Quiz 3: Gross Income: Inclusions and Exclusions
Business
Q 1Q 1
For tax purposes,income is recognized if the transaction meets three conditions: economic benefit,occurrence and completion,and not exempt from tax.
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True False
True
Q 2Q 2
Lisa performed bookkeeping services for Donald charging him $650.Donald agreed that he would pay Lisa's credit card bill for the same amount.Lisa has received an economic benefit and must report $650 in income on her tax return.
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True False
True
Q 3Q 3
Jeff owns 250 shares of Coca Cola common stock that have increased in value by $15 each.He must report the increase in income because a transaction has occurred.
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True False
False
Q 4Q 4
If the process of a transaction begins and ends with an economic benefit for the taxpayer,he or she must report it in income even though the income is specifically exempt from tax.
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True False
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True False
Q 6Q 6
Constructive receipt means the income is available to or in the control of the taxpayer regardless of whether the taxpayer chooses to utilize the income.
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True False
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True False
Q 8Q 8
If Lucas,an accountant,agrees to provide tax services to a neighbor in exchange for the neighbor agreeing to fix his pool,Lucas but not his neighbor will have to report income on this transaction at fair market value.
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True False
Q 9Q 9
There are some instances where a cash-basis taxpayer can report income as though he or she is an accrual basis taxpayer.
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True False
Q 10Q 10
For most individuals,interest income comes from interest-earning deposits at banks,savings and loans,or credit unions.
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True False
Q 11Q 11
If an individual owns Series EE bonds,this person must report interest income,i.e.,the increase in bond value on an annual basis.
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True False
Q 12Q 12
A taxpayer can exclude from gross income any interest earned on bonds issued by any state,any possession of the United States,any political subdivision of either of the foregoing,or of the District of Columbia as long as these bonds are not issued for private activities.
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True False
Q 13Q 13
Interest on state bonds is tax-exempt if the bonds were issued for private activities,such as convention centers,industrial parks,or stadiums.
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True False
Q 14Q 14
A taxpayer must file a Schedule B Forms 1040A or 1040)if he or she has received taxable interest of $1,550.
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True False
Q 15Q 15
Dividends are generally taxed at capital gains rates if they are made from the corporation's current earnings and profits or accumulated earnings and profits.
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True False
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True False
Q 17Q 17
Robert received a tax refund in 2016 from his state,which he deducted on his prior year's return as an itemized deduction.He must report the refund in income in 2016,subject to certain computations to determine the amount that is taxable.
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True False
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True False
Q 19Q 19
The taxability of social security benefits depends on the "provisional income" and filing status of the taxpayer.
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True False
Q 20Q 20
Jury duty pay is taxable income,but it can be deducted from gross income if the amount must be given to the employer.
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True False
Q 21Q 21
Discounts provided to employees for food by a restaurant owner are not taxable if the discounts do not exceed the gross profit percentage of the business.
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True False
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True False
Q 23Q 23
Employer-paid premiums on group-term life insurance in excess of $50,000 coverage are taxable to the employees based on the cost of the excess.
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True False
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True False
Q 25Q 25
The initial original issue discount OID)on a bond is equal to the difference between the acquisition price and the maturity value.
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True False
Q 26Q 26
If a person sells his or her car to a friend for a note receivable,this person has income that needs to be reported.
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True False
Q 27Q 27
In general,an individual must recognize income on his or her tax return if the transaction has economic benefit,the transaction has reached a conclusion and the income from the transaction is tax-exempt income.
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True False
Q 28Q 28
If Alex,an attorney,agrees to provide legal services to a friend in exchange for the friend agreeing to fix his car,Alex and his friend will have to report income on this transaction at fair market value.
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True False
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True False
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True False
Q 31Q 31
When an individual's marginal ordinary income tax rate is 25% and less than 39.60%,the taxation rate on qualified dividends is 15%.
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True False
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True False
Q 33Q 33
If an employee receives a prize or award from his or her employer,the award is included in W-2 income.
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True False
Q 34Q 34
A de minimis benefit is one whose value is so small that keeping track of which employees received the benefit is administratively impractical.
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True False
Q 35Q 35
Taxpayers are not required to "impute interest" on a deferred payment contract for which no interest,or a low rate of interest,is stated.
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True False
Q 36Q 36
If a taxpayer is economically better off because of a transaction,the person must normally record income.
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True False
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True False
Q 38Q 38
A taxpayer must report in income imputed interest on a loan made below market interest rate.
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True False
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True False
Q 40Q 40
A taxpayer does not have to report part of an original issue discount OID)as income every year.
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True False
Q 41Q 41
For tax purposes,one of the requirements to recognize income is:
A)The transaction must occur but it's not necessary to complete it.
B)The income can be tax-exempt.
C)There must be an economic benefit.
D)All of these.
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Multiple Choice
Q 42Q 42
If an attorney performs some estate tax work for a client and the client agrees to pay $6,000 to him and $5,000 to a local financial institution for a debt the attorney owes,the attorney has income of:
A)$11,000.
B)$6,000.
C)$5,000.
D)None of these.
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Multiple Choice
Q 43Q 43
Pedro agreed to repair a house for a client and started to work on December 30,2014.On January 2,2016,he completed the job and received payment from the client.Pedro must record the income in:
A)2015.
B)2016.
C)2014.
D)Both 2015 and 2016.
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Multiple Choice
Q 44Q 44
If Tom,an accountant,agrees to provide accounting services to Fred,a friend,in exchange for Fred fixing Tom's office floor,then:
A)Both of them must report income on their tax returns.
B)Neither Tom nor Fred must report income on their tax returns.
C)Fred must report income on his tax return.
D)Tom must report income on his tax return.
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Multiple Choice
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Multiple Choice
Q 46Q 46
When filing their tax returns,almost all individuals use:
A)The cash receipts and disbursements method.
B)The accounting method.
C)The accrual method.
D)The recognition method.
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Multiple Choice
Q 47Q 47
Under the cash receipts and disbursements method,the taxpayer reports income in the year:
A)Income is received.
B)Income is earned.
C)Income is accrued.
D)Income is negotiated.
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Multiple Choice
Q 48Q 48
Constructive receipt means the taxpayer has:
A)Earned the income and accrued the income.
B)Earned the income.
C)Accrued the income.
D)Control of the income for his or her use.
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Multiple Choice
Q 49Q 49
A taxpayer can exclude from income interest received from:
A)Municipal bonds issued by the state.
B)A seller-financed mortgage transaction.
C)A credit union.
D)A savings account established at a local bank.
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Multiple Choice
Q 50Q 50
When an individual's marginal ordinary income tax rate is 25% or more and less than 39.60%,the tax rate on qualified dividends is:
A)15%.
B)5%.
C)10%.
D)0%.
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Multiple Choice
Q 51Q 51
What is the tax liability for a single individual who has taxable income of $115,500,that includes a taxable qualified dividend of $2,000? All answers should be rounded to the nearest dollar.
A)$24,817.
B)$32,411.
C)$25,377.
D)$25,117.
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Multiple Choice
Q 52Q 52
What is the tax liability for a taxpayer who is married filing jointly with taxable income of $67,500,that includes a taxable qualified dividend of $1,000? All answers should be rounded to the nearest dollar. Use the appropriate Tax Tables or Tax Rate Schedules.
A)$8,906.
B)$9,051.
C)$10,125.
D)$9,201.
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Multiple Choice
Q 53Q 53
An individual must complete Schedule B Forms 1040A or 1040)if the following situation occurs:
A)Received tax-exempt interest of $700.
B)Received interest income of $100.
C)Received dividend income of $1,000.
D)Received interest income of $1,500.
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Multiple Choice
Q 54Q 54
Tom and Betsy,who are married filing jointly,reported a standard deduction of $12,600 on their 2015 tax return.They paid $500 to the state for income taxes in 2015.In 2016,they received a $125 refund of state taxes paid in 2015.What is the amount that Tom and Betsy need to report on their 2016 tax return?
A)$375.
B)$0.
C)$125.
D)$500.
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Multiple Choice
Q 55Q 55
Ruth,who files as head of household,reported itemized deductions of $9,350 on her 2015 tax return.Her itemized deductions included $300 of state taxes paid.In 2016,she received a $175 refund of state taxes paid in 2015.What is the amount that Ruth needs to report on her 2016 tax return?
A)$0.
B)$100.
C)$175.
D)$300.
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Multiple Choice
Q 56Q 56
Provisional income is calculated by starting with Adjusted Gross Income AGI)before social security benefits and adding back specific items.One of these items is:
A)Capital gains.
B)Wages.
C)Deducted interest on educational loans.
D)Qualified dividends.
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Multiple Choice
Q 57Q 57
Caroline,who files as head of household,received $9,000 of social security benefits.Her AGI before the social security benefits was $27,000.She also received $200 of tax- exempt interest.What is the amount of taxable social security benefits?
A)$4,500.
B)$9,000.
C)$7,650.
D)$3,350.
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Multiple Choice
Q 58Q 58
What item should not be included in income?
A)Sick pay.
B)Jury duty pay.
C)Prizes and awards.
D)Worker's compensation payments.
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Multiple Choice
Q 59Q 59
The following fringe benefit provided by the employer is not taxable to the employee:
A)Educational assistance for up to $10,000 per person.
B)Employer-paid premiums on group-term life insurance with coverage of $40,000 per person.
C)Sick pay.
D)Vacation pay.
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Multiple Choice
Q 60Q 60
Employer-paid premiums on life insurance are not taxable to the employees,unless the coverage is in excess of ________.
A)$50,000
B)$5,000
C)$5,250
D)$51,000
Free
Multiple Choice
Q 61Q 61
Payments under written dependent care assistance plans are tax-free,except that the exclusion for a single person cannot exceed his or her earned income and cannot exceed ________.
A)$5,150
B)$5,000
C)$2,500
D)$5,250
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Multiple Choice
Q 62Q 62
Marie is a graduate student at a state university.In 2016,she received a scholarship of $10,500 $7,000 for tuition and fees and $3,500 for campus housing)and a graduate assistantship that pays $6,000.What is the amount that she must report on her tax return?
A)$9,500.
B)$6,000.
C)$7,000.
D)$3,500.
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Multiple Choice
Q 63Q 63
If a student must perform certain services for the educational institution e.g.,graduate assistantships),the amount paid for services is considered:
A)A fellowship.
B)Wages.
C)A scholarship.
D)All of these.
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Multiple Choice
Q 64Q 64
Employers can reimburse employees for up to per year of educational assistance,whether or not job-related.
A)$5,520
B)$5,150
C)$5,250
D)$5,000
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Multiple Choice
Q 65Q 65
Which one of the following items is not exempt under the umbrella of compensation for injuries or sickness?
A)Employer-provided adoption assistance.
B)Payments received under workers' compensation acts.
C)Payments received for damages as a result of personal physical injuries.
D)Disability income received from a terrorist attack in a foreign country while employed by the U.S.government.
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Multiple Choice
Q 66Q 66
Life insurance proceeds because of the death of the insured are fully excludable from the gross income of the recipient if the payment is made:
A)As a lump sum.
B)It does not matter how these payments are made.
C)Over time.
D)It does not matter how these payments are made and over time.
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Multiple Choice
Q 67Q 67
Taxable income includes:
A)Welfare payments.
B)Sick pay.
C)Child support payments.
D)Workers' compensation payments.
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Multiple Choice
Q 68Q 68
Taxable income does not include:
A)Interest payments.
B)Child support payments.
C)Alimony payments.
D)Qualified dividend payments.
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Multiple Choice
Q 69Q 69
Martin redeemed $3,000 principal of $2,000 and interest of $1,000)of Series I Savings Bonds to pay qualified higher education expenses.His qualified expenses for the year totaled $2,500 and AGI consists of wages of $20,000.What is the amount of interest that Martin must include in income? Round interim calculations to three decimal places)
A)$833.
B)$0.
C)$1,000.
D)$167.
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Multiple Choice
Q 70Q 70
Morris redeemed $6,000 principal of $4,500 and interest of $1,500)of Series I Savings Bonds to pay qualified higher education expenses.His qualified expenses for the year totaled $6,500 and AGI consists of wages of $32,000.What is the amount of interest that Morris can exclude from income?
A)$1,000.
B)$1,500.
C)$0.
D)$500.
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Multiple Choice
Q 71Q 71
Imputed interest rules do not apply to the following:
A)Sale of a farm for $1 million or less.
B)Sale of property for $3,000 or less.
C)Sale of a personal residence.
D)Both sale of property for $3,000 or less and sale of a personal residence.
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Multiple Choice
Q 72Q 72
Imputed interest rules apply to term loans or demand loans in which the interest rate is less than the Applicable Federal Rate AFR).Which of the following transaction does not fall under these rules? Assume in all situations that interest is below the AFR.
A)Gift loans of $14,000 in which interest foregone is in the form of a gift.
B)Loans in which the below-market or interest-free loan would have a significant effect on the tax liability of the borrower or lender.
C)Loans in which a principal purpose is to avoid tax.
D)Both gift loans of $14,000 in which interest foregone is in the form of a gift and loans in which a principal purpose is to avoid tax.
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Multiple Choice
Q 73Q 73
Joel purchased $125,000 of A and D Corporation's newly issued bonds for $114,500.The bonds carry an interest rate of 8% and mature in 5 years.What is the initial OID on these bonds?
A)$10,000.
B)$2,000.
C)$2,100.
D)$10,500.
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Multiple Choice
Q 74Q 74
The original issue discount OID)rules apply to all debt instruments with OID,except:
A)U)S.savings bonds.
B)Tax-exempt debt.
C)Non-business loans of $10,000 or less between natural persons.
D)All of these.
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Multiple Choice
Q 75Q 75
An individual with an original issue discount OID)instrument must report annually a portion of the OID as:
A)Miscellaneous income.
B)Qualified dividend income.
C)Interest income.
D)Capital gains.
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Multiple Choice
Q 76Q 76
On December 30,2016,Robert agreed to repair a damaged house wall and started to work on that date.He will finish and get paid for the job in January of 2017.Robert needs to record the income received from his work in the year:
A)Half in 2016 and the other half in 2017.
B)2016.
C)2017.
D)He does not have to report the income at all.
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Multiple Choice
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Multiple Choice
Q 78Q 78
Under the cash method,an individual reports income when:
A)income is received or earned.
B)income is accrued.
C)income is earned.
D)income is received or constructively received.
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Multiple Choice
Q 79Q 79
Interest income on Series EE and Series E U.S.Savings Bonds can be reported:
A)only on an annual basis.
B)either at the maturity date or on an annual basis.
C)only at the maturity date of the bond issue.
D)No need to report; this type of interest income is always tax-exempt income.
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Multiple Choice
Q 80Q 80
An individual must complete Schedule B Forms 1040A or 1040)if the following situation occurs:
A)Received interest income of $1,300.
B)Received interest income of $600.
C)Received interest income of $1,500.
D)Received interest income of $1,750.
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Multiple Choice
Q 81Q 81
When an individual's marginal ordinary income tax rate is less than 25%,the tax rate on qualified dividends is:
A)5%.
B)0%.
C)15%.
D)10%.
Free
Multiple Choice
Q 82Q 82
Items that must be reported on line 21 Other Income)of the Form 1040 include:
A)Jury duty pay.
B)Wages.
C)Capital gains.
D)Tax-exempt dividends.
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Multiple Choice
Q 83Q 83
Corporate distributions to shareholders that represent a nontaxable return of capital are those that are:
A)made from the excess over earnings and profits of the corporation.
B)made from the bank account of the corporation.
C)made from accumulated retained earnings of the corporation.
D)made from current year's profit of the corporation.
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Multiple Choice
Q 84Q 84
Tax-exempt interest includes the following items,except:
A)interest on bonds issued by the local government to build a convention center.
B)interest on municipal bonds.
C)interest on bonds issued by any state.
D)interest on bonds issued by the District of Columbia.
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Multiple Choice
Q 85Q 85
The following corporate dividends are not taxable to the shareholders:
A)Property dividends.
B)Stock split.
C)Cash dividends.
D)None of these.
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Multiple Choice
Q 86Q 86
Corporate and mutual fund payers are required to provide shareholders a Form ________ that indicates the amount of dividends in box 1a.
A)1099-DVI
B)1098-DIV
C)1098-INT
D)1099-DIV
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Multiple Choice
Q 87Q 87
A married,filing jointly taxpayer's lower limit of provisional income for social security purposes is:
A)$44,000.
B)$32,000.
C)$34,000.
D)$25,000.
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Multiple Choice
Q 88Q 88
An example of nontaxable income is:
A)Vacation pay.
B)Child support payment.
C)Holiday bonus.
D)Alimony payment.
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Multiple Choice
Q 89Q 89
Employer-paid premiums on life insurance are not taxable to employees if the coverage does not exceed:
A)$50,000.
B)$52,200.
C)$51,000.
D)$100,000.
Free
Multiple Choice
Q 90Q 90
The exclusion for dependent care assistance plans cannot exceed ________ for a taxpayer who is married but filing as "married filing separately".
A)$2,500
B)$5,200
C)$2,000
D)$3,500
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Multiple Choice
Q 91Q 91
Working condition fringes include:
A)Bonus earned by the employee.
B)The use of an employer-provided vehicle for business purposes.
C)Professional organization dues paid by the employer.
D)Professional organization dues paid by the employer and the use of an employer-provided vehicle for business purposes.
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Multiple Choice
Q 92Q 92
Compensation for sickness or injury which is exempt from income includes:
A)Damages other than punitive damages)received as a result of personal physical injuries or sickness.
B)Wages for sick days paid by an employer.
C)Unemployment compensation payments.
D)All of these.
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Multiple Choice
Q 93Q 93
The amount of savings bond interest exempt from tax is phased out completely when an individual is married and his or her modified AGI reaches:
A)$116,300.
B)$92,550.
C)$115,750.
D)$146,300.
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Multiple Choice
Q 94Q 94
For purposes of computing the amount of savings bond interest exempt from tax,Modified AGI is adjusted gross income plus:
A)standard deduction.
B)deduction for moving expenses.
C)itemized deductions.
D)deduction for student loan interest.
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Multiple Choice
Q 95Q 95
The imputed interest rules apply to the following:
A)Sales in which all payments are due in six months or less.
B)Sale of a personal residence.
C)Sales of property for $3,000 or less.
D)All of these.
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Multiple Choice
Q 96Q 96
For tax purposes,one of the requirements to recognize income is:
A)The transaction does not have to have an economic benefit.
B)The transaction does not have to be completed.
C)The income cannot be tax-exempt.
D)None of these.
Free
Multiple Choice
Q 97Q 97
If Raphael,a roofer,decides to fix the roof of his neighbor,Angela,in exchange for Angela providing bookkeeping services for his business,then ________ must report income on the tax return.
A)Raphael and Angela
B)Either Raphael or Angela
C)Raphael
D)Angela
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Multiple Choice
Q 98Q 98
When a taxpayer reports income when received,this is called the ________ method.
A)Accrual basis of accounting
B)Income tax progressive
C)Cash receipts and disbursements
D)Deferred
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Multiple Choice
Q 99Q 99
Which type of interest received is taxable and must be reported on the tax return?
A)Tax-exempt interest.
B)Interest on municipal bonds.
C)Interest on a savings account.
D)Tax-exempt interest and interest on a savings account.
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Multiple Choice
Q 100Q 100
When an individual's marginal ordinary income tax rate is less than 25%,the tax rate on qualified dividends is ________.
A)10%
B)0%
C)15%
D)5%
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Multiple Choice
Q 101Q 101
Felix,a single taxpayer,claimed $180 of state tax as an itemized deduction on his 2015 tax return.The total itemized deductions on his tax return were $6,350.In 2016,he received a $25 refund from the state.What is the amount Felix has to report on his 2016 tax return?
A)$0.
B)$50.
C)$25.
D)$180.
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Multiple Choice
Q 102Q 102
The taxability of social security benefits depends on the provisional income and ________.
A)Dependency exemptions of the taxpayer
B)Standard deduction of the taxpayer
C)Itemized deductions of the taxpayer
D)Filing status of the taxpayer
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Multiple Choice
Q 103Q 103
What is the taxable amount of social security income reported on the tax return if a single taxpayer received $9,400 in social security benefits and $150 in interest income?
A)$4,775.
B)$0.
C)$4,700.
D)$7,990.
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Multiple Choice
Q 104Q 104
The following income item is not taxable:
A)Alimony.
B)Sick Pay.
C)Jury duty.
D)Child support.
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Multiple Choice
Q 105Q 105
Discounts offered to employees on services cannot exceed ________ of the normal selling price.
A)75%
B)10%
C)5%
D)20%
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Multiple Choice
Q 106Q 106
Laura is a student at a state university.In 2016,she received a scholarship of $6,000 for tuition and fees and an assistantship for $3,000.What is the amount that Laura must report in income?
A)$9,000.
B)$3,000.
C)$6,000.
D)$0.
Free
Multiple Choice
Q 107Q 107
Under a dependent care assistance plan,the exclusion for a head of household taxpayer cannot exceed his or her earned income and:
A)$5,150.
B)$5,250.
C)$2,500.
D)$5,000.
Free
Multiple Choice
Q 108Q 108
The following items under compensation for sickness or injury are exempt from income and do not have to be reported on the taxpayer's tax return:
A)Sick pay.
B)Workers' compensation payments.
C)Welfare payments.
D)Welfare payments and Workers' compensation payments.
Free
Multiple Choice
Q 109Q 109
The imputed interest rules do not apply to the following:
A)Sales of property for $3,000 or less.
B)Certain carrying charges.
C)Sales in which all payments are due in 6 months or less.
D)All of these.
Free
Multiple Choice
Q 110Q 110
With OID instruments,taxpayers report annually a portion of the OID as:
A)Capital gain.
B)Dividend income.
C)Tax- exempt interest income.
D)Interest income.
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Multiple Choice
Q 111Q 111
For tax purposes,name the three conditions that a transaction must meet for income recognition.
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Essay
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Q 115Q 115
Describe the various situations where a taxpayer must file a Schedule B Forms 1040A or 1040)when receiving interest income.
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Essay
Q 116Q 116
Determine the amount of tax liability under the following two situations.
1.The taxpayer is single with taxable income of $54,690 that includes qualified dividends of $450.
1.The taxpayer is married filing jointly with taxable income of $64,500 that includes qualified dividends of $300.
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Essay
Q 117Q 117
A taxpayer received a 1099-G for 2016 showing $350 of state income tax refund that he received during the year from 2015 state taxes paid.Does the taxpayer have to report the state income tax refund of $350 in 2016?
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Q 120Q 120
Name three items that are exempt from income under the umbrella of compensation for injuries or sickness.
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Essay
Q 121Q 121
Name three types of nontaxable income do not include items that are exempt under the umbrella of compensation for injuries or sickness).
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Essay
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Q 123Q 123
The imputed interest rules do not apply to certain transactions.Name three situations where this is a true statement.
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Q 125Q 125
How does the taxpayer report interest income on an original issue discount OID)instrument?
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Essay