Federal Taxation Multiple Choice, accounting assignment help

*Kaitlin paid several legal expenses during the current tax
year. She paid $1,000 to have a will prepared, $500 related to a divorce, $300
for tax advice, and $400 for legal work related to a business that she operates
as a sole proprietorship. What are her total deductions allowed for these
expenditures?

$400

$700

$1,400

$2,200

*Which of the following expenses is deductible for federal tax
purposes?

A
fine paid due to violation of federal safety standards.

Contributions
made to a political organization.

Pest
control expenses for a warehouse where inventory is stored.

Expenses
made to a lobbyist representing your company on a bill under consideration by
the United States Senate.

*Sanjay took out a loan on November 1, Year 1, for $100,000 to
purchase inventory for his clothing store, which he operates as a cash basis
sole proprietorship. His annual interest rate is 6%. On December 31, Year 1, he
pays the $1,000 of interest due for Year 1 and also prepays $3,000 of interest
for the first six months of Year 2. What is his deduction on his Year 1 tax
return for interest expense?

$ 0

$1,000

$3,000

$4,000

*Which of the following expenses is NOT a deduction FOR adjusted gross income?

Charitable
contributions

Interest
on student loans, subject to certain limitations.

One-half
of self-employment taxes paid.

Attorney’s
fees for discrimination lawsuits.

*Bronnie moved from San Francisco to Dallas, Texas in hopes of
finding a new job. During his first 12 months in Dallas, his only work was as a
full-time researcher at a marketing firm for 5 months. His moving expenses
included:

  • $2,500 for
    moving his personal possession.
  • $500 for an
    airline ticket for him to fly to Dallas.
  • $1,200 of
    temporary living expenses before he found an apartment in Dallas.

What is his moving expense deduction?

$ 0

$2,500

$3,000

$4,200

*Which of the following is not deductible? Assume that the
deductions are not phased-out because of high income.

Interest
paid of $2,200 on student loans.

Qualified
higher education expenses for one’s spouse of $3,500.

A
high school teacher spends $250 buying supplies to decorate his classroom.

Child
support payments paid to a former spouse.

*Felicia, age 42, incurred the following medical expenses for 2013:

Physician
charges

$
2,000

Hospital
charges

$10,000

Prescription
medicine

$
1,000

Non-prescription
medicine

$
 500

Eyeglasses

$
 300

Health
club membership

$
1,200

Her adjusted gross income is $50,000. Her health insurance
company reimbursed her $8,000 for the above expenses. What is her medical
expense deduction?

$ 300

$
1,550

$13,300

$15,000

*Tiffany is a cash basis taxpayer whose records show the
following:

Year
4 federal income taxes withheld 

$3,500

Year
4 state and local income taxes withheld 

1,200

Year
4 state estimated income taxes paid during Year 4

1,000

Year
4 state and local income taxes paid on April 10, Year 5

400

Year
2 state and local income taxes paid on February 25, Year 4

500

How much can Tiffany deduct for taxes on her Schedule A
(Itemized Deductions) of Form 1040 for Year 4?

$2,200

$2,700

$3,100

$6,600

*Which of the following taxes is not deductible as an itemized deduction?

Property
taxes paid to the local government based on the value of an automobile.

Real
estate taxes paid on a principal residence to the state government.

Fees
paid to the local government for sidewalks to be installed in one’s
neighborhood.

State
income taxes paid.

*Jerry and Elaine own a
home that has a fair market value of $250,000 on which they have a mortgage of
$190,000. They took out an $80,000 home equity loan and used the proceeds to
buy a new boat. Interest paid on the home equity loan in the current tax year
is $2,200. What amount of the home equity loan is eligible for the interest
paid on it to be deductible as an itemized deduction?

$ 0

$40,000

$60,000

$80,000

*Which of the following
types of interest expense is not deductible as an itemized deduction?

Interest
expense on a principal residence.

Investment
interest expense, subject to certain limitations.

Student
loan interest.

Interest
on a home equity loan.

*Rodney is single and has adjusted gross income of $100,000. He qualifies to
itemize deductions for the current tax year. Rodney’s only charitable
contribution this year is an antique car that he had owned for 30 years that
had a fair market value of $50,000 and adjusted basis of $15,000. What is the
amount of charitable contributions deductible on Rodney’s current year income
tax return?

$ 0

$15,000

$30,000

$50,000

*Ron and Willie’s home was damaged by a flood this year. The fair market value
of the home before the flood was $300,000 and was $180,000 after the flood.
Their flood insurance on the property reimbursed them $50,000 for this damage
since this was the maximum allowed under the policy. Ron and Willie had
purchased the home 10 years ago for $200,000. Their adjusted gross income for
the year is $ 150,000. What is their casualty loss deduction after all
reductions are considered?

$54,900

$55,000

$120,000

$200,000

*Which of the following statements is true with regard to the deduction for
charitable contributions?

Charitable
contributions disallowed due to the 50% of AGI limitation can be carried
forward indefinitely.

A
canceled check is sufficient documentation for a cash contribution of $500 to
a charity.

An
attorney who provides free legal advice to a qualified charitable
organization can deduct the fair market value of his services.

Taxpayers
may be able to deduct the fair market value of stock given to a qualified
charitable organization.

*Which of the following expenses does not qualify as a deductible 2%
miscellaneous itemized deduction?

Tax
return preparation fees of $300.

Gambling
losses to the extent of gambling winnings.

Fees
paid to an investment advisor to manage one’s stock portfolio.

Employee
business expenses of $500 not reimbursed by the employer.

*Tobias owns a bowling alley which was completely destroyed this year by a
tornado. The fair market value of the bowling alley was $230,000 before the
tornado and its adjusted basis was $100,000. Tobias received $220,000 from his
insurance company but he decided to not rebuild the alley. What is Tobias’
recognized gain or loss from this transaction?

$ 0

Loss
of $230,000

Gain
of $120,000

Gain
of $220,000

*Churyk is an attorney (sole proprietor) who is attending a legal seminar in
Los Angeles. The seminar is three days, and he will be staying an extra two
days for vacation. His airfare for the trip was $700. He spent $50 on food and
$120 for his hotel for each of the five days. The cost of the seminar was $750.
What amount of educational expenses can Churyk deduct on his Schedule C?

$ 750

$1,450

$1,885

$2,300

*Kathy owns her own marketing firm and incurred the following expenses this
year related to meetings with clients and potential clients. Assume that all
entertainment expenses were directly associated with a business discussion.

Dues
to Golf & Country Club

$3,000

Green
fees for playing golf with clients

$2,000

Meals
and drinks with clients after golf

$1,200

Tickets
to NCAA Basketball Tournament (face value = $400)

$2,000

How much of these expenses are deductible for the current year?

$1,800

$2,600

$3,600

$8,200

*Which of the following statements with regard to accountable plans is not
true?

Reimbursements
of employee business expenses under an accountable plan have no impact on the
employee’s adjusted gross income.

Reimbursements
of employee business expenses under an accountable plan always increase the
employee’s adjusted gross income.

Employee
business expenses that are not reimbursed by the employer are deductible as
2% miscellaneous itemized deductions.

Employee
business expenses that are reimbursed but not under an accountable plan are
deductible as 2% miscellaneous itemized deductions.

*Which of the following expenses would be deductible as education expenses on
Schedule C for a self-employed individual?

Raymond
pays $8,000 tuition expenses towards completing his undergraduate degree in
education, the minimum requirements needed for the job he will begin after
graduation.

Anthony
pays $500 to take the bar exam so that he can practice law in his state.

Leigh
currently works as a nurse and pays $5,000 in tuition while earning a
graduate degree in business.

Natalia
is a CPA and pays $1,000 to attend a four-day update on accounting and
auditing.

*In which of the following situations would Travis be able to
deduct meal expenses incurred while engaged in activity related to his job?
Travis is an information technology consultant who works for IT, Inc. and his
business home is in Charlotte, North Carolina.

IT
assigns Travis to a job in Chicago on an indefinite basis.

IT
assigns Travis to a job in Chicago which will last for six months.

IT
assigns Travis to a job in Chicago which will last for 18 months.

Travis
drives to Raleigh, North Carolina for a business meeting and returns to
Charlotte later that evening.

*Which of the following statements is true with regard to the
deduction for losses?

Trent
loaned $2,000 to his friend to pay his tuition. If Trent discovers that the
debt is partially worthless he can take a deduction for the partial bad debt.

Trent
loaned $2,000 to his friend to pay his tuition. If Trent discovers that the
debt is completely worthless he can take an ordinary deduction for the loss.

Trent
owns stock in LOSER Corporation which he has not sold. To take a deduction
for a loss this year related to LOSER the stock must be completely worthless.

Trent
owns stock in LOSER Corporation which he has not sold. If the stock is
completely worthless it is treated as if it was sold on the day it became
worthless.

*Which of the following expenses is not deductible or depreciable for a
self-employed country-music singer on his Schedule C for his sole
proprietorship?

Denim
jeans, t-shirt, and boots that he only wears when he sings on stage.

$2,000
for a new guitar that he uses to perform and write songs.

$200,000
for a bus that is used to travel to concerts.

Salary
expenses to his manager of $150,000.

*Cole has a net operating loss for the current year, 20×5, of $80,000. His
taxable income for prior years, computed without regard to the net operating
loss, were as follows:

20×2

$50,000

20×3

$40,000

20×4

$30,000

Which of the following statements is true with regard to this
net operating loss?

Cole
cannot carryback any of the NOL since it is less than $100,000.

If
Cole carries the NOL back for two years his carryforward to the future will
be $10,000.

Cole
cannot elect to use the NOL only as a carrforward. He must carry it back to
previous years first.

If
Cole’s itemized deductions had been greater for the year his NOL definitely
would have been larger.

*Bruce is single and has adjusted gross income for the current year of $90,000
before any deduction for passive activity losses. He owns a duplex that he uses
as rental property and this year his rental loss was $13,000. Bruce has no
income from passive activities. Which of the following statements is true?

If
Bruce actively participates in managing the rental property, he can deduct
the $13,000 loss against his other income.

Bruce
will not be able to deduct the $13,000 loss against his other income unless
he materially participates in managing the property.

Since
Bruce’s income does not exceed $150,000, he can deduct the loss against his
other income regardless of his role in managing the property.

In no
circumstance will Bruce be able to deduct the loss this year since he does
not have any passive income.

*Martin is a 20% limited partner in the BBC limited partnership. His share of
the current year’s ordinary loss is $30,000. Martin also works as an attorney
and has taxable wages this year of $200,000. He has investment income of
$15,000 and his only deduction for AGI is alimony of $40,000. Which of the
following statements is true?

Martin
can deduct the alimony payments of $40,000 but cannot reduce AGI for the
partnership loss of $30,000.

Martin
can deduct the alimony payments of $40,000 and can reduce AGI for the
partnership loss of $30,000.

Martin
can deduct the partnership loss but only to the extent of his investment
income, or $15,000.

Martin
can deduct the partnership loss of $30,000 but cannot deduct the alimony
payments.

*Jordan owns a beach house that she used 60 days for personal use this year.
She also rented the beach house to others for 50 days this year. Her rental
income collected was $8,000 and expenses allocated to the rental use were
$10,000. How much net income or loss must Jordan report on her income tax
return for the rental use of this property?

$8,000
income.

No
income or loss.

$2,000
loss.

$2,000
income.

*Charles is a CPA who owns his own accounting firm. He has
developed a very successful practice and this year his firm had net income of
$500,000. For many years he has enjoyed NASCAR car racing and began to race his
own car on the weekends five years ago. During the current tax year he had
winnings from races of $40,000. This was the first year that he had earned any
revenue from racing. His racing expenses totaled $100,000 for the year. Charles
competed in three races during the current tax year. Which of the following
statements is false with regard to his race car activities?

Since
Charles has never had any net income from car racing, the presumption is that
this activity is a hobby.

Since
the car racing activity is a hobby, Charles can deduct expenses only to the
extent of his winnings of $40,000.

If
Charles wants to increase the likelihood that his car racing will not be
classified as a hobby in future years, he will need to increase the number of
races in which he competes.

Since
the car racing activity is a hobby, Charles cannot deduct any expenses
related to this hobby but must report all winnings of $40,000.

*Which of the following taxpayers will qualify for a deduction for her home
office expenses?

Sheila
is a college professor who maintains an office at home that she uses on the
weekends to grade papers and prepare course lectures.

Tonya
is a real estate appraiser who runs her business completely from her home.
She uses her home office 60% of the time for business purposes and 40% for
personal activities.

Chao
is self-employed and provides dance lessons and classes to children. She
rents space at a local shopping center for her dance studio but does not have
an office there. She uses a room in her house exclusively to complete the
administrative tasks for her business.

Tanya
is a salesperson for a clothing manufacturer and uses her home office often
during the week so she does not have to drive to her office at the company’s
headquarters which is 20 miles from her home.

*Benjamin is an active investor in stocks and bonds. During the current tax
year he earned interest and dividend income totaling $18,000. He frequently
borrows money to purchase his investments and this year Benjamin paid
investment interest of $14,000. His only other investment expense during the
year was $5,000 paid to a professional investment advisor. How much of the
investment interest expense can be deducted on Benjamin’s tax return this year
as an itemized deduction?

$ 0

$
9,000

$13,000

$14,000

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