Tax 6

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 ______.

ordinary income property and Markita can deduct $1,000

When seeking medical treatment, the taxpayer cannot deduct ______.

the cost of meals if the taxpayer is required to be away from home overnight

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) .

Blank 1: specified or specific Blank 2: service Blank 3: employee

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.)

Eyeglasses Laser eye surgery Dental work

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

Land donated to a public university

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?

Llona will report the $2,000 as gross income and deduct the $200 for AGI.

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 types of taxes may be deducted from AGI as itemized deductions? (Check all that apply.)

Real estate taxes on a primary residence State and local income taxes Personal property tax on the value of a car

The intent of the terms ordinary and necessary when referring to deductible business expenses means the expenses must be ______.

appropriate and helpful for generating a profit

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 ______.

$8,000

Which of the following expenses are deductible FOR AGI? (Check all that apply.)

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

Which of the following types of taxes may be considered when determining the itemized deduction for taxes? (Check all that apply.)

Personal property tax on the value of a boat Real estate taxes on property held for investment

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. (Enter only one word per blank.)

capital gain

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

political

Excess charitable contributions can be carried forward ______ year(s) before expiring.

five

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. (Enter only one word per blank.)

Blank 1: ordinary Blank 2: income

Holly is single and reports taxable income of $240,000 ($260,000 AGI - $20,000 itemized deductions) before the deduction for qualified business income. She has no capital gains or dividends included in taxable income. Holly's engineering consulting service generates $20,000 of qualified business income. She paid $5,000 in wages during the current year and has no qualified property. What is Holly's deduction for qualified business income?

$2,500

Isabella, age 50, pays $500 each month for health insurance premiums with after-tax dollars. She is not self-employed. During 2020, 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?

$2,825 Reason: [($500 × 12) + $200] = $6,200 - ($45,000 × 7.5%) = $2,825

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 $361,600 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?

$243,750

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?

$250,000

Holly files married filing jointly and reports income of $300,000 ($340,000 AGI - $40,000 itemized deductions) before the deduction for qualified business income. She has no capital gains or dividends included in taxable income. Holly's engineering consulting service generates $20,000 of qualified business income. She paid no wages during the current year. What is Holly's deduction for qualified business income?

$4,000

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 ______.

$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

Gary incurred $5,200 in qualified medical expenses in 2020. His AGI for the year is $50,000. Gary will be able to deduct $ as an itemized deduction for medical expenses. (Enter your answer as a whole number.)

Blank 1: 1,450

Married filing joint taxpayers may deduct no more than $ in total state and local taxes. (Enter your answer as a whole number.)

Blank 1: 10,000

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.

Blank 1: 50 or fifty Blank 2: 25, twenty five, or twenty-five

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. (Enter your answers as whole numbers.)

Blank 1: 60 or sixty Blank 2: 50 or fifty Blank 3: 30 or thirty

For mortgages obtained in 2020, homeowners may deduct interest on up to $ of acquisition indebtedness.

Blank 1: 750000 or 750,000

Nancy donated an antique desk to her church that she paid $800 for six years ago. An appraisal indicates the current fair market value of the desk is $1,000. The church donated the desk to a family whose home was destroyed in a fire. As a result, Nancy will be able to deduct $ for her contribution. (Enter your answer as a whole number.)

Blank 1: 800

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. (Enter only one word per blank.)

Blank 1: bunching or bunched

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 (for/from) AGI.

Blank 1: education, student, educational, or higher education Blank 2: for

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. (Enter only one word per blank.)

Blank 1: federally, federal, president, presidental, or providentially Blank 2: declared or declare Blank 3: casualty

When a taxpayer's charitable contributions exceed the AGI ceiling limitation for the year, the excess contributions can be carried forward for years. (Enter one one word per blank.)

Blank 1: five or 5

Expenses associated with generating rental or royalty income are deductible AGI. (Enter only one word per blank.)

Blank 1: for

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

Blank 1: for Blank 2: includes

Investment interest expense is deducted AGI while self-employed business expenses are deducted AGI. (Enter only one word per blank.)

Blank 1: from Blank 2: for

The deduction of investment interest is limited to a taxpayer's net . (Enter only one word per blank.)

Blank 1: investment Blank 2: income

Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct some or all of the costs of and . (Enter only one word per blank.)

Blank 1: lodging, hotels, motels, hotel, or motel Blank 2: transportation, travel, or traveling

In order to be deductible, business expenses must be and for the business activity. (Enter only one word per blank.)

Blank 1: ordinary Blank 2: necessary

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.

Blank 1: residence or home Blank 2: investment

Which of the following statements are CORRECT when comparing For AGI deductions to From AGI deductions? (Choose all that apply.)

Certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense. Deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers.

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

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.

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.

Lucy is single and has $215,000 of taxable income from services outside her employment before the Qualified Business Income deduction. Which of the following types of services, if it were the service performed by Lucy, would qualify as Qualified Business Income?

Engineering

A specified service trade or business for purposes of the Qualified Business Income Deduction includes all of the following except: (Check all that apply.)

Engineering Architecture

True or false: A self-employed individual may deduct the cost of his self-employed health insurance premiums even if his spouse's employer offers family coverage to him.

False

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

False

True or false: Hobby expenses are deductible to the extent of hobby income reported in AGI.

False

True or false: Taxpayers may deduct both state and local income taxes and state and local sales taxes as itemized deductions.

False

Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.)

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

Which of the following statements is accurate when referring to hobby expenses?

Hobby expenses are NOT deductible, but revenues generated by the hobby are taxable.

Which of the following types of interest expense are NOT deductible as an itemized deduction? (Check all that apply)

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

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 such as stocks and bonds.

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?

Izzy can deduct the $50 for AGI.

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.

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.

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 $445,000 in taxable income before any QBI deduction. Is Bruce eligible to claim the deduction for QBI for his tax service?

No

Which of the following terms describes business expenses that would be deductible by the taxpayer? (Check all that apply.)

Ordinary Appropriate Necessary Helpful

Which of the following characteristics are required for a business expense to be deductible? (Check all that apply.)

Ordinary Directly related to business activity Necessary

Harli is taking her 6-month-old daughter to the doctor to receive vaccinations. Which of the following statements is correct regarding the deductibility of the vaccinations?

The cost of vaccinations is deductible because it is for the prevention of a disease.

Which of the following statements regarding the deduction for qualified business income is incorrect?

The deduction cannot be claimed unless the taxpayer also itemizes his or her deductions.

Which of the following is CORRECT concerning the deduction of qualified medical expenses for the 2020 tax year?

The expenses must be reduced by 7.5% of AGI.

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.

Which of the following penalties is deductible for AGI?

The penalty for early withdrawal of savings

Which of the following statements is correct?

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

Certain contributions of capital gain property do NOT qualify for a fair market value deduction. Which of the following characteristics of the contribution will cause the asset to NOT qualify for a fair market value deduction?

The tangible personal property's use is unrelated to the charity's operations.

Which of the following statements is INCORRECT regarding charitable donations of capital gain property?

The taxpayer must include the appreciation of the asset in gross income.

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 if it occurs in a federally-declared disaster area?

Weakened

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 $330,000 in net profit from his tax business and $300,000 in taxable income before the deduction for qualified business income (QBI). Will Bruce's tax business be deemed a qualified trade or business for purposes of the QBI deduction?

Yes

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 ______.

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

Activities that are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as activities. (Enter only one word per blank.)

business

Taxpayers have a choice of deducting the standard deduction or their itemized deductions. Therefore, ______ AGI deductions are considered to be beneficial to more taxpayers because:

for; they are available to all eligible taxpayers, not just those that itemize deductions.

Investment interest expense is deducted AGI while self-employed business expenses are deducted AGI. (Enter only one word per blank.)

from, for

Rental activities ______.

may be classified as investment activities or business activities, but the expenses are always deducted for AGI