Test #2

Mickey Rooney owns a pastry shop in Newberg. He is considering opening a similar shop in Sherwood. After spending $15,000 investigating such possibilities, he decides against opening the new store. What is the max amount of deduction for the current year attributable to these expenses? a. $0 b. $1,000 c. $5,000 d. $15,000

$15,000

Mr West's adjusted gross income is $90,000 for the current year. He paid the following misc. deductions: Publication (unreimbursed and related to employment) $2,000 Tax return prep fee $1,000 Dues to professional organization $1,500 Fees for will prep (no tax advice) $800 Life insurance premiums $1,400 Assuming he can itemize deductions, how much should Mr. West claim as misc. itemized deductions after limitations have been applied? a. $2,700 b. $4,500 c. $3,500 d. $300

$2,700

During the current year, Gill Bates reports AGI of $100,000. Because of his fond memories of his time at Big State University, he donates mutual funds to the school. The value of the mutual funds is $60,000 on the date Fill donated the mutual funds. Gill's basis is $10,000. Gill Bates' max charitable deduction for the current year is: a. $10,000 b. $30,000 c. $50,000 d. $60,000

$30,000

In the current year, Clay reports income and losses from the following activities: Salary $100,000 Passive Activity X Income $28,000 Passive Activity Y Loss $(10,000) Passive Activity Z Loss $(20,000) Activity Z has $40,000 in passive losses which are carried over from the prior year. In the current year Clay sells activity Z for a taxable gain of $30,000. What is Clay's deductible loss from Activity Z for the current year? a. $0 b. $40,000 c. $60,000 d. $30,000

$30,000

During the current year, Ruth reports AGI of $100,000. She donates a nude sculpture to her alma mater, George Fox University. The sculpture cost Ruth $10,000 and is now valued at $60,000. The University exhibits it in the art gallery and students learn from studying it. Ruth's max charitable contribution for the current year is: a. $10,000 b. $30,000 c. $50,000 d. $60,000

$50,000

Matt paid the following taxes: Real estate taxes on rental property he owns $4,000 Real estate taxes on his personal residence $4,000 Federal Income taxes $8,000 State Income taxes $3,400 Local city income taxes $500 What amount can Matt deduct as an itemized deduction on his tax return? a. $3,900 b. $7,900 c. $11,900 d. $19,900

$7,900

Doris Day paid $13,000 of investment expense during the current year. She earned $4,500 in dividends, $5,400 in taxable interest and $6,000 in interest on tax exempt municipal bonds in the current year. What is the max she can deduct in the current year for investment interest expense? a. $13,000 b. $11,400 c. $9,900 d. $4,500

$9,900

Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. The stock basis was $80,000. Amy had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has: a. A $50,000 ordinary loss b. A $50,000 long term capital loss c. An $80,000 ordinary loss d. A $50,000 short term capital loss

A $50,000 ordinary loss

T or F: Unreimbursed employee business expenses are deductions from AGi

True

Mr. Gregory contributed $5,000 into a Roth IRA on April 1, 2015. He advised his stock broker to allocate that contribution for his 2014 personal income tax return. Mr. Gregory is not an active participant in a pension plan and his AGI before the Roth contribution is $90,000. His filing status for 2014 is single. What is Mr. Gregory's deductible contribution? a. $0 b. $2,500 c. $5,000 d. $5,500

$0

In February of the current year (assume a non-leap year), Ken Kessey received his property tax statement for last calendar year taxes of $2,000, which he paid to the taxing authority on March 1 of the current year. He had purchased the home on April 1 of the prior year. What amount of property tax is Ken Kessey allowed to claim as an itemized deduction in the current year? a. $1,125 b. $1,500 c. $1,667 d. $2,000

$1,500

Abigail's hobby is sculpting. During the current year, she sold 3 sculptures for a total of $3,200. Her related expenses include $1,500 in utilities, $1,200 in supplies and $900 in depreciation. Of these total expenses incurred, Abigail may deduct: a. $1,500 in utilities and $1,200 in supplies b. $1,500 in utilities, $1,200 in supplies, and $500 in depreciation c. $1,500 in utilities, $1,200 in supplies and $900 in depreciation d. $0

$1,500 in utilities, $1,200 in supplies, $500 in depreciation

T or F: Travel expenses related to temporary work assignments of 5 years or less are deductible, subject to AGI limitation of 2%

False

Which of the following factors is important in distinguishing between capital expenditures and operating expenditures? a. Capital expenses improve the property, adding value to it b. Capital expenses provides a betterment, adding value to it c. Capital expenses restores the property to a better use d. All of the above

All of the above

Which of the following statement is true about Individual Retirement Accounts? a. Contribution to traditional IRA's are never deductible b. Contributions to Roth IRA's are never deductible c. You cannot contribute to a traditional IRA if you are an active participant in an employer-sponsored plan d. You cannot contribute to a traditional IRA and a Roth IRA in the same year

Contributions to Roth IRA's are never deductible

Deductions for adjusted gross income (AGI) include all of the following EXCEPT: a. Contributions to an IRA b. Alimony c. Expenses attributable to production of rental income d. Deductions to a charitable organization

Deductions to a charitable organization

T or F: A charitable contribution in excess of the deduction limit is lost

False

T or F: A taxpayer goes out of town for a business convention. The 50% reduction applies to he cost of food and transportation

False

T or F: A theft loss is deductible in the year the theft is incurred

False

T or F: Bob Hill, a TV news anchor, is concerned about wrinkles around his eyes. Because it is job related, a face lift would be a deductible medical expense

False

T or F: If a taxpayer sells an interest in a passive activity, unused losses are transferred to the purchaser of the interest

False

T or F: Itemized deductions are deductions for AGI

False

T or F: Kickbacks and bribes paid to federal officials are deductible only if related to the taxpayers trade or business

False

T or F: The max tax deductible contribution to a Roth IRA is $5,500

False

Loretta Young, a single woman, has the following transactions for the current year: W-2 wages $60,000 Interest Income $2,000 Tax-exempt municipal bond interest $5,000 Passive activity loss from activity X $(9,000) Passive activity income from activity Y $15,000 Alimony paid to Husband #1 $5,000 Roth IRA contribution $4,000 Real estate loss on Schedule E $(4,000) State income taxes paid $9,000 Qualified home equity indebtedness $3,250 Cash charitable contributions $75,000 Investment interest expenses $8,000 Property taxes paid on personal residence $3,500 Unreimbursed employee expenses $9,350 Tax prep fees $1,250 Compute Loretta Young's Itemized deductions

Income taxes paid $9,000 Home indebtedness $3,250 Charitable contributions ($59,000 x 50%) $29,500 Investment Interest (limited) $2,000 Property taxes $3,500 Misc. deductions: - Unreimbursed employee expenses $9,350 - Tax prep fees $1,250 = $10,600 x 2% = $(1,180) Total itemized deductions = $56,670

Ken's (Barbie doll) full name

Kenneth Sean Carson

On September 30, 2004, Mary purchased a personal residence for $800,000, paying $200,000 down and taking out a mortgage of $500,000. Over the years, she has reduced the mortgage to $350,000. Mary wishes to purchase the new S Series Mercedes Benz for $150,000. On May 1 of the current year, Mary takes out a home equity loan of $150,000 to purchase the car of her dreams. Which of the following statements is true? a. Mary cannot deduct any interest on the home equity loan b. May can deduct all of the interest on the home equity loan because it is below the $1,000,000 threshold c. Mary can deduct all of the interest on the home equity loan because it is below the FMV of the personal residence d. Mary can deduct a pro-rated amount of the home equity loan

Mary can deduct a pro-rated amount of the home equity loan

Meyers Briggs is 60 years old. He has contributed $3,000 per year for the last 6 years into a Roth IRA. The value of the Roth IRA is $55,000. Meyers received a distribution of $20,000 to purchase his first home. Which of the following statements best describes the tax consequences to Meyers Briggs? a. because of the ordering rules, Mr. Briggs will have to pay taxes on $2,000, which is the difference between his contributions and distributions b. Mr. Briggs will have to pay an "excise" tax on the entire distribution c. It is not a qualifying distribution because Mr. Briggs has not attained full retirement age and he will pay income taxes on the entire amount d. Mr. Briggs will not have to pay any taxes on the distribution

Mr. Briggs will not have to pay any taxes on the distribution

Pamela Martin was an officer in Green Restaurant which went bankrupt in 2013. Pamela started a new restaurant in 2015 and, to establish goodwill, paid off the $100,000 debt of Green Restaurant. She was under no obligation to do so. The $100,000 payment is: a. Deductible currently as an itemized deduction b. Capitalized because the expenses are not reasonable c. Deductible currently as a trade or business expense since the expenses are considered ordinary and necessary d. None of the above

None of the above

List two criteria for an expenditure to be deductible as a business or investment expense

Ordinary Necessary Reasonable

To be tax deductible, an expense must be all of the following EXCEPT: a. Ordinary and necessary b. Paid only with cash c. Reasonable in amount d. An expense of the taxpayer

Paid only with cash

T or F: An expense is considered necessary if it is "appropriate and helpful" in the taxpayer's business

True

T or F: Educational expenses incurred by a CPA for courses necessary to meet continuing education requirements are fully deductible

True

T or F: Expenses related to a hobby are deductible only to the extent of the gross income from the hobby

True

T or F: In general, the deductibility of interest depends on the purpose for which the indebtedness is incurred

True

T or F: Qualified residence interest consists of both acquisition indebtedness and home equity indebtedness

True

T or F: To be considered a capital expense, the expenditure must add to the value of the asset, prolong its useful life or restore the property's value

True

T or F: Travel expenses related to temporary work assignments of one year or less are deductible

True

Loretta Young, a single woman, has the following transactions for the current year: W-2 wages $60,000 Interest Income $2,000 Tax-exempt municipal bond interest $5,000 Passive activity loss from activity X $(9,000) Passive activity income from activity Y $15,000 Alimony paid to Husband #1 $5,000 Roth IRA contribution $4,000 Real estate loss on Schedule E $(4,000) State income taxes paid $9,000 Qualified home equity indebtedness $3,250 Cash charitable contributions $75,000 Investment interest expenses $8,000 Property taxes paid on personal residence $3,500 Unreimbursed employee expenses $9,350 Tax prep fees $1,250 Compute Loretta Young's Adjusted Gross Income

Wages $60,000 Interest Income $2,000 Passive loss from activity X $(9,000) Passive income from activity Y $15,000 Real estate loss on Schedule E $(4,000) Alimony $(5,000) AGI = $59,000