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1. For income tax purposes, the surviving spouse is considered a widow for the entire year in the year their spouse dies and therefore cannot file a joint return.
2. Employees of a CPA firm located in Seattle may not exclude the meals and lodging provided by their employer while they were on an audit in Pennsylvania from gross income.
3. When married taxpayers file separate income tax returns, a spouse can claim their spouse as a dependent.
4. Andy, age 15, is claimed as a dependent by his parents. During 2021, he earned $3,500 as a waiter at a restaurant. His standard deduction is $3,850.
5. The constructive receipt doctrine requires that income be recognized when it is made available to the cash basis taxpayer even though there are restrictions on actually receiving it. The constructive receipt doctrine does not apply to accrual basis taxpayers.
6. Derek and Anais are married and file a joint return. Derek is blind and both are over 65 years of age. Calculate their standard deduction for 2021. You do not need to include dollar sign, commas, or cents in your answer.
7. Jackie earned $185,000 during the current year. She paid Emmanuel, her former husband, $40,000 in alimony. The couple divorced in 2020. Emmanuel is required to include the alimony payments in gross income although Jackie earned the income.
8. Betty and Robert are married and under 65 years old. In 2021, they furnished more than 50% of the support of their 21-year old son, Dwight, who lives with them. Dwight earns $13,000 as a part-time grocer at a local supermarket. Betty and Robert also furnish more than 50% of the support of Dwight's cousin Stanley who lives with them and all of the support of Robert's mother, Emilia, who is 82 years of age and lives in a nursing home. Betty's father, James, who died on January 3, 2021 at 87 years of age, has qualified as their dependent for many years and nothing has changed prior to his death. How many dependents can Betty and Robert claim?
9. Grant furnishes more than half of the support of his daughter and son-in-law who live with him. If the daughter and son-in-law file a joint return, Grant cannot claim them as dependents.
10. For 2021, Kelly has wages of $65,000 and the following property transactions:
Land investment sales -
Long-term capital gain $8,000
Short-term capital loss (10,000)
Loss on sale of RV (purchased six years ago and solely used for family vacations) (4,000)
Calculate Kelly's AGI for the current year. You do not need to include dollar sign, commas, or cents in your answer.
11. With respect to unearned income from services rendered, which of the following statements is true?
12. The realization requirement gives an incentive to hold business assets that have decreased in value and to sell personal use assets that have increased in value.
13. In 2021, Kate is 21 years of age, not disabled, and earns $4,600. Unless she is a full-time student, Kate's parents cannot claim her as a dependent.
14. Anna's itemized deductions exceed her allowable standard deduction for 2021. She cannot claim the standard deduction under these circumstances.
15. Lina was unemployed for the first two months of 2021. During that time, she received $5,000 of state unemployment benefits. She worked for the next six months and earned $16,000. In November, she got mentally sick and successfully sued her employer and collected $6,000 of lost wages. Lina’s federal gross income from the above is $21,000 ($5,000 + $16,000).
16. James, age 87, passed away on January 3, 2021. Even though he lived for three days of the year, the full amount of allowable basic and additional standard deductions for the year will be allowed on his final tax return.
17. The de minimis fringe benefit:
18. In the year their spouse dies, the surviving spouse is considered single for the entire year for income tax purposes.
19. In 2021, Yana furnishes more than half of the support of her ex-husband and his mother, both of whom live with her.
The divorce occurred in 2020. Yana may claim the mother-in-law and the ex-husband as dependents.
20. In 2021, Olivia is 84, blind, and single. If her itemized deductions amount to $14,212, she should claim the standard deduction
21. Lavender Corp. currently uses the cash method. Currently, it pays on the last day of each month. However, the company is considering paying salaries for December on the first day of the following year. How would employees be affected by the proposed change if Lavender were to enact it beginning December 2021?
22. Generally,
I. Income from property is taxed to the person who owns the property.
II. Income from services is taxed to the person who earns the income.
III. The assignor of income from property must pay tax on the income.
IV. The person who receives the benefit of the income must pay the tax on the income.
23. In December 2021, Alex collected the December 2021 and January 2022 rent payments from his tenant, Emma. Alex is a cash-basis taxpayer. The amount collected in December 2021 for the 2022 rent should be included in his 2022 gross income.
24. Edward received a scholarship from the college he is currently attending. Of the $20,000 he received, $6,000 is allocated to tuition, $10,000 for room and board, and $4,000 for textbooks. Edward is only required to include $10,000 in his gross income.
25. Domino Cable TV Company (Domino) is an accrual basis taxpayer. It permits its customers to pay one year in advance for $576 per year or two years in advance for $936 per year.
In September 2021, Domino collected the following amounts applicable to future services:
October 2021 - September 2023 services (150 two-year contracts) $140,400
October 2021 - September 2022 services (180 one-year contracts) 103,680
Total $244,080
As a result of the above, calculate Domino's gross income for 2022 (the year following receipt). You do not need to include the dollar sign, commas, or cents in your answer.
26. Treasure Cruise has gambling facilities, a bar, a restaurant, and a hotel. All employees are allowed to obtain food from the restaurant at no charge during working hours. In the case of the employees who operate the gambling facilities, bar, and restaurant (70% of all of the cruise's employees), the meals are provided for the convenience of the cruise. However, the hotel workers demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work. Which of the following is correct?
27. If a married couple files separate returns, both must claim the standard deduction (rather than itemize their below-the-line deductions).
28. In 2021, Brandon sold the following assets: a business use yacht for $2,000 loss, stock investment for $1,500 loss, and a business use car for $1,000 loss. Presuming adequate income, calculate how much of these losses that Brandon can claim? You do not need to include the dollar sign, commas, and cents in your answer.
29. Regal Co., is an accrual basis taxpayer. On December 13, 2021, a customer purchased an item that was in stock. However, the customer wanted the item delivered on the first week of January 2022. Regal delivered the item on January 5, 2022. For financial accounting purposes, Regal correctly included the sale in its 2021 income.
30. Grace, age 16, is claimed as a dependent by her grandfather. During 2021, she had City of Baltimore bonds of $2,000 and earnings from cat-sitting of $400. Calculate her taxable income. You do not need to include the dollar sign, commas, or cents in your answer.
31. Cesar, whose wife died in December 2010, maintains a household in which his dependent father lives. Which (if any) of the following is Cesar's filing status for the tax year 2021? (Note: Cesar is the executor of his wife's estate)
32. In terms of income tax consequences, abandoned spouses who do not have children are treated the same way as married persons filing separate returns.
33. During 2021, Linda had the following transactions:
Salary $90,000
Cash dividends from Penguin stock 4,000
Inheritance from uncle 25,000
Capital losses 6,000
Alimony paid (divorce was finalized in 2020) 1,500
Calculate Linda's AGI. You do not need to include the dollar sign, commas, or cents in your answer.
34. Henry mistakenly took a $4,000 deduction in 2021. As a result of his mistake, his taxable income was reduced by $4,000. He discovered his error in 2022. In accordance with tax benefit rule, Henry should add $4,000 to his income in 2022 to correct the error he made in 2021
35. Earlier this year, Laura was in an car accident during the course of her employment. As a result of the physical injuries she sustained, she received the following payments during the year:
Damage settlement to replace her lost salary $25,000
Reimbursement of medical expenses Laura paid by a medical insurance policy she purchased 10,000
What is the amount that Laura must include in her gross income for the current year?
36. Which of the following statements relating to the standard deduction, if any, is correct?
37. In which, if any, of the following situations may the individual not be claimed as a dependent of the taxpayer?
38. Which of the following, if any, is an above-the-line deduction?
39. Dominic, age 90, is supported during the current tax year as follows:
Percentage of Support
Daniel (his grandson) 30%
Reina (his girlfriend) 25%
Sierra (his cousin) 20%
Sheldon (his son) 25%
During the year, Dominic lived in a nursing home. Under a multiple support agreement, which individuals are qualified to claim Dominic as a dependent?
40. During 2020, Toby had the following gains and losses:
LTCG $15,000
LTCL 12,000
STCG 4,000
STCL 6,000
How much is Toby’s tax liability if he is in the 32% tax bracket? You do not need to include dollar sign, commas, or cents in your answer.
41. Monica manages a hotel. As a condition of her employment, she is required to live in a room in the hotel so that she would be there in case of emergencies. Monica considers this a fringe benefit since she would otherwise be required to pay $2,000 per month rent. The room that Monica occupied normally rented for $100 per night, or $3,000 per month. On the average, 85% of the motel rooms were occupied. As a result of this rent-free use of a room, what amount is Monica is required to include in her gross income?
1. During 2020, Ricky has the following capital transactions:
LTCG $10,000
LTCG 5,000
STCG 7,000
STCL 13,000
After the netting process, the following results:
2. Dean is a cash-basis taxpayer. When he failed to repay a loan, the bank garnished his salary. $85 is withheld from his salary each week and paid to the bank. Dean is not required to include the $85 each week in his gross income because the creditor benefits from the income.
3. Janet and James are ages 68 and 75, respectively, and file a joint return. If they have itemized deductions of $26,200, they should claim the standard deduction.
4. Employees of Gracewood Country Club (GCC) are allowed to use the tennis course without charge before and after working hours on Wednesdays. The employees are obligated to stop play if their presence interferes or precludes paying customers from playing. Naomi is a ball girl employed by GCC. Naomi played 50 games of tennis during the year at no charge. The non-employee charge is $40 per game.
5. Which of the following taxpayers may file as head of household in 2020?
Henry provides all of the support for his stepfather, Richie, who lives by himself in a retirement home. Henry pays for Richie's living expenses and properly claims him as a dependent.
Vicky provides over one-half the support for her 17-year old cousin, Sierra. Sierra lived in Vicky's home the entire year and earned $2,700 working as a model in 2020.
Julia provides over one-half the support for her half-sister Mia, who lives by herself and is a citizen of France.
6. Pam and Toby divorced in 2016. Their only marital property was a personal residence with a value of $200,000 and cost of $120,000. Under the terms of the divorce agreement, Pam would receive the house and would pay Toby $20,000 a year, or until Toby's death. Pam and Toby lived apart when the payments were made to Toby. The divorce agreement did not contain the word "alimony". Which of the following is true?
7. Regarding the rules applicable to filing of income tax returns, which of the following, if any, is false?
8. Harrison continues to support his ex-wife's brother, Andy, after his divorce. Andy does not live with Harrison. Harrison cannot claim Andy as a dependent.
9. SMG Corporation declared a dividend for taxpayers of record as of December 24, 2020. The dividend checks were mailed on December 31, 2020. Lisa, a cash-basis shareholder, received the dividend check on January 4, 2021. Lisa can delay reporting the income from the dividend until 2021.
10. Which of the following is not considered "constructive receipt" of income?
11. Debra and Anton were divorced in 2016. Their only marital property consisted of publicly traded stocks (fair market value of $500,000, cost basis of $250,000) and a personal residence (fair market value of $1,200,000, cost of $700,000). Under the terms of the divorce agreement, Debra received the personal residence and Anton received the stocks. In addition, Debra was to receive $60,000 for six years. Anton decided to sell the stocks for $600,000. How much is Anton's recognized gain from the sale of stocks? You do not need to include the dollar sign or cents in your answer.
12. Alexa, age 15 and single, earns $4,500 in 2020. Her parents can still claim her as a dependent even if she does not live with them.
13. Carolina, age 17, is claimed as a dependent by her mother. During 2020, she earned $4,580 from babysitting. Calculate her standard deduction. You do not need to include the dollar sign or cents in your answer.
14. Daniel sued his former employer for age, race, and gender discrimination. He claimed $300,000 in damages for loss of income, $400,000 for emotional harm, and $600,000 in punitive damages. He settled the claim for $900,000. As a result of the settlement, how much should Daniel include in gross income? You do not need to include the dollar sign or cents in your answer.
15. Jeffrey, age 68 and single, is claimed as a dependent by his son. During 2020, Jeffrey had interest income of $2,450 and $700 of earned income from cat-sitting. What is Jeffrey's taxable income? You do not need to include the dollar sign or cents in your answer.
16. For the year a spouse dies, the surviving spouse is considered single for the entire year for income tax purposes.
17. Kathleen is married to Emmanuel, who abandoned her in 2019. She has not seen or communicated with him since March of that year. She maintains a household in which their daughter, Lara, lives. Lara is 21 years old and earns $7,000 each year. For tax year 2020, Kathleen's filing status is:
18. Samantha, age 16, is claimed as a dependent by her mother. During 2020, she had interest income from a savings account of $2,000 and earnings from a part-time job of $950. What is Samantha's taxable income for 2020? You do not need to include the dollar sign or cents in your answer.
19. Amanda, age 17, is claimed as a dependent by her father. During 2020, Amanda earned $1,400 in interest income on a savings account. Her standard deduction is $1,750 ($1,400 + $350).
20. Under the alimony rules:
21. Tamara supports the following individuals during the current year: Peter, her former father-in-law who lives in her own home and has no gross income; her cousin, Hannah, age 21, who is a full-time student, earns $5,000 during the year, and lives with Tamara all year long, and Evan, age 19, who is Hannah's brother, is a full-time student living on campus and earns $2,000 during the year. How many personal and dependency exemptions may Tamara claim?
22. Oscar was to pay his wife Dana $5,000 per month in alimony under the terms of a divorce agreement entered into in 2015. Oscar's payments will be reduced to $2,000 per month when their 7-year old daughter becomes 21. For a 12 month period, how much can Oscar deduct from gross income? You do not need to include the dollar sign or cents in your answer.
23. Our tax laws generally encourage taxpayers to _______ investment assets that have decreased in value and _______ investment assets that have increased in value.
24. George and Laura are married and file a joint return. George is over 65 years of age and Laura is blind. Calculate their standard deduction for 2020. You do not need to include the dollar sign or cents in your answer.
25. To which of the following situations does the usual three-year statute of limitations on additional tax assessments apply to?
26. The constructive receipt doctrine requires that income be recognized when it is made available to the cash basis taxpayer even though there are restrictions on actually receiving it. The constructive receipt doctrine does apply to accrual basis taxpayers.
27. In 2020, Greg was in an automobile accident and suffered physical injuries. The accident was caused by Brianna's negligence. In 2021, Greg collected from her insurance company. He received $22,000 for loss of income, $15,000 for pain and suffering, $40,000 for punitive damages, and $4,500 for medical expenses that he had deducted on his 2020 tax return (the amount in excess of 7.5% of adjusted gross income). As a result of this, Greg's gross income is increased by $77,000.
28. Harriet repairs power lines for the Irving Utilities Company. She is generally working on a power line during the dinner hour. She eats while working. She usually purchases something at a restaurant and eats it while working. Irving reimburses Harriet for the cost of her meals.
29. Anisha was injured in an automobile accident and received $40,000 for her physical injury, $30,000 for her loss of income, and $15,000 as compensation for a damage to her car. The car was purchased for $30,000. As a result of the award, how much must Anisha include in her gross income? You do not need to include the dollar sign or cents in your answer.
30. Teal Company permits employees to occasionally use the copying machine for personal purposes. The copying machine is located in the office where the higher paid executives work, so they occasionally use the machine. However, the machine is not convenient for use by the lower paid warehouse employees and, thus, they never use the copier. The use of the copy machine may be excluded from gross income.
31. Julius is divorced and maintains a home in which he and his 20 year old son, Dylan, live. Dylan earns $9,000 as a busboy in 2020. Julius qualifies for head of household filing status.
32. Stephanie and Bo got married in 2014 and divorced in October 2020. Since they were married for more than half of the year, they are considered as married for 2020.
33. Under the income tax formula, a taxpayer must choose between deductions from AGI and the standard deduction.
34. Shay sold her investment for a gain of $15,000. She also sold her business use auto for a loss of $5,000. As a result of these sales, $15,000 is subject to income tax.
35. During 2020, Alissa had the following transactions:
Salary $80,000
Interest income on savings account 3,000
Inheritance from aunt 30,000
Contribution to traditional IRA 6,000
Interest on student loans 1,500
Calculate Alissa's AGI. You do not need to include the dollar sign or cents in your answer.
36. Christina earned $175,000 during the current year. She paid Vincent, her former husband, $50,000 in alimony. The couple divorced in 2015. Under these facts, the tax is paid by the person who earned the income rather than the person who benefits from the income.
37. The Royal Motor Company manufactures automobiles. Non-management employees of the company can buy a new automobile for Royal's cost plus 2%. The automobiles are sold to dealers at cost plus 20%. Generally, management employees of Local Dealer, Inc., are allowed to buy a new automobile from the company at the dealer's cost. Which of the following statements is correct?
38. Aqua Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year member ship costs $600 ($600/12 = $50 per month); a two-year membership costs $1080 ($1080/24 = $45 per month). Cash payment is required at the beginning of the membership period. On July 1, 2020, the company sold a one-year membership and a two-year membership. For financial reporting purposes, Aqua reports the membership income ratably over the number of months involved. How much gross income should the company report as gross income from the two contracts in 2021, the year following payment? You do not need to include the dollar sign or cents in your answer.
39. Matt, whose wife died in October 2019, maintains a household in which his dependent father lives. He is the executor of his wife's estate. Which (if any) of the following is his filing status for the tax year 2020?
40. Derek and Anna are married and both are under 65 years of age. They furnish more than half of the support of their daughter Tania (age 24) who is a full-time MBA student. Tania receives a $6,000 scholarship covering her tuition at business school. Derek and Anna also furnish all of the support of Donald (Tania's grandfather) who is 85 years old and lives in a nursing home. They also support Felicia (age 70), who is a family friend and lives with them. How many dependents can Derek and Anna claim?
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