Taxation MCQs
Taxation MCQs
These Taxation multiple-choice questions and their answers will help you strengthen your grip on the subject of Taxation. You can prepare for an upcoming exam or job interview with these 70+ Taxation MCQs.
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1: Which of the following is not allowed as a deductible moving expense?
A. Moving your household goods
B. In transit storage expenses for household goods
C. Travel and lodging expenses while travelling to the new home
D. Expenditure on food while traveling to the new home
A taxpayer purchased a rental property for $200,000. The taxpayer paid $50,000 as cash down payment and got it financed for $150,000. The closing costs were $10,000 and points were $8,000.
What is his basis in the property?
A.
$210,000.00
B.
$250,000.00
C.
$50,000.00
D.
$208,000.00
Following the death of Clara's husband, the executor of his estate made the following payments:
1. Medical expenses of the deceased paid within six months of the date of death and not claimed in the deceased's f‌inal income tax return
2. Funeral expenses of the deceased
3. State inheritance taxes
4. Qualified charitable contributions as a bequest dictated by the Will of the deceased
Which of these expenses would generally be allowable as deductions in determining the taxable estate in the Federal Estate Income Tax Return (Form 706)?
A.
1 and 3 onlyÂ
B.
1. 2 and 4 only
C.
2 and 3 only
D.
All of the above
4: Which of the following is correct with respect to depreciation recapture when a property is used for trade or business?
A. The gain to the extent of depreciation claimed is not taxable.
B. The gain to the extent of depreciation claimed is taxed as a long term capital gain.
C. The gain to the extent of depreciation claimed is an ordinary gain and is taxed at a marginally higher rate than capital gains.
D. None of the above
5: 228 shares are bought on Jan 3, 2007. What is the earliest date on which the stock can be sold and the gain or loss qualifies as long term?
A. Jan 3, 2008
B. Jan 4, 2008
C. July 3, 2008
D. July 4, 2008
A. $3,000 $15,000
B. $15,000 $15,000
C. $3,000 $27,000
D. $15,000 $27,000
A. Deduct a loss of $9,500
B. Deduct a loss of $16,500
C. Report income of $8,000
D. None of the above
A.
$116,750Â
B.
$139,000
C.
$127,750
D.
$ 77,750
9: Which of the following statements is NOT true regarding corporate capital losses?
A. Excess net capital losses may not be deducted in the current year
B. Capital losses may only offset capital gains
C. Net capital losses may be carried back to the three preceding tax years
D. Net capital loss carryovers may be carried forward to seven succeeding tax years from the year of the loss
10: You must pay estimated taxes if .
A. you expect to owe $1000 or more as tax for 2008
B. you expect you're withholding to cover less than 90% of your 2008 tax return.
C. you expect both a & b
D. None of the above
11: Which of the following is not eligible to be a shareholder of S Corporation?
A. A domestic partnership
B. Individuals who are not nonresident aliens.
C. Estates
D. An exempt organization described in section 401 (a) or 501(c)(3).
12: Which of the following statements regarding extensions of time to file a tax return is correct?
A. A penalty for late payment is charged even if the extension is granted
B. You should file the extension request by September 15th 2008 for year ending Dec 2008
C. An automatic 2 month extension is obtained by f‌iling Form 4868
D. An additional 4 month extension is available if you f‌ile form 2688
A. Mexico
B. United States
C. Canada
D. Any of the above.
14: Which of the following is not a requirement to claim to be the head of a household?
A. Your spouse has not been living with you for the last 6 months of the tax year
B. You have paid more than half of the cost of keeping up the house for the year
C. Your parents must have lived with you for more than half of the year.
D. You are unmarried or considered unmarried on the last day of the year
15: With respect to Simple Trusts, all the following statements are true except.
A. The Trust instrument provides that amounts set aside for charitable purposes are deductible only to the Trust.
B. The Trust does not distribute amounts allocable to the corpus of the Trust.
C. The exemption amount for a Simple Trust is $300.
D. The Trust instrument requires that all the income must be distributed currently.
Philip incurred the following moving expenses:
Cost of packing and crating and transporting his household goods $3.500;
Lodging during travel between his old home and his new home $850;
Meals during the trip $250;
$550 to break the lease on his old home.
Philip had moved to take up a new job and met the distance and time tests. What are the total moving expenses that can be deducted from his total income to arrive at the adjusted gross income?
A.
$4.600Â
B.
$4,850
C.
$4.350
D.
$5,150
17: All of the following events except would cause an S Corporation to be disqualified from being an S corporation.
A. having more than 75 shareholders-
B. the transfer of its stock to a corporation.
C. the transfer of its stock to a nonresident alien.
D. the revocation of the election with the consent of shareholders that, at the time the revocation, held 40% of the stock.
18: Taxes deducted as an itemized deduction include all of the following except .
A. Real Estate Taxes based on the assessed value of the property
B. General Sales Taxes
C. Federal Taxes
D. Taxes you paid on the property owned by your parents
Andrew and Brain each have a 50% interest in AB Partnership. The partnership and the partners f‌ile calendar year tax returns. During the 2006 tax year, the Partnership suffered a loss of $10,000. Andrew's adjusted basis in his partnership interest on January 1, 2007 was $4,500. The Partnership reported a gain of $18,000 in its 2007 tax year return. There are no other adjustments to Andrew's basis in the partnership for 2006 or 2007. There were no distributions to the partners in either year. What is the amount of partnership income or loss that Andrew will show in his 2007 individual return in Form 1040?
A.
$0Â
B.
$9.000
C.
$13,500
D.
$8,500
A. Interest
B. Taxes
C. Payments for services rendered
D. All of the above
Mr and Mrs. Smith bought a primary residence in July 1999 for $150,000. In the year 2004, they added an additional room at a cost of $175,000.They lived there until Aug 2005. In Sep 2007. they sold this residence for $800,000. From Aug 2005 onwards, the house remained unoccupied. They file a Married filing Joint return and they have not excluded any gain in the past 2 years. What is their maximum taxable gain?
A.
$150,000
B.
$75,000
C.
$0
D.
$475,00
In 2007, ABC Inc. had gross receipts of $45,300from the sale of videos, dividends of $32,500 from a domestic corporation in which ABC, Inc. owned 50% of the stock. and operating expenses of $75,000. What is the net operating loss of the ABC Inc. in 2007?
A.
$13,450
B.
$23,200Â
C.
$29,700
D.
$16,700
John made several stock sales during 2007. Determine the net capital gain or loss for the following transactions:
Date Cost of Purchase Date of Selling Sale Price
1-1-07 $4,000 6-2-07 $6,000
7-6-06 $10,000 7-7-07 $14,000
7-6-06 $20,000 7—6-07 $17,000
4-3-06 $5.000 6-2-07 $4,000
A.
$2,000 net short-term capital gain.
B.
$3,000 net long-term capital gain and $1,000 net short-term capital loss.
C.
$1,000 net long-term capital gain.
D.
$4,000 net long-term capital gain and $2,000 net short-term capital loss.
24: ABC Corporation is preparing Schedule M-1 of its Form 1120, US. Corporate Income Tax Return. Which of the following statements is incorrect with regard to the preparation of Schedule M-1?
A. The starting point is net income as per books and the ending point is taxable income before the NOL and dividends- received deductions.
B. Life insurance proceeds paid on the death of a key employee is a negative adjustment to book income to arrive at taxable income.
C. Federal income taxes on book income are added back to net book income to arrive at taxable income.
D. The premiums paid on the key employee life insurance policy are a negative adjustment to book income to arrive at taxable income.
25: Which of the following need not be met for a child to qualify as a dependent?
A. Relationship test
B. Age test
C. Gross income test
D. Support test
After Mary's death on August 1, 2007. her estate received the following:
$50,000 as life insurance proceeds
$1,000 as interest income from a certif‌icate of deposit that matured on August 5, 2007
$2,000 as annual royalty on a patent
What amount of taxable income must be reported in the 2007 Income Tax Return for Estate and Trusts (Form 1041)?
A.
$53,000
B.
$52400Â Â
C.
$3.000
D.
$2.400
27: Which of the following accounting changes does not require the f‌iling of Form 3115 to request a change in the accounting method?
A. Change from cash method to accrual method
B. Change in the method of valuing inventory.
C. Change from the accrual method to the cash method
D. Correction of a mathematical error.
28: George could not f‌ile his tax return on April 15th as he was out of the country on an assignment. He can request for an extension of time to pay his taxes within 6 months of the due date by f‌iling Form 4868.
A. True
B. False
29: Which of the following is income from passive activity?
A. Alaska Permanent Funds Dividend
B. State tax refund
C. Interest from a savings account.
D. Personal service income
30: Mr.Brain died on July 18, 2007. His taxable estate is worth $900,000. By which date is the filing of Form 706. United States Estate Tax Return, due?
A. Not due, because taxable estate is worth less than $1,000,000.
B. March 15,2008
C. April 15, 2008
D. December 31,2007
31: Which of the following incomes is not subject to self-employment tax?
A. Wages, salaries and income from tips
B. Non-Employee compensation
C. Net profits from a sole proprietorship business
D. Distributive share of partnership income
32: You operate a business and file your tax return on a calendar-year basis. You bought a f‌ire insurance policy on your building effective September 1, 2007, and paid a premium of $6000 for 2 years of coverage. How much can you deduct in your 2007 return?
A. $2,000
B. $6,000
C. $3,000
D. $0
Raj uses 3/5th of his house for business purposes. The area of his house is 1000 Sqft. Calculate how much he can Claim as Home Off‌ice expenses if he has incurred the following expenditure during the year:
-Real estate taxes $1500
-lnsurance $500
-Painting the Off‌ice Space $200
-Interest on mortgage $2000
A.
$4200
B.
$200
C.
$3600
D.
$2200
E.
$2600
A. $31000
B. $32200
C. $33200
D. $34600
In July 2007, Clara acquired and operated for profit a running business with the following assets basis:
Goodwill $32,500
Land $28,200
Building $94,200
Equipment $63,400
Cash $7,850
What is the amortization deduction?
A.
$32,500Â
B.
$1,083Â
C.
$2,167
D.
0
36: Which of the following would be considered a f‌iscal tax year?
A. 02/15/07 - 03/15/08
B. 08/01/07 — 07/31/08
C. 04/01/07 - 04/30/08
D. 01/01/08 -12/31/08
37: All of the following credits are part of the General Business Credit except .
A. Research and Development Credit
B. Investment Credit
C. Credit for employer paid FICA on employee tips used to meet the minimum Federal wage rate
D. Renewable electricity production credit
38: Which of the following must you show to meet the directly related test for entertainment expenses?
A. The main purpose of the combined business and entertainment was the active conduct of Business.
B. You did engage in business with the person during the entertainment period.
C. You had more than a generally expected received income or some other specific business benefit at some future time.
D. All of the above
39: Which of the following may be considered as alimony?
A. Non-cash property settlement
B. Child support
C. Payments to keep up the payer's property.
D. Payments made to a third party on behalf of the former spouse for her tuition expenses
40: All of the following(assuming that they are all under the age of 65) need to file a tax return except .
A. single persons with a gross income of $9000
B. married persons filing ajoint return with a combined gross income of $18000
C. married persons filing separate returns with a gross income of $3000 each
D. the head of a household with a gross income of $12000
In 2007, ACD Corporation. a clothing retailer, showed the following expenses:
Clothing purchased for resale $72,000
Freight-in $3.550
Freight out to customers $1,750
Opening inventory $55,650
Closing inventory $42,500
What is the cost of the goods sold by the ACD?
A.
$88,700
B.
$175,450
C.
$90,450
D.
$86,900
42: Which of the following is deductible as Medical Expenses?
A. Medical Prescription
B. Long Term Care Contracts
C. Health Savings Account Payments for medical expenses
D. a & b
43: Which of the following determines the basis of property received in exchange of services?
A. The value of the services rendered
B. The basis of the property received
C. The fair market value of the property received
D. None of the above
44: The fringe benefits are not taxable except .
A. the value of health plan coverage provided by your employer.
B. the long term care coverage contributions made by your employer
C. the contributions to your medical savings account by your employer
D. a non-statutory option to buy/sell stocks for your services.
45: Which of the following are organizational costs?
A. Costs of Organizational meetings
B. Costs of a survey of potential market
C. State incorporation fees
D. Costs of advertisements for starting the business.
You have received an acre of land as a gift. At the time of gifting, the land had an FMV of $6500. The donor's adjusted basis was $8200.“ the selling price is 510000, what is your gain or loss assuming that there has been no increase or decrease in the basis after you received the property?
A. $3500
B. $8300
C. $1800
D. $1700
Susan's husband died in the tax year 2007 and she didn't re-marry. She has two minor children living with her whom she has been supporting. The filing status with the lowest tax rate for which Susan Qualif‌ies is ____________.
A. qualifying widow with dependent children
B. married. f‌iling a return separately
C. the head of a household
D. married. f‌iling a return jointly
48: If a tax payer has capital gain distributions and no other capital gain, which one Of the following statements is correct?
A. Capital gain distributions must be put on Schedule B
B. No Schedule D is required and the amount is directly put on Form 1040
C. Dividends and capital gain dividends may be added together on Schedule B
D. None of the above
Klein has taken care of his married daughter for more 9 months in this tax year and has also paid more than half of her expenses. At the end of the year, she f‌iles a joint return with her husband as a married person. Klein can also claim her as his dependent.
A.
True
B.
FalseÂ
Mr.Terrero let out his basement apartment for 10 days to Mike and he personally used it for 20 days. The basement apartment was not used for the rest of the year. He earned a rental income of $1000 and paid maintenance charges of $600. He should report these activities in Schedule E as .
A.
Income $1000 and Expenses $600Â
B.
Income $333 and Expenses $200
C.
Income $0 and Expenses $0Â
D.
Income $667 and Expenses $400
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