 $17,000 34% $17,000 $19,000 33% $19,000 $21,000 32% $21,000 $23,000 31% $23,000 $25,000 30% $25,000 $27,000 29% A. $300 B. $900 C. $930 D. $310 | A |
| 2004 Part 1 78. Jean is a U.S. citizen living and working in France for all of 2003. She received wages of $150,000, dividends of $10,000 and alimony of $20,000 in 2003. She decides to use the foreign earned income exclusion available to her and file Form 2555. What is the amount of Jean’s foreign earned income before any limitations are applied? A. $0 B. $80,000 C. $150,000 D. $180,000 | C |
| 2004 Part 1 79. Ginger is a United States citizen who paid the following 2003 foreign income taxes: ·$10,000 tax paid to England on consulting fee income ·$5,000 tax paid to Spain on earned income for which she claimed the foreign earned income exclusion ·$1,000 tax paid to France which she deducted as an itemized deduction These were Ginger’s only sources of income during 2003. Her U.S. tax liability was $23,000. What amount of foreign tax credit can she claim on her 2003 return? A. $16,000 B. $0 C. $10,000 D. $7,000 | B/C |
| 2004 Part 1 80. Jim and Jean purchased a vacation home in 1997 for $100,000. They sold the property for $500,000 in 2003 and received a down payment of $200,000. They took a mortgage from the purchaser for the remaining $300,000. What is Jim and Jean’s gross profit percentage on this sale? A. 40% B. 60% C. 80% D. None of the above | C |
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