1040 Preparation and Planning 2: Gross Income (2013 Edition) (00319883)

This second course in the series covers gross income from all sources, as well as exclusions and inclusions to gross income. Topics examined include how to report wages and benefits, including all forms of compensation, as well as which benefits are taxable and which are excludable from income; total interest from banks, savings and loan associations, credit unions, savings bonds, and tax refunds; and miscellaneous exclusions and inclusions not covered elsewhere, as well as how to recognize excludable and includable types of income.

Final Exam > Results Page

final exam score:

95%

Question 1

Incorrect

Which of the following items is not excludable from gross income?

An inheritance of $1 million from a parent

A gift of $13,000 from an uncle

(Correct Answer) An award of $1,000 from an employer for doing an outstanding job on a special project

$100,000 life insurance proceeds from a deceased spouse

Question 2

Correct

Donna Edwards inherited stock in X Corporation from her grandfather at the start of 2011, then worth $100,000. In 2012, she collected $2,000 of dividends. In 2012, Donna is taxed on:

Nothing, because the stock was an inheritance

$300

(You Answered) (Correct Answer) $2,000 dividends

Both $100,000 stock (in 2011) and $2,000 dividends (in 2012)

Question 3

Correct

What is the backup withholding rate on interest and dividends for 2012?

10%

20%

25%

(You Answered) (Correct Answer) 28%

Question 4

Incorrect

Regarding “qualified” dividends, which statement is not correct?

(Correct Answer) Such dividends are taxed as short-term capital gains.

The top tax rate on qualified dividends is 15%.

Qualified dividends are taxed as long-term capital gains.

Qualified dividends do not include dividends from money market funds.

Question 5

Correct

In 2012, Marlene Maxwell, age 48, receives $100,000 of group-term life insurance from her employer at no cost to her. She is taxed on:

$0

(You Answered) (Correct Answer) $90

The premium her employer paid for $50,000 of coverage

The premium her employer paid for the $100,000 coverage

Question 6

Correct

Distributions from qualified retirement plans (other than required minimum distributions) are subject to mandatory withholding at what rate?

10%

(You Answered) (Correct Answer) 20%

25%

28%

Question 7

Correct

With respect to loans from qualified retirement plans, which statement is not correct?

Loans must be repaid using a level amortization schedule over no more than five years (unless the loan is to purchase a principal residence).

The maximum loan amount is the lesser of $50,000 or 50% of the participant’s vested account balance.

Spousal consent is required if the participant is married.

(You Answered) (Correct Answer) Loans cannot be made to partners, limited liability company members, more-than-2% S corporation shareholders, and self-employed individuals.

Question 8

Incorrect

Which type of health insurance plan has a use-it-or-lose-it feature?

Health savings accounts

Archer medical savings accounts

Health reimbursement accounts

(Correct Answer) Flexible spending accounts

Question 9

Correct

When funds from a health savings account (HSA) are distributed for qualified medical expenses, these funds are:

Generally included in the income of the taxpayer

(You Answered) (Correct Answer) Generally excluded from the income of the taxpayer

Always included in the income of the taxpayer

Allocated between contributions made by the employer and the employee, and only the amount attributed to the employee’s contributions are included in income of the taxpayer

Question 10

Correct

Mike Smith is covered under his employer’s adoption assistance program. Assuming his AGI is below a set limit, his maximum exclusion for 2012 is:

(You Answered) (Correct Answer) $12,650

$13,170

$13,360

None of the above

Question 11

Incorrect

Harry Henson, a computer programmer, takes a job-related graduate course for $6,000, which his employer pays for and which qualifies as a working-condition fringe benefit. He may:

(Correct Answer) Exclude all of this benefit

(You Answered) Exclude $5,250

Exclude nothing; he is fully taxable on this benefit

Exclude a portion of $6,000 depending on his income.

Question 12

Correct

The annual dollar limit on the exclusion for the clergy’s rental allowance is:

$0

$10,000

$20,000

(You Answered) (Correct Answer) Unlimited

Question 13

Correct

Scholarships and fellowships awarded to degree candidates are tax free unless they are used for:

(You Answered) (Correct Answer) Room and board

Tuition

Books

Supplies required for the course of study

Question 14

Correct

Which of the following items might be considered as deductible alimony?

Child support payments

(You Answered) (Correct Answer) Rent paid for the benefit of the recipient-spouse

Noncash payments

A property settlement

Question 15

Correct

A payment by a taxpayer to a former spouse pursuant to an agreement executed in 2012 may qualify as alimony even though:

(You Answered) (Correct Answer) The payment is to a third party.

The payment is designated as child support.

The liability to make the payment would survive the recipient spouse’s death.

The payment is made to maintain the taxpayer’s property.

Question 16

Correct

All of the following are requirements for a payment to be considered alimony except:

(You Answered) (Correct Answer) Payments can be in property.

Payments cannot be a transfer of services.

Payments are required by a divorce or separation instrument.

Payments are not required after death of the recipient spouse.

Question 17

Correct

Amy Adams is a single parent with modified AGI of $102,500. In 2012, the maximum contribution she can make to her child’s Coverdell education savings account is:

$0

$500

(You Answered) (Correct Answer) $1,000

$2,000

Question 18

Correct

In 2012, qualified education expenses paid from a Coverdell education savings account include:

Tuition and related fees for grades K through higher education

Room and board for higher education

Computer technology and equipment

(You Answered) (Correct Answer) All of the above

Question 19

Correct

All of the following statements about qualified tuition plans (529s) are correct except:

Private institutions may set up prepaid plans.

Distributions from state tuition plans for qualified expenses are tax-free.

(You Answered) (Correct Answer) Contributions can be made only by taxpayers with income below set limits.

Contributions can be made to both qualified tuition plans and Coverdell ESAs.

Question 20

Correct

What is the tax advantage to a 529 plan?

Earnings are not taxed while funds remain in the plan.

Withdrawals are tax-free if used to pay qualified higher education costs.

Large contributions can be gift-tax-free under a special election.

(You Answered) (Correct Answer) All of the above