taxation 6
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?
$1,700 [($500 x 12) + $200] = $6,200; $6,200 - ($45,000 x 0.10) = $1,700
Cambell, a single taxpayer, has $95,000 of profits from her general store. Which she operates as a sole propiertorship. She has no employees, $40,000 of qualified property and $50,000 of taxable income before the deduction for qualified business income. How much is Cambell's deduction for qualified business income?
$10,000 It is the lesser of a). 20% of their qualified business income plus 20% of their qualified real estate investment trus dividends and qualified publicly traded partnership income (95,000x.20)=19,000 or b). 20% of taxable income minus net capital gains (50,000x.20)=10,000
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 = acq debt
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?
$30,000 in cash to the public charity, $40,000 in property to public charity, and $8,000 in stock to the private nonoperating foundation (He can deduct the $30,000 in cash, $40,000 of the capital gain property (up to $160,000 x 30%) to the public charity, and up to $8,000 of the stock to the private foundation ((AGI x 30%) - contributions subject to 30% limit). 8000=(160,000x.3)-40,000
Opall fell on the ice and injured her hip this winter. As a result she paid $3,170 for a visit to the hospital emergency room and $920 for follow-up visits with her doctor. While she recuperated, Opal paid $670 for prescription medicine and $770 to a therapist for rehabilitation. Insurance reimbursed Opal$1,370 for these expenses. What is the amount of Opal's qualifying medical expense?
$4,160=$3,170+920+670+770-1,370
A specified service trade or business for purposes of the Qualified Business Income Deduction includes all of the following except (mark all that apply):
1) Architecture 2) Engineering
Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.) (4)
1) Chiropractic services 2) Health insurance premiums paid with after tax dollars 3)Plastic surgery to reduce scarring after a dog bite 4) Prescription medications
Which of the following medical costs would be deductible as qualified medical expenses? (Check all that apply.)
1) Dental work 2) Eyeglasses 3) Laser eye surgery
Which of the following expenses are deductible FOR AGI? (Check all that apply.)
1) Most expenses generated by business activities 2) Expenses generated by rental and royalty activities
Which of the following characteristics are required for a business expense to be deductible? (Check all that apply.)
1) Ordinary 2) Necessary 3) Directly related to the business activity
Which of the following types of taxes may be deducted from AGI as itemized deductions? (Check all that apply.)
1) Real estate taxes on a primary residence 2) State and local income taxes 3) Personal property tax on the value of a car
For purposes of the qualified business income deduction, a qualified trade or business is any trade or business other than a _ _ trade or business or business of being an _
1) specified service 2) employee
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.
1). 50 2). 25
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.
1). 60 2). 30 3). 20
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 up to $100,000 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 non-operating foundation, he can deduct $_ this year.
1). 80000 2). 45000= (150,000x.30) 3). 30000=(150,000x.20)
A(n) _ loss is defined as a loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck that occurs as part of a _ _ disaster.
1). Casualty 2). Federally declared
which of the following statements are CORRECT when comparing for AGI deduction to FROM AGI?
1). Certain From AGI deductions may not have an effect on taxable income despite the taxpayer incurring the expense 2). 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 types of interest expense is NOT deductible as an itemized deduction?
1). Interest on a qualified home-equity loan used to purchase a car 2). Interest on credit cards used to purchase furnishing for a personal residence
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.)
1).$1,500 charged to the credit card during the year 2).Mileage for the 200 miles he drove to the ravaged area 3).The cost of lodging while he is volunteering
Which of the following types of donations would be deductible as charitable contributions?
1).Land donated to a state university 2). Checks made payable to (and as a donation to) The Boy Scouts of America 3). Cash donated to United Way
Which of the following expenses are classified as miscellaneous itemized deductions for 2019? (Check all that apply.)
1).The unrecovered cost of a life annuity when the taxpayer dies 2).Gambling losses 3). Casualty and theft losses on property held for investment
Gary incurred $5,200 in qualified medical expenses last year. His AGI was $50,000. Gary will be able to deduct $_ as an itemized deduction for medical expenses.
200 5200-(50,000*.10)=200
Max, a single taxpayer, has a $270,000 loss from his sole propiertorship. How much of this loss is deductible after considering the excess business loss rules?
250,000 b/c 250,000 is allowed for single taxpayers. (500,000 allowable for married)
When a taxpayer's charitable contributions exceed the AGI ceiling limitation for the year, the excess contributions can be carried forward for _ years
5
A taxpayer who incurs acquisition indebtness in 2018may only deduct interest on up to $_ at acquisition indebtness
750,000
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
Which of the following statements is NOT a characteristic of the standard deduction?
A taxpayer can deduct a standard deduction amount for himself and his spouse.
Brice is a single, self-employed electrician who earns $60,000 per year in self-employment income. Brice paid the following expenses this year. Which of the expenses are deductible for AGI? 1. The cost of health insurance (not purchased through exchange) 2. The employer portion of self-employment tax paid 3. Penalty on early withdrawal of funds from a certificate of deposit
All of these choices are deductible for AGI
Activities which are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as _ activities
Business
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
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. (Only allowed to deduct a capital loss of 3,000 a year)
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 taxpayer's ex-wife
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.
True or false: Business expenses are reported directly on the Form 1040 and are deducted for AGI.
FALSE: The revenues and expenses of a business are reported on a separate schedule. The resulting profit or loss is transferred to the Form 1040.
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
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 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. (because it is land)
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.
Choose 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.
Which of the following cost are deductible as an itemized medical expense?
Medical expenses to prevent disease
Are moving expenses generally deductible or non deductible?
Non deductible (unless military)
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
Donations to _ organizations are NOT deductible for federal income tax purposes.
Political
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 rental activities?
Rental activities are classified as business activities, and the expenses are deducted for AGI.
Which of the following statements is correct regarding the deductibility 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
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. (Patrick is limited to a total deduction of $60,000 ($120,000 x 50%). He can deduct the $50,000 in cash and $10,000 of the capital gain property to the public charity.)
When seeking medical treatment, which one of the following travel expenses would NOT be deductible?
The cost of meals if the taxpayer is required to be away from home overnight.
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.
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 is CORRECT concerning the deduction for qualified medical expenses?
The expenses must be reduced by 10% 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.
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. (Schedule C)
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 fair market value.(held for less than one year)
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 donated is unrelated to the charity's operations.
Regarding charitable contributions, please choose the statement that is INCORRECT when referring to donations of capital gain property?
The taxpayer must include the appreciation of the asset in gross income.
Which of the following statements regarding the deduction for qualified business income is incorrect?
The wage-based limits only apply to taxpayers with taxable income below $321,400 (in the case of a joint return)
T or F: a casualty loss on personal-use assets is generally not deductible
True
Which one of the following items is NOT a qualified medical expense?
Vitamins for promoting good health
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.
bunching
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
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
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
educational for
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
Expenses associated with generating rental or royalty income are deductible _ AGI
for
Penalties for early-withdrawal of savings are deductible _ AGI, and interest reported in gross income _ (includes/excludes) the interest forfeited for the penalty.
for includes
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.
With the exception of rent/royalty expenses, investment interest expense is deducted _ AGI while self-employed business expenses are deducted _ AGI
from, for
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
Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct some or all of the costs of _ and _
lodging and transportation
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
In order to be deductible, business expenses must be _, _ and directly related to the business activity
ordinary, necessary
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 deduction
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?
weakend
