Federal Taxation Exam 1 Chapters 1-5
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Three primary sources for tax law - CORRECT ANSWER - Legislative, Administrative,
Judicial
Legislative - CORRECT ANSWER - 1st source of law: IR Code, Tax treaties, 2 volume book
Administrative - CORRECT ANSWER - 2nd source of law: Regulations (7 volume book),
Rulings
Judicial - CORRECT ANSWER - 3rd source of law: Supreme Court cases, Court of Appeals,
Tri-level court
Tri-level court - CORRECT ANSWER - U.S. Tax court, District court, Claims court
What is the average tax rate? - CORRECT ANSWER - Tax/ Taxable Income
What is the effective tax rate? - CORRECT ANSWER - Tax/ Economic income
Economic Income - CORRECT ANSWER - Taxable income + non taxable income
Gross income 90,000, T/E 5,000, Ded for -4,000, Ded from -14,600, Tax 12,644. What is the ave
tax rate? - CORRECT ANSWER - 90,000-4,000=86,000(AGI) -14,600-4,000(1 personal
exemption) = 67,400 = 12,644/67,400 = 18.75%
, Gross income 90,000, T/E 5,000, Ded for -4,000, Ded from -14,600, Tax 12,644. What is the
effective tax rate? - CORRECT ANSWER - 90,000-4,000=86,000(AGI) -14,600-4,000(1
personal exemption) = 67,400 = 12,644/67,400 + 5,000 = 17.5%
Married with 2 children= Total income 120,000, excludable income 2,000, Ded for 5,000,
Itemized ded 8,000, What is the taxable income? - CORRECT ANSWER - 120,000-
2,000=118,000(Gross income) -5,000(for AGI) = 113,000 (AGI) - 12,600 (Standard from) -
16,000 (personal exempt 4,000x4) = 84,400
Define a tax - CORRECT ANSWER - General not specific, collections of assessed
2017 at 15% marginal rate, 2018 at 25% marginal rate for $ 10,000. What are the tax savings? -
CORRECT ANSWER - 10,000 x 15% = 1500, 10,000 x 25% = 2500, 2,500-1,500 = 1,000
2016 state income tax = 2,000 withheld from paycheck, 2016 itemized deduction 2,000, 2017
gets refund for $400 How much income does she have to report in 2017? - CORRECT
ANSWER - She has to report $400 (report income if you do not itemize deductions)
Receive stocks for 12,000, receive dividends of 800, What tax concept dictates that the 12,000 is
not income, but the 800 is income? - CORRECT ANSWER - 12,000= not income by
legislative grace, 800 is income and taxable through the all inclusive income concept
Given 10,000 bonus check on December 20, 2017 but can't cash it until January 4th 2018. Which
doctrine says this is income in 2018? - CORRECT ANSWER - Claim of right doctrine (most
common in landlords for security payments from renters)
Purchase land for 15,000, pay legal fees for land 2,000, additional legal permits 3,000, easement
costs 5,000, interest expense paid 1,200, property tax on land 800. What are each of these? -
CORRECT ANSWER - Purchase land for 15,000 (AB), pay legal fees for land 2,000 (AB),
additional legal permits 3,000 (AB), easement costs 5,000 (AB), interest expense paid 1,200
(expense), property tax on land 800 (expense)
UPDATED ACTUAL Exam Questions and
CORRECT Answers
Three primary sources for tax law - CORRECT ANSWER - Legislative, Administrative,
Judicial
Legislative - CORRECT ANSWER - 1st source of law: IR Code, Tax treaties, 2 volume book
Administrative - CORRECT ANSWER - 2nd source of law: Regulations (7 volume book),
Rulings
Judicial - CORRECT ANSWER - 3rd source of law: Supreme Court cases, Court of Appeals,
Tri-level court
Tri-level court - CORRECT ANSWER - U.S. Tax court, District court, Claims court
What is the average tax rate? - CORRECT ANSWER - Tax/ Taxable Income
What is the effective tax rate? - CORRECT ANSWER - Tax/ Economic income
Economic Income - CORRECT ANSWER - Taxable income + non taxable income
Gross income 90,000, T/E 5,000, Ded for -4,000, Ded from -14,600, Tax 12,644. What is the ave
tax rate? - CORRECT ANSWER - 90,000-4,000=86,000(AGI) -14,600-4,000(1 personal
exemption) = 67,400 = 12,644/67,400 = 18.75%
, Gross income 90,000, T/E 5,000, Ded for -4,000, Ded from -14,600, Tax 12,644. What is the
effective tax rate? - CORRECT ANSWER - 90,000-4,000=86,000(AGI) -14,600-4,000(1
personal exemption) = 67,400 = 12,644/67,400 + 5,000 = 17.5%
Married with 2 children= Total income 120,000, excludable income 2,000, Ded for 5,000,
Itemized ded 8,000, What is the taxable income? - CORRECT ANSWER - 120,000-
2,000=118,000(Gross income) -5,000(for AGI) = 113,000 (AGI) - 12,600 (Standard from) -
16,000 (personal exempt 4,000x4) = 84,400
Define a tax - CORRECT ANSWER - General not specific, collections of assessed
2017 at 15% marginal rate, 2018 at 25% marginal rate for $ 10,000. What are the tax savings? -
CORRECT ANSWER - 10,000 x 15% = 1500, 10,000 x 25% = 2500, 2,500-1,500 = 1,000
2016 state income tax = 2,000 withheld from paycheck, 2016 itemized deduction 2,000, 2017
gets refund for $400 How much income does she have to report in 2017? - CORRECT
ANSWER - She has to report $400 (report income if you do not itemize deductions)
Receive stocks for 12,000, receive dividends of 800, What tax concept dictates that the 12,000 is
not income, but the 800 is income? - CORRECT ANSWER - 12,000= not income by
legislative grace, 800 is income and taxable through the all inclusive income concept
Given 10,000 bonus check on December 20, 2017 but can't cash it until January 4th 2018. Which
doctrine says this is income in 2018? - CORRECT ANSWER - Claim of right doctrine (most
common in landlords for security payments from renters)
Purchase land for 15,000, pay legal fees for land 2,000, additional legal permits 3,000, easement
costs 5,000, interest expense paid 1,200, property tax on land 800. What are each of these? -
CORRECT ANSWER - Purchase land for 15,000 (AB), pay legal fees for land 2,000 (AB),
additional legal permits 3,000 (AB), easement costs 5,000 (AB), interest expense paid 1,200
(expense), property tax on land 800 (expense)
