Federal Income Tax MCQs
Federal Income Tax MCQs
Our team has conducted extensive research to compile a set of Federal Income Tax MCQs. We encourage you to test your Federal Income Tax knowledge by answering these 50+ multiple-choice questions provided below.
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1: The statement displaying wages from a job is called a ______?
A. W-4
B. I-4
C. W-2
D. 1099-MISC
E. I-9
2: In filing a partnership income tax return, what is the purpose of Schedule K?
A. To determine the amount of capital gains and losses reported by the partnership.
B. To list out the various charitable contributions made by the partnership during the tax year.
C. To compute the amount of income taxes owed by the partnership on the income earned for the current year.
D. To indicate how specified revenues and expenses of the partnership are passed through to the various partners.
3: Deductible work-related educational expenses do NOT include:
A. Amounts donated to charity.
B. Amounts spent for tuition, books, supplies, laboratory fees and similar items.
C. Transportation and travel expenses to attend qualified educational activities.
4: Kathy is divorced and her unmarried 27-year old son lived with her all of 2011. She paid all the household expenses and provided over half of her son's support. What is Kathy's filing status ?
A. Single
B. Married Filing Separately
C. Head of Household
D. Married Filling Jointly
5: IRS stands for
A. interest reference service
B. integrated revenue service
C. internal revenue service
D. itemized revenue service
E. internal reference service
6: ______ may be deducted from Gross Income.
A. Student Loan Principle
B. Half of Student Loan Payments
C. Entire Student Loan Payments
D. Student Loan Interest
7: The following professionals can represent clients before any office of the IRS:
A. Only Attorneys
B. Only Attorneys and Enrolled Agents
C. Only Certified Public Accountants
D. Enrolled Agents, Attorneys, and Certified Public Accountants
E. Only Attorneys and Certified Public Accountants
8: Should gambling winnings be reported on the tax return?
A. No, gambling winnings are non-taxable income.
B. Yes, gambling winnings are taxable income.
9: If itemized deductions exceed the standard deduction
A. the standard deduction should be used
B. either deduction can be used
C. the itemized deductions should be used
D. the deductions are added together
10: Which of the following is NOT a filing status?
A. Married Separately
B. Head of household
C. Divorced
D. Married Jointly
E. Single
11: Which income is non-taxable income?
A. Alimony
B. Wages
C. Child Support
D. Hobby Income
E. Dividends
12: Which schedule is used to report business income?
A. Schedule C
B. Schedule A
C. Schedule D
D. Schedule B
13: True or False: Alimony Received is taxable
A. True
B. False
14: Joe deposits $10,000 in a savings account. He is supposed to leave the money there for one year and will receive $11,000. He is forced to take the money out of the account early. The interest on the day of withdrawal was computed as $710. However, he was charged a penalty of $200 because of the early withdrawal and only received $10,510. Which of the following is true?
A. He should report interest revenue of $800.
B. He should report interest revenue of $510.
C. He should report interest revenue of $1,000 and a deduction for adjusted gross income of $200.
D. He should report interest revenue of $710 and a deduction for adjusted gross income of $200.
15: Contibutions to a traditional IRA are
A. Tax exempt
B. tax exempt up to $5,500
C. partially tax exempt
D. taxable
16: The amount of Social Security income that is taxable is dependent on how much other taxable income you have.
A. True
B. False
17: Municipal bond interest is:
A. tax-deductible
B. tax-exempt
C. taxed at a lower rate
D. taxed at 15%
18: How much can you take as a real-estate loss on an individual return?
A. There is no limit.
B. $25,000
C. $0
D. The lessor of loss or $25,000 if AGI is less than $150,000 (assuming one files a joint return) unless one is a real-estate professional.
E. $10,000
19: Which of the following items is not deductible?
A. safety deposit box fees
B. tax preparation services
C. bank account interest
D. investment management fees
20: Non-cash charitable contributions over $___ require additional details:
A. 50
B. 100
C. 25
D. 500
E. 250
21: Lloyd is a CPA who prepares tax returns. Eddie, an Enrolled Agent, also prepares taxes. If both men submit form 2848 (Power of Attorney) for their clients, and indicate they can receive their client's refund check, who is authorized to cash or endorse the check?
A. Lloyd because his CPA license enables him to act in his clients best interest, which includes cashing or endorsing refund checks.
B. Neither. No tax preparer is allowed to cash or endorse refund checks for their clients, regardless of having a power of attorney for the client.
C. Eddie because he is an Enrolled Agent, and such enrollment allows.
D. Both can do so because of their certification status and power of attorneys signed by their clients.
22: Capital Gains are reported under which Schedule
A. Schedule B
B. Schedule C
C. Schedule D
D. Schedule A
23: If you are married filing jointly for year 2011 and have itemized deduction of $10,000 would you claim itemized or standard deduction?
A. Itemized Deduction and Standard Deduction
B. Neither
C. Itemized Deduction
D. Standard Deduction
24: When contributing to an IRA, what is the maximum amount a person under the age of 50 can contribute per tax year, assuming the individual's income is $45,000?
A. $45,000
B. $6,000
C. $10,000
D. $2,500
E. $5,000
25: Which of the following items cannot be itemized?
A. mortgage insurance
B. mortgage interest
C. real estate taxes
D. homeowner's insurance
26: What is the purpose of form 7004?
A. Apply EIN
B. Accounting method change
C. extension filing
D. Amended return
27: Steve wants to claim his son as a dependent on his tax return. His son, Mark, is 21 years old and attends a community college full-time. Can Steve claim his son as a dependent? If so, until what age can Steve continue to claim his son?
A. Yes. Steve can continue to claim his son until Mark graduates, regardless of his age.
B. No. His son is over the age of 19, therefore, he does not qualify as a dependent.
C. Yes. However, Steve can no longer claim his son after the age of 21, regardless of Mark's full-time student status.
D. Yes. Steve can claim his son until Mark reaches 24 years old.
E. Yes. However, his son must earn less than the standard deduction of $3,650 to qualify as a dependent, while attending school full time. Steve can continue to claim his son until Mark graduates, regardless of his age.
28: Depreciation for tax purposes is:
A. accelerated
B. equal to book purposes
C. decelerated
29: Which expenditure will you be able to use to reduce the amount that you reports as adjusted gross income (AGI)?
A. Casualty losses over a specified amount
B. The cost of child care that is job related
C. Moving expenses if job related and over a specified distance
D. Gambling losses
30: Gain on a 1031 exchange is recognized to the extent of boot.
A. False
B. True
31: Which expense can be deducted on real estate held as an investment, but not on real estate held as a primary residence?
A. Interest
B. Depreciation
C. Amortization
D. Loan principal
E. Property tax
32: Home Office Deduction on Schedule C is allowed:
A. None of these
B. only if it is below 5,000
C. When there is income prior to the deduction.
D. only if below $10,000
E. Under any circumstances
33: Which of of the following is allowable itemized deduction?
A. Tuition Expense
B. Medical Expense
C. Student Loan Interest
D. None of these
E. All of these
34: The normal distribution code for IRA or pension income is:
A. 3
B. 7
C. 4
D. 1
35: Which form is a home office reported on?
A. not eligible to be deducted.
B. Schedule E
C. Schedule C
D. Form 8829
E. Schedule A
36: Which of the following conditions does NOT prevent you from receiving earned income credit?
A. Having no earned income
B. Being a qualifying child of another person
C. Using the filing status is Married Filing Separately
D. Not being a U.S. citizen or resident alien all year
E. Not having a qualifying child as a dependent
37: Which of the following statements is NOT true regarding tax benefits for education?
A. The Hope credit, also known as the American Opportunity Credit, can only be claimed for each of the first 4 years of post-secondary education.
B. The Hope credit cannot be claimed if the student has been convicted of a federal or state felony offense consisting of the possession or distribution of a controlled substance.
C. Room and board expenses are eligible for both the Hope and Lifetime Learning credit.
D. Tuition and tuition-related fees, books, and other required course materials expenses qualify for the Hope credit.
38: Which of the following would be deducted by an individual taxpayer directly on Schedule A of the Form 1040 as an itemized deduction?
A. Interest paid on a student loan.
B. Educator expenses
C. Investment expenses
D. One-half of the amount of self-employment tax that is paid.
39: For start-up expenses incurred, taxpayers are allowed to deduct up to what dollar amount for expenditures in the taxable year in which the business begins?
A. $15,000
B. No start-up expenses can be deducted.
C. $5,000
D. $10,000
E. Any amount of expenses, as long as it pertains to a start-up cost.
40: The documentation provided for real estate sales is referred to as a:
A. 1099-R
B. 1099-MISC
C. 1099-S
D. 1099-G
41: Which of the following is NOT deductible for moving expenses?
A. Cost of storage for household goods and personal effects
B. House-hunting trip(s) and temporary living expenses
C. Payment for a moving company to transport household goods and personal effects to new home
D. Cost of lodging while traveling to new home
E. All expenses are deductible toward moving expenses
42: An S corporation is generally required to use the accrual method of accounting.
A. True
B. False
43: Which of the following statements are false?
A. Mortgage Insurance Premiums paid in the current year is a investment expense and subject to a 2% phaseout.
B. The deduction is phased out when the adjusted gross income is more than $109,000.
C. Mortgage Insurance premiums paid on a second home is generally deductible.
D. Upfront Mortgage Insurance Premiums paid in the current year must be amortized.
E. Mortgage Insurance Premiums paid is treated as Mortgage Interest.
44: Section 179 Depreciation cannot be deducted in the current year when:
A. Only real property is purchased in current tax year.
B. The taxpayer has elected to deduct Bonus Depreciation in current tax year.
C. Only used equipment is purchased in current tax year.
D. Only qualified real property is purchased in the current tax year.
E. Only listed property is purchased in current tax year.
45: Which qualifies as a 1031 exchange?
A. Barn in Kentucky for Skyscraper in New Yotk
B. Computer in DC for Car in DC
C. Skyscraper in New York for Skyscraper in London
D. Car in New York for Factory in Michigan
46: The form showing income from gambling winnings is referred to as a:
A. W2G
B. IRA-G
C. 1099-WINNINGS
D. 1099-G
47: Which of the following related parties can recognize a loss on the sale or exchange of an asset between themselves for tax purposes?
A. None can recognize a loss
B. Brother and sister
C. Grandfather and Granddaughter
D. Daughter-in-law and Mother-in-law
E. Corporation and sole shareholder
48: Which of the following tests is NOT to claim a dependency exemption for your child:
A. Qualifying child or qualifying relative test
B. Dependent taxpayer test
C. Joint return test
D. Citizenship or resident test
E. Age test
49: Which of the following is a tax deductible contribution by the donor? Assume all recipients are qualified charities.
A. Nancy donated $100 to the local fire department. In exchange, she received a coupon book for 10 car washes at the Bubbles car wash. Bubbles normally sell the same coupon books for $150.
B. Harry owns several rental properties. He lets the local youth group use a suite of offices free of charge. Bob gets $3,000 in rent per month for similar suite.
C. Bob is a carpenter who works three to four hours each week doing carpentry work at the local homeless shelter. He normally charges $40 per hour for his work.
D. Zachary made a large donation to a nearby university. In exchange he receives the right to purchase football tickets for the upcoming season.
50: If a disability pension is reported on a 1099-R and the recipient is under the organization's minimum retirement age, which line of Form 1040 should it appear on?
A. Report as Pension on line 16b
B. Report as Other Income on Line 21
C. Report as Wages on line 7
D. Disability Income is not reported
51: What is the penalty for excess contributions made to an IRA account in a single tax year?
A. 6%
B. 1%
C. 10%
D. 3%
E. There is no penalty for excess contributions.
52: Gain on a 1031 exchange is recognized.
A. False
B. True
53: How long after the close of a tax period must a business file its tax return, if it does not file an extension form?
A. Four and a Half months
B. Four months
C. Two and a Half months
D. Three months
E. Three and a Half months
54: The accounting system used for tax purposes has a:
A. revenue recognition basis
B. cash basis
C. accrual basis
D. modified-cash basis
55: Using tax information from prior years is referred to as a:
A. balance forward
B. rollover
C. pushover
D. carry forward
56: Which of the following statements with respect to an S corporation is false?
A. S corporation losses are deductible by the owners against their ordinary taxable income (assuming the owner has a sufficient tax basis in the investment).
B. An S corporation can be a shareholder of another corporation.
C. Tax-exempt income earned by an S corporation is taxable at the shareholder level.
D. S corporations do not pay income tax on their earned income.
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