Chapter 5 Practice Questions
1. On the zombie planet Dexos431, in a galaxy not far away, the planetary government taxes all lifeforms at the same rate, no matter their income level. Economists call this a(n):
A. Regressive tax system
B. Progressive tax system
C. Alternative minimum tax system
D. Transfer tax system
2. All of the following would be considered ordinary income except:
A. Wages earned at a job
B. Income earned from one’s business
C. Bonus received from an employer
D. Profits distributed to shareholders of a C corporation
3. Which of the following has an effect on an investment’s overall cost basis?
A. Commissions paid to buy securities
B. Commissions paid to sell
securities C. A forward stock split D. A reverse stock split
4. A taxpayer with a total excess capital loss of $10,000 may:
A. Deduct $3,000 from his ordinary income
B. Deduct $10,000 from his ordinary income
C. Deduct from his ordinary income if his holding period for the investment(s) on which he incurred the loss was more than 12 months
D. Not deduct anything
5. All of the following are true of a wash sale except:
A. It adds the loss to the new basis.
B. It is applied to sales and repurchases that happen within 30 days of the trade date.
C. The IRS does not allow wash sales.
D. Wash sales do not apply to sales where a gain was made.
6. Which of the following are true of the alternative minimum tax?
I. Taxpayers may choose which system to file under.
II. All taxpayers must calculate their AMT.
III. The AMT is designed to minimize a taxpayer’s liability.
IV. Certain deductions are excluded from the AMT calculation.
A. I and III
B. II and IV
C. I and IV
D. II and III
7. Income earned by an estate after the person’s death is:
A. Not taxed
B. Taxed at the beneficiary’s rate
C. Taxed at the executor’s rate
D. Taxed at the estate’s tax rate
8. All