SEE Exam Study questions

Card Set Information

Author:
Anonymous
ID:
153386
Filename:
SEE Exam Study questions
Updated:
2012-05-11 00:18:34
Tags:
sample questions
Folders:

Description:
sample questions.
Show Answers:

Home > Flashcards > Print Preview

The flashcards below were created by user Anonymous on FreezingBlue Flashcards. What would you like to do?


  1. Becky began receiving $10,000 annual distributions from her qualified retirement plan in 2008 when she was 45. These amounts are exempt from the penalty tax on early distributions because they are equal payments based upon Becky's lifetime. In 2010, Becky received an additional $5,000 from the retirement plan that she used to pay off her credit card debt. Therefore, Becky's total 2010 distribution was $15,000. How much penalty on early distributions is she required to pay for 2010?



    A.
    $1,500

    B.
    $500

    C.
    $-0-

    D.
    $3,500
    An early distribution recapture tax may apply if, before reaching age 59 1/2, the distribution method under the equal periodic payment exception changes for reasons other than death or disability. The recapture tax may also apply if payments are not made for at least 5 years under a method that qualifies for the exception. The taxpayer may have to pay it even if the change occurs after reaching age 59 1/2. In that case, the 10% tax applies only to payments distributed before reaching age 59 1/2. The recapture tax applies to the first tax year to which the change applies. The amount of tax is the amount that would have been imposed had the exception not applied, plus interest for the deferral period. Because Becky received an additional distribution in 2010, she no longer qualifies for the exception under equal periodic payments and must recapture the tax on early distributions for all distributions previously exempt. Becky's tax on early distributions for 2010 without regard to interest is $3,500-computed as ($10,000 2008 distribution + $10,000 2009 distribution + $15,000 2010 distribution) x 10%.Correct Answer: D
  2. A Form 9465 (Installment Agreement Request) is used to make installment payments of tax liabilities. Installment payments are made in equal _________ payments?



    A.
    Bi-weekly

    B.
    Monthly

    C.
    Yearly

    D.
    None of the above
    Form 9465, Installment Agreement Request, must be used to apply for a monthly installment plan if the taxpayer cannot pay the full amount owed as shown on the tax return (or on a notice sent by the IRS). IRS Form 9465.Correct Answer: B
  3. Roy is 30-years-old and has a traditional IRA with a value of $100,000. Which of the following is a prohibited transaction in his IRA?



    A.
    Withdrawing funds to pay for tuition to obtain a PhD.

    B.
    Pledge his IRA as security for a loan to return to school.

    C.
    Withdrawing funds to pay for his appendectomy.

    D.
    Withdrawing funds to purchase his first home.
    Using an IRA as security for a loan is a specifically listed prohibited transaction. The other three items are some of the conditions that may allow you to avoid premature distribution penalties.Correct Answer: B
  4. Which of the following records is not required when a taxpayer claims more than $500 in deductions for noncash charitable contributions ?



    A.
    How the taxpayer originally obtained the property.

    B.
    The approximate date the property was obtained or completed.

    C.
    The cost or other basis, and any adjustments to the basis, of property held less than 12 months.

    D.
    The cost and other basis adjustments of publicly traded securities held more than 12 months.
    A taxpayer claiming a deduction for noncash charitable gifts of more than $500 must file Form 8283, maintain additional records, and provide additional information to the IRS. The taxpayer must indicate the following additional information on Form 8283:

    • How the taxpayer came to own the property, for example, by purchase, gift, bequest, inheritance, or exchange
    • The approximate date the taxpayer acquired the property
    • The cost or other basis, and any adjustments to the basis, of property held less than 12 months and, if available, the cost or other basis of property held 12 months or more. This requirement does not apply to publicly traded securities.Correct Answer: D
  5. Donald declared bankruptcy in 2010 and had a liability discharged consisting of a $5,000 from his friend, Maria, who made the loan to Donald three years ago. Maria reports the uncollectable loan on her 2010 tax return as a:



    A.
    loss on Form 4797

    B.
    long-term capital loss on Schedule D

    C.
    short-term capital loss on Schedule D

    D.
    investment expense on Schedule A subject to the 2% AGI limitation
    All non-business bad debts are short term capital losses and are claimed on Schedule D. The amount of time the money has been owed does not matter.Correct Answer: C
  6. Frank and Nancy are married and file a joint tax return. They have four children. Their ages are 21, 14, 12, and 9. Their 21-year-old daughter is a full-time student who earned $7,000 working part-time. Frank and Nancy provided more than half the support for all of their children. How many exemptions are claimed on their tax return?



    A.
    5

    B.
    4

    C.
    6

    D.
    3
    All are entitled to an exemption. The children are dependents as they meet the definition of a Qualifying Child. Relationship Test - The child must be a son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Age Test -To meet this test, a child must be under age 19 at the end of the year, or under age 24 at the end of the year and a full-time student, or any age if permanently and totally disabled. Residency Test - The child must have lived with the taxpayer for more than half of the year. A child who was born or died during the year passes this test if the home was the child's home the entire time he or she was alive during the year. Support Test - The child cannot provide more than half of their own support.Correct Answer: C
  7. The rules for like-kind exchanges could apply to exchanges of _________?



    A.
    A family car used for personal purposes.

    B.
    Inventories held for sale to others.

    C.
    Rental houses.

    D.
    Partnership interests.
    In a like-kind exchange, both the property given up and the property received must be held by the taxpayer for investment or for productive use in a trade or business. Machinery, buildings, land, trucks, and rental houses are examples of property that may qualify. The rules for like-kind exchanges do not apply to exchanges of property used for personal purposes, such as the taxpayer's home and family car, nor to property held primarily for sale, such as inventories and raw materials. Other types of property not eligible for like-kind exchange treatment includes, stocks, bonds, notes, accounts receivable, partnership interests, and certificates of trust. IRS Pub. 544.Correct Answer: C
  8. Earl Masterson is a full-time minister at the Washington Heights Church, which is FICA exempt. The church provides Rev. Masterson with housing that has annual fair rental value of $4,800. The church pays an annual salary of $13,200, of which $1,200 is designated for utility costs. His actual utility costs during the year were $1,000. What is Rev. Masterson's self-employment income?



    A.
    $18,000

    B.
    $16,800

    C.
    $13,200

    D.
    $17,800
    A member of the clergy is self-employed for self-employment tax purposes. Self-employment tax is based upon net earnings from self-employment. If a church is FICA exempt, the W-2 wages are considered income from self-employment. However, the rental value of the home or the housing allowance must be included as earnings for self-employment purposes (on Schedule SE) when applicable. The rental value of a home (including utilities) or any designated housing allowance is not income for federal tax purposes. The exclusion cannot be more than the reasonable pay for services rendered. Exclude any allowance designated for utility costs, up to the actual utility cost. The home or allowance must be compensation for services rendered as an ordained, licensed, or commissioned minister. Self-employment tax (not federal income tax) is calculated on Schedule SE. The minister includes all income as self-employment income on schedule SE. For federal tax purposes (Form 1040) he does not include the housing allowance as taxable income. Only the portion of the allowance not used for housing or utilities is subject to income tax.Most of the allowance is not included in income on form 1040, it is however considered income from self-employment for purposes of calculating self-employment tax on schedule SE and certain retirement plan contributions. The minister's income from self-employment includes the following:

    • Wages - Since the church is FICA exempt, social security and Medicare taxes are not withheld. In this case, the minister must include wages in income from self-employment. The entire amount received ($13,200) is part of self-employment income even though a portion is designated as utility costs.
    • Housing allowance - The entire allowance ($4,800) is part of self-employment income.Now, for income tax purposes (Form 1040), the minister may exclude a reasonable amount from income that is actually used for housing and utilities. The amount that he must include in income is $200, which is the difference between what he used and what is received.Correct Answer: A
  9. Tips reported to the employer will be included in the employee's _________?



    A.
    W-2

    B.
    W-4

    C.
    W-9

    D.
    1099
    Form W-2 will include the tips reported by the employee to his or her employer, as well as the taxes withheld. If there was not enough money to cover the Social Security and Medicare tax (or railroad retirement tax), the Form W-2 will also show the tax due in box 12 with codes A and B. IRS Form 4137.Correct Answer: A
  10. George bought his first home in 2007 for a price of $100,000 plus $1,000 of closing costs. In 2008, he added a room over the garage for a cost of $5,000. In 2010, George traded the house to a real estate investor plus paid $75,000 to acquire a new house for $200,000. How should George report this transaction on his 2010 tax return?



    A.
    $19,000 long-term capital gain

    B.
    $25,000 long-term capital gain

    C.
    $0 taxable gain and reduces his basis in the new house by $19,000

    D.
    No reporting required
    His adjusted basis in his old home is $106,000. The transaction does not qualify as a nontaxable exchange under Sec. 1031. It is treated as a separate sale and purchase. The value received for the house is $125,000, and $75,000 is cash, totaling $200,000 for the new house. He sold it for $125,000 as the allowed value in purchasing the new home. This produces a gain of $19,000. Assuming that George lived in the house as his primary residence during his ownership, he qualifies to exclude the entire amount of gain and therefore does not need to report this transaction at all.Correct Answer: D
  11. If the IRS decreases the amount of a refund, in which account will it withdraw the decrease?



    A.
    The first account listed on Form 8888

    B.
    The last account listed on Form 8888

    C.
    The IRS will ask taxpayer which account to make deposit

    D.
    The IRS will issue a paper check instead
    If a return contains an error and the amount of the refund is decreased, the decrease will be taken first from the last account listed on Form 8888. Thus, if the taxpayer requests that a refund be split among three accounts, any decrease will be withdrawn from the account on line 3, next from the account on line 2, and finally from the deposit to the account on line 1. IRS Form 8888.Correct Answer: B
  12. Kim purchased a movie poster in 1993 for $10. On January 1, 2010 Kim gave the poster to her granddaughter Lexi. At the time of the gift the poster had an appraised value of $510. On October 23, 2010 the lead actor in the poster died and the value almost doubled. Lexi decided to sell and received proceeds of $1,010. What is the amount and character of Lexi's gain from the sale?



    A.
    $1,000 long-term capital gain

    B.
    $1,000 short-gain

    C.
    $500 long term-capital gain

    D.
    $500 short term gain
    Since the FMV is more than the donors' adjusted basis, Lexi's basis is the same as the donor's adjusted basis. Since she sold it for $1,010 and the basis was $10, the result is a $1,000 gain. Lexi's holding period is the same as her grandmother's so this is a $1,000 long term capital gainCorrect Answer: A
  13. Generally, which of the following rules apply to Roth IRA's?



    A.
    Contributions are always non-deductible.

    B.
    Rollover contributions are generally limited to $5,000 each year or 100% of compensation, whichever is less.

    C.
    Contributions cannot be made for the tax year in which you reach age 70 1/2.

    D.
    Contribution phase out limits are the same as for traditional IRAs.
    Contributions to Roth IRA's are non-deductible, while qualified contributions to Traditional IRA are deductible. A taxpayer may make non-deductible contributions to a traditional IRA if a deductible contribution is not otherwise available. Unlike a traditional IRA, contributions to a Roth IRA may occur after age 70 1/2. There are different MAGI limits for traditional and Roth IRAs. Contribution limits for both Traditional and Roth IRA's are the same.Correct Answer: A
  14. Laura lost her job as a CPA and worked as a waitress in 2010 earning $15,000 of wages, not including tips she received. She received tips of $17 in September, which she did not report to her employer. Because Laura is forgetful about numbers, she neglected to report $58 she received as tips in October. She did report the $7,000 she received as tips for the rest of the year. How much income should Laura report as wages, tips and other compensation on her 2010 tax return?



    A.
    $22,000

    B.
    $22,075

    C.
    $22,058

    D.
    $22,017
    Laura must report all her tip income on Form 1040 even if it was not reported to her employer and does not appear on her Form W-2. She reports $22,075 as wages, tips and other compensation ($15,000 + $7,000 + $17 + $58).Correct Answer: B
  15. An activity qualifies as a business if the primary purpose of the activity is _________?



    A.
    Investment.

    B.
    To generate a profit.

    C.
    To employ others.

    D.
    Personal pleasure or recreation.
    An activity qualifies as a business if the primary purpose for engaging in the activity is for income or profit and the taxpayer is involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. Schedule C Instructions.Correct Answer: B
  16. When is a Form 8888 (Allocation of Refund) filed?



    A.
    To buy savings bonds

    B.
    To have a refund deposited into more than one account

    C.
    Both of the above

    D.
    None of the above
    Form 8888 must be filed if direct deposit of a refund to more than one account is desired. The taxpayer can also file this form to use a refund to buy up to $5,000 in paper series I savings bonds. IRS Form 8888.Correct Answer: C
  17. Joshua had income tax withheld from his wages during 2008 in the amount of $5,000. Joshua paid an additional $2,000 with his timely filed 6 month extension. Joshua filed his tax return on October 15, 2009, and paid the balance shown to be due on the return of $1,000 on that date. Joshua discovered an error in his return on November 1, 2011. On that same date he filed a claim for refund in the amount of $6,000. Assuming the grounds set forth in the claim are proper, what refund can Joshua recover for tax year 2008?



    A.
    $6,000

    B.
    $2,000

    C.
    $-0-

    D.
    $7,000
    A taxpayer must file a claim for refund (or credit) by the later of 3 years after filing the original return, or 2 years after paying the tax. Payments made before the due date are considered paid on the due date (without regard to extensions). If a claim is filed within 3 years after the date of filing the return, the credit or refund cannot be more than the part of the tax paid within the 3-year period (plus any extension of time for filing your return) immediately before you filed the claim. Joshua files the claim for refund on November 1, 2011. The tax payments totaling $7,000 are considered paid on April 15, 2009, and the payment of $1,000 occurs on October 15, 2009. Both payments are within three years of November 1, 2011, and therefore eligible for a refund. Joshua is able to request the full $6,000 he is seeking as a refund.Correct Answer: A
  18. Dean and Cathy are married and filing a joint tax return for 2010. Their two children under age 18 and Cathy's mother lived with them all year. During 2010, Dean and Cathy provided all the support for their children and more than half of the support for Cathy's mother. The children each had interest income of less than $500. Cathy's mother received $2,500 from a taxable pension, $1,500 of dividends, and $1,000 of interest income. How many exemptions can Dean and Cathy claim on 2010 their tax return?



    A.
    5

    B.
    3

    C.
    4

    D.
    2
    Dean and Cathy claim exemptions for themselves and their two children. They cannot claim Cathy's mother as a dependent under the qualifying relative test because she has gross income of more than the exemption limit.Correct Answer: C
  19. Dan is in the 15% tax bracket. He sold some stock in October 2011 and realized a long-term capital gain of $10,000. What is the maximum rate Dan pays for the capital gain?



    A.
    28%

    B.
    15%

    C.
    10%

    D.
    0%
    For 2011, the maximum capital gain rates is 0% for a taxpayer in the 15% bracket.28% Gain on collectibles or qualified small business stock 25% Un-recaptured section 1250 gain 15% Other gain and the regular tax rate that would apply is 25% or higher 0% Other gain and the regular tax rate that would apply is lower than 25%Correct Answer: D
  20. A taxpayer with AMT liability in the current year may recapture that amount in future years in the form of a credit. This non-refundable credit can offset future tax liability only to the extent prior AMT tax paid was due to deferral items. The following are not deferral items, EXCEPT:



    A.
    Deduction for state income taxes paid

    B.
    Amount claimed for personal or dependency exemptions

    C.
    Deduction for medical and dental expenses

    D.
    Deduction for accelerated depreciation
    Deferral items (for example, depreciation) generally do not cause a permanent difference in taxable income over time. Exclusion items (for example, the standard deduction) do cause a permanent difference.Correct Answer: D
  21. Daniel and Lindsey have recently adopted a little boy from Ethiopia. They incurred various expenses throughout this adoption process. Qualified adoption expenses for Daniel and Lindsey include expenses for all of the following, EXCEPT:



    A.
    Adoption fees related to their new son

    B.
    The formal adoption of Daniel's step-son, from Lindsey's previous marriage.

    C.
    Travel expenses (including meals and lodging) while Daniel and Lindsey were away from home

    D.
    Court costs involved in the adoption process
    Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. These expenses include:

    • Adoption fees
    • Court costs
    • Attorney fees
    • Travel expenses (including meals and lodging) while away from home, and
    • Re-adoption expenses to adopt a foreign child.Nonqualified expenses:

    • That violate state or federal law
    • For carrying out any surrogate parenting arrangement
    • For the adoption of spouse's child
    • For which taxpayer received funds under any federal, state, or local program
    • Allowed as a credit or deduction under any other federal income tax rule
    • Paid or reimbursed by employer or any other person or organization
    • Paid before 1997Correct Answer: B
  22. The Feinstein's paid the following amounts for household labor. Which situation requires them to withhold and pay Social Security and Medicare taxes?



    A.
    Paying $5,000 to their 19-year-old daughter for babysitting their 3 year old son.

    B.
    Paying $1,900 to a 17-year-old neighbor for washing their cars every week.

    C.
    Paying $1,800 to a 19-year-old neighbor for cleaning their swimming pool.

    D.
    Paying $3,700 to Mr. Feinstein's mother for supervising their children.
    A household employee is someone who performs household work as an employee. The worker is an employee if the taxpayer controls not only what work is done but how it is done. Paying cash wages of $1,700 or more (for 2010) to any one household employee requires withholding and paying Social Security and Medicare taxes. Individuals are not household employees who are a taxpayer's spouse, child under the age of 21, parent (certain exceptions apply), or anyone under the age of 18 at anytime during the year. If child care services are provided outside of the home, the child care provider is not considered a household employee.Correct Answer: C
  23. For 2011, taxpayers filing jointly are not entitled to the retirement contribution credit if AGI exceeds what amount?



    A.
    $20,750

    B.
    $47,625

    C.
    $56,500

    D.
    $60,000
    In 2011 a taxpayer cannot take the retirement contribution credit if the amount on Form 1040, line 38 (e.g., adjusted gross income) is more than $28,250 if single, $42,375 if head of household and $56,500 if married filing jointly. IRS Form 8880.Correct Answer: C
  24. The amount of the first time homebuyer's credit is the lesser of $8,000 or what percent of the purchase price?



    A.
    1%

    B.
    5%

    C.
    10%

    D.
    15%
    The amount of the first time homebuyer's credit is the lesser of (i) $8,000 ($4,000 if married filing separately), or (ii) 10% of the purchase price of the main home. IRS Form 5405. This credit is no longer available for most filers. To claim the first-time homebuyer credit for 2011, the taxpayer (or spouse if married) must have been a member of the uniformed services or Foreign Service or an employee of the intelligence community on qualified official extended duty outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010. Correct Answer: C
  25. Stacy and Ashley are equal partners in a tax return preparation business. Stacy received a guaranteed payment of $ 5,000 in 2010. The partnership had distributive net income $80,000 (after Stacy's guaranteed payment). The income subject to self employment tax is:



    A.
    $42,000 for each Stacy and Ashley

    B.
    $40,000 for each Stacy and Ashley

    C.
    $40,000 for Stacy and $35,000 for Ashley

    D.
    $45,000 for Stacy and $40,000 for Ashley
    A partner's distributive share of partnership income plus guaranteed payments are income from self-employment. Each partner claims $40,000 of the net income and Stacy additionally claims her guaranteed payment.Correct Answer: D
  26. Which of the following constitutes qualified official duty extended?



    A.
    Serving at a duty station at least 50 miles from the main home

    B.
    Living in government quarters under government order

    C.
    Serving for an indefinite period

    D.
    All of the above
    The taxpayer is on qualified official extended duty while: serving at a duty station that is at least 50 miles from his or her main home, or living in government quarters under government orders. The taxpayer is on extended duty when he or she is called or ordered to active duty for a period of more than 90 days or for an indefinite period. IRS Form 5405.Correct Answer: D
  27. The rule for involuntary conversions does not apply to _________?



    A.
    Theft of personal property.

    B.
    Like-kind exchanges.

    C.
    Insurance awards.

    D.
    Threat of condemnation
    An involuntary conversion occurs when property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and the taxpayer receives other property or money in payment, such as insurance or a condemnation award. Involuntary conversions are, by definition, involuntary so like-kind exchanges do not fall within this category. Gain or loss from an involuntary conversion is usually recognized, unless the taxpayer receives property that is similar or related in service or use to the converted property. IRS Pub. 544.Correct Answer: B
  28. Which of the following is the correct fact for Dusty to understand about traditional individual retirement arrangements (IRAs) for the 2011 tax year?



    A.
    He can only contribute to an IRA if he is not covered by a retirement plan through his employer.

    B.
    His contributions are deductible as long as his AGI is less than $100,000.

    C.
    His contributions are permitted up to the due date of the tax return including extensions.

    D.
    If his wife is covered by a retirement plan, and Dusty is not, his traditional IRA deduction is not limited if his modified AGI on a joint return is less than $169,000.
    Anyone may contribute to a traditional IRA, even if the contribution is not deductible. Contributions are deductible based upon income and whether there is coverage from an employer provided retirement plan. IRA contributions are required by the original due date of the return, NOT including extensions. For 2011, traditional IRA contributions are deductible when MAGI doesn't exceed $169,000 for someone not covered by an employer plan but filing jointly with a spouse who does have a retirement plan at work.Correct Answer: D
  29. Qualified education expenses excludes amounts paid for any sports, games, or hobbies unless _________?



    A.
    Required by the degree program.

    B.
    The amount of payment is de minimis.

    C.
    The student applies for an exemption.

    D.
    The expenses are health-related.
    Qualified education expenses excludes amounts paid for any course involving sports, games, or hobbies unless the course is a required part of the student's degree program. IRS Form 8917.Correct Answer: A
  30. Joyce, a cash basis taxpayer, sells high end jewelry and works on a commission basis. When business is slow she is allowed to receive advances on her commissions. In June Joyce received an advance of $3,500 and in August she received an advance of $5,000. In addition to these advances, her commissions earned during the year were $73,000. She paid the advances back on January 3 of the following year after she received her December commissions. How much income should Joyce report for 2010?



    A.
    $81,500

    B.
    $78,000

    C.
    $73,000

    D.
    $76,500
    Under the cash method, a taxpayer receiving advance commissions or other amounts for future services must include these amounts as income in the year received.Correct Answer: A
  31. An employee is subject to penalty for failure to report tips to their employer. The penalty is a percentage against all taxes due. The amount of the penalty is _________?



    A.
    5%

    B.
    25%

    C.
    50%

    D.
    75%
    If the employee did not report tips to the employer as required, the employee may be charged a penalty equal to 50% of the Social Security and Medicare tax due on those tips. IRS Form 4137.Correct Answer: C
  32. Marilyn's employer has a qualified award program. Each year at the company's holiday party in December, awards are given to a few employees who have reached certain job milestones. At the 2010 party, Marilyn received a television in recognition of her tenth anniversary with the company. The television cost $1,000. This was the only reward she received from her employer that year. Is $1,000 included in Marilyn's income for 2010 due to the award?



    A.
    Yes because the television is really compensation.

    B.
    Yes, because a television isn't an eligible gift for a qualified award plan.

    C.
    No, because the award is not cash.

    D.
    No, because it meets all the conditions of a qualified award.
    If an employee receives tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, its value is generally excluded value from income. But the excludable amount is limited to the employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards the employee receives during the year. The employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay.Correct Answer: D
  33. George bought 500 acres of land in 1971 for $100,000. He sold the property in 2010 for $1,000,000. His settlement costs for the sale were $50,000. He received a $250,000 down payment and financed the remainder of the sale on a note with 120 monthly payments. What is George's gross profit percentage?



    A.
    90%

    B.
    85%

    C.
    80%

    D.
    75%
    Selling price $1,000,000. Adjusted basis $150,000. Gross profit $850,000. Gross profit divided by selling price = gross profit percentage. $850,000 / $1,000,000 = 85%. He must recognize 85% of each installment payment in income.Correct Answer: B
  34. A taxpayer uses Form 5329 to calculate additional taxes. Which of the following taxes is not reported on Form 5329?



    A.
    10% additional tax on an early distribution from an IRA

    B.
    Additional tax due to the Alternative Minimum Tax

    C.
    6% additional tax for excess contributions made to Coverdell education savings accounts

    D.
    50% additional tax on excess accumulation in Qualified Retirement Plans
    Individuals use Form 6251 to calculate their AMT liability.Correct Answer: B
  35. After Nicole had filed her tax return, she discovered she was entitled to claim Head of Household instead of single. Which of the following statements is true?



    A.
    If she had a tax liability, the change in filing status should reduce her tax.

    B.
    You cannot change your filing status after you file your return.

    C.
    She must file a claim for a refund within two years of the original filing date.

    D.
    She must send proof of her change in filing status along with her 1040X
    A taxpayer must file a claim for refund (or credit) by the later of 3 years after filing the original return, or 2 years after paying the tax. Payments made before the due date are considered paid on the due date (without regard to extensions). Form 1040X is used to make corrections to a previously filed Form 1040/1040A/1040EZ. There is no requirement for Nicole to send additional proof to substantiate the change in filing status.Correct Answer: A
  36. Roy's qualified retirement plan was levied by the IRS in 2010 for delinquent tax liability he owed from his 2006 individual income tax return. The total amount levied from the retirement plan was $9,550. Roy is 31-years-old and his 2010 adjusted gross income was $135,650. Roy's penalty for early distribution is:



    A.
    $955

    B.
    $475

    C.
    $253

    D.
    $-0-
    The penalty on an early distribution does not apply to a distribution that is due to an IRS levy. Roy doesn't owe any penalty.Correct Answer: D
  37. Amanda purchased a commercial building for her business in 2008. The purchase price was $70,000 and she made improvements that cost $20,000. She deducted depreciation expense of $10,000. In 2010, She sold the building for $100,000 cash plus property with a fair market value of $20,000. The buyer assumed Amanda's real estate taxes of $3,000 and a mortgage of $17,000 on the building. Selling expenses were $4,000. What is Amanda's gain on the sale?



    A.
    $10,000

    B.
    $56,000

    C.
    $52,000

    D.
    $40,000
    Calculate the gain or loss on the sale property by subtracting the adjusted basis from the amount realized to get the gain or loss. The amount realized is the selling price minus selling expenses. Selling expenses include commissions, advertising fees, legal fees, and loan charges paid by the seller, such as loan placement fees or points. Adjusted basis of property is $80,000. ($70,000 + $20,000 - $10,000). The amount realized from sale is $136,000 ($100,000 + $20,000 + $3,000 + $17,000 - $4,000). Gain is $56,000 ($136,000 - $80,000).Correct Answer: B
  38. What is the value of Gloria's estate based upon the following information on her date of death?

    She is the beneficiary for life of a QTIP (qualified terminal interest property) trust with a FMV of $2,000,000
    She is the grantor of an irrevocable trust holding only life insurance on her life. The trust was established 10 years ago and Gloria retained no interest. The policy paid death proceeds of $1,000,000 when she died
    She owns another insurance policy on her life outright with a death benefit of $500,000.



    A.
    $2,500,000

    B.
    $3,500,000

    C.
    $3,000,000

    D.
    $1,000,000
    The irrevocable trust is the only listed item that is not part of Gloria's estate. This is because she relinquished control over the assets of the irrevocable trust and did not retain any interest in the assets.Correct Answer: A
  39. Dean's divorce decree requires him to pay $2,000 per month to his ex-wife, Cathy, until their son reaches his twenty-first birthday. Does Cathy include these payments she receives in her income?



    A.
    Yes, because Dean is making payments pursuant to a divorce decree.

    B.
    Yes, because the decree does not specify whether the payments are for alimony or child support.

    C.
    No, because the decree does not specify whether the payments are for alimony or child support.

    D.
    No, because the payments cease when their son reaches his twenty-first birthday.
    She does not include the payment in income. The payments are child support because they terminate on the happening of a contingency relating to the child. There is no requirement that the payment be so designated in the divorce decree; however, a payment of alimony must be designated. A payment that is specifically designated as child support or treated as specifically designated as child support under a divorce or separation instrument is not alimony. A payment is treated as specifically designated as child support to the extent that the payment is reduced either on the happening of a contingency relating to the child or at a time that can be clearly associated with the contingency. Child support payments are not deductible by the payer and are not taxable to the recipient. A payment may be treated as specifically designated as child support even if other separate payments are specifically designated as child support.Correct Answer: D
  40. George age 60, a single taxpayer, has W-2 income of $31,000 and self-employment income of $3,000. During the 2010 tax year he contributed $5,500 to his IRA (traditional). George has excess contributions of how much?



    A.
    500

    B.
    $2,000

    C.
    $-0-

    D.
    None of the above.
    Maximum allowable contributions to a traditional IRA is $5,000 or the individual's compensation for the year; whichever is less. Since he was over age 50, an additional catch-up contribution of $1,000 is available. Self-employment income is considered compensation for determining deductible contributions for IRA purposes. So George does not have any excess contributions.Correct Answer: C
  41. An individual taxpayer has capital gain distributions only, and no other capital transactions. He also has ordinary dividends to report. Which of the following statements is correct regarding his reporting requirements:



    A.
    All capital distributions must be entered on Schedule D

    B.
    No Schedule D is required. He may enter his gains directly on Form 1040 and his dividends on schedule B

    C.
    Capital gain distributions are a return of shareholder capital and not taxed

    D.
    If there are no other capital transactions, he may combine his capital gain distributions with the dividends on Schedule B
    Schedule B is for reporting interest and ordinary dividends, not capital gains. Schedule D is used to report capital gains transactions; however, if the only transactions are capital gains distributions a taxpayer can enter the gains directly on Form 1040, and need not file Schedule D.Correct Answer: B
  42. For tax year 2010, Billy and Kathy, a married couple, paid $5,500 in child care expenses for their 3 year old daughter to allow them to work. Billy earned wages of $88,500 and Kathy earned wages of $2,000 during 2010. If their 2010 tax before credits was $7,500 how much is their child and dependent care expenses credit for 2010 using the 0.20 decimal amount?



    A.
    $1,100

    B.
    $3,000

    C.
    $600

    D.
    $400
    Billy and Kathy's child and dependent care expense credit for 2010 is $400 ($2,000 x 20%). The maximum amount of expense you can consider for child and dependent care is $3,000 per child. You cannot consider any expenses in excess of the income earned by the lower earning spouse. Kathy's earned income is $2,000; therefore the amount of expense they may consider for the credit is $2,000. Their credit is 20% of $2,000, or $400.Correct Answer: D
  43. Kathy is an administrative assistant at a property management company in Los Angeles. She receives fringe benefits from her employer. Which of the following benefits paid by her employer is taxable for Kathy and reported on her Form W-2?



    A.
    Premiums for a life insurance policy with a $100,000 face value.

    B.
    Premiums for health insurance coverage.

    C.
    Contributions to a qualified retirement plan.

    D.
    Contributions to a Health Savings Account
    A taxpayer may exclude from income, the value of employer paid premiums for life insurance policies up to $50,000 in face value.Correct Answer: A
  44. Joey received a $100 cash award from his employer for meeting his 2010 production goals. Does he report the $100 as income?



    A.
    Yes, because it is a taxable bonus added to his W-2.

    B.
    Yes, because it was a cash payment.

    C.
    No, because it is less than $600.

    D.
    No, because it is a non-taxable bonus.
    Bonuses or awards for outstanding work should be included in income and reported on a W-2. In addition, cash or cash equivalent awards, such as gift certificates, are income.Correct Answer: A
  45. Brad and Angelina are both employed by Universal Corporation. Her salary is $65,000 and his is $25,000. During the year they made the following interest payments: $18,000 for the mortgage on their home, $3,000 for Brad's Porche loan, $5,000 for a home equity loan, and $14,000 on the margin account at their securities brokerage. In addition to their salaries, they had interest income of $5,500 and dividend income of $1,000. What is the amount of interest that Brad and Angelina deduct on Schedule A?



    A.
    $27,000

    B.
    $29,500

    C.
    $34,500

    D.
    $24,500
    Home mortgage and home equity interest are fully deductible. Interest on the car loan is NOT deductible. The deduction for the margin interest is limited to investment income. The total amount of deductible interest is:$18,000 mortgage$5,000 home equity loan$6,500 margin interest (limited to the amount of investment income)$29,500 Correct Answer: B
  46. Jason and Margaret report AGI of $62,000 on their 2011 joint tax return. They each contribute $5,000 to a qualified retirement plan for 2011. What is the amount of their Credit for Qualified Retirement Savings Contributions?



    A.
    $5,000

    B.
    $0

    C.
    $2,000

    D.
    $1,000
    The Credit for Qualified Retirement Savings Contributions is not available to any taxpayer with income over $56,500 in 2011. IRS Form 8880.Correct Answer: B
  47. Larry is an ordained minister in Atlanta. Which of the following sources of income does he include in reporting his gross income?



    A.
    Rental allowance.

    B.
    Fees for marriages, baptisms and funerals.

    C.
    Fair rental value of parsonage provided by his church.

    D.
    Allowance for utilities equal to exact utility costs.
    In addition to salary, a member of the clergy must include as income any offerings and fees received for marriages, baptisms, funerals, masses, etc.Correct Answer: B
  48. Which of the following will decrease the basis of property?



    A.
    Capital losses.

    B.
    Capital improvements.

    C.
    Depreciation.

    D.
    Legal fees.
    The basis of property must be decreased by all items that represent a return of capital for the period during which the property was held. Depreciation represents a return of the capital investment in the asset and will decrease the basis of the property. Legal fees and capital improvements are costs which increase basis. Capital losses do not decrease the basis of property. IRS Pub. 551.Correct Answer: C
  49. An installment agreement should not be requested if _________?



    A.
    The taxpayer can pay the amount in full within 120 days

    B.
    The taxpayer is currently in bankruptcy status

    C.
    The taxpayer's offer in compromise has been accepted

    D.
    All of the above
    The taxpayer does not have to file Form 9465 if he or she can pay the full amount owed within 120 days. The taxpayer must call or apply online to establish a request to pay in full within 120 days. The taxpayer will avoid paying a set-up fee on an installment agreement under this method. IRS Form 9465.Correct Answer: D
  50. Frank and Nancy are divorced. Nancy has custody of their 8-year-old daughter and they live in a house that is still owned by Frank and Nancy. Frank paid all of the mortgage payments in 2010, as required by the divorce decree. Does Nancy include the mortgage payments in her 2010 income?



    A.
    Yes, because Frank paid the lender directly.

    B.
    No, because Frank pays the lender directly.

    C.
    No, because Frank is still part owner of the house.

    D.
    Yes, but she only needs to report one-half of the mortgage payments made.
    If a divorce or separation instrument provides that one spouse make mortgage payments for a home that is jointly owned by the former spouses, the payer deducts one-half of the mortgage payments made as an adjustment to income and the payee reports one-half of the payments as alimony received.Correct Answer: D
  51. Sammy provided all of the support for his mother since 2008. She lived in Sam's house in Mexico during 2008 and in Sam's house in Florida during 2009. In 2010, she resided in a retirement community in Canada. In which country must Sam's mother reside in order for him to claim her as a dependent?



    A.
    United States

    B.
    Mexico

    C.
    Canada

    D.
    Any of the above
    A dependent must be a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico, for some part of the year.Correct Answer: D
  52. While Fred was walking down the street, a piano fell from a moving van and slid into him. His injuries prevented him from working in 2010. He received disability income of $60,000. All premiums on his health and accident policy had been paid by his employer and included as Fred's income. In addition, he received compensatory damages from a law suit against the moving company of $1,000,000. He received no other income in 2010. How much of this income is taxable to Fred on his 2010 tax return?



    A.
    $1,060,000

    B.
    $1,000,000

    C.
    $60,000

    D.
    $0
    The employee will recognize income for disability payments received if under the terms of the plan, the employer pays the entire premium for the coverage and does not include the cost of the coverage in the employee's gross income (i.e., the premiums are paid on a pre-tax basis and are not reported on the employee's Form W-2 for that year).Our book says - Generally, employees must report as income any amount received for personal injury or sickness through an accident or health plan when the employer pays plan premiums. The statement begins with generally as this is the most common form of disability insurance arrangement for employees.Disability benefits received by an employee who has irrevocably elected, prior to the beginning of the plan year, to have the coverage paid by the Employer on an after-tax basis for the plan year in which the employee becomes disabled are attributable solely to after-tax employee contributions and are excludable from the employee's gross income under 104(a)(3)An easy way to remember this is that benefits are taxable only when premiums for the policy are not included in the employee's income, which is usually the case.Correct Answer: D
  53. Mike and Carol Brady owned a house on the beach where they stayed for one month every summer. They purchased the house in 1998 for $175,000 and sold it in 2010 for $250,000. In 2001 they made some additions to the house that cost $25,000. They never rented the house or used it for business purposes. They financed the sale for the purchaser by taking a $50,000 down payment and agreeing to monthly payments that begin in 2011. How much is their capital gain for 2010?



    A.
    $10,000

    B.
    $15,000

    C.
    $50,000

    D.
    $ -0-
    They have a gain of $50,000 (sold for $250,000 - $200,000 adjusted basis). They cannot exclude reporting any gain because the house was not their main home. Under the installment method, the Gross Profit percentage is 20% ($50,000 divided by $250,000). This is the percentage of each payment that's counted as income. Since they only received $50,000 in the current year, $10,000 is taxable ($50,000 x 20%).Correct Answer: A
  54. James files his 2010 tax return on February 15, 2011 and pays his entire tax liability of $2,000 on that date. When is the last day James can file a claim for refund of his $2,000?



    A.
    February 15, 2013

    B.
    April 15, 2013

    C.
    February 15, 2016

    D.
    April 15, 2014
    James has up to three years from the date for filing his return to file a claim for refund. Returns filed prior to the due date are considered filed on the due date (April 15).Correct Answer: D
  55. Bonnie, is single and age 35. She received income from the following sources in 2010: wages of $2,500, dividends and interest of $600, royalty income of $400 and capital gains of $35,000. What is the maximum amount of money that she can contribute to a traditional IRA?



    A.
    $5,000

    B.
    $2,500

    C.
    $2,900

    D.
    $6,000
    For 2010, the most that can be contributed to a traditional IRA generally is $5,000 ($6,000 if you are age 50 or older), or taxable compensation for the year, whichever is smaller. Her taxable compensation is $2,500, so that is also her maximum allowable contribution to a traditional Individual Retirement Account.Compensation includes: wages, salaries, commissions, self-employment income, alimony and separate maintenance, and non-taxable combat pay.Compensation does not include: earnings and profit from property, interest and dividend income, pension or annuity income, deferred compensation, income from certain partnerships and any amount you exclude from income.Correct Answer: B
  56. Donovan established a Roth IRA in 2006 at age 57 and has contributed $3,000 each year up through 2009. In 2009, at age 61, Donovan received a distribution of his entire account balance from the Roth IRA. Is any of Donovan's distribution included in his gross income for 2009?



    A.
    No, because Donovan reached the statutory age for Roth IRA withdrawals.

    B.
    No, because distributions from Roth IRAs are not included in gross income.

    C.
    Both A and B.

    D.
    Yes, if the distribution exceeded his basis.
    While it is the case that qualified distributions from a Roth IRA are not included in gross income, Donovan's distribution was not qualified because the distribution was made before the end of the five-year time period that commenced with the first taxable year for which a contribution was made.Correct Answer: D
  57. Tips not reported to the employer constitutes gross income in the year when _________?



    A.
    Received

    B.
    Reported

    C.
    Realized

    D.
    Recognized
    Tips the employee did not report to his or her employer on time or did not report at all are considered income in the month actually received. For example, tips received in December 2011 that are not reported to the employer by January 10, 2012, are considered income in 2011 because they were not reported to the employer on time. IRS Form 4137.Correct Answer: A
  58. Mark purchased $10,000 of stock in a small start-up company in February 2010. He sold the stock to his brother, Donny, for $8,000 in September 2010. Donny then sold the stock to his neighbor in November 2010 for $15,000. What gain or loss does Mark recognize on his tax return and what gain or loss does Donny recognize on his tax return?



    A.
    Mark recognizes a $2,000 loss; Donny recognizes a $7,000 gain.

    B.
    Mark recognizes a $2,000 loss; Donny recognizes a $5,000 gain.

    C.
    Mark recognizes a $0 loss; Donny recognizes a $7,000 gain.

    D.
    Mark recognizes a $0 loss; Donny recognizes a $5,000 gain.
    Mark cannot deduct a loss in a related party transaction by selling to his brother. Donny realizes a gain of $7,000 ($15,000 sales price less $8,000 basis). Donny recognizes the gain only to the extent it is more than the loss previously disallowed of his brother in the related party transaction. Therefore, Donny recognizes a $5,000 gain.Correct Answer: D
  59. George and Martha Beck are married and file a joint tax return. They own a large estate in Virginia and rent rooms to vacationers. They provide maid service and meals in a common dining room. How do George and Martha report the income and expenses for this activity?



    A.
    Income as Other Income on Form 1040 and expenses as itemized deductions on Schedule A

    B.
    Income and expenses on Schedule E, Supplemental Income and Loss

    C.
    Income and expenses on Schedule C, Profit or Loss from Business

    D.
    The net result of income minus expenses as Other Income on Form 1040
    They will attach Schedule C, Profit or Loss from Business, to their Form 1040 to account for their income and expenses. The reason it is schedule C is because they provide services for the tenant's convenience (maid service). The Becks have self-employment income because they provide substantial services that are primarily for the convenience of the tenants. If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C, instead of Schedule E. Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants. Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. An example of a service that is not normally provided for the convenience of the occupants is maid service. However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience.Correct Answer: C
  60. Gail, who is married, gave a guitar signed by Elvis Presley's barber worth $50,000 to her brother, Ron. Gail's basis in the guitar is $20,000. What amount will Gail report as the value of the gift on Form 709?



    A.
    $10,000

    B.
    $30,000

    C.
    $50,000

    D.
    $40,000
    Gail must initially report the full value of the gift, $50,000, on her return Form 709. She can use the $13,000 exclusion to reduce the taxable amount to $37,000. Her basis in the gift does not affect the amount she must report as the value of the gift.Correct Answer: C
  61. Elsa purchased three electric vehicles. One is for use in her business delivering pizza. The other is for her to commute to work and the third was purchased for resale to her business partner. Which of the vehicles is not qualified for Elsa to use the Electric Vehicle Credit?



    A.
    The one used for business.

    B.
    The one used for business and the one used to commute to work.

    C.
    The one purchased for resale.

    D.
    All of them are not qualified for the credit.
    This credit is not available for vehicles purchased for resale.Correct Answer: C
  62. Harry purchased one share of common stock in a computer company for $50. Shortly after his purchase, the corporation distributed four new shares of common stock for each share held. Several months later, Harry sold one share for $70. What is Harry's gain?



    A.
    $20

    B.
    $40

    C.
    $60

    D.
    $35
    Harry had 1 share purchased for $50. The $50 cost split over the 5 shares he now owns results in an adjusted basis of $10 a share. Harry's gain is $60 ($70-$10). This is a stock dividend, not a stock split. A stock dividend is a distribution of already issued stock to existing shareholders.Correct Answer: C
  63. Gloria filed as head of household and would like to take the Child Tax Credit for Sara in 2010. Which of the following statements is correct regarding the Child Tax Credit?



    A.
    Gloria must have taxable income to claim the credit.

    B.
    Sara must be a citizen of the United States.

    C.
    The child tax credit is never refundable.

    D.
    If Gloria's adjusted gross income is above $55,000, her credit will be reduced or eliminated.
    The Child Tax Credit is not directly refundable, consequently a taxpayer must have taxable income to use this credit. However, indirectly it can be refundable through the Additional Child Tax Credit. Sara must be a U.S. citizen, a U.S. national, or a U.S. resident alien. Gloria's filing status is head of household therefore, her gross income must be above $75,000 not $55,000 in order to be reduced or eliminated. The $55,000 threshold is for the Married Filing Separately status.Correct Answer: A
  64. Cheryl is 40 and works for a company part time. She is not qualified to participate in the companies retirement plan because she is part time. In 2010, she files as single, and her earnings are $34,000. Also, in 2010 she contributes $3,500 to a IRA (traditional). How much of the $3,500 contribution may she deduct?



    A.
    $ - 0 -

    B.
    $3,000

    C.
    $3,500

    D.
    $5,000
    The contribution to the IRA of $3,500 is fully deductible. Generally, you can deduct the lesser of the contributions to the traditional IRA for the year, or the general limit (the lesser of $5,000 or taxable compensation). Because Cheryl is not qualified to participate in her employer's retirement plan her contribution is fully deductible.Correct Answer: C
  65. Donald is single and has one household employee. Which of the following statements is not true?



    A.
    Donald attaches Schedule H to his personal tax return for reporting the household employee. He then uses the amounts withheld from his wages as indicated on his W-2 to offset the taxes on Schedule H.

    B.
    If Donald pays only $1,600 in cash wages to his household employee he does not need to pay Federal Unemployment Tax.

    C.
    If Donald's employee is paid cash wages over $1,700 in 2011, he must pay employment taxes and can withhold the employee portion from the employee's wages.

    D.
    Donald must provide a W-2 to his employee by February 1 if the employee received cash wages in excess of $1,700 or Donald withheld taxes.
    In general, the tax attributed to household employees increases the tax paid on the employing taxpayer's personal tax return. Household employees must receive a W-2 by February 1 if they received cash wages in excess of $1,700 or had withheld taxes. If a household employee is paid cash wages over $1,700 in 2011, the employer must pay 13.3% of wages (7.65% employer, 5.65% employee). He may withhold the employee's share from wages. If the combined cash wages of all household employees is $1,000 or more in any calendar quarter the taxpayer must pay .6% on the first $7,000 of cash wages for each employee as federal unemployment tax. Wages over $7,000 a year per employee are not taxed. The taxpayer may also owe state unemployment tax.Correct Answer: B
  66. Immediately after Emily purchased 150 shares of stock, for $10.00 per share, the corporate officers declared a 3 to 1 stock split. What is Emily's basis per share after the split?



    A.
    $7.50

    B.
    $10.00

    C.
    $3.34

    D.
    $5.50
    Emily owned 150 shares of stock at $10 a share (or $1,500). She now has 450 shares with the same total basis. Her cost per share is 3.34 ($1,500 / 450).Correct Answer: C
  67. On January 2, 2011 Juan purchased 100 shares of Ammco stock for $2,500. On December 31, 2011 he sold the Ammco stock for $3,000. His broker statement showed January 4, 2012 as the settlement date. How and when should Juan report this sale?



    A.
    $500 long term capital gain on 2011 return

    B.
    $500 short term capital gain on 2011 return

    C.
    $500 long term capital gain on 2012 return

    D.
    $500 short term capital gain on 2012 return
    There is a $500 short term gain on the transaction which should be reported in 2011. In general, the holding period for investment property begins the day after the day the property is acquired, the trade date, and includes the trade date, not the settlement date, of the sale. Correct Answer: B
  68. Daniel Larusso is the vice-president of Miyagi-Do Karate. Daniel is confused about his alternative minimum tax liability. Which one of the following is NOT a tax preference item or an adjustment to taxable income?



    A.
    Daniel's exemption for his wife, Elizabeth.

    B.
    A portion of medical expenses not greater than 10% of AGI for broken ribs.

    C.
    The subtraction of any refund of state and local taxes included in gross income

    D.
    Addition of all itemized deductions (if claimed)
    AMTI includes certain adjustments to the taxpayer's taxable income:

    • Add amount claimed for personal or dependency exemptions,
    • Add amount claimed for the standard deduction, or certain (not all) itemized deductions for state and local taxes, certain interest (not eligible mortgage on main home), most miscellaneous deductions, and part of medical expenses not greater than 10% of AGI,
    • Subtract any refund of state and local taxes included in gross income.Correct Answer: D
  69. The Holiday Season is a time where Mr. Apollo Creed loves to give gifts. The gifts are usually cash or automobiles. Apollo's friends love to receive his gifts. Apollo is no longer accepting new friends. The annual gift tax exclusion amount is allowed on which of the following gifts:



    A.
    $20,000 cash to his friend, Mr. C. Lang.

    B.
    $75,000 car to his friend, Mr. T. Gunn.

    C.
    $3,000 remainder interest to his friend, Mr. M. Dixon.

    D.
    Both A and B
    A gift is made when taxpayers give property (including money), or the use of (or income from) property, without expecting to receive something of at least equal value in return. The annual gift tax exclusion applies to gifts of present interest. The annual gift tax exclusion does not apply to a remainder interest because it is a gift of a future interest in an asset.Correct Answer: D
  70. Ethel loaned Lucy $5,000 in January 2009 and Lucy signed a note agreeing to make monthly payments including interest at 6% per year. Ethel also guaranteed Lucy's car loan from New York Bank & Trust. Lucy still owed $500 on the note to Ethel and $800 to the bank on the car loan when she injured herself while working at a candy factory. Lucy is no longer able to work and declared bankruptcy in June 2010. Ethel is also owed $100 of back rent for an apartment she rents to Lucy's ex-husband, Ricky. How much is Ethel's 2010 deduction for bad debt?



    A.
    $1,400

    B.
    $500

    C.
    $1,300

    D.
    $600
    The $500 balance on the loan to Lucy is deductible as a non-business bad debt because a valid loan existed and Lucy declared bankruptcy. The loan that Ethel cosigned is not deductible. It is not a valid loan for which she has recourse on Lucy. Ethel must pay the bank but doesn't have any tax consequence. The unpaid rent from Ricky is not deductible because Ethel might still collect it from him.Correct Answer: B
  71. Ryan and Scarlet are married and both are age 38. They receive a distribution of $15,000 from Ryan's qualified retirement plan during 2010, which they use to pay for Ryan's medical bills after a boating accident. Their 2010 adjusted gross income was $66,667 and they do not itemize deductions. How much penalty on early distribution will Ryan and Scarlet owe for 2010?



    A.
    $ 0

    B.
    $1,367

    C.
    $1,500

    D.
    $500
    The penalty on early distributions from a qualified retirement plan does not apply to the extent that you have deductible medical expenses. These are the medical expenses that exceed 7.5% of your adjusted gross income, whether or not you itemize your deductions for the year.Ryan's IRA distribution was used to pay medical expenses and therefore qualifies for partial exemption even though he and Scarlet do not itemize. Ryan and Scarlet owe $500 for the early distribution. They must pay penalty on early distributions for the first $5,000 or 7.5% of their adjusted gross income ($66,667 x 7.5% = $5,000 x 10% = $500). The remaining $10,000 (the amount of deductible medical expenses that exceeds 7.5% of adjusted gross income) is exempt from the penalty on early distributions.Correct Answer: D
  72. Erin traded her car for $5,000 in cash, a dresser worth $1,200, and a record collection worth $750. The car had an adjusted basis of $6,300. How much did Erin realize on this transaction and what was the amount of her gain or loss?



    A.
    Realized $6,950; gain $650.

    B.
    Realized $5,000; loss $1,300.

    C.
    Realized $6,950; gain $1,300.

    D.
    Realized $650; gain $650.
    Erin realized $6,950 ($5000+$1,200+$750). The amount realized from a sale or exchange is the total of all money received plus the fair market value of all property or services received.Correct Answer: A
  73. Jane paid the following amounts in 2010. Which of them is not allowed as a deductible medical expense (before applying any income limitation)?



    A.
    $1,200 for health insurance coverage for her dependent daughter.

    B.
    $500 for a dentist.

    C.
    $300 for maternity clothes.

    D.
    $700 for eyeglasses.
    Maternity clothes are not a medical expense. Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Medical expenses also cover the cost of dental care. Medical expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Do not include expenses for procedures that are purely cosmetic or those that are merely beneficial to general health, such as vitamins or a vacation.Correct Answer: C
  74. Sheldon bought stock in the Big Bang Corporation in 2006 for $800. In 2011, Sheldon received a capital distribution of $50. Sheldon's total capital distributions for all prior years total $550. In 2011 Sheldon sold the stock for $3,000. What was Sheldon's gain on the sale of his stock?



    A.
    $3,000

    B.
    $2,200

    C.
    $2,800

    D.
    $2,400
    A non-dividend distribution reduces the basis of your stock. It is not taxed until your basis in the stock is fully recovered. This nontaxable portion is also called a return of capital or a capital distribution; it is a return of your investment in the stock of the company. In this case, Sheldon's basis of $800 would be reduced by all the capital distributions leaving a basis of $200.Sheldon's gain would be $2800 ($3000-$200).Correct Answer: C
  75. Maria spent money in 2010 for several health matters. Which of these costs that she paid are not deductible as medical expenses?



    A.
    A wig she purchased upon the advice of her physician to improve her mental health after losing her hair from chemotherapy

    B.
    Insulin to treat her diabetes

    C.
    Swimming lessons, recommended by a doctor for improvement of general health

    D.
    Acupuncture treatments to address her migraines
    Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. Medical expenses also cover the cost of dental care. Medical expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Do not include expenses for procedures that are purely cosmetic or those that are merely beneficial to general health, such as swimming lessons, vitamins or a vacation.Correct Answer: C
  76. Which filing status would prevent a taxpayer from claiming the tuition and fees deduction?



    A.
    Married filing separately.

    B.
    Married filing jointly.

    C.
    Single.

    D.
    Head of household.
    A taxpayer cannot claim the tuition and fees deduction if their filing status is married filing separately or if another person can claim an exemption for the taxpayer as a dependent on his or her tax return (even if the other person does not actually claim that exemption). IRS Form 8917.Correct Answer: A
  77. Paula received money from several sources in 2010. She reports as income on her tax return all of the following except:



    A.
    $25 cash given to her by a bank for opening a new checking account.

    B.
    $315 of tips she received from customers while working her part-time job as a waitress.

    C.
    $1,200 of payments from her mother directly to Paula's landlord for part of Paula's rent.

    D.
    A $500 reduction in rent by Paula's landlord in exchange for Paula having painted the house in September.
    If a person pays rent for a taxpayer, and that person does not have a business relationship with the taxpayer, the amount of rent is considered a gift and is not reported as income. Money received from a bank upon opening an account is taxable interest income and the bank will report it on form 1099-INT. Reportable income also includes tips and a reduction of rent in exchange for services provided.Correct Answer: C
  78. Sgt. Alvin York is a calendar year taxpayer on active duty for the US Army in Germany on April 15. Which of the following statements about Sgt. York's tax return is not true?



    A.
    Sgt. York can send the IRS a letter requesting a 2-month additional extension of time to file his return in addition to receiving a 6 month extension by filing Form 4868, giving him until December 15 to file.

    B.
    Sgt. York will receive an automatic 2 month extension by filing his return and paying any tax due within 2 months of the due date along with a statement describing his overseas duty.

    C.
    Sgt. York can file an Form 4868 electronically by April 15 to receive an automatic 6-month extension to file his taxes.

    D.
    If Sgt. York cannot file his return within the automatic 2-month extension period, he generally can get an additional 4 months to file his return, for a total of 6 months. Unlike the original 2 month extension, the additional 4 months extend the time to file a return but is not an extension of time to pay any tax due.
    Form 4868 may be filed by mail or electronically through e-file. The extension provides taxpayer an additional period of 6-months (Oct 15) to file their tax returns. Form 4868 does not grant additional time to pay tax due.To request an automatic 2-month extension to file and pay federal income tax, the taxpayer must either live outside the US and have a main place of business outside the US or be in military service on duty outside the US and Puerto Rico. A qualified taxpayer must attach a statement to the tax return explaining which of the two situations apply.The IRS has discretion to grant an additional 2-months for taxpayers, who only receive notification from the IRS if the request is denied.Correct Answer: A
  79. Andrew gave several gifts during 2011. He paid $6,000 tuition directly to The University of Ohio for his friend, Aaron. In addition, he gave Aaron a graduation gift of $8,000. He gave his niece, Lilly, $5,000 for her school tuition and a graduation gift of $5,000. Andrew also gave $20,000 to his local congressman for his re-election campaign. He gave no other gifts during the year. From the information above, must Andrew file a gift tax return, and why?



    A.
    No, total taxable gifts to any one individual during the year do not exceed $13,000.

    B.
    No, each transfer was under $13,000.

    C.
    Yes, total gifts given during the year exceed $13,000.

    D.
    Yes, total gifts to Aaron exceed $13,000.
    Only the taxable gifts are considered. Political gifts are not considered for gift tax purposes. In this question no gift tax return is due as the amount of taxable gifts does not exceed the annual exclusion for the tax year.Correct Answer: A
  80. Ben is a resident of Colorado and has a filing status of a single for 2010. For that year, he received interest income totaling $40,000. He reinvested $6,000 of interest earned on a certificate of deposit. His other interest was $4,000 on his savings account, $8,000 on a bond issued by Dade County (Florida), $12,000 on a mortgage note he is carrying for a property he sold in 2009, $7,000 on a bond issued by the City of Denver, and $3,000 on a bond issued by IBM. What amount of taxable interest income does Ben report on his personal income tax return for 2010?



    A.
    $40,000

    B.
    $25,000

    C.
    $13,000

    D.
    $10,000
    Interest received on an obligation issued by a state or local government is generally not taxable. Therefore, the interest received on municipal bonds issued by Dade County and the City of Denver is tax-exempt. All of the other interest amounts are taxable totaling $25,000 ($6,000 + $4,000 + $12,000 + $3,000).Correct Answer: B
  81. Which of the following statements is correct about Duke's personal exemption for the year of his wife's death?



    A.
    If Duke remarries in the same year as his wife's death, he can still claim an exemption for his wife.

    B.
    Duke must file a joint return with the deceased spouse.

    C.
    As long as Duke has no gross income for the year of his wife's death, he can remarry in that year and be claimed as an exemption on both a final separate return of his deceased wife and the separate return of his new wife.

    D.
    Duke can claim an exemption for his deceased wife only if she had no income.
    An individual without gross income who remarries in the year of a spouse's death can be claimed as an exemption on both the final separate return of a deceased spouse and the separate return of a new spouse. If filing a joint return with a new spouse, the exemption is appropriate only for that return.Correct Answer: C
  82. The earned income credit is available for _________?



    A.
    Resident aliens filing joint returns.

    B.
    Unmarried nonresident aliens.

    C.
    Corporations.

    D.
    Partnerships.
    The earned income credit (EIC) is a tax credit for certain people who work and have low wages. It reduces the amount of taxes owed and may entitle the taxpayer to a refund. Certain eligibility requirements must be met in order to claim this credit. Generally, the taxpayer must have taxable income must be below a specified amount and must be a U.S. citizen or resident alien all year with a valid social security number. IRS Form 596.Correct Answer: A
  83. In 2011, Tess received a gift from her uncle of an antique lamp. Tess's uncle purchased the lamp in 1994 for $5,000 and no basis adjustments were made. At the time of the gift to his niece, he paid $200 in gift tax based on the lamp's fair market value of $3,000. What is her gain if she sold the lamp for $6,000?



    A.
    $500 gain

    B.
    $3,000 gain

    C.
    $1,000 gain

    D.
    $1,500 gain
    To establish the basis of property received as a gift, a taxpayer must know the adjusted basis to the donor (source of gift), the FMV at the time of the gift, and any gift tax paid. The relationship between the FMV and the donor's basis determines the applicable rule. If the FMV of property at time of gift is less than donor's adjusted basis, a different basis is used, dependent on whether a gain or a loss occurs when the property is disposed of. Under the dual basis rules, the basis for figuring gain is the same as the donor's adjusted basis, while the basis for figuring loss is its FMV when the taxpayer received the gift. This prevents taxpayers from shifting unrealized losses to other taxpayers.Tess's gain is $1,000. ($6,000 proceeds -$5,000 basis). The gift tax is not an increase to basis because the FMV of the gift at the time given is less than the donors basis. Only the portion of the gift tax that is attributed to an unrealized gain is an adjustment to basis. In this case, the property was gifted at a loss. Correct Answer: C
  84. Moe, Larry, and Curly are mortgage brokers. Moe works for an S corporation of which he is a 10% shareholder. Larry is a partner with his brother-in-law in a mortgage business from which he receives guaranteed payments for his output. Curly is the sole shareholder of a C corporation from which he is paid wages. Which of them is not considered self-employed for purposes of claiming the deduction for health insurance premiums?



    A.
    Moe

    B.
    Larry

    C.
    Curly

    D.
    Both Larry and Curly
    You cannot deduct payments for medical insurance for any month in which you were eligible to participate in a health plan subsidized by your employer or your spouse's employer. A self-employed taxpayer who is not eligible to participate in an insurance plan subsidized by his employer or his spouse's employer may make an adjustment on his personal income tax return for the amount of medical, dental and qualified long-term care insurance premiums (limited) the taxpayer pays on behalf of himself, his spouse, and his dependents. For this purpose, a taxpayer is considered self-employed if he is a general partner (or a limited partner receiving guaranteed payments) or if he receives wages from an S corporation in which he is more than a 2% shareholder. The deduction cannot be more than the earned income from the business. The taxpayer must establish the plan under the business.Correct Answer: C
  85. Gil is 51-years-old and received two retirement distributions from retirement accounts in 2010. All of the distributions were used to pay off Gil's credit card debt. The first distribution was in May for $25,000 from an IRA that he established in 2003. This was a complete liquidation of the entire IRA. The second distribution was in August for $10,000 from a 401(k) plan Gil had with a former employer. This was the first of a series of equal annual distributions Gil is taking from the 401(k) based upon his life expectancy. How much penalty on early distributions does Gil owe for 2010?



    A.
    $ 0

    B.
    $2,500

    C.
    $1,000

    D.
    $3,500
    The penalty on early distributions from a qualified retirement plan does not apply to distributions that are made as part of a series of substantially equal periodic payments based upon life expectancy. The distribution of $10,000 from the previous employer's 401(K) plan was part of a series of equal periodic payments and is exempt from the 10% penalty. Because Gil had not reached the age of 59 1/2, the $25,000 distribution from the IRA is subject to the 10% tax on early distributions ($25,000 x 10% = $2,500).Correct Answer: B
  86. Peter is single and provides more than half of the support for his father, who lived with Peter for all of 2010. His father's income in 2010 consisted of $2,000 in wages, $4,000 in Social Security benefits, $1,200 of municipal bond interest, $1,000 of corporate bond interest, $1,400 of dividends, $4,000 of rent income, and $2,000 of rent expenses. How much 2010 gross income does Peter's father have for determining the dependency exemption?



    A.
    $10,400.

    B.
    $8,400.

    C.
    $12,400.

    D.
    $11,600.
    Gross income is all income in the form of money, property, and services that is not exempt from tax. Social Security benefits (in this example) and municipal bond interest are not taxable and not included in gross income for this test. The question asks about gross income for purposes of a dependency exemption, which includes rental income (before deductions). Do not deduct taxes, repairs, etc., to determine the gross income from rental property. .Correct Answer: B
  87. On June 1, 2009, Mr. Jefferson purchased an office building, for investment purposes. On January 31, 2010, Mr. Jefferson traded the office building for an apartment building and $30,000 cash in a non-taxable exchange. On August 15, 2011, he sold the apartment building for a gain. What is the character of Mr. Jefferson's gain for 2011?



    A.
    Short-term capital gain.

    B.
    Long -term capital gain.

    C.
    Part short-term capital gain and part long-term capital gain.

    D.
    Ordinary income.
    The holding period of property acquired in a non-taxable exchange begins on the date the taxpayer placed the original property in service. The gain is long-term as the date of sale is more than one year after the original land purchase on June 1, 2009.Correct Answer: B
  88. Karen died on December 9, 2010. She had a $20,000 net operating loss carryforward from her 2009 tax return. The maximum allowable amount of net operating loss carryforward deducted on her 2010 return was $15,000. What amount of the unused net operating loss is carried over to Karen's estate income tax return? (She did not have any additions to her net operating loss for 2010.)



    A.
    $0

    B.
    $5,000

    C.
    $20,000

    D.
    None of the above
    Losses resulting from net operating losses or capital losses sustained by the decedent before death cannot be deducted on the estate's income tax return.Correct Answer: A
  89. Andy has a traditional IRA. His IRA can invest in which of the following as an allowable investment?



    A.
    Stamps that have been issued by the United States Postal Service

    B.
    A drawing by Picasso that is officially certified as authentic

    C.
    One-ounce silver coins minted by the U. S. Treasury Department

    D.
    None of the above.
    If a traditional IRA invests in collectibles, the IRS will consider the amount a distribution in the year invested. The 10% additional tax on early distributions may apply. Collectibles include artworks, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and certain other tangible personal property.Exception: An IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. Correct Answer: C
  90. Roberta is in the Army, stationed in Hamburg, Germany on the due date for her return. She is a US citizen and is required to file a US tax return. She reported to duty in Hamburg on March 15, 2009, and has been there ever since. What is latest deadline for Roberta to pay her 2011 taxes?



    A.
    Like everyone else, Roberta must file and pay by April 18, 2012, the normal tax filing deadline.

    B.
    She must file within 180 days of leaving the combat zone.

    C.
    She must file within 180 days of leaving, plus an additional 3 1/2 months.

    D.
    She can file and pay by June 15, 2012 under an automatic 2-month extension as she is out of the country on active military duty.
    Germany is not a qualified combat zone. Roberta automatically receives a 2-month extension to file and pay. A taxpayer who is a U.S. citizen (or resident) may receive an automatic 2-month extension to file a return and pay any federal income tax due if, on the due date of the return, they are in the military or naval service on duty outside the US and Puerto Rico, or live and maintain a main place of business outside the United States and Puerto Rico. Interest applies from due date until paid. The taxpayer must attach a statement to their return explaining which situation applies.Correct Answer: D
  91. Charles, age 65, Kathleen, age 63 are married and file a joint return. Charles is covered by a retirement plan at work and his salary is $106,000. Kathleen's income was $10,800 of social security. Their joint return for year 2011 had MAGI of $115,000. They both have IRAs and would like to contribute to both. Which of the following will provide them the greatest allowable tax benefit?



    A.
    They may contribute $6,000 to each IRA, but only take a deduction for the $6,000 to Charles' IRA

    B.
    They may contribute $6,000 to each IRA, but take no deduction for either IRA contribution.

    C.
    They may contribute $6,000 to each IRA, and take a deduction of $6,000 for each IRA

    D.
    They may contribute $6,000 to each IRA, but only take a deduction for the $6,000 to Kathleen's IRA
    Each spouse can make a 2011 contribution of $6,000 (both are over 50) so long as there is at least $12,000 of taxable compensation between them (note that social security is NOT compensation).Although the deduction for IRA contributions may be reduced or eliminated, contributions can be made up to the general limit or, if it applies, the spousal IRA limit. While Charles may make his contribution of $6,000, it is not deductible since he is covered by a retirement plan at work and their MAGI is over $110,000. Kathleen is not covered by a retirement plan at work, and therefore, her contribution of $6,000 is deductible since MAGI is less than the limit of $169,000. This means they can contribute and deduct up to $6,000 for Kathleen's IRA. Correct Answer: D
  92. Ruth was single when she bought a house Houston on August 18, 2001, for $170,000. She lived in it as her primary residence until she sold it in June 2010 for $500,000. She realized a gain of $330,000 on the sale. Later in 2010, she married Nolan and moved into his house. Can Ruth and Nolan exclude Ruth's entire gain on the home sale from their taxable income?



    A.
    Yes, because they are married during the year of the sale.

    B.
    Yes, because Ruth satisfied the ownership and use tests before she married Nolan.

    C.
    No, because Nolan does not meet the ownership and use tests.

    D.
    No, because Ruth was not married when she sold the house.
    Ruth meets the ownership test and use test but Nolan does not. Ruth can exclude up to $250,000 of gain on a separate or joint return for 2010. The $500,000 maximum exclusion for certain joint returns does not apply because Nolan does not meet the use test.Correct Answer: C
  93. Andy received the following income from his employer in 2010:$25,000 regular wages$5,000 cash bonusA vacation package valued at $1,000Parking privileges in a lot adjacent to the office building valued at $100 per month$200 per month contributions to his 401(k) that Andy did not contribute toward from his wagesWhat is the total amont that Andy must include as income for 2010?



    A.
    $30,000

    B.
    $32,200

    C.
    $31,000

    D.
    $34,600
    The wages, the bonus and the trip are all taxable income to Andy. The parking privilege is a nontaxable fringe benefit. Employer contributions to a 401(k) are not income the employee (but are tax-deductible for the employer).Correct Answer: C
  94. Ray sold his main home in 2010 at a $30,000 gain. He has no gains or losses from the sale of property other than the gain from the sale of his home. He meets the ownership and use tests to exclude the gain from his income. He used part of the home as a business office but is not entitled to claim depreciation for the business use of his home. How does Ray report this gain?



    A.
    He does not report it since he qualifies for the full exclusion

    B.
    He must report the business use portion as Unrecaptured Section 1250 gain on Schedule D

    C.
    He must report the gain from the business use portion as ordinary income on Form 4797

    D.
    He writes SECTION 121 EXCLUSION and subtracts $30,000 on Schedule D



    Explanation: Since Ray was not entitled to claim any depreciation, he can exclude the entire $30,000 gain. He does not need to report it because he is able to exclude the entire amount. Do not report the 2010 sale of a main home on a tax return unless:

    The taxpayer has a gain and does not qualify to exclude all of it,
    The taxpayer has a gain and chose not to exclude it, or
    The taxpayer has a loss and received Form 1099-S.Correct Answer: AFFA EA Book Reference: CH 5 Items Excluded from Gross IncomeSubsection: Property real and personalSubject: Sale of a personal residence (e.g., Sec 121 exclusions)
    Since Ray was not entitled to claim any depreciation, he can exclude the entire $30,000 gain. He does not need to report it because he is able to exclude the entire amount. Do not report the 2010 sale of a main home on a tax return unless:

    • The taxpayer has a gain and does not qualify to exclude all of it,
    • The taxpayer has a gain and chose not to exclude it, or
    • The taxpayer has a loss and received Form 1099-S.Correct Answer: A
  95. Which of Marsha's expenses below qualify for a medical deduction?



    A.
    Legal abortion

    B.
    Maternity clothing

    C.
    Health club membership advised by her doctor

    D.
    Over-the-counter medication to treat symptoms of the flu
    Legal abortion is specifically allowable and maternity clothes are specifically disallowed. The health club membership and over-the-counter medications are also disallowed.Correct Answer: A
  96. Travis did not make his estimated tax payments on time due to a disability. He would like to request a waiver of the penalty for underpayment of estimated tax from the IRS. What should he do in this situation?



    A.
    He should not enter the penalty on Form 1040, and must attach documentation that shows his date of disability.

    B.
    He should write DISABLED on Form 1040 instead of the penalty amount.

    C.
    He must allow the IRS to calculate his penalty, then request a refund using Form 2210.

    D.
    He should file Form 2210 with his tax return and include documentation that shows his date of disability.
    Certain taxpayers may request a waiver from the penalty. A taxpayer requesting a complete waiver can elect to have the IRS calculate the penalty, while a taxpayer requesting a partial waiver must calculate the penalty on Form 2210. The taxpayer must attach Form 2210 and a statement to their tax return explaining the reasons for not meeting the estimated tax requirements and the period for the waiver request.Correct Answer: D
  97. Which of the following is not a capital asset?



    A.
    Inventory.

    B.
    Household furnishings.

    C.
    Gems and jewelry.

    D.
    Stocks and bonds.
    A capital asset is any property held for personal or investment use. Generally, any property held by a non-dealer is a capital asset. Capital assets include a personal home, household furnishings, gems and jewelry, and stocks and bonds. Noncapital assets include accounts or notes receivables, and inventory held primarily for sale to customers. IRS Pub. 544Correct Answer: A
  98. A contribution to an individual retirement plan (IRA) is not deductible for tax year 2010 in which of the following situations:



    A.
    The individual is age 72.

    B.
    The contribution is made on April 15, 2010.

    C.
    The taxpayer's income is only from alimony.

    D.
    A and C
    Deductible contributions can only be made up to the due date of the return (extensions do not apply), and deductible IRA contributions cannot exceed taxable compensation. If the taxpayer's employer has a retirement plan and the employee chooses not to participate, he cannot have deductible IRA contributions. Alimony is considered compensation for IRA purposes.Correct Answer: A
  99. The retirement contribution credit is commonly referred to as the _________?



    A.
    Saver's credit

    B.
    IRA credit

    C.
    Closing credit

    D.
    Elderly credit
    The retirement contribution credit is commonly known as the saver's credit. IRS Form 8880.Correct Answer: A
  100. Bill and Melinda purchased a vacation home in 1999 for $100,000. They sold the property for $500,000 in 2010, receiving a down payment of $200,000 and financing the remaining $300,000. What is Bill and Melinda's gross profit percentage on this sale?



    A.
    40%

    B.
    60%

    C.
    80%

    D.
    20%
    Gross profit is $400,000 ($500,000 selling price - $100,000 basis). A taxpayer must report a certain percentage of each payment (after subtracting interest) as installment sale income. Determine the gross profit percentage by dividing the gross profit from the sale by the contract price. Gross Profit Percentage is 80% ($400,000 gross profit divided by $500,000 selling price).Correct Answer: C

What would you like to do?

Home > Flashcards > Print Preview