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AWMA EXAM 1 QUESTIONS AND ANSWERS 2024
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AWMA EXAM 1 QUESTIONS AND ANSWERS 2024
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AWMA EXAM 1 EXAM 2024ANSWER ALL QUESTIONS IN THIS SECTION
QUESTION 1
With a profit sharing plan, the employer
A)need not make contributions each year, but must make substantial and recurring
contributions.
B)has a defined benefit plan.
C)must make contributions each year.
D)may contribute no more than 15% of covered payroll. - ANSWERS-A) One
advantage of a profit sharing plan for the employer is that the employer need not
make contributions each year. With a profit sharing plan, the employer may
contribute up to 25% of covered payroll. Mod 4
QUESTION 2
Which one of the following is NOT an allowable itemized deduction in computing
the alternative minimum taxable income?
A)Investment interest expense
B)State and local income taxes
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, AWMA EXAM 1 EXAM 2024
C)Qualified housing interest
D)Charitable contribution deduction - ANSWERS-B) State and local income taxes
are not an allowable itemized deduction for the AMT. Thus, clients in states with
high income taxes (and property taxes) are more likely to be affected by the AMT
than those in states with lower taxes. Remember that only $10,000 of taxes may be
deducted as an itemized deduction. Mod 5
QUESTION 3
Which one of the following statements is true with regard to self-employment
taxes?
A)Net earnings from self-employment must be calculated under the accrual
method of accounting.
B)Self-employment tax is the government's way of discouraging entrepreneurship
and innovation.
C)Once the wage base has been exceeded, there is no self-employment tax on the
excess.
D)A taxpayer is allowed to deduct one-half of his or her self-employment tax
liability as an adjustment to income. - ANSWERS-D) A taxpayer may deduct one-
half of his or her self-employment tax liability as an "above the line" deduction—
an adjustment to income. Mod 5
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, AWMA EXAM 1 EXAM 2024
QUESTION 4
Which one of the following statements is incorrect regarding investment interest
expense?
A)Interest paid or accrued to purchase or carry tax-exempt investments is not
deductible.
B)Investment interest expense is deductible up to the amount of the net investment
income.
C)Investment interest expense may only be deducted if the taxpayer itemizes.
D)Excess investment interest expense cannot be carried forward into succeeding
tax years. - ANSWERS-D) Net investment income is the taxpayer's investment
income—typically interest, nonqualified dividends, and short-term capital gains.
Investment interest is an itemized deduction. Excess investment interest expense
can be carried forward into succeeding tax years. Mod 5
QUESTION 5
For a taxpayer with an AGI in excess of $150,000 for the prior tax year ($75,000 if
married filing separately), the estimated tax penalty safe harbor is
A)90% of the current year's tax liability or 100% of the prior year's tax liability.
B)110% of the current year's tax liability or 125% of the prior year's tax liability.
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, AWMA EXAM 1 EXAM 2024
C)80% of the current year's tax liability or 120% of the prior year's tax liability.
D)90% of the current year's tax liability or 110% of the prior year's tax liability. -
ANSWERS-D) The safe harbor is 90% of the current year's tax liability or 110%
of the prior year's tax liability if the taxpayer's prior year AGI exceeded $150,000.
If the prior year's AGI was $150,000 or less, then the safe harbor is 90% of the
current year's tax liability or 100% of the prior year's tax liability. Mod 5
QUESTION 6
In March of 2020, Jennifer sold her residential rental property for $925,000.
Jennifer acquired the property in May 2007 for $225,000, and has been
depreciating it using the straight-line method for realty. Assume that the amount of
depreciation taken is $90,000. Jennifer is in the 35% marginal income tax bracket.
What is the amount and character of the gain resulting from the sale?
A) $0 unrecaptured Section 1250 income, $700,000 "regular" long-term capital
gain
B) $700,000 unrecaptured Section 1250 income, $90,000 "regular" long-term
capital gain
C) $90,000 unrecaptured Section 1250 income, $700,000 "regular" long-term
capital gain
D) $90,000 recaptured Section 121 gain and $700,000 unrecaptured Section 1250
gain. - ANSWERS-C) In this situation, there is total gain of $790,000. The first
$90,000 gain is created by the straight-line depreciation. Gain attributable to
straight-line depreciation on realty is known as unrecaptured Section 1250 income.
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