Tax Planning Exam #2

A person may assign the gross income that he earns to any other person for tax purposes.

False

In 2019, a qualifying citizen or resident of the U.S. may exclude up to $105,900 of foreign-earned income from his U.S. gross income.

True

Fringe benefits are valuable to employees because they are always nontaxable.

False

Some fringe benefits have nondiscrimination requirements, while others do not.

True

An HSA must be established by an employer.

False.

Any group life insurance benefit in excess of $50,000 is taxable to the employer.

False.

Disability insurance premiums paid by the employer are deductible by the employer and are excludable from the employee's gross income

True.

A cafeteria plan is most appropriate when all of the employees need the same benefits.

False.

Any funds remaining in an FSA are rolled over for use in future years.

False.

FSAs must meet nondiscrimination requirements.

True.

When long-term care premiums are paid by employer, benefits received by the employer (up to the greater of $370/day for 2019 or the actual cost of the care) are excluded from the gross income.

True.

An employer can exclude the value of meals provided in-kind from gross income even if the meals are not furnished on the employer's business premises.

False

Free guaranteed seats for airline employees are a no-additional-costs services

False.

Qualified employee discounts on services may not exceed 20%.

True.

Personal use of a company car is a working condition fringe benefit.

False

There is no limit on qualified transportation fringe benefits.

False.

The qualified retirement planning services exclusion does not apply to the value of tax preparation

True.

The athletic facilities fringe benefit can discriminate without jeopardizing the exclusion.

True.

Employer contributions to employer-sponsored retirement plans are generally excluded from the employee's gross income

True

No gross income for regular tax is recognized by the employee on the date an ISO is granted nor on the date an ISO is exercised

True.

Up to 85% of Social Security benefits may be taxable.

True.

MAGI includes municipal bond interest.

True.

Above-the-line deductions are also known as adjustments to income.

True.

Whenever expenses are associated with business activity, they are below-the-line deductions.

False.

Taxpayers must deduct the lesser of their itemized deductions or the standard deductions.

False.

Above-the-line deductions are usually considered to be more favorable than below-the-line deductions on a dollar-for-dollar basis.

True.

Individuals who are enrolled in Medicare qualify to establish an HSA.

false

The maximum allowable contribution to an HSA is reduced by any contributions made to an MSA.

true

Self-employed individuals may deduct 100% of health insurance premiums paid on behalf of themselves and their dependents

true

The long-term care contract must be a qualified contract in order to receive an income tax reduction.

true

An unmarried taxpayer can make a contribution to an IRA, even if he does not have earned income.

false

Active participation in a retirement plan does not affect the deductibility of a traditional IRA

fasle

The deductibility threshold for a traditional IRA is increased for a non-active participant spouse.

true

Contributions to traditional and Roth IRAs that are in excess of the allowable amount are subject to a 4% penalty

false

If an employer reimburses an employee fir moving expenses, the employee may not claim a deduction based on the same expenses.

true

Temporary living expenses may be deducted by an employee as moving expenses.

false

Educator expenses in excess of $250 are not deductible below the line for tax years 2018-2025

true

An S corporation cannot deduct medical insurance costs or pension contributions for greater than 2% owners of the corporations

true

An ordinary expense is one that is typically incurred in the normal conduct of businesses in the same line of operations

true

The costs of investigating the purchase of a new business line are deductible regardless of whether the new line of business is actually acquired

false

Businesses owners should classify as many of their expenses as they can as business expenses.

true

Investor expenses such as investment advisory and custodial fees and tax advice are miscellaneous itemized deductions subject to the 2% floor, and have been suspended for tax years 2018-2025 by TCJA 2017.

true

Personal expenses are always deductible

false

The standard deduction is not adjusted for inflation

false

Qualified medical expenses in excess of 10% of AGI are deductible as an itemized deduction.

true

Capital medical expenses must be medically necessary and advised by a physician in order to be deductible.

true

Taxpayers must include state income tax refunds in taxable income to the extent that a deduction was previously taken for state income taxes paid in a prior tax year.

true

Only property taxes paid on the taxpayer's primary residence are deductible

false

Interest is only deductible if it is incurred on a valid obligation to pay a fixed or determinable sum of money in return for the use of the money

true

Taxpayers are permitted to deduct the interest on an unlimited amount of home indebtedness.

false

gifts of services qualify for a charitable income tax deduction

false

gifts of cash or property must be made by the close of the taxable year in order to be deductible

True

gifts of cash or non-long-term capital gains property to a public charity are deductible to the extent that they do not exceed 30% of the taxpayer's AGI

False

Whether a charity uses donated property in a way that is related to its tax-exmept function may affect the amount and type of deduction to which a taxpayer is entitled.

True

Casualty losses are only deductible if they result from sudden or unexpected events and are declared by the President

True

Casualty losses must exceed the lesser of $100 or 10% of the taxpayer's AGI in order to be deductible

False

Gambling losses are a miscellaneous itemized deduction subject to the 2% floor.

False

Professional fees and union dues are deductible as an employee business expense after 2017 if they are not reimbursed by the employer.

False

The cost of materials for researching investments is deductible as a miscellaneous itemized deduction after 2017.

False.

Penalties and fines are intended to be a form of punishment for legal violations, and are therefore not deductible

True

The IRS can inform a law enforcement agency if a taxpayer is conducting an illegal business activity

False.

Lobbying expenses for influencing legislation at both the federal and state level are deductible

False

The $1 million limit on deductible executive compensation does not apply to performance-based compensation.

False

Raising horses is not generally considered to be a hobby activity

False

Hobby expenses are not deductible after 2017.

True

Real estate that is rented for 15 days per year is always non taxable activity

False

Mixed-use rental activities are not subject to the passive loss limitations or the at-risk rules.

False.

If a debt is a nonbusiness debt, a bad debt deduction will only be allowed when the debt becomes wholly worthless

True

IRS Section 165 creates an artificial sales date for worthless securities

True

Section 1244 is intended to discourage investment in small businesses.

False

After 2017, net operating losses can be carried forward, but cannot generally be carried back.

True

If a taxpayer takes a distribution from a qualified retirement plan or IRA prior to age 59 1/2, a 25% excise tax applies to the distribution.

False

Losses related to wash sales are temporarily disallowed

True

Losses incurred in related party transactions are permanently disallowed.

True

A tax credit is an amount that is added to a calculated tax

False

Nonrefundable tax credits can reduce the tax on taxable income to zero, but they cannot generate a tax refund.

True

Nonrefundable tax credits must be used in specific sequence

True

The benefit of a tax credit depends on the taxpayer's marginal tax rate.

False

A taxpayer who is eligible to claim a foreign tax credit may in the alternative claim an itemized deduction for the tax paid

True

The child and dependent care expenses credit is intended to provide financial relief to non-working individuals

False

Payments for employment-related care that are made to relatives of the taxpayer may qualify for the child and dependent care expenses credit.

True

Only taxpayers age 65+ qualify for the credit for the elderly and disabled.

False

A taxpayer may claim both the American Opportunity Tax Credit and the Lifetime Learning Credit based on the same qualified education expenses.

False

The education credits are normally claimed by the taxpayer who pays the qualified education expense.

True

The felony drug conviction rule does not apply to the American Opportunity Tax Credit.

False

The maximum annual Lifetime Learning Credit is $2000

True

An 18-year-old person may be a qualifying child for the purpose of the child tax credit

False

The child tax credit phaseout range begins at $400,000 for taxpayers who are married filing jointly

True

Expenses for the adoption of a spouse's child are not qualifying adoption expenses

True

The maximum credit (subject to income limitations) is allowed for the adoption of a child with special needs even if the adopting parent has no qualified adoption expenses,

True

For 2019, the qualified adoption expenses credit begins to phaseout for MAGI above $211,160

True

A taxpayer who has too much OASDI tax withheld may only take a refundable credit if he has more than one employer.

True

The earned income credit is not a refundable credit

False

The components of the general business credit can be used in whatever order is most advantageous to the taxpayer.

False

All components of the general business credit are reported on Form 3800

False

The work opportunity credit is intended to promote the hiring of targeted groups of people who have special needs or high unemployment rates.

True

The disabled access credit may not excess $5,000.

True