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TAX 4001 - Final Exam Practice Questions
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TAX 4001 - Final Exam Practice Questions
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TAX 4001 - Final Exam Practice QuestionsA business generates profit of $100,000. The owner has a 37% marginal tax rate. What
amount of corporate and individual income tax will be paid on this profit if the business
is a regular corporation and no income is distributed?
Corporate tax, $21,000; individual tax, $37,000
Corporate tax, $21,000; individual tax, $0
Corporate tax, $0; individual tax, $37,000
Corporate tax, $21,000; individual tax, $15,800 - ANS-Corporate tax, $21,000; individual
tax, $0
Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports
$50,000 ordinary business income, $22,000 guaranteed payment, $5,000 long-term
capital gain, and $400 dividend income. Which of these items are subject to
self-employment tax?
$50,000 ordinary income
$50,000 ordinary business income and $22,000 guaranteed payment
$50,000 ordinary business income, $22,000 guaranteed payment, and $5,000 long-term
capital gain
All income reported on a general partner's Schedule K-1 are subject to self-employment
tax - ANS-$50,000 ordinary business income and $22,000 guaranteed payment
Chad is the president and sole shareholder of Greenfield, Inc., a regular corporation.
The corporation reported taxable income of $575,000 after deducting his $900,000
salary. If the IRS disallowed $550,000 as unreasonable compensation, Chad's taxable
income will:
Increase by $550,000
Decrease by $550,000
,Increase by $900,000
Stay the same - ANS-Stay the same
Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports
$19,000 ordinary business income, $2,000 long-term capital gain, and $830 dividend
income. Which of these items are subject to self-employment tax?
None of the items are subject to SE tax because Debbie is a limited partner.
$19,000 ordinary business income
$19,000 ordinary business income and $2,000 long-term capital gain
All income reported on a partner's Schedule K-1 are subject to self-employment tax. -
ANS-None of the items are subject to SE tax because Debbie is a limited partner.
During the current year, Margie earned wage income of $300,000. If Margie is single,
which of the following statements regarding her Medicare tax liability is true?
Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent
Medicare tax on her entire wage income.
Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and
the additional .9 percent Medicare tax only on her wage income in excess of $200,000.
Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and
the additional .9 percent Medicare tax only on her wage income in excess of $250,000.
Margie's employer is required to withhold both the regular Medicare tax but does not
withhold the additional .9 percent Medicare tax. - ANS-Margie will owe the regular 1.45
percent Medicare tax on her entire wage income and the additional .9 percent Medicare
tax only on her wage income in excess of $200,000.
Four years ago, Acnex Inc. granted Ms. Cardena an incentive stock option (ISO) to
purchase 1,000 shares of Acnex stock at $44 per share. On date of grant, the market
price was $42 per share. This year, Ms. Cardena exercised the ISO when the market
price was $75 per share. Which of the following statements is true?
, Ms. Cardena recognizes $31,000 ordinary income, and Acnex is allowed a $31,000
deduction this year.
Ms. Cardena recognizes $31,000 ordinary income, but Acnex is allowed no deduction
this year.
Ms. Cardena recognizes no ordinary income, and Acnex is allowed no deduction this
year.
Ms. Cardena recognizes no ordinary income, but Acnex is allowed a $31,000 deduction
this year. - ANS-Ms. Cardena recognizes no ordinary income, and Acnex is allowed no
deduction this year.
Harold Biggs is provided with $200,000 coverage under his employer's group-term life
insurance plan. Which of the following statements is true?
The value of the cost of $50,000 coverage is included in Harold's gross income.
The value of the cost of $150,000 coverage is included in Harold's gross income.
The value of the cost of $200,000 coverage is included in Harold's gross income.
Harold's life insurance coverage is a nontaxable fringe benefit. - ANS-The value of the
cost of $150,000 coverage is included in Harold's gross income.
(Only the value of the cost of the first $50,000 of group-term life insurance coverage is a
nontaxable fringe benefit.)
Hunter, age 17, is considered a dependent of his parents for tax purposes. This year,
Hunter earned $16,000 for appearing in a television commercial. Compute Hunter's
standard deduction.
$1,100
$16,000
$12,400
$0 - ANS-$12,400
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