Federal Income Tax MCQs (Chapterwise Multiple Choice Questions)

If a disability pension is reported on a 1099-R and the recipient is under the organization's minimum retirement age, which line of Form 1040 should it appear on?

Report as Pension on line 16b

Report as Other Income on Line 21

Report as Wages on line 7

Disability Income is not reported

Answer & Explanation

Correct Answer: Report as Wages on line 7

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Home Office Deduction on Schedule C is allowed:

None of these

only if it is below 5,000

When there is income prior to the deduction.

only if below $10,000

Under any circumstances

Answer & Explanation

Correct Answer: When there is income prior to the deduction.

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For start-up expenses incurred, taxpayers are allowed to deduct up to what dollar amount for expenditures in the taxable year in which the business begins?

$15,000

No start-up expenses can be deducted.

$5,000

$10,000

Any amount of expenses, as long as it pertains to a start-up cost.

Answer & Explanation

Correct Answer: $5,000

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In filing a partnership income tax return, what is the purpose of Schedule K?

To determine the amount of capital gains and losses reported by the partnership.

To list out the various charitable contributions made by the partnership during the tax year.

To compute the amount of income taxes owed by the partnership on the income earned for the current year.

To indicate how specified revenues and expenses of the partnership are passed through to the various partners.

Answer & Explanation

Correct Answer: To indicate how specified revenues and expenses of the partnership are passed through to the various partners.

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Which of the following is a tax deductible contribution by the donor? Assume all recipients are qualified charities.

Nancy donated $100 to the local fire department. In exchange, she received a coupon book for 10 car washes at the Bubbles car wash. Bubbles normally sell the same coupon books for $150.

Harry owns several rental properties. He lets the local youth group use a suite of offices free of charge. Bob gets $3,000 in rent per month for similar suite.

Bob is a carpenter who works three to four hours each week doing carpentry work at the local homeless shelter. He normally charges $40 per hour for his work.

Zachary made a large donation to a nearby university. In exchange he receives the right to purchase football tickets for the upcoming season.

Answer & Explanation

Correct Answer: Zachary made a large donation to a nearby university. In exchange he receives the right to purchase football tickets for the upcoming season.

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When contributing to an IRA, what is the maximum amount a person under the age of 50 can contribute per tax year, assuming the individual's income is $45,000?

$45,000

$6,000

$10,000

$2,500

$5,000

Answer & Explanation

Correct Answer: $5,000

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Which expenditure will you be able to use to reduce the amount that you reports as adjusted gross income (AGI)?

Casualty losses over a specified amount

The cost of child care that is job related

Moving expenses if job related and over a specified distance

Gambling losses

Answer & Explanation

Correct Answer: Moving expenses if job related and over a specified distance

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The documentation provided for real estate sales is referred to as a:

1099-R

1099-MISC

1099-S

1099-G

Answer & Explanation

Correct Answer: 1099-S

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Lloyd is a CPA who prepares tax returns. Eddie, an Enrolled Agent, also prepares taxes. If both men submit form 2848 (Power of Attorney) for their clients, and indicate they can receive their client's refund check, who is authorized to cash or endorse the check?

Lloyd because his CPA license enables him to act in his clients best interest, which includes cashing or endorsing refund checks.

Neither. No tax preparer is allowed to cash or endorse refund checks for their clients, regardless of having a power of attorney for the client.

Eddie because he is an Enrolled Agent, and such enrollment allows.

Both can do so because of their certification status and power of attorneys signed by their clients.

Answer & Explanation

Correct Answer: Neither. No tax preparer is allowed to cash or endorse refund checks for their clients, regardless of having a power of attorney for the client.

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Contibutions to a traditional IRA are

Tax exempt

tax exempt up to $5,500

partially tax exempt

taxable

Answer & Explanation

Correct Answer: tax exempt up to $5,500

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Federal Income Tax Quick Quiz

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