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1. (TCO E) For federal tax purposes, the gain from the sale of stocks and bonds is classified as: (Points : 5)
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active income.
portfolio income.
passive income.
None of the above
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2. (TCO D) How does the Code define a capital asset? (Points : 5)
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As inventory carried by the taxpayer’s business
As property used by the taxpayer in his/her business, which is depreciable
As intangible property owned by the taxpayer, regardless of whether used in his/her business or not
The Code does not define what a capital asset is, only what it is not.
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3. (TCO H) Gary and Tracy file a joint return for the 2012 tax year. Their adjusted gross income is $65,000. They had net investment income of $9,000. In 2012, they had the following interest expenses:
· Personal credit card interest: $3,000
· Home mortgage interest: $8,000
· Interest paid on qualified education loans: $2,000
· Investment interest (on loans used to buy stocks): $10,000
What is the interest deduction for Gary and Tracy for the 2012 tax year? (Points : 5)
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$19,000
$8,000
$12,000
$18,000
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4. (TCO B) Unreimbursed expenses of employees are considered to be deductions: (Points : 5)
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for AGI.
from AGI.
for or from AGI, depending on the type of expense.
None of the above
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5. (TCO A) Miscellaneous itemized deductions are deductible only: (Points : 5)
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to the extent that in aggregate, they exceed two percent of AGI.
if the taxpayer takes the standard deduction.
if they fall below the limit on standard itemized deductions.
None of the above
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6. (TCO E) Josh sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $60,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh’s $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the amount of Josh’s gain on the sale? (Points : 5)
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$50,000
$105,000
$75,000
$60,000
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7. (TCO I) Gary and Gerdy Gray purchased a home for $125,000 on September 15, 2010. On October 7, 2011 they were divorced, and as part of the divorce agreement, the home was transferred to Gerda, who sold the home on October 18, 2012 for $350,000. How much can Gerda exclude? (Points : 5)
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$350,000
$250,000
$225,000
$0
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8. (TCO I) Under the accrual method of accounting, income is generally recorded when:(Points : 5)
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the liability arises.
payment is received.
the expense is actually incurred.
revenue is earned.
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9. (TCO D) Sean, a calendar year taxpayer, purchased stock on October 18, 2011 for $7,000. The stock became worthless on March 10, 2012. What is Sean’s loss in 2012?(Points : 5)
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$7,000 long-term capital loss
$7,000 short-term capital loss
No loss
$7,000 itemized deduction for investments
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10. (TCO A) Which of the following is not permitted to “practice before the IRS”? (Points : 5)
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Attorney
CPA
Bookkeeping service
Enrolled agent
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11. (TCO F) Trade or business expenses are only deductible if they are: (Points : 5)
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necessary and ordinary.
reasonable in amount.
not capital in nature.
All of the above
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12. (TCO A) The art of using existing tax laws to pay the least amount of tax legally possible is known as: (Points : 5)
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tax evasion.
tax avoidance.
tax elusion.
None of the above
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13. (TCO C) In return for $1,000, Mr. Hand cancels Mr. Sandwich’s debt of $4,000. The cancellation is not a gift, and Mr. Sandwich is neither insolvent nor bankrupt. Which of the following statements is correct? (Points : 5)
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Mr. Hand has $1,000 taxable income.
Mr. Sandwich has $3,000 of taxable income.
Mr. Sandwich has $4,000 of taxable income.
Neither Mr. Hand nor Mr. Sandwich has any taxable income from this transaction.
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14. (TCO B) Mark Mayer, a cash basis taxpayer, leased property on June 1, 2012 to Perry Purly at $325 a month. Perry paid Mark $325 as a security deposit, which will be returned at the end of the lease. In addition, Perry paid $650 in advance rent, which is to be applied as rent to the last two months in the lease term. The lease is to run for a two-year period. What is Mark’s rental income for 2012? (Points : 5)
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$1,950
$2,275
$2,600
$2,925
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15. (TCO G) On June 3, 2012, Leon Wren, an electrician, was injured in an accident during the course of his employment. As a result of injuries sustained, he received the following payments during 2012:
· Damages for personal injuries: $8,000
· Worker’s compensation: $3,000
· Reimbursement from his employer’s accident and health plan for medical expenses paid by Wren: $1,200
The amount to be included in Wren’s 2012 gross income should be: (Points : 5)
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$0.
$1,200.
$3,000.
$12,200.
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16. (TCO F) Hobby expenditures are deductible to the extent of: (Points : 5)
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total individual gross income.
hobby gross income.
trade or business gross income.
nonbusiness gross income.
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Image text transcribed for accessibility: For federal tax purposes, the gain from the sale of stocks and bonds is classified as: How does the Code define a capital asset? Gary and Tracy file a joint return for the 2012 tax year. Their adjusted gross income is $65,000. They had net investment income of $9,000. In 2012, they had the following interest expenses: What is the interest deduction for Gary and Tracy for the 2012 tax year? Unreimbursed expenses of employees are considered to be deductions: Miscellaneous itemized deductions are deductible only: Josh sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $60,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh’s $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the amount of Josh’s gain on the sale? Gary and Gerdy Gray purchased a home for $125,000 on September 15, 2010. On October 7, 2011 they were divorced, and as part of the divorce agreement, the home was transferred to Gerda, who sold the home on October 18, 2012 for $350,000. How much can Gerda exclude? Under the accrual method of accounting, income is generally recorded when: Sean, a calendar year taxpayer, purchased stock on October 18, 2011 for $7,000. The stock became worthless on March 10, 2012. What is Sean’s loss in 2012? Which of the following is not permitted to “practice before the IRS”? Trade or business expenses are only deductible if they are: The art of using existing tax laws to pay the least amount of tax legally possible is known as: In return for $1,000, Mr. Hand cancels Mr. Sandwich’s debt of $4,000. The cancellation is not a gift, and Mr. Sandwich is neither insolvent nor bankrupt. Which of the following statements is correct? Mark Mayer, a cash basis taxpayer, leased property on June 1, 2012 to Perry Purly at $325 a month. Perry paid Mark $325 as a security deposit, which will be returned at the end of the lease. In addition, Perry paid $650 in advance rent, which is to be applied as rent to the last two months in the lease term. The lease is to run for a two-year period. What is Mark’s rental income for 2012? On June 3, 2012, Leon Wren, an electrician, was injured in an accident during the course of his employment. As a result of injuries sustained, he received the following payments during 2012: Hobby expenditures are deductible to the extent of:
