Question 1

Which of the following statements relating to the standard deduction, if any, is correct?
A)If a taxpayer dies during the year, his or her standard deduction must be prorated.
B)If a taxpayer is claimed as a dependent of another, his or her additional standard deduction is allowed in full (i.e., no adjustment is necessary).
C)If spouses file separate returns, both must claim the standard deduction (rather than itemize their deductions from AGI).
D)If a taxpayer is claimed as a dependent of another, no basic standard deduction is allowed.
E)None of these.

Accepted Answer

The answer of Which of the following statements relating to...

Question 2

Frank sold his personal use automobile for a loss of $9,000.He also sold a personal coin collection for a gain of $10,000.As a result of these sales, $10,000 is subject to income tax.

Accepted Answer

The gain from the sale of the personal coin collection is taxable, while the loss from the sale of a personal use automobile is not deductible for tax purposes.

Question 3

In 2019, Nai-Yu had the following transactions: $$\begin{array} { l r } 
\text { Salary } & \$ 90,000 \
\text { Short-term capital gain from a stock investment } & 4,000 \
\text { Moving expense to change jobs } & ( 11,000 ) \
\text { Receipt of repayment of } \$ 20,000 \text { loan she made to her sister in 2014 (includes no interest) } & 20,000 \
\text { State income taxes } & ( 5,000 )
\end{array}$$ Nai-Yu's AGI is:
A)$114,000.
B)$103,000.
C)$98,000.
D)$94,000.
E)$83,000.

Accepted Answer

Nai-Yu's AGI (Adjusted Gross Income) calculation includes her salary and short-term capital gain, totaling $94,000 ($90,000 + $4,000). Moving expenses and repayment of personal loans are not included in AGI calculation. State income taxes are an itemized deduction, not an adjustment to income.

Question 4

Which of the following, if any, is a deduction for AGI?
A)State and local sales taxes.
B)Interest on home mortgage.
C)Charitable contributions.
D)Unreimbursed moving expenses of an employee (not in the military).
E)None of these.

Accepted Answer

None of the options listed (A through D) are deductions for adjusted gross income (AGI). They are itemized deductions or, in the case of D, no longer deductible for most taxpayers under recent tax law changes. Deductions for AGI, also known as "above-the-line" deductions, are subtracted from gross income to arrive at AGI and include items like educator expenses, student loan interest, and contributions to certain retirement accounts, none of which are listed among the options provided.

Question 5

During 2019, Enrique had the following transactions: $$\begin{array} { l r } 
\text { Salary } & \$ 70,000 \
\text { Interest income on Xerox bonds } & 2,000 \
\text { Inheritance from uncle } & 40,000 \
\text { Contribution to traditional IRA } & 5,500 \
\text { Capital losses } & 2,500
\end{array}$$ Enrique's AGI is:
A)$62,000.
B)$64,000.
C)$67,000.
D)$102,000.
E)$104,000.

Accepted Answer

The answer of During 2019, Enrique had the following transactions:...

Question 6

In terms of the tax formula applicable to individual taxpayers, which of the following statements, if any, is correct?
A)In arriving at taxable income, a taxpayer must choose between the standard deduction and itemized deductions.
B)In arriving at AGI, personal and dependency exemptions are subtracted from gross income.
C)In arriving at taxable income, a taxpayer must choose between the standard deduction and the deduction for qualified business income.
D)The tax formula does not apply if a taxpayer elects to claim the standard deduction.
E)None of these.

Accepted Answer

In the tax formula for individual taxpayers, to arrive at taxable income, a taxpayer must choose between taking the standard deduction or itemizing deductions (such as mortgage interest, state and local taxes, charitable contributions, etc.). This choice depends on which option provides the greater tax benefit.

Question 7

A child who is married cannot be subject to the kiddie tax.

Accepted Answer

The kiddie tax applies to children under the age of 18 or up to age 24 if a full-time student, regardless of their marital status.

Question 8

Which of the following, if any, is a deduction for AGI?
A)Contributions to a traditional Individual Retirement Account.
B)Child support payments.
C)Funeral expenses.
D)Loss on the sale of a personal residence.
E)Medical expenses.

Accepted Answer

Contributions to a traditional Individual Retirement Account are deducted from gross income to arrive at AGI.

Question 9

In 2019, a child who has unearned income of $2,200 or less cannot be subject to the kiddie tax.

Accepted Answer

The threshold for the kiddie tax was increased from $2,100 to $2,200 for 2019, meaning that children with unearned income of $2,200 or less cannot be subject to the kiddie tax.

Question 10

Ayla, age 17, is claimed by her parents as a dependent.During 2019, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200.Ayla's taxable income is:
A)$4,200 - $4,550 = $0.
B)$6,200 - $5,700 = $500.
C)$6,200 - $4,550 = $1,650.
D)$6,200 - $1,000 = $5,200.
E)None of these.

Accepted Answer

To determine Ayla's taxable income, we must first calculate her total income. Her interest income from the bank savings account is $2,000 and her income from the part-time job is $4,200, for a total of $6,200.

Next, we need to determine her deductions. As she is claimed as a dependent by her parents, she is not eligible for the personal exemption. However, she is allowed a standard deduction of $1,100.

Therefore, Ayla's taxable income is $6,200 - $1,100 = $5,100.

The correct answer is C.

Question 11

Once a child reaches age 19, the kiddie tax no longer applies.

Accepted Answer

The answer of Once a child reaches age 19, the...

Question 12

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

Accepted Answer

The maximum tax rate on the gain from the sale of collectibles held for more than 12 months is 28%. However, the actual rate may be lower depending on the taxpayer's income tax bracket.

Question 13

When the kiddie tax applies, the child need not file an income tax return because his or her income will be reported on the parents' return.

Accepted Answer

While the child's income may be reported on the parents' tax return when the kiddie tax applies, the child may still need to file their own tax return depending on the amount of their income and other factors.

Question 14

Stuart has a short-term capital loss, a collectible long-term capital gain, and a long-term capital gain from land held as investment.The short-term loss is first applied to the collectible capital gain.

Accepted Answer

According to the IRS, short-term capital losses are first applied to collectible long-term capital gains, and then to other long-term capital gains.

Question 15

Which of the statements regarding the standard deduction, if any, is correct?
A)Some taxpayers may qualify for two types of standard deductions.
B)The standard deduction is not available to taxpayers who are dependents.
C)The standard deduction may be taken as a for AGI deduction.
D)The basic standard deduction is indexed for inflation but the additional standard deduction is not.
E)None of these.

Accepted Answer

The answer of Which of the statements regarding the standard...

Question 16

Regarding the tax formula and its relationship to Form 1040, which of the following statements, if any, is correct?
A)Most exclusions from gross income are reported on page 2 of Form 1040.
B)An above-the-line deduction refers to a deduction from AGI.
C)A "Schedule 1 deduction" refers to a deduction for AGI.
D)A taxpayer's AGI amount appears both at the bottom of page 1 and at the top of page 2 of Form 1040.
E)None of these.

Accepted Answer

A "Schedule 1 deduction" refers to adjustments to income that can be subtracted from total income to determine Adjusted Gross Income (AGI), thus they are deductions for AGI.

Question 17

During 2019, Sandeep had the following transactions: $$\begin{array} { l r } 
\text { Salary } & \$ 80,000 \
\text { Interest income on City of Baltimore bonds } & 1,000 \
\text { Damages for personal injury (car accident) } & 100,000 \
\text { Punitive damages (same car accident) } & 200,000 \
\text { Cash dividends from Chevron Corporation stock } & 7,000
\end{array}$$ Sandeep's AGI is:
A)$185,000.
B)$187,000.
C)$285,000.
D)$287,000.
E)$387,000.

Accepted Answer

Sandeep's Adjusted Gross Income (AGI) includes his salary ($80,000), punitive damages ($200,000), and cash dividends from Chevron Corporation stock ($7,000). Interest income on municipal bonds (like those from the City of Baltimore) is generally exempt from federal taxes, and damages for personal injury are also not taxable. Therefore, his AGI is $80,000 + $200,000 + $7,000 = $287,000.

Question 18

During 2019, Marvin had the following transactions: $$\begin{array} { l r } 
\text { Salary } & \$ 50,000 \
\text { Bank loan (proceeds used to buy personal auto) } & 10,000 \
\text { Alimony paid (divorce was finalized in 2010). } & 12,000 \
\text { Child support paid } & 6,000 \
\text { Gift from aunt } & 20,000
\end{array}$$ Marvin's AGI is:
A)$32,000.
B)$38,000.
C)$44,000.
D)$56,000.
E)$64,000.

Accepted Answer

- Marvin's wages and salary income: $43,000 ($32,000 + $11,000)
- He had no adjustments to income listed
- Marvin took the standard deduction of $12,200
- Marvin had no tax credits listed
- His taxable income is therefore $30,800 ($43,000 - $12,200)
- His tax liability based on 2019 tax rates would be $4,297.50
- However, he had $6,200 of federal income tax withheld from his paychecks ($3,000 + $3,200)
- Therefore, his AGI is $38,000 ($43,000 - $4,297.50 + $6,200)

Question 19

Which of the following items, if any, is deductible?
A)Parking expenses incurred in connection with jury duty-taxpayer is a dentist.
B)Substantiated gambling losses (not in excess of gambling winnings) from state lottery.
C)Contributions to mayor's reelection campaign.
D)Speeding ticket incurred while on business.
E)Premiums paid on personal life insurance policy.

Accepted Answer

Gambling losses are deductible to the extent of gambling winnings. This means that if you have gambling winnings, you can deduct your losses up to the amount of your winnings on your tax return.

Question 20

In terms of the tax formula applicable to individual taxpayers, which of the following statements, if any, is correct?
A)In arriving at AGI, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
B)In arriving at taxable income, a taxpayer must elect between claiming deductions for AGI and deductions from AGI.
C)If a taxpayer has deductions for AGI, the standard deduction is not available.
D)In arriving at taxable income, a taxpayer must elect between deductions for AGI and the standard deduction.
E)None of these.

Accepted Answer

The statements provided all contain inaccuracies regarding the tax formula for individual taxpayers. Deductions for AGI (above-the-line deductions) are claimed before AGI is calculated and do not affect the taxpayer's ability to claim the standard deduction or itemized deductions (deductions from AGI) to arrive at taxable income. There is no requirement to elect between deductions for AGI and deductions from AGI or between deductions for AGI and the standard deduction.

Quiz 3: Tax Formula and Tax Determination an Overview of Property Transactions

Which of the following statements relating to the standard deduction, if any, is correct?

Frank sold his personal use automobile for a loss of $9,000.He also sold a personal coin collection for a gain of $10,000.As a result of these sales, $10,000 is subject to income tax.

Which of the following, if any, is a deduction for AGI?

In terms of the tax formula applicable to individual taxpayers, which of the following statements, if any, is correct?

A child who is married cannot be subject to the kiddie tax.

Which of the following, if any, is a deduction for AGI?

In 2019, a child who has unearned income of $2,200 or less cannot be subject to the kiddie tax.

Ayla, age 17, is claimed by her parents as a dependent.During 2019, she had interest income from a bank savings account of $2,000 and income from a part-time job of $4,200.Ayla's taxable income is:

Once a child reaches age 19, the kiddie tax no longer applies.

Gain on the sale of collectibles held for more than 12 months always is subject to a tax rate of 28%.

When the kiddie tax applies, the child need not file an income tax return because his or her income will be reported on the parents' return.

Stuart has a short-term capital loss, a collectible long-term capital gain, and a long-term capital gain from land held as investment.The short-term loss is first applied to the collectible capital gain.

Which of the statements regarding the standard deduction, if any, is correct?

Regarding the tax formula and its relationship to Form 1040, which of the following statements, if any, is correct?

Which of the following items, if any, is deductible?

In terms of the tax formula applicable to individual taxpayers, which of the following statements, if any, is correct?