Chapters 6, 7, 8, Accounting 307

Which of the following medical costs would be deductible as qualified medical expenses?

Chiropractic services Prescription medications Plastic surgery to reduce scarring after a dog bite Health insurance premiums paid with after tax dollars

Mike sold equipment he is no longer using in his business at a loss of $4,000, and he sold investments at a loss of $8,000. Mike had no other sales of property in the current year. What are the tax implications of these losses to Mike?

Deduct the $4,000 loss on equipment and $3,000 of the loss on investment in the current year. The remaining investment loss is carried forward.

Which one of the following medical payments would be deductible for the taxpayer in the current year?

Doctor bills paid by the taxpayer for his son who is claimed as a dependent by the taxpayers ex-wife

A taxpayer may deduct interest expense paid on qualified _________________ loans where the proceeds were used for tuition, fees, books, and other necessary expenses. The interest is deductible _____________ AGI.

EDUCATION FOR

Edward is a partner in ENS, Ltd. The partnership generated a loss during the current year. Edward's share of the loss was $7,000. How should Edward handle the loss for tax purposes assuming there are no basis, at-risk, or passive loss limitations?

Edward can deduct $7,000 for AGI

In the current year, Ellen sold investment stock that she had owned for five years. The sale generated a loss of $5,000. Assuming she had no other asset sales during the year, how should Ellen handle the loss for the current tax year purposes?

Ellen can deduct $3,000 for AGI

With the exception of rent/royalty expenses, investment interest expense is deducted _____________ AGI while self-employed business expenses are deducted ___________ AGI

FROM FOR

True or false: Activities classified as hobbies can generate tax deductible losses that can be used against other types of income.

False

True or false: Business expenses are reported directly on the Form 1040 and are deducted for AGI.

False

True or false: Horatio may still deduct the cost of his self-employed health insurance premiums even if Maria's employer offers coverage to Horatio.

False

True or false: Income from passive investments may be taxed at ordinary rates, preferential rates, or may be exempt from taxation while income from portfolio investments will be taxed at ordinary rates.

False

True or false: Interest income is generally taxed at lower capital gains rates.

False

True or false: Self-employment tax is deductible as an itemized deduction along with real estate taxes and state income tax.

False

Which of the following choices concerning the recognition of interest income for corporate bond are CORRECT?

If bonds are purchased at a premium in the secondary market, the premium can be amortized or added to the basis of the bond The actual interest payments received are included in gross income If bonds were issued at a discount, special original issue discount rules apply

Which of the following types of investments generate dividend income?

Interest income is typically taxed at ordinary rates

Which of the following types of interest expense is NOT deductible as an itemized deduction?

Interest on a qualified home-equity loan used to purchase a car Interest on credit cards used to purchase furnishing for a personal residence

Which of the following statements related to investment interest expense is INCORRECT?

Interest on loans to purchase land held for investment is NOT deductible

Certain charitable contributions of capital gain property do not qualify for a fair market value deduction. Which of the following characteristics of capital gain property will definitely cause it to qualify for a fair market value deduction?

It is intangible property

Lance paid $21,000 for seven acres of land six years ago. During the current year, Lance donated the land to his church. An appraisal of the land determined that the fair market value of the land is $30,000. Which of the following statements is true concerning the donation of land?

Lance will be able to deduct $30,000 as a charitable contribution

Which of the following donations will qualify as a deductible charitable contribution?

Land donated to a public university

Chose the statement that is INCORRECT regarding a loss that is generated from the disposal or sale of assets for individuals?

Losses from personal use assets are deductible for AGI

Please choose the statement that is INCORRECT regarding portfolio and passive investments?

Losses from portfolio investments are deductible in full against ordinary income

Gary incurred $5,200 in qualified medical expenses medical expenses last year. His AGI was $50,000. Gary will be able to deduct _______________ as an itemized deduction for medical expenses.

200

Jenny and Jerry have a home with a fair market value of $625,000. They borrowed $400,000 ten years ago to purchase the home (home value at that time was $450,000). They currently owe $250,000 on the acquisition loan. They recently borrowed $110,000 on a home-equity loan. The proceeds were used to purchase a car, take a vacation, and redecorate their home. What is the maximum amount of their indebtedness that can generate deductible interest in the current year?

250,000

Cash and property donations to public charities are limited to _______% of a taxpayer's AGI. Donations of capital gain property to public charities are generally limited to _____% of a taxpayers AGI. And donations of certain capital gain property to private nonoperating foundations are limited to __________% for AGI

60/30/20

For mortgages obtained in 2019, homeowners may deduct interest on up to $______________ of acquisition indebtedness

750000

Nancy donated an antique desk to her church. Nancy paid $800 for the desk six years ago. An appraisal of the desk reported the fair market value to be $1,000. The church officers decided to donate the desk to a family whose home had been destroyed in a fire. Nancy will be able to deduct $___________ for her contribution.

800

Owen is considering giving a large charitable contribution to an organization in the current year. Owen's adjusted gross income for the year will be $150,000. He wants to contribute $80,000 in either cash or property. If he contributes cash to a public charity, he can deduct $____________ this year. If he contributes capital gain property that is worth $80,000 to a public charity, he can deduct $______________. Or, if he contributes the publicly traded stock to a private nonoperating foundation, he can deduct $_______________________ this year

90,000 45,000 30,000

Andrew volunteered for the American Red Cross after a recent hurricane. He traveled 200 miles and helped the victims of the disaster in the clean up for five days. He also donated $1,500 to the American Red Cross, but charged the amount of the donation on his credit card. He plans to pay $300 plus interest each month on the credit card charge, so he will pay $900 of the $1,500 charge by the end of the year. What amounts will Andrew be able to deduct for his charitable contributions?

Mileage for the 200 miles he drove to the ravaged area $1,500 charged to the credit card during the year The cost of lodging while he is volunteering

Which of the following expenses are deductible FOR AGI?

Most expenses generated by business activities Expenses generated by rental and royalty activities

Which of the following descriptions BEST defines business activities?

Profit-motivated and requiring a high level of effort from the taxpayer

Which of the following descriptions BEST defines investment activities?

Profit-motivated, but not requiring a high level of effort from the taxpayer

Which of the following statements is correct regarding the destructibility of self-employment tax for self-employed taxpayers?

Self-employed taxpayers can deduct the employer portion of the self-employment tax they pay for AGI

Which one of the following statements is INCORRECT regarding interest earned on U.S. savings bonds?

Taxpayers include the periodic interest payments from U.S. savings bonds in gross income each year when recieved

Patrick has an adjusted gross income of $120,000 in the current year. He donated $50,000 in cash to a public charity; capital gain property with a basis of $15,000 but a fair market value of $35,000 to a public charity; and publicly traded stock with a basis of $12,000 and a fair market value of $25,000 to a private nonoperating foundation. What is deductible as a charitable contribution for the current year?

The $50,000 in cash to the public charity and $10,000 of the capital gain donation to the public charity

Which of the following choices determine the amount and the timing for recognizing interest income?

The actual interest payments received are included in gross income If bonds are purchased at a discount in the secondary market, the discount is recognized as interest income at maturity If bonds were issued at a premium, taxpayers may amortize the premium over the life of the bond resulting in a decrease in interest income

How much of a self-employed taxpayer's self-employment tax may be deducted for AGI?

The employer portion of self-employment tax is deductible

Which of the following statements describes what is intended by the terms ordinary and necessary when referring to deductible business expenses?

The expenses must be appropriate and helpful for generating a profit

Which of the following statements is NOT accurate regarding the deduction for qualified education loan interest?

The full amount of interest paid on qualified educational loans is deductible

Your friend, Deron, is confused about where to report business expenses on his tax return. He knows they are deducted for AGI, but he does not see them on the Form 1040. Which of the following answers should you give Deron?

The revenues and expenses from a business are reported on a separate schedule and the resulting profit or loss is transferred to the Form 1040.

Markita donated stock that she has held for less than a year to a qualified charitable organization. Her basis in the stock is $1,000 and the fair market value of the stock is $1,200. Which one of the following statements is true regarding Markita's donation?

The stock is ordinary income property. She will deduct $1,000 since her basis is less than market value

True or false: Gambling expenses and losses to the extent of gambling winnings are reported as miscellaneous itemized deductions.

True

Which of the following investments do NOT pay periodic interest payments, but rather accumulate interest over the life?

U.S. savings bonds

Which one of the following items is NOT a qualified medical expense?

Vitamins for promoting good health

Which of the following terms does NOT describe a casualty that could be deductible for tax purposes?

Weakended

Horatio and Maria are married and have three children. Horatio is self-employed and pays health insurance premiums for himself and his family. Which of the following situations would disqualify part or all of the premium costs from being deductible for AGI?

Maria has an employer-sponsored health insurance plan available at work, but they do not participate.

Activities which are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as ____________ activities

business

Activities which are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as _______________ activities

business

In general, when contributing long-term property to charity, taxpayers are allowed to deduct the fair market value of __________ ___________ property on the date of the donation

capital gain

A(n) _______________ loss is defined as a loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck.

casualty

Activities which are profit-motivated, but do NOT require a relatively high level of involvement from the taxpayer are referred to as ________________ activities

investment

The deduction of investment interest is limited to a taxpayer's net ____________ __________

investment income

Which of the following types of income is generated from passive investments rather than portfolio investments?

operating income

In order to be deductible, business expenses must be ______________ _____________ and directly related to the business activity.

ordinary necessary

When donating ________ _________ property as a charitable contribution, taxpayers can only deduct the lesser of (1) the property's fair market value or (2) the property's adjusted basis.

ordinary income

Donations to ______ organizations are NOT deductible for federal income tax purposes.

political

There are two types of interest expense that may be deductible as itemized deductions: (1) interest on indebtedness secured by a qualified ______________ and (2) ________________ interest.

residence investment

The ____________ _____________ is a flat amount that most individuals can elect to deduct instead of deducting their itemized deductions

standard deductions

Isabella, age 50, pays $500 each month for health insurance premiums with after-tax dollars. She is not self-employed. During the current year, she also incurred $200 in doctor bills and $50 in over-the-counter medications. Her AGI is $45,000. What amount will she be able to deduct as an itemized deduction after the AGI floor is applied?

{(500x12)+200}=6200-(45000x0.075)= 2825

Patrick has an adjusted gross income of $160,000 in the current year. He donated $30,000 is cash to a public charity; capital gain property with a basis of $15,000 but a fair market value of $40,000 to a public charity; and publicly traded stock with a basis of $20,000 and a fair market value of $35,000 to a private nonoperating foundation. What is deductible as a charitable contribution for the current year?

$30000 in cash to the public charity, $40000 in property to public charity, and $8000 in property to the private nonoperating foundation $40000 of capital gain property (up to AGI x $30000) to public charity and up to $8000 of property to private foundation ((AGI x 30%) - contributions subject to 30% limit))

Which of the following types of donations would be deductible as charitable contributions?

Cash donated to United Way Land donated to a state university Checks made payable to (and as a donation to) The Boy Scouts of America

Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes?

Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause

Which of the following types of investments generate interest income?

Certificates of deposit Corporate bonds Government bonds Savings accounts

Which of the following expenses is most easily bunched, or accelerated, into one year, so that the itemized deductions can be used in one year and the standard deduction can be used the following year?

Charitable Contributions

When a taxpayer's charitable contributions exceed the AGI ceiling limitation for the year, the excess contributions can be carried forward for ____________ years

five

Entities such as partnerships, LLCs, and S corporations are known as _______________-_________________ entities because their income is reported on the owners tax returns. Any expenses or losses from these entities are typically deductible _____________ AGI

flow through for