FAC Tax Planning & Preparation 3

Question 1

The kiddie tax applies a child's unearned income in excess of the threshold at:

Accepted Answer

The parent's marginal tax rate

Answer

The kiddie tax subjects a child's net unearned income above the threshold to tax at the parent's marginal rate to prevent income shifting.

Question 2

An individual taxpayer has a net capital loss of $8,000 for the tax year. How much can be deducted against ordinary income?

Accepted Answer

$3,000

Answer

Individual taxpayers may deduct up to $3,000 of net capital losses against ordinary income per year; the remaining $5,000 carries forward.

Question 3

Which of the following fringe benefits is generally excludable from an employee's gross income?

Accepted Answer

Employer-provided group-term life insurance up to $50,000

Answer

Employer-provided group-term life insurance premiums for coverage up to $50,000 are excludable from the employee's gross income under IRC §79.

Question 4

A taxpayer uses the home office deduction under the simplified method. The maximum deduction per square foot is:

Accepted Answer

$5

Answer

The simplified method allows a deduction of $5 per square foot of the home used exclusively for business, up to 300 square feet.

Question 5

For purposes of the earned income tax credit (EITC), investment income above the annual limit causes:

Accepted Answer

Complete disqualification from the credit

Answer

A taxpayer is completely disqualified from claiming the EITC if their investment income exceeds the IRS-set annual threshold.

(FAC) Finance and Accounting Certification Practice Test