smart book chapter 6_ACC401

a

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? a) Edward can deduct $7,000 for AGI. b) Edward does NOT report the loss because it will be reported on the partnership tax return. c) Edward can deduct $3,000 for AGI and carryforward the remaining loss. d) Edward can deduct $7,000 from AGI.

flow/pass through

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 for AGI.

for

Expenses associated with generating rental or royalty income are deductible _____ AGI.

cd

Expenses that may be classified as miscellaneous itemized deductions for 2021 include ______. (Check all that apply.) Multiple select question. a) tax return preparation fees b) all gambling losses c) the unrecovered cost of a life annuity when the taxpayer dies d) casualty and theft losses on investment property e) unreimbursed employee business expenses

750000

For mortgages obtained in 2021, MFJ homeowners may deduct interest on up to $_________ of acquisition indebtedness.

specified service; employee

For purposes of the qualified business income deduction, a qualified trade or business is any trade or business other than a(n) ____ ____ trade or business or business of being a(n) _____.

capital gain

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

ordinary; necessary

In order to be deductible, business expenses must be ________ and ________ for the business activity.

d

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? a) Ellen can deduct $5,000 for AGI. b) Ellen can deduct $3,000 from AGI. c) Ellen can deduct $5,000 from AGI. d) Ellen can deduct $3,000 for AGI.

d

Izzy ran into a cash shortfall and had to cash in a certificate of deposit early. She incurred a $50 penalty for early withdrawal. How should Izzy treat the penalty for tax purposes? a) Izzy can deduct the $50 from any interest income reported for tax purposes. b) Izzy can deduct the $50 as an investment expense from AGI (if she is able to itemize deductions). c) Izzy can NOT deduct the $50 penalty because penalties are against public policy. d) Izzy can deduct the $50 for AGI.

a

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 and take a vacation. What is the maximum amount of their indebtedness that can generate deductible interest in the current year? a) $250,000 b) $260,000 c) $360,000 d) $350,000

b

Lance paid $21,000 for seven acres of land six years ago. During the current year, Lance donated the land which now has a fair market value of $30,000 to his church. Lance will ______. a) only be able to deduct $21,000 if the church doesn't use the land in its related use b) be able to deduct $30,000 as a charitable contribution c) can only deduct $21,000 for the land contribution, regardless of how the church uses the land d) need to include the appreciation of $9,000 in gross income in order to take the full deduction

c

Llona invested $100,000 in an 18-month certificate of deposit. She needed to cash in the CD to meet some unexpected expenses. Llona earned $2,000 in interest income from the CD, but she only received $1,800 because the amount was reduced by a $200 penalty for early withdrawal. How will these amounts be treated for tax purposes? a) Llona will report the $2,000 as gross income, but the $200 penalty is not deductible. b) Llona will report the $2,000 as gross income and deduct the $200 as an itemized deduction (from AGI). c) Llona will report the $2,000 as gross income and deduct the $200 for AGI.

federally declared; casualty

A loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck that occurs as part of a(n) _____ _____ disaster is a(n) _____ loss.

ab

A specified service trade or business for purposes of the Qualified Business Income Deduction includes all of the following except: (Check all that apply.) Multiple select question. a) Architecture b) Engineering c) Law d) Consulting e) Health f) Financial Services

for

A taxpayer may deduct interest expense paid on qualified educationalBlank 1Blank 1 educational , Correct Unavailable loans where the proceeds were used for tuition, fees, books, and other necessary expenses. The interest is deductible ______ (for/from) AGI.

business/trade

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

a

Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $364,800 in taxable income and $375,000 in profit from the tax service, before the deduction for qualified business income (QBI). How much of the income from Bruce's tax services is eligible for the QBI deduction? a) $243,750 b) $235,040 c) $0 d) $329,800

90000; 45000; 30000

Owen's adjusted gross income for the year will be $150,000 and he is planning to make only ONE of following charitable donations. If he contributes $100,000 cash to a public charity, he can deduct $______. If he contributes property that is worth $80,000 to a public charity, he can deduct $_______. Or, if he contributes publicly traded stock with a FMV of $60,000 and a basis of $40,000 to a private non-operating foundation, he can deduct $_____.

d

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 and 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. Patrick's deductible contribution for the current year is ______. a) $50,000 in cash to the public charity, $35,000 in property to the public charity, and $24,000 in stock to the private nonoperating foundation b) $50,000 in cash to the public charity, $15,000 in property to the public charity, and $12,000 in stock to the private nonoperating foundation c) $1,000 in cash to the public charity, $35,000 in property to the public charity, and $24,000 in stock to the private nonoperating foundation d) $50,000 in cash to the public charity, $10,000 in property to the public charity, and $0 in stock to the private nonoperating foundation

a

Patrick has an adjusted gross income of $160,000 in the current year. He donated $30,000 in cash to a public charity, capital gain property with a basis of $15,000 and 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. The amount that Patrick can deduct for the stock donation to the private nonoperating foundation is ______. a) $8,000 b) $32,000 c) $10,000 d) $20,000

for; includes

Penalties for early-withdrawal of savings are deductible _______ AGI, and interest reported in gross income _______ (includes/excludes) the interest forfeited for the penalty.

investment

Rental and royalty endeavors are most commonly classified as _____ activities

ordinary income

Taxpayers can only deduct the lesser of (1) the property's fair market value or (2) the property's adjusted basis when making a charitable donation of ____ _____ property.

standard

The _____ deduction is a flat amount that most individuals can elect to deduct instead of deducting their itemized deductions.

50; 25

The deduction for qualified business income cannot exceed the greater of: (i) _____ percent of the wages paid with respect to the qualified trade or business, or (ii) the sum of _______ percent of the wages with respect to the qualified trade or businesses plus 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property in the qualified trade or businesses.

investment income

The deduction of investment interest is limited to a taxpayer's net ____ _____.

b

The intent of the terms ordinary and necessary when referring to deductible business expenses means the expenses must be ______. a) less than the revenues generated by the activity b) appropriate and helpful for generating a profit c) critical for generating a profit, not just helpful d) repetitive in nature rather than one-time expenses

60; 50; 30

The overall limitation for cash charitable contribution deductions for individual taxpayers is _______% of AGI. The limit is reduced to ____% for ordinary gain property other than cash, and _______% for long-term capital gain property.

bunching

The system of shifting itemized deductions into one year such that the amount of itemized deductions exceeds the standard deduction for the year, and then deducting the standard deduction the next year is known as _____ itemized deductions.

residence/home; investment

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/home; investment

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.

b

True or false: Business expenses are deducted for AGI and reported directly on Form 1040. True false question. a) True b) False

5

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

ad

Which of the following expenses are deductible FOR AGI? (Check all that apply.) Multiple select question. a) Most expenses generated by business activities b) Most expenses generated by investment activities c) Unreimbursed employee business expenses d) Expenses generated by rental and royalty activities

bd

Which of the following expenses are deductible FOR AGI? (Check all that apply.) Multiple select question. a) Unreimbursed employee business expenses b) Expenses generated by rental and royalty activities c) Most expenses generated by investment activities d) Most expenses generated by business activities

b

Which of the following is CORRECT concerning the deduction of qualified medical expenses for the 2021 tax year? a) Most individuals are able to deduct medical expenses. b) The expenses must be reduced by 7.5% of AGI. c) The expenses must be increased by 7.5% of AGI. d) The expense can be increased by 7.5% of AGI.

abd

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) Multiple select question. a) Laser eye surgery b) Dental work c) Tummy tuck d) Eyeglasses e) Over-the-counter medications

cde

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) Multiple select question. a) Over-the-counter medications b) Tummy tuck c) Dental work d) Laser eye surgery e) Eyeglasses

abde

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) Multiple select question. a) Plastic surgery to reduce scarring after a dog bite b) Chiropractic services c) Liposuction to improve appearance d) Prescription medications e) Health insurance premiums paid with after tax dollars

abcd

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) Multiple select question. a) Plastic surgery to reduce scarring after a dog bite b) Prescription medications c) Chiropractic services d) Health insurance premiums paid with after tax dollars e) Liposuction to improve appearance

a

Which of the following penalties is deductible for AGI? a) The penalty for early withdrawal of savings b) The penalty for underpayment of income tax c) The penalty for early distribution of a retirement account d) The penalty for late payments on a bank loan

be

Which of the following statements are CORRECT when comparing For AGI deductions to From AGIdeductions? (Choose all that apply.) Multiple select question. a) For AGI deductions are subtracted directly from adjusted gross income. b) Certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense. c) From AGI deductions are generally preferred over deductions for AGI. d) For AGI deductions are also called deductions "below the line" or "itemized deductions." e) Deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers.

a

Which of the following statements is INCORRECT regarding charitable donations of capital gain property? a) The taxpayer must include the appreciation of the asset in gross income. b) To qualify as capital gain property, the asset must have been owned by the taxpayer for more than one year. c) To qualify as capital gain property, the asset must have appreciated in value.

b

Which of the following statements is INCORRECT regarding charitable donations of capital gain property? a) To qualify as capital gain property, the asset must have appreciated in value. b) The taxpayer must include the appreciation of the asset in gross income. c) To qualify as capital gain property, the asset must have been owned by the taxpayer for more than one year.

b

Which of the following statements is NOT accurate regarding the deduction for qualified education loan interest? a) The amount of the deduction is phased out depending on filing status and modified AGI. b) The full amount of interest paid on qualified educational loans is deductible. c) The interest on educational loans for a taxpayer's dependents is deductible. d) Loans used to provide room and board during college are considered qualifying educational expenses.

d

Which of the following statements is accurate when referring to hobby expenses? a) Hobby expenses are deductible as itemized deductions but only to the extent of the revenue generated by the hobby. b) Hobby expenses are NOT deductible because revenues generated from hobbies are not taxable. c) Hobby expenses are deductible against the revenue generated by the hobby and will result in a deductible loss if they exceed revenues. d) Hobby expenses are NOT deductible, but revenues generated by the hobby are taxable. e) Hobby expenses are deductible FOR AGI, but only to the extent of the revenue generated by the hobby.

b

Which of the following statements is correct? a) A business calculates net income or loss for tax purposes. Details do NOT have to be reported on the tax return, but records must be retained by the company to present in the event of an audit. b) The revenues and expenses from a business are reported on Schedule C and the resulting profit or loss is transferred to Form 1040. c) Businesses attach financial accounting income statements to tax returns and report the profit or loss reported directly on Form 1040.

a

Which of the following statements is correct? a) The revenues and expenses from a business are reported on Schedule C and the resulting profit or loss is transferred to Form 1040. b) A business calculates net income or loss for tax purposes. Details do NOT have to be reported on the tax return, but records must be retained by the company to present in the event of an audit. c) Businesses attach financial accounting income statements to tax returns and report the profit or loss reported directly on Form 1040.

a

Which of the following statements related to investment interest expense is INCORRECT? a) Interest on loans to purchase land held for investment is NOT deductible. b) Investment interest expense not deductible in the current year may carry forward to a subsequent year. c) Investment interest expense is limited to investment income. d) Investment interest expense due to investments in tax-exempt securities is NOT deductible.

d

Which of the following statements related to investment interest expense is INCORRECT? a) Investment interest expense due to investments in tax-exempt securities is NOT deductible. b) Investment interest expense not deductible in the current year may carry forward to a subsequent year. c) Investment interest expense is limited to investment income. d) Interest on loans to purchase land held for investment is NOT deductible.

ae

Which of the following types of taxes may be considered when determining the itemized deduction for taxes? (Check all that apply.) Multiple select question. a) Personal property tax on the value of a boat b) Federal gift taxes c) Federal estate taxes d) Social security tax withheld from pay e) Real estate taxes on property held for investment

ad

Which of the following types of taxes may be considered when determining the itemized deduction for taxes? (Check all that apply.) Multiple select question. a) Real estate taxes on property held for investment b) Federal estate taxes c) Social security tax withheld from pay d) Personal property tax on the value of a boat e) Federal gift taxes

ad

Which of the following types of taxes may be considered when determining the itemized deduction for taxes? (Check all that apply.) Multiple select question. a) Real estate taxes on property held for investment b) Social security tax withheld from pay c) Federal estate taxes d) Personal property tax on the value of a boat e) Federal gift taxes

abc

Which of the following types of taxes may be deducted from AGI as itemized deductions? (Check all that apply.) Multiple select question. a) Personal property tax on the value of a car b) Real estate taxes on a primary residence c) State and local income taxes d) Excise taxes paid on cigarette and alcohol purchases e) Federal income taxes

a

Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes? a) Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause b) Contributions made through payroll deduction c) Travel costs incurred for charitable purposes d) Contributions made with credit cards where the charge is paid in a subsequent year

a

Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes? a) Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause b) Travel costs incurred for charitable purposes c) Contributions made through payroll deduction d) Contributions made with credit cards where the charge is paid in a subsequent year

b

Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes? a) Contributions made through payroll deduction b) Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause c) Travel costs incurred for charitable purposes d) Contributions made with credit cards where the charge is paid in a subsequent year

d

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. In regards to the donation, the stock is ______. a) capital gain property and Markita can deduct $1,200 b) capital gain property and Markita can deduct $1,000 c) ordinary income property and Markita can deduct $1,200 d) ordinary income property and Markita can deduct $1,000

10000

Married filing joint taxpayers may deduct no more than $______ in total state and local taxes.

lodging

axpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct some or all of the costs of ____ and travel.

bde

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? (Check all that apply.) Multiple select question. a) $900 that is actually paid toward the credit card bill during the year b) $1,500 charged to the credit card during the year c) The value of his time for five days based on his current salary d) Mileage for the 200 miles he drove to the ravaged area e) The cost of lodging while he is volunteering

cde

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? (Check all that apply.) Multiple select question. a) The value of his time for five days based on his current salary b) $900 that is actually paid toward the credit card bill during the year c) Mileage for the 200 miles he drove to the ravaged area d) The cost of lodging while he is volunteering e) $1,500 charged to the credit card during the year

60; 30; 20

Cash 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 taxpayer's AGI. And, donations of certain capital gain property to private nonoperating foundations are limited to ________% of AGI.

c

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? a) It has appreciated in value. b) It is tangible property. c) It is intangible property such as stocks and bonds. d) It is personal property. e) It is NOT used by the charity for a related purpose.