Federal Tax Income Test Answers

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In filing a partnership income tax return, what is the purpose of Schedule K?
To list out the various charitable contributions made by the partnership during the tax year.
To compute the amount of income taxes owed by the partnership on the income earned for the current year.
To indicate how specified revenues and expenses of the partnership are passed through to the various partners.
To determine the amount of capital gains and losses reported by the partnership.


Which schedule is used to report business income?
Schedule A
Schedule B
Schedule C
Schedule D


Which of the following is NOT a filing status?
Divorced
Head of household
Single
Married Separately
Married Jointly


The following professionals can represent clients before any office of the IRS:
Enrolled Agents, Attorneys, and Certified Public Accountants
Only Attorneys
Only Attorneys and Certified Public Accountants
Only Certified Public Accountants
Only Attorneys and Enrolled Agents


Deductible work-related educational expenses do NOT include:
Amounts donated to charity.
Amounts spent for tuition, books, supplies, laboratory fees and similar items.
Transportation and travel expenses to attend qualified educational activities.


Which income is non-taxable income?
Wages
Child Support
Hobby Income
Alimony
Dividends


______ may be deducted from Gross Income.
Entire Student Loan Payments
Half of Student Loan Payments
Student Loan Principle
Student Loan Interest


Kathy is divorced and her unmarried 27-year old son lived with her all of 2011. She paid all the household expenses and provided over half of her son's support. What is Kathy's filing status ?
Married Filing Separately
Head of Household
Single
Married Filling Jointly


IRS stands for
internal reference service
integrated revenue service
itemized revenue service
interest reference service
internal revenue service


Should gambling winnings be reported on the tax return?
No, gambling winnings are non-taxable income.
Yes, gambling winnings are taxable income.


If itemized deductions exceed the standard deduction
either deduction can be used
the itemized deductions should be used
the standard deduction should be used
the deductions are added together


True or False: Alimony Received is taxable
False
True


Contibutions to a traditional IRA are
partially tax exempt
Tax exempt
taxable
tax exempt up to $5,500


Municipal bond interest is:
tax-exempt
tax-deductible
taxed at a lower rate
taxed at 15%


Joe deposits $10,000 in a savings account. He is supposed to leave the money there for one year and will receive $11,000. He is forced to take the money out of the account early. The interest on the day of withdrawal was computed as $710. However, he was charged a penalty of $200 because of the early withdrawal and only received $10,510. Which of the following is true?
He should report interest revenue of $1,000 and a deduction for adjusted gross income of $200.
He should report interest revenue of $510.
He should report interest revenue of $710 and a deduction for adjusted gross income of $200.
He should report interest revenue of $800.


How much can you take as a real-estate loss on an individual return?
$25,000
$0
The lessor of loss or $25,000 if AGI is less than $150,000 (assuming one files a joint return) unless one is a real-estate professional.
$10,000
There is no limit.


Which of the following items is not deductible?
safety deposit box fees
bank account interest
investment management fees
tax preparation services


If you are married filing jointly for year 2011 and have itemized deduction of $10,000 would you claim itemized or standard deduction?
Itemized Deduction and Standard Deduction
Standard Deduction
Itemized Deduction
Neither


Which of the following items cannot be itemized?
mortgage interest
mortgage insurance
real estate taxes
homeowner's insurance


When contributing to an IRA, what is the maximum amount a person under the age of 50 can contribute per tax year, assuming the individual's income is $45,000?
$45,000
$6,000
$5,000
$10,000
$2,500


Steve wants to claim his son as a dependent on his tax return. His son, Mark, is 21 years old and attends a community college full-time. Can Steve claim his son as a dependent? If so, until what age can Steve continue to claim his son?
Yes. Steve can claim his son until Mark reaches 24 years old.
No. His son is over the age of 19, therefore, he does not qualify as a dependent.
Yes. However, his son must earn less than the standard deduction of $3,650 to qualify as a dependent, while attending school full time. Steve can continue to claim his son until Mark graduates, regardless of his age.
Yes. Steve can continue to claim his son until Mark graduates, regardless of his age.
Yes. However, Steve can no longer claim his son after the age of 21, regardless of Mark's full-time student status.


The amount of Social Security income that is taxable is dependent on how much other taxable income you have.
False
True


Non-cash charitable contributions over $___ require additional details:
500
250
100
50
25


Lloyd is a CPA who prepares tax returns. Eddie, an Enrolled Agent, also prepares taxes. If both men submit form 2848 (Power of Attorney) for their clients, and indicate they can receive their client's refund check, who is authorized to cash or endorse the check?
Neither. No tax preparer is allowed to cash or endorse refund checks for their clients, regardless of having a power of attorney for the client.
Lloyd because his CPA license enables him to act in his clients best interest, which includes cashing or endorsing refund checks.
Eddie because he is an Enrolled Agent, and such enrollment allows.
Both can do so because of their certification status and power of attorneys signed by their clients.


Which expense can be deducted on real estate held as an investment, but not on real estate held as a primary residence?
Property tax
Interest
Loan principal
Amortization
Depreciation


Capital Gains are reported under which Schedule
Schedule B
Schedule A
Schedule C
Schedule D


Depreciation for tax purposes is:
equal to book purposes
decelerated
accelerated


Which expenditure will you be able to use to reduce the amount that you reports as adjusted gross income (AGI)?
Casualty losses over a specified amount
Gambling losses
Moving expenses if job related and over a specified distance
The cost of child care that is job related


Which of of the following is allowable itemized deduction?
Medical Expense
Student Loan Interest
None of these
Tuition Expense
All of these


Which of the following conditions does NOT prevent you from receiving earned income credit?
Having no earned income
Not having a qualifying child as a dependent
Being a qualifying child of another person
Using the filing status is Married Filing Separately
Not being a U.S. citizen or resident alien all year


Gain on a 1031 exchange is recognized to the extent of boot.
False
True


Which form is a home office reported on?
not eligible to be deducted.
Schedule A
Schedule C
Form 8829
Schedule E


For start-up expenses incurred, taxpayers are allowed to deduct up to what dollar amount for expenditures in the taxable year in which the business begins?
No start-up expenses can be deducted.
$15,000
$10,000
$5,000
Any amount of expenses, as long as it pertains to a start-up cost.


Which of the following statements is NOT true regarding tax benefits for education?
The Hope credit, also known as the American Opportunity Credit, can only be claimed for each of the first 4 years of post-secondary education.
The Hope credit cannot be claimed if the student has been convicted of a federal or state felony offense consisting of the possession or distribution of a controlled substance.
Tuition and tuition-related fees, books, and other required course materials expenses qualify for the Hope credit.
Room and board expenses are eligible for both the Hope and Lifetime Learning credit.


The normal distribution code for IRA or pension income is:
7
3
1
4


Which of the following statements are false?
Mortgage Insurance Premiums paid in the current year is a investment expense and subject to a 2% phaseout.
Mortgage Insurance Premiums paid is treated as Mortgage Interest.
Mortgage Insurance premiums paid on a second home is generally deductible.
Upfront Mortgage Insurance Premiums paid in the current year must be amortized.
The deduction is phased out when the adjusted gross income is more than $109,000.


Which of the following would be deducted by an individual taxpayer directly on Schedule A of the Form 1040 as an itemized deduction?
Investment expenses
One-half of the amount of self-employment tax that is paid.
Interest paid on a student loan.
Educator expenses


Which qualifies as a 1031 exchange?
Skyscraper in New York for Skyscraper in London
Computer in DC for Car in DC
Barn in Kentucky for Skyscraper in New Yotk
Car in New York for Factory in Michigan


Which of the following is NOT deductible for moving expenses?
House-hunting trip(s) and temporary living expenses
Cost of storage for household goods and personal effects
All expenses are deductible toward moving expenses
Cost of lodging while traveling to new home
Payment for a moving company to transport household goods and personal effects to new home


The documentation provided for real estate sales is referred to as a:
1099-G
1099-S
1099-R
1099-MISC


An S corporation is generally required to use the accrual method of accounting.
False
True


Section 179 Depreciation cannot be deducted in the current year when:
Only qualified real property is purchased in the current tax year.
Only used equipment is purchased in current tax year.
Only listed property is purchased in current tax year.
The taxpayer has elected to deduct Bonus Depreciation in current tax year.
Only real property is purchased in current tax year.


Which of the following tests is NOT to claim a dependency exemption for your child:
Dependent taxpayer test
Joint return test
Qualifying child or qualifying relative test
Citizenship or resident test
Age test


Which of the following related parties can recognize a loss on the sale or exchange of an asset between themselves for tax purposes?
Grandfather and Granddaughter
None can recognize a loss
Brother and sister
Daughter-in-law and Mother-in-law
Corporation and sole shareholder


The form showing income from gambling winnings is referred to as a:
W2G
1099-WINNINGS
1099-G
IRA-G


What is the penalty for excess contributions made to an IRA account in a single tax year?
There is no penalty for excess contributions.
6%
3%
1%
10%


Gain on a 1031 exchange is recognized.
False
True


Which of the following is a tax deductible contribution by the donor? Assume all recipients are qualified charities.
Zachary made a large donation to a nearby university. In exchange he receives the right to purchase football tickets for the upcoming season.
Bob is a carpenter who works three to four hours each week doing carpentry work at the local homeless shelter. He normally charges $40 per hour for his work.
Harry owns several rental properties. He lets the local youth group use a suite of offices free of charge. Bob gets $3,000 in rent per month for similar suite.
Nancy donated $100 to the local fire department. In exchange, she received a coupon book for 10 car washes at the Bubbles car wash. Bubbles normally sell the same coupon books for $150.


If a disability pension is reported on a 1099-R and the recipient is under the organization's minimum retirement age, which line of Form 1040 should it appear on?
Report as Wages on line 7
Report as Pension on line 16b
Disability Income is not reported
Report as Other Income on Line 21


The accounting system used for tax purposes has a:
accrual basis
modified-cash basis
revenue recognition basis
cash basis


How long after the close of a tax period must a business file its tax return, if it does not file an extension form?
Four months
Three months
Two and a Half months
Four and a Half months
Three and a Half months


Using tax information from prior years is referred to as a:
pushover
rollover
balance forward
carry forward


Which of the following statements with respect to an S corporation is false?
S corporation losses are deductible by the owners against their ordinary taxable income (assuming the owner has a sufficient tax basis in the investment).
S corporations do not pay income tax on their earned income.
An S corporation can be a shareholder of another corporation.
Tax-exempt income earned by an S corporation is taxable at the shareholder level.

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