Income Tax- Section 4 Quiz

Lauren paid $3,000 in interest on her student loans this year. Lauren is single and earned $69,000 from her job as an analyst and $8,500 in interest income. She had no other income this year. What amount of Lauren's student loan interest is deductible for her adjusted gross income (AGI) this year?

$1,250 Lauren's AGI of $77,500 is within the phase-out range, so the maximum deduction of $2,500 would be reduced. The deductible amount is [($85,000 maximum in range - $77,500 AGI) / $15,000 range] • $2,500 maximum deduction = $1,250

Phil and Becky, both aged 48, are married and filed a joint federal income tax return for the current year. Their adjusted gross income was $113,000, $95,000 of which was Phil's salary. What amount could they contribute to IRAs for 2020 to take advantage of their maximum allowable IRA deduction for their return?

$12,000 Since they are not covered by a retirement plan, they are allowed a deductible of $6,000 IRA contribution for Phil plus $6,000 deductible contribution to a spousal IRA. A total deductible IRA contribution of $12,000 is allowed.

Kristin is single, and her share of qualified business income (QBI) from a partnership is $135,000. Her adjusted gross income is $150,000. Her total taxable income from all sources before taking the 20% QBI deduction is $125,000. What is the amount of the Section 199A QBI deduction that Kristen can take this year?

$25,000 The deductuon is the lesser of 20% of Kristin's QBI and 20% if taxable income. 20% of her QBI is $27,000. 20% of her taxable income is $25,000. Therefore, her QBI deduction is $25,000

Last year, Jacque paid the following interest: • $7,300 on a home mortgage • $1,000 on a home equity loan used to purchase furniture for a personal residence. • $1,800 on a loan used to purchase State of Louisiana general purpose bonds If Jacque itemizes his deductions for last year, what is the amount of deductible interest expense?

$7,300 on a home mortgage. Only the interest on a home mortgage is deductible. The interest on the home equity loan used to purchase household furniture is not deductible based on the TCJA. The interest on the loan to purchase State of Louisiana bonds is not deductible because he used the loan to purchase tax-exempt municipal bonds.

Marcia and Darius are married, and together they have an AGI of $60,000. They have no dependents, and they file a joint federal income tax return. Each pays $4,800 for medical insurance. During the year, they paid the following amounts of medical care, for which they were not reimbursed by insurance: • $3,600 in doctor and dentist bills and hospital expenses. • $800 in prescription drugs Determine the deduction allowable for medical expenses paid during the year.

$9,500 Marcia and Darius can claim a medical expense deduction of $9,500, or $14,000-$4,500, for the current year. The total medical expenses paid equals $14,000, or $4,800+$4,800+$3,600+$800, and the expenses above the 7.5% AGI limitation of $4,500, or 7.5% • $60,000, are deductible. $14,000 - $4,500 = the allowable $9,500 medical expense deduction.

Mohammed has decided to make charitable contributions of property this year. He donates a piece of art that he created to a local art museum. The artwork has an adjusted basis of $900 and a fair market value of $40,000. His AGI is $90,000. What is his charitable deduction for this year?

$900 The deduction for a work if art created by the donor is limited to the creator's adjusted basis in the property.

Which of the following is (are) deductible for AGI? • Alimony paid to the taxpayer's Ex-Spouse (2016 Divorce) • Capital losses • Ordinary and necessary expenses incurred in a business. • A contribution to a Roth IRA • Child support paid to the taxpayer's Ex-spouse

1,2, and 3; Child support payments are excluded from income for the parent receiving the support, and the parent payinf the support does not get a deductuon. Contributions to Roth IRAs are not deductible for AGI.

During the current year, Sam, a self-employed individual, paid the following amounts: • $5,000 in federal income tax • $3,000 in state income tax •$800 in real estate taxes on land (held as an investment) • $600 in state sales taxes • A $400 state occupational license fee What amount can Sam deduct as taxes by itemizing his deductions?

$3,800 State income and real estate taxes are deductible as itemized deductions. Federal income taxes paid are deductible from tax liability but are not itemized deductions. A taxpayer may deduct the greater of the state income tax and state sales tax, but he may not deduct both. Occupational license fees are deductible as a direct business cost, but they are deducted from AGI, not as itemized deductions.

Which individual can make a deductible contribution to a traditional IRA in the current year? • Phil, who is married, has an AGI of $155,000, and his spouse is an active participant in her employer's defined-contribution plan. However, Phil is not an active participant. • Kyle, who is single, has an AGI of $85,000 and is an active participation ant in his employer's defined-benefit plan. • Claire, who is married, has an AGI of $135,000 and is an active participant in her employer's defined-contribution plan. • Kim, who is single, and has no earned income.

Phil, b/c although Phil's spouse is an active participanr, phil is not. Therefore he may make a deductible contribution to a traditional IRA as long as their joint AGI doesn't exceed $206,000. Option B is incorrect b/c Kyle's AGI exceeds the phase-out range for single individuals who are active participants. Option C is incorrect b/c Claire's AGI exceeds the phase-out ranfe for married individuals who are active participants. Option D is incorrect b/c Kim mist have earned income in order to contribute to a traditional IRA.

All the following are deductions for adjusted gross income (AGI) EXCEPT: • Maintenance expenses for a rental property actively managed by the taxpayer • Moving expenses of a taxpayer who is an active duty member of the Armed forces • Real estate taxes • One-half of self-employment tax

Real Estate Taxes- are deductible FROM AGI and are limited to $10,000 after 2017. Moving Expenses are not deductible for most people, but they are above the line deductions for members of the armed forces. One-half of self employment taxes paid and maintenance expenses for rental property actively managed would be deductible for AGI as well.