Question 1

Miki, who is single and 57 years old, has a quaifying high-deductible insurance plan. She had the following transactions with her HSA during the year:
a.How much may Miki claim as a deduction for adjusted gross income?
b.What is the amount that Miki must report on her tax return as income from her HSA?
c.How much is subject to a penalty? What is the penalty percentage?

Accepted Answer

The answer of Miki, who is single and 57 years...

Question 2

Subject to the annual dollar limitation and the earned income limitation, deductible IRA contributions are allowed for all taxpayers who do not participate in a qualified retirement plan.

Accepted Answer

Deductible IRA contributions are allowed for all taxpayers who do not participate in a qualified retirement plan, subject to annual dollar limitation and earned income limitation.

Question 3

Which of the following statements is false about health savings acounts (HSAs)?

Accepted Answer

Contributions to HSAs are deductible from taxable income, but not as itemized medical deductions. Rather, they are deducted directly from gross income to arrive at adjusted gross income (AGI).

Question 4

Unreimbursed qualifying moving expenses are an itemized deduction for 2015.

Accepted Answer

The answer of Unreimbursed qualifying moving expenses are an itemized...

Question 5

Monica has a Roth IRA to which she contributed $15,000. The IRA has a current value of $37,500. She is 54 years old and takes a distribution of $25,000. How much of the distribution will be taxable to Monica?

Accepted Answer

Since Monica has a Roth IRA, the contributions have already been taxed and any qualified distributions (distributions taken after age 59 1/2 and at least 5 years after the first contribution) are tax-free. However, since Monica is only 54 and taking a distribution of $25,000, only the portion of the distribution that represents earnings will be taxable. We can calculate the earnings by subtracting the contributions from the current value: $37,500 - $15,000 = $22,500. Therefore, Monica will have to pay taxes on $22,500 - $10,000 (the standard deduction for a single filer in 2021) = $12,500. So, the answer is B, $10,000.

Question 6

In some cases, a taxpayer may deduct an otherwise allowable contribution to an IRA, even though the contribution is made after the close of the tax year.

Accepted Answer

Taxpayers are allowed to make a contribution to their traditional or Roth IRA up until the tax-filing due date for the prior year, which is generally April 15th. Therefore, a contribution made after the close of the tax year may still be eligible for a deduction.

Question 7

To qualify for the moving expense deduction, an employee must change job sites, move a required distance, and change employers.

Accepted Answer

The answer of To qualify for the moving expense deduction,...

Question 8

Gary and Charlotte incurred the following expenses in connection with Gary's job transfer from Florida to South Carolina:
How much is their qualified moving expense?

Accepted Answer

The answer of Gary and Charlotte incurred the following expenses...

Question 9

A 42-year-old single taxpayer earning a salary of $132,000 a year can make which of the following IRA contributions if he is not covered by a plan at work?

Accepted Answer

The answer of A 42-year-old single taxpayer earning a salary...

Question 10

Which of the following is not a test which must be met to qualify for the moving expense deduction?

Accepted Answer

The test that the taxpayer must stay with the same employer is not a requirement for the moving expense deduction. The other tests listed are all requirements, such as changing job sites, remaining at the new job location, and having a sufficient distance between the former residence and new job location.

Question 11

Earnings on nondeductible IRA contributions are allowed to accumulate tax-free until they are withdrawn.

Accepted Answer

Earnings on nondeductible IRA contributions grow tax-free until they are withdrawn, at which point they will be taxed.

Question 12

XYZ Corporation has assigned Allison to inspect their zipper manufacturing plant in China for the next 4 months. Allison has incurred the following expenses:
How much may Allison deduct as moving expenses?

Accepted Answer

The answer of XYZ Corporation has assigned Allison to inspect...

Question 13

Since a contribution to an IRA is a voluntary action, a taxpayer may withdraw amounts from an IRA at any time without penalty.

Accepted Answer

Withdrawals from a traditional IRA before age 59 1/2 may be subject to a 10% penalty in addition to income tax, unless certain exceptions apply.

Question 14

What is the amount of the deductible HSA for each of the following taxpayers?
a.Amelia and Albert, both age 43, have a qualifying high-deductible insurance plan.They contribute $5,700 to a family HSA.
b.Betsy, who is single, 72 years old and covered by Medicare, wants to contribute the maximum amount to an HSA.
c.Carlo has health insurance through his employer which has low deductible amounts.He is 34 years old and is married.Carlo wants to contribute the maximum to an HSA.
d.Diane is 57 years old.She has a qualifying high-deductible insurance plan.She has contributed $4,350 to her HSA.

Accepted Answer

The answer of What is the amount of the deductible...

Question 15

In 2015, all taxpayers may make a deductible or nondeductible contribution to an IRA.

Accepted Answer

Not all taxpayers are eligible to make deductible contributions to an IRA; eligibility depends on factors such as income level and participation in an employer-sponsored retirement plan.

Question 16

If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty.

Accepted Answer

This is true. If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty. However, the distribution may still be subject to income tax.

Question 17

Which of the following is not deductible as a moving expense?

Accepted Answer

The cost of a pre-move house-hunting trip is not deductible as a moving expense. All other options listed (cost of moving household goods, lodging for household members during the move, and travel expenses during the move) are deductible as moving expenses.

Question 18

Which of the following statements is true about health savings accounts (HSAs)?

Accepted Answer

Distributions from HSAs are tax and penalty free when used for qualified medical expenses. This is one of the main advantages of utilizing an HSA - the funds can be used to pay for medical expenses without incurring taxes or penalties. Options A, B, C, and E are all incorrect. Option A is incorrect because there are specific insurance requirements in order to be eligible for an HSA. Option B is incorrect because HSA contributions can be deducted from taxable income, not just treated as an itemized deduction. Option C is incorrect because the penalty for non-medical withdrawals from an HSA is actually 20 percent, not 50 percent. Option E is incorrect because HSA funds cannot be used to purchase automobiles, even after age 65.

Question 19

If under 50 years of age, a taxpayer may make a contribution to an IRA, subject to the earned income limitation and the $5,500 annual limitation.

Accepted Answer

This is correct according to current IRS rules. However, if the taxpayer is over 50 years of age, they may also make a catch-up contribution of an additional $1,000 per year.

Question 20

A taxpayer must make contributions to a regular or Roth IRA prior to the end of the year in order to claim the deduction for that year.

Accepted Answer

Contributions to a regular or Roth IRA for a specific tax year can be made up until the tax filing deadline of the following year, typically April 15, without extensions.

Quiz 4: Business Income and Expenses, Part II