FEDERAL TAX MIDTERM 2

58. AL is single, age 60, and has gross income of $140,000. His deductible expenses are as follows:
Alimony $20,000
Charitable contributions 4,000
Contribution to a traditional IRA 5,500
Expenses paid on rental property 7,500
Interest on home mortgage an

c. $107,000. GROSS INCOME LESS ALIMONY, IRA, EXPENSES ON RENTAL PROPERTY

59. Marsha is single, had gross income of $50,000, and incurred the following expenses:
Charitable contribution $2,000
Taxes and interest on home 7,000
Legal fees incurred in a tax dispute 1,000
Medical expenses 3,000
Penalty on early withdrawal of savin

b. $49,750." GROSS INCOME LESS PENALTY

61. Which of the following is a deduction for AGI (itemized deduction)? a. Contribution to a traditional IRA.
b. Roof repairs to a personal use home.
c. Safe deposit box rental fee in which stock certificates are stored.
d. Property tax on personal reside

a. Contribution to a traditional IRA.

62. Which of the following is correct?
" a. A personal casualty loss is classified as a deduction from AGI."
"b. Real estate taxes on a taxpayer's personal residence are classified as deductions from AGI."
"c. An expense associated with rental property is

e. a., b., and c., are correct.

63. Which of the following are deductions for AGI? a. Mortgage interest on a personal residence.
b. Property taxes on a personal residence.
c. Mortgage interest on a building used in a business.
d. Fines and penalties incurred in a trade or business.
e. N

c. Mortgage interest on a building used in a business.

64. Which of the following is incorrect? a. Alimony is a deduction for AGI.
b. The expenses associated with royalty property are a deduction from AGI.
c. Contributions to a traditional IRA are a deduction for AGI.
d. Property taxes on taxpayer's personal

b. The expenses associated with royalty property are a deduction from AGI.

65. Which of the following is not a "trade or business" expense? a. Interest on business indebtedness.
b. Property taxes on business property.
c. Parking ticket paid on business auto.
d. Depreciation on business property.
e. All of the above are "trade or

c. Parking ticket paid on business auto.

66. Which of the following is a required test for the deduction of a business expense? a. Ordinary
b. Necessary
c. Reasonable
d. All of the above
e. None of the above

d. All of the above

67. Paula is the sole shareholder of Violet, Inc. For 2015, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2015 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which o

e. None of the above is correct.

68. During 2014, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2015. What is the amount of the deduction for salary exp

d. If Silver uses the accrual method, $195,000 in 2014 and $0 in 2015.

56. Sammy, a calendar year cash basis taxpayer who is age 66, has the following transactions:
Salary from job $90,000
Alimony received 10,000
Medical expenses 8,000 a. AGI of $90,000.
b. AGI of $95,000.
c. AGI of $99,500.
d. Deduction for medical expense

e. None of the above. Salary from job $ 90,000
Alimony received 10,000
=AGI $100,000

84. If a taxpayer incurs an NOL in 2015, which is not attributable to a casualty or theft loss, the taxpayer may: a. Carry all of the NOL of $20,000 back 5 years.
b. Carry all of the NOL of $20,000 back 3 years.
c. Carry $8,000 of the NOL back 3 years and

c. Carry the NOL forward instead of back

48. Grape Corporation purchased a machine in December of the current year. This was the only asset purchased during the current year. The machine was placed in service in January of the following year. No assets were purchased in the following year. Grape

In the following year using a half-year convention

49. Which of the following assets would be subject to cost recovery? a. A painting by Picasso hanging on a physician's office wall.
b. An antique vase in a doctor's waiting room.
c. Landscaping around the doctor's office.
d. a., b., and c.
e. None of the

Landscaping around the doctor's office.

68. Jordan performs services for Ryan. Which, if any, of the following factors indicate that Jordan is an independent contractor, rather than an employee? a. Ryan sets the work schedule.
b. Ryan provides the tools used.
c. Jordan files a Form 2106 with hi

Jordan is paid based on tasks performed.

76. When using the automatic mileage method, which, if any, of the following expenses also can be claimed? a. Engine tune-up.
b. Parking.
c. Interest on automobile loan.
d. MACRS depreciation.
e. None of these.

Parking.

74. Amy works as an auditor for a large major CPA firm. During the months of September through November of each year, she is permanently assigned to the team auditing Garnet Corporation. As a result, every day she drives from her home to Garnet and retur

60 home to garnet (30x2)

79. Dave is the regional manager for a national chain of auto-parts stores and is based in Salt Lake City. When the company opens new stores in Boise, Dave is given the task of supervising their initial operation. For three months, he works weekdays in Bo

$350

80. Allowing for the cutback adjustment (50% reduction for meals and entertainment), which of the following trips, if any, will qualify for the travel expense deduction? a. Dr. Jones, a general dentist, attends a two-day seminar on developing a dental pra

Dr. Jones, a general dentist, attends a two-day seminar on developing a dental practice.

87. Rachel is single and has a college degree in finance. She is employed as a loan officer at a bank; her yearly AGI approximates $50,000. During the year, she enrolled in a weekend MBA program and incurred the following nonreimbursed expenses: $4,100 (t

Deduction for AGI of $4,000 and deduction from AGI of $800. 4,000 as a deduction for AGI. The remaining expenses of $800 ($100 + $300 + $200 + $200) can be claimed as deductions from AGI

88. The � 222 deduction for tuition and related expenses is available: a. Only if the taxpayer itemizes deductions from AGI. b. To deduct that portion of the tuition in excess of that allowed under the lifetime learning credit.
c. To cover the tuition of

None of these.

90. Which, if any, of the following is subject to a cutback adjustment? a. An airline pilot for an executive jet rental company who pays his own travel expenses.
b. Meals provided at cost to employees by a cafeteria funded by the employer.
c. Fourth of Ju

An airline pilot for an executive jet rental company who pays his own travel expenses.

91. Robert entertains several of his key clients on January 1 of the current year. Expenses paid by Robert are as follows:
Cab fare $60
Cover charge at supper club 200
Dinner at club 800
Tips to waiter 160
Presuming proper substantiation, Robert's deduct

$640.00 $60 + [50% � ($200 + $800 + $160)] = $640

92. Tracy, the regional sales director for a manufacturer of exercise equipment, pays $2,500 to rent a skybox for a visiting performance of the Harlem Globetrotters. The skybox holds 10 seats, and Tracy invites 7 clients to the event. Nonluxury seats rang

$900.00 50% � [(10 � $120) + $600] = $900

95. Which of the following expenses, if any, qualify as deductible? a. Contributions to a Coverdell Education Savings Account (CESA).
b. Contributions to a qualified tuition program (� 529 plan).
c. Job hunting expense of FBI agent who applies for the job

Contribution to a traditional IRA.

96. Which, if any, of the following expenses is subject to the 2%-of-AGI floor? a. Qualified tuition expenses under � 222.
b. Contribution to traditional IRA.
c. Cost of a CPA exam review course�taxpayer just began employment with an accounting firm.
d. O

None of these.