REG 3rd TEST

Brenda, employed full time, makes beaded jewelry as a hobby. In year 2, Brenda's hobby generated $2,000 of sales, and she incurred $3,000 of travel expenses. What is the proper reporting of the income and expenses related to the activity?

• Sales of $2,000 are reported in gross income and no expenses are deducted.

• Sales of $2,000 are reported in gross income, $2,000 of expenses are reported as an itemized deduction, and $1,000 of loss is carried forward.

• Sales and expenses are netted, and the net loss of $1,000 is reported as an itemized deduction not subject to the 2% limitation.

• Sales and expenses are netted and deducted for AGI.

An individual taxpayer received rental income from real estate that was rented below market value to a not-for-profit organization. On what form should the rental income be reported?

• Schedule C.

• Schedule E

• None since the income was earned from a not-for-profit organization and is tax exempt.

• None since rental income is reported as a line item on Form 1040.

In which of the following situations may taxpayers file as married filing jointly?

• Taxpayers who were married but lived apart during the year.

• Taxpayers who were married but lived under a legal separation agreement at the end of the year.

• Taxpayers who were divorced during the year.

• Taxpayers who were legally separated but lived together for the entire year.

Which of the following is excluded from gross income on an individual’s year 4 tax return?

• January 20X15 rent received in December year 4

• Value arising from personal use of company vehicle in year 4

• Dividends announced by a C Corporation in December year 3 and received in January year 4

• Refundable security deposit received in January year 4 for a lease ending in July year 5

A taxpayer is the sole beneficiary of two life insurance policies:

$300,000 policy on aunt

$200,000 policy on brother

Both the taxpayer's aunt and brother died unexpectedly this year. The taxpayer accepts his brother's $200,000 life insurance policy proceeds as a lump sum and elects to receive aunt's $300,000 policy in 24 installments of $15,000 each. If the taxpayer receives the $200,000 in a lump sum and only four of the 24 payments from the $300,000 in the current year, what amount, if any, is taxable this year?

• $0

• $10,000

• $60,000

• $260,000

A taxpayer was the owner and beneficiary of a $200,000 life insurance policy on a parent. The taxpayer sold the policy to a friend for $25,000. The friend paid a total of $40,000 in premiums. Upon the death of the parent, what amount, if any, must the friend include in gross income?

• $0

• $135,000

• $160,000

• $200,000

The Rites are married, file a joint income tax return, and qualify to itemize their deductions in the current year. Their adjusted gross income for the year was $55,000, and during the year they paid the following taxes:

Real estate tax on personal residence $2,000

Ad valorem tax on personal automobile $500

Current-year state and city

income taxes withheld from paycheck $1,000

What total amount of the expense should the Rites claim as an itemized deduction on their current-year joint income tax return?

• $1,000

• $2,500

• $3,000

• $3,500

A cash-basis taxpayer should report gross income

• Only for the year in which income is actually received in cash.

• Only for the year in which income is actually received, whether in cash or in property.

• For the year in which income is either actually or constructively received in cash only.

• For the year in which income is either actually or constructively received, whether in cash or in property.

In year 4 Adams, an individual, changed residences and converted her former residence into a passive rental activity. In 20X14 Adams lived in the former residence for 60 days, incurred $7,000 in qualifying expenses preparing the property for rental, and rented it to a tenant for 90 days, receiving $3,000 in rent. Before considering the rental activity, Adams’ adjusted gross income for year 4 is $120,000. After considering the rental activity, what should Adams’ year 4 adjusted gross income be?

• $120,000

• 116,000

• 118,500

• $123,000

An individual taxpayer's tax return included the following:

Regular tax before tax credits$5,000

Current year estimated tax payments$6,000

Amount paid with current-year extension$1,000

Federal income tax withheld$1,000

What amount, if any, is the taxpayer's overpayment?

• $0

• $1,000

• $2,000

• $3,000