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Answer The Following Income Tax Accounting Questions Flashcards

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Which of the following is not a goal of the income tax system?
A. Raising revenue to operate the government
B. Providing incentives for certain business and economic goals, such as higher employment rates, though business-favorable tax provisions.
C. Providing incentives for certain social goals, such as charitable giving, by allowing tax deductions, exclusions, or credits for selected activities.
D. All of the above are goals of the income tax system
 D. All of the above are goals of the income tax system.
What are the qualifications needed to file 1040EZ?
 1. Must be single or married filing a joint return
2. Must not be age 65 or older and/or blind.
3. Must not claim any dependents
4. Taxable income must be less than $100,000
5. Income must include only wages, salaries, unemployment compensation, and not more than $1,500 if taxable interest
6. Must not have received advanced earned income credit payments
What is Schedule A?
 Schedule A is used for people who itemize their deductions, which includes medical expenses, certain taxes, certain interest, charitable contributions, casualty and theft losses, and miscellaneous deductions.
What is Schedule B?
 It is for interest income (over $1,500) and dividend income (over $1,500).
What is Schedule C?
 It is for self-employment income from a trade or business. Profit or loss from business or profession (sole proprietorship).
What is Schedule D?
 When taxpayer has capital gains or losses, he or she must file this form to report those gains or loses
What is Schedule E?
 This supplemental income schedule is used to report rental or royalty income and pass-through income from partnerships, S corporations, and estates and trusts (from forms 1065, 11205, and 1041).
What is Schedule F?
 Farm and ranch income is reported
What is Schedule L?
 Standard deduction for certain filers
What is Schedule M?
 Making work pay and government retiree credits
What is form 1041?
 Fiduciary (estates and trusts) tax return
What is form 1120?
 Corporate tax return which must be used to report income annually.
What is form 1120S?
 S corporation tax return
What is form 1065?
 Partnership information return. Partners must file to report the amount of income or loss and show the allocation of the income or loss to the partners.
What is Schedule K-1?
 Partner's share of partnership results
What is the tax formula?
 Gross Income
- Deductions for adjusted gross income
Adjusted Gross Income
- Greater of itemized deductions or the standard deduction
- Exemptions
Taxable Income
* Tax rate (using appropriate tables or rate schedules)
Gross tax liability
- Tax Credits and Prepayments
Tax Due or Refund
Indicate the most appropriate form or schedule for the following item:
1. Bank interest income of $1,600 received by a taxpayer that itemizes deductions
 Schedule B, Form 1040
Indicate the most appropriate form or schedule for the following item:
Capital gain on the sale of AT&T stock
 Schedule D, Form 1040
Indicate the most appropriate form or schedule for the following item:
Income from a farm
 Schedule F, Form 1040
Indicate the most appropriate form or schedule for the following item:
Trust's income
 Form 1041
Indicate the most appropriate form or schedule for the following item:
An individual partner's share of partnership income reported by the partnership
 Schedule K-1, Form 1065
Indicate the most appropriate form or schedule for the following item:
Salary of $70,000 for a taxpayer who itemizes deductions
 Form 1040
Indicate the most appropriate form or schedule for the following item:
Income from a sole proprietorship business
 Schedule C, Form 1040
Indicate the most appropriate form or schedule for the following item:
Income from rental property
 Schedule E, Form 1040
Indicate the most appropriate form or schedule for the following item:
Dividends of $2,000 received by a taxpayer who does not itemize deductions
 Schedule 1, Form 1040A or Schedule B, Form 1040
Indicate the most appropriate form or schedule for the following item:
Income of a large corporation
 Form 1120
Indicate the most appropriate form or schedule for the following item:
Partnership Loss
 Form 1065
Indicate the most appropriate form or schedule for the following item:
Charitable contribution deduction for an individual who itemizes deductions
 Schedule A, Form 1040
Indicate the most appropriate form or schedule for the following item:
Single individual with no dependents whose only income is $18,000 (all from wages) and who does not itemize deductions
 Form 1040EZ
What are the deductions for adjusted gross income?
 Business expenses
certain reimbursed employee business expenses paid under an accountable plan
alimony payments
moving expenses
certain educator expenses
student loan interest
a tuition and fees deduction
penalty on early withdrawal from savings
Contributions to qualified retirement plans
What are itemized deductions?
 They are personal items that Congress has allowed as deductions. Included are medical expenses, certain interest expenses, certain taxes, charitable contributions, casualty losses, and other miscellaneous items. Taxpayers should itemize only if their total amount exceeds their standard deduction.
What are the standard deduction amounts?
 Single - $5,700
Married filing Jointly - $11,400
Married filing separate - $5,700
Head of Household - $8,350
Qualifying Widow(er) - $11,400
What is the standard deduction for a taxpayer who is blind and over 65?
 For 2009, the additional standard deduction amount if $1,400 for unmarried taxpayer and $1,100 for married taxpayers and surviving spouses. Taxpayers who are both 65 and older and blind are entitled to two additional amounts.
What is the phased out amount for itemized deduction?
 $166,800
What are exemptions?
 Exemptions are worth $3,650 for 2009. The two types of exemptions are personal and dependency and is phased out at income beginning at $166,800 if single and $250,200 if married and filing jointly.
Bill is a single taxpayer. In 2009, his salary is $28,500 and he has interest income of $1,500. In addition, he has deductions for adjusted gross income of $2,100 and he has $6,250 of itemized deductions. If Bill claims one exemption for this year, calculate his
a. gross income
b. adjusted gross income
c. standard deduction or itemized deduction amount
d. taxable income
 Gross income = $30,000 ($28,500 + $1,500)
Adjusted gross income = $30,000 - $2,100 = $27,900
Itemized deductions = $6,250
Taxable income = $27,900 - $6,250 (itemized) - $3,650 (exemption) = $18,000.
Who Must File?
1. Taxpayer (age 45) is single with income of $8,300
2. Husband (age 67) and wife (age 64) have an income of $18,000 and file a joint return
3. Taxpayer is a college student with salary from part time job of $6,000. She is claimed as a dependent by her parents.
4. Taxpayer has net earnings from self-employment of $4,000.
5. Taxpayers are married with income of $15,900 and file a joint return. They expect a refund of $600 from excess withholding
6. Taxpayer is a waiter and has unreported tips of $450
7. Taxpayer is a qualifying widow (age 65) with a dependent son (age 18) and income of $16,800.
8. Taxpayer has income of $4,500 and is single. His age is 45 and he received advanced earned income credit payments.
 1. No
2. No
3. Yes
4. Yes
5. No, however the taxpayers must file to obtain a refund
6. Yes, social security taxes are due
7. Yes
8. Yes
Who can file single filing status?
 Taxpayers who are unmarried or legally separated from their spouses by divorce or separate maintenance decree as of December 31 of the tax year.
Who can file married, filing jointly?
 Taxpayers are considered married if they are married on December 31 of the tax year. In the year of one spouse's death, the spouses are considered married for the full year. Married taxpayers pay less tax by filing jointly than by filing separate in most cases. They may file a joint return even if they did not live together the entire year.
Who can file Married, filing separately
 Married taxpayers should file this status is it reduces their total tax liability. They may file separately if one or both had income during the year. If separate returns are filed, both taxpayers must compute their tax in the same manner (itemizing deductions, etc.)
When can a legally married taxpayer file as head of household?
 If he/she qualifies as an abandoned spouse:
1. Separate return is filed
2. taxpayer paid more than haf the cost (rent, utilities, etc.) to maintain his or her home during the year.
3. Spouse did not live with taxpayer at any time in the last 6 months of the year
4. For over 6 months during the year the home was the principal residence for a dependent child, stepchild, or adopted child. Under certain conditions, a foster child may qualify.
Who can file head of household?
 An unmarried taxpayer who can meet special tests.
1. Unmarried or abandoned as of December 31 of the tax year
2. Paid more than half of the cost of keeping a home that was the principal residence of a dependent child. If a dependent is a taxpayer's parent, the parent need not live with teh taxpayer.
Who can file Qualifying Widow(er)?
 A taxpayer may continue to benefit from the joint return rates for 2 years after the death of his or her spouse. To qualify, the widow(er) must pay over half the cost of maintaining a household where a dependent child, stepchild, adopted child, or foster child lives. After the 2-year period, these taxpayers usually qualify for the head of household.
Carol, a single taxpayer claiming one exemption, has adjusted gross income of $120,000 and taxable income of $105,000 for 2009. Her tax is calculated using the 2009 tax rate schedule from appendix A.
 $16,750 + 28% X ($105,000 - $82,250) = $23,120
Meg is a single taxpayer during 2009. Her taxable income for the year is $27,530. Using the tax table in Appendix A, her gross tax liability is.
 $3,711.
What is American Recovery and Reinvestment Act of 2009?
 was signed into law on February 17, 2009. It includes numerous provisions that affect individuals and families and are intended to stimulate the economy. One of the most significant provisions is the Making Work Pay Credit.
What is the making work pay credit?

For 2009 and 2010, the making work pay credit provides a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. The tax credit is 6.2 percent of earned income up to $6,431 (or $12,903 if filing married jointly) and is phased-out for taxpayers with modified adjusted gross income in excess of $75,000 or $150,000 for married couple filing joint.

The $400 credit is phased out at 2% of Modified AGI between $75,000 and $95,000

(I.e., 2%*($95,000-$75,000) = $400

The $800 credit is phased out at 2% of Modified AGI between $150,000 and $190,000

(I.e., 2%*($190,000 - $150,000) = $800

The credit is available to both employees and self-employed individuals. Taxpayers who can be claimed as a dependent on someone else’s tax return are not eligible for the credit.

Peter is single and earns $50,000 in wages during 2009. He has no other income or expenses. His $400 making work pay credit is?
$400
What are personal exemptions?
 Personal exemptions are granted to taxpayers for themselves; almost all taxpayers are entitled to one personal exemption each. Children who may be claimed as dependents on their parents' tax returns are not allowed to claim a personal exemption for themselves on their own tax return.
What are dependency exemptions?
 Dependency exemptions are granted for each person other than the taxpayer or spouse who qualifies as a dependent. A dependent is an individual who meets the tests to be considered a qualifying child or qualifying relative.
What are the tests for qualifying child?
1. Relationship test - child, stepchild, adopted child, or brother or sister, half brother or sister, or stepsibling, or a descendant of these.
2. Domicile test - child must have same principal place for more than half of the year. Temporary absences such as illness, education, and vacation are not considered.
3. Age test - under age 19 or full time student under 24 enrolled for 5 months of the year at least, so grad in may is cool.
4. Joint return test - must not file a joint return with his (child) or her spouse). If they file to claim refund, it is ok.
5. Citizenship test - must be united states citizen, a resident of US, Canada or Mexico or an alien child adopted by and living with a US citizen
6. Self-support test - Child who provides more than one-half of their support cannot be claimed. Support includes food, clothes, lodging, education, medical and dental care.
What happens if a child satisfies the requirements of dependency for more than one taxpayer?
 1. If one individual is the parent, the parent is allowed the exemption
2. If both parents qualify and file separate, then the parent who had the child the longest during the year prevails. If it is the same, then the parent with the highest AGI prevails.
3. If no parents involved, the taxpayer with the highest AGI prevails.
Bill, age 12, lives in the same household with Irene, his mother, and Darlene, his aunt. Bill qualifies as a dependent of both Irene and Darlene. Who can claim Bill?
 Since Irene is Bill's mother, she has the right to claim Bill as a dependent.
If Irene chooses not to claim Bill, Darlene then can.
What are the tests for qualifying relative? A person who is not a qualifying child can be a qualifying relative if the following five tests are met.
1. Relationship or member of household test - the individual must either be a relative of the taxpayer or a member of the household. Qualifying relatives is broad includes parents, grandparents, children, grandchildren, siblings, aunts and uncles by blood, nephews and nieces, "in-laws," and adopted children and sometimes foster children.
Also any person who lived in the taxpayer's home as a member of the household for the entire year.
2. Gross income test - cannot have gross income equal to or above the exemption amount ($3,650 in 2009)
3. Support test - The dependent must receive over half of his or her support from the taxpayer
4. Joint return test - dependent must not file a joint return unless it is only to claim a refund of taxes due
5. Citizenship test - dependent must meet the citizenship test
A taxpayer has a 26-year-old son with gross income less than the exemption amount who receive more than half of his support from his parents. Is he a qualifying relative?
 The son fails the test to be a qualifying child based on his age, but passes the test to be a dependent based on the qualifying relative rules.
Indicate the filing status (or statuses) in each of the following cases:
The taxpayers are married on December 31 of the tax year
 Either Married filing a joint return, or married filing separate
Indicate the filing status (or statuses) in each of the following cases:
The taxpayer is single, with a dependent child living in her home
 Head of Household
Indicate the filing status (or statuses) in each of the following cases
The taxpayer is married and his spouse left midyear and has disappeared. The taxpayer has no dependents.
 Married, filing separately
Indicate the filing status (or statuses) in each of the following cases
The taxpayer is unmarried and is living with his girlfriend
 Single
Indicate the filing status (or statuses) in each of the following cases
The unmarried taxpayer supports her dependent mother, who lives in her own home
 Head of Household
Indicate the filing status (or statuses) in each of the following cases
The taxpayer's wife died last year. His 15-year-old dependent son lives with him.
 Qualifying widow(er)
Indicate the number of exemptions the taxpayer should claim on their 2009 income tax return:
Abel is 72 years old and married. His wife is 64 and meets the test for blindness. How many exemptions should they claim on a joint return. 		2 personal exemptions
Betty and Bob are married and have a 4-year-old son. During the year Betty gave birth to a baby girl. How many exemptions should Betty and Bob claim on a joint return.
4. Two personal and two dependency exemptions
Charlie supports his 26-year-old brother, who is a full-time student. His brother's gross income is $4,500 from a part-time job. How many exemptions should Charlie claim on his return?
 One personal exemption. The brother fails to meet the gross income test to be a qualifying relative. The fact the brother is a student is irrelevant since he is older than 24.
Donnie and her sister support their mother and provide 60 percent of her support. If Donna provides 25 percent of her mother's support and her sister signs a multiple support agreement giving Donna the exemption, how many exemptions should Donna claim on her return?
 2, one personal exemption and one dependency exemption for her mother
Frank is single and supports his son and his son's wife, both of whom lived with him for the entire year. The son (Age 20) and his wife (age 19) file a joint return to get a refund, reporting $2,500 ($2,000 earned by the son) in gross income. Both the son and daughter-in-aw are full-time students. How many exemptions should Frank claim on his return.
3, One personal, two dependency exemptions.
Gary is single and pays $5,000 towards his 20-year-old daughter's college expenses. The remainder of her support is provided by a $9,500 tuition scholarship. The daughter is a full-time student. How many exemptions should Gary claim on his return.
 2, one personal, and one dependency exemption since the scholarship is not considered support
Helen is 50 years old and supports her 72-year-old mother, who is blind and has no income. How many exemptions should Helen claim on her return.
 2, one personal and one dependency exepmtion
John is single and 70 years old in 2009. His standard deduction is?
 $5,700 (single) + $1,400 (for being 65 years of age or older) = $7,100
Bob and Mary are married in 2009 and file a joint return. Bob is age 68, and Mary is 63 and meets the test for blindness. Their standard deduction is?
 $11,400 (married) + $1,100 (blind) + $1,100 (65 years or older) = $13,600
Who are not eligible for the standard deduction?
 1. Married individual filing separate, whose spouse itemizes deductions
2. Nonresident alien
3. An individual filing a short-period tax return because of a change in the annual accounting period.
Ed and Ann are married individuals who file separate returns for 2009. Ed itemizes his deductions on his return. Ann's adjusted gross income is $12,000, and she has itemized deductions of $900. Ann's taxable income is?
 Adjusted gross income $12,000
Itemized deductions (900)
Exemption amount (3,650)
Taxable Income $7,450

Since Ed itemizes his deductions, Ann must also itemize deductions and is not entitled to use the standard deduction amount
Penzer, who is 4 years old, earned $6,500 as a child model during 2009. A dependency exemption for Penzer is claimed by his parents on their tax return. Penzer is required to file a tax return, and his taxable income will be $800 ($6,500 - $5,700 standard deduction). He is not allowed to claim an exemption for himself. If Penzer would have earned only $400, his standard deduction would be $950 (the greater of $950 or $700 ($400 + $300) and he would not owe any tax or be required to file a return.
 Answer
Indicate the amount of standard deduction the taxpayers should claim:
Adam is 45 years old, in good health, and single
 $5,700
Indicate the amount of standard deduction the taxpayers should claim:
Bill and Betty are married and file a joint return. Bill is 66 years old and Betty is 60.

 $11,400 + $1,100 = $12,500
Charlie is 70, single, and blind $5,700 + $1,400 + $1,400 = $8,350
Debbie qualifies for head of household filing status, is 35 years old and is in good health
 $8,350
Elizabeth is 9 years old, and her only income is $3,600 of interest on a savings account. She is claimed as a dependent on her parents' tax return.
 $950
Frank and Freida are married with two dependent children. They file a joint return, are in good health, and both of them are under 65 years of age.
 $11,400
What is the amount of gain or loss realized?
 It is determined by subtracting the adjusted basis of the asset from the amount realized. The adjusted basis of an asset is its cost less any depreciation taken on the asset. The amount realized is generally what the taxpayer receives from the sale (e.g., the sales price less any cost of the sale.
Gain (or loss) = Amount realized - Adjusted basis
Lisa purchased a rental house a few years ago for $100,000. Total depreciation to date on the house is $25,000. In the current year, she sells the house for $155,000 and receives $147,000 after paying selling expenses of $8,000. Her gain on the sale is?
 Amount realized ($155,000 - $8,000) $147,000
Adjusted basis ($100,000 - $5,000) (75,000)
Gain realized $72,000

This gain realized will be recognized as a taxable gain
What are ordinary gains and losses?
 Gains and losses can be either ordinary or capital. Ordinary gains and losses are treated for tax purposes just like other items such as salary and interest, and are taxed at ordinary rates.
What are capital gains and losses?
 A capital asset is any property (either personal or investment) held by a taxpayer, with certain exceptions. Typical assets that are not capital assets are inventory and accounts receivable. Example of capital assets held by individual taxpayers include stocks, bonds, land, cars, boats, and other items held as investments. If a taxpayer

ends up with a net capital loss (short-term or long-term), up to $3,000 per year can be deducted against ordinary income. The net loss not used in the current year may be carried forward and used to reduce taxable income in future years.

In 2009, Chris sells AT&T stock for $25,000. He purchased the stock 5 years ago for $15,000, giving him an adjusted basis of $15,000 and a long-term gain of $10,000. Chris’ taxable income without the sale of the stock is $190,000, which puts him in the 33 percent tax bracket.

The tax due on the long-term capital gain would be $1,500 (15% X $10,000) instead of $3,300 (33% X $10,000) if the gain on the stock were treated as ordinary income.

Amy purchased gold coins as an investment. She paid $50,000 for the coins. This year she sells the coins to a dealer for $35,000. As a result, she has a $15,000 capital loss. What can she do?

She may deduct $3,000 of the loss against her other income this year. The remaining unused loss of $12,000 ($15,000 - $3,000) is carried forward and may be deducted against other income in future years. Of course, the carryover is subject to the $3,000 annual limitation in future years.

Erin purchased stock in JKL Corporation several years ago for $8,750. In the current year, she sold the same stock for $12,800. She paid a $200 sales commission to her stockbroker.

1. What is Erin’s amount realized

2. What is Erin’s adjusted basis?

3. What is Erin’s realized gain or loss?

4. What is Erin’s recognized gain or loss?

5. How is any gain or loss treated for tax purposes

1. Sales price minus cost of sale - $12,800 - $200 = $12,600
2. Cost minus depreciation = $8,750
3. Adjusted basis - Amount realized = $12,600 - $8,750 = $3,850
4. Adjusted basis - Amount realized = $12,600 - $8,750 = $3,850
5.Because the stock has been held for more than a year, the gain is a long-term capital gain. The long-term capital gain will be taxed at 0 percent for taxpayers in the 10 or 15 percent tax brackets or 15 percent for all other tax brackets.
Indicate true or false:

1. The internet is controlled by the federal communications commission, which is part of the administrative branch of the United States government.

2. Taxpayers can download tax forms and IRS publications from the IRS internet site

3. A help function is available to aid users of the IRS site

4. The At Home Internet site is maintained by practitioners publishing co. for users of its textbooks



1. False
2. True
3. True
4. False

Indicate true or false:

1. Compared to paper returns, electronic filings significantly reduce the error rate for tax returns filed.

2. Individuals may not use electronic filing for their own personal tax returns, but must engage a tax professional if they wish to e-file

3. Taxpayers who e-file generally receive faster refunds

4. Taxpayers who e-file can only request their refund in the form of a check

1. True
2. False
3. True
4. False

1. The current income tax system was:

A. Designed solely to raise money to run the government

B. Authorized by the founding fathers when the government was formed

C. Not designed with social objectives in mind

D. Authorized by the Sixteenth Amendment to the Constitution in 1913

E. None of the above

D. Authorized by the Sixteenth Amendment to the Constitution in 1913

2. Partnership income is reported on:

A. Form 1040

B. Form 1120

C. Form 1040X

D. Form 1065

D. Form 1065

3. Which of the following is a deduction for adjusted gross income in 2009?

A. Alimony payments

B. Medical expenses

C. Personal casualty losses

D. Charitable contributions

E. None of the above

A. Alimony payments

4. All of the following are itemized deductions in 2009 except:

A. Charitable contributions

B. Casualty losses

C. Moving expenses

D. Medical expenses

E. All of the above are itemized deductions

C. Moving expenses

5. Ramon, a single taxpayer, has adjusted gross income for 2009 of $98,000 and his itemized deductions total $19,000. What taxable income will Ramon show in 2009?

A. $73,550

B. $75,350

C. $92,550

D. $89,050

E. $70,050

B. $75,350 ($98,000 - $3,650 - $19,000)

6. Ben is a single taxpayer in 2009 who is 32 years old. What is the minimum amount of income that he must have to be required to file a tax return for 2009?

A. $5,700

B. $11,500

C. $9,350

D. $10,300

E. None of the above

C. $9,350

7. Joan, who was divorced in 2008, had filed a joint tax return with her husband in 2007. During 2009, she did not remarry and continued to maintain her home in which her five dependent children lived. In preparation of her tax return for 2009, Joan should file as:

A. A single individual

B. Qualifying widow(er)

C. Head of household

D. Married, filing separately

E. None of the above

C. Head of Household

9. Margaret, age 65, and John, age 62, are married with a 23-year-old daughter who lives in their home. They provide over half of their daughter’s support, and their daughter earned $3,900 this year from a part-time job. Their daughter is not a full-time student. How many exemptions should Margaret and John claim on a joint return for 2009?

A. 3

B. 4

C. 2

D. 6

E. 5

C. 2 (The daughter makes more than $3,650 so is not allowed to be claimed).

8. Margaret and her sister support their mother and together provide 85 percent of their mother’s support. If Margaret provides 40 percent of her mother’s support:

A. Her sister is the only one who can claim their mother

B. Neither Margaret and her sister may claim their mother as a dependent

C. Both Margaret and her sister may claim their mother as a dependent

D. Margaret and her sister may split the dependency exemption

E. Margaret may claim her mother as a dependent if her sister agrees in a multiple support agreement.

E. Margaret may claim her mother as a dependent if her sister agrees in a multiple support agreement.

10. Lyn, age 65, and Robert, age 66, are married and support Lyn’s father (no taxable income) and Robert’s mother, who has $2,200 of gross income. If they file a joint return for 2009, how many exemptions may Lyn and Robert claim?

A. 2

B. 3

C. 4

D. 5

E. 6

C. 4

11. Arthur is 65 years old. He supports his father, who is 90 years old, blind, and has no income. For 2009, how many exemptions should Arthur claim on his tax return?

A. 1

B. 2

C. 3

D. 4

E. 5

B. 2

12. Taxpayers who are 65 or older get the benefit of:

A. An additional exemption

B. An additional amount added to their standard deduction

C. An additional amount added to their itemized deductions

D. None of the above

B. An additional amount added to their standard deduction

13. Taxpayers who are bind get the benefit of:

A. An additional exemption

B. An additional amount added to their standard deduction

C. An additional amount added to their itemized deductions

D. None of the above

B. An additional amount added to their standard deduction

14. Which of the following is a capital asset to an individual taxpayer?

A. stocks

B. A 48-foot sailboat

C. Raw land held as an investment

D. A $50,000 sport-utility vehicle

E. All of the above are capital assets

E. All of the above are capital assets

15. Jayne purchased General Motors stock 6 years ago for $20,000. In 2009, she sells the stock for $35,000. What is Jayne’s gain or loss?

A. $15,000 long-term

B. $15,000 short-term

C. $15,000 ordinary

D. $15,000 extraordinary

E. No gain or loss is recognized on this transaction

A. $35,000 - $20,000 = $15,000 long-term (more than 6 years)

16. Alexis purchased a rental house 3 years ago for $285,000. Her depreciation to date is $35,000. Due to a decrease in real estate prices, she sells the house for only $275,00 in 2009. What is her gain or loss for taxable purposes?

A. $0

B. $10,000 loss

C. $10,000 gain

D. $35,000 loss

E. $25,000 gain

$275,000 (sale price) - $0 (expenses) = $275,000 (Amount realized)

$285,000 (original purchase) - $35,000 (depreciation = $250,000 (Adjusted basis)

$275,000 (amount realized) - $250,000 (adjusted basis) = $25,000 gain

17. Shannon has a long-term capital loss of $7,000 on the sale of bonds in 2009. His taxable income without this transaction is $48,000. What is his taxable income considering this capital loss?

A. $55,000

B. $48,000

C. $45,000

D. $41,000

E. Some other amount

C. $45,000 ($48,000 - $3,000 (capital loss for the year)

18. Electronically filed tax returns:

A. May not be transmitted from a taxpayer’s home computer

B. Constitute more than 90 percent of the returns filed with the IRS

C. Have error rates similar to paper returns

D. Offer faster refunds than paper returns

D. Offer faster refunds than paper returns
Group II, 1. List three major purposes the tax system is meant to serve:

Raising revenue to operate the government

Furthering economic goals such as reducing unemployment

Furthering social goals such as encouraging contributions to charities