MCQs

Question 1 (2 points)

In computing MACRS depreciation, salvage value is considered

Question 1 options:

True
False


Question 2 (3 points)

To be deductible for tax purposes, a trade or business expenditure must be for a cash basis taxpayer:

Question 2 options:

Ordinary, Necessary, Reasonable

Ordinary, Necessary, Reasonable, Justified

Ordinary, Necessary, Reasonable, Paid

Ordinary or necessary



Question 3 (2 points)

Job-seeking expenses are deductible if incurred by an individual who is presently employed and looking for work in the same trade or business

Question 3 options:

Only if the individual actually finds a new job

Regardless of whether the individual finds a new job

If the expenses relate to the individual's first job

Both (a) and (b)

None of the answers provided are correct


Question 4 (2 points)

Which of the following types of taxes is/are not deductible?

Question 4 options:


State property taxes

State income taxes.

Cigarette taxes

None of the answers are correct

At least 3 answers are correct 


Question 5 (2 points)

During the holiday season, a taxpayer gives business gifts to 25 customers. The gifts have the following fair market values: 7 gifts of property valued at $10 each 5 gifts of property valued at $20 each 13 gifts of property valued at $50 each How much can the taxpayer deduct for business gifts?

$312.50

$495.00

$625.00

$247.00

No answer is correct

(Each gift is limited to a $25 maximum. 7 x $10 + 5 x $20 + 13 x $25 = $495) 

Question 6 (2 points)

A calendar-year corporation incurs $4,000 of start-up costs. If the corporation began business on August 1 of the current year, what is the maximum amount of the start-up costs that it can deduct against business income in the current year? (round your answer to the nearest dollar)

Question 6 options:

$3,417

$5,000

$2,000

$6,333

$4,000

(up to $5000 can be deducted without amortizing)


Question 7 (3 points)

Five-year property costing $50,000 was placed in service on June 11 (along with other assets placed in service throughout the year) of the current year. The property is depreciated using MACRS. Assuming the company elects not to take advantage of either bonus depreciation or the Code Sec. 179 deduction and the mid-quarter convention applies. What will be depreciation expense with regard to the 5 year property for the current year

Question 7 options:

$625

$5,000

$4,375

$3,045

$12,500

None of the provided answers are correct

($50,000 x 20% macrs rate = $10,000 for first year depreciation )

Question 8 (3 points)

During 2013, Klecker, Inc. placed in service $2,700,000 of Code Sec. 179 property. How much can Klecker elect to immediately expense in 2013 related to 179?

$2,100,000

$0

$400,000

$500,000

None of the answers provided are correct

$100,000

(There is a $500,000 limit.)

Question 9 (3 points)

Hobby revenue $60,000. Hobby expenses are $80,000. AGI is $500,000. The amount of hobby expense that would be deductible on Schedule A is (ignoring phase-outs but not floor)

Question 9 options:

$0

$60,000

$40,000

$50,000

none of the provided answers are correct

(Expenses limited to revenue = $60,000 less 2% of AGI $10,000 = $50,000)


Question 10 (3 points)

Janet owns a 100 shares of stock which was purchased on January 4, 2013 for $84/share. On December 31, 2013 the stock was selling for $52/ share. The loss recognized for tax purposes is 

Question 10 options:

$0

$32/share

$84/share

no provided answer is correct

(there is no loss since the stock was not disposed/sold).


Question 11 (3 points)

Stock owned by a brother is sold to his sister. The brother's adjusted basis of the stock is $22,000. He sells the stock for $19,000. The sister sells the stock to an unrelated party for $17,000. What is the gain recognized by the sister 

Her basis is $17,000. The price she paid for it. She sold it for $19,000. She recognizes a gain of $2,000.

Because of the situation, she only has a $1,000 recognized loss.

She takes the brother's basis in the stock and recognizes the $1,000 gain

None of the answers provided are correct

(the brother's loss is not allowed due to related party rules and the sister has a (19,000 basis – 17,000 sales price = $2,000 loss))


Question 12 (3 points)

Ann Jones uses a dry cleaning machine in her business, and it was completely destroyed by fire. At the time of the fire, the adjusted basis was $30,000 and its fair market value was $18,000. How much is Ann's loss?

Question 12 options:

$18,000

$2,000

$30,000

None of the answers provided are correct

(the adjusted basis is used)


Question 13 (3 points)

During 2013, Hugh Hughes reported the following income and loss:
Activity X
($40,000)

Activity Y
$20,000

Both Activity X and Activity Y are passive to Mr. Hughes. How much is the loss that Mr. Hughes may deduct in 2013?

Question 13 options:

$50,000

$30,000

$3,000

$0

No correct answer has been provided

(Question is worded ambiguously. Overall loss = 40,000 - $20,000 = $20,000. $0 of the overall loss may be deducted.)


Question 14 (3 points)

Billy Ray owns several parcels of rental real estate (a passive activity), and he actively participates in managing the properties. His total loss from these activities in 2013 is $20,000. Assuming that his AGI for 2013 is $40,000, what is the allowable deduction from these properties in 2013?

Question 14 options:

$0

$25,000

$20,000

No correct answer has been provided

(there is a $25,000 limit for those under the AGI threshold)


Question 15 (3 points)

When a taxpayer incurs a business NOL in 2013 the taxpayer may:

Question 15 options:

Has to carry the NOL forward instead of back

Must either to elect to carry it back 2 years or carry the NOL forward 20 years 

Carry the NOL back five years

All of the above


Question 16 (3 points)

Net operating losses can be increased by which of the following?

Question 16 options:

standard deductions

medical deductions

personal property tax paid 

None of the above


Question 17 (3 points)

Mark Miller, 72, paid the following medical expenses during the year (all in excess of reimbursement):

Hospital and doctor bills for liposuction(for self and wife, 50)$1840
Over the counter Medicine and drugs (for self and wife) $1730
Hospitalization for hair replacement $16,200
Over the counter Medicine and drugs (for dependent mother, age 91) $1,060

Assuming the Millers' adjusted gross income was $100,000, how much of a medical expense deduction may the Millers claim on their joint return?

Question 17 options:

$1,770

$2,830

$4,330

$8,830

None of the above

(these are all not medically necessary – cosmetic surgery and over-the-counter drugs are not deductible)


Question 18 (2 points)

Cosmetic surgery costs directed solely at improving the patient's physical deformity are generally:

Question 18 options:

Qualify as a medical expense deduction if performed by a licensed doctor

Are listed as standard deductions

Will not qualify for a medical expense deduction

Are limited to a maximum lifetime deduction of $10,000


Question 19 (3 points)

Karen Baker, a cash basis calendar year taxpayer, paid the following during the year:
Social security tax (withheld from wages)$6,120
Personal property taxes (ad valorem) 520
State income tax 5,000
State sales tax 3,800
Cigarette taxes 500
Fine for speeding 250

The amount deductible on Schedule A

Question 19 options:

$5,520

$9,820

$15,420

$16,190

None of the above

(Property tax + higher of state income or state sales tax = $520 + $5,000 = $5,520)

Question 20 (3 points)

Miscellaneous Itemized deductions subject to the 2% floor include

Question 20 options:

Hobby losses, gambling losses, job seeking expenses, work clothes and uniforms, and unreimbursed employee expenses

Hobby losses, gambling losses, job seeking expenses, work clothes and uniforms, but not unreimbursed employee expenses

Hobby losses, job seeking expenses,and unreimbursed employee expenses

Only hobby losses


Question 21 (2 points)

Nonrefundable credits

Question 21 options:

Will, generally, only bring tax liability to zero

May bring the tax liability to zero and provide the taxpayer with a form of non-taxable income from the governmental

May bring the tax liability to zero and provide the taxpayer with a form of taxable income from the governmental

are prohibited


Question 22 (5 points)

In August 2011, a company bought $200K office equipment. They did not elect bonus or code section 179. At the end of 2012, what is the ending adjusted basis of the property (for tax purposes?) 
Answer should be formatted exactly as 80,125
no decimals, no dollar sign. rounded to the nearest dollar, only a comma, and numbers.
ex. 2: 75,125