TAX EXAM 1 TEST PREP QUESTIONS
AND ANSWERS
In f2021, fSteve fworked fas fa ftech fsupervisor ffor fa fcomputer fcompany. fIn
fSeptember fof f2021, fhe fwas flaid foff. fHe fwas fpaid funemployment
fcompensation ffor fthe frest fof fthe fyear ftotaling f$7,000. fWhich fof fthe ffollowing
fis ftrue? f- fans-Steve fwill fhave fto freport fall f$7,000 fof fthe funemployment
fcompensation fas fincome.
In f2021, fall fof fthe ffollowing famounts fare ftaxable fincome fto fthe frecipient
fexcept: f- fans-Inheritances
Kendra fis fa fself-employed ftaxpayer fworking fexclusively ffrom fher fhome foffice.
fBefore fthe fhome foffice fdeduction, fKendra fhas f$6,000 fof fnet fincome. fHer
fallocable fhome fexpenses fare f$10,000 fin ftotal. fHow fare fthe fhome foffice
fexpenses ftreated fon fher fcurrent fyear ftax freturn? f- fans-Only f$6,000 fhome
foffice fexpenses fmay fbe fdeducted, fresulting fin fnet fbusiness fincome fof fzero.
fThe fremaining f$4,000 fof fhome foffice fexpenses fmay fbe fcarried fforward fand
fdeducted fin fa ffuture fyear fagainst fbusiness fincome.
In fthe ftax flaw, fthe fdefinition fof fgross fincome fis: f- fans-All fincome ffrom
fwhatever fsource fderived
In fdetermining fwhether fan factivity fshould fbe fclassified fas fa fhobby, fthe ftax
flaw fprovides fa frebuttable fpresumption fwith fregard fto fthe fprofits for flosses fof
fan factivity. fWhich fof fthe ffollowing fstatements fdescribes fthe fprofit/loss ftest
fwhich fmust fbe fsatisfied fin forder fto fmeet fthe fpresumption fthat fthe factivity fis
fnot fa fhobby? f- fans-The factivity fshows fa fprofit ffor f3 fof fthe f5 fprevious
fyears.
Which fof fthe ffollowing fis fgenerally fexcluded ffrom fgross fincome? f- fans-Life
finsurance fproceeds fpaid fto fthe fbeneficiary
The fIRS: f- fans-has fan fapp ffor fmobile fphones.
Robert fworks ffor fAmerican fMotors. fAmerican fMotors fpays fa f$1,200 fpremium
fon fRobert's fhealth finsurance fin f2021. fRobert fhas fan foperation fon fhis fbig
ftoe fin f2021 fthat fcost f$7,200. fThe finsurance fcompany fpaid ffor f$6,800 fof fit.
fWhich fone fof fthe ffollowing fis ftrue ffor f2021? f- fans-None fof fthese fevents
fare ftaxable fon fhis f2021 freturn.
, Feedback fArea
Eugene fand fVelma fare fmarried. fFor f2021, fEugene fearned f$25,000 fand
fVelma fearned f$30,000. fThey fhave fdecided fto ffile fseparate freturns. fThey
fhave fno fdeductions ffor fadjusted fgross fincome. fVelma's fitemized fdeductions
fare f$14,200 fso fshe fis fgoing fto fitemize. fEugene's fitemized fdeductions fare
f$4,000. fAssuming fEugene fand fVelma fdo fnot flive fin fa fcommunity fproperty
fstate, fwhat fis fEugene's ftaxable fincome? f- fans-$21,000
John, f45 fyears fold fand funmarried, fcontributed f$1,000 fmonthly fin f2021 fto fthe
fsupport fof fhis fparents' fhousehold. fThe fparents flived falone fand ftheir fincome
ffor f2021 fconsisted fof f$500 ffrom fdividends fand finterest. fWhat fis fJohn's ffiling
fstatus fand fhow fmany fdependents fshould fhe fclaim fon fhis f2021 ftax freturn? f-
fans-Head fof fhousehold fand f2 fdependents
Which fof fthe ffollowing ftaxpayers fmay fnot fuse fthe fstandard fmileage fmethod
fof fcalculating ftransportation fcosts? f- fans-A ftaxpayer fwho fhas fa ffleet fof f10
fbusiness fautomobiles.
During f2021, fMurray, fwho fis f60 fyears fold fand funmarried, fprovided fall fof fthe
fsupport fof fhis felderly fmother. fHis fmother fwas fa fresident fof fa fhome ffor fthe
faged ffor fthe fentire fyear fand fhad fno fincome. fWhat fis fMurray's ffiling fstatus
ffor f2021, fand fhow fmany fdependents fshould fhe freport fon fhis ftax freturn? f-
fans-Head fof fhousehold fand f1 fdependent
Brian fis f60 fyears fold, fsingle, fand flegally fblind. fBrian fsupports fhis ffather, fwho
fis f88 fyears fold fand fblind, fby fpaying fthe frent fand fother fcosts fof fhis ffather's
fresidence. fWhat fis fthe ftotal fstandard fdeduction famount fthat fBrian fshould
fclaim fon fhis f2021 ftax freturn? f- fans-$20,500
Partnership fincome fis freported fon: f- fans-Form f1065.
In fthe fcurrent fyear, fJohnice fstarted fa fprofitable fbookkeeping fbusiness fas fa
fsole fproprietor. fJohnice fmade f$38,000 fin fher ffirst fyear fof foperation. fWhat
ftwo fforms fmust fJohnice ffile ffor fher fbusiness? f- fans-Schedules fSE fand fC
Stone fPine fCorporation, fa fcalendar fyear ftaxpayer, fhas fending finventory fof
f$150,000 fon fDecember f31, f20X2. fDuring fthe fyear f20X2, fthe fcorporation
fpurchased fadditional finventory fof f$375,000. fIf fcost fof fgoods fsold ffor f20X2 fis
f$470,000, fwhat fwas fthe fbeginning finventory fat fJanuary f1, f20X2? f- fans-
$245,000
Sue fis fa fsmall fbusiness fowner fwho foften fgives fgifts fto fclients. fShe fgives fa
f$40 fgift fto fher fclient, fMr. fSmith, fand fhis fwife. fSue fspent f$6 fto fwrap fthe
fgift. fShe falso fgave fout f400 fcalendars fwith fher fcompany fname fon fthem.
fEach fcalendar fcost f$1. fSue falso fgave fher fsecretary fa f$370 fwatch ffor fhis
AND ANSWERS
In f2021, fSteve fworked fas fa ftech fsupervisor ffor fa fcomputer fcompany. fIn
fSeptember fof f2021, fhe fwas flaid foff. fHe fwas fpaid funemployment
fcompensation ffor fthe frest fof fthe fyear ftotaling f$7,000. fWhich fof fthe ffollowing
fis ftrue? f- fans-Steve fwill fhave fto freport fall f$7,000 fof fthe funemployment
fcompensation fas fincome.
In f2021, fall fof fthe ffollowing famounts fare ftaxable fincome fto fthe frecipient
fexcept: f- fans-Inheritances
Kendra fis fa fself-employed ftaxpayer fworking fexclusively ffrom fher fhome foffice.
fBefore fthe fhome foffice fdeduction, fKendra fhas f$6,000 fof fnet fincome. fHer
fallocable fhome fexpenses fare f$10,000 fin ftotal. fHow fare fthe fhome foffice
fexpenses ftreated fon fher fcurrent fyear ftax freturn? f- fans-Only f$6,000 fhome
foffice fexpenses fmay fbe fdeducted, fresulting fin fnet fbusiness fincome fof fzero.
fThe fremaining f$4,000 fof fhome foffice fexpenses fmay fbe fcarried fforward fand
fdeducted fin fa ffuture fyear fagainst fbusiness fincome.
In fthe ftax flaw, fthe fdefinition fof fgross fincome fis: f- fans-All fincome ffrom
fwhatever fsource fderived
In fdetermining fwhether fan factivity fshould fbe fclassified fas fa fhobby, fthe ftax
flaw fprovides fa frebuttable fpresumption fwith fregard fto fthe fprofits for flosses fof
fan factivity. fWhich fof fthe ffollowing fstatements fdescribes fthe fprofit/loss ftest
fwhich fmust fbe fsatisfied fin forder fto fmeet fthe fpresumption fthat fthe factivity fis
fnot fa fhobby? f- fans-The factivity fshows fa fprofit ffor f3 fof fthe f5 fprevious
fyears.
Which fof fthe ffollowing fis fgenerally fexcluded ffrom fgross fincome? f- fans-Life
finsurance fproceeds fpaid fto fthe fbeneficiary
The fIRS: f- fans-has fan fapp ffor fmobile fphones.
Robert fworks ffor fAmerican fMotors. fAmerican fMotors fpays fa f$1,200 fpremium
fon fRobert's fhealth finsurance fin f2021. fRobert fhas fan foperation fon fhis fbig
ftoe fin f2021 fthat fcost f$7,200. fThe finsurance fcompany fpaid ffor f$6,800 fof fit.
fWhich fone fof fthe ffollowing fis ftrue ffor f2021? f- fans-None fof fthese fevents
fare ftaxable fon fhis f2021 freturn.
, Feedback fArea
Eugene fand fVelma fare fmarried. fFor f2021, fEugene fearned f$25,000 fand
fVelma fearned f$30,000. fThey fhave fdecided fto ffile fseparate freturns. fThey
fhave fno fdeductions ffor fadjusted fgross fincome. fVelma's fitemized fdeductions
fare f$14,200 fso fshe fis fgoing fto fitemize. fEugene's fitemized fdeductions fare
f$4,000. fAssuming fEugene fand fVelma fdo fnot flive fin fa fcommunity fproperty
fstate, fwhat fis fEugene's ftaxable fincome? f- fans-$21,000
John, f45 fyears fold fand funmarried, fcontributed f$1,000 fmonthly fin f2021 fto fthe
fsupport fof fhis fparents' fhousehold. fThe fparents flived falone fand ftheir fincome
ffor f2021 fconsisted fof f$500 ffrom fdividends fand finterest. fWhat fis fJohn's ffiling
fstatus fand fhow fmany fdependents fshould fhe fclaim fon fhis f2021 ftax freturn? f-
fans-Head fof fhousehold fand f2 fdependents
Which fof fthe ffollowing ftaxpayers fmay fnot fuse fthe fstandard fmileage fmethod
fof fcalculating ftransportation fcosts? f- fans-A ftaxpayer fwho fhas fa ffleet fof f10
fbusiness fautomobiles.
During f2021, fMurray, fwho fis f60 fyears fold fand funmarried, fprovided fall fof fthe
fsupport fof fhis felderly fmother. fHis fmother fwas fa fresident fof fa fhome ffor fthe
faged ffor fthe fentire fyear fand fhad fno fincome. fWhat fis fMurray's ffiling fstatus
ffor f2021, fand fhow fmany fdependents fshould fhe freport fon fhis ftax freturn? f-
fans-Head fof fhousehold fand f1 fdependent
Brian fis f60 fyears fold, fsingle, fand flegally fblind. fBrian fsupports fhis ffather, fwho
fis f88 fyears fold fand fblind, fby fpaying fthe frent fand fother fcosts fof fhis ffather's
fresidence. fWhat fis fthe ftotal fstandard fdeduction famount fthat fBrian fshould
fclaim fon fhis f2021 ftax freturn? f- fans-$20,500
Partnership fincome fis freported fon: f- fans-Form f1065.
In fthe fcurrent fyear, fJohnice fstarted fa fprofitable fbookkeeping fbusiness fas fa
fsole fproprietor. fJohnice fmade f$38,000 fin fher ffirst fyear fof foperation. fWhat
ftwo fforms fmust fJohnice ffile ffor fher fbusiness? f- fans-Schedules fSE fand fC
Stone fPine fCorporation, fa fcalendar fyear ftaxpayer, fhas fending finventory fof
f$150,000 fon fDecember f31, f20X2. fDuring fthe fyear f20X2, fthe fcorporation
fpurchased fadditional finventory fof f$375,000. fIf fcost fof fgoods fsold ffor f20X2 fis
f$470,000, fwhat fwas fthe fbeginning finventory fat fJanuary f1, f20X2? f- fans-
$245,000
Sue fis fa fsmall fbusiness fowner fwho foften fgives fgifts fto fclients. fShe fgives fa
f$40 fgift fto fher fclient, fMr. fSmith, fand fhis fwife. fSue fspent f$6 fto fwrap fthe
fgift. fShe falso fgave fout f400 fcalendars fwith fher fcompany fname fon fthem.
fEach fcalendar fcost f$1. fSue falso fgave fher fsecretary fa f$370 fwatch ffor fhis
