1. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 38?

a. $ 16,806.
b. $ 19,609.
c. $ 19,029. 
d. None of the above.

2. Look at the Form 1040 you prepared for Yohannes Mulugeta. What is the amount on Form 1040, Line 74?

a. $ 844.
b. $ 424.
c. $ 514. 
d. None of the above.

3. Income received by an agent for your is income you constructively received in the year the agent received it. If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the third party receives it.

True False

4. If after October 16, 2006, you filed for bankruptcy under chapter 11 of the Bankruptcy Code, you

a. must allocate your wages and withheld income tax.
b. must file a statement with your income tax return stating that you filed a chapter 11 bankruptcy case.
c. must file a statement with your income tax return showing the allocation and describe the method used to take the allocation. 
d. All of the above.

5. If you receive advance commissions or other amounts for services to be performed in the future, you

a. must include these amounts in your income when services are performed.
b. must include these amounts in your income in the year received if you are a cash-method taxpayer.
c. must include these amounts in your income in the year received if you are an accrual-method taxpayer. 
d. can deduct the payment as an itemized deduction on your Schedule A (Form 1040).

6. Thomas received three employee achievement awards during the year: a nonqualified plan award of a watch valued at $250, and two qualified plan awards of a stereo valued at $1,000 and a set of golf clubs valued at $500. Assuming that the requirements for qualified plan awards are otherwise satisfied,

a. each award by itself would be excluded from income.
b. Thomas must include $150 in his income because total value of the awards is more than $1,600. 
c. Both A and B are correct. 
d. None of the above.

7. Cost-of-living allowances generally are excluded from your income.

True False

8. If your employer gives you secured note as payment for your services, you

a. must include the fair market value (usually the discount value) of the note in your income for the year you receive it.
b. must include the fair market value (usually the discount value) of the note in your income for the year when you receive payments for the note.
c. do not need to include it in your income since a secured note is never taxable.  
d. None of the above.

9. If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. A dependent care benefit is

a. an amount your employer pays directly to either you or your care provider for the care of your qualifying person while your work.
b. the fair market value of care in a daycare facility provided by your employer.
c. the fair market value of care in a daycare facility sponsored by your employer. 
d. All of the above.

10. A pension or retirement pay for a member of the clergy is not taxable as other pensions or annuities.

True False

11. If your employer sells you property or services at a discount, you may be able to exclude the amount of the discount from your income. This does not apply to

a. The price charged non-employee customers.
b. Discounts on property or services offered to customers in the ordinary course of the line of business in which you work.
c. Discounts on real property or property commonly held for investment (such as stocks and bonds).
d. All of the above.

12. Your employer provides you with a product or service and the cost of it would have been allowable as a business or depreciation deduction if you paid for it yourself, then

a. The cost is not included in your income.
b. The cost is included in your income.
c. You can claim the cost as a tax deduction on your tax return.
d. None of the above.

13. Fringe benefits received in connection with the performance of your services are included in your income as compensation unless 

a. You pay fair market value for them.
b. They are specifically excluded by law.
c. You employer pays for them.
d. A or B is correct.

14. Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income. You generally report royalties in

a. Part I of Schedule F (Form 1040).
b. Part I of Schedule C (Form 1040).
c. Part I of Schedule E (Form 1040).
d. Part I of Schedule A (Form 1040).

15. Generally, the value of accident or health plan coverage provided to by your employer is not included in your income. Benefits you receive from the plan

a. Can be used to buy more insurance.
b. Are not taxable. 
c. May be taxable.
d. None of the above.

16. Generally, if you are covered by an accident or health insurance plan through a cafeteria plan, and the amount of the insurance premiums was not included in your income, 

a. You are not considered to have paid the premiums.
b. You must include any benefits you receive in your income. 
c. You are considered to have paid the premiums and thus the income in nontaxable.
d. Both a and b are correct.

17. You must include a recovery in your income in the year you received it up to the amount by which the deduction or credit you took for the recovered amount

a. Reduced your tax in the earlier year.
b. Increase your tax in the earlier year.
c. Of $500 or above.
d. None of the above.

18. You are generally taxed on income at time that it is available to you, regardless of whether it is actually in your possession. This income is

a. Constructively  received income.
b. Non-Taxable income. 
c. Income that does not need to be reported.
d. Tax-free income.

19. If you received a refund or other recovery that is for amounts you paid in 2 or more separate years,

a. You must return the amounts in a separate envelope addressed to the Internal Revenue Service.
b. You must allocate, on a pro rate basis, the recovered amount between the years in which you paid it.
c. You must report it in the year that your received it if you are an accrual basis taxpayer.
d. None of the above.

20. Amounts you receive as worker's compensation for an occupational sickness or injury are fully exempt from tax if they are paid under

a. A workers' compensation act.
b. A statute in the nature of a workers' compensation act.
c. A tax free covenant.
d. Both a and b are correct.

21. Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. If both you and your employer pay for the plan, you report as income

a. Only the amount you receive that is due to your payments.
b. The total amount received.
c. Only the amount you receive that is due to your employer's payments.
d. None of it because disability income is never taxable.  

22. Arthur received $3,500 through a health plan set up by the employer for personal injury or sickness. The plan was paid at a discount mostly by Arthur and the employer paid 40% of the plan. How much of this must Arthur report as taxable income?

a. $1,750.
b. $3,500.
c.  $- 0 -.
d.  $1,400.  

23. Fred received the following from his employer during the year:

How much income should Fred report?

a. $25,000.
b. $31,000.
c. $31,100.
d. $32,200.

24. At their annual budget meeting, the Downtown Church voted to set the salary package for their pastor as follows:

How much of the salary package is includible in the pastor's taxable income?

a. $30,000
b. $35,000
c. $40,000
d. $45,000

25.  If you receive a non-statutory option to buy or sell stock or other property as payment for your services, you usually will have income when you receive the option, when you exercise the option, or when you sell or otherwise dispose of the option. However, if your option is a statutory stock option, you may

a. Have income when you sell or exchange your stock.
b. Not have any income until you sell or exchange your stock.
c. Have to pay a penalty to exercise you stock option. 
d. None of the above.

26. Carla Cervantes is a commissioned salesperson. She is a cash basis taxpayer. At the end of 2007, her earnings for the year were $75,000. During the year, she also tallied $4,000 of meals provided by her employer on business premises because this way Carla would not take a longer break going to restaurants to eat. How much income should Carla report for 2007.

a. $79,000
b. $75,000
c. $77,000
d. None of the above.

27. Your employer must show the total amount of dependent care benefits provided to you during the year under a qualified plan in box 10 of you Form W-2. Your employer also will include any dependent care benefits over $5,000 in your wages in box 1 of your Form W-2. You can

a. Claim the exclusion from including the dependent care benefits in income.
b. Get a credit for the benefits your employer entered in box 1 of your Form W-2.
c. Tell your employer not to include the income in box 1 of your Form W-2.
d. None of the above.

28. You must include your gambling winnings in your income on Form 1040, line 21. If you itemize deductions on Schedule A (Form 1040), you can

a. Deduct all your gambling losses you had during the year. 
b. Deduct gambling losses you had during the year, but only up to the amount of your winnings.
c. Cannot deduct gambling losses because receipts are too difficult to keep track of.
d. You can deduct gambling losses you had during the year, regardless of the amount of winnings.

29. If your child baby-sits for relatives or neighborhood children, whether on a regular basis or only periodically,

a. You can elect to include her income in your return.
b. You have to include her income in your return.
c. The rules for childcare providers apply to her.
d. None of the above.

30. Generally, the cost of up to $50,000 of group-term life insurance coverage provided to you by your employer

a. Is not included in income.
b. Is included in income.
c. Is not term life insurance protection.
d. None of the above.

31. Look at the Form 540A you prepared for Yohannes Mulugeta. What is the amount on Form 540A, Line 19?

a. $ 13,290.
b. $ 16,093.
c. $ 15,513. 
d. None of the above.

32. Look at the Form 540A you prepared for Yohannes Mulugeta. What is the amount on Form 540A, Line 66?

a. $ 106.
b. $ 50.
c. $ 62. 
d. None of the above.

33.  Beginning with the 2007 tax forms, round cents to the nearest whole dollar. For example, round $50.50 up to $51 or round $25.49 down to $25. If you do not round, FTB (California) will

a. process your return more quickly and accurately.
b. round for you.
c. disregard the cents. 
d. not process your return.

34. Generally you will not make any adjustments on line 14f (Form 540A). You should not make an adjustment solely because the pension was earned in another state. Federal and State laws require California residents to pay state income tax on all taxable pensions, regardless of where they were earned.

True False

35. Registered Domestic Partners (RDP) who file a California tax return

a. can file as married/RDP filing jointly.
b. combine their individual AGIs from their federal tax returns filed with the IRS.
c. can file as married/RDP filing jointly if they previously filed jointly. 
d. All of the above.

 36. California taxes interest earned from:

a. United States savings bonds.
b. United States Treasury bills, notes, and bonds.
c. Bonds or obligations of United States territories, and government agency obligations specifically exempted by federal law. 
d. interest from municipal or state bonds from a state other than California.

37. Greg and Mona (file MFJ) won $10,000 from the California Lottery in 2007. Their wages from work include $12,000 from Mona's job and $18,000 from Greg's job. What is their total income that they will have to pay taxes on?

a. $30,000 just wages.
b. $40,000 wages and lottery winnings.
c. $10,000 just lottery winnings. 
d. None of the above. 

38. Allan received the following income in tax year 2007.

 How much will he report on his California state return as taxable income?

a. $ 19,000.
b. $ 19,029.
c. $ 20,129. 
d. None of the above.

39. Enter the amount of any state income tax refund shown on your federal form 1040, line 10. If you filed Form 1040A or Form 1040EZ in 2006, enter -0-.

True False

40. Enter the total of any employment compensation and/or paid family leave insurance benefits reported on federal Form (s) 1099-G and show on your federal return. These types of income are taxed by California.

True False

Copyright © 2009 [Hera's Income Tax School]. All rights reserved.
Revised: 03/19/09