This year Henry realized a gain on the sale of an antique car that he inherited from his uncle. The buyer has promised to pay Henry in installment payments over the next few years. Identify the principle that will determine when Henry should be taxed on the gain from the sale:

[removed] Assignment of income
[removed] Constructive receipt
[removed] Return of capital principle
[removed] Wherewithal to pay
[removed] All of these






Ben’s employer offers employees the following benefits. What amount must Ben include in his gross income?


[removed] $9,400
[removed] $11,070
[removed] $10,600
[removed] $7,000
[removed] Zero – None of these benefits is included in gross income


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Charles and Camilla are getting divorced. Under the terms of the decree Charles will pay Camilla $50,000 in cash in each of the next five years (or until Camilla’s death or remarriage). In addition, Charles will transfer a castle worth $2,000,000 to Camilla and pay $12,000 per year to support their son, Clyde, until he turns 19 years old. What amount (if any) is included in Camilla’s gross income this year?

[removed] $2,062,000
[removed] $12,000
[removed] $50,000
[removed] $2,050,000
[removed] None of the payments are included in gross income


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Frank received the following benefits from his employer this year. What amount must Frank include in his gross income?


[removed] $54,450
[removed] $57,350
[removed] $56,250
[removed] $59,150
[removed] Zero – these benefits are excluded from gross income






Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI) because:

[removed] employers are allowed to deduct social security (FICA) taxes as a business expense.
[removed] self-employed taxpayers need an alternate mechanism for reducing the cost of health care.
[removed] this deduction provides a measure of equity between employees and the self-employed.
[removed] health insurance premiums cannot be deducted otherwise.
[removed] None of these.






Generally, which of the following does not correctly categorize the type of income?

[removed] rental real estate – passive income/loss
[removed] salary – active income/loss
[removed] dividends – portfolio income/loss
[removed] capital losses – passive income/loss
[removed] All of these

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Brice is a single, self-employed electrician who earns $60,000 per year in self-employment income. Brice paid the following expenses this year. Which of the expenses are deductible for AGI?

1. The cost of health insurance
2. The employer portion of self-employment tax paid
3. Penalty on early withdrawal of funds from a certificate of deposit

[removed] Numbers 1 and 2 only.
[removed] Numbers 1 and 3 only.
[removed] Numbers 2 and 3 only.
[removed] None of these is deductible for AGI.
[removed] All of these are deductible for AGI.






Which of the following is a true statement?

[removed] Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax.
[removed] To deduct expenses associated with any profit motivated activity taxpayers must maintain a high level of involvement or effort in the activity throughout the year.
[removed] Business activities never require a relatively high level of involvement or effort from the taxpayer.
[removed] All business expenses are deducted for AGI.
[removed] All of these are true.






Glenn is an accountant who races stock cars as a hobby. This year Glenn was paid a salary of $80,000 from his employer and won $2,000 in various races. What is the effect of the racing activities on Glenn’s taxable income if Glenn has also incurred $4,200 of hobby expenses this year? Assume that Glenn itemizes his deductions but has no other miscellaneous itemized deductions.

[removed] increase in taxable income of $2,000
[removed] increase in taxable income of $1,640
[removed] no change in taxable income
[removed] decrease in taxable income of $560
[removed] decrease in taxable income of $2,200






Which of the following is a true statement?

[removed] The standard deduction is increased for taxpayers who are blind or deaf at year end.
[removed] A married couple is only entitled to one addition to their standard deduction even if both spouses are both over age 65.
[removed] Bunching itemized deductions is an illegal method of tax avoidance.
[removed] The deduction for personal and dependency exemptions is $3,800 times the number of exemptions.
[removed] All of these are true.






Which of the following is a true statement?

[removed] Expenses associated with a “hobby” are never deductible.
[removed] The deductibility of an activity’s expenses in excess of revenues depends upon whether the activity is primarily profit-motivated or a hobby as determined by facts and circumstances.
[removed] Taxpayers engaged in a “hobby” are always presumed to be motivated by profit.
[removed] The regulations do not provide any guidance for determining whether an activity is profit motivated.
[removed] All of these are true.






Which of the following is a true statement?

[removed] A casualty loss can only occur from storm damage.
[removed] Personal casualty losses can only be deducted to the extent that aggregate casualty losses exceed 10 percent of AGI.
[removed] Individual casualty losses are only deductible if each individual loss exceeds $5,000.
[removed] Uninsured thefts of personal assets are not included with casualty losses.
[removed] All of these are true.






Which of the following could explain why an increasing number of taxpayers are subject to (or could become subject to) AMT?

[removed] Decreasing regular tax rates
[removed] The AMT exemption amount is indexed to increase with inflation
[removed] Property values are decreasing
[removed] The personal and dependency exemption amounts are not increasing as fast as the AMT exemption is decreasing





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