C237- Taxation 1

What year was the US income tax on individuals permanently established?

1913

What is the second highest level of legislative authority of tax law in the US?

Internal Revenue Code

In which publications does the IRS provide info on the tax consequences of specific transactions encountered in practice?

Revenue rulings

What is an example of equity when evaluating a tax system?

Each tax payer pays a different amount based on their income level

What is true about horizontal equity?

Two tax payers in similar situations s paying the same tax

What is the nature of a progressive tax rate structure?

The rate of tax increases as the tax base increases

Which tax rate structure is exemplified by the FICA portion of Social Security taxes?

regressive

An individual is salaried, is not operating a business, is divorced with one child living at home, earned $93,000 in wages in 2021, and has $17,900 of itemized deductions. What is the individual's tax liability?

$10,620

Which tax is based on the value of an individuals real estate?

Property taxes

Which entities are considered flow-through entities in the US tax system?

limited liability partnerships

A tax payer fails to report income that exceeds 25% of reported gross income but files the return on time. How many years after a return was originally due might the statute of limitations expire?

Six years

Which component of a tax practice focuses on minimizing taxes paid and maximizing after-tax cash flows while accommodating clients' other desires?

Tax planning

Which tax term defines a personal expenditure, such as charitable contributions and medical expenses, which tax payers may claim if they keep records?

Itemized deductions

A single individual earned wages of $50,000 working at a bank. The individual received a $6,000 gift from a parent to go to Europe, inherited $10,00 from a relative, and received $500 interest from a municipal bond. The individual has no dependents and has itemized deductions of $11,000. What is this individuals tax liability in 2021?

$4,295

A married couple, ages 29 & 32, have normal vision and one dependent daughter who is 14. During 2021, one of the individuals earned $54,000 in taxable wages, and the other earned $100,000. The couple also earned $400 of interest income from their joint savings account, $1,200 interest from municiple bond, and incurred $23,590 of eligible itemized deductions. Filing jointly. What is the couples federal income tax?

$19,943

Which scenario represents a realization of income?

A payment of $2,000 for stocks sold

Which type of income satisfies all three requirements for the income to be taxable?

Renting out a condo for $5,000

In which situation has a taxpayer actually or constructively received income that should be included in gross income for the current year?

The taxpayer went on vacation the last two weeks of the year, and he instructed his employer to put the year-end paycheck in his locked desk drawer at the office. The taxpayer does not return and deposit the paycheck until the following January.

Which receipt is included in gross income for 2021?

royalties

Which source of income is included in gross income?

rental

What is it called when a person attempts to not pay federal income taxes by willfully excluding taxable income?

tax evasion

Which item is excluded from gross income by the Internal Revenue Code?

A $200 gift from a relative

What must be included in gross income?

Receipt of a cash dividend

which expenses are a tax-free use of a qualified tuition plan distribution?

Rent & textbooks

Which event would result in taxable income?

Forgiveness of mortgage debt on rental property

Which type of gain does a taxpayer have if the taxpayer owns stock that has appreciated in value?

An unrealized gain

What is true about realized and recognized gains and losses?

Realized losses may be more than recognized losses.

An individual purchases a piece of property with a fair market value of $30,000 for $28,000. The individual takes out a loan for $14,000 and pays the other $14,000 in cash. In addition, the individual pays $500 in transaction costs to purchase the property and $200 in delivery costs. What is the basis for the property?

$28,700

An individual purchases a piece of property with a fair market value of $50,000 for $54,000. The individual uses a loan for $44,000 and pays the other $10,000 in cash. In addition, the individual pays $1,000 in transaction costs to purchase the property and expects to earn $5,000 per year from renting the property to others. What is the basis for the property?

$55,000

What is an example of an ordinary asset?

inventory

Which item is capital asset?

Personal residence

An individual with a taxable income of $100,000 sells 200 shares of stock at a market price of $60 per share. One hundred shares of the stock were acquired 2 years earlier at a price of $90 per share, and 100 shares were acquired five years earlier at a price of $40 per share. What is the effect of the transaction on the individual's tax circumstances?

A net long term capital loss of $1,000

An individual sells 200 shares of stock at a market price of $50 per share. He acquired 100 shares of the stock two months earlier at a price of $55 per share, and he also acquired 100 shares two years earlier at a price of $30 per share. What is the net effect of these transactions on the individuals gross income?

A net capital gain of $1,500

individual A originally acquired stock on January 6, year 1. On March 8, year 2, individual B received the stock as a gift from individual A and sold it on April 15, year 2 for fair market value. When does individual B's holding period begin?

January 6, year 1

Which mortgage interest expense is a reduction for adjusted gross income?

rental home

What is a role of deductions from adjusted gross income, excluding the qualified business income deductions?

It allows deduction of medical expenses

What is deductible as an investment expense?

Interest on a loan to purchase land for an investment

Which item is deductible as a business expense if a doctor invests personal money in various properties?

Property taxes paid on a medical office

A taxpayer runs an automotive repair business in a building he owns. The income and expenses are reported on Form 1040 Schedule C.

There was no section 179 election made.

Which action represents a deductible business expense for the current tax year and is therefore not subject to capitalization and depreciation?

Repairing a leak in the roof of the building

Which item is a deductible business expense?

Purchase of a 12 month liability insurance policy

A small-business owner contracts a painting company to paint her building. The small-business owner gives the painting company a $2,000 down payment against the total contract if $10,000. The painting company starts the job in Nov. of year 1 and completes it in Jan. of year 2. How will the business lender deduct this expense, given that she is a cash method taxpayer?

Year 1: $2,000, year 2: $8,000

A 33-year-old commercial airline pilot is trying to decide whether to claim a standard tax deduction or itemize their deductions for 2021. The taxpayer calculates $11,500 of itemized deductions. This individual is single with no children. Which deduction should this individual claim?

A $12,550 standard deduction

A 50-year-old individual is calculating his deductions for a given year.

The individual examines his records and finds that in the last calendar year he donated $500 to charity, paid state income taxes of $600, received a local tax refund of $100, spent $5,600 on medical expenses, paid $1,250 for tax preparation services, and spent $50 on professional publications last year.

What would be his itemized deductions total if this individual's adjusted gross income is $50,000?

$2,950

What is the cost per mile on travel that qualifies as an itemized deductible medical expenditure?

$0.16 per mile

What is the floor limitation for medical expense deductions?

7.5%

Which tax qualifies as an itemized deduction?

state income tax

Which type of interest qualifies as an itemized deduction?

Home mortgage interest

What is an example of a deductible charitable contribution?

Contributions equal to 25% of the taxpayer's adjusted gross income given to a local church

What is the allowable charitable contribution deduction when an individual donates intangible capital gain property, such as stock, to a public charity?

Fair market value of the property, limited to 30% of adjusted gross income

Which item qualifies as a miscellaneous itemized deduction?

Gambling expenses

An individual bought 200 shares of stock in a company for $80 per share in Jan. By Sept. of that year, the stock had declined to $50/ps, where upon the individual sold 100 shares and held the other 100 shares. In Nov. of that year, the stock returned to $78/ps, and the individual sold the remaining 100 shares. What is the max amount this individual can deduct as a capital loss when preparing this year's tax return?

$3,000

An individual bought a piece of land for $50,000 as an investment. A few years later the individual wants to sell the land. The individual has the land appraised and finds out it is only worth $45,000. The individual decides not to sell the land that year but paid $500 in appraisal fees. The land has a $15,000 mortgage on it, and the property tax bill is $250 for the year. What capital losses may this individual deduct when preparing taxes?

$0

Which tax status provides the largest standard deduction for a divorced single parent with sole custody of a child?

head of household

A taxpayer is a 60-year old widow whose widowed mother qualifies as the taxpayer's dependent. The taxpayer has a taxable income of $60,000. Which available filing status will provide the lowest tax liability for this taxpayer?

head of household

During the current year, a taxpayer married on Jan. 6, gave birth in April 15, and was divorced on July 3. The taxpayer retains sole custody of the child and has a taxable income of $60,000. Which filing status provides the lowest tax liability for this tax payer?

Head of household

An individual has an adjusted gross income of $112,500 and has three qualifying children, 3, 13, & 17. What is the max Child Tax Credit that can be claimed for 2021?

$9,600

I much tax credit applies to individuals for 2021?

Individual recovery credit

Which credit is a refundable tax credit?

Earned Income Credit

What are a taxpayer's self-employment taxes when the taxpayer has $24,000 net earnings from self-employment in 2021?

$3,672

A woman buys a $10,000 computer in Feb. What is the Modified Accelerated Cost Recovery System recovery period if the computer was put into service after Dec. 31, 1986?

$2,000

A business purchased commercial property (building & land) for a total of $2,400,000. The land value of the purchase was estimated to be $350,000. What is the MACRS depreciation deduction for the building the second year?

$53,562

Which court's cases take precedence over all other court decisions?

US Supreme Court

Which item is a source of tax law from the judicial branch of government?

court decisions

Which item is a legislative source of tax law?

Internal Revenue Code

What describes the authoritative weight carried by treasury regulations?

They have the highest authoritative weight of the administrative sources.