Chapter 6 Practice Questions

1. 1. On the zombie planet Dexos431, in a galaxy not far away, the planetary government lowers the tax rate as incomes rise. Economists call this a:
2. A. Regressive tax system
3. B. Progressive tax system
4. C. Alternative minimum tax system
5. D. Transfer tax system
6. 2. All of the following would be considered ordinary income except:
7. A. Wages earned at a job
8. B. Income earned from one’s business
9. C. Bonus received from an employer
10. D. Profits distributed to shareholders of a C corporation
11. 3. Which of the following would affect the tax basis of a security?
12. I. Commissions paid to buy the security
13. II. Commissions paid to sell the security
14. III. Stock splits
15. IV. Receiving the security as a gift from a living relative
16. A. I only
17. B. I and II
18. C. I and III
19. D. II and IV
20. 4. A taxpayer with a total excess capital loss of $10,000 may:
21. A. Deduct $3,000 against their ordinary income
22. B. Deduct $10,000 against their ordinary income
23. C. Deduct against ordinary income if their holding period was more than 12 months
24. D. Not deduct anything
25. 5. All of the following are true of a wash sale except:
26. A. It adds the loss to the new basis.
27. B. It is applied to sales and repurchases that happen within 30 days of the trade date.
28. C. The IRS does not allow wash sales.
29. D. Wash sales do not apply to sales where a gain was made.
30. 6. Which of the following are true of the alternative minimum tax (AMT)?
31. I. Taxpayers may choose which system to file under.
32. II. All taxpayers must calculate their AMT.
33. III. The AMT is designed to minimize a taxpayer’s liability.
34. IV. Certain deductions are excluded from the AMT calculation.
35. A. I and III
36. B. II and IV
37. C. I and IV
38. D. II and III
39. 7. Income earned by an estate after the person’s death is:
40. A. Not taxed
41. B. Taxed at the beneficiary’s rate
42. C. Taxed at the executor’s rate
43. D. Taxe