27) Allison, who is single, incurred $4,000 for unreimbursed employee expenses, $10,000 for mortgage interest and real estate taxes on her home, and $500 for investment counseling fees. Allison’s AGI is $80,000. Allison’s allowable deductions from AGI are (after limitations have been applied)

A) $10,500.

B) $12,900.

C) $14,000.

D) $14,500.

 

Page Ref.: I:9-4; Example I:9-4

 

28) Ron is a university professor who accepts a visiting position at another university for six months and obtains a leave of absence from his current employer. Ron spends the following amounts at the new location:

 

Furnished apartment    $ 4,800

Meals  3,000

 

Ron has AGI for the year of $100,000. Vincent’s deductible travel expenses, after application of any relevant limitations, are

A) $5,800.

B) $1,900.

C) $4,300.

D) $7,800.

 

 

Page Ref.: I:9-6 and I:9-7

 

29) Gwen traveled to New York City on a business trip for her employer. Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area. Gwen’s plane fare for the trip was $250. Meals cost $160 per day. Hotels and other incidental expenses amounted to $250 per day. Gwen was not reimbursed by her employer for any expenses. Her AGI for the year is $50,000 and she itemizes but has no other miscellaneous itemized deductions. Gwen may deduct (after limitations)

A) $570.

B) $890.

C) $1,890.

D) $1,570.

 

Page Ref.: I:9-8; Example I:9-10

 

30) Brittany, who is an employee, drove her automobile a total of 20,000 business miles in 2012. This represents about 75% of the auto’s use. She has receipts as follows:

 

Parking (business only)          $500

Tolls (business only)   200

Repairs            $1,000

 

Brittany’s AGI for the year of $50,000, and her employer does not provide any reimbursement. She uses the standard mileage rate method. After application of any relevant floors or other limitations, Brittany can deduct

A) $11,100.

B) $11,800.

C) $11,550.

D) $10,800.

 

Page Ref.: I:9-11 and I:9-12

 

 

31) Jordan, an employee, drove his auto 20,000 miles this year, 15,000 to meetings with clients and 5,000 for commuting and personal use. The cost of operating the auto for the year was as follows:

 

Gasoline and repairs    $7,000

Insurance         1,000

Depreciation    4,000

 

Jordan submitted appropriate reports to his employer, and the employer paid a reimbursement of $ .50 per mile. Jordan has used the actual cost method in the past. Jordan’s AGI is $50,000. What is Jordan’s deduction for the use of the auto after application of all relevant limitations?

A) $1,500

B) $500

C) $1,000

D) $8,000

 

Page Ref.: I:9-11 and I:9-12; Example I:9-24

 

32) Austin incurs $3,600 for business meals while traveling for his employer, Tex, Inc. Austin is reimbursed in full by Tex pursuant to an accountable plan. What amounts can Austin and Tex deduct?

A)

Austin  Tex

$0        $1,800

 

B)

Austin  Tex

$0        $3,600

 

C)

Austin  Tex

$1,800$1,800

 

D)

Austin  Tex

$3,600$0

 

 

Page Ref.: I:9-13; Example I:9-26

 

 

33) Brett, an employee, makes the following gifts, none of which are reimbursed:

 

Brett’s supervisor         $30

Brett’s secretary           40

4 customers ($27 each)           108

Gift wrapping customer gifts   10

 

What amount of the gifts is deductible before application of the 2% of AGI floor for miscellaneous itemized deductions?

A) $135

B) $150

C) $170

D) $180

 

Page Ref.: I:9-16; Example I:9-33

 

34) In which of the following situations is the taxpayer not allowed a deduction for moving expenses?

A) Pam moves from Phoenix to Los Angeles to take a new job. She works at the Los Angeles job for 45 weeks before starting a new job in Las Vegas.

B) Paul moves from Boston to Miami to start a new business selling t-shirts. The business is not successful and Paul returns to Boston after 52 weeks.

C) Phyllis opens a coffee bar after moving from Seattle to San Francisco. She still owns the coffee bar and lives in San Francisco 90 weeks after her move.

D) Marva moves from Dallas to Washington D.C. in her job as an IRS agent. She is still working at the IRS Washington office after one year.

 

Page Ref.: I:9-19

 

35) Ron obtained a new job and moved from Houston to Washington. He incurred the following moving expenses:

 

Transportation of household goods     $3,200

House-hunting trips    1,500

Temporary living expenses (20 days)  3,400

Commissions on new lease     500

Costs of settling old lease        250

Mileage for personal automobile         1,400 miles

 

Assuming Ron is eligible to deduct his moving expenses, what is the amount of the deduction?

A) $3,522

B) $6,600

C) $6,922

D) $5,722

 

Page Ref.: I:9-19 through I:9-21; Example I:9-43

 

36) Alex is a self-employed dentist who operates a qualifying office in his home. Alex has $180,000 gross income from his practice and $160,000 of expenses directly related to the business, i.e., non-home office expenses. Alex’s allocable home office expenses for mortgage interest expenses and property taxes are $14,000 and other home office expenses are $9,000. What is Alex’s total allowable home office deduction?

A) $9,000

B) $14,000

C) $20,000

D) $23,000

 

Page Ref.: I:9-26; Example I:9-54

 

 

37) Joan bought a business machine for $15,000 on January 1, 2011, and later sold the machine for $12,800 when the total allowable depreciation is $8,500. The depreciation actually taken on the tax returns totaled $8,000. Joan must recognize a gain (or loss) of

A) no gain or loss.

B) ($3,200).

C) $6,800.

D) $6,300.

 

Page Ref.: I:10-3; Example I:10-1

 

 

38) On January 3, 2009, John acquired and placed into service business tools costing $10,000. The tools have a 3-year class life. No other assets were purchased during that year. The depreciation in 2012 for those tools is (Sec. 179 and bonus depreciation were not applied)

A) $-0-.

B) $741.

C) $1,920.

D) $3,333.

 

Page Ref.: I:10-5; Example I:10-6

 

 

39) Leo purchases and places in service in 2012 personal property costing $610,000. What is the maximum Sec. 179 deduction that Leo can deduct, ignoring any taxable income limitation?

A) $0

B) $50,000

C) $89,000

D) $139,000

 

Page Ref.: I:10-7; Example I:10-8

 

 

40) Elaine owns an unincorporated manufacturing business. In 2012, she purchases and places in service $620,000 of qualifying five-year equipment for use in her business. Her taxable income from the business before any Sec. 179 deduction is $70,000. Elaine takes the maximum allowable deduction under section 179. Which of the following statements is true regarding the Sec. 179 election?

A) Elaine can deduct $79,000 as a section 179 deduction in 2012 with no carryover to next year.

B) Elaine can deduct $139,000 as a section 179 deduction in 2012.

C) Elaine can deduct $70,000 as a section 179 deduction in 2012; $9,000 may be carried over to next year.

D) Elaine can deduct $70,000 as a section 179 deduction in 2012 with no carryover to next year.

 

Page Ref.: I:10-7; Example I:10-8

 

41) In November 2012, Kendall purchases a computer for $4,000. She does not use Sec. 179 or bonus depreciation. She only uses the most accelerated depreciation method possible. The computer is the only personal property which she places in service during the year. What is her total depreciation deduction for 2012?

A) $200

B) $572

C) $800

D) $1,000

 

Page Ref.: I:10-8 and I:10-9; Example I:10-11

 

42) Lincoln purchases nonresidential real property costing $300,000 and places it in service in March 2011. What is Lincoln’s 2012 depreciation on the property?

A) $6,099

B) $7,692

C) $8,637

D) $10,908

 

Page Ref.: I:10-10

 

43) Eric is a self-employed consultant. In May of the current year, Eric acquired a computer system (5-year property) for $7,000 and used the computer 30% for business. Eric does not use Sec. 179. The maximum depreciation deduction for is

A) $210.

B) $420.

C) $700.

D) $2,100.

 

Page Ref.: I:10-12; Example I:10-20

 

 

44) In July of 2012, Pat acquired a new automobile for $28,000 and used the automobile 80% for business. No election is made regarding Sec. 179. Assuming her business use remains at 80%, Pat can take a maximum depreciation deduction in 2012 of

A) $2,528.

B) $3,160.

C) $8,928.

D) $11,160.

 

Page Ref.: I:10-13 and I:10-14; Example I:10-24

 

45) Costs that qualify as research and experimental expenditures include all of the following except

A) depreciation of laboratory equipment.

B) management studies.

C) costs incurred in developing product improvements.

D) costs of obtaining a patent such as attorney fees.

 

Page Ref.: I:10-20; Table I:10-4

 

46) This year Bauer Corporation incurs the following costs in development of new products:

 

Laboratory supplies     $ 55,000

Laboratory equipment purchased

(5-year recovery property)       50,000

Salaries (lab personnel)           90,000

Utilities            20,000

Total    $215,000

 

No benefits are realized from the research expenditures until next year. If Bauer Corporation elects to expense the research expenditures, the deduction is

A) $10,000 this year and $175,000 next year.

B) $175,000 next year.

C) $175,000 this year.

D) $215,000 this year.

 

Page Ref.: I:10-20; Example I:10-32

 

46) Galaxy Corporation purchases specialty software from a software development firm for use in its business as of January 1 of the current year at a cost of $90,000. No hardware was acquired. How much of the cost can Galaxy deduct this year?

A) $18,000

B) $15,000

C) $30,000

D) $90,000

 

Page Ref.: I:10-20; Table I:10-4

 

47) Joe has $130,000 net earnings from a sole proprietorship. Joe’s self-employment tax (rounded) for 2012 is

A) $14,932.

B) $15,967.

C) $17,290.

D) None of the above.

 

Page Ref.: I:14-8; Example I:14-9

 

48) All of the following statements regarding self-employment income/tax are true except:

A) The self-employment tax is imposed on net earnings from self-employment over $400.

B) Self-employment tax is computed separately for married individuals filing joint returns.

C) Independent contractors are subject to self-employment tax on the amount of net earnings from the self-employment activity.

D) Employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages.

 

Page Ref.: I:14-8 and I:14-9

 

48) Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children, ages 2 and 5. Max’s earned income is $35,000 and Alexandra’s earnings from a part-time job are $5,000. What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?

A) $3,000

B) $5,000

C) $5,500

D) $6,000

 

Page Ref.: I:14-11; Example I:14-16

 

49) Marguerite and Josephus have two children, ages 13 and 10. Their modified AGI is $120,500.What is their child tax credit?

A) $900

B) $1,000

C) $2,000

D) None of the above.

 

Page Ref.: I:14-14

 

50) The maximum amount of the American Opportunity Tax Credit for each qualified student is

A) $1,500.

B) $2,000.

C) $2,500.

D) $3,000.

 

Page Ref.: I:14-14

 

 

51) Timothy and Alice, who are married with modified AGI of $90,000, are sending their daughter to her first year of college. Their total tuition and related payments during the year amounted to $13,000. In addition, their daughter received a $10,000 scholarship to cover tuition. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit is

A) $2,000.

B) $2,250.

C) $2,500.

D) $3,000.

 

Page Ref.: I:14-14 through I:14-16

 

53) In the fall of 2012, James went back to school to earn a master of accountancy degree. He incurred $7,000 of qualified educational expenses and his modified AGI for the year was $40,000. His Lifetime Learning Credit is

A) $1,000.

B) $1,400.

C) $1,800.

D) $2,000.

 

Page Ref.: I:14-15

 

54) Which of the following is not a qualifying property for the residential energy efficient property (REEP) credit?

A) geothermal heat pumps

B) residential wind property

C) metal or asphalt roofs with special coatings

D) solar hot water heaters

 

Page Ref.: I:14-16

 

55) Kerry is single and has AGI of $19,000 in 2012. During the year he contributes $5,000 to his Roth IRA. What is the amount of qualified retirement savings contributions credit to which he is entitled?

A) $200

B) $400

C) $800

D) $1,000

 

Page Ref.: I:14-17

 

56) Which of the following statements regarding the Work Opportunity Tax Credit (WOTC) for hiring veterans is not correct?

A) The amount of qualifying wages varies based on length of unemployment after leaving active duty.

B) The amount of qualifying wages varies based on whether the veteran has a service-related disability.

C) Eligibility for the credit is based on whether the veteran served in a combat zone.

D) All of the above statements are correct.

 

Page Ref.: I:14-21

 

57) Kors Corporation has 30 employees and $5 million of gross receipts. Kors spends $15,000 for qualified structural improvements for access for the disabled. The disabled access credit is

A) $5,000.

B) $5,125.

C) $7,375.

D) $7,500.

 

Page Ref.: I:14-22; Example I:14-28

 

58) Which of the following expenditures will qualify as a research expenditure for purposes of the research credit?

A) An ice cream producer develops a new type of packaging that will keep ice cream frozen while driving home from the grocery store.

B) An ice cream producer develops a new design on the package that will be more pleasing to the culture of a new market it is entering.

C) An ice cream producer develops a new marketing campaign to introduce its brand to a new region of the country it is entering.

D) All of the above qualify as research expenditures for the research credit.

 

Page Ref.: I:14-23

57) A taxpayer will be ineligible for the earned income credit if he or she has disqualified investment income of more than $3,200. Disqualified income includes all the following except

A) net capital gains.

B) tax-exempt interest.

C) net rental income.

D) self-employment income.

 

Page Ref.: I:14-25

 

58) An individual with AGI equal to or less than $150,000 in the prior year may generally avoid penalties for underpayment of estimated tax in each of the following cases with the exception of

A) estimated tax is less than $1,500.

B) 90% of the tax due for the current year is paid.

C) 90% of the tax due for the current year is paid when computed on an annualized basis.

D) 100% of the actual tax liability for the prior year is paid.

Page Ref.: I:14-29