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Test answers for Federal Income Tax 2016

(55) Last updated: January 23
Elance • Fin. & Mgt.
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55 Answered Test Questions:

1. The statement displaying wages from a job is called a ______?

Answers:

• I-4

• W-2

• W-4

• I-9

• 1099-MISC

2. Joe deposits $10,000 in a savings account. He is supposed to leave the money there for one year and will receive $11,000. He is forced to take the money out of the account early. The interest on the day of withdrawal was computed as $710. However, he was charged a penalty of $200 because of the early withdrawal and only received $10,510. Which of the following is true?

Answers:

• He should report interest revenue of $710 and a deduction for adjusted gross income of $200.

• He should report interest revenue of $1,000 and a deduction for adjusted gross income of $200.

• He should report interest revenue of $800.

• He should report interest revenue of $510.

3. Which expense can be deducted on real estate held as an investment, but not on real estate held as a primary residence?

Answers:

• Property tax

• Depreciation

• Interest

• Amortization

• Loan principal

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

Answers:

• The cost of child care that is job related

• Gambling losses

• Moving expenses if job related and over a specified distance

• Casualty losses over a specified amount

5. Depreciation for tax purposes is:

Answers:

• equal to book purposes

• decelerated

• accelerated

6. 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?

Answers:

• $45,000

• $6,000

• $5,000

• $2,500

• $10,000

7. Which of the following items is not deductible?

Answers:

• investment management fees

• bank account interest

• tax preparation services

• safety deposit box fees

8. Municipal bond interest is:

Answers:

• taxed at 15%

• taxed at a lower rate

• tax-exempt

• tax-deductible

9. Contibutions to a traditional IRA are

Answers:

• taxable

• partially tax exempt

• tax exempt up to $5,500

• Tax exempt

10. True or False: Alimony Received is taxable

Answers:

• True

• False

11. Deductible work-related educational expenses do NOT include:

Answers:

• Transportation and travel expenses to attend qualified educational activities.

• Amounts donated to charity.

• Amounts spent for tuition, books, supplies, laboratory fees and similar items.

12. Which schedule is used to report business income?

Answers:

• Schedule B

• Schedule C

• Schedule A

• Schedule D

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

Answers:

• 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.

• 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.

14. The following professionals can represent clients before any office of the IRS:

Answers:

• Only Certified Public Accountants

• Only Attorneys and Certified Public Accountants

• Only Attorneys

• Only Attorneys and Enrolled Agents

• Enrolled Agents, Attorneys, and Certified Public Accountants

15. If itemized deductions exceed the standard deduction

Answers:

• either deduction can be used

• the standard deduction should be used

• the deductions are added together

• the itemized deductions should be used

16. Which income is non-taxable income?

Answers:

• Hobby Income

• Alimony

• Dividends

• Child Support

• Wages

17. ______ may be deducted from Gross Income.

Answers:

• Student Loan Interest

• Student Loan Principle

• Half of Student Loan Payments

• Entire Student Loan Payments

18. Which of the following is NOT a filing status?

Answers:

• Divorced

• Married Separately

• Head of household

• Married Jointly

• Single

19. Kathy is divorced and her unmarried 27-year old son lived with her all of 2011. She paid all the household expenses and provided over half of her son's support. What is Kathy's filing status ?

Answers:

• Head of Household

• Married Filling Jointly

• Married Filing Separately

• Single

20. IRS stands for

Answers:

• internal reference service

• interest reference service

• internal revenue service

• itemized revenue service

• integrated revenue service

21. Should gambling winnings be reported on the tax return?

Answers:

• Yes, gambling winnings are taxable income.

• No, gambling winnings are non-taxable income.

22. How much can you take as a real-estate loss on an individual return?

Answers:

• $0

• $25,000

• The lessor of loss or $25,000 if AGI is less than $150,000 (assuming one files a joint return) unless one is a real-estate professional.

• There is no limit.

• $10,000

23. If you are married filing jointly for year 2011 and have itemized deduction of $10,000 would you claim itemized or standard deduction?

Answers:

• Neither

• Itemized Deduction and Standard Deduction

• Standard Deduction

• Itemized Deduction

24. Steve wants to claim his son as a dependent on his tax return. His son, Mark, is 21 years old and attends a community college full-time. Can Steve claim his son as a dependent? If so, until what age can Steve continue to claim his son?

Answers:

• Yes. However, his son must earn less than the standard deduction of $3,650 to qualify as a dependent, while attending school full time. Steve can continue to claim his son until Mark graduates, regardless of his age.

• No. His son is over the age of 19, therefore, he does not qualify as a dependent.

• Yes. Steve can continue to claim his son until Mark graduates, regardless of his age.

• Yes. However, Steve can no longer claim his son after the age of 21, regardless of Mark's full-time student status.

• Yes. Steve can claim his son until Mark reaches 24 years old.

25. Which of the following items cannot be itemized?

Answers:

• real estate taxes

• mortgage interest

• mortgage insurance

• homeowner's insurance

26. The amount of Social Security income that is taxable is dependent on how much other taxable income you have.

Answers:

• True

• False

27. Non-cash charitable contributions over $___ require additional details:

Answers:

• 100

• 50

• 500

• 250

• 25

28. 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?

Answers:

• 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.

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

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

29. Capital Gains are reported under which Schedule

Answers:

• Schedule A

• Schedule B

• Schedule C

• Schedule D

30. Home Office Deduction on Schedule C is allowed:

Answers:

• When there is income prior to the deduction.

• None of these

• Under any circumstances

• only if below $10,000

• only if it is below 5,000

31. Which of of the following is allowable itemized deduction?

Answers:

• All of these

• Medical Expense

• Student Loan Interest

• None of these

• Tuition Expense

32. Which of the following conditions does NOT prevent you from receiving earned income credit?

Answers:

• Not having a qualifying child as a dependent

• Being a qualifying child of another person

• Not being a U.S. citizen or resident alien all year

• Using the filing status is Married Filing Separately

• Having no earned income

33. Gain on a 1031 exchange is recognized to the extent of boot.

Answers:

• False

• True

34. Which form is a home office reported on?

Answers:

• Schedule C

• not eligible to be deducted.

• Schedule E

• Form 8829

• Schedule A

35. 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?

Answers:

• No start-up expenses can be deducted.

• $5,000

• $10,000

• $15,000

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

36. Which of the following statements is NOT true regarding tax benefits for education?

Answers:

• The Hope credit, also known as the American Opportunity Credit, can only be claimed for each of the first 4 years of post-secondary education.

• Room and board expenses are eligible for both the Hope and Lifetime Learning credit.

• The Hope credit cannot be claimed if the student has been convicted of a federal or state felony offense consisting of the possession or distribution of a controlled substance.

• Tuition and tuition-related fees, books, and other required course materials expenses qualify for the Hope credit.

37. The normal distribution code for IRA or pension income is:

Answers:

• 4

• 3

• 7

• 1

38. Which of the following statements are false?

Answers:

• Mortgage Insurance Premiums paid is treated as Mortgage Interest.

• Mortgage Insurance premiums paid on a second home is generally deductible.

• The deduction is phased out when the adjusted gross income is more than $109,000.

• Mortgage Insurance Premiums paid in the current year is a investment expense and subject to a 2% phaseout.

• Upfront Mortgage Insurance Premiums paid in the current year must be amortized.

39. Which of the following would be deducted by an individual taxpayer directly on Schedule A of the Form 1040 as an itemized deduction?

Answers:

• One-half of the amount of self-employment tax that is paid.

• Investment expenses

• Educator expenses

• Interest paid on a student loan.

40. Which qualifies as a 1031 exchange?

Answers:

• Skyscraper in New York for Skyscraper in London

• Barn in Kentucky for Skyscraper in New Yotk

• Car in New York for Factory in Michigan

• Computer in DC for Car in DC

41. Which of the following is NOT deductible for moving expenses?

Answers:

• Cost of lodging while traveling to new home

• Payment for a moving company to transport household goods and personal effects to new home

• All expenses are deductible toward moving expenses

• House-hunting trip(s) and temporary living expenses

• Cost of storage for household goods and personal effects

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

Answers:

• 1099-S

• 1099-R

• 1099-MISC

• 1099-G

43. Which of the following tests is NOT to claim a dependency exemption for your child:

Answers:

• Age test

• Citizenship or resident test

• Dependent taxpayer test

• Qualifying child or qualifying relative test

• Joint return test

44. An S corporation is generally required to use the accrual method of accounting.

Answers:

• True

• False

45. The form showing income from gambling winnings is referred to as a:

Answers:

• W2G

• 1099-G

• IRA-G

• 1099-WINNINGS

46. Which of the following related parties can recognize a loss on the sale or exchange of an asset between themselves for tax purposes?

Answers:

• Corporation and sole shareholder

• Brother and sister

• Daughter-in-law and Mother-in-law

• Grandfather and Granddaughter

• None can recognize a loss

47. Section 179 Depreciation cannot be deducted in the current year when:

Answers:

• Only real property is purchased in current tax year.

• Only listed property is purchased in current tax year.

• Only used equipment is purchased in current tax year.

• The taxpayer has elected to deduct Bonus Depreciation in current tax year.

• Only qualified real property is purchased in the current tax year.

48. What is the penalty for excess contributions made to an IRA account in a single tax year?

Answers:

• There is no penalty for excess contributions.

• 6%

• 3%

• 10%

• 1%

49. Gain on a 1031 exchange is recognized.

Answers:

• False

• True

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

Answers:

• 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.

• 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.

• 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.

51. 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?

Answers:

• Disability Income is not reported

• Report as Wages on line 7

• Report as Other Income on Line 21

• Report as Pension on line 16b

52. The accounting system used for tax purposes has a:

Answers:

• modified-cash basis

• cash basis

• revenue recognition basis

• accrual basis

53. How long after the close of a tax period must a business file its tax return, if it does not file an extension form?

Answers:

• Three months

• Four and a Half months

• Two and a Half months

• Four months

• Three and a Half months

54. Using tax information from prior years is referred to as a:

Answers:

• pushover

• carry forward

• rollover

• balance forward

55. Which of the following statements with respect to an S corporation is false?

Answers:

• Tax-exempt income earned by an S corporation is taxable at the shareholder level.

• S corporation losses are deductible by the owners against their ordinary taxable income (assuming the owner has a sufficient tax basis in the investment).

• An S corporation can be a shareholder of another corporation.

• S corporations do not pay income tax on their earned income.