Federal Income Tax I

Name: _______________________________________

Federal Income Tax I – Exam #2 – Fall 2018-Part 1

Determine whether each of the following are considered Earned or Unearned Income items

1. Alimony Earned / Unearned 2. Business Income Earned / Unearned 3. Dividend Income Earned / Unearned 4. Interest Income Earned / Unearned 5. Unemployment Compensation Earned / Unearned 6. Wages, Salaries & Tips Earned / Unearned

7. Gross income is limited to amounts received in the form of cash. a. True b. False

8. Qualified dividends received by individuals are taxed at the same rate as ordinary income a. True b. False

9. Child support received is taxable to the recipient. a. True b. False

10. Cash receipts not reported on Form 1099MISC need to be reported as income on Schedule C or C-EZ

a. True b. False

11. Business expenditures must be both ordinary and necessary to be deductible a. True b. False

12. Self-employed taxpayers cannot deduct both actual auto expenses and take the standard mileage rate for the number of miles driven for business on the same return.

a. True b. False

13. What percentage of business meals and entertainment can be deducted on Schedule C? a. 100% b. 50% c. 30% d. 25%

14. Miles from home to a client can be included as business miles and deducted as a part of the standard mileage rate (if commuting miles)

a. True b. False

Name: _______________________________________

15. Unemployment compensation is subject to federal income tax? a. True b. False

Federal Income Tax I – Fall 2018 – Exam #2 - Part 2

16. Frank, a self-employed plumber who owns his own business, spent the following on meals and entertainment:

• $5,000 on meals for himself for the year

• $2,000 on meals to entertain his customers

What amount will Frank report as deductible meals and entertainment, Schedule C Line 24b?

a. $1,000 b. $2,000 c. $5,000 d. $7,000

17. Frank completes a plumbing job and is owed $5,000 by a customer in 2017. The customer pays $3,000 in cash, and also gives him a truck valued at $1,500 plus provides $500 in

services. How much income will the electrician report on his return as gross income?

a. $3,000 b. $3,500 c. $4,500 d. $5,000

18. Frank has a written mileage log showing 5,000 miles for 2017: The log consisted of the following: (Standard mileage rate is $.535 per mile)

• 3,000 miles from home to work and to return each day

• 2,000 miles business miles

Frank also had actual car and truck expenses of $1,000. (Used exclusively for business)

How much can Frank deduct for his car and truck expenses for business for 2017

________________________________

Name: _______________________________________

Federal Income Tax I – Fall 2018 – Exam #2 Part 3

James Williams (D.OB. 1/7/1951) and his wife Daisy (D.OB. 1/10/1971), were married and

normally file a joint return. Daisy died on June 1st 2017. The couple has three children.

Earl Williams was born on 5/1/1993. He is single

and is a full time student working on his masters.

He earned $7,000 from several part time jobs in

2016. He lived at home and was fully supported by

Mr. & Mrs. Williams.

Wendy Williams was born on 6/10/1997 and

not a full time student. She earns $4,500 from

several part time jobs in 2017. She lived at

home and was fully supported by Mr. & Mrs.

Williams.

Tina Williams was born on 8/28/2002 and is a

full time high school student. She worked part

time and earned $7,000. She lived at home and

was fully supported by Mr. & Mrs. Williams.

Leon Jones is a close family friend who moved in

on June 14th 2017. Leon is 40 years old and has no

income. He lived in the home with Mr. Williams

for the remainder of the year and he fully supported

him.

Name: _______________________________________

Daisy worked half the year as a 10th grade high school teacher for Lincoln High School.

James worked the first five month of the year as a Store Manager.

Name: _______________________________________

James also received the following interest and dividend statements

Name: _______________________________________

James worked 3 months and then was laid off for 3 months. During this time, he collected

unemployment. After a three month period, he decided to retire.

In addition to his regular job, James also worked part time as a consultant. He received money

from ACME Inc. and an extra $3,500 in cash from other clients. He also received $1,000 in

products for his consulting service. This amount was not reported on a 1099-MISC. James had

no payments requiring 1099 payments. James uses the cash basis of accounting and materially

participated in the business. James started the business in 2016.

Name: _______________________________________

James incurred the following expenses:

Advertising $ 250

Office Expense $2,700

Car & Truck Expenses $1,363 (100% used for business)

Parking & Tolls $ 137 (100% used for business)

Continuing Education $ 150

Sports Tickets for personal use $6,000

James also kept a mileage log which documented the following:

• business miles 1500

• commuting miles 1000

• other miles 550

The car was placed in service for business on 5/15/2016. James used this vehicle for both

business and personal. The vehicle was available for personal use during off-duty hours. He also

had another vehicle available for personal use. This evidence was also in writing.

James also had receipts for meals and entertainment which included:

Meals in 2017 for himself $300

Business meals and entertainment $200

for himself and a few customers to

discuss business

In order to conduct this business James purchased a Dell laptop for $1,500 on December 15th

2016. He decided to depreciate this item using the MACRS 200% double decline HY

convention.

James also purchased a Window’s Surface Tablet for $265 on January 5th 2016. He decided to

depreciate this item using the MACRS 150% double decline HY convention.

On June 28th, 2017, James purchased a portable printer to help him teach. This item cost $280. If

possible, he would like to fully depreciate this item (§179 deduction).

Instructions

Prepare James Graham’s Tax Return Form 1040 Page 1 through line 22, based on the

information provided. You must complete all necessary schedules and forms associated with this

return. Accuracy is important so double check you calculations. Be sure to include names and

social security numbers on each page. You will use Form 1040, Schedules B, C, & Forms 4562.

Also be sure to include any calculations you use.