Reference no: EM13252207

1. Monica and Thomas, ages 32 and 36, are married and file a joint return. In addition to having THREE dependent children (Lemisse, Cristine and James), Monica and Thomas have adjusted gross income ("AGI") of $90,000 and itemized deductions of $22,000. What is their taxable income for 2014?
a. $48,250
b. $56,150
c. $68,000
d. $90,000
2. In 2014, Jonathan, age 15, had $1,000 of interest from a certificate of deposit and $2,000 from working as a waiter. Assume Jonathan is claimed by his parents as a dependent. What is Jonathan's standard deduction?
a. $6,200
b. $2,350
c. $1,350
d. $0
3. What is Dy's Taxable Income for 2014? Assume she is 34 years old and is single and has no dependents. Assume further that Dy's AGI is $75,000 and that she made a charitable contribution of $500 (which would be her only itemized deduction).
a. $64,850
b. $70,550
c. $74,500
d. $75,000
4. What is Amy's taxable income for 2014? Assume she is single and claimed TWO dependent children, Sagi and Damian. Assume further that Amy's AGI is $44,000 and that her itemized deductions are $10,000.
a. $22,150
b. $26,100
c. $34,000
d. $44,000
5. A few years ago, Miranda and Mary formed a partnership called "M&Ms." Which of the following is most likely TRUE regarding the U.S. income taxation of Miranda, Mary and M&Ms?
a. The M&Ms entity is NOT required to file an informational tax return
b. The M&Ms entity is NOT required to pay federal income taxes
c. The M&Ms entity will most likely be taxed like a corporation
d. Mary and Miranda will NOT be required to pay taxes on their respective shares of M&Ms' income until M&Ms distributes its earnings to them
6. Which doctrine will most likely prevent Sandra from reducing her tax liability by voluntarily assigning her income to another taxpayer?
a. The constructive receipt doctrine
b. The economic benefit doctrine
c. The fruit-of-the-tree doctrine
d. None of the above
7. During 2014, Tim was supported by his three wealthy CPA daughters, in the following percentages:
? Crucilena: 25.0%
? Veronica: 19.0%
? Luisa: 11.0%
Which daughter is UNABLE to claim Tim as a dependent, even if a multiple support agreement is in place and the other daughters agree NOT to claim Tim as a dependent?
a. Crucilena
b. Veronica
c. Luisa
d. Each daughter would be eligible to claim Tim as a dependent
8. On January 1, 2014, Gonzalo signed a three year lease to rent office space from Ellice. The lease commenced immediately on January 1, 2014. During 2014, Gonzalo paid Ellice, $24,000 for the first year's rent, $2,000 for the last month's rent, and $2,000 as a security deposit. Gonzalo and Ellice agree that the security deposit will be NOT returned by Ellice at the end of the lease. How much gross income should Ellice report for 2014 as a result of these items?
a. $74,000
b. $28,000
c. $26,000
d. $24,000
9. What is Jhoslen's taxable income for 2014? Assume Jhoslen is 46 years old and is single and has no dependents. Assume further that Jhoslen's 2014 AGI is $55,000 and that he has no itemized deductions.
a. $55,000
b. $51,050
c. $48,800
d. $44,850
10. Kevin, a single taxpayer, had 2014 wages of $65,000 from his job at Big Company, Inc. What is Kevin's AGI if he has the following (and only the following) additional items in 2014?
? Itemized deductions of $15,000
? Exemption amount of $3,950
? Alimony of $10,000 received by Kevin (from his former spouse, Nicole)
? Business income of $10,000 from Kevin's sole proprietorship
Ignore any deduction that may relate to self-employment taxes.
a. $85,000
b. $75,000
c. $66,050
d. $65,000
11. Assume the same facts as in the previous question (again, ignore any deduction that may relate to self-employment taxes). Kevin's Taxable Income for 2014 is:
a. $85,000
b. $75,000
c. $66,050
d. $65,000
12. Ariadna and Alexander are married taxpayers who file a joint return. In 2012, they had AGI of $600,000 and their preliminary itemized deductions totaled $40,000. In 2014, they will also have AGI of $600,000 and preliminary itemized deductions of $40,000. In 2012 and 2014 their itemized deductions include mortgage interest. Which of the following is TRUE?
a. When comparing their 2012 and 2014 returns, they will deduct the same amount of itemized deductions on each return
b. When comparing their 2012 and 2014 returns, they will deduct more itemized deductions on their 2014 return
c. When comparing their 2012 and 2014 returns, they will deduct more itemized deductions on their 2012 return
d. They will not deduct any itemized deductions on either their 2012 return or their 2014 return
13. Which of the following statements is TRUE?
a. Taxpayers usually prefer deductions FOR AGI to deductions FROM AGI
b. The U.S. government always "breaks-even" with regards to alimony payments (i.e., because the reduction in taxes for the spouse paying the alimony will always equal the increase in taxes for the spouse receiving the alimony)
c. A dependent's earned income amount could never impact the size/amount of his/her standard deduction amount
d. The amount of tax-exempt interest received by a taxpayer could never impact the amount of his/her Social Security benefits that are subject to taxation
14. Assume that Pamela received some unique payments in 2014. Which of the following items may Pamela exclude from gross income?
a. $75,000 of punitive damages received from a lawsuit against Dangerous Co.
b. $15,000 received as a gift from Pamela's high school buddy
c. $200 received from her Fantasy Football league winnings
d. None of the above
15. In early 2014, Mayelin received a gift of a home valued at $500,000 (from Mayelin's Uncle, Guerol). Guerol also gave Mayelin a $5,000 cash gift. During 2014, Mayelin rented the home to Ahn. As a result of the lease with Ahn, Mayelin earned net rental income of $24,000 (for 2014). What amount of income should Mayelin's 2014 tax return include from these transactions?
a. $529,000
b. $29,000
c. $24,000
d. $0
16. In 2014, Jeanette, a calendar-year taxpayer, purchased business equipment (5-year property) for $100,000. The property was placed in service in January 2014 (and is being used exclusively in Jeanette's extremely profitable business). No other personal property is purchased by Jeanette in 2014. What is the most that Jeanette may deduct in 2014 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)?
a. $0
b. $25,000
c. $100,000
d. $200,000
17. Assume the same facts as in the previous question. However, for this question, assume that Jeanette purchased the business equipment for $210,000 (instead of $100,000). What is the most that may be deducted in 2014 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)?
a. $0
b. $15,000
c. $25,000
d. $210,000
18. Which of the following is most likely deductible FOR AGI (i.e., PRE-AGI)?
a. Amounts paid for state income taxes
b. Amounts paid for an employee's unreimbursed travel expenses (i.e., the travel was related to taxpayer's fulltime position at a large corporation)
c. Amounts paid for interest on a student loan
d. Each of the above items would be deducted FROM AGI (i.e., POST-AGI)
19. Jorge has AGI of $100,000 in 2014. During 2014, Jorge also had an uninsured personal casualty loss of $15,000 (after the $100 reduction). The personal casualty loss related to an accident that Jorge had with Zoff. Jorge carried no collision insurance and Zoff was also an uninsured motorist. Assume Jorge itemizes deductions in 2014. What is the casualty loss amount that Jorge may deduct on his return?
a. $15,000
b. $10,000
c. $5,000
d. $0
20. Refer to the facts in the previous question. However, for purposes of this question assume that Jorge takes the standard deduction in 2014. What is the casualty loss amount that Jorge may deduct on his return?
a. $15,000
b. $10,000
c. $5,000
d. $0
21. If Sascha is insolvent with assets of $40,000 and liabilities of $55,000 and one of Sascha's creditors then cancels a debt of $20,000, what amount must Sascha recognize as income?
a. $20,000
b. $15,000
c. $5,000
d. $0
22. TXX5761 Inc. paid all of the premiums for a $350,000 group-term life insurance policy on its 66-year-old President, Anne-Emilie. Assume that pursuant to the applicable table, the cost per $1,000 of protection for a 1-month period is $1.27 (for a person aged 65 to 69). What amount relating to the policy (if any) must be included in Anne-Emilie's Gross Income for the year (assume Anne-Emilie was covered for all twelve months)?
a. $300,000
b. $5,334
c. $4,572
d. $0
23. On January 1, 2014, Kayanna purchased a 20-year annuity for $40,000 from WESLEY FINANCIAL (an established insurance company). Under the annuity, Kayanna will receive payments of $370 for each month of the annuity's life. What amount of the annuity payments must be included in Kayanna's Gross Income for 2014 (assume all 12 monthly payments are made in 2014)?
a. $4,440
b. $2,440
c. $2,000
d. $0
24. Assuming the same facts as in the previous problem, what amount of the annuity payments from WESLEY FINANCIAL may be excluded from Kayanna's Gross Income for 2014?
a. $4,440
b. $2,440
c. $2,000
d. $0
25. In February 2013, Jose, a calendar-year taxpayer, purchased new 7-year property for $1,500,000. The property was immediately placed into service (and is still being used exclusively in Jose's extremely profitable business). No other personal property was purchased by Jose in 2013. Jose took the largest possible tax deduction in 2013 relating to the equipment. Compute the largest tax deduction possible in 2013 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS, if applicable):
a. $1,500,000
b. $1,071,450
c. $1,000,000
d. $142,857
26. During 2014, 5-year MACRS property was placed in service by Sabrina, a calendar-year taxpayer. Assume that Sabrina does NOT make a Section 179 election. The property will most likely be depreciated over:
a. Six calendar years
b. Five calendar years
c. Two and one-half calendar years
d. One calendar year
27. Stephanie is a cash-basis taxpayer. Which doctrine will most likely limit Stephanie's ability to choose the year in which to recognize income?
a. The economic benefit doctrine
b. The fruit-of-the-tree doctrine
c. The constructive receipt doctrine
d. None of the above
28. Riphard contributed some inventory from his sole proprietorship to a public charity for its use. On the date of the contribution, Riphard's basis in the inventory was $10,000 and the fair market value was $30,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)?
a. $30,000
b. $20,000
c. $10,000
d. $0
29. Which of the following items most resembles an interest free loan from the U.S. government?
a. Student loan interest being deducted
b. Amounts being deducted under Section 179
c. Travel expenses being deducted
d. Unreimbursed employee business expenses being deducted
30. Which of the following statements is TRUE about Pablo's hobby activity?
a. A loss from Pablo's hobby activity may not be used to offset his dividend income
b. When compared to Pablo's business, Pablo's hobby activity is subject to exactly the same tax laws
c. Expenses relating to Pablo's hobby activity could never be deductible
d. A loss from Pablo's hobby activity may be used to offset wages from his full-time employment
31. What was Kathryn's Taxable Income for 2014? Assume Kathryn is single and has TWO dependent children, Shicquonna and Andrea. Assume further that Kathryn's 2014 AGI is $60,000 and that Kathryn had itemized deductions of $12,000.
a. $60,000
b. $48,000
c. $40,100
d. $36,150
32. What was Catherine's 2014 Net Operating Loss amount assuming that she had the following items listed on her income tax return?
Business Income
$52,000
Interest income on personal investments
$5,000
Less: Business Expenses
($72,000)
Less: Personal exemption
($3,950)
Less: Nonbusiness deductions
($7,000)
Loss shown on return
($25,950)
a. $0
b. $12,000
c. $20,000
d. $25,950
33. Jasimon incurred the following expenses during 2014. Which expense is Jasimon LEAST likely to deduct as a medical expense (assume Jasimon itemizes and that Jasimon's medical expenses will exceed 10.0% of Jasimon AGI)?
a. Uninsured expenses relating to back surgery
b. Medical insurance premiums (purchased by Jasimon with Jasimon's after-tax dollars)
c. Travel expenses to obtain treatment at a clinic in Texas (assume that the potentially lifesaving procedure to be performed can only be performed at that particular clinic)
d. Cosmetic surgery (to make Jasimon's chin look more appealing)
34. Alix contributes some common stock that Alix held long-term to a public charity. On the date of the contribution, Alix's basis in the common stock was $2,000 and the fair market value was $15,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)?
a. $15,000
b. $13,000
c. $2,000
d. $0
35. Timothy sold stock Timothy owned in a small business that was formed as a corporation. Timothy sold the stock to Danita. Which Section of the U.S. Tax Code might allow Timothy to convert what would otherwise be a capital loss into an ordinary loss?
a. Section 1244
b. Section 1221
c. Section 1202
d. None of the above
36. Kevin's business incurred a casualty loss in 2014. Immediately before the casualty, her business truck had an adjusted basis of $45,000 and a fair market value of $40,000. Immediately after the casualty, the truck had a fair market value of $10,000. Because of the truck damage, Kevin's insurance company provided $10,000 as a reimbursement in 2014. What was Kevin's 2014 casualty loss deduction?
a. $45,000
b. $30,000
c. $20,000
d. Unknown (because we must know Kevin's AGI)
37. In 2005, Mary (a single taxpayer) loaned $30,000 to her friend Nicole. In 2014, Nicole declared bankruptcy, with the result that the debt became totally worthless. How should Mary treat the loss relating to this debt (assume that the debt is a nonbusiness debt that is a bona fide debt that arose from a debtor-creditor relationship)?
a. As an itemized deduction
b. As a short-term capital loss
c. As a long-term capital loss
d. Mary may not take any deduction relating to the debt (it is a nonbusiness debt)
38. Assume the facts stated in the prior question. Assume further that Mary has no other capital gains or losses in 2014 (or any prior years). What is the maximum amount (related to the bad debt) that Mary can deduct in 2014?
a. $30,000
b. $27,000
c. $3,000
d. $0
39. Assume the facts stated in the prior two questions. Assume further that for 2014 Mary will offset her wages (with any deduction related to the debt) to the maximum extent permitted by law. What is the amount of Mary's capital loss carryover to 2015?
a. $30,000
b. $27,000
c. $3,000
d. $0
40. Which of the following is most likely deductible FOR AGI (i.e., PRE-AGI)?
a. Amounts paid for federal income taxes
b. Amounts paid for unreimbursed moving expenses
c. Amounts paid for property taxes
d. Each of the above items would be deducted FROM AGI
41. Cristine's boss gave her two tickets to the Jubbin Beaver concert because she met her sales quota. At the time Cristine received the two tickets, they had a face value of $100 each and were selling on eBay for $300 each (which equaled the fair market value of the tickets). On the date of the concert, the tickets were selling for $300 each. Cristine and her daughter (Jeanette) attended the concert. How much gross income should Cristine report as a result of the tickets?
a. $0
b. $200
c. $400
d. $600
42. Sagi was a professional soccer player before a career-ending injury caused by a grossly negligent driver. Sagi sued the driver and collected $1 million as compensation for lost estimated future income and $2 million for punitive damages. How much gross income should Sagi report as a result of the damages he received?
a. $0
b. $1 million
c. $2 million
d. $3 million
43. Which of the following is a deduction FROM AGI?
a. Ellice paid alimony to a former spouse
b. Pamela invested $3,000 in a Roth IRA
c. Stephanie paid real estate taxes levied by the county on her personal residence
d. Monica paid property taxes levied by the county on her car used exclusively for business
44. Compute the casualty loss on Amy's uninsured rental property under the following facts:
Adjusted basis
$100,000
FMV before the loss
$75,000
FMV after the loss
$0
a. N/A (we need to know Amy's AGI to answer this question)
b. $100,000
c. $75,000
d. $25,000
45. Crucilena Corporation acquired new computer equipment on March 13, 2014, for $50,000. Crucilena did not elect immediate expensing under Section 179. Determine Crucilena's cost recovery for 2014.
a. $50,000
b. $20,000
c. $10,000
d. $0
46. On August 5, 2014, Kathryn purchased a new office building for $5 million. On October 3, 2014, she began to rent out office space in the building. What is Kathryn's cost recovery for 2014?
a. $0
b. $26,750
c. $128,200
d. $5,000,000
47. Assume the same facts as in the previous problem. Assume further that Kathryn sells the office building on July 12, 2018. What is Kathryn's cost recovery for 2018?
a. $0
b. $69,442
c. $128,200
d. $1,000,000
48. Jeff performs services for Nova Corporation. In determining whether Jeff is an employee or an independent contractor, which factor is MOST likely to suggest that Jeff is an employee?
a. Nova Corporation determines the details of HOW Jeff performs the applicable work
b. Jeff uses his own tools
c. Jeff sets his own schedule
d. Jeff performs the services from his home
BACKGROUND INFORMATION FOR QUESTIONS 49-50
Tim and Jonathan recently formed a corporation named TJ Inc. (or "TJ"). On December 31, 2013, TJ issued 800,000 shares of common stock to Jonathan and 800,000 shares of common stock to Tim. Jonathan and Tim each paid $0.01 per share for their stock ($0.01 equaled the per share fair market value on December 31, 2013). Their stock is subject to a 4-year "repurchase option" (at cost) in favor of TJ. Each TJ repurchase option will "lapse" over time so that on December 31 (of 2014, 2015, 2016 and 2017), 200,000 shares will be released from the repurchase option. For example, if Jonathan quits TJ before December 31, 2017, TJ can repurchase Jonathan's "unvested shares" for $0.01 per share (no matter what the fair market value is on that date).
QUESTION 49
Assume that Tim DID NOT file a timely "83(b) election." On December 31, 2014, Tim is still working at TJ and thus 200,000 of Tim's 800,000 shares are "released" from the TJ repurchase option (i.e., 200,000 of Tim's shares "vest" on December 31, 2014). On that same day, the fair market value of the TJ stock equals $10.01 per share. What 2014 income, if any, must Tim report as a result of these events?
a. $8,000,000
b. $2,002,000
c. $2,000,000
d. $0
QUESTION 50
Assume that Jonathan DID file a timely "83(b) election." On December 31, 2014, Jonathan is also still working at TJ and thus 200,000 of Jonathan's 800,000 shares are also "released" from the TJ repurchase option (i.e., 200,000 of Jonathan's shares "vest" on December 31, 2014). On that same day, the fair market value of the TJ stock equals $10.01 per share. What 2014 income, if any, must Jonathan report as a result of these events?
a. $8,000,000
b. $2,002,000
c. $2,000,000
d. $0