tax Exam 2
Which of the following types of donations would be deductible as charitable contributions?
-Cash donated to United Way -Checks made payable to (and as a donation to) The Boy Scouts of America -Land donated to a state university
What is included in the calculation of the amount realized upon the sale of a capital asset?
-Cash received by the seller -Broker's fees and other selling costs are deducted -Fair market value of any other property received by the seller
Which of the following statements are CORRECT when comparing For AGI deductions to From AGI deductions?
-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 types of investments generate dividend income?
-Corporate stock -Mutual fund investments
A specified service trade or business for purposes of the Qualified Business Income Deduction includes all of the following except:
-Engineering -Architecture
Which of the following types of investments generate interest income?
-Government bonds -Savings accounts -Certificates of deposit -Corporate bonds
Which of the following medical costs would be deductible as qualified medical expenses?
-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 choices concerning the recognition of interest income for corporate bond are CORRECT?
-If bonds are purchased at a premium in the secondary market, the premium can be amortized or added to the basis of the bond. -The actual interest payments received are included in gross income. -If bonds were issued at a discount, special original issue discount rules apply.
Which of the following types of interest expense are NOT deductible as an itemized deduction?
-Interest on a qualified home-equity loan used to purchase a car -Interest on credit cards used to purchase furnishing for a personal residence
Which of the following medical costs would be deductible as qualified medical expenses?
-Laser eye surgery -Dental work -Eyeglasses
Which of the following expenses are deductible FOR AGI?
-Most expenses generated by business activities -Expenses generated by rental and royalty activities
Which of the following characteristics are required for a business expense to be deductible?
-Necessary - related to business activity -Ordinary
Match the amount of the 2023 standard deduction with the filing status of the taxpayer.
HoH- 20,800 MFJ and surviving spouse- 27,700 Single- 13,850 Additional for age or blindness (Married Filing Jointly or Filing Separately)- 1,500 Additional for age or blindness (Single or Head of Household)-1850
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 is correct?
Interest income is typically taxed at ordinary rates.
Which of the following statements related to investment interest expense is INCORRECT?
Interest on loans to purchase land held for investment is NOT deductible.
Which of the following descriptions BEST defines investment activities?
Profit-motivated, but not requiring a high level of effort from the taxpayer
Regarding portfolio investments, which types of income generally are taxed at a rate lower than the taxpayer's marginal tax rate?
Qualified dividends Long-term capital gains
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 of qualified medical expenses for the 2022 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.
T/F: Income from passive investments may be taxed at ordinary rates, preferential rates, or may be exempt from taxation while income from portfolio investments will be taxed at ordinary rates.
false
Activities classified as hobbies can generate tax deductible losses that can be used against other types of income.
false; Hobby expenses are not deductible
A loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck that occurs as part of a(n)
federally declared disaster in a casualty loss
Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct some or all of the costs of
lodging and transportation
The revenues and expenses from a business are reported
on Schedule C and the resulting profit or loss is transferred to Form 1040.
In order to be deductible, business expenses must be ____ and ___for the business activity.
ordinary and necessary
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
ordinary income property
When seeking medical treatment, the taxpayer cannot deduct
the cost of meals if the taxpayer is required to be away from home overnight
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
Which of the following types of taxes may be considered when determining the itemized deduction for taxes?
-Personal property tax on the value of a boat -Real estate taxes on property held for investment
Which of the following types of taxes may be deducted from AGI as itemized deductions?
-State and local income taxes -Personal property tax on the value of a car -Real estate taxes on a primary residence
Which of the following choices determine the amount and the timing for recognizing interest income?
-The actual interest payments received are included in gross income. -If bonds are purchased at a discount in the secondary market, the discount is recognized as interest income at maturity. -If bonds were issued at a premium, taxpayers may amortize the premium over the life of the bond resulting in a decrease in interest income.
Which of the following choices describes the tax treatment for qualified dividends?
-The income may be taxed at a rate as high as 20%, depending on the taxpayer's taxable income. -The income may be taxed as low as 0%, depending on the taxpayer's ordinary income rate.
How is a capital asset's tax basis calculated?
-The tax basis includes costs incurred in preparing the asset for initial use. -The tax basis includes costs to substantially improve the asset. -The tax basis includes the original cost (or other basis) in the asset.
Expenses that may be classified as miscellaneous itemized deductions for the current year include:
-gambling losses up to the amount of gambling winnings reported in gross income -the unrecovered cost of a life annuity when the taxpayer dies -casualty and theft losses on investment property
Which of the following persons' health insurance premiums can be deducted for AGI by a self-employed taxpayer?
-taxpayer's spouse -taxpayer -taxpayer's dependent children -taxpayer's children who are under age 27 and not dependents of the taxpayer
Married filing joint taxpayers may deduct no more than ___ in total state and local taxes.
10,000
Which one of the following tax rates does NOT currently apply to long-term capital gains?
37%; This is the highest ordinary marginal tax rate.
When a taxpayer's charitable contributions exceed the AGI ceiling limitation for the year, the excess contributions can be carried forward for
5
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.
50; 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. Donations of capital gain property to public charities are generally limited to __% of AGI
60; 30; 20
The overall limitation for cash charitable contribution deductions for individual taxpayers is ___% The limit is reduced to___% for ordinary gain property other than cash, and __% for long-term capital gain property.
60; 50; 30
For mortgages obtained after 2017, MFJ homeowners may deduct interest on up to
750,000 of acquisition indebtedness.
Which of the following types of assets does NOT qualify as a capital asset?
Assets used in a trade or 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
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
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 dependent son who lives with the taxpayer's ex-wife
Lucy is single and has $225,000 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 services are not a specified trade or business, thus, her income from engineering services would be QBI.
T/F: Interest income is generally taxed at lower capital gains rates.
False
T/F: Business expenses are deducted for AGI and reported directly on Form 1040.
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.
t/F: Hobby expenses are deductible to the extent of hobby income reported in AGI.
False; Hobby expenses are generally not deductible even though hobby revenue is included in gross income.
T/F; Taxpayers may deduct both state and local income taxes and state and local sales taxes as itemized deductions.
False; Taxpayers may elect to deduct state and local sales taxes instead of deducting state and local income taxes.
T/F: 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; The cost of his self-employed health insurance as a For-AGI deduction is not allowed because he has employer-provided coverage available to him.
T/F: Business expenses are deducted for AGI and reported directly on Form 1040.
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.
T/F: Taxpayers may deduct both state and local income taxes and state and local sales taxes as itemized deductions.
Fasle; Taxpayers may elect to deduct state and local sales taxes instead of deducting state and local income taxes.
Holly has worked for Ford Motor Company for several years. Each year, she purchases 50 - 100 shares of the company's stock for her investment portfolio. During the current year, Holly sold 25% of her stock to purchase a new home. She has not maintained records to track the basis of the shares as they were purchased for her stock portfolio. What method should she use to calculate her tax basis?
First-in, first-out method
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.
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.
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.
Please choose the statement that is INCORRECT regarding portfolio and passive investments?
Losses from portfolio investments are deductible in full against ordinary income.
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 $545,000 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 descriptions BEST defines business activities?
Profit-motivated and requiring a high level of effort from the taxpayer
Deductions for business expenses are reported on ____ ____ of the individual's Form ____ , the main document of the individual tax return.
Schedule C; 1040
The income and deductions that result from rental property and royalties are reported on:
Schedule E Form 1040
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.
For purposes of the qualified business income deduction, a qualified trade or business is any trade or business other than a(n)
Specific service trade or business of being an employee
Which one of the following statements is INCORRECT regarding interest earned on U.S. savings bonds?
Taxpayers include the periodic interest payments from U.S. savings bonds in gross income each year when received.
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 itemized his or her deductions.
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.
T/F: Gambling expenses and losses to the extent of gambling winnings are reported as miscellaneous itemized deductions.
True; Gambling losses are deductible to the extent of gambling income
do NOT pay periodic interest payments, but the interest accumulates over the term of the bond.
U.S saving bonds
Which of the following investments do NOT pay periodic interest payments, but rather accumulate interest over the life?
U.S. savings bonds
Which one of the following items is NOT a qualified medical expense?
Vitamins for promoting good health
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
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
bunched itemized deductions
Activities that are profit-motivated and require a relatively high level of involvement from the taxpayer are referred to as
business or trade activities
Assets that are held for investment or personal use assets are referred to as
capital assets
In general, when contributing long-term property to charity, taxpayers are allowed to deduct the fair market value of
capital gains property on the date of the donation.
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
for AGI
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
from; for
A taxpayer may use the specific identification method for determining the tax basis of stock being sold rather than the FIFO method when the taxpayer
has maintained sufficient records to document which batch of stock is being sold
Activities which are profit-motivated, but do NOT require a relatively high level of involvement from the taxpayer are referred to as
investing activities
Rental and royalty endeavors are most commonly classified as
investing activities
The deduction of investment interest is limited to a taxpayer's net
investment income
Regarding portfolio investments, ____ dividends generally are taxed at capital gains rates and ___ dividends are taxed at ordinary rates.
qualified; nonqualified
may be classified as investment activities or business activities, but the expenses are always deducted for AGI
rental activities
is a flat amount that most individuals can elect to deduct instead of deducting their itemized deductions.
standard deduction
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
student; for
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; Since their taxable income is below the $340,100 threshold for MFJ, the business is eligible for the QBI deduction
