WGU C237 - Taxation 1Actual Full Exam Questions With Correct Answers Success Guaranteed.

- correct answer Second-highest level of legislative authority of tax? - correct answer Internal Revenue Code In which publication does the IRS provide info on tax consequences of specific transactions? - correct answer Revenue rulings - correct answer - correct answer - correct answer An individual is salaried, is not operating a business, is divorced with one child living at home, earned $93,000 in wages for 2021, and has $17,900 of itemized deductions. What is this individual's tax liability? - correct answer $10,620 Which tax is based on the value of an individual's real estate? - correct answer Property Tax Flow-through entities in the U.S. tax system? - correct answer Religious Associations A taxpayer fails to report income that exceeds 25% of reported gross income but files the return on time.How many years after a return was originally due might the statute of limitations expire? - correct answer 6 Years Which component of a tax practice focuses on minimizing taxes paid and maximizing after-tax cash flows while accommodating clients' other desires? - correct answer Tax Planning Which tax term defines a personal expenditure, such as charitable contributions and medical expenses, which taxpayers may claim if they keep records? - correct answer Itemized Deductions A single individual earned wages of $50,000 working at a bank. The individual received a $6,000 gift from a parent to go to Europe, inherited $10,000 from a relative, and received $500 interest from a municipal bond. The individual has no dependents and has itemized deductions of $11,000. What is this individual's tax liability for 2021? - correct answer $4295 A married couple, ages 29 and 32, have normal vision and one dependent daughter who is 14 years old. During 2021, one of the individuals earned taxable wages of $54,000, and the other earned $100,000. The couple also earned $400 of interest income from their joint savings account, $1,200 interest from a municipal bond, and incurred $23,590 of eligible itemized deductions. The couple will be filing a joint return. What is this couple's federal income tax? - correct answer $19,943 Which scenario represents a realization of income? - correct answer A payment of $2,000 for stocks sold Which type of income satisfies all three requirements for the income to be taxable? - correct answer Renting out a condo for $5,000 In which situation has a taxpayer actually or constructively received income that should be included in gross income for the current year? - correct answer The taxpayer went on vacation the last two weeks of the year, and he instructed his employer to put the year-end paycheck in his locked desk drawer at the office. The taxpayer does not return and deposit the paycheck until the following January. Which receipt is included in gross income for 2021? - correct answer Royalties Which source of income is included in gross income? - correct answer Rental What is it called when a person attempts to not pay federal income taxes by willfully excluding taxable income? - correct answer Tax Evasion Difference between tax evasion and tax avoidance? - correct answer tax avoidance—An action taken to lessen tax liability and maximize after-tax income. tax evasion—The failure to pay or a deliberate underpayment of taxes. Which item is excluded from gross income by the Internal Revenue Code? - correct answer A $200 gift from a relative What must be included in gross income? - correct answer Receipt of a cash dividend Which two expenses are a tax-free use of a qualified tuition plan (QTP) distribution? - correct answer Rent and Textbooks Which event would result in taxable income? - correct answer Forgiveness of mortgage debt on rental property Which type of gain does a taxpayer have if the taxpayer owns stock that has appreciated in value? - correct answer An unrealized gain What is a Recognized Gain? - correct answer when an investment or asset is sold for an amount that is greater than what was originally paid. What is an Unrealized Gain? - correct answer A potential profit that exists on paper resulting from an investment that has yet to be sold for cash. What is true about realized and recognized gains and losses? - correct answer Realized losses may be more than recognized losses. An individual purchases a piece of property with a fair market value of $30,000 for $28,000. The individual takes out a loan for $14,000 and pays the other $14,000 in cash. In addition, the individual pays $500 in transactions costs to purchase the property and $200 of delivery costs. What is the basis for the property? - correct answer $28,700 An individual purchases a piece of property with a fair market value of $50,000 for $54,000. The individual uses a loan for $44,000 and pays the other $10,000 in cash. In addition, the individual pays $1,000 in transactions costs to purchase the property and expects to earn $5,000 per year from renting the property to others. What is the basis for this property? - correct answer $55,000 What is an example of an ordinary asset? - correct answer Inventory What is an ordinary asset? - correct answer An ordinary asset is an item that holds future economic value to a company or individual, and that future economic benefit is expected to be used within the next year. Which item is a capital asset? - correct answer A personal residence What is a capital asset? - correct answer Capital assets are significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art. An individual with a taxable income of $100,000 sells 200 shares of stock at a market price of $60 per share. One hundred shares of the stock were acquired 2 years earlier at a price of $90 per share, and 100 shares were acquired five years earlier at a price of $40 per share. What is the effect of the transaction on the individual's tax circumstances? - correct answer A net long-term capital loss of $1,000 An individual sells 200 shares of stock at a market price of $50 per share. He acquired 100 shares of the stock two months earlier at a price of $55 per share, and he also acquired 100 shares two years earlier at a price of $30 per share.What is the net effect of these transactions on this individual's gross income? - correct answer A net capital gain of $1,500 Individual A originally acquired stock on January 6, year 1. On March 8, year 2, Individual B received the stock as a gift from Individual A and sold it on April 15, year 2 for fair market value. When does Individual B's holding period begin? - correct answer January 6, year 1 Define holding period - correct answer The holding period is the length of time you own property before you sell it. If you hold property for a year or less, short-term capital gain or loss rules apply. If you hold property for more than a year, long-term capital gain or loss rules apply. Which mortgage interest expense is a reduction for adjusted gross income? - correct answer Rental Home What is a role of deductions from adjusted gross income, excluding the qualified business income deduction? - correct answer It allows deduction of medical expenses. What is deductible as an investment expense? - correct answer Interest on a loan to purchase land for an investment Which item is deductible as a business expense if a doctor invests personal money in various properties? - correct answer Property taxes paid on a medical office A taxpayer runs an automotive repair business in a building he owns. The income and expenses are reported on Form 1040, Schedule C. There was no section 179 election made. Which action represents a deductible business expense for the current tax year, and is therefore not subject to capitalization and depreciation? - correct answer Repairing a leak in the roof of the building Which item is a deductible business expense? - correct answer Purchase of a 12-month liability insurance policy A small-business owner contracts a painting company to paint her building. The small-business owner gives the painting company a $2,000 down payment against the total contract price of $10,000. The painting company starts the job in November of year 1 and completes the job in January of year 2. How will the small-business owner deduct this expense, given that she is a cash method taxpayer? - correct answer Year 1: $2,000, year 2: $8,000