Question 1

An increase in a taxpayer's AGI could decrease the amount of charitable contribution that can be claimed.

Accepted Answer

False

Question 2

Many taxpayers who previously itemized will start claiming the standard deduction when they purchase a home.

Accepted Answer

Purchasing a home often increases the likelihood of itemizing deductions due to mortgage interest and property tax deductions, making itemizing more beneficial than the standard deduction for many taxpayers.

Question 3

After Ellie moves out of the apartment she had rented as her personal residence, she recovers her damage deposit of $1,000. The $1,000 is not income to Ellie.

Accepted Answer

The recovery of a damage deposit is not considered income, as it is simply the return of the tenant's own money.

Question 4

An "above the line" deduction refers to a deduction for AGI.

Accepted Answer

An "above the line" deduction is a deduction that is subtracted from gross income to arrive at adjusted gross income (AGI). It includes deductions such as IRA contributions, self-employed health insurance premiums, and educator expenses.

Question 5

The additional standard deduction for age and blindness is greater for married taxpayers than for single taxpayers.

Accepted Answer

The answer of The additional standard deduction for age and...

Question 6

All exclusions from gross income are reported on Form 1040.

Accepted Answer

Not all exclusions from gross income are reported on Form 1040. Some may be reported on other forms or schedules, such as Form 1099 or Schedule C.

Question 7

The filing status of a taxpayer (e.g., single, head of household) must be identified before the applicable standard deduction is determined.

Accepted Answer

The filing status of a taxpayer is a key factor in determining their standard deduction, and it must be identified before the correct amount can be calculated.

Question 8

Claude's deductions from AGI exceed the standard deduction allowed for 2014. Under these circumstances, Claude cannot claim the standard deduction.

Accepted Answer

The choice is elective.Claude may wish to avoid the time and trouble of completing Schedule A.

Question 9

As opposed to itemizing deductions from AGI, the majority of individual taxpayers choose the standard deduction.

Accepted Answer

According to the IRS, the standard deduction is claimed by the majority of taxpayers and is an easy way to reduce taxable income without having to itemize deductions.

Question 10

The basic and additional standard deductions both are subject to an annual adjustment for inflation.

Accepted Answer

This is true. The Internal Revenue Service (IRS) adjusts these deductions annually for inflation to ensure that they stay in line with the cost of living.

Question 11

Under the Federal income tax formula for individuals, a choice must be made between claiming deductions for AGI and itemized deductions.

Accepted Answer

Deductions for AGI (above-the-line deductions) and itemized deductions (or the standard deduction) serve different purposes in the tax formula. Taxpayers can claim both above-the-line deductions and then choose between itemized deductions and the standard deduction, not one or the other.

Question 12

Because they appear on page 1 of Form 1040, itemized deductions are also referred to as "page 1 deductions."

Accepted Answer

The answer of Because they appear on page 1 of...

Question 13

Lee, a citizen of Korea, is a resident of the U.S. Any rent income Lee receives from land he owns in Korea is not subject to the U.S. income tax.

Accepted Answer

The answer of Lee, a citizen of Korea, is a...

Question 14

Once they reach age 65, many taxpayers will switch from itemizing their deductions from AGI and start claiming the standard deduction.

Accepted Answer

The standard deduction for taxpayers age 65 and older is larger, so many taxpayers in that age range may choose to take the standard deduction instead of itemizing their deductions from AGI.

Question 15

Under the Federal income tax formula for individuals, the determination of adjusted gross income (AGI) precedes that of taxable income (TI).

Accepted Answer

This is true. AGI is calculated before deductions and exemptions are subtracted to arrive at taxable income.

Question 16

A decrease in a taxpayer's AGI could increase the amount of medical expenses that can be deducted.

Accepted Answer

Medical expenses are subject to a threshold based on the taxpayer's AGI. The lower the AGI, the higher the threshold and the more expenses can be deducted. Therefore, a decrease in AGI can increase the amount of medical expenses that can be deducted.

Question 17

Jason and Peg are married and file a joint return. Both are over 65 years of age and Jason is blind. Their standard deduction for 2014 is $16,000 ($12,400 + $1,200 + $1,200 + $1,200).

Accepted Answer

According to the IRS, for 2014, the standard deduction for married taxpayers filing jointly who are both over 65 years of age or blind is $16,000 ($12,400 + $1,200 + $1,200 + $1,200).

Question 18

In 2014, Ed is 66 and single. If he has itemized deductions of $7,400, he should not claim the standard deduction alternative.

Accepted Answer

The standard deduction yields $7,750 ($6,200 + $1,550).

Question 19

Howard, age 82, dies on January 2, 2014. On Howard's final income tax return, the full amount of the basic and additional standard deductions will be allowed even though Howard lived for only 2 days during the year.

Accepted Answer

The full amount of basic and additional standard deductions are allowed for the year of death, even if the taxpayer lived for only part of the year.

Question 20

Under the income tax formula, a taxpayer must choose between deductions for AGI and the standard deduction.

Accepted Answer

A taxpayer can claim both deductions for AGI (such as contributions to a traditional IRA or moving expenses) and the standard deduction on their tax return, but not for the same expenses. The standard deduction is a fixed amount that is subtracted from the taxpayer's income, while deductions for AGI reduce the taxpayer's income before the standard deduction is applied. Therefore, the taxpayer doesn't have to choose between the two options.

Quiz 3: Computing the Tax