Multiple Choice Answers


1. Justin and Juna, ages 44 and 38, are married and file a joint return. In addition to having THREE dependent children (Jennifer, Joyce, and Jacqueline), Justin and Juna have adjusted gross income (“AGI”) of $85,000 and itemized deductions of $20,000. What is their taxable income for 2013?
a. $85,000
b. $65,000
c. $53,300
d. $45,500

2. In 2013, Alan, age 16, will have $300 of interest from a certificate of deposit and $5,000 from working as a waiter. Assume Alan is claimed by his parents as a dependent. What is Alan’s standard deduction for 2013?
a. $300
b. $1,000
c. $5,350
d. $6,100

3. In March 2013, Dennis, a calendar-year taxpayer, purchased new 7-year property for $2,000,000. The property was immediately placed into service (and is being used exclusively in Dennis’s extremely profitable business). No other personal property will be purchased by Dennis in 2013. Dennis wants to take the largest possible tax deduction in 2013 relating to the equipment. Compute the largest tax deduction possible in 2013 for the equipment (consider the Section 179 election, Bonus Depreciation, and MACRS, if applicable):
a. $0
b. $500,000
c. $1,357,175
d. $2,000,000

4. During 2013, 7-year MACRS property was placed in service by Charles, a calendar-year taxpayer. Assume that Charles does NOT make a Section 179 election or take any bonus depreciation. The property will most likely be depreciated over:
a. One calendar year
b. Three and one-half calendar years
c. Seven calendar years
d. Eight calendar years

5. Greg contributed some inventory from his sole proprietorship to a public charity for its use. On the date of the contribution, Greg’s basis in the inventory was $5,000 and the fair market value was $15,000. What is the amount of charitable contribution allowed (before considering any potential percentage limitation)?
a. $15,000
b. $10,000
c. $5,000
d. $0

6. Sandra’s business incurred a casualty loss in 2013. Immediately before the casualty, her business truck had an adjusted basis of $30,000 and a fair market value of $35,000. Immediately after the casualty, the truck had a fair market value of $20,000. Because of the truck damage, Sandra’s insurance company provided $10,000 as a reimbursement in 2013. What was Sandra’s 2013 casualty loss deduction?
A $15,000

7. What is Daenne’s Taxable Income for 2013? Assume she is 45 years old and is single and has no dependents. Assume further that Daenne’s AGI is $60,000 and that she made a charitable contribution of $1,000 (which would be her only itemized deduction).
a. $60,000
b. $59,000
c. $55,100
d. $50,000

8. In early 2013, Yuri received a gift of a home valued at $400,000 (from Yuri’s uncle, Holman). Holman also gave Yuri a $20,000 cash gift. During 2013, Yuri rented the home to Juliana. As a result of the lease with Juliana, Yuri will earn net rental income of $30,000 (for 2013). What amount of income should Yuri’s 2013 tax return include from these transactions?
a. $0
b. $20,000
c. $30,000
d. $450,000

9. In 2013, Lakesha, a calendar-year taxpayer, purchased business equipment (5-year property) for $2,400,000. The property was placed in service during 2013 (and is being used exclusively in Lakesha’s extremely profitable business). No other personal property is purchased by Lakesha in 2013. What is the most that Lakesha may deduct in 2013 under Section 179 of the Code (ignore any potential deductions resulting from bonus deprecation or MACRS)?
a. $2,400,000
b. $500,000
c. $100,000
d. $0

10. Which of the following is most likely deductible FOR AGI (i.e., PRE-AGI)?
a. Amounts paid for moving expenses
b. Amounts paid for state income taxes
c. Amounts paid for an employee’s unreimbursed travel expenses (i.e., the travel was related to taxpayer’s fulltime position at a large corporation)
d. Each of the above items would be deducted FROM AGI (i.e., POST-AGI)

11. Pedro has AGI of $100,000 in 2013. During 2013, Pedro also had an uninsured personal casualty loss of $15,000 (after the $100 reduction). The personal casualty loss related to an accident that Pedro had with Fernando. Pedro carried no collision insurance and Fernando was also an uninsured motorist. Assume Pedro itemizes deductions in 2013. What is the casualty loss amount that Pedro may deduct on his return?
a. $15,000
b. $10,000
c. $5,000
d. $0

12. If Katherine is insolvent with assets of $30,000 and liabilities of $35,000 and one of Katherine’s creditors then cancels a debt of $20,000, what amount must Katherine recognize as income?
a. $0
b. $5,000
c. $15,000
d. $20,000

13. Tax Inc. paid all of the premiums for a $300,000 group-term life insurance policy on its 67-year-old President, Femi. Assume that pursuant to the applicable table, the cost per $1,000 of protection for a 1-month period is $1.27 (for a person aged 65 to 69). What amount relating to the policy (if any) must be included in Femi’s Gross Income for the year (assume Femi was covered for all twelve months)?
a. $0
b. $3,810
c. $250,000
d. $300,000