Intro to Tax: Tests 1-3

American Healthcare (AH), an insurance company, is trying to persuade Congress to enact nationwide anti-smoking 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?

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

Miranda is not a key employee of AB Corporation. AB provides Miranda with group term life insurance coverage of $140,000. The premiums attributable to the excess coverage are $1,300. The uniform one-month group-term premium is one dollar per $1,000 of coverage. How much must Miranda include in income?

$1,080

Kyle drives a race car in his spare time and on weekends. His records regarding this activity reflect the following information for the year. Income $7,800 Entry fees 2,100 Depreciation on car 1,700 Gasoline 1,000 Interest on home equity loan for race car 800 Insurance premiums 2,500 What is the allowable deduction (before any AGI limitation) for depreciation assuming that this activity is not engaged in for profit and Kyle can itemize his deductions?

$1,400

Hope receives an $18,500 scholarship from State University. The university specifies that $8,500 is for tuition, books, supplies, and equipment, while $10,000 is for room and board. In addition, Hope works part-time at the campus library and earns $5,000. Hope's gross income is

$15,000

Natasha, age 58, purchases an annuity for $40,000. Natasha will receive $400 per month for the rest of her life. The expected return multiple is 20.0. At age 65, the amount that Natasha may exclude from income is

$2,000 ($40,000/$96,000 total expected payments) × $4,800 annual payments = $2,000 annual exclusion

Ms. Marple's books and records for 2015 reflect the following information: Salary earned this year $65,000 Interest on savings account (credited to her account in 2015, withdrawn in 2016) 1,000 Interest on county bonds earned and collected in 2015 2,000 What is the amount Ms. Marple should include in her gross income in 2015?

$66,000

Taxable income for an individual is defined as

AGI reduced by deductions from AGI and personal and dependency exemptions.

Deductions for AGI may be located

All of the above are true. "For AGI" deductions include trade or business expenses located on Schedule C, rent expenses included on Schedule E, and those items specifically included on the face of the Form 1040.

Dennis purchased a machine for use in his business. Mr. Dennis' costs in connection with this purchase were as follows: Note to seller $33,000 Cash paid to seller 5,000 State sales tax 2,400 Freight to place of business 1,500 Wages paid to workers to install machine 4,200 What is the amount of Mr. Dennis' basis in the machine?

Basis includes all costs associated with acquiring an asset and placing it in service. $33,000 + $5,000 + $2,400 + $1,500 + $4,200 = $46,100

Dustin purchased 50 shares of Short Corporation for $500. During the current year, Short declared a nontaxable 10% stock dividend. What is the basis per share before and after the stock dividend is distributed?

Before After $10 $9.09

Rita died on January 1, 2015 owning an asset with a FMV of $730,000 that she purchased in 2010 for $600,000. Bert inherited the asset from Rita. When Bert sells the asset for $800,000 on August 20, 2015, he must recognize a

LTCG of $70,000

Tina purchases a personal residence for $278,000, but subsequently converts the property to rental property when its FMV is $275,000. Assume depreciation of $65,000 has been deducted after conversion to rental use. If Tina sells the property for $200,000, her realized gain or loss will be

Lower of original basis of residence or FMV $275,000 Minus: Depreciation claimed ( 65,000) Adjusted basis for loss $210,000 Selling Price 200,000 Loss ($ 10,000)

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?

Mark can deduct $1,000 for the feed. Taxpayers cannot take a deduction for the expense of another person.

Nate sold two securities in 2015: Purchased Sold Sales Price Basis MASH 1-1-2014 5-10-2015 $12,000 $10,000 KMZ 12-2-2014 9-22-2015 $4,000 $5,000 Nate has a 25% marginal tax rate. What is the additional tax resulting from the above sales?

NLTCG is $2,000; NSTCL is ($1,000). ANCG is $1,000 taxed at 15%, resulting in a tax of $150

Which of the following is not a taxpaying entity?

Partnership

Which of the following items will result in an inclusion in gross income?

Preparing a mechanic's tax return in exchange for the mechanic replacing the muffler on your car.

Tom and Alice were married on December 31 of last year. What is their filing status for last year?

They file as married joint or married separate

Which one of the following is a capital asset?

automobile used for personal purposes

Brent must substantiate his travel and entertainment expenses. Which of the following is not required for documentation?

company expense report

Alimony is

deductible by the payor and included in income by the payee.

Andrea died with an unused capital loss carryover of $3,300. The carryover

expires with death

Which one of the following items is not considered gross income for tax purposes?

face amount of life insurance received due to the death of the insured

Which of the following dependent relatives does not have to live in the same household as the taxpayer who is claiming head of household filing status?

father

Julia owns 1,000 shares of Orange Corporation. This year, Orange declared a 10% stock dividend. There was no option for shareholders to receive cash. When Julia received 100 shares of Orange stock, it had a fair market value of $50 a share. How much income does Julia have from the dividend?

$0

Sanjay is single and has taxable income of $13,000 without considering the sale of a capital asset in November of 2015 for $15,000. That asset was purchased six years earlier and has a tax basis of $5,000. The tax liability applicable to only the capital gain is

$0

Pat, an insurance executive, contributed $1,000,000 to the re-election 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?

$0 No deduction is allowed for a political contribution.

Brad owns 100 shares of AAA Corporation with a basis of $6,000 and a FMV of $24,000. Brad receives 15 stock rights as a nontaxable distribution with a total FMV of $6,000. Brad allows the stock rights to expire. Brad's loss recognized and the basis of the original 100 shares after expiration of the stock rights is

$0 and $6,000.

Abigail's 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

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

In 2015, Carlos filed his 2014 state income tax return and paid taxes of $800. Also in 2015, Carlos's employer withheld state income tax of $750 from Carlos's salary. In 2016, Carlos filed his 2015 state income tax return and paid an additional $600 of state income tax due for 2015. How much state income tax can Carlos deduct on his 2015 federal income tax return for state income tax?

$1,550

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. Alan's 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. Alan's deductible medical expenses (before considering limitations based on AGI) will be

$10,100 Wheelchair $ 1,200 Whirlpool bath - increase in home value 1,000 Maintenance of the whirlpool 250 Increased utility bills associated with whirlpool 450 Entrance ramp, various home modifications 7,200 Total qualifying expenses $10,100

Jones, Inc., a calendar-year taxpayer, is in the air conditioner repair business. The business uses the cash method. In December of the current year, Jones charged $100 of supplies at Refrigeration, Inc., (he will pay the credit card bill in January) and also purchased $600 of supplies at XYZ on open account (he will make a payment on the open account in January). What is the amount that is deductible by Jones, Inc., in the current year?

$100 Credit card charges are deductible in the year the charge is made regardless of the year in which the payment is made, but open account charges are not deducted until paid.

In 2015 the standard deduction for a married taxpayer filing a joint return and who is 67 years old with a spouse who is 65 years old is

$15,100 = $12,600 + $1,250 + $1,250

Rick chose the following fringe benefits under his employer's cafeteria plan. Which of his chosen benefits will be taxable?

$150 cash per pay period

Kendrick, who has a 33% marginal tax rate, had the following results from transactions during the year: Collectibles gain $20,000 Short-term capital loss 4,000 Long-term capital gain 8,000 After offsetting the STCL, what is (are) the resulting gain(s)?

$16,000 collectibles gain, $8,000 LTCG The $4,000 STCL offsets the collectibles gain, reducing it to $16,000.

Charlotte pays $16,000 in tax deductible property taxes. Charlotte's marginal tax rate is 28%, effective tax rate is 22% and average rate is 25%. Charlotte's tax savings from paying the property tax is

$16,000 × 0.28 = $4,480

Lily had the following income and losses during the current year: Salary $75,000 Prize from quiz show 25,000 Unemployment compensation 8,000 Embezzled funds 30,000 Partnership Income 35,000 What is Lily's adjusted gross income?

$173,000

Gwen's marginal tax bracket is 25%. Gwen pays alimony of $24,000 per year. Gwen's after tax cost for the $24,000 payment is

$18,000

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, Carol's deductible contribution this year is

$18,000 The potential deduction is $25,000, the FMV as of the contribution, but it is limited by the percentage of AGI ceiling. $60,000 AGI × .30 Limitation on capital gain property to public charities $18,000 Charitable Contribution allowed for this year $ 7,000 Carryover

Don's 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 homeowner's 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).

$2,456

Amanda, whose tax rate is 33%, has NSTCL of $25,000, a $30,000 LTCG from sale of a rare coin held 15 months and a $18,000 LTCG from the sale of stock held for three years. By what amount will Amanda's tax liability increase?

$4,100

Over the years Rianna paid $65,000 in premiums on a life insurance policy with a face value of $100,000. Upon reaching 65, while still in good health, Rianna surrendered the policy and collected $95,000. In the year of collection, Rianna will report

$30,000 of taxable income. Generally, proceeds from the sale or surrender of a life insurance is taxable to the extent the proceeds exceed the premiums paid. $95,000 $65,000 = $35,000. The basis is recovered tax free.

Brad suffers from congestive heart failure and has been admitted to a nursing home where he is expected to spend the remainder of his life. His doctor has certified him as chronically ill. Brad receives $320 per day from his life insurance policy for 100 days ($32,000) as accelerated death benefits. Brad's nursing home care costs $300 per day ($30,000 for the 100 days of care). Brad will be allowed to exclude

$32,000

Troy incurs the following expenses in his business, an illegal gambling establishment: Salaries to employees $200,000 Insurance expense 60,000 Utilities expense 70,000 Bribes to police 50,000 His deductible expenses are

$330,000 $200,000 + $60,000 + $70,000 = $330,000. While ordinary expenses of illegal businesses are generally deductible, bribes of government officials are not deductible.

Bob, an employee of Modern Corp., receives a fringe benefit (in lieu of a salary increase) of $1,000. Bob is in a 33% tax bracket. The fringe benefit is nontaxable to Bob. If he had instead paid for the benefit out of his own money, the cost would not be deductible. Bob's after-tax savings from receiving the tax-free benefit is

$333 $1,000 × .33 = $333 tax savings

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 Linda's qualified medical expense (before considering limits based on AGI)?

$4,000

Mr. & Mrs. Bronson are both over 65 years of age and are filing a joint return. Their income this year consisted of the following: Taxable interest $ 6,000 Taxable dividends 9,000 Social Security payments (combined) 20,000 Tax-exempt interest 5,000 Taxable pension 11,000 They did not have any adjustments to income. What amount of Mr. & Mrs. Bronson's social security benefits is taxable this year?

$4,500

Ahmad's employer pays $10,000 in tuition this year for Ahmad to attend a graduate business program. How much of the employer-provided tuition is taxable to Ahmad?

$4,750

Jonathon, age 50 and in good health, withdrew $6,000 from his pension plan during the current year. The withdrawal was not eligible for any exception to the 10% penalty. Jonathon had made $40,000 of after-tax contributions to the plan while his employer had contributed $80,000. In addition to relevant income taxes, how much penalty must Jonathon pay?

$400

Which of the following benefits provided by an employer is subject to withholding and must be reported on the employee's W-2?

$400 cash award for long-term service, awarded at a special employee awards event

Which of the following benefits provided by an employer is subject to withholding and must be reported on the employee's W-2?

$400 cash award for long-term service, awarded at a special employee awards event. Nontaxable benefits do not require withholding and are generally not reportable. The cash service award is taxable.

Annisa, who is 28 and single, has adjusted gross income of $55,000 and itemized deductions of $5,000. In 2015, Annisa will have taxable income of

$44,700

For non-cash charitable donations, an appraisal will be required for donations valued at more than

$5,000

Cheryl is claimed as a dependent on her parents' tax return. She had a part-time job during 2015 and earned $4,900 during the year, in addition to $600 of interest income. What is her standard deduction?

$5,250

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 Liz's 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?

$62,200

Helen, who is single, is considering purchasing a residence that will provide a $28,000 tax deduction for property taxes and mortgage interest. If her marginal tax rate is 25% and her effective tax rate is 20%, what is the amount of Helen's tax savings from purchasing the residence?

$7,000

Margaret died on September 16, 2015, when she owned securities with a basis of $50,000 and a FMV of $60,000. Caroline inherited the property and sold it on December 19, 2015 for $67,000. What is Caroline's reported gain on this sale?

$7,000 LTCG

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?

$7,500

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?

$7,500 Real estate taxes on his own residence $3,600 State income taxes 3,400 Local city income taxes 500 Total itemized deduction $7,500 Sales taxes are not deductible in 2015.

On June 1, 2015, Ellen turned 65. Ellen has been a widow for five years and has no dependents. Her standard deduction is

$7,850

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?

$7,900 $4,100 + 3,000 + 800 = 7,900. Gift taxes, federal income taxes and assessments are not allowed as deduction by the IRC.

As a result of a divorce, Matthew pays Jasmine alimony of $75,000 in year one and $25,000 per year in subsequent years. How much is deductible by Matthew in year one?

$75,000

Amanda, who lost her modeling job, sued her employer for age discrimination. She was awarded $75,000 in lost wages, $25,000 for emotional distress, and $150,000 punitive damages. The amount taxable is

$75,000 + $25,000 + $150,000 = $250,000. Only compensatory damages related to physical injury can be excluded.

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. Gere's mother, Mrs. Williams. The Gere's 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?

$8,300 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 Total expenses $13,300 Minus: 10% of AGI ($50,000 × 0.10) ( 5,000) Deduction $8,300

Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest is

$850

David, age 62, retires and receives $1,000 per month annuity from his employer's qualified pension plan. David made $65,000 of after-tax contributions to the plan prior to his retirement. Under the simplified method, David's number of anticipated payments is 260. What is the amount includible in income in the first year of withdrawals assuming 12 monthly payments?

$9,000

Coretta sold the following securities during 2015: Date Acquired Date Sold Sales Price Basis A 6-15-2011 3-30-2015 $ 6,500 $12,500 B 7-12-2015 10-1-2015 $ 2,000 $ 9,000 C 1-15-2015 6-21-2015 $14,000 $13,000 D 4-2-2012 12-29-2015 $36,000 $15,000 What is Coretta's net capital gain or loss result for the year?

$9,000 ANCG

In the current year, Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense. What is the maximum amount of investment interest expense she is allowed to deduct this year?

$9,000 deductible this year; $5,000 carried forward to next year

Faye earns $100,000 of AGI, including $90,000 of salary and $10,000 of interest income. Faye does itemize her deductions. The miscellaneous category of her itemized deductions consists of $1,500 of unreimbursed employee business expenses and a $900 fee paid for investment advice. Faye has paid $11,000 of interest expense on a loan used to purchase stocks. How much of the $11,000 interest expense can be deducted this year?

$9,600

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 Wang's AGI is $75,000. What is his net deduction for miscellaneous itemized deductions?

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

Nikki is a single taxpayer who owns a vacation cottage on the lake. During the year, she rented it for $2,000 for 14 days, lived in it for 56 days, and left it vacant the remainder of the year. The year's expenses amounted to $5,000 interest expense, $800 property taxes, $1,500 utilities and maintenance, and $2,400 depreciation. Using the IRS method of allocating expenses, how much of the property-related expenses will be deductible for AGI?

0 When property is rented for 14 days or less, the property is treated as 100% personal. None of the expenses are deductible for AGI, but none of the rental income has to be reported.

If an individual with a marginal tax rate of 15% has a long-term capital gain, it is taxed at

0%

Anne, who is single, has taxable income for the current year of $38,000 while total economic income is $43,000 resulting in a total tax of $5,356. Anne's average tax rate and effective tax rate are, respectively,

14.09% and 12.46%

Darla sold an antique clock in 2015 for $3,000. She had purchased the clock in 2009 for $2,000. If she is otherwise in the 33% marginal tax bracket, what is the maximum tax rate on the capital gain on the sale of the clock?

28%

John supports Kevin, his cousin, who lived with him throughout 2015. John also supports three other individuals who do not live with him: Donna, who is John's mother Melissa, who John's stepsister Morris, who is Kevin's brother Assume that Donna, Melissa, Morris and Kevin each earn less than $4,000. How many personal and dependency exemptions may John claim?

4

Alan files his 2015 tax return on April 1, 2016. His return contains no misstatements or omissions of income. The statute of limitations for changes to the return expires

April 15, 2019

Deductions for adjusted gross income include all of the following except

unreimbursed employee business expenses.

Lester, a widower qualifying as a surviving spouse, has $209,000 of salary, five personal and dependency exemptions and itemizes deductions. Lester must use which form to report his taxable income?

Form 1040

Which one of the following fringe benefits allows for discrimination between highly compensated employees and other employees to be present?

working condition Working condition fringes are not subject to the discrimination rules.

On September 1, of the current year, James, a cash-basis taxpayer, sells his cottage to Bill, also a cash-basis taxpayer, for $100,000. James' basis in the cottage is $65,000. The real property tax year is the calendar year. Real estate taxes on the property for the year are $3,650 and are payable in November of the current year. The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller. Assume Bill pays all of the real estate taxes in the current year. The effects of this sales structure will be:

Taxes allocated to James Taxes allocated to Bill Effect on James' Gain $2,430 $1,220 increase gain by $2,430

Kathleen received land as a gift from her grandfather. At the time of the gift, the land had a FMV of $105,000 and an adjusted basis of $85,000 to Kathleen's grandfather. The grandfather did not have any gift taxes due. One year later, Kathleen sold the land for $110,000. What was her gain or (loss) on this transaction?

The donee normally assumes the donor's basis in gifted property. $110,000 amount realized - $85,000 gift basis = $25,000 gain

For the years 2011 through 2015 (inclusive) Mary, a best-selling 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?

The activity is presumed to be a business. However, the IRS may prove it is a hobby. Under the presumption rule, if an activity results in income in 3 of 5 years, the burden of proof falls to the IRS to prove that the activity is a hobby rather than a trade or business.

An electrician completes a rewiring job and is paid $1,000 by the customer in November. The customer has a small fire in his house and sues the electrician for the repayment of the $1,000 fee plus damages in December. The electrician reaches a settlement with the customer in the following February and refunds the $1,000 fee. How should the electrician treat these events when he files his tax return in April?

The income will be reported for the year of receipt, and a tax deduction will be claimed on the tax return for the year of repayment. The claim of right doctrine requires the recipient of a disputed amount to include the amount in gross income in the year of receipt. If the amount is later repaid, a deduction is taken on the return for the year of repayment.

The largest source of revenues for the federal government comes from

individual income taxes

Britney is beneficiary of a $150,000 insurance policy on her father's life. Upon his death, she may elect to receive the proceeds in five yearly installments of $32,000 or may take the $150,000 lump sum. She elects to take the lump sum payment. What are the tax consequences in year one?

There is no taxable income.

All of the following statements are true except

investment interest expense includes interest expense to purchase or carry tax-exempt securities.

Investment interest expense is deductible

as an itemized deduction.

Which of the following steps, related to a tax bill, occurs first?

consideration by the House Ways and Means Committee

All of the following items are excluded from gross income except

disability income from an employer-financed policy. To the extent of employer-paid premiums, benefits paid under a disability policy are taxable.

In 2014 Betty loaned her son, Juan, $10,000 to help him buy a car. In 2015, before he repaid the $10,000, Betty told Juan that she was "tearing up" the $10,000 note as a graduation present. How should Juan treat the amount forgiven?

excludable gift in year of forgiveness

Dave, age 59 and divorced, is the sole support of his mother age 83, who is a resident of a local nursing home for the entire year. Dave's mother had no income for the year. Dave's filing status and exemptions claimed are

head of household and two exemptions.

All of the following are requirements for excluding employee achievement awards except for

if paid in cash, must be less than $400.

Generally, deductions for adjusted gross income on an individual's tax return include all the following types of expenses except those

incurred in gambling activities.

All of the following payments for medical items are deductible with the exception of the payment for

nonprescription medicine for treatment of a specific medical condition.

How long must a capital asset be held to qualify for long-term treatment?

one year and one day

Arthur pays tax of $5,000 on taxable income of $50,000 while taxpayer Barbara pays tax of $12,000 on $120,000. The tax is a

proportional tax

In which of the following situations are points paid on a home mortgage loan not deductible in the year of payment?

refinance The Code specifies that points paid to refinance a home must be capitalized and amortized over the life of the loan.

Jan purchased an antique desk at auction. For two years, the desk sat in Jan's garage until she decided to restore it. This year, while cleaning and restoring the desk, Jan discovered $1,500 in a hidden compartment inside one drawer. With respect to the $1,500, Jan must

report $1,500 on this year's tax return

All of the following items are deductions for adjusted gross income except

state and local income taxes

All of the following items are deductions for adjusted gross income except

state and local income taxes.

In 2012, Leo's wife died. Leo has two small children, ages 2 and 4, living at home whom he supports entirely. Leo does not remarry and is not claimed as a dependent on another's return during any of this period. In 2013, 2014, and 2015, Leo's most advantageous filing status is, respectively

surviving spouse, surviving spouse, head of household. In the two years following year of death (2013 and 2014), Leo may file as surviving spouse as long as he has at least one dependent child living in the home during the entire year and he provides over half of the expenses of the home. After the two years following the year of death, Leo qualifies as head of household as he is unmarried and is maintaining a home for a qualifying individual (in this case, his qualifying child).

In 2014 Bonnie, a sole proprietor, loaned her employee, John, $10,000 to help him buy a car. In 2015, before he repaid the $10,000, Bonnie told John that she was "tearing up" the $10,000 note in recognition of his strong job performance. How should John treat the amount forgiven?

taxable income in year of forgiveness

Cafeteria plans are valuable to employers because

they allow employers to avoid paying for benefits that are not needed or desired by employees