Tax Exam 3

Pat, an insurance executive, contributed $1,000,000 to the reelection campaign of Governor Stephens, in hopes that Stephens will appoint her to a coveted position on the State Board of Insurance. How much of the contribution can Pat deduct? A. $0 B. $100,000 C. $1,000,000 D. $500,000

$0

American Healthcare (AH), an insurance company, is trying to persuade Congress to enact nationwide antismoking legislation. As part of this effort, AH paid $500,000 to hire a lobbying firm to discuss its concerns with members of Congress. AH also contributed $100,000 to candidates for political office who support limiting public smoking. What amount of these expenditures can AH deduct? A. $500,000 B. $100,000 C. $600,000 D. $0

$0 Lobbying expenses are only deductible if incurred for local issues; political contributions are not deductible.

Abigailʹs hobby is sculpting. During the current year, Abigail sold three of her sculptures for a total of $3,200. Her related expenses include $1,500 in utilities, $1,200 in supplies and $900 in depreciation. Of the total expenses incurred, Abigail may deduct A. $1,500 in utilities, $1,200 in supplies, and $500 in depreciation. B. $1,500 in utilities and $1,200 in supplies. C. $0. D. $1,500 in utilities, $1,200 in supplies and $900 in depreciation.

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

Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a chronic leg injury and must use a wheelchair and undergo therapy to regain and retain strength. Alanʹs physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures: Wheelchair $ 1,200 Whirlpool bath 2,000 Maintenance of the whirlpool 250 Increased utility bills associated with whirlpool 450 Entrance ramp, various home modifications 7,200 A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alanʹs deductible medical expenses (before considering limitations based on AGI) will be A. $6,000. B. $10,100. C. $7,700. D. $7,000

$10,100

Wayne and Maria purchase a home on April 1 of the current year. In order to obtain a thirty year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home? A. $7,200 B. $11,600 C. $4,400 D. $4,580

$11,600

Leigh pays the following legal and accounting fees during the year: Legal fees in connection with a contract dispute in her trade or business $8,800 Legal fees related to resolving a tax deficiency related to business 4,000 Tax return preparation fees: Allocable to Schedules A and B 1,000 Tax return preparation fees: Allocable to Schedule C 1,200 Legal fees incident to a divorce 5,000 What is the total amount of her for AGI deduction for these fees? A. $14,000 B. $15,000 C. $20,000 D. $10,800

$14,000

Carol contributes a painting to a local museum for display. Her AGI is $60,000. Carol paid $22,000 for the painting in 2006, but its market value at the date of the contribution is $25,000. With no special elections, Carolʹs deductible contribution this year is A. $ 7,000. B. $18,000. C. $22,000. D. $25,000.

$18,000

Donʹs records contain the following information: 1. Donated stock having a fair market value of $3,600 to a qualified charitable organization. He acquired the stock five months previously at a cost of $2,400. 2. Paid $700 to a church school as a requirement for the enrollment of his daughter. 3. Paid $200 for annual homeownerʹs association dues. 4. Drove 400 miles in his personal auto. The travel was directly related to volunteer services he performed for his church (actual costs were not available). A. $3,356 B. $3,156 C. $3,656 D. $2,456

$2,456

Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Lindaʹs qualified medical expense (before considering limits based on AGI)? A. $13,000 B. $9,000 C. $4,000 D. $0

$4,000 $13,000 ($181,000 $172,000) = $4,000

For non-cash charitable donations, an appraisal will be required for donations valued at more than A. $5,000. B. $500. C. $50,000. D. $250.

$5,000

Liz, who is single, lives in a single family home and owns a second single family home that she rented for the entire year at a fair rental rate. Liz had the following items of income and expense during the current year. Income: Gross salary and commissions from Ace Corporation $50,000 Rent received from tenant in Lizʹs rental house 13,000 Dividends received on her portfolio of stocks 5,000 Expenses: Unreimbursed professional dues 200 Subscriptions to newsletters recommending stocks 900 Taxes, interest and repair expenses on rental house 3,500 Depreciation expense on rental house 2,300 What is her adjusted gross income for the year? A. $52,700 B. $62,200 C. $61,100 D. $68,000

$62,200

Matt paid the following taxes in 2015: Real estate taxes on rental property he owns $4,000 Real estate taxes on his own residence 3,600 Federal income taxes 8,000 State income taxes 3,400 Local city income taxes 500 State sales taxes 700 What amount can Matt deduct as an itemized deduction on his tax return? A. $7,500 B. $15,500 C. $8,200 D. $11,500

$7,500

During the year Jason and Kristi, cash basis taxpayers, paid the following taxes: State gift tax $1,000 Property tax on home in the United States 4,100 State income tax (withholdings) 3,000 Estimated federal income tax 4,500 Estimated state income tax (paid by check) 800 Special assessment by city for sidewalks and street lighting on their street 2,000 What amount can Kristi and Jason claim as an itemized deduction for taxes on their federal income tax return in the current year? A. $8,900 B. $15,400 C. $10,900 D. $7,900

$7,900

Mr. and Mrs. Gere, who are filing a joint return, have adjusted gross income of $50,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Gereʹs mother, Mrs. Williams. The Gereʹs could claim Mrs. Williams as their dependent, but she has too much gross income. Insulin for Mr. Gere $1,000 Health insurance premiums for Mrs. Gere $3,100 Hospital bill for Mrs. Williams $5,200 Doctor bill for Mrs. Gere $4,000 Mr. and Mrs. Gere received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses? A. $4,300 B. $13,300 C. $5,200 D. $8,300

$8,300

Wang, a licensed architect employed by Skye Architects, incurred the following unreimbursed expenses this year: Subscription to architectural journals $800 Dues to Professional Architecture Society 400 Tax return preparation 600 Investment advice 500 Wangʹs AGI is $75,000. What is his net deduction for miscellaneous itemized deductions? A. $800 B. $0 C. $1,500 D. $1,900

$800 ($800 + 400 + 600 + 500) (.02 × 75,000) = $800

Deductions for AGI may be located A. on Schedule C as a deduction. B. on the front page of Form 1040. C. on Schedule E as a deduction. D. All of the above are true.

All of the above are true

Mark and his brother, Rick, each own farms. Rick is experiencing severe financial difficulties and cannot afford to buy feed for his cattle. Mark purchases $2,000 of feed and gives Rick one-half of the feed. Mark tells Rick that there is no need to repay him and to consider the feed a gift. Which of the following statements is true? A. Mark can deduct $1,000 for the feed. B. Rick must report $1,000 as income. C. Mark can deduct $2,000 for the feed. D. None of the above is true.

Mark can deduct $1,000 for the feed.

For the years 2011 through 2015 (inclusive) Mary, a bestselling author, has been involved in operating an antique store. In 2011, 2012 and 2013 her revenue exceeded the expenses from the activity. In 2014 and 2015, the antique store generated a loss. Which statement is correct? A. The activity is a hobby. Mary cannot prove it is a business. B. The activity is presumed to be a business. However, the IRS may prove it is a hobby. C. The activity is presumed to be a hobby. However, Mary may prove it is a business. D. The activity is a business. The IRS cannot prove it is a hobby.

The activity is presumed to be a business. However, the IRS may prove it is a hobby.

Brent must substantiate his travel and entertainment expenses. Which of the following is not required for documentation? A. purpose of the expenditure B. time and place of the travel or entertainment C. business relationship to the taxpayer of individuals entertained D. company expense report

company expense report

All of the following payments for medical items are deductible with the exception of the payment for A. insulin. B. general appointment for teeth cleaning. C. acupuncture for specific medical purposes. D. nonprescription medicine for treatment of a specific medical condition.

nonprescription medicine for treatment of a specific medical condition.

In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment? A. improvement B. construction C. refinance D. purchase

refinance