Mid term examination

  

QUESTION 1

1. There are many differences between financial accounting income and tax income and deductions. Which of the following is an example of a timing (temporary) difference?

  

Business meals are 50% deductible for tax   purposes.

 

Municipal bond interest income is not   taxable, generally.

 

Depreciation for tax purposes uses shorter asset   lives than for financial accounting, generally.

 

Federal income taxes are never deductible for tax   purposes.

5 points   

QUESTION 2

1. Alex paid $90,000 for a single-life annuity. He will receive $7,000 per year for 20 years, his life expectancy according to Treasury Department. How much taxable income from the annuity must he report each year? Show and label calculations.

  

10 points   

QUESTION 3

1. Name four major tax law changes from the Tax Cuts and Jobs Act of 2017.

  

  

QUESTION 4

1. An individual taxpayer can deduct actual itemized deductions or the standard deduction, whichever is higher.

True

False

3 points   

QUESTION 5

1. The U.S. income tax system is a

  

Regressive Tax System

 

Progressive Tax System

 

Proportional Tax System

 

None of the Above

5 points   

QUESTION 6

1. Distinguish between a tax credit and a tax deduction. Provide one example of each.

  

QUESTION 7

1. What is AGI and why is it so important?

  

QUESTION 8

1. All the following are true about nontaxable employee fringe benefits, except 

  

There are no dollar limits on the amount of   nontaxable fringe benefits.

 

They are deductible by the employer as business   expenses.

 

The fringe benefit plan must be   nondiscriminatory.

 

If the employee takes cash instead, the   fringe benefit is taxable.

5 points   

QUESTION 9

1. What is the difference between tax planning and tax compliance?

  

QUESTION 10

1. The following statements are true about business expenses, except

  

They must be necessary.

 

They must be ordinary.

 

They must be reasonable.

 

They must be paid in U.S. dollars.

5 points   

QUESTION 11

1. A taxpayer has no recourse and must accept an IRS tax assessment.

True

False

3 points   

QUESTION 12

1. If a taxpayer commits tax fraud on his tax return, what is the statute of limitations for the IRS to audit his tax return and assess additional taxes?

  

Three years

 

Six years

 

No limitation

 

Ten years

5 points   

QUESTION 13

1. The return of capital principle prevents the cost of an investment made with after-tax dollars from being taxed. 

True

False

3 points   

QUESTION 14

1. Generally, gifts and inheritances are taxable income to the recipient.

True

False

3 points   

QUESTION 15

1. The Internal Revenue Code is the highest tax law authority in the U.S.

True

False

3 points   

QUESTION 16

1. In 2018 Michael has $90,000 in salary from his full-time job and net self-employment income of $40,000 from his sole proprietorship. What is his self-employment tax? How much of it can he deduct in arriving at his AGI? Show and label calculations.