Enrolled Agent - Exam 1

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Standard Deductions

Married Filing Jointly - $25,100 Qualifying Widow(er) - 25,100 Head of Household - 18,800 Single (other than above) - 12,550 Married Filing Separately -12,550

The 50% limit on deductibility of business-related expenses applies to which of the following:

Meals while traveling away from home on business and meals to customers at your place of business.

The 50% limit on deductibility of business-related expenses applies to which of the following:

Meals while traveling away from home on business and meals to customers at your place of business. The limit applies to meals not provided by a restaurant while traveling away from home on business and meals to customers at your place of business

Form 1099-SA -

Distributions From an HSA, Archer MSA, or Medicare Advantage MSA

Bethany and Michael (wife and husband) are itemizing their Schedule A expenses on their 2021 return. Michael, an employee, traveled to Japan for his employer but was not reimbursed. His meal expenses totaled $500. How much can Michael deduct for meals?

$0 The amount deductible for meal expenses provided by a restaurant is 100% of the actual expense. The limit also applies to the taxpayer's own meals. The expense must be ordinary and necessary for the business. However, the unreimbursed expenses of employees are nondeductible. Thus, Michael's deduction is zero

Passive Activities

- A limited partner's interest in a limited partnership - The rental of office equipment with no provision of unusual services - Farming land when the tax payer owning the land has hired others to manager the operations - Pension distributions (not contributions to retirement) **Oil property that has no limit on liability is not considered passive income

Itemized deduction reported on Schedule A?

- Amortizable premium on taxable bonds - Taxes not directly connected with a trade or business or with property held for the production of rents can be deducted (personal property tax on an airplane or Sales tax paid on a purchase of a new car)

When e-filing their federal return, a taxpayer who meets the requirements to file both Form 8938, Statement of Specified Foreign Financial Assets, and Form 114, Report of Foreign Bank and Financial Accounts, should

-- Attach only the form 8938 to their federal return and file the Form 114 through the Financial Crimes Enforcement Network's e-filing system (Due April 15, w/o extension) FBAR >$10,000 foreign assets

File a form 8865? -- Reporting Foreign Income

1. 50% of greater ownership 2. 10% of greater of U.S. controlled corp. 3. Contributed resulting in 10% interest or value of property exceeding $100,000 4. Had a reportable event (M&A, changes in ownership)

Gross Income - Excluded related to damages

1. Disability pay 2. Health accident proceeds 3. Workers' compensation awards 4. Physical sickness or injury

Requirements for to claim a foreign earned income exclusion?

1. Taxpayer must have earned foreign income 2. The tax payers tax home must be in a foreign country 3. The tax payer must be physically present in a foreign country for at least 330 full days during any period of 12 consecutive months

Incomes that are considered includible compensation for purposes of deductible contributions an individual retirement

1. Wages 2. Self Employment income 3. Partnership income of an active partner providing services to the partnership - Pension distributions are not contributions to retirement

Employers are required to keep records on employment taxes until at least _____ years after the due date of the return or payment of the tax.

4 years

A below-market demand loan

A below-market demand loan is a loan on which interest is payable at a rate lower than the applicable federal rate. The excess of the interest that would have been payable in that year under the applicable federal rate over the actual interest payable is treated as imputed interest. A below-market term loan is a loan in which the amount lent exceeds the present value of all payments due under the loan

Which of the following statements is correct regarding the deductibility of donations made to qualifying charities by a cash-basis individual taxpayer?

A charitable contribution is not allowed for the value of services rendered to a charity

With regard to the passive activity (loss) limitation rules involving rental real estate activities:

An individual may avoid passive activity limitation treatment on a rental real estate activity if two conditions are met: 1. more than 50% of the person's activities through out the year are related to this estate 2. The individual performs more than 750 hours of service

Additional Standard Deduction

An individual who has attained the age of 65 or is blind is entitled to the amount. The individual is entitled to the amount if (s)he attains age 65 before the end of the tax year A person who becomes blind on or before the last day of the taxable year is entitled to the amount.

Treasure Trove - Gross Income

Buy a piano - find $10k in the piano later. Must claim the $10k

Ministers - Gross Income

Can exclude - rental value of home and rental allowance

Form 1099-C -

Cancellation of Debt

W-2G

Certain Gambling Winnings

nonbusiness bad debt is

Debt other than one incurred or acquired in connection with the taxpayer's trade or business. - Investments are not treated as a trade or business. - A partially worthless nonbusiness bad debt is not deductible. - A wholly worthless nonbusiness bad debt is treated as a short-term capital loss; i.e., deductible up to any capital gains plus $3,000 of ordinary income. Any excess losses can be carried forward to future tax years.

Susie was paid $150 for serving as a juror. Susie's employer continued to pay Susie her salary while she served on the jury, so she is required to turn the jury duty pay over to her employer. How should Susie account for the jury duty pay?

Deduct the $150 from gross income.

Insurance premiums for which of the following policies qualify as a medical expense? (Contact lens)

Deductions are allowed for premiums made for contact lens insurance and membership in associates that give cooperative medical service.

Foreign Trusts?

File Form 3520

The fringe benefit that must be included in wages and reported on Form W-2 is

Group term life insurance coverage in excess of $50,000

Which of the following bonds can be a tax-exempt bond if issued in the current year so that the interest therefrom may be excluded from gross income?

If the bond is going to finance student debt by a government entity (County, State, etc.)

During the year, Susan received $4,800 as interest income and also paid an early withdrawal penalty of $1,200 on a certificate of deposit she had at a local bank. Which of the following is the correct way for Susan to report these items on her tax return?

Include $4,800 interest in gross income and deduct $1,200 as an adjustment to income.

Passive activity rules apply to:

Individuals Estates Trusts Personal Service Corporations Closely held corporations

Form 1099-INT

Interest Income

Deductions Vacant Land Demolition Abandon assets

Interest and taxes on vacant land are deductible If a structure is demolished, demolition costs, undepreciated (remaining) basis, and losses sustained are not deductible A loss is deductible in the year the assets are actually abandoned with no claim for reimbursement

Investment interest generally includes

Interest expense to acquire stocks and bonds.

Personal interest does not include

Interest on trade or business debt Investment interest Passive activity interest Qualified residence interest Interest on the unpaid portion of certain estate taxes Student loan interest

business bad debt

Is one incurred or acquired in connection with the taxpayer's trade or business -Partially worthless business debts may be deducted to the extent they are worthless and specifically written off. -Treated as ordinary loss

Social Security Benefits - Gross Income Inclusion

It is dependent upon the relation of: 1. Provisional income 2. base amount 3. Adjusted base amount 0%, 50%, or 85%

Form 1099-MISC -

Miscellaneous Income Rents, Prize awards, Crop Insurance, Fishing boat

Return of Capital / Capital Distribution - Ordinary Income taxable?

For 8 months of each year, George lives in Ocala, Florida, training horses for several owners as an independent contractor and earning approximately $20,000. He rents an apartment for the 8 months. He stays in motels or rented rooms at various racetracks in other states for the other 4 months of the year during horse racing season and earns approximately $10,000. What part of George's travel expenses can be deducted?

Only his meals and lodging for the 4 months he is away from his tax home, Ocala.

Schedule K-1 (Form 1065) -

Partner's Share of Income, Deductions, Credits, etc.

Form 1099-Q -

Payments From Qualified Education Programs (Under Sections 529 and 530)

Form 1099-S -

Proceeds From Real Estate Transactions

Life Insurance - Gross Income

Proceeds at the time of the death is excluded from gross income. However, if it is a continued payment over time, it is considered gross income

Form 1099-B -

Proceeds from Broker and Barter Exchange Transactions

Clark bought Series EE U.S. Savings Bonds. Redemption proceeds will be used for payment of college tuition for Clark's dependent child. One of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the

Purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse). The issue date of the bonds must follow the 24th birthday(s) of the owner(s); and The redemption proceeds must be used to pay tuition and fees of the taxpayer, spouse, or dependent to attend a college, a university, or certain vocational schools.

Household Maintenance

Qualifying Expenditures - Property Taxes, Mortgage Interest, Rent, Utilities, Upkeep, Repair, Property insurance, food consumed in-home

An employer (e.g., sole proprietor) reports the reimbursed expenses on

Schedule C

Jeremy decided to itemize on his Year 1 return. He has the following receipts: State income tax, $3,000 Federal income tax, $12,000 County real estate tax, $2,000 Fee for inspection of car that he uses only personally, $50 Homeowners' association fees on his personal home, $500 Self-employment tax of $1,000 Compute the amount of tax deductions he can take on his Schedule A, Itemized Deductions.

State and local real estate property are deductible only here = $5,000

Form 1099-PATR -

Taxable Distributions Received From Cooperatives

An individual starts paying student loan interest in the current year. For how many years may the individual deduct a portion of the student loan interest?

The duration of the time that interest is paid up $2,500 per year.

Which of the following would disqualify points from being fully deductible in the year paid? The points were computed as a percentage of the amount of the mortgage. The loan proceeds were used to purchase a second home. The payment of points is common in your area. The points are clearly stated on the settlement statement.

The loan proceeds were used to purchase a second home.

1: In order to qualify as an accountable plan for reimbursement of travel expenses, the employer plan must satisfy all of the following:

The employee must timely return any excess reimbursements. The employee must make an adequate and timely accounting to the employer. The expenses have a business connection.

Gross Income - Alimony

The payor - it is decreased The recipient - is considered gross income

Gross Income - Child Support

The payor - not deductible The recipient - is not considered gross income

Community Property Law

The spouse is considered 50-50

In determining which place of business constitutes an individual's tax home, all of the following factors are taken into account:

The relative income earned at each place of business. The degree of business activity at each place of business. Total time spent at each place of business.

In determining if a taxpayer qualifies for head of household filing status, the married taxpayer is considered unmarried if all the following requirements are met:

The taxpayer filed a separate return. The taxpayer paid more than half the cost of keeping up the home for the tax year. The taxpayer's spouse did not live in the home during the last 6 months of the tax year. The home was, for more than half the year, the main home of the taxpayer's child, stepchild, or adopted child whom the taxpayer or the noncustodial parent can properly claim as a dependent. The taxpayer must be able to claim the child as a dependent.

De Minimis Fringe

The value of property or services provided to an employee is excludable as a de minimis fringe benefit if the value is so minimal that accounting for it would be unreasonable or impracticable. Examples: -Occasional company parties or picnics -Tickets to entertainment events, if only distributed occasionally -Occasional taxi fare or meal money due to overtime work

John and Joanne are the sole support of the following individuals, all U.S. citizens, none of whom lives with them. None of these individuals files a joint return or has any gross income. Jennie, John's mother Julie, Joanne's stepmother Jonathan, father of John's first wife How many dependents may John and Joanne claim on their joint return?

Three --- To qualify for dependency, the taxpayer must provide over 50% of the support of a U.S. citizen who meets certain relationship tests stated in Sec. 152(a). Section 152 allows dependency for fathers, mothers, stepfathers, and stepmothers. Relationships established by marriage are not ended by death or divorce (Publication 501). Thus, each of the individuals listed qualifies under the relationship test of Sec. 152.

What are qualified education expense for purposes of the student loan interest deduction?

Tuition and fees Room and board Books and supplies

Form 1041

U.S. Income Tax Return for Estates and Trusts

Fringe Benefits (Education Assistance) - Gross Income

Up $5,250 per year

What is taxable exclusion for foreign gross income?

Up to $108,000 foreign earned income is excluded from gross income That is a U.S. citizen and a bona fide foreign resident

Business Gifts - Deductions

Up to $25 per gift is the max

The foreign earned income exclusion can be applied for which of the following types of income?

Wages and Salaries

Division of property - divorce

Within 1 year, it is treated as a gift

Ms. X, a cash-method taxpayer, received notice from her mutual fund that it has realized a long-term capital gain on her behalf in the amount of $2,500. It also advised her that it has paid a tax of $500 on this gain. The mutual fund indicated that it will not distribute the net amount but will credit the amount to her account. All of the following statements are true EXCEPT a. X must report a long-term capital gain of $2,500. b. X is allowed a $500 credit for the tax since it is considered paid by X. c. X is allowed to increase her basis in the stock by $2,000. d. X does not report a long-term capital gain because nothing was paid to her.

X does not report a long-term capital gain because nothing was paid to her. Shareholders are taxed on dividends paid by the mutual fund.

From the regular or main job to the second job. -- Transportation Deduction?

Yes

Standard mileage rate in computing deductible transportation expenses standards?

You may use up to four cars at a time in the business. You must own or lease the vehicle. You may use the vehicle for hire, such as a taxi.

All of the following taxes are deductible on Schedule A (Form 1040) EXCEPT a. State or local inheritance tax b. State income tax. c. State real estate tax on a personal residence. d. Foreign income tax.

a. State or local inheritance tax

AMT

alternative minimum tax

An expense must be both

ordinary and necessary to be deductible.

In Year 1, Laura lent Pat $2,000. At that time, Pat signed an enforceable note agreeing to repay the $2,000. The loan was not made in the course of Laura's business. The loan had not been repaid in Year 3 when Pat died insolvent. For Year 3, Laura should report the nonpayment of the loan as a(n)

short term capital loss

To deduct a personal property tax on schedule A,

the tax imposed must be determined solely on the value of the property. Transfer taxes are not deductible.

Points paid by the borrower with respect to a home mortgage are prepaid interest

which is typically deductible over the term of the loan

When funds from an Archer MSA are distributed for qualified medical expenses, these funds are

Generally excluded from the income of the taxpayer.

When can a dependent child's income be taxed at his or her parent's marginal rate?

When a dependent child has unearned income and is under age 19 with at least one living parent. Net unearned income of a child is taxed at the parent's marginal rate. A child is a person who (1) is under the age of 18 at the end of the tax year, (2) has turned 18 before the close of the tax year and has earned income that does not exceed more than half of his or her own support, or (3) is under the age of 24 at the end of the tax year and a full-time student with earned income that does not exceed more than half of his or her own support. The dependent child must have at least one living parent. An individual providing over half of their own support is not a dependent.

Janice received $10,000 in educational assistance benefits from her employer during 2021 to reimburse her for the cost of course tuition and fees for her to earn a degree in accounting. The benefits were paid under an accountable plan and were not included in Janice's W-2. She has a modified adjusted gross income of $80,000, and she files single. A list of Janice's 2021 expenses follows. What is Janice's deductible tuition and fee expense? $2,000 for an underwater basket weaving class not required for her degree $8,000 for accounting courses required for her degree $4,000 for on campus room and board $1,000 for textbooks $1,000 for lab fees for courses required for her degree

What items may be considered alimony for pre-2019 divorces?

Payments on the behalf of the payee spouse for mortgages, rent, medical cost or education

Withdrawal Penalties - deductible?

Penalties on the early withdrawal of interest income are deductible as above-the-line deductions

Larry purchased 100 shares of ABC stock on May 31, Year 1, for $100 per share. On October 28, Year 1, he sold the 100 shares for $90 per share. On November 22, Year 1, his wife, Vickie, purchased 100 shares of ABC stock for $80 per share. Vickie held the stock until September 30, Year 2. On that date, she sold the stock for $110 per share. They filed married filing separately on all returns.

Vickie will have a long term gain of $2000 on her year 2 tax return. Larry will not have any capital loss on his year 1 tax return. For Larry, you can not deduct a loss from stock trading if the trade was within 30 days. However, you can use the loss to offset the gain from Vickie's trade in 2021.

Starting in 2021, Mr. West must pay his former spouse $20,000 annually under a 2021 divorce decree in the following amounts: $1,000 a month for mortgage payments (including principal and interest) on a jointly-owned home $250 a month for tuition fees paid to a private school until their son attains the age of 18 or leaves the school prior to age 18 $5,000-a-year cash payment to the former Mrs. West In addition to the above amounts, the former Mrs. West also received in 2021 a lump-sum amount of $150,000 from the sale of their other marital assets Assume the parties did not file a joint return and were not members of the same household. Also, assume that there were no written statements between the parties as to how the amounts should be treated. What is the amount of Mr. West's 2021 alimony deductions?

Todd and Susan divorced on September 1, 2021. As part of the divorce decree, beginning in September, Todd was to make payments of $2,000 a month for the balance of the year to Susan's doctor for recent medical expenses, child support payments of $500 per month, and $1,500 a month for the mortgage payment on a jointly owned home. Susan and the children will continue to live in the home. What is the amount that Todd can deduct as alimony for 2021?

Donald, an accountant, was falsely accused of fraud by a local newspaper. He sued the newspaper for libel, claiming damages both to his personal reputation in the community and to his business. In December of the current year, the jury awarded Donald the following: $10,000 for his personal reputation $70,000 for his business loss $70,000 as punitive damages (to punish the newspaper) How much can Donald exclude from gross income?

$0 Damages received from nonphysical injuries are not excludable Punitive damages are not excludable Business loss is not excludable as it is what someone would have gained and should be taxed

Henry, a single taxpayer, completed his graduate degree in April of 2016 with a significant amount of student loan debt but now makes a modified adjusted gross income of $115,000 per year. Each year, Henry makes payments toward his debt. In 2021, Henry paid $16,000 toward the principal of his debt and $4,000 of interest. How much interest may Henry deduct on his 2021 tax return?

$0 Henry makes more than $85k so he can not

On February 10 of the current year, Rose was in an automobile accident while she was going to work. The doctor advised her to stay home for 6 months because of her injuries. On February 25 of the current year, she filed a lawsuit. On July 20 of the current year, Rose returned to work. On December 15 of the current year, the lawsuit was settled and Rose received the following amounts: Compensation for lost wages - $25,000 Personal injury damages awarded (none of which was for punitive damages) - $40,000 How much of the settlement must Rose include in ordinary income on her current-year tax return?

$0 In 1996, Sec. 104(a)(2) was amended to exclude from gross income damages received on account of personal physical injury or physical sickness only. The House Committee Report for the 1996 changes states, "If an action has its origin in a physical injury or physical sickness, then all damages (other than punitive) that flow therefrom are treated as payments received on account of physical injury or physical sickness . . ." Therefore, Rose's compensation for lost wages is excluded from gross income (Publication 17).

$0 Section 104(a)(2) excludes from gross income "the amount of any damages received (whether by suit or agreement and whether as a lump sum or periodic payments) on account of personal injuries or sickness." Section 104(a)(2) makes punitive damages that are otherwise excludable under Sec. 104(a)(2) includible in gross income (Publication 17). These rules generally apply to amounts received after August 20, 1996. Damages received on account of a nonphysical injury or sickness (e.g., injury to reputation) are also not excludable from gross income. The $70,000 of punitive damages are not generally excludable under Sec. 104(a)(2). The $70,000 for business loss is taxable to Donald as a substitute for compensation he would have otherwise earned.

A nonresident alien received a $50,000 scholarship from a U.S. corporation to go to a university in the individual's resident country, which has a 20% flat tax. How much U.S. tax must be paid on the scholarship?

$0 This will not be treated as US income; $0 taxes

Emily bought 50 shares of stock in Year 1 for $500. In Year 2, she received a return of capital of $100. She received an additional return of capital of $50 in Year 3. What must Emily report as long-term capital gain on her tax return for Year 3?

$0 A return of capital is a tax-free distribution that is not made out of a corporation's earnings and profits that reduces a stock's basis by the amount of the distribution. It is not taxed until the stock's basis has been fully recovered

Mr. Jones filed an amended federal income tax return during the current year for an earlier tax year. This amended return resulted in an additional tax payment of $400, a penalty of $100, and an interest payment of $40. How much of these payments will be deductible on the current-year tax return?

$0 - Federal Income taxes are never deductible

Cindy is a salesperson employed by a window manufacturing company, and she travels to various locations to sell her products. She drives 12,000 miles a year. She adequately accounts to her employer for her business expenses. Her employer reimburses her $4,200 for the mileage driven at 35 cents per mile. Based on the standard mileage rate of 56 cents per mile, her expense was $6,720. Cindy is entitled to deduct on Schedule A, Itemized Deductions, transportation expenses of

$0 - because the unreimbursed expenses of an employee are non-deductible

Your divorce decree, which became final in 2018, requires that you pay $400 a month, of which $250 is specified as child support. During 2021, you pay only $4,000, although in no month did you pay less than $250. What amount may you deduct and must your former spouse report as alimony?

$1,000 Alimony is deductible, child support is not.

Jean is a U.S. citizen living and working in France for all of 2021. She received wages of $150,000, dividends of $10,000, and alimony (from a pre-2019 divorce) of $20,000 in 2021. She decides to use the foreign earned income exclusion available to her and file Form 2555. What is the amount of Jean's foreign earned income before any limitations are applied?

$150,000

Geraldine works for a corporation with a dividend reinvestment plan. In lieu of dividends, Geraldine, who currently owns 1,500 shares of stock, bought 100 additional shares of stock at $2 a share and paid a service charge of $4.75. The FMV of the stock was $12. The service charge was deducted from the dividends prior to the purchase of the stock. What must she report on her tax return as dividend income?

$1,204.75 The taxpayer uses the dividends to buy more shares in the corporation, you must report the dividends as income. If the taxpayer is allowed to buy more stock at a price less than its fair market value. Must also include the services deduction as income

Willy, a self-employed laboratory consultant specializing in white mice, attended a convention in Paris concerning the care and feeding of white mice. The convention was held in Paris since most of the white mice specialists in the world are located in France. Willy's expenses were $1,600 for airfare, $400 for food and beverages provided by a restaurant, and $400 for lodging. Willy spent 5 days at the convention and 3 days visiting friends. How much can he deduct for the trip?

$1,500

Elsie, a cash-basis taxpayer, had the following nonbusiness bad debts for the current year: Loan to sister-in-law to buy gifts, forgiven - $ 250 Loan to neighbor made in 2016, evidenced by note - $1,500 Loan to son to pay college tuition - $1,200 Back rent due from tenants for 3 months - $600

$1,500 Loans to family members are usually considered to be gifts unless the taxpayer can prove that a debtor-creditor relationship The back rent due likewise does not qualify because Elsie is a cash-basis taxpayer and does not accrue the rent owed The loan to the neighbor, however, does constitute a nonbusiness bad debt since it was evidenced by a note (Publication 550).

In Year 1, Lee was beginning his undergraduate education. In January of Year 1, Lee was awarded a scholarship of $500 per month from a tax-exempt educational foundation to continue as long as Lee was a full-time student until he received his degree. Lee remained a full-time student and graduated at the end of August of Year 5. Lee received the scholarship each month from January of Year 5 through August of Year 5, and spent $2,400 for tuition, fees, books, and supplies. How much must Lee include in gross income from the scholarship in Year 5?

$1,600 Subtract the $2400 from $4000 *8 months times $500

In the current year, Uriah Stone received the following interest payments: Interest of $400 on refund of federal income tax for a previous year Interest of $300 on award for personal injuries sustained in an automobile accident in a previous year Interest of $1,500 on municipal bonds Interest of $1,000 on United States savings bonds (Series HH) What amount, if any, should Stone report as taxable interest income on his current-year tax return?

$1,700 Although an award for personal injuries is tax-exempt under Sec. 104, the interest income earned on the award is not tax-exempt.

Matt paid interest in 2021 as follows: $100 on his personal credit card $200 on funds borrowed in order to purchase $6,000 in tax-exempt securities $500 interest on his personal car loan since he does not use his car for business $10,000 on his home mortgage What is the amount of Matt's deductible interest in 2021?

$10,000

Johnny has been divorced for 6 years. He failed to make his alimony and support payments. The court ordered him to pay $1,500 as interest on the back alimony and support payments. He paid interest of $1,000 on a car loan, $2,500 on his outstanding credit card balance, $6,000 on a home equity loan that was not used to substantially improve his residence, and $10,000 on his mortgage. Other interest payments amounted to $2,500 on various appliance loan payments. How much is Johnny's deductible interest?

$10,000 Qualified residence interest is interest paid or accrued during the tax year on acquisition or home equity indebtedness that is secured by a qualified residence.

During the current year, Mr. Lamply received state unemployment benefits of $9,400. The union paid Mr. Lamply an additional $1,600 out of regular union dues. What amount must Mr. Lamply include in income?

$11,000 Gross income is defined under Sec. 61 as all income from whatever source derived which is not specifically excluded. There is no exclusion for unemployment compensation benefits [Sec. 85(a)] in 2021. Regulation 1.85-1(b)1(i) provides that amounts paid pursuant to private nongovernmental unemployment compensation plans are also includible in income without regard to Sec. 85. Regulation 1.85-1(b)1(i) provides that amounts paid pursuant to private nongovernmental unemployment compensation plans are also includible in income without regard to Sec. 85.

Ryan has a 2,000-square-foot home and his home office is 250 square feet. Ryan has direct expenses of $200 and indirect expenses of $800 allocated to the home office. Using the simplified option, how much can Ryan deduct for the home office?

$1250 The simplified option for the home office deduction allows a taxpayer to deduct $5 for each square foot that is allocated to the home for up to 300 square feet. A home office of 250 square feet is eligible for a $1,250 home office deduction (250 sq. ft. × $5 per sq. ft.).

Harry and Sally are married and both are under age 50. During 2021, Harry earned $1,500 and Sally earned $38,000. Neither is covered by an employer retirement plan. What is the maximum amount they can contribute to their individual retirement accounts for 2021?

$12k **$6k per person if under 50 years; $7k if over 50 years

On December 30, 2021, Mr. and Mrs. Brady's personally owned yacht was wrecked in a federally declared disaster. Based on the following information, what is the amount of loss Mr. and Mrs. Brady can deduct for 2021? Fair market value of the yacht before the wreck $55,000 Fair market value of the yacht after the wreck $0 Adjusted basis of the yacht before the wreck $45,000 Insurance reimbursement received 2/1/2022 $22,500 Replacement cost $45,000 Adjusted gross income for 2021 $80,000

$14,400 don't forget about the $100 and 10% of AGI must be subtracted total deduction as well

Heathcliff and Gertrude file a joint income tax return for the current year. During the current year, Heathcliff received wages of $120,000 and taxable Social Security benefits of $5,000. Gertrude actively participated in a rental real estate activity in which she had a $30,000 loss. They had no other income during the current year. How much of the rental loss may they deduct on their current-year income tax return?

$15,000 The $25,000 allowance of losses from active participation in rental real estate activities against nonpassive income is reduced by 50% of the amount by which adjusted gross income exceeds $100k Social Security + Real Estate Loss = $30k * 50% = $15k

Bernie is a self-employed accountant in 2021. He reported net income of $54,150 on his Schedule C for 2021. During the year, Bernie paid the following: $5,200 in child support, $5,000 in alimony (pre-2019 divorce), $6,000 in medical insurance premiums, self-employment tax of $7,650, and $2,000 to his IRA plan. What amounts are deductible in arriving at adjusted gross income?

$16,825 Alimony 50% of self employment taxes IRA contributions

During all of 2019, 2020, and 2021, Una Dostres, a U.S. employee of Math Corporation, lived in Spain and worked in a Spanish subsidiary of Math. She spent no time in the United States during the 3 years in question. In 2021, Una received a $109,300 salary plus a housing allowance from her employer for her actual qualifying housing costs of $18,392. Una's gross income to be reported on her U.S. tax return is

$17,992 The foreign earned exclusion is limited to $108,700. So we need to include $600. The base amount required to claim is $17,392. So we do not have to worry about the entire $18,392

Henry Adams, an unmarried taxpayer, received the following amounts during the current year: Interest on savings accounts $1,000 Interest on municipal bonds used for road construction - $500 Dividends on General Steel common stock - $750 Dividends on life insurance policies - $200 Adams should report taxable income, after exclusions, if any, from dividends and interest for the current year in the amount of

$1750 Road construction for muni bonds is excluded.

Mr. Todd, who is 43 years old, has lived apart from his wife since May 2021. For 2021, his two children, whom he can claim as dependents, lived with him the entire year, and he paid the entire cost of maintaining the household. Assuming that Mr. Todd cannot qualify to file a joint return for 2021, he must, nevertheless, file a return if his gross income is at least

$18,800 Generally, a taxpayer must file a tax return if the taxpayer's gross income equals or exceeds his or her standard deduction [Sec. 6012(a)]. Standard deductions in 2021 are $25,100 for married filing jointly, $18,800 for heads of household, and $12,550 for single individuals (Publication 501). A taxpayer who has two children and files as head of household must file a return if his or her gross income equals or exceeds $18,800.

John has a heart ailment. On his doctor's advice, he installed an elevator in his home so that he would not have to climb stairs. The cost of the elevator was $7,000. An appraisal shows that the elevator increased the value of his home by $5,000. John can claim a medical deduction of

$2,000

Mr. Hines received a $6,200 grant from a local university for the fall of the current year. Mr. Hines was a candidate for a degree and was required to be a research assistant, for which services he received payment under the grant. The $6,200 grant provided the following: Tuition - $3,600 Books and supplies - $500 Pay for services as research assistant - $2,100 Mr. Hines spent the entire $6,200 on tuition, books, and supplies. What amount must Mr. Hines include in his income for the current year?

$2,100 Although Sec. 117 excludes from gross income amounts received as qualified scholarships and tuition reduction to be used for tuition and related expenses, this exclusion does not apply to amounts representing payments for teaching, research, or other services performed by the student that are required as a condition for receiving the qualified scholarship or tuition reduction (Publication 17).

During the current year, Jack and Mary Bronson paid the following taxes: County taxes on residence (for period January 1 to September 30 of the current year) $2,700 State motor vehicle tax on value of the car $360 The Bronsons sold their house on June 30 of the current year under an agreement in which the real estate taxes were not prorated between the buyer and sellers. What amount should the Bronsons deduct as taxes in calculating itemized deductions for the current year?

$2,160 The taxpayers held the property for 6 of the 9 months in the tax calendar = $2,700 * (6/9) = $1800 State Vehicle tax is deductible

Mr. and Mrs. Apple received the following income during 2021: $200 in interest credited to their bank account but not withdrawn or used by them during the year $2,000 in interest received as a beneficiary in a trust established by Mr. Apple's father and included on Schedule K-1 from the trust $100 in interest on a bond issued by the State of Georgia $1,000 bond interest, City of Atlanta municipal bond How much taxable interest income must Mr. and Mrs. Apple report on their 2021 tax return?

$2,200

Gary and Gladys invest in bonds. In the current year, they received the following interest: California general revenue bonds -$800 New York City sanitation fund bonds - $1,000 Seattle School District bonds - $400 AT&T 20-year bonds - $600 The state and local bonds are neither private activity bonds nor arbitrage bonds. How much interest income may Gary and Gladys EXCLUDE from gross income on their joint return?

$2,200 EXCLUDE

Hansel and Gretel were employed as managers of a motel. Part of their job requirements was to live on the premises so that they would be available to watch the desk and take care of any guest's problems. They were provided with living quarters worth $3,000 per year and given a cash allowance of $2,500 for groceries to be prepared and consumed on the employer's premises. How much must Hansel and Gretel include in gross income?

$2,500 Groceries cannot be excluded The cost of living is excluded. Since living on premise would be conditionally of their employment, the value of lodging would be excluded

In 2021, Rusty paid $5,000 of interest on a qualified education loan. Rusty is not claimed as a dependent by another taxpayer. What is the maximum deduction available to him for the education loan interest?

$2,500 Individuals can deduct interest paid during the tax year on any qualified education loan. The maximum amount that may be deducted is $2,500.

Chris, age 35, contributes the following amounts to his self-only Health Savings Account: $500 on April 30, 2021 $300 on September 16, 2021 $750 on December 31, 2021 $1,000 on February 5, 2022 $1,550 on April 30, 2022 What amounts are considered contributions to the Health Savings Account for 2021?

$2,550 Contributions for to HSA for 2021 may be made until April 15, 2022

Pastor Green received an annual salary of $20,000 as a full-time minister. The church also paid him $1,000 designated as a housing allowance to pay for his utilities. His church owns a parsonage that has a fair rental value of $6,000 in which he lives rent free. Neither the rental allowance nor the rental value of the parsonage is included in his W-2. All amounts are considered provided for services he renders as a licensed pastor. He is not exempt from self-employment tax. Compute the amount of Pastor Green's income that is subject to income tax on his return.

$20,000

Joe has owned shares in a company that has a dividend reinvestment plan since 2007. The plan allows him to invest more cash to buy additional shares of stock at a price less than fair market value. In the current year, Joe took advantage of that option and purchased 100 additional shares for $30 each. On the dividend payment date, the fair market value of the shares he purchased was $32 per share. Based on this information, Joe must report

$200 as ordinary income, based on the difference between the amount Joe paid and the fair market value of the shares. A shareholder who, under a dividend reinvestment plan, elects to receive shares of greater value than his or her cash dividend would otherwise be, receives taxable income based on the difference between the amount (s)he paid and the fair market value of the shares

During the current year, Amanda, who is single, received $110,000 in salary and realized a $30,000 loss from her rental real estate activities in which she actively participates. She contributed $2,000 to an IRA. What is the amount that Amanda may claim as loss from her current-year real estate activities?

$20K Amanda makes more than $100k. This means the $25k deduction limit will need to be reduced. She is over the AGI limit by $10k. So we multiple the difference by 50% and arrive at $5k. When then take the $5k from $25k resulting in $20k.

Keith and Margaret had adjusted gross income of $100,000. They had real estate taxes of $4,000, mortgage interest of $12,000, home equity loan interest of $6,000 used to substantially improve the residence, automobile loan interest of $3,000, second home mortgage interest of $4,000, and credit card interest of $2,000. The total allowable interest deduction is

$22,000 General rule is no personal interest may be deducted. The mortgage interests and equity loan interest.

Raul and Monika (husband and wife) are both lawyers, and they contribute money to various organizations each year. They file a joint return, and their adjusted gross income for 2021 is $100,000. They contributed to the following organizations in 2021: $5,000 to Alta Sierra country club $10,000 to prevent cruelty to animals $2,000 to state bar association (This state bar association is not a political subdivision of the state, serves both public and private purposes, and the funds used are unrestricted and can be for private purposes.) $12,000 to cancer research foundation Donated clothing to Salvation Army (Raul purchased the items for $1,000, but the fair market value of the same items at a thrift store is equal to $50.) How much can Raul and Monika deduct as charitable contributions for 2021?

$22,050

Caitlin served as a kindergarten aide for 1,000 hours. She incurred $350 in expenses for books and supplies used in the classroom and was not reimbursed by the school. What amount is Caitlin entitled to as the educator's expense deduction on her income tax return?

$250 Primary and Secondary school educators may claim a deduction of up to $250 annually for unreimbursed expenses paid for books/supplies in the classroom.

Erica received $40,000 in wages, and her husband Paul had a net loss of $2,000 on his Schedule C. Paul materially participated in his Schedule C activity. They had interest income of $500. Paul also had a $28,000 loss from a rental real estate activity in which he actively participates. How much of the rental loss can they deduct on their current-year joint income tax return?

$25k

Miss Jones owns several rental properties, which she acquired in January of last year, and actively participates in all activities connected with the rentals. She received a salary of $42,300 from her advertising job in the current year. Her net rental loss for the current year was $60,000. What is the amount of rental loss that Miss Jones can deduct in the current year?

$25k If an individual actively participates in the real estate activities you can deduct up to $25k in losses. If you make more than $100k single or $203k married there is a phase out calculation needed

Bill took out a $100,000 non-recourse loan and bought an apartment building. The building is not security for the loan. Bill spent $25,000 of his own money on repairs before he rented the apartment building to the public. Bill is single, works full-time, and earns $80,000 per year. Bill's loss from the rental real estate activity, in which he actively participates, is $30,000. He has no passive income. For what amount is Bill at-risk, and how much of Bill's passive loss from his rental activity is deductible?

$25k - at risk $25k - passive income loss (he's not over $100k) A taxpayer is not considered at risk for his or her share of any nonrecourse loan used to finance an activity or to acquire property used in the activity unless the loan is secured by property not used in the activity. Bill is at risk for the $25,000 in repairs using his own money.

Trish Durwood works for a small retail clothing store. She earned $26,000 in wages during the year. Because of a cash flow problem in April, Trish did not receive her $500 weekly check but instead was given a credit of $500 on the purchased clothing for her family. How much income should be shown on her Form W-2 and reported on her Form 1040?

$26,000 Compensation for services must be included in gross income [IRC Sec. 61(a)(1)]. Due to the relationship between an employee and an employer, almost everything received by the employee from the employer is included in gross income as compensation.

Gordon, age 70, is retired and works part-time as a security guard earning $8,000. He received $5,000 interest from a savings account and $2,500 interest from tax-exempt municipal bonds. His Social Security benefits were $12,000 and his taxable pension was $6,000. To determine if any of his Social Security is taxable, Gordon should compare how much of his income to the $25,000 base amount?

$27,500 Under Sec. 86, if the sum of the "modified" adjusted gross income plus one-half of Social Security benefits exceeds $25,000 on a single return but does not exceed $34,000, part of the Social Security benefits will be included in gross income. Modified adjusted gross income equals adjusted gross income plus tax-exempt interest (modified AGI = $8,000 + $6,000 + $5,000 + $2,500 = $21,500). The sum of the taxpayer's modified AGI of $21,500 and one-half of their $12,000 in Social Security is equal to $27,500, which should then be compared to the $25,000 minimum (Publication 17).

During the current year, Ms. Gonzales paid $2,000 for local real estate taxes on property she rents to others and $3,425 real estate taxes on her residence. In addition, she paid gift taxes of $650 and $1,250 for state income taxes to New Jersey. What amount can Ms. Gonzales deduct as an itemized deduction on her tax return for the current year?

$4,675 = 3425 + 1250 Real estate taxes are not deductible

Order of tax attributed reductions --

1. NOLs 2. General Business Credit 3. Minimum tax credit 4. Capital Loss Carryovers 5. Basis of taxpayers property

Thomas loaned a friend, Susan, $10,000 for a down payment on a home. Thomas and Susan signed a note in which Susan agreed to pay $100 a month with an interest rate of 4% until the loan was completely paid. Susan lost both her job and her home in 2020. In 2021, Susan filed bankruptcy and went to live with her mother. Thomas sued Susan in court for nonpayment in August 2021, but the court ruled the debt unenforceable because it had been discharged in bankruptcy. When Susan defaulted, the outstanding balance due on the note was $7,000. If Thomas had only wage income reportable during the year, how much would his deductible bad debt be in 2021, assuming that Thomas elected to treat the loss as a nonbusiness ordinary loss arising from a transaction entered into for profit? $7,000

$3,000 A nonbusiness bad debt is a debt other than one incurred or acquired in connection with the taxpayer's trade or business. A completely worthless nonbusiness bad debt is treated as a short-term capital loss. A short-term capital loss is subject to a $3,000 annual limit. The remaining $4,000 may be carried forward (Publication 550).

Pablo died October 10 of the current year. Prior to his death, Pablo had done the following: He sold and delivered a truckload of oranges to a co-op but did not receive the $3,000 payment prior to his death. The payment was made to his executor. He sold a truck to Roscoe for $5,000, but the payment was not received until after his death. Pablo's basis in the truck was $1,000. What is the amount of income in respect of a decedent for the above two payments?

$3,000 for the oranges and $4,000 for the truck. Income in respect of a decedent is that which is earned by the taxpayer but is neither received prior to his or her death, nor accrued prior to his or her death if on the accrual method, so it is not included in the decedent's final return.

During 2021, Ted, a self-employed taxpayer, drives his car 5,000 miles to visit clients, 10,000 miles to get to his office, and 500 miles to attend business-related seminars. He also spent $300 for airfare to another business (1-day) seminar and $200 for parking at his office. Using $.56 per mile, what is his deductible transportation expense? $300

$3,380

Gene Wingo had the following potentially taxable transactions in the current year. How much, if any, should be included on his current-year return? $200 credited to his savings account on December 31 of the current year. He did not withdraw any money from the account during the entire year. $2,000 withheld from his paycheck by his employer to satisfy a garnishment by his doctor. $1,000 discount given by his bank when he paid off his home mortgage 5 years early. $500 check received December 31 of the current year from an individual for one of Gene's original drawings. Gene did not cash or deposit the check until the next year.

$3,700

$3,700 Gross income includes compensation for services ($2,000 + $500), interest ($200), and income from discharge of indebtedness ($1,000), among other items. Gene should include all $3,700 in gross income on his current year return (Publication 17).

Joan owned stock in W Corporation, which has a dividend reinvestment plan. Joan decided to participate in the plan, and during the current year the corporation paid dividends. The plan allowed Joan to use her $3,000 dividend to buy 30 additional shares of stock at $100 per share when the fair market value of the stock was $130 per share. How much dividend income must Joan report on her current-year income tax return?

$3,900

During the current year, John donated $100 to the United Way, $200 to Veterans of Foreign Wars, and $300 to his neighbor whose home was destroyed by a tornado. How much is John's deduction for charitable contributions?

$300

Ilene made the following cash contributions to qualifying organizations for the year: Veterans of All Wars - $16,000 University of Nevada Las Vegas - $10,000 Hospital for Children - $14,000 Ilene's AGI for the year was $30,000. What is her allowable contribution deduction?

$30K Two things to consider, the type of the organization and the type of contribution. the types of organization all qualify for 100%. Any excess in contributions may carry forward.

3.Mr. and Mrs. Black received the following income for 2021. How much income should be reported on their 2021 joint return? 1. W-2 income for Mrs. Black for wages of $30,000. 2. W-2 for Mrs. Black for $2,000, the value of fringe benefits not included in the above W-2. Mrs. Black did not pay for the fringe benefits. 3. Benefits of $5,000 paid to Mr. Black from a health and accident plan for which the premiums were paid by his employer but included in his income.

$32,000

Foreign Housing Allowance

$32,610 =<$17,392 is included in income $17,932 - $32,610 is excluded > $32,610 included

In 2021, Janice volunteered at her local art museum where she conducted art-education seminars. She was required to wear a blazer that the museum provided, but she paid the dry cleaning costs of $200 for the year. The blazer was not suitable for everyday use. Her travel to and from the museum was 1,000 miles for the year. She estimates the value of the time she contributed during the year at $2,000 ($20/hr × 100 hours). Her Schedule A deduction for charitable contributions is which of the following?

$340 the statutory standard mileage rate of $0.14 per mile. Also, out-of-pocket expenses are included if they involve items that can be used solely for the purpose of volunteer work (Publication 17). Therefore, Janice may deduct $340 of her expenses as a charitable contribution [($200 + (1,000 miles × $0.14)].

Julie and Frank were married on March 10. Both are full-time third-grade teachers, and they equally incurred a total of $350 in expenses for books and supplies used in the classroom and were not reimbursed by the school. What amount are they entitled to deduct as an education expense on their joint income tax return?

$350 Primary and secondary school educators may claim a $250 deduction for AGI annually in unreimbursed expenses paid or incurred for books and supplies used in the classroom. For MFJ taxpayers, the deduction limit is doubled ($500) but no more than $250 each. The deduction may not exceed actual expenses of $500.

The deduction for employment achievement awards (tangible personal property awarded to an employee by reason of length of service or safety achievement) to

$400 per employee per year or $1,600 per employee per year if it is a qualified plan award. A qualified plan award is an item awarded as part of a permanent, written plan or program that does not discriminate in favor of highly compensated employees

Erin, a flight attendant, received wages of $45,000 for the year. The airline provided transportation on a stand-by basis, at no charge, from her home in Detroit to the airline's hub in Chicago. The fair market value of the commuting flights was $7,500. Also, Erin received reimbursements, under an accountable plan, of $15,000 for overnight travel but only spent $9,000. The excess was returned. Erin became disabled in November and received workers' compensation of $6,000. What amount must Erin include in gross income on her tax return?

$45,000

Mr. A sold a tract of land and reported the sale using the installment method of accounting. The net sale price was $80,000, and the cost basis was $40,000. After A's death, the final $10,000 installment (plus interest) was collected by his personal representative. What amount (other than interest) must be reported as profit on a Form 1041, U.S. Income Tax Return for Estates and Trusts, for the year in which the $10,000 was received?

$5,000 Income in respect of a decedent is the amount that the decedent had a right to receive prior to death but that was not properly includible on his or her final income tax return. It retains its same character and tax status to the recipient as it would have been in the hands of the decedent. There is no step-up in basis under Sec. 1014(c), so the same gross profit margin is used on an installment receipt. The gross profit margin was 50% ($40,000 ÷ $80,000), so $5,000 ($10,000 × 50%) is income in respect of a decedent. The remaining $5,000 is merely a return of capital.

Paula won $5,000 in the lottery in 2021. She also won $200 playing bingo at her lodge hall. She is not a professional gambler. She kept meticulous records of the $6,550 she spent on gambling expenses. How much may she deduct on her Schedule A as an other deduction?

$5,200

Chris flew to Chicago for surgery. He incurred the following costs in connection with the trip: Round-trip airfare - $350 Lodging ($100/night × 2 nights) - $200 Restaurant meals = $80 Hospital and surgeon - $5,000 What is Chris's medical expense?

$5,450 You can claim airfare, $50/night, and the medical related expense

Smith paid the following unreimbursed medical expenses: Dentist and eye doctor fees $ 5,000 Contact lenses $500 Facial cosmetic surgery to improve Smith's personal appearance (surgery is unrelated to personal injury or congenital deformity) $10,000 Premium on disability insurance policy to pay him if he is injured and unable to work $2,000

$5,500

On May 1 of the current year, Sam, a cash-basis taxpayer, leased office space from Executive Plaza for 5 years for $700 per month. During the year, he paid $7,000, of which $1,400 was for advance rent, to Executive Plaza. What is the amount Sam can deduct for rent for the current year?

$5,600 Prepaid rent may not be deducted by either a cash-basis or accrual-basis taxpayer.

The maximum value of employer-provided vehicles first made available to employees for personal use in 2021 for which the cents-per-mile valuation may be used is

$51,100

Jean Blanc, a citizen and resident of Canada, is a professional hockey player with a U.S. hockey club. Under Jean's contract, he received $68,500 for 165 days of play during the current year. Of the 165 days, 132 days were spent performing services in the United States and 33 playing hockey in Canada. What is the amount to be included in Jean's gross income on his Form 1040-NR?

$54,800 A nonresident alien must include in U.S. gross income that income from U.S. sources effectively connected with the conduct of a trade or business in the United States (Sec. 871). Under Sec. 864, the performance of personal services in the U.S. constitutes a trade or business in the United States. If income is derived therefrom, it is considered to be from a U.S. source (Publication 17). According to the IRS and the courts, services of a professional hockey player are allocable to U.S. and non-U.S. time periods during the preseason training camp, the regular season, and post-season playoffs, but not the off-season. Therefore, Jean must include the portion of his income that is attributable to the performance of personal services in the U.S., i.e., 80% (132 ÷ 165 days). Eighty percent of $68,500 is $54,800, which must be reported as U.S. income.

Ms. Guy's books and records reflect the following for 2021: Salary: $57,000 Interest on money market account (credited to her account in 2021, withdrawn in 2022): $1,865 Deposit from the pending sale of her rental property: $4,000 Interest on savings account (credited to her account in 2020, withdrawn in 2021): $200 What is the amount Ms. Guy should include in her gross income for 2021?

$58,865 The $4,000 deposit from the pending sale of rental property is not included because the income has not constructively been received; The $200 credited in 2020

Retirement plan may make contributions to an IRA that are fully deductible, up to the lesser of

$6,000 ($7,000 for taxpayers age 50 or older) An additional $6,000 may be contributed to the IRA for the taxpayer's nonworking spouse if a joint return is filed

Maria had municipal bond interest of $6,000, certificate of deposit interest of $4,000, reinvested corporate bond interest of $2,000, mutual fund municipal bond interest of $7,000, and savings account interest of $1,000. What is Maria's taxable interest?

$7,000

James (33) and his wife Erica (31) established a Health Savings Account (in conjunction with a high-deductible health plan) on February 1, 2021. The annual health plan deductible is $10,000. What is the maximum amount that can be contributed to the Health Savings Account?

$7,200 HSA - Family coverage - A HSA can be a tax exempt trust - A Health Savings Account can be a custodial account set up with a U.S. financial institution. - The taxpayer need not have the insurance for the whole year to contribute the full amount.

Ms. Smith, a cash-method taxpayer, died on September 30 of the current year. Subsequent to her death, but prior to December 31 of the current year, her beneficiary received the following: Rental income for September - $1,500 Proceeds from a life insurance policy - $20,000 Dividend date of record October 7 of the current year - $6,000 What amount is considered income in respect of a decedent?

$7,500 Income in respect of a decedent is that which is earned by the taxpayer but is neither received prior to his or her death nor accrued prior to his or her death if on the accrual method,

James is a sole proprietor. In May, he had the following expenses: - $500 for use of a yacht for a day's fishing with two clients - $50 lunch at a local restaurant with a client with whom he discusses a new product line - $200 for dues to the country club where he plays golf with a client who provides James with 40% of his commissions - $50 for a cheese package given to one of his clients on the client's birthday What is the allowed expense deduction based on these May expenses?

$75 The taxpayer or the taxpayer's employee must be present at the meal. James is able to deduct $50 for the lunch with a client, during which he discussed a new product line, and $50 for a cheese package as a birthday present, for a total of $100 in expenses before any limitations. However, business gifts are limited to $25. The total deduction is $75 ($50 meal + $25 gift limit).

Ruby Diaz is a commissioned salesperson. She is a cash-method taxpayer. At the end of the current year, her earnings for the year were $75,000. During the year, she also received $10,000 in advances on future commissions and repaid $8,000. How much income should Ruby report for the current year?

$77,000 Both cash- and accrual-basis taxpayers must include amounts in gross income upon actual or constructive receipt if the taxpayer has an unrestricted claim to such amounts under Reg. 1.61-8(b). All commissions received should be included in the current year's gross income. The $8,000 repaid reduces gross income [Publication 17 and IRC Reg. 1.61-8(b)]. Ruby should report $77,000 ($75,000 + $10,000 - $8,000).

Mr. E donated stock, which he had held for 10 months, to his church. The stock had a fair market value of $1,000 at the time of the gift, but had only cost Mr. E $800. What amount can he deduct as a charitable contribution?

$800 A charitable contribution is the fair market value of the property

Geraldine, a single taxpayer, had investment income from dividends and a net gain on the sale of investment property that totaled $12,000. Geraldine's investment expenses of $2,980, other than interest, were directly connected with the production of the investment income. Geraldine's adjusted gross income was $100,000, and her investment interest paid was $12,500. When figuring her investment interest deduction, she chooses to include all of her net capital gain in investment income. What is Geraldine's investment interest deduction?

$9,020

Real Property - Tax Deductions

- State and local real property taxes are deductible (Federal are not) - Taxes paid to a financial institution and held in escrow

. The local real estate taxes on the personal residence ($3,425) and the state income taxes ($1,250) are deductible as itemized deductions for a total of $4,675. The real estate taxes on the rental property may be deductible, but not as an itemized deduction. Gift taxes are not deductible (Publication 17).

The amount that may be contributed to a taxpayer's Health Savings Account depends on the nature of his or her coverage and his or her age:

1. For self-only coverage, the taxpayer or his or her employer can contribute up to $3,600 ($4,600 for taxpayers aged 55-64). 2. For family coverage, the taxpayer or his or her employer can contribute up to $7,200 ($8,200 for taxpayers aged 55-64). 3. Contributions are not allowed for taxpayers aged 65 and over or for taxpayers enrolled in Medic 4. For family coverage, the taxpayer or his or her employer can contribute up to $7,200 for 2021

Requirement for alimony payments

1. Has to be cash 2. Cannot be a transfer of services 3. They are no longer required after the death of the recipient spouse. 4. It is received under a divorce instrument

Who is not allowed to file using a standard deduction?

1. Persons who itemized their deductions 2. Nonresident alien individuals 3. Individuals who file "short period" return 4. Married individual who files separate return, spouse itemized 5. Partnerships, estates, trusts, corporations

Qualifying Child Test

1. Relationship Test 2. Age Test 3. Residence Test 4. Support Test

To be a qualifying relative, the following tests [1.-4.] must be met:

1. Relationship or residence. An individual must satisfy either a relationship or a residence requirement to qualify as a dependent. 2. Gross income of the individual (to be claimed as a dependent) must be less than $4,300 for 2021. 3. Support. The person who may claim an individual as a dependent must provide more than 50% of the (economic) support of the individual for the year. 4. The individual must not be a qualifying child of the taxpayer or any other taxpayer.

Which Items from the prior year return may be needed to complete the current year return?

1. State income tax refund 2. AMT for credit -- "alternative minimum tax" 3. Gain (loss) carry over

The spouse who revokes the resident status of the nonresident alien spouse must attach a signed statement declaring that the choice is being revoked. The statement revoking the choice must include all of the following

1. The name and address of any person who is revoking the choice for a deceased spouse 2. The name address and Social Security of each spouse 3. A list of states, foreign countries, and possessions that have community property laws in which either spouse is domiciled or where real estate property is located from which either spouse receives income ** The reason for status termination is not required

Under the rules governing the existence of a passive activity:

1. You participated in the activity for more than 500 hours 2. You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual for the year. 3. You participated in the activity for less than 50 hours during the current year, but you materially participated in the activity for 5 of the 10 preceding years.

Bank Corp., a calendar-year corporation, reimburses employees for properly substantiated qualifying business meal expenses provided by a restaurant. The employees are present at the meals, which are neither lavish nor extravagant, and the reimbursement is not treated as wages subject to withholdings. What percentage of the meal expense may Bank deduct?

100%

Start-up expenditures of a business must be amortized over a period of

180 Months

Jim Planter, who reached age 65 on January 1 of the current year, filed a joint return for the year with his wife, Rita, age 50. Mary, their 21-year-old daughter, was a full-time student at a college until her graduation on June 2 of the current year. The daughter had $8,600 of income and provided 25% of her own support during the year. In addition, during the year the Planters were the sole support for Rita's niece, who had no income and resided with the Planters. How many dependents should the Planters claim on their current-year tax return?

2 - - nieces and nephews are claimable

For 2020 and 2021, Malcom and Julie, husband and wife, paid health insurance premiums of $3,000 each year ($1,500 for each person). Malcom was self-employed, and his net profit was $70,000 in 2020 and $80,000 in 2021. Julie was unemployed in 2020 then took a job in January 2021. She had the option to join a subsidized health plan for the family with her employer but declined. Since this expense is not deductible on Schedule C, what amount can they deduct elsewhere as a business expense for the health insurance premiums on their 2020 and 2021 joint tax returns?

2020: $3,000; 2021: $0 Self employed persons may deduct 100% from gross income amounts 2021 normally. But the spouse elected to not take employer paid HC. So it is$0 for 2021.

On March 28, 2022, Rita sustained a loss to her personal property due to an earthquake. The property was in an area declared by the President of the United States to be eligible for federal disaster assistance. Based on the following facts, what is the maximum amount of Rita's casualty loss that can be deducted on her 2021 tax return, due April 15, 2022? Fair market value before the earthquake -$23,000 Fair market value after the earthquake - $6,300 Cost basis - $30,000 Disaster relief funds received to replace lost property - $2,300 Adjusted gross income for 2021 - $27,000

23,000-6,300-2,300-(27,000*10%) = $11,600 The deduction for non business casualty losses to the extent that each uninsured loss exceeds $100 and the aggregate of all such losses during the year exceeds 10% of AGI.

Amounts paid for qualified medical expenses that exceed --

7.5% of AGI may be deducted. Amounts paid to general health are not deductible.

David is an interstate truck driver subject to Department of Transportation hours of service, but he is not an employee. In 2021, he is allowed to deduct what percent of his meals he had while working as an interstate truck driver?

80% for transportation workers who are subject to Department of Transportation rules

If your Social Security benefits are considered taxable, the maximum percent of net benefits received that can be included in income is

85%

The acknowledgment an individual needs from any charitable organization to claim a deduction for any cash contribution of $250 or more in a single donation must include which of the following?

A contemporaneous written check

Mr. Hardwood has an adjusted gross income of $50,000. In 2021, he donated capital gain property valued at $25,000 to his church and did not choose to reduce the fair market value of the property by the amount that would have been long-term capital gain if he had sold it. His basis in the property was $20,000. In addition, he made the following contributions: $500 to upgrade the city public park $1,000 to the Hill City Chamber of Commerce $5,000 to a charitable organization in Germany Compute Mr. Hardwood's deduction for charitable contributions in the current year (without regard to any carryover or carryback amounts).

A denotation is limited to 30% of AGI. $15,500 = 50k*30% + $500

"constructive receipt"

A payment on a sale of real property was placed in escrow pending settlement, at which time title would be conveyed. Income, although not actually in a taxpayer's possession, is constructively received in the taxable year during which it is credited to his or her account, set apart for him or her, or otherwise made available so that (s)he may draw upon it at any time or so that (s)he could have drawn upon it during the taxable year if notice of intention to withdraw had been given (Reg. 1.451-2). However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions (Publication 538). Since the taxpayer's control of the receipt of the funds in the escrow account is substantially limited until the transaction has closed, the taxpayer has not constructively received the income until the closing of the transaction in the following year.

Substantial Presence Test

A taxpayer is considered a U.S. resident if (s)he was physically present in the United States for at least a. 31 days during 2021 and b. 183 days during 2021, 2020, and 2019, counting all days of physical presence in 2021 but only 1/3 the number of days of presence in 2020 and only 1/6 the number of days in 2019.

Medical Deduction

Amounts paid for qualified medical expenses that exceed 7.5% of AGI may be deducted. - Diagnosis, cure, mitigation, treatment - Medical insurance - Qualified long-term care premiums and services - Smoking cessation programs and prescribed drugs designed to alleviate nicotine withdrawal - Transportation primarily for and essential to medical care - AC - Dehumidifying equipment - Medicare Part B

Due Date for Filing for Taxes

An automatic extension of 6 months is provided for an individual who files Form 4868 or uses a credit card to make the required tax payment on or before the initial due date. A U.S. citizen or resident who is on military or naval duty outside the U.S. (or Puerto Rico) on April 15 is given an automatic 2-month extension without the necessity of filing Form 4868. Filing of Form 4868 during the 2 months will allow another 4-month extension. The due date for a decedent's final return is the date on which the return would have been due if death had not occurred. A Form 1040-NR nonresident alien's tax return (when not subject to wage withholding) must be filed by the 15th day of the 6th month after the close of the tax year (unless extended). A nonresident alien must file his or her tax return on the 15th day of the 4th month after the close of the tax year (unless extended) if his or her wages are subject to withholding.

On July 1, 2018, Correy refinanced his mortgage and obtained a new 30-year loan. He paid $3,600 (1% of the loan value) to obtain an 8% rate. On March 1, 2021, Correy sold his home and purchased a new house, with a down payment of $10,000. He paid an additional 1% of the loan value ($3,600) to obtain a 30-year loan with an 8% interest rate. Points are normal business practice and were reasonable in the area in which Correy lived. Assuming mortgage payments were made at the end of the month, how much can Correy deduct as points on his 2021 tax return?

Ans. = $6,900 $3,600/360 = $10/month points are deducted over the term of the loan.

Fred, a calendar-year, cash-basis taxpayer who died in June of the current year, was entitled to receive a $10,000 accounting fee that had not been collected before the date of death. The executor of Fred's estate collected the full $10,000 in July of the current year. This $10,000 should appear in

Both the fiduciary income tax return and the estate tax return. Income that a decedent had a right to receive prior to death but that was not includible on his or her final income tax return is income in respect of a decedent. The $10,000 is properly includible in the estate's (fiduciary) income tax return because Fred was a cash-basis taxpayer and would not properly include income not yet received at the time of death in his final return. Since the money was owed to Fred (he has a right to receive it), it is an asset of the estate and must be included on the estate tax return also.

Which of the following is a FALSE statement concerning use of the standard mileage rate in computing deductible transportation expenses? Select only one option. A. You may use the vehicle for hire, such as a taxi. B. You may use up to four cars at a time in the business. C. You must use the vehicle over 50% of the time for business. D. You must own or lease the vehicle.

C. You must use the vehicle over 50% of the time for business.

Military Officer - Gross Income

Can exclude up to the highest rate of basic pay of enlisted personnel + any hostile fire/imminent danger pay Needs to be in a combat zone or hospital

Casualty gains from the loss of personal property are considered to be

Capital

If a nonresident alien receives income that is effectively connected with U.S. trade or business, which itemized deductions may be taken?

Casualty and theft losses from a federally declared disaster

Form 1099-G -

Certain Government Payments

Clarence, a real estate professional, owned 10 rental properties. Clarence's real estate activities are his sole occupation, which he works at all year. Throughout 2021, Clarence was involved in the operation of all properties on a regular, continuous, and substantial basis. At the end of the year, his real estate operations resulted in a $75,000 net loss. Clarence's spouse, Carlette, had received $90,000 in wages in 2021. Their only other income during the year was $5,000 interest. Which of the following statements is true?

Clarence and Carlette may fully offset their $95k income with their $75k real estate loss on their joint tax return. This is treated as non passive because 1. more than 1/2 of personal services performed in real estate 2. the tax payer must perform more than 750 hours of work and they must be filing jointly. This will allow them to offset the entire income with the $75K

Which of the following is a deductible transportation expense for a self-employed individual?

Cost of round trip between an individuals home and temporary training site

IRA - additional 10% tax on a premature distribution

Distribution from an IRA to participant before he / she reaches 59 1/2 are subject to 10% penalty tax. This exempt if the tax payer dies, if pulled to pay medical expenses that are greater than 7.5% of AGI, pulled out for higher education, or someone becomes disabled

Form 1099-R -

Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Form 1099-DIV -

Dividends and Distributions

Kenneth's employer gives him $500 a month ($6,000 for the year) for his business expenses. Kenneth does not have to provide any proof of his expenses to his employer, and he can keep any funds that he does not spend. His actual expenses for the year were $1,000 for lodging, $600 for meals while away from home, and $2,000 for entertainment. What reporting is required of Kenneth's employer, and what reporting is required of Kenneth?

Employer adds $6,000 to wages reported on Keeneth's form W2. Kenneth takes no deductions

Which form is used to claim the foreign earned income exclusion?

Form 2555

Report of Foreign Bank and Financial Accounts

Generally, any U.S. citizen, resident, or person doing business in the United States who has an ownership interest in, or signatory authority or other authority over, a financial account (or several accounts) in a foreign country with an aggregate value in excess of $10,000 at any time during the calendar year must file a Form FinCEN Report 114, Report of Foreign Bank and Financial Accounts (commonly referred to as an FBAR)

Fringe Benefits - Gross Income

Generally, not included so as long as the employer can deduct costs as ordinary, necessary business expense

Reimbursements from the U.S. military of a moving expense the military member/taxpayer properly deducted on last year's tax return.

Generally, should be included in gross income. Section 82 specifically provides that, except as provided in Sec. 132(a)(6), gross income includes amounts received as reimbursement of moving expenses that are attributable to employment. Under Sec. 132(a)(6), the reimbursement is excluded if the expense would be deductible under Sec. 217 if paid by the employee. It may not be excluded, however, if the expense was actually deducted on the individual's return for any prior tax year

Mrs. Domino made deductible contributions to traditional individual retirement accounts for several years. Mrs. Domino decides to withdraw $10,000 from one of her accounts in 2021. Mrs. Domino is 61 years old. How does this transaction affect Mrs. Domino's tax return for 2021?

He must report the entire $10,000

Statutory Employee

In business for themselves, but works primarily for a specific company (needs to be 1 on these): 1. Driver 2. Full time Life Insurance Agent 3. Individual who works at home on good supplied to them and then returned to the supplier 4. Full time traveling sales person Needs to meet the following 3 conditions 1. Service contract states or implies that all services are performed by that individual 2. individual does not have investment in equipment or property to perform services 3. Services are performed on a continuing basis ** W-2 with checking box 13 **

Which of the following is treated as personal interest of Individual A? Interest incurred on refinancing A's home if the funds are used to substantially improve the qualified residence. Interest incurred to purchase bonds as an investment. Interest incurred by a limited partnership in which A is a limited partner. Interest incurred on an ordinary bank loan if the funds are used to provide medical care for a dependent of A.

Interest incurred on an ordinary bank loan if the funds are used to provide medical care for a dependent of A. Personal interest is defined in Sec. 163 as any interest other than qualified residence interest, investment interest, interest taken into account in computing income or loss from a passive activity, interest in connection with a business, student loan interest, and interest during certain extensions of time to pay the estate tax.

In 2021, the U.S. President declared a federal disaster due to flooding in West Virginia. Lisa lives in that area and lost her home in the flood. What choice does she have regarding when she can claim the loss on her tax return?

It may be claimed in 2020 or 2021. If a taxpayer has a casualty loss from a disaster that occurred in a federally declared disaster area, (s)he can choose to deduct that loss on the current year's tax return or (s)he may amend the return for the tax year immediately preceding the tax year in which the disaster occurred (Publication 547).

During 2021, Hanya was a nonresident alien engaged in a business in the United States. All of her income was from self-employment. Hanya is a calendar-year taxpayer. When is Hanya's income tax return due if she does not apply for an extension of time to file (ignoring weekends and holidays)?

June 15, 2022 -- a non resident alien subject to wage withholding

Kelley's employer gave her stock in the current year for services performed with the condition that she would have to return the stock unless she completed 3 years of service. At the time of the transfer, her employer's basis in the stock was $6,000, and its fair market value was $8,000. Kelley did not make the Sec. 83(b) election. How much should she include in her income for the current year, and what would be her basis in the stock?

Kelley would not report any income or have any basis in the stock until she has completed 3 years of service. Under the claim-of-right doctrine, a taxpayer receiving income under a claim of right and without restrictions on its use or disposition is taxed on that income in the year received even though the right to retain the income is not yet fixed or the taxpayer may later be required to return it (Publication 538). In this case, however, there is a substantial limitation on the stock's use and/or disposition because Kelley must return the stock if she does not complete 3 years of service. Therefore, Kelley will not report any income or have any basis in the stock until she has completed 3 years of service.

Kelley would not report any income or have any basis in the stock until she was completed 3 years of service. "Claim of right Doctrine"

Wash Sales

Losses from wash sales are not deductible A wash sale occurs when a taxpayer sells or trades an asset at a loss and, within 30 days before or after the sale

Joe is 37 years old. His wife died during the tax year, and he has not remarried. His deceased wife had no income. He has two minor children living with him. Joe paid all of the costs for keeping up his home for the tax year, and he has paid for all of the support of his wife and these children. The filing status with the lowest tax rate for which Joe qualifies is

Married filing jointly. Publication 501 states, "If your spouse died during the year, you are considered married for the whole year for filing status purposes. If you didn't remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er)" (Publication 17).

Mr. W died early in the current year. Mrs. W remarried in December of the same year and therefore was unable to file a joint return with Mr. W. What is the filing status of the decedent, Mr. W?

Married filing separate return -- in the even the surviving spouse remarries within the year

Which dependent relative does NOT have to live in the same household as the taxpayer claiming head of household filing status?

Mother / Father Section 2(b) provides head of household status for an unmarried taxpayer who maintains a household that constitutes the principal place of abode of the taxpayer's father or mother, but only if the taxpayer is entitled to claim the parent as a dependent. The taxpayer is considered as maintaining a household only if (s)he furnishes over half of the cost of maintaining it. In the case of anyone other than the taxpayer's father or mother, such person(s) must actually occupy the taxpayer's own household for the taxpayer to be considered a head of household (Publication 17).

Ms. Maple, a single woman age 65, retired in 2021. Prior to her retirement, she received a $6,000 bonus plus $5,250 in wages. After her retirement, she received $9,000 in Social Security benefits. Which of the following is true?

Ms. Maple does not have to file a 2021 income tax return. In general, a taxpayer does not have to file a return if his or her gross income is less than his or her standard deduction [Publication 501 and Sec. 6012(a)]. For single individuals who are 65 or over, the standard deduction increases by $1,700. Therefore, the filing threshold will be $14,250 ($12,550 basic standard deduction + $1,700 additional standard deduction). Ms. Maple's income does not qualify her Social Security benefits for gross income inclusion in determining her filing requirement.

Ms. Miller set up a computer system for Mr. Town's business. In return, Mr. Town gave Ms. Miller a storage facility. Ms. Miller plans to use this facility for business purposes and plans to depreciate it. The fair market value of Ms. Miller's services and the storage facility was $50,000. Mr. Town's basis in the storage facility was $30,000. How should Ms. Miller treat the transaction, and what is her depreciable basis for the property?

Ms. Miller should include $50,000 in income and use $50,000 as the basis for the storage facility. All compensation for personal services is gross income. The form of payment is irrelevant. If services are paid for in property, its fair market value at the time of receipt is gross income. The amount included in income becomes the basis in the property. Since the building's FMV at the time of the exchange is $50,000, the amount of income recognized and Ms. Miller's basis in the property is equal to $50,000 (Publication 17).

Due to Mr. Sandburg's poor financial situation, Mr. Bond canceled the $4,000 debt that was due Mr. Bond on June 24 of the current year, with the understanding that the cancellation was not a gift. Mr. Sandburg was not insolvent or bankrupt at that time. As a result, Mr. Sandburg

Must include $4,000 in his gross income. Under Sec. 61(a)(12), gross income includes income from the discharge of indebtedness unless it is excluded under Sec. 108. The cancellation will be excluded if the debt is canceled due to a bankruptcy action or if the taxpayer is insolvent outside bankruptcy (Publication 17). Because Mr. Sandburg was not insolvent or bankrupt, he must include the $4,000 in gross income.

Form 1099-NEC -

Nonemployee Compensation

Original Issue Discount (OID)

OID is the excess, if any, of the stated redemption price at maturity over the issue price and is included in income based on the effective interest rate method of amortization. $40 bond with no interests pays $100 in 5 years. In this case no interest is paid but we need to claim the implied interest every year if it is greater that $10/year

Patsy lent money to Scarlett in Year 1. Scarlett signed a loan agreement and made the agreed-upon monthly payments until May of Year 3, when she stopped making payments. Patsy called Scarlett and wrote her a letter requesting payment but received no response. Then Patsy read in the newspaper that Scarlett had filed for bankruptcy with no assets. Patsy can take a deduction for a bad debt

On her timely filed year 3 return or by amending her year 3 return within 7 years

Optimistic borrowed $20,000 to buy a machine for his printing business. Shortly thereafter, the economy went into a deep recession and Optimistic was not able to repay the debt although he was not insolvent. In the current year, the creditor reduced the debt by $10,000 so Optimistic could afford to pay it. The creditor was not the seller of the machine. As a result of this reduction of debt,

Optimistic has $10,000 of income. The cancellation of indebtedness is included in gross income under Sec. 61(a)(12). Under Sec. 108, the discharge of indebtedness is excluded from gross income if the debtor is insolvent, in bankruptcy reorganizations, a farmer, or a taxpayer other than a C corporation that has invested in real property. The canceled debt can also be excluded if it relates to a purchase-money debt reduction. Since none of these apply, the $10,000 reduction of debt is included in Optimistic's income (Publication 17).

Form 1099-OID -

Original Issue Discount

To be a qualifying child, four tests must be met:

Relationship - The child must be the taxpayer's son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or any descendant of any such relative. Adopted individuals and eligible foster children meet the relationship test.NOTE: An adopted child is always treated as the taxpayer's own child; i.e., the term "child" includes "adopted child." Age - The child must be (a) under the age of 19 at the end of the year, (b) a full-time student under the age of 24 at the end of the year, or (c) any age if permanently and totally disabled. Full-time student status requires 5 months of enrollment or registration at a school or in an on-farm training course. Principal Residence - The child must have the same principal place of abode as the taxpayer for more than half of the year. Not Self-Supporting - The child must not have provided over half of his or her own support.

Nondeductible expenses include:

Rent and insurance premiums paid for the taxpayer's own dwelling; Life insurance premiums paid by the insured; Upkeep of a personal automobile; Personal interest; and Payments for food, clothing, or domestic help.

In the current year, Ms. Smith withdrew her funds from a time-savings account before maturity and was charged a penalty of $2,000 for early withdrawal. The interest earned on the account in the current year was $1,600. Ms. Smith had no other interest income. How should Ms. Smith report this transaction on her current-year individual income tax return?

Report the $1,600 in interest income; deduct the penalty of $2,000 as an adjustment to gross income.

Amy bought shares in the Oppenheimer Mutual Fund for $250. She received a capital gain distribution, also known as a capital gain dividend, of $90 on Form 1099-DIV for the current year. How should Amy report the capital gain dividend on her tax return?

Report the $90 as long-term capital gain. A capital gain dividend is a distribution by a regulated investment company, or mutual fund, of capital gains realized from the sale of investments in the fund. Capital gain dividends are long-term regardless of how long the shareholder has owned the stock of the regulated investment company

Which of the following is income in respect of a decedent a. Cash received from a grandmother's estate. b. Royalties received on the deceased father's published book; the right to receive these royalties was distributed from the father's estate. c. Certificate of deposit received as a gift. d. Both cash received from a grandmother's estate and royalties received on the deceased father's published book; the right to receive these royalties was distributed from the father's estate.

Royalties received on the deceased father's published book; the right to receive these royalties was distributed from the father's estate. Income in respect of a decedent is the amount that is earned by the taxpayer but not received prior to his or her death nor accrued prior to his or her death if on the accrual method, so it is not included in the decedent's final return. Income in respect of a decedent is included in the recipient's (e.g., the estate's) income in the year received or accrued.

Schedule K-1 (Form 1120-S) -

Shareholder's Share of Income, Deductions, Credits, etc.

Larry and Marge Strong are married and living together. They have decided to file joint federal income tax returns for 2021. Larry is an active participant in his employer's pension plan. Marge is not an active participant in any plan. Each contributed $6,000 to an individual retirement account (IRA) on February 1, 2022. Larry's adjusted gross income is $130,000 and Marge's is $73,000. The deductible portion of Marge's contribution to her IRA is

Since Larry is an active plan participant and makes more than $125k, he is not allowed to deduct IRA. Marge is not an active plan participant, and does not exceed the AGI limits - we can claim her half $3,000

John and Linda Smith are a childless married couple with no other dependents who lived apart for all of the current year. On December 31 of the current year, they were legally separated under a decree of separate maintenance. Based on the facts, which of the following is the only filing-status choice available to them for the current year?

Single. The determination of whether an individual is married is made as of the close of the taxable year, so John and Linda are both single for the current year (Publication 17). Couples under a separate maintenance agreement are not considered married.

Sunnie is single and under the age of 50 and does not actively participate in her employer's pension plan. She received taxable compensation of $5,500 in 2020 and $6,000 in 2021. Her modified adjusted gross income was $25,000 in both years. For 2020, she contributed $6,000 to her IRA but deducted only $5,500 on her income tax return. For 2021, she contributed $5,500 but deducted $6,000 on her income tax return. Based on this information, which of the following statements is true?

Sunnie must pay an excise tax for 2020 on the $500 excess contributions made in 2020. But since she did it properly in 2021, she will not owe an excise tax for 2021

Sydney is an outside salesman with a sales territory covering several states. His employer's main office is in Milwaukee, but Sydney does not go there for business reasons. Sydney's work assignments are temporary, and he has no way of knowing the locations of his future assignments. He often stays with a sister in Cleveland or a brother in Chicago over some weekends during the year, but he does not work in those areas. He does not pay his sister or brother for the use of the rooms. Which location is considered Sydney's tax home?

Sydney does not have a tax home. She is itinerant since she has not established a residence

Start-Up Costs

Taxpayers can deduct up to $5,000 of start-up costs and $5,000 of organizational expenditures in the taxable year in which the business begins Examples of start-up costs include the costs of investigating the creation or acquisition of an active trade or business

In 2013, Mr. P bought a residential lot for $8,000 and built a house on it at a cost of $52,000. He added an in-ground swimming pool costing $15,000 in 2015. The house was destroyed by fire in 2021 in a federally declared disaster, and he received a $45,000 insurance settlement. The fair market value of the property was determined to be $115,000 immediately before the fire and $25,000 immediately after. Mr. P's adjusted gross income for 2021 was $65,000. What is the amount of his nonbusiness casualty loss deduction?

The property value is equal to $75k = $8k + $52k + $15k Fair market = $115k then subtract the $25k = $90k The Loss = $75K less the insurance ($45k) - $100 per occurrence - 10% of AGI ($65k) = $23,400

In December of the current year, Mr. Stone cashed qualified Series EE U.S. Savings Bonds, which he had purchased 10 years ago. The proceeds were used for his son's college education. All of the following statements are true concerning the exclusion of the interest received EXCEPT a. He cannot file as married filing separate. b. Eligible expenses include room and board. c. If the proceeds are more than the expenses, he will be able to exclude only part of the interest. d. Before he figures his interest exclusion, he must reduce his qualified higher educational expenses by certain benefits.

b. Eligible expenses include room and board. Max -- $98,200 single or $154,800 Married Bond needs to mature after the 24th birthday of the dependent

Which payment(s) is(are) included in a recipient's gross income? 1. Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement toward obtaining the degree. 2. A grant to a Ph.D. candidate for his participation in a university-sponsored research project for the benefit of the university.

both Payments for services performed should accounted for. Grants that can be excluded are monies used towards tuition, books, supplies, or equipment

Jury duty pay returned to an employer is

deductible by the employee from gross income.

IRA deduction - gross income not allowing deduction

single or head of household = $76k married filing jointly or qualifying widow(er) - $125K

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