10 May WHAT IS JAMES’S STANDARD DEDUCTION?
Glori and Kevin ages 32 and 36 are married and file a joint return. In addition to having TWO dependent children (Estela and Tana) Glori and Kevin have adjusted gross income (“AGI”) of $85 000 and itemized deductions of $17 000. What is their taxable income for 2014? a. $85 000 b. $68 000 c. $56 150 d. $52 200 2. In 2014 James age 16 had $1 000 of interest from a certificate of deposit and $3 000 from working as a waiter. Assume James is claimed by his parents as a dependent. What is James’s standard deduction? a. $0 b. $1 000 c. $3 350 d. $6 200 3. What is Amy’s Taxable Income for 2014? Assume she is 44 years old and is single and has no dependents. Assume further that Amy’s AGI is $95 000 and that she made a charitable contribution of $750 (which would be her only itemized deduction). a. $95 000 b. $94 250 c. $91 050 d. $84 850 4. What is Valerie’s taxable income for 2014? Assume she is single and claimed THREE dependent children Kerline Ellice and Myrtho. Assume further that Valerie’s AGI is $66 000 and that her itemized deductions are $15 000. a. $66 000 b. $51 000 c. $39 150 d. $35 200 5. A few years ago Maidelin and Mairovis formed a partnership called “M&Ms.”Which of the following is most likely TRUE regarding the U.S. income taxation of Maidelin Mairovis and M&Ms? a. The M&Ms entity is required to file an informational tax return b. The M&Ms entity is required to pay federal income taxes c. The M&Ms entity will most likely be taxed like a corporation d. Mairovis and Maidelin 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 Eva from reducing her tax liability by voluntarily assigning her income to another taxpayer? a. The constructive receipt doctrine b. The fruit-of-the-tree doctrine c. The economic benefit doctrine d. None of the above 7. During 2014 Danny was supported by his three wealthy CPA daughters in the following percentages: ? Analeyda: 25.0% ? Veronica: 31.0% ? Jeanette: 9.0% Which daughter is UNABLE to claim Danny as a dependent even if a multiple support agreement is in place and the other daughters agree NOT to claim Danny as a dependent? a. Analeyda b. Veronica c. Jeanette d. Each daughter would be eligible to claim Danny as a dependent 8. On January 1 2014 Joel signed a FOUR year lease to rent office space from Freda. The lease commenced immediately on January 1 2014. During 2014 Joel paid Freda $12 000 for the first year’s rent $1 000 for the last month’s rent and $1 000 as a security deposit. Joel and Freda agree that the security deposit will be returned by Freda at the end of the lease. How much gross income should Freda report for 2014 as a result of these items? a. $12 000 b. $13 000 c. $14 000 d. $49 000 9. What is Christopher’s taxable income for 2014? Assume Christopher is 51 years old and is single and has no dependents. Assume further that Christopher’s 2014 AGI is $74 000 and that he has no itemized deductions. a. $63 850 b. $67 800 c. $70 050 d. $74 000 10. Jose a single taxpayer had 2014 wages of $92 000 from his job at Big Company Inc. What is Jose’s AGI if he has the following (and only the following) additional items in 2014? ? Itemized deductions of $20 000 ? Exemption amount of $3 950 ? Alimony of $12 000 received by Jose (from his former spouse Catherine) ? Business income of $20 000 from Jose’s sole proprietorship Ignore any deduction that may relate to self-employment taxes. a. $92 000 b. $100 050 c. $112 000 d. $124 000 11. Assume the same facts as in the previous question (again ignore any deduction that may relate to self-employment taxes). Jose’s Taxable Income for 2014 is: a. $92 000 b. $100 050 c. $112 000 d. $124 000 12. Babajide and Matthew are married taxpayers who file a joint return. In 2012 they had AGI of $750 000 and their preliminary itemized deductions totaled $50 000. In 2014 they will also have AGI of $750 000 and preliminary itemized deductions of $50 000. 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 more itemized deductions on their 2014 return b. When comparing their 2012 and 2014 returns they will deduct more itemized deductions on their 2012 return c. When comparing their 2012 and 2014 returns they will deduct the same amount of itemized deductions on each 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 FROM AGI to deductions FOR 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 impact the amount of his/her Social Security benefits that are subject to taxation 14. Assume that Obaku received some unique payments in 2014. Which of the following items may Obaku exclude from gross income? a. $75 000 of punitive damages received from a lawsuit against Dangerous Co. b. $200 received from Fantasy Football league winnings c. $15 000 received as a gift from a relative d. None of the above 15. In early 2014 Santosh received a gift of a home valued at $400 000 (from Santosh’s Uncle Kevin). Kevin also gave Santosh a $50 000 cash gift. During 2014 Santoshrented the home to Rizwan. As a result of the lease with Rizwan Santosh earnednet rental income of $36 000 (for 2014). What amount of income should Santosh’s 2014 tax return include from these transactions? a. $0 b. $36 000 c. $86 000 d. $486 000 16. In 2014 Jean a calendar-year taxpayer purchased business equipment (5-year property) for $75 000. The property was placed in service in January 2014 (and is being used exclusively in Jean’s extremely profitable business). No other personal property is purchased by Jean in 2014. What is the most that Jean may deduct in 2014 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)? a. $200 000 b. $75 000 c. $25 000 d. $0 17. Assume the same facts as in the previous question. However for this question assume that Jean purchased the business equipment for $205 000 (instead of $75 000). 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. $205 000 b. $25 000 c. $20 000 d. $0 18. Which of the following is most likely deductible FOR AGI (i.e. PRE-AGI)? a. Amounts paid for interest on a student loan b. Amounts paid for state income taxes c. Amounts paid for an employee’s unreimbursed travel expenses (i.e. the travel was related to taxpayer’s fulltime position at a large corporation) d. Each of the above items would be deducted FROM AGI (i.e. POST-AGI) 19. Anh has AGI of $100 000 in 2014. During 2014 Anh also had an uninsured personal casualty loss of $17 000 (after the $100 reduction). The personal casualty loss related to an accident that Anh had with Danny. Anh carried no collision insurance and Danny was also an uninsured motorist. Assume Anh itemizes deductions in 2014. What is the casualty loss amount that Anh may deduct on his return? a. $0 b. $7 000 c. $10 000 d. $17 000 20. Refer to the facts in the previous question. However for purposes of this question assume that Anh takes the standard deduction in 2014. What is the casualty loss amount that Anh may deduct on his return? a. $0 b. $7 000 c. $10 000 d. $17 000 21. If Jeanette is insolvent with assets of $30 000 and liabilities of $50 000 and one of Jeanette’s creditors then cancels a debt of $25 000 what amount must Jeanette recognize as income? a. $0 b. $5 000 c. $20 000 d. $25 000 22. TXX5761 Inc. paid all of the premiums for a $450 000 group-term life insurance policy on its 67-year-old President Estela. 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 Estela’s Gross Income for the year (assume Estela was covered for all twelve months)? a. $0 b. $6 096 c. $400 000 d. $450 000 23. On January 1 2014 Analeyda purchased a 20-year annuity for $80 000 from MAIROVIS MUTUAL (an established insurance company). Under the annuity Analeyda will receive payments of $740 for each month of annuity’s life. What amount of the annuity payments may be excluded from Analeyda’s Gross Income for 2014 (assume all 12 monthly payments are made in 2014)? a. $8 880 b. $4 880 c. $4 000 d. $0 24. Assuming the same facts as in the previous problem what amount of the annuity payments from MAIROVIS MUTUAL must be included in Analeyda’s Gross Income for 2014? a. $8 880 b. $4 880 c. $4 000 d. $025. 25. In March 2013 Obaku a calendar-year taxpayer purchased new 7-year property for $950 000. The property was immediately placed into service (and is still being used exclusively in Obaku’s extremely profitable business). No other personal property was purchased by Obaku in 2013. Obaku 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. $0 b. $500 000 c. $757 153 d. $950 000 25. In March 2013 Obaku a calendar-year taxpayer purchased new 7-year property for $950 000. The property was immediately placed into service (and is still being used exclusively in Obaku’s extremely profitable business). No other personalproperty was purchased by Obaku in 2013. Obaku 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. $0 b. $500 000 c. $757 153 d. $950 000 28. Kerline contributed some inventory from Kerline’s sole proprietorship to a public charity for its use. On the date of the contribution Kerline’s basis in the inventory was $7 000 and the fair market value was $20 000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)? a. $0 b. $7 000 c. $13 000 d. $20 000 29. Which of the following items most resembles an interest free loan from the U.S. government? a. Student loan interest being deducted b. Travel expenses being deducted c. Unreimbursed employee business expenses being deducted d. Bonus depreciation being deducted 28. Kerline contributed some inventory from Kerline’s sole proprietorship to a public charity for its use. On the date of the contribution Kerline’s basis in the inventory was $7 000 and the fair market value was $20 000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)? a. $0 b. $7 000 c. $13 000 d. $20 000 29. Which of the following items most resembles an interest free loan from the U.S. government? a. Student loan interest being deducted b. Travel expenses being deducted c. Unreimbursed employee business expenses being deducted d. Bonus depreciation being deducted 31. What was Catherine’s Taxable Income for 2014? Assume Catherine is single and has FIVE dependent children Maidelin Valerie Ellice Myrtho and Jean. Assume further that Catherine’s 2014 AGI is $88 000 and that Catherine had itemized deductions of $15 000. a. $49 300 b. $53 250 c. $73 000 d. $88 000 32. What was Eva’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 ($73 000) Less: Personal exemption ($3 950) Less: Nonbusiness deductions ($7 000) Loss shown on return ($26 950) a. $26 950 b. $21 000 c. $12 000 d. $0 33. Jeff incurred the following expenses during 2014. Which expense is Jeff LEAST likely to deduct as a medical expense (assume Jeff itemizes and that Jeff’s medical expenses will exceed 10.0% of Jeff AGI)? a. Cosmetic surgery (to make Jeff’s chin look more appealing) b. Uninsured expenses relating to back surgery c. Medical insurance premiums (purchased by Jeff with Jeff’s after-tax dollars) d. Travel expenses to obtain treatment at a clinic in South Carolina (assume that the potentially lifesaving procedure to be performed can only be performed at that particular clinic) 34. Jose contributes some common stock that Jose held long-term to a public charity. On the date of the contribution Jose’s basis in the common stock was $1 000 and the fair market value was $11 000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)? a. $0 b. $1 000 c. $10 000 d. $11 000 35. James sold stock James owned in a small business that was formed as a corporation. James sold the stock to Glori. Which Section of the U.S. Tax Code might allow James to convert what would otherwise be a capital loss into an ordinary loss? a. Section 1202 b. Section 1221 c. Section 1244 d. None of the above 36. Matthew’s business incurred a casualty loss in 2014. Immediately before the casualty her business truck had an adjusted basis of $30 000 and a fair market value of $25 000. Immediately after the casualty the truck had a fair market value of $10 000. Because of the truck damage Matthew’s insurance company provided $10 000 as a reimbursement in 2014. What was Matthew’s 2014 casualty loss deduction? a. $5 000 b. $15 000 c. $30 000 d. Unknown (because we must know Matthew’s AGI) 37. In 2006 Amy (a single taxpayer) loaned $25 000 to her friend Freda. In 2014 Freda declared bankruptcy with the result that the debt became totally worthless. How should Amy 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 long-term capital loss c. As a short-term capital loss d. Amy 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 Amy has no other capital gains or losses in 2014 (or any prior years). What is the maximum amount (related to the bad debt) that Amy can deduct in 2014? a. $0 b. $3 000 c. $22 000 d. $25 000 39. Assume the facts stated in the prior two questions. Assume further that for 2014 Amy will offset her wages (with any deduction related to the debt) to the maximum extent permitted by law. What is the amount of Amy’s capital loss carryover to 2015? a. $0 b. $3 000 c. $22 000 d. $25 000 40. Which of the following is most likely deductible FOR AGI (i.e. PRE-AGI)? a. Amounts paid for unreimbursed moving expenses b. Amounts paid for federal income taxes c. Amounts paid for property taxes d. Each of the above items would be deducted FROM AGI 41. Veronica’s boss gave her two tickets to the Brittany Steers concert because she met her sales quota. At the time Veronica received the two tickets they had a face value of $100 each and were selling on eBay for $400 each (which equaled the fair market value of the tickets on that day). On the date of the concert the tickets were selling for $500 each. Veronica and her daughter attended the concert. How much gross income should Veronica report as a result of the tickets? a. $1 000 b. $800 c. $200 d. $0 42. Babajide was a professional soccer player before a career-ending injury caused by a grossly negligent driver. Babajide sued the driver and collected $2 million as compensation for lost estimated future income and $1 million for punitive damages. How much gross income should Babajide report as a result of the damages received? a. $0 b. $1 million c. $2 million d. $3 million43. Which of the following is a deduction FROM AGI? a. Rizwan paid alimony to a former spouse b. Amy paid real estate taxes levied by the county on her personal residence c. Tana paid property taxes levied by the county on her car used exclusively for business d. Kevin invested $3 000 in a Roth IRA 44. Compute the casualty loss on Analeyda’s uninsured rental property under the following facts: Adjusted basis $100 000 FMV before the loss $25 000 FMV after the loss $0 a. N/A (we need to know Analeyda’s AGI to answer this question) b. $25 000 c. $75 000 d. $100 000 45. Christopher Corporation acquired new computer equipment on February 4 2014 for $20 000. Christopher did not elect immediate expensing under Section 179. Determine Christopher’s cost recovery for 2014. a. $0 b. $4 000 c. $8 000 d. $20 000 46. On August 5 2014 Eva purchased a new office building for $6 million. On October 3 2014 she began to rent out office space in the building. What is Eva’s cost recovery for 2014? a. $6 000 000 b. $153 840 c. $32 100 d. $0 47. Assume the same facts as in the previous problem. Assume further that Eva sells the office building on July 12 2018. What is Eva’s cost recovery for 2018? a. $222 222 b. $153 840 c. $83 330 d. $048. Jeff performs services for No 48. Jeff performs services for Nova Inc. In determining whether Jeff is an employee or an independent contractor which factor is MOST likely to suggest that Jeff is an employee? a. Jeff uses his own tools b. Jeff sets his own schedule c. Jeff performs the services from his home d. Nova Inc. determines the details of HOW Jeff performs the applicable work BACKGROUND INFORMATION FOR QUESTIONS 49-50 Danny and Obaku recently formed a corporation named DO Inc. (or “DO”). On December 31 2013 DO issued 800 000 shares of common stock to Obaku and 800 000 shares of common stock to Danny. Obaku and Danny 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 DO. Each DO 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 Obaku quits DO before December 31 2017 DO can repurchase Obaku’s “unvested shares” for $0.01 per share (no matter what the fair market value is on that date). QUESTION 49 Assume that Danny DID file a timely “83(b) election.” On December 31 2014 Danny is still working at DO and thus 200 000 of Danny’s 800 000 shares are “released” from the DO repurchase option (i.e. 200 000 of Danny’s shares “vest” on December 31 2014). On that same day the fair market value of the DO stock equals $10.01 per share. What 2014 income if any must Danny 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 Obaku DID NOT file a timely “83(3(b) election.” On December 31 2014 Obaku ialso still working at DO and thus 200 000 of Obaku’s 800 000 shares are also “released” from the DO repurchase option (i.e. 200 000 of Obaku’s shares “vest” on December 31 2014). On that same day the fair market value of the DO stock equals $10.01 per share. What 2014 income if any must Obaku report as a result of these events? a. $8 000 000 b. $2 002 000 c. $2 000 000 d. $0
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