Income Tax Multiple Choice Questions
1. Personal-use property refers to property held for the taxpayer’s own enjoyment?
A. True (Answer)
B. False
2. Basis of property is ____________ by cost recovered every year
A. Increased
B. Reduced (Answer)
C. Remains constant
D. None of the above
3. You do not consider salvage value when calculating MACRS depreciation rates?
A. True (Answer)
B. False
4. The magnitude of the bonus depreciation depends on the date of purchase. Check which conditions qualify.
A. 50% for purchases before September 9, 2010. (Missed)
B. 100% for purchases after Sept 8, 2010 but before January 1, 2012. (Missed)
C. 50% for purchases after Sept 8, 2010 but before January 1, 2012.
D. 100% will return for qualifying property after December 31, 2011 and before January 1, 2013.
E. 50% will return for qualifying property after December 31, 2011 and before January 1, 2013. (Missed)
F. 50% for purchases after September 9, 2010.
5. Bonus Depreciation is eligible for new and used personal property with life expenctancies of 20 years or less.
A. True
B. False (Answer)
6. Which declining balance applies to 3-year, 5-year, 7-year and 10-year classes of property?
A. 200% (Answer)
B. 150%
C. Double declining
D. Straight line
7. Which items are added to the cost on the date of acquiisition to calculate adjusted basis?
A. Depreciation
B. Cost of improvements (not routine repair or maintenence) (Missed)
C. Insurance proceeds
D. Deductible loss on destruction casulaties
E. Buying expenses including commissions, legal, title search, surveys and appraisal fees paid at date of original purchase (Missed)
F. Capital gain on destruction casualties (Missed)
8. Additional costs that significantly extend an asset’s useful life, the expenditure generates a new asset (for cost recovery purposes) separate from the original asset are not expensed.
A. True
B. False (Answer)
9. Which declining balance applies to 27.5 & 39-year classes of property?
A. 200%
B. 150%
C. Double declining
D. Straight line (Answer)
10. Basis of property acquired by inheritance is generally the FMV at decedent’s ____________.
A. Previous year’s basis
B. salvage value
C. death (Answer)
D. none of the above
17. $11,060 is the maximum amount a business can depreciate an automobile if they elect to use the bonus depreciation in Year 1.
A. True (Answer)
B. False
18. Basis of property acquired by gift is generally the basis of the donor?
A. True (Answer)
B. False
19. Which convention applies to real property?
A. Mid-month (Answer)
B. Half-year
C. Mid-quarter
D. Full year
20. Which convention applies to PERSONAL property.
A. Mid-month
B. Half-year (Answer)
C. Mid-quarter
D. Full year
21. Which convention applies when more than 40% personal property cost is placed in service during the last quarter?
A. Mid-month
B. Half-year
C. Mid-quarter (Answer)
D. Full year
22. The adjusted basis for assets acquired through nontaxable exchange is generally the ____________ basis as the property transferred
A. Same (Answer)
B. Greater
C. Seller’s
D. Cost
23. The decision to use an accelerated method or SL applies to____________ property
A. Personal
B. Real
C. Personal-use
D. All (Answer)
24. You cannot change from SL to accelerated for future year’s acquisitions once you choose a method?
A. True
B. False (Answer)
25. Assets such as building, land and personal-use assets are depreciable.
A. True
B. False (Answer)
26. At the beginning of the year, Daelynn placed in service the following assets during the year: Asset Date Acquired Cost Basis Computer Equipment (5 yr) 3/23 $5,000 Furniture (7 yr) 5/12 7,000 Pickup truck (5 yr) 11/15 10,000 Commercial building 9/11 270,000 What is Daelynn’s year 1 cost recovery for each asset?
A. $5,519 (Answer)
B. $10,423
C. $13,666
D. $5,442
28. Which property qualifies as real property?
A. Land (Missed)
B. Equipment
C. Building (Missed)
D. Land Improvements (Missed)
E. Office Equipment
F. Building improvements (Missed)
29. At the beginning of the year, Daelynn placed in service the following assets during the year: Asset Date Acquired Cost Basis Computer Equipment (5 yr) 3/23 $5,000 Furniture (7 yr) 5/12 7,000 Pickup truck (5 yr) 11/15 10,000 Commercial building 9/11 270,000 What is Daelynn’s year 2 cost recovery for each asset?
A. $5,519
B. $10,423
C. $13,666 (Answer)
D. $5,442
30. Teton sells all of its office furniture (10,000) in year 2 (the year after it buys it). What is Teton’s depreciation for the office furniture for the office furniture in the year of disposition?
A. $2,229
B. $2,449
C. $1,225 (Answer)
D. $1,500
31. Personal property refers to the physical nature of the property. It means that the property is immovable?
A. True
B. False (Answer)
33. Adjusted basis (net book value) or Tax basis are terms for the amount of the asset’s cost that has yet to be recovered
A. True (Answer)
B. False
34. Which declining balance applies to 15-year and 20-year classes of property.?
A. 200%
B. 150% (Answer)
C. Double declining
D. Straight line
35. Assume that Teton elected bonus depreciation for the new tangible personal property he purchased in the current service year for $535,000. What is Teton’s bonus depreciation?
A. $535,000 (Answer)
B. $267,500
C. $517,500
D. $552,500
37. Half-year convention is required for amortization.
A. True
B. False (Answer)
38. At the beginning of the year, Dan bought and placed in service the following assets during the year: Asset Date Acquired Cost Basis Computer Equipment (5 yr) 3/23 $5,000 Dog grooming furniture (7 yr) 5/12 7,000 Pickup truck (5 yr) 9/17 10,000 Commercial building 10/11 270,000 Land (one acre) 10/11 80,000 What is Dan’s year 2 depreciation expense for each asset? Round to the nearest dollar.
Possible correct answers:
• $13,437
• 13,437
• 13437
39. Assume that Teton elected bonus depreciation for the new tangible personal property he purchased in the current service year for $535,000. What is Teton’s bonus depreciation if he elects170 expensing?
A. $535,000
B. $35,000 (Answer)
C. $35,500
D. $552,500
40. Fair Market Value
Adjusted Before After Insurance
Event Basis Casualty Casualty Reimbursement
1. Stolen Equip $13,000 $5,000 $0 $2,000
2. Fire – Equip $60,000 $80,000 $25,000 $35,000
3. Accident – Car $17,000 $16,000 $6,000 $12,000
4. Accident – Car $8,000 $12,000 $3,000 $4,500
A. Stolen equipment loss of $11,000 (Answer)
B. Stolen equipment loss of $3,000
C. Stolen equipment loss of $6,000
D. Stolen equipment gain of $3,000
41. Travel costs are only deductible if the taxpayer is away from home overnight while traveling.
A. True (Answer)
B. False
42. Janine paid a $300 registeration fee for a three-day course in landscape design. The course was held in New York (Janine paid $700 for airfare to attend) and she spent four days in New York. She spent the last day sightseeing. During the trip, Janine paid $150 a night for three nights’ lodging, $50 a day for meals, and $70 a day for a rental car. What amount of these travel-related expenditures may Janine deduct as business expenses?
A. $735
B. $1,435 (Answer)
C. $1,285
D. $1,510
43. If reimbursement is less than the property’s adjusted basis, then no gain can be realized.
A. True (Answer)
B. False
44. The result of a Gain or Loss from casualty for business use is what type of gain or loss?
A. Capitalized
B. Realized
C. Recognized (Answer)
D. Expensed
45. Fair Market Value
Adjusted Before After Insurance
Event Basis Casualty Casualty Reimbursement
1. Stolen Equip $13,000 $5,000 $0 $2,000
2. Fire – Equip $60,000 $80,000 $25,000 $35,000
3. Accident – Car $17,000 $16,000 $6,000 $12,000
4. Accident – Car $8,000 $12,000 $3,000 $4,500
A. Accident – Car loss of $3,500 (Answer)
B. Accident – Car loss of $1,000
C. Accident – Car No gain or loss
D. Accident – Car gain of $6,000
Explanation
insurance 4,500 – AB (8,000) = (3,500)
46. Fair Market Value
Adjusted Before After Insurance
Event Basis Casualty Casualty Reimbursement
1. Stolen Equip $13,000 $5,000 $0 $2,000
2. Fire – Equip $60,000 $80,000 $25,000 $35,000
3. Accident – Car $17,000 $16,000 $6,000 $12,000
4. Accident – Car $8,000 $12,000 $3,000 $4,500
A. Fire equipment loss of $25,000
B. Fire equipment loss of $35,000
C. Fire equipment loss of $20,000 (Answer)
D. Fire equipment gain of $20,000
Explanation
Insurance reimbursement 35,000 – 55,000 = (20,000)
47. Fines that violate public policy can be counted as a business expense.
A. True
B. False (Answer)
48. If part business, part personal, use a reasonable allocation (e.g., mileage for automobiles) for thesemixed-motive expenditures.
A. True (Answer)
B. False
49. Business expenses are generally deductible without limitation if it is ordinary and necessary – commonly incurred by other businesses (not necessarily repetitive in nature (e.g., legal fees for defense in lawsuit) and appropriate for a particular business.
A. True (Answer)
B. False
50. The taxpayer (or an employee) must be present when the meal is furnished to qualify as a business deduction
A. True (Answer)
B. False
51. Business expense cannot be related to what type of production of income?
A. Tax-exempt (Answer)
B. For profit
C. Non-profit
D. None of the above
52. Suppose Wilma acquired a business-use asset and Wilma had deducted $4,000 of depreciation expense against the asset. Hence, the asset’s tax basis was $5,000 ($9,000 – $4,000), what would be the amount of his business casualty loss?
A. $5,000
B. $5,250
C. $1,000
D. $4,750 (Answer)
53. Janine paid a $300 registeration fee for a three-day course in landscape design. The course was held in New York (Janine paid $700 for airfare to attend) and she spent ten days in New York (three days at the seminar and seven days with Eileen). During the trip, Janine paid $150 a night for three nights’ lodging, $50 a day for meals, and $70 a day for a rental car. What amount of these travel-related expenditures may Janine deduct as business expenses?
A. $735 (Answer)
B. $1,435
C. $1,285
D. $1,510
54. Gain or loss from casualty is a from AGI deduction
A. True
B. False (Answer)
55. Related parties include
A. Family members including parents, siblings & spouses. (Missed)
B. Shareholders and C Corporations when the shareholder owns more than 25% of the common stock.
C. Shareholders and C Corporations when the shareholder owns more than 50% of the common stock.(Missed)
D. Owners of partnerships and S Corporations regardless of the ownership percentage. (Missed)
E. Owners of partnerships and C Corporations regardless of the ownership percentage.
56. Capital expenditures are not deductible .
A. True (Answer)
B. False
57. If primary purpose is business how much of thel transportation costs are fully deductible?
A. 100% (Answer)
B. 25%
C. 0%
D. 50%
58. What percentage of meal expenses qualify as a business deduction?
A. 25%
B. 75%
C. 50% (Answer)
D. 40%
59. If primary purpose is personal how much of thel transportation costs are fully deductible?
A. 100%
B. 25%
C. 0% (Answer)
D. 50%
60. Generally, all casualty losses and theft losses are deductible if incurred in a trade or business or in connection with an investment with the exception of losses caused by a taxpayer’s willful act or willful negligence.
A. True (Answer)
B. False
61. Fair Market Value
Adjusted Before After Insurance
Event Basis Casualty Casualty Reimbursement
1. Stolen Equip $13,000 $5,000 $0 $2,000
2. Fire – Equip $60,000 $80,000 $25,000 $35,000
3. Accident – Car $17,000 $16,000 $6,000 $12,000
4. Accident – Car $8,000 $12,000 $3,000 $4,500
A. Accident – Car loss of $3,500
B. Accident – Car loss of $1,000
C. Accident – Car No gain or loss (Answer)
D. Accident – Car gain of $6,000
62. One way to substantiate reasonableness is by presenting documentation of similar expenses by any other businesses.
A. True
B. False (Answer)
63. Taxpayers filing paper returns with electronic payments may take a collection allowance.
A. True
B. False (Answer)
64. On the Account Balance screen, what is a ZR document type? Please choose all that apply.
A. Tax liability (Missed)
B. Penalty (Missed)
C. Additional Interest
D. Bill Payment
65. Exceptions occur when the following happens:
A. The return is correct or the return matches the master or financial data stored in TRAIN.
B. The business rule has been exceptional and/or when the return data matches the master or financial data stored in other SAP modules.
C. The business rule has been violated and/or when the tax return data does not match master or financial data stored in other SAP modules. (Answer)
D. The business rule has been violated and/or when the tax return data does not match master or financial data stored in LMS.
66. How much of a collection allowance is the taxpayer entitled to?
A. 2.5% of the first $1,200.00 of the amount due, not to exceed $30.00 (Answer)
B. 2.5% of total tax due, not to exceed $30.00
C. 2.5% of the first $1,500.00 of the amount due, not to exceed $30.00
D. 2.5% of total tax collected, not to exceed $30.00
67. The DR-15EZ is used by taxpayers with no obligation for estimated tax, enterprise zone credits, no vending/amusement machine, transient rental, farm equipment, tilled vehicles, electric power or energy, no consolidated, no taxable services and no sale purchases of dyed diesel fuel.
A. True (Answer)
B. False
68. The contract account can be found in the Sales tax certificate number on the return.
A. True
B. False (Answer)
69. When comparing the sales order in SUNTAX to the image of the return you should always verify the:
A. Contract Account
B. Contract Location
C. Contract Certificate
D. Contract Object (Answer)
70. Specialists are sometimes presented with a return that indicates zero payment with that return; this is a no remit return. The first step to validate that it truly is a no remit would be to:
A. Search for a payment on FP30.
B. Verify the applied period and contract object match the image or data received.(Answer)
C. Make a quality note in the text tab field.
D. Verify the account is ‘Active-Required to File.’
71. Which form is used for an individual return?
A. 1040 (Answer)
B. 1120S
C. 1065
72. What is the time frame for a Federal Tax Lien?
A. 20 years
B. 5 years
C. 10 years (Answer)
D. Not out by time
73. What codes do we show if we find a Federal Tax Lien against our parties?
A. UP/7 or UP/8
B. UP/3 or UP/6
C. We do not show the lien in schedule b
D. UP/6 or UP/7 (Answer)
74. How do we determine if a Federal Tax Lien applies our parties?
A. SSN only
B. Verifying SSN and name (Answer)
C. Name only
D. we do not need to determine this information
75. When does the 120 days start?
A. Recording date of the trustee’s deed
B. Sale date shown on trustee’s deed (Answer)
C. Recording date of the Federal Tax Lien
D. All of the above
76. If the Federal Tax Lien is recorded prior to the Trustee’s Deed and is within 120 days, what code do we show in Schedule B?
A. UP/6 and UP/7
B. UP/7 and UF/3
C. UP/6 and UF/3
D. UF/3 (Answer)
77. If the Federal Tax Lien was recorded after the Trustee’s Deed, do we show it in Schedule B?
A. Yes
B. No (Answer)
78. What codes are used if a Federal Tax Lien is recorded against the buyers?
A. UP/6 and UF/3
B. UP/6 or UP/7 (Answer)
C. UF/3 and UP/7
D. We do not have to show liens on buyers
79. What does the tax cap limit?
A. My property taxes
B. Property tax rate
C. Tax levy (Answer)
D. My income tax
E. None of the above
80. What is a tax levy?
A. The amount I pay in property taxes
B. The amount I pay in income taxes
C. The total amount of money the school district collects in property taxes. (Answer)
D. The dollar amount my property taxes increased this year
E. The percentage my property taxes increased this year
F. None of the above
81. Where does the money come from to pay our school expenses? (Choose all that apply)
A. Property taxes (Missed)
B. The Town of Huntington
C. Suffolk County
D. New York State (Missed)
E. Federal government (Missed)
F. None of the above
82. Who influences our school budget? (Choose all that apply)
A. South Huntington Board of Education (Missed)
B. Huntington Town Council
C. Suffolk County Legislature
D. New York State Legislature (Missed)
E. New York State Department of Education (Missed)
F. Governor Cuomo (Missed)
G. Federal Government (Missed)
H. None of the above
83. Which expenses does our Board of Education control? (Choose all that apply)
A. Salaries (Missed)
B. Utilities
C. Transportation (school buses) (Missed)
D. After school activities (e.g. clubs and sports) (Missed)
E. Mandates
F. None of the above
84. What happens if the budget doesn’t pass the first time?
A. We can vote again if the Board of Education chooses to hold a second vote. (Answer)
B. We have an automatic right to a second vote.
C. The state doesn’t allow us to vote again.
D. We automatically go to a contingency budget with a 0% tax levy We automatically go to a contingency budget with a 0% tax levy increase
E. None of the above
85. If there is a second vote on the budget, what happens if it doesn’t pass again?
A. We can vote again if the Board of Education chooses to hold a third vote.
B. We automatically go to a contingency budget with a 0% tax levy increase. (Answer)
C. The Board of Education decides how much to raise our taxes.
D. None of the above
86. Can we override the tax cap?
A. No.
B. Yes, as long as the majority of voters approves it.
C. Yes, as long as at least 60% of the voters approves it. (Answer)
D. Yes, as long as at least 60% of the community approves it.
E. Yes, but only if the Board of Education approves it.
F. None of the above
87. What is excluded from the tax cap?
A. Capital expenses
B. Any increase in the pension contribution rate over 2%
C. Court orders/judgments that are greater than 5% of the tax levy
D. All of the above (Answer)
E. None of the above
88. What’s the most your property taxes can increase under the cap?
A. 0%
B. 2%
C. 5%
D. The rate of inflation
E. There is no maximum defined by law. (Answer)
F. None of the above
89. How is the cap determined?
A. It’s always 2%.
B. It’s always the rate of inflation.
C. It’s either 2% or the rate of inflation whichever is lower. (Answer)
D. It’s either 2% or the rate of inflation whichever is higher.
E. None of the above
90. AMT is meant to ensure that higher-income individuals do not get more benefit than intended from allowable deductions, exemptions, etc.
A. True (Answer)
B. False
91. Which AMT adjustments must be added back?
A. Personal exemption amount (Missed)
B. Itemized deduction amount
C. Standard deduction amount (Missed)
D. Medical expenses greater than 7.5% of AGI
E. Miscellaneous itemized deductions (Missed)
F. Mortgage interest
92. Which are the Common AMT Adjustments that classify as plus adjustments?
A. Tax-exempt interest from private activity bonds (Missed)
B. Real and personal property taxes deducted as itemized deductions (Missed)
C. State income or sales taxes (Missed)
D. Home equity interest expense (Missed)
E. Misc. Itemized deductions in excess of 2% floor (Missed)
F. Depreciation
G. State income tax refunds included in regular taxable income
H. Gain or loss on sale of depreciable assets
93. Courtney has taxable income of $111,107 and three personal exemptions. She received $500 in tax-exempt interest on a Cincinnati bond, $3,550 in real estate property taxes, $6,700 in state income taxes and $1,083 for miscellaneous itemized deductions in excess of 2% floor. Additionally, she received a $420 state income tax refund. What is her alternative minimum taxable income?
A. $134,460
B. $133,620 (Answer)
C. $133,120
D. $123,360
94. An AMT exemption is increases the likelihood that lower income individuals will have to pay AMT
A. True
B. False (Answer)
95. Preferential tax rates are 0% for taxpayers in what tax brackets?
A. 0% and 10%
B. Only 15%
C. 10% and 15% (Answer)
D. 15% and above
96. Which are the Common AMT Adjustments that classify as minus adjustments?
A. Tax-exempt interest from private activity bonds
B. Real and personal property taxes deducted as itemized deductions
C. State income or sales taxes
D. Home equity interest expense
E. Misc. Itemized deductions in excess of 2% floor
F. Depreciation
G. State income tax refunds included in regular taxable income (Missed)
H. Gain or loss on sale of depreciable assets (Missed)
97. Which are the Common AMT Adjustments that can classify as plus or minus adjustments?
A. Tax-exempt interest from private activity bonds
B. Real and personal property taxes deducted as itemized deductions
C. State income or sales taxes
D. Home equity interest expense
E. Misc. Itemized deductions in excess of 2% floor
F. Depreciation (Answer)
G. State income tax refunds included in regular taxable income
H. Gain or loss on sale of depreciable assets
98. IF SERVICE PROVIDED OR PART OF IT , BELONGS TO THE PERIOD WHEN SUCH SERVICE WAS NOT TAXABLE , THEN
A. NO SERVICE TAX PAID FOR SUCH SERVICE OR PART OF SERVICE (Answer)
B. SERVICE TAX IS PAID IN THE ORDINARY MANNER
C. NONE OF THESE
99. ASSESSEE SHALL DEPOSIT THE SERVICE TAX WITH THE BANK DESIGNATED BY THE CENTRAL BOARD OF EXCISE AND CUSTOMS IN FORM …………., OR IN ANY OTHER MANNER PRESCRIBED BY THE CBEC
A. TR-4
B. TR-6 (Answer)
C. TR-5
D. SERVICE TAX FORM
100. WHICH DATE IS TREATED AS THE DATE OF PAYMENT SUBJECT TO REALIZATION OF THE CHEQUE.
A. DATE OF RECEIPT OF CHEQUE
B. DATE OF DEPOSIT OF CHEQUE (Answer)
C. DUE DATE WILL BE CONSIDERED
D. NONE OF THESE
101. IF PAYMENT IS MADE AFTER THE DUE DATE , INTEREST HAS TO BE PAID U/S 75 ON AMOUNT OF TAX LIABLE TO BE PAID FOR THE PERIOD –
A. FOR WHICH SUCH AMOUNT OF TAX OR PART THEREOF IS DELAYED (Answer)
B. 15 DAYS AFTER THE DUE DATE TO THE DAY TAX PAID
C. NONE OF THESE
102. WHAT IS THE RANGE FOR INTEREST ON DELAYED SERVICE TAX , GOVERNMENT TAKE CARE FOR FIXING INTEREST?( PRESENT RATE OF INT. 13% )
A. 10 – 30%
B. 10 – 25%
C. 10 – 20%
D. 10 – 36% (Answer)
103. IN CASE OF E-PAYMENT WHICH FORM IS USED ?
A. TR- 6 FORM
B. GAR – 7 CHALLAN (Answer)
C. GAR – 5 CHALLAN
D. TR – 6 FORM
104. WHAT WOULD BE TREATMENT FOR AMOUNT IN PAISE.? (ROUNDING OFF)
A. FOR AMOUNT MORE OR LESS THAN 50 PAISE IS SOUND OFF TO RUPEE.
B. FOR AMOUNT MORE THAN 50 PAISE IS ROUND OFF TO RUPEE. AND FOR LESS THAN 50 PAISE IS IGNORES (Answer)
C. NONE OF THESE
105. Which line items on the back of the DR-15 must be filled out when reporting discretionary tax?
A. 15A
B. 15A & 15B
C. 16-21
D. 15A-15D (Answer)
106. The DR-15 is the short form type used for simple calculations.
A. True
B. False (Answer)
107. Under the new tax levy cap law, my tax bill will only increase by 2%?
A. True
B. False (Answer)
108. The new law will limit the district’s tax levy increase by 2%.
A. True
B. False (Answer)
109. The tax cap legislation will affect all school districts equally.
A. True
B. False (Answer)
110. How is the tax levy limit determined for school districts?
A. The same as last year.
B. An eight-step formula that each school district must use to calculate its individual tax levy limit. In particular, the calculation adjusts a district’s tax levy to reflect growth in the local tax base and the rate of inflation or 2 percent (whichever is lower). (Answer)
C. None of the above.
111. Is the tax levy limit easy to understand?
A. Yes.
B. No.
C. I always guess “C” in multiple choice. (Answer)