Indicate the answer choice that best completes the statement or answers the question.

1. Gene is a self-employed taxpayer working from his home. His net income is $7,000 before home office expenses. His allocable home office expenses are $8,000 in total. How are the home office expenses treated on his current year tax return?


All home office expenses can be deducted and will result in a $1,000 business loss.


Only $7,000 of the office expenses can be deducted, the remaining $1,000 cannot be carried forward or deducted.


None of the home office expenses can be deducted because Gene’s income is too high.


Only $7,000 of the office expenses can be deducted; the remaining $1,000 can be carried forward to future tax years.

2. Peter operates a dental office in his home. The office occupies 250 square feet of his residence, which is a total of 1,500 square feet. During 2015, Peter pays rent for his home of $12,000, utilities of $4,800, and maintenance expenses of $1,200. What amount of the total expenses should be allocated to the home office?

3,000$ (12,000+4,800+1,200*1/6=3,000)

3. Jack is a lawyer who is a member at Ocean Spray Country Club where he spends $7,200 in dues, $4,000 in meals, and $2,000 in green fees to entertain clients. He is also a member of the local Rotary club where he meets potential clients. The dues for the Rotary club are $1,200 a year. How much of the above expenses can Jack deduct as business expenses?


*( 4,000+2,000)+1,200

= 4,200

4. Stone Pine Corporation, a calendar year taxpayer, has ending inventory of $150,000 on December 31, 2015. During the year, the corporation purchased additional inventory of $375,000. If cost of goods sold for 2015 is $470,000, what was the beginning inventory at January 1, 2015?

470,000-375,000+150,000= 245,000.

5. Martin, a 50 year-old single taxpayer, paid the full cost of maintaining his dependent mother in a home for the aged for the entire year. What is the amount of Martin’s standard deduction for 2015?


6. Which of the following gifts or prizes would be considered taxable income to the person receiving the gift?


$5,000 given to the taxpayer by his friend


A mobile home given to the taxpayer by his mother


A ski boat won by the taxpayer on the Price is Right game show


A Mustang GT given to the taxpayer by his brother


None of the above would be considered taxable

7. Mikey is a self-employed computer game software designer. He takes a week-long trip to Maui, primarily for business. He takes 2 personal days at the beach. How should he treat the expenses related to this trip?


None of the expenses are deductible since there was an element of personal enjoyment in the trip.


100 percent of the trip should be deducted as a business expense since the trip was primarily for business.


50 percent of the trip should be deducted as a business expense.


The cost of all of the airfare and the expenses related to the business days should be deducted, while the expenses related to the personal days are not deductible.

8. Albert and Louise, ages 66 and 64, respectively, filed a joint return for 2015. They provided all of the support for their blind 19 year-old son, who had no gross income. They also provided the total support of Louise’s father, who is a citizen and life-long resident of Peru. How many exemptions may they claim on their 2015 tax return?

Feedback: Louise farther may not be claimed since he is not a US citizen or resident of US, Mexico or Canada

9. Partnership income is reported on which form:

Form 1065

10. Seymore named his wife, Penelope, the beneficiary of a $100,000 insurance policy on his life. The policy provided that, upon his death, the proceeds would be paid at a rate of $4,000 per year plus interest over a 25-year period. Seymore died June 25, 2014, and in 2015 Penelope received a payment of $5,200 from the insurance company. What amount should she include in her gross income for 2015?



11. Which of the following is not a test that must be met for a child to be considered a dependent?


Age test


Domicile test


Citizenship test


Relationship test


Blood test

12. Jerry and Sally were divorced under an agreement executed July 1, 2015. The terms of the agreement provide that Jerry will transfer to Sally his interest in a rental house worth $250,000 with a tax basis to Jerry of $80,000. What is the amount of the gain that must be recognized by Jerry on the transfer of the property and what is Sally’s tax basis in the property after the transfer, respectively?

0 and 80,000$

13. Which income tax form does a self-employed sole proprietor usually use to report business income and expense?

Qualyfying widower

14. Alan, whose wife died in 2013, filed a joint tax return for 2013. He did not remarry and continues to maintain his home in which his four dependent children live. In the preparation of his tax return for 2015, Alan should file as:

Qualifying widow/widower

15. During 2015, Howard maintained his home in which he and his 16 year-old son resided. The son qualifies as his dependent. Howard’s wife died in 2014. What is his filing status for 2015?

Qualifying widow/widower

16. Laura and Leon were granted a divorce in 2006. In accordance with the decree, Leon made the following payments to Laura in 2015:

Child support payments contingent on the age of the child


Indefinite periodic payments terminating on Laura’s death


3000 short term

How much of the payments can he deduct as alimony in 2015?


17. Eugene and Velma are married. For 2015, Eugene earned $25,000 and Velma earned $30,000. They have decided to file separate returns and are each entitled to claim one personal exemption. They have no deductions for adjusted gross income. Eugene’s itemized deductions are $11,200 and Velma’s are $4,000. Assuming Eugene and Velma do not live in a community property state, what is Eugene’s taxable income?


19. Which of the following is generally excluded from gross income?






Disability benefits


Passive income


None of the above

20. Which taxpayer would benefit the most from a tax-free municipal bond compared to a taxable bond?


A taxpayer whose only income is from Social Security


A taxpayer who won a mega-million-dollar lottery


The average blue collar worker


They would all equally benefit from the tax-free municipal bond

21. Tim loaned a friend $4,000 to buy a used car. In the current year, Tim’s friend declares bankruptcy and the debt is considered totally worthless. What amount may Tim deduct on his individual income tax return for the current year as a result of the worthless debt, assuming he has no other capital gains or losses for the year?

3,000 short ter 

Short-term capital loss

22. Martin has a home office for his business as an agent for rock-and-roll bands. The business shows a loss of $2,000 before home office expenses. How should the home office expenses be treated?

Because of 

Of his business losses, he can not deduct his home office expenses this current year, but he can forward them to nexts.

23. Which one of the following provisions was passed by Congress to meet a social goal of the tax law?


The deduction for job hunting expenses.


The charitable deduction.


The moving expense deduction for adjusted gross income.


The deduction for soil and water conservation costs available to farmers.


None of the above.

24. For divorces after 1984, which of the following statements about alimony payments is not correct?


The payments must be in cash and must be received by the spouse (or former spouse)


Divorced or legally separated parties can be members of the same household at the time the payments are made


The payor must have no liability to make payments for any period following the death of the spouse receiving the payments


The payments must not be designated in the written agreement as anything other than alimony

25. John, 45 years old and unmarried, contributed $1,000 monthly in 2015 to the support of his parents’ household. The parents lived alone and their income for 2015 consisted of $500 from dividends and interest. What is John’s filing status and how many exemptions should he claim on his 2015 tax return?

HoH and 3 exemptions.

26. ​Wanda is a single taxpayer and an elementary school teacher.  She also tutors students in her home as a small business.  During 2015, Wanda purchased $200 in school supplies for her classroom.  She also purchased $400 in supplies and materials for her tutoring business.  Lastly, she uses a 200 sq. ft. spare bedroom in her house to tutor her clients.  Occasionally, her mother also stays in that room during holidays.  If Wanda elects to use the simplified method for her home office and the educator’s expense is extended for 2015, what are her deductions based on the information provided (ignore any income limitations)?


27. During the tax year, Thomas and Yolanda received $24,000 in Social Security benefits. The amount of their adjusted gross income for the year was $2,000 and they received no tax-exempt interest income.

Calculate the amount of the Social Security benefits that Thomas and Yolanda must include in their gross income for the year.

Their modified adjusted gross income is less than the base amount required to have taxabele social security


28. Keri is a single taxpayer and has a net operating loss of $30,000 in 2015. Her taxable income for the last 5 years has been about $10,000 each year. She expects 2016 to be a very good year and projects that her income will be over $100,000. If you were Keri’s tax advisor, what would you recommend that she do with her 2015 operating loss? Explain.

Forward not backward

29. Ordinarily life insurance proceeds are excluded from gross income. Why would they be taxable if the policy had been transferred for valuable consideration, prior to the death of the insured?