Income Tax Accounting Chapters 4-6
Which of the following tax credits is not available for the 2016 tax year?
All of the above are available credits
Household income for purpose of the premium tax credit includes all of the following except
All of the above are included in household income
Which one of the following is not tax deductible?
All of the above are tax deductible. (Real estate taxes, Property taxes, Local income taxes, State income taxes)
Which of the following is not deductible as an itemized deduction?
All of the above may be deductible as itemized deductions. (State income taxes, Personal property taxes, Charitable contributions, Local income taxes)
A parent may elect to include a child's income in the parent's return if:
All of the above must be met for a parent to elect to include a child's income in the parent's return.
A tax credit is allowed for qualified adoption expenses paid by taxpayers:
And an income exclusion is allowed for qualified adoption expenses paid for by taxpayers' employers.
Which of the following statements is true of a distribution rollover (not a trustee-to-trustee transfer) from a retirement plan?
Assuming there are no unusual events, the taxpayer has a maximum of 60 days in which to transfer funds to a new plan to avoid current taxes & penalties.
Which of the following is not a requirement to claim an earned income credit?
At least one child claimed as a dependent
Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitaion.
False
Lodging for a trip associated with medical care associated with a licensed hospital is not deductible.
False
Margo and her spouse have health insurance for the entire year through the state health care exchange. Margo will need to pay her spouse's individual shared responsibility.
False
Most states are community property states.
False
Net losses on the rental of vacation homes are limited to 15 percent of total gross income.
False
New York is a community property state.
False
Passive losses are fully deductible as long as they do not exceed $50,000 during the year.
False
Passive losses of one activity may not be used to offset passive income from another activity.
False
The 2016 standard mileage rate for taxpayer use of a personal auto for transportation for medical care is $.23 per mile.
False
The cost of a fishing license is considered a personal property tax and is deductible as an itemized deduction.
False
The cost of over-the-counter aspirin and decongestants is a deductible medical expense even though they are non-prescription drugs.
False
The foreign tax credit applies only to foreign corporations.
False
The total expenses that can be taken as a credit for all tax years for adoption of a child without "special needs" is $10,000.
False
To be eligible for the earned income credit for 2016, a taxpayer must have a "qualifying child."
False
To calculate the amount of state and local income taxes which may be deducted as an itemized deduction, state income taxes paid during the year must be reduced by state income tax refunds received during the year.
False
The American Opportunity tax credit
Is available for qualifying expenses paid on behalf of the taxpayer & his or her spouse, in addition to those paid for dependents.
Which of the following is a miscellaneous itemized deduction?
Job hunting expenses
Which of the common deductions below are allowed for both regular tax purposes and for AMT purposes?
Mortgage interest from the acquisition of a residence costing less than $1 million
Which of the common deductions below are allowed for regular tax purposes but not for AMT purposes?
The interest deduction for up to $100,000 of home equity debt which is not used to purchase or improve part of a principal residence
Christine is a self-employed graphics artist who has net earned income of $160,000 from her business. Christine has a defined contribution SEP Plan and contributes the maximum deduction allowable: $32,000, which is the lesser of 20% of $160,000 or the maximum of $53,000.
True
Earnings on nondeductible IRA contributions are allowed to accumulate tax-free until they are withdrawn.
True
For 2016, the maximum amounts of expenses that qualify for the child & dependent care credit is the same for 3 as it is for 2 dependents.
True
For a taxpayer with adjusted gross income of $56,000, private mortgage insurance (PMI) is deductible in 2016.
True
For all taxpayers, except those married filing separately, the individual alternative minimum tax rate for 2016 is 26% on the first $186,300 of income and 28% on income above $186,300.
True
For the purposes of the passive loss rules, income is classified into 3 separate categories. The three categories of individual income are active, passive, & portfolio.
True
Foreign income taxes paid are deductible.
True
If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties, he may not be allowed a deduction for the charitable contribution.
True
If a taxpayer installs special equipment in their home for medical reasons, some or all of the cost can be included as deductible medical expenses.
True
If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty.
True
If personal property is completely destroyed, the casualty loss deduction is still reduced by a floor amount.
True
If real property is sold during the year, the property taxes must be allocated between the buyer and seller based on the number of days the property was held by each party.
True
If the net unearned income of a minor child is to be taxed at the parents' tax rate, the parents may elect, under certain circumstances, to include the child's gross income on their tax return.
True
In 2016, state income taxes may be deducted as an itemized deduction on Schedule A.
True
In all community property states, income from community property is community income.
True
In most cases, an individual taxpayer reports rental income and the related expenses on Schedule E.
True
In order for a pension plan to be considered a "qualified" retirement plan, the plan must satisfy certain minimum vesting requirements.
True
In some cases, a taxpayer may deduct an otherwise allowable contribution to an IRA, even though the contribution is made after the close of the tax year.
True
Itemized deductions are subject to a phase-out based on AGI for certain high-income taxpayers.
True
Married taxpayers must generally file a joint tax return to claim the child and dependent care credit.
True
Net unearned income of certain minor children is taxed at their parents' tax rates.
True
Richie Rominey purchases a new $4.3 million qualified principal residence is Palo Alto, CA using a mortgage loan of $3 million. Richie's mortgage interest deduction may be limited.
True
State sales taxes can be deducted in lieu of state income taxes.
True
The investment interest expense deduction is limited to the taxpayer's net investment income.
True
The purpose of the alternative minimum tax is to ensure that every taxpayer with economic income pays at least some minimum amount of income tax.
True
The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has not paid any income taxes.
True
To deduct interest paid with respect to indebtedness, the taxpayer must be legally liable for the debt.
True
Under a defined contribution plan, the contribution made on behalf of the employee is determined using a formula dependent on the employee's current compensation.
True
Under the passive loss rules, real estate rental activities are specifically defined as passive, even if the taxpayer actively manages the property.
True
Unearned income of a 16-year-old child may be taxed at his or her parents' income tax rate.
True
Unreimbursed employee business expenses are misc. itemized deductions, subject to the 2% of adjusted gross income limitation.
True
Wages are considered "active income."
True
When a residence is rented for less than 15 days during the year, the rental income is excluded from gross income.
True
Which of the following miscellaneous deductions is subject to the 2% of adjusted gross income limitation?
Unreimbursed employee business expenses
Which of the following is not a true statement regarding community property law?
Colorado, Ohio, and Florida are community property states.
Which of the following is correct for Qualified Tuition Programs?
Contributions are not deductible and qualified educational expense distributions are tax-free.
Which of the following statements is false about health savings accounts (HSAs)?
Contributions to HSAs are deductible as itemized medical deductions.
Taxpayers are allowed 2 tax breaks for adoption expenses. They are allowed: (i) qualified Expenses Paid personally & (ii) qualified Expenses Paid by employer
Credit & Exclusion
Which of the following types of interest is not deductible?
Credit card interest
Which of the following statements is true about health savings accounts (HSAs)?
Distributions from HSAs are tax and penalty free when used for qualified medical expenses.
Which of the following interest expense amounts is not deductible in 2016?
Education loan interest of $2,000, assuming the taxpayer is single & has income of $150,000.
A taxpayer may donate the free use of property to a charitable organization and deduct the value as an itemized deduction.
False
A taxpayer must make contributions to a regular or Roth IRA prior to the end of the year in order to claim the deduction for that year.
False
A taxpayer with earned income of $50,000 is not eligible to claim the credit for child and dependent care expenses.
False
Agnes is retired and has only a $12,000 annual pension as income. In 2016, Agnes' aunt dies and leaves her land worth $1.2 million. Agnes sees no need for the land and immediately donates it to a qualified public charity. Agnes may deduct the $1.2 million charitable contribution on her 2016 tax return.
False
Alice is a single taxpayer with no dependents that has AGI of $9,000 in 2016. Alice is required to carry minimum essential coverage in 2016.
False
Alice purchases a new personal auto & finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.
False
All personal casualty losses incurred during the year are added together and only one $100 floor amount is used to reduce the casualty deduction.
False
All taxpayers are required to have minimum essential health coverage.
False
All taxpayers may deduct up to $4,000 of higher education tuition.
False
Amounts paid to a relative generally do not qualify as child care expenses.
False
Brittany determined that she paid $450 in gasoline excise taxes during the year when she bought gas for her commute to and from work. Brittany's gas excise taxes are deductible as an itemized deduction.
False
Charu is charged $70 by the state she lives in related to vehicle registration based on the weight of her personal auto. Charu can deduct the $70 as an itemized deduction.
False
Dividend income is considered "passive income."
False
Dongkuk uses his holiday bonus to pay his January 2017 mortgage payment in December 2016. The payment would normally be due January 31st. Dongkuk may deduct the interest paid as part of the early mortgage payment.
False
Dr. Wheeler donates her time and services to Doctors with No Limits, a qualified charity. Dr. Wheeler can take a tax deduction for the $3,400 market value of her time donated.
False
Educational expenses are deductible as a misc. itemized deduction even if the education is required to meet the minimum requirements for the taxpayer's current job.
False
Expenses of education to improve or maintain existing skills are deductible as a miscellaneous itemized deduction even if the education incidentally leads to a qualification in a new job or business.
False
Frank was so entertained by the Paris Symphony on his visit to France that he mailed them a donation of $100 to support their organization as soon as he returned home to Seattle. Frank may deduct the charitable contribution to the Paris Symphony on his U.S. tax return.
False
Glenda heard from a friend that prescription drugs were considerably cheaper overseas & purchases her regular prescription over the internet from a foreign company for $500. Though technically illegal, Glenda saves quite a bit & is pretty sure "everyone is doing it." Glenda can $500 cost of the prescription as a deductible medical expense.
False
If a Section 401(k) plan allows an employee to choose between a direct payment of compensation in cash or a contribution to the retirement plan, the plan is not a "qualified" plan.
False
If a ballet dancer seeks work as a ditch digger, the expenses of job hunting may be deductible.
False
If a residence is rented for 15 days or more & is used for personal purposes for not more than 14 days or 10% of the days rented, whichever is greater, no allocation of expenses is required & the taxpayer may claim a deduction for the full amount of the expenses.
False
If an employee receives a reimbursement for employee business expenses, the amount of the reimbursement is always excluded from gross income and the expenses are deductible as deductions for AGI.
False
If an employer makes a contribution to a qualified retirement plan on behalf of an employee, the amount is currently deductible by the employer, and the employee must include the amount in gross income at the time the contribution is made.
False
If business property is completely destroyed, the casualty or theft loss is the lesser of the decrease in market value or the adjusted basis of the property.
False
If business property is fully destroyed as a result of casualty, the loss is equal to the decrease in the fair market value of the property.
False
If the taxpayer fails to locate a job, job hunting expenses are not deductible.
False
In 2016, all taxpayers may make a deductible or nondeductible contribution to an IRA.
False
In a distribution rollover from an IRA, the recipient must contribute 80% of the distributed amount to the new trustee in order for the rollover to be tax free.
False
In calculating the individual AMT, the tentative minimum tax liability may not exceed the regular tax liability of the taxpayer.
False
In determining the amount of the child and dependent care credit, there is a limit of $2,000 on the amount of qualified expenses for one dependent.
False
Mortgage interest on a taxpayer's personal residence is not deductible on Schedule A.
False
Perry Mayson, a single taxpayer, graduated law school last year with quite a bit of qualified student loan debt & ends up paying $4,300 in interest on the loan in the current tax year. Fortunately, Perry is well compensated & earns adjusted gross income of $85,000 during the current year. Perry may deduct his student loan interest in the current year.
False
Premiums paid for life insurance policies are deductible as medical expenses.
False
Salary earned by minors may be taxed at their parents' rate.
False
Since a contribution to an IRA is a voluntary action, a taxpayer may withdraw amounts from an IRA at any time without penalty.
False
Taxpayers are permitted to take an itemized deduction for the lesser of state income taxes paid or state sales taxes paid.
False
Taxpayers are required to wait until they file their tax return to receive the premium tax credit.
False
The adjusted gross income (AGI) limitation on medical expenses is 15%.
False
The cost of uniforms is deductible only by self-employed taxpayers.
False
The expense of a review course for a state real estate agent's exam is deductible as a misc. itemized deduction by a taxpayer attempting to become an agent.
False
To qualify for the moving expense deduction, an employee must change job sites, move a required distance, and change employers.
False
Unreimbursed qualifying moving expenses are an itemized deduction for 2016.
False
Vicky is a single, 21 year old, full time student who purchases health care through the state health care exchange for the full year.Her part time job pays her $12,000 in 2016. She files her own tax return but is claimed as a dependent by her parents. Vicky is eligible for the premium tax credit.
False
Without regard to their involvement in the management of the rental property, individual taxpayers may deduct up to $25,000 of rental real estate losses against other income, provided their income does not exceed certain limits.
False
What income tax form does an employee use to report business expenses that are not reimbursed by an employer under an accountable plan?
Form 2106, Employee Business Expenses
Which of the following is not an itemized deduction?
IRA contribution deduction
The expenses associated with the rental of a residence used for both personal & rental purposes are subject to 3 possible tax treatments. Which of the following is not included as 1 of the 3?
If the residence is rented for 15 days or more & is used for personal purposes for not more than 14 days or 10% of the days rented, whichever is greater, the residence is treated as a personal residence for tax purposes.
In the case of the adoption of a child who is not a U.S. citizen or resident of the U.S., the credit for qualified adoption expenses is available:
In the year the adoption becomes final
Which of the following types of interest are not likely to be deductible in 2016?
Interest on personal credit cards
Which of the following is not deductible as interest expense on Schedule A?
Loan fee charged for appraisal service.
Which of the following is true about the self-employed health insurance deduction?
Long-term care insurance is allowed as a deduction, subject to a dollar limitation.
What is the maximum amount of home equity debt (not acquisition debt) on which interest is fully deductible?
$100,000
In 2016, the child tax credit available to married taxpayers filing is phased out beginning at:
$110,000
In 2016, what is the maximum investment income a taxpayer is allowed to have and still be allowed to claim the earned income credit?
$3,250
What percentage of medical insurance payments can self-employed taxpayers deduct for adjusted gross income on their 2016 tax returns, assuming their self-employment income exceeds their medical insurance payments"
100%
In 2016, which of the following children would have income taxed at their parents' rates?
A 12 year-old child with net unearned income of $2,000
Which one of the following is not considered a casualty or theft loss for tax purposes?
A taxpayer's residence is progressively destroyed by termites.
For 2016, which of the following is a tax adjustment or tax preference item for the individual AMT computation?
Miscellaneous itemized deductions
The earned income credit:
Must be calculated on earned income as well as adjusted gross income in some cases
Household income for purpose of the individual shared responsibility payment includes all of the following except
Nontaxnable Social Security benefitss
Choose the correct statement. Passive losses
Often result from the rental of real estate.
Which of the following can be used to offset a passive loss?
Passive income such as income from a limited partnership.
An accountable expense reimbursement plan:
Requires the employee to substantiate expenses with receipts & to return any excess reimbursement.
Damage resulting from which of the following would probably not give ruse to a casualty loss deduction?
Russt
Which of the following types of income is not subject to the "kiddie tax?"
Salary income
Which of the following itemized deductions may not be deducted in computing the individual alternative minimum tax?
State income taxes
What would reduce income taxes more: a $100 tax credit or a $100 tax deduction?
Tax credit
Which of the following is true of the alternative minimum tax?
The amount of a taxpayer's state income tax may not be deducted for the purpose of computing the alternative minimum tax.
Which of the following statements is correct?
The contribution limits for SEPs are the lesser of 25% of net self-employment income or $53,000 for a self-employed taxpayer.
Which of the following is not deductible as a moving expense?
The cost of a pre-move house-hunting trip
Which one of the following conditions must be satisfied in order for a married taxpayer to be taxed on only his income if he resides in a community property state?
The husband and wife must live apart for the entire year.
Which of the following is not a rest which must be met to qualify for the moving expense deduction?
The taxpayer must stay with the same employer.
Which of the following statements is true?
There are no current-year tax consequences for a direct transfer.
For married taxpayers filing a joint return in 2016, at what AGI level does the phase-out limit for contributions to Qualified Tuition Programs start?
There is not phase-out limit on QTP.
A taxpayer who is under 50 years of age and not an active participant in a retirement plan may make a contribution of up to $5,500 to an IRA, subject to the earned income limitation.
True
A theft loss is deductible in the year the theft is discovered, even if the theft occurred in a prior year.
True
After raising two children, Anh, a single 48 year old, decided to go to college to get a degree. She spent two years in a community college and earned an Associates degree. In 2016, she is enrolled half-time at State University to earn a Bachelor's degree in Accounting and also works part-time. Anh is eligible for the American Opportunities tax credit.
True
An employee may deduct the cost of welder's safety goggles used at work as a miscellaneous itemized deduction.
True
An individual may claim both a credit and an exclusion from income in connection with the adoption of an eligible child, but may not claim both a credit and an exclusion for the same expense.
True
Avery is a single 26 year old graduate student at State University with no children. She is a US citizen with a valid SS number. Her only income is from a part time job on campus from which she earned wages of $6,000. Avery qualifies for the earned income credit.
True
Casualty and theft losses must be reduced by amounts recovered from insurance coverage.
True
Subject to the annual dollar limitation and the earned income limitation, deductible IRA contributions are allowed for all taxpayers who do not participate in a qualified retirement plan.
True
Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.
True
The alternative minimum tax must be paid only if the tentative minimum tax exceeds a taxpayer's regular tax liability.
True
The amount of a special assessment charged to residents for the installation of sidewalks on their street is not deductible on Schedule A as property taxes.
True
The child tax credit is $1,000 per qualifying child unless it is phased out due to higher levels of parental income.
True
The child tax credit is not available for children ages 17 and older.
True
The cost of a chiropractor's services qualifies as a medical deduction.
True
The cost of an appraisal of a painting may be deducted, subject to the 2% of adjusted gross income limitation, if the purpose of the appraisal is related to the preparation of an income tax return.
True
The interest paid on a loan used to acquire municipal bonds is not deductible.
True
Which of the following miscellaneous deductions are not subject to the 2% of adjusted gross income limitation?
Unrecovered annuity costs at death
Which of the following is true with respect to an education incentive?
Married taxpayers at any income level may contribute to a Qualified Tuition Program (Section 529 plan).
To qualify for the additional child tax credit
all of the above are required to qualify for the additional child tax credit
Which of the following is not an exemption from minimum essential coverage for health insurance:
the taxpayer's income of less than 200% of the federal poverty law
Contributions by a self-employed individual to a SEP plan for 2016 are limited to the lesser of a percent of net earned income or:
$53,000
The child and dependent care provisions:
Are available for the care of spouses incapable of self-care.
Which of the following is not an adjustment or tax preference item for 2016 for purposes of the individual alternative minimum tax (AMT)?
Cash charitable contributions