Taxes Chapter 5

Raquel, who works in medical sales, drives her own vehicle to various locations for client sales meetings. Her employer reimburses her $400 each month for various business expenses and does not expect Raquel to provide proof of her expenses. Her employer included this $4,800 reimbursement in Raquel's 2018 W-2 as part of her wages. In 2018, Raquel incurred $3,000 in transportation expense, $1,000 in parking and tolls expense, $1,800 in car repair expense, and $600 for expenses while attending a professional association convention. Assume that Raquel uses the vehicle for business purposes only and that she maintains adequate documentation to support all of these expenditures. What amount is Raquel entitled to deduct on her Schedule A for other itemized deductions? $6,400 of expenses subject to the 2% of AGI limitation. $4,800 because her employer follows a non-accountable plan. $1,600, the difference between her expenditures and her reimbursement. $0 because employee expenses are no longer deductible as an itemized deduction.

$0 because employee expenses are no longer deductible as an itemized deduction. Under the Tax Cuts and Jobs Act of 2017, beginning in 2018 employee expenses are no longer deductible as an itemized deduction.

During 2018, Raul incurred and paid the following expenses: Prescription drugs . $ 470 Vitamins and over-the-counter cold remedies 130 Doctors and dentist visits 700 Health club fee 250 Hair Transplant Surgery 2,400 What is the total amount of medical expenses (before considering the limitation based on AGI) that would enter into the calculation of itemized deductions for Raul's 2018 income tax return? $1,170. $1,300. $1,550. $3,950.

$1,170. prescription drugs ($470) + doctors&dentist visits ($700) = $1,170 Deductible medical expenses are those that are doctor-directed and do not include optional treatments for the maintenance of general health and appearance. Personal expenditures that are not prescribed, such as health club memberships, are not deductible.

For 2018, Perla, who is single and 55 years of age, had AGI of $60,000. During the year, she incurred and paid the following medical costs: Use Insurance for Medical Care or Long-Term Care Doctor and dentist fees . $ 3,350 Prescription medicines 625 Medical care insurance premiums 380 Long-term care insurance premiums 1,600 Hearing aid 150 What amount can Perla take as a medical expense deduction (after the AGI limitation) for her 2018 tax return? $6,065. $4,500. $1,565. $35.

$1,565. $3,350 + $625 + $1,560+ $380 + $150 = $ 6,065 - $4,500 (60,000*7.5%) = $1,565 All the expenses listed above are deductible; however, the deduction for the long term care insurance premiums is limited by Perla's age.

In 2018, the Rinaldis' vacation cottage was severely damaged by an earthquake in a location that was a Presidentially Declared Disaster area. They had an AGI of $110,000 in 2018, and following is information related to the cottage: Cost basis $ 95,000 FMV before casualty 135,000 FMV after casualty 20,000 The Rinaldis had insurance and received an $80,000 insurance settlement. What is the amount of allowable casualty loss deduction for the Rinaldis in 2018 before the AGI and event limitation? $ 3,900. $14,900. $15,000. $ 45,000.

$15,000. $95,000 − $80,000 = $15,000. As this event occurred in a Federally Declared Disaster area, it is eligible for deduction. First, the lower of the basis of the property or the difference in the FMV before and after the event is determined. Then from that number we subtract the insurance reimbursement to determine the starting point for the calculation of the allowable casualty loss deduction before the AGI and event limitation.

Cindy Byrd donated stock (capital gain property) to a public charity that she has long supported. She purchased the stock 4 years ago for $100,000, and on the date of the gift, it had a fair market value of $300,000. What is her maximum charitable contribution deduction for the year on this contribution of stock if her AGI is $500,000? $90,000. $100,000. $150,000. $300,000.

$150,000. $500,000 × 60% = $300,000, the overall AGI limitation for charitable contributions. $500,000 × 30% = $150,000, the amount of the deduction allowable in a given year for appreciated capital gain property. Since the $150,000 is less than the 300,000, she can deduct the full amount of $150,000 for this year providing there are no other contributions that push her over the overall limit. The remaining $150,000 of the deduction will be carryforward to future years. The 30% charitable deduction limitation applies to contributions of appreciated capital gain property. Generally, when capital gain property is contributed to a public charity, the taxpayer gets a deduction for the FMV of the asset, subject to the 30% limitation for any give year. Any unused amount of the deduction can be carryforward for five years.

During 2018, Noriko paid the following taxes related to her home: Real Estate property taxes on residence (paid from escrow account) $ 1,800 State personal property tax on her automobile (based on value) 600 Property taxes on land held for long-term appreciation 400 What amount can Noriko deduct as property taxes in calculating itemized deductions, assuming she was under the $10,000 limit for state and local taxes, for 2018? $400. $1,000. $2,400. $2,800.

$2,800. $1,800 + $600 +$400 = $2,800 As the state personal property tax was based on the value of her vehicle, it is a tax and not a fee, and is allowable as a deduction. The Tax Cuts and Jobs Act (TCJA) of 2017 limited the deduction for income, real estate and other state and local taxes. Beginning in 2018, the limitation for the deductibility of all state and local taxes is $10,000 ($5,000 for MFS).

For 2018, Thomas, a single parent, reported the following amounts relating to his investments: Net investment income $ 7,000 Interest expense on a loan to purchase stocks 2,000 Interest expense on funds borrowed to purchase land for investment 6,000 What is the maximum amount that Thomas could deduct in 2018 as investment interest expense? $1,000. $2,000. $6,000. $7,000.

$7,000. Investment interest expense is deducible to the amount of net investment income.

What is the maximum amount of personal residence acquisition debt on which interest is fully deductible on Schedule A? $1,000,000. $750,000. $250,000. $0.

$750,000. Acquisition indebtedness means any debt incurred to acquire, build, or substantially improve any qualified residence. Beginning in 2018, the aggregate amount treated as acquisition indebtedness for any period cannot exceed $750,000 ($375,000 for married individuals filing separate returns).

Which of the following statements is not true regarding documentation requirements for charitable contributions? -If the total deduction for all noncash contributions for the year is more than $500, Section A of Form 8283, Noncash Charitable Contributions, must be completed. -A noncash contribution of less than $250 must be supported by a receipt or other written acknowledgment from the charitable organization. -A contribution charged to a credit card is a noncash contribution for purposes of documentation requirements. -A deduction of more than $5,000 for one property item generally requires that a written appraisal be obtained and attached to the return.

-A contribution charged to a credit card is a noncash contribution for purposes of documentation requirements. A contribution charged to a credit card is considered a cash contribution.

Which of the following statements is not true? -A taxpayer can deduct medical expenses incurred for members of his family who are dependents. -The AGI threshold for deductible medical expenses is 7.50% -Deductible medical expenses include long-term care services for disabled spouses and dependents. -All of the statements are false.

-All of the statements are false. All statements are true.

Of the following items, which one does not qualify as an itemized deduction for state and local taxes? -Personal property taxes assessed on the value of specific property. -State, local, and foreign income taxes. -Hotel taxes incurred on personal travel. -Real estate taxes on a residence.

-Hotel taxes incurred on personal travel There is no deduction for hotel taxes under the category of itemized deduction for state and local taxes.

For 2018, the amount of the sales tax deduction is calculated by: -determining the actual sales tax paid during the year. -using the IRS sales tax deduction calculator. -using the sales worksheet and tax tables provided by the IRS in the Schedule A instructions. -all of the choices are correct.

-all of the choices are correct. All three are acceptable methods for determining the allowable sales tax deduction.

Daryl, who had significant itemized deductions for 2018 and therefore was eligible to use Schedule A, purchased a new vehicle in 2018 for $40,000 with a state sales tax of 10%. The allocated deduction amount for other purchases made by Daryl throughout the year, using the IRS state and local sales tax tables, would be $750. He also paid state income taxes of $4,500 for 2018. Daryl's best option to legally maximize his tax savings in 2018, assuming he was under the $10,000 limit for state and local taxes would be to: -deduct the amount of state sales tax for the vehicle purchase on Schedule A. -take the standard deduction. -take the deduction for the state income taxes paid on Schedule A. -deduct his total amount of allowable state sales tax deduction on Schedule A.

-deduct his total amount of allowable state sales tax deduction on Schedule A. When taxpayers elect to use the sales tax tables to determine the amount of their sales tax deduction, they are permitted to add to that amount the actual amount of sales tax on motor vehicles, boats, and homes, with certain limitations.

The threshold amount for the deductibility of allowable medical expenses ordinarily is: 7.5% of AGI. 10% of AGI. 10% of taxable income. 15% of taxable income.

7.5% of AGI. The 7.5% floor applies to all taxpayers regardless of age.

Which of the following organizations qualifies for deductible charitable contributions? A nonprofit educational institution. The Salvation Army. Churches. All of the choices are correct.

All of the choices are correct.

Generally, a taxpayer may deduct the cost of medical expenses for which of the following? Marriage counseling. Health club dues. Doctor-prescribed birth control pills. Trips for general health improvement.

Doctor-prescribed birth control pills. Only those health-related expenses incurred for a direct medical purpose are deductible.

Which expense, incurred and paid in 2018, can be claimed as another itemized deduction? Self-employed health insurance. Unreimbursed moving expenses. Gambling losses Self-employment taxes.

Gambling losses Only gambling losses qualify as another itemized deduction subject to the limitation of gambling winnings.

Which of the following is an other itemized deduction on the Schedule A? Tax preparation fees. Safe deposit box fee. Gambling losses. Union dues and fees.

Gambling losses. Gambling losses are deductible to the extent of the "built-in limitation" of gambling winnings.

For 2018, Thomas, a single parent, reported the following amounts relating to his investments: Net investment income $ 7,000 Interest expense on a loan to purchase stocks 2,000 Interest expense on funds borrowed to purchase land for investment 6,000 What is the treatment for the interest expense that Thomas could not deduct in 2018? It is lost. It cannot be used except as a carryback to previous years. It can be carried forward and deducted in succeeding years. None of the choices are correct.

It can be carried forward and deducted in succeeding years. If the investment interest expense exceeds the taxpayer's net investment income, he or she can carry forward the excess expense to future tax years when net investment income is available.

In 2018, the president of the United States declared a federal disaster due to brush fires in the Southwest. Lisa lives in that area and lost her home in the fires. What choice does she have regarding when she can claim the loss on her tax return? It may be claimed in 2017 or 2018. It must be claimed in 2017 if the loss is greater than her Modified Adjusted Gross Income. It may be claimed in 2019 if an election is filed with the 2018 return. It must be claimed in 2017 if the return has not been filed by the date of the loss.

It may be claimed in 2017 or 2018. The presidential declaration of a federal disaster area enables the taxpayer to deduct the loss as well as allowing her to deduct either in the previous year, to provide a more immediate benefit, or in the current year.

Prescription drugs obtained from sources outside the United States, such as Canada, are: -always deductible no matter how they were obtained. -deductible only for citizens of Canada living in the United States. -deductible if prescribed by a physician and approved by the FDA for legal importation. -never deductible.

deductible if prescribed by a physician and approved by the FDA for legal importation. A physician prescribes imported marijuana for a terminally ill cancer patient, which is legal under state statute. However, because the importation of marijuana is not approved by the FDA, and is illegal under federal statute as well, this would not be an acceptable example.

For 2018, the deduction by a taxpayer for investment interest expense is: not limited. limited to the taxpayer's net investment income for 2018. limited to the investment interest paid in 2018. limited to the taxpayer's gross investment income for 2018.

limited to the taxpayer's net investment income for 2018. Net investment interest income is gross investment interest income less deductible investment expenses.

The majority of itemized deductions are: business expenses. tax credits. personal living expenses. none of the choices are correct.

personal living expenses. These relate to such items as medical expenses, state and local taxes, charitable deductions and allowable personal casualty losses.

Itemized deductions are taken when: the taxpayer wants to. they are less than the standard deduction. they are higher than the standard deduction. the standard deduction is limited by high AGI.

they are higher than the standard deduction. In practice, taxpayers determine their standard deduction and total itemized deductions and use the higher number.