BMGT 323 Taxation of Individuals

BMGT 323

Taxation of Individuals

Chapter 4

The income tax base for an individual tax return is:

1. Realized income from whatever source derived.
2. Gross income.
3. Adjusted gross income.
4. Adjusted gross income minus from AGI deductions.

Which of the following statements regarding realized income is true?

1. Taxpayers need not include realized income in gross income unless a specific provision of the tax code requires them to do so.
2. Realized income requires some type of transaction or exchange with a second party.
3. Once income is realized it may not be excluded from gross income.
4. None of these statements is true.

Sally received $50,000 of compensation from her employer and she received $400 of interest from a corporate bond. What is the amount of Sally's gross income from these items?

1. $0.
2. $400.
3. $50,000.
4. $50,400.

Which of the following statements regarding tax deductions is false?

1. Taxpayers are not entitled to any deductions unless specific provisions in the tax code allow the deductions.
2. Deductions can be labeled as deductions above the line or deductions below the line.
3. From AGI deductions tend to be associated with business activities while for AGI deductions tend to be associated with personal activities.
4. The standard deduction is a from AGI deduction.

Which of the following statements regarding for AGI tax deductions is true?

1. Taxpayers subtract for AGI deductions from gross income to determine AGI.
2. A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer's standard deduction amount.
3. A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer's deductible exemption amounts.
4. A taxpayer may deduct for AGI deductions only if the deductions exceed the taxpayer's itemized deductions.

All of the following are for AGI deductions except:

1. Moving expenses.
2. Rental and royalty expenses.
3. Business expenses for a self-employed taxpayer.
4. Charitable contributions.

Which of the following is NOT a from AGI deduction?

1. Standard deduction.
2. Itemized deduction.
3. Personal exemption.
4. None of these. All of these are from AGI deductions.

Which of the following is not an itemized deduction?

1. Alimony paid.
2. Medical expenses.
3. Personal property taxes paid on a personal use automobile.
4. Charitable contributions.

Which of the following statements regarding exemptions is correct?

1. Personal exemptions are more valuable than dependency exemptions.
2. Taxpayers filing a married filing joint return are limited to two exemptions on their tax returns.
3. Exemption amounts are considered to be for AGI deductions.
4. Taxpayers subtract exemption deductions from adjusted gross income in determining taxable income.

Which of the following statements regarding personal and dependency exemptions is false?

1. A married couple filing jointly may claim two personal exemptions.
2. To qualify as a dependent of another, an individual must be a resident of the United States.
3. An individual who qualifies as a dependent of another taxpayer may not claim a personal exemption.
4. An individual cannot qualify as a dependent of another as a qualifying relative taxpayer if the individual's gross income exceeds the exemption amount.

Chapter 1

Which of the following is a tax?

I. A 1% special sales tax for funding local road construction.

II. A fee paid to the state for a license to practice as an attorney.

III. An income tax imposed by Philadelphia on persons working within the city limits.

IV. A special property assessment for installing a new water system in the taxpayer's neighborhood.

1. Only I is correct.
2. Only IV is correct.
3. Only III is correct.
4. I and III are correct.

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2015, how much federal tax will he owe?

1. $15,000.00
2. $12,375.00
3. $10,793.75
4. $9,332.50

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2015, what is his effective tax rate (rounded)?

1. 23.08%
2. 16.61%
3. 14.34%
4. 25.00%

The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________.

1. A sin tax to discourage undesirable behavior
2. A government fine
3. An earmarked tax
4. A sin tax to discourage undesirable behavior and An earmarked tax

The ultimate economic burden of a tax is best captured by:

1. The marginal tax rate
2. The effective tax rate
3. The average tax rate
4. The proportional tax rate

The substitution effect:

1. Predicts that taxpayers will work harder to pay for consumer products when tax rates increase
2. Is one of the effects considered in static forecasting
3. Results in the government collecting more aggregate tax revenue than under the income effect
4. None of these

Geronimo files his tax return as a head of household for year 2015. If his taxable income is $72,000, what is his average tax rate (rounded)?

1. 17.11%
2. 18.24%
3. 19.16%
4. 25.00%

Which of the following would not be a failure of the horizontal equity concept?

1. Two taxpayers with identical income pay different amounts of tax because one taxpayer's income includes tax exempt interest.
2. Two taxpayers pay different amounts of property tax amounts on similar plots of land (i.e., same value) because one plot of land is used to raise crops.
3. Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more.
4. All of these.

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2015?

1. 27.75%
2. 17.50%
3. 25.00%
4. 28.00%

If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2015?

1. $243.752.90
2. $252,500.00
3. $253,369.05
4. $269,957.95

Chapter 5

Gross income includes:

1. all income from whatever source derived unless excluded by law.
2. excluded income.
3. deferred income.
4. all realized income.

Which of the following is not a necessary condition for income to be included in gross income?

1. income must be realized.
2. income must be paid in cash.
3. income cannot be excluded by law.
4. income must be made available to a taxpayer on the cash basis.

Sally is a cash basis taxpayer and a member of the Valley Barter club. This year Sally provided 100 hours of sewing services to the barter club in exchange for two football playoff tickets. Which of the following is a true statement?

1. Sally need not recognize any gross income unless she sells the football tickets.
2. Sally's exchange does not result in taxable income.
3. Sally is taxed on the value of the football tickets even if she cannot attend the game.
4. Sally is taxed on the value of her sewing services only if she is a professional seamstress.

Hillary is a cash-basis calendar-year taxpayer. During the last week of December she received a letter containing a $5,000 check for services. Which of the following is a true statement?

1. Hillary is taxed on the $5,000 of service income in the year she cashes the check.
2. Hillary is taxed on the $5,000 of service income in the year the check was mailed.
3. Hillary is taxed on the $5,000 of service income in the year she receives the check.
4. Hillary is taxed on the $5,000 of service income in the year she provides the services.

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

1. Tax refund rule.
2. Constructive receipt.
3. Return of capital principle.
4. Tax benefit rule.

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

1. Tax benefit rule.
2. Constructive receipt.
3. Return of capital principle.
4. Wherewithal to pay.

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount):

1. Claim of right.
2. Constructive receipt.
3. Return of capital principle.
4. Wherewithal to pay.

Jack and Jill are married. This year Jack earned $72,000 and Jill earned $80,000 and they received $4,000 of interest income from a joint savings account. How much gross income would Jack report if he files married-separate from Jill?

1. $72,000 if they reside in a common law state.
2. $76,000 if they reside in a community property law state.
3. $84,000 if they reside in a common law state.
4. $78,000 if they reside in a community property law state.

Emily is a cash basis taxpayer, and she was an especially productive salesperson last year. In December of last year her supervisor told Emily she had earned a $5,000 bonus. However, Emily received the bonus check after year-end. Identify the principle that will determine when Emily is taxed on the bonus:

1. Assignment of income.
2. Constructive receipt.
3. Return of capital principle.
4. Wherewithal to pay.

This year Mary received a $200 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $4,000 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?

1. $200 is included because Mary itemized her deductions last year.
2. $200 is included if itemized deductions exceeded the standard deduction by $200.
3. $200 is included because itemized deductions exceeded the standard deduction.
4. $200 is included even if Mary claimed the standard deduction.

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