Question 1

Sophia,single,is a employee of JWH Consulting Company.She incurs $5,000 of valid entertaining expenses for which she receives no reimbursement.How much would she benefit from being reimbursed by JWH rather than deducting the expenses on her tax return? Her annual salary is $100,000,and she has other itemized deductions of $6,000.

Accepted Answer

The answer of Sophia,single,is a employee of JWH Consulting Company.She...

Question 2

Patricia contributes artwork to the art museum at Tech University.Her AGI is $50,000.She paid $10,000 for the artwork in 1987,but its fair market value at the contribution date is $30,000.What is Patricia's maximum current year charitable deduction?

Accepted Answer

The answer of Patricia contributes artwork to the art museum...

Question 3

Armando has AGI of $80,000 and makes the following charitable contributions:
•$10,000 cash to American Heart Society.
•$ 8,000 cash to Redemption Church.
•$24,000 worth of AOL stock acquired in 2005 with a basis of $10,000 to Upper State University.
What is Armando's maximum charitable deduction in the current year?

Accepted Answer

The answer of Armando has AGI of $80,000 and makes...

Question 4

Louise makes the following contributions during the current year:
$\begin{array}{lr}
\text { Purchase of raffle ticket from church } & \$ 50 \
\text { Cash given to church } & 200 \
\text { Chamber of Commerce dues } & 500\
\end{array}$
Stock acquired in 2003 donated to State University
(Cost $ =\$ 1,000 ; F M V=\$ 1,800) $
Clothing donated to Goodwill
(Cost $ =\$ 800 ; F M V=\$ 200 $ )
Volunteer work at local hospital
(Candy-striper uniform @ $ \$ 40 $ )
If Louise's gross income is $35,000,what is her allowable charitable contribution?

Accepted Answer

The allowable charitable contributions are the cash given to the church ($200), the FMV of stock donated to the university ($1,800), and the FMV of clothing donated to Goodwill ($200), totaling $2,200. The raffle ticket, Chamber of Commerce dues, and volunteer work are not deductible.

Question 5

Smokey purchases undeveloped land in 1999 for $20,000.In the current year he contributes the property to the Camp Fire Girls of America to use as their summer camp.The fair market value of the land at the date of the contribution is $25,000.If Smokey's AGI is $100,000,what is his maximum deductible charitable contribution?

Accepted Answer

The maximum deductible charitable contribution is the fair market value of the property, which is $25,000. Smokey's AGI does not limit the amount of his charitable contribution deduction. Therefore, option C is the correct answer.

Question 6

Toby,a single taxpayer with no dependents,is an employee of a large consulting firm.During the year he incurs the following business expenses that are not reimbursed by his employer:

$$\begin{array} { lr } 
 \text { Business entertainment and other meals } &\$ 3,400 \
 \text {  Transportation and lodging } &4,200
\end{array}$$

Toby's AGI is $100,000 and is in the 28% marginal tax rate.In addition to the expenditures described above,his only other qualified itemized deductions are home mortgage interest of $6,000 and property taxes of $2,000.What is the after-tax cost to Toby of his unreimbursed employee business expenses?

Accepted Answer

Unreimbursed employee business expenses are subject to a 2% AGI floor. Toby's AGI is $100,000, so 2% is $2,000. Total expenses are $7,600 ($3,400 + $4,200). Deductible amount is $5,600 ($7,600 - $2,000). After-tax cost is $5,600 * (1 - 0.28) = $4,032. Total cost is $7,600 - $4,032 = $3,568. However, the correct choice is $6,508, which suggests a miscalculation or misinterpretation in the options provided.

Question 7

In 2005,Victor acquires an Andy Warhol painting for $32,000.During the current year he donates the painting to the city museum.Its fair market value at the date of the contribution is $38,000.If Victor's adjusted gross income is $66,000 and he elects to reduce the contribution to its basis,his deductible contribution is

Accepted Answer

If Victor elects to reduce the contribution to its basis, he can only deduct the original cost of the painting, which is $32,000. Therefore, his deductible contribution is $32,000.

Question 8

Kristin has AGI of $120,000 in 2012 and 2013.She makes cash contributions to the American Cancer Society of $63,000 in 2012 and $65,000 in 2013.Kristin's charitable contribution carryover from 2013 is:

Accepted Answer

The answer of Kristin has AGI of $120,000 in 2012...

Question 9

Cecelia is a loan officer for The Hibernia Street Bank.Her adjusted gross income for the current year is $85,000.Cecelia incurs the following unreimbursed expenses during the current year:
$\begin{array}{lr}
\text { Dues to loan officer association } & \$ 20 \
\text { Subscriptions to professional journals } & 475 \
\text { Parking at work } & 2,260 \
\text { Entertaining clients } & 850 \
\text { Business clothes } & 1,400 \
\text { Tax return preparation fee } & 950 \
\text { Legal fees related to tax issue on a prior year tax return } & 1,650 \
\text { Safe deposit box rental } & 80 \
\text { Investment fees } & 640
\end{array}$
What is Cecelia's allowable miscellaneous itemized deduction?

Accepted Answer

The answer of Cecelia is a loan officer for The...

Question 10

Linda's personal records for the current year show the following facts:
•Pays $11,000 to St.John's Church.$4,000 is for her daughter's tuition in the church's middle school and she contributes the balance when she attends church.
•Linda has diabetes and gives $800 to the American Diabetes Association in hopes that she will benefit from a cure
•Pays $300 in annual dues to the Moose Lodge.
•National Airways,Inc.,common stock with a fair market value of $2,000 to the March of Dimes.The stock was purchased 4 years ago for $3,000.
Linda's AGI for the current year is $32,000.What is her charitable contribution deduction?

Accepted Answer

The answer of Linda's personal records for the current year...

Question 11

Shannon is 16 years old and is a qualified dependent of her mother.Shannon earns $1,500 as a counselor at a church summer camp and receives $2,500 of interest on a savings account established by her grandparents.Shannon's 2013 taxable income is:

Accepted Answer

As a dependent, Shannon's standard deduction is $1,000 and her personal exemption is $0 (since she can be claimed as a dependent by her mother). Therefore, her taxable income is calculated as follows: 
$1,500 (earned income) + $2,500 (unearned income) - $1,000 (standard deduction) = $2,000 
Since Shannon is under the age of 18, she is subject to special "kiddie tax" rules that tax unearned income over $2,000 at her parent's tax rate. However, since her unearned income is only $2,500, it does not exceed this threshold and is not subject to the kiddie tax. Therefore, her taxable income for 2013 is $2,000, making choice C the correct answer.

Question 12

Susan is 17 and is claimed as a dependent by her parents.In 2013,she earns $1,000 from a summer job and receives $2,400 of interest from a savings account.How much of Susan's income is taxable at her parents' marginal rate?

Accepted Answer

The answer of Susan is 17 and is claimed as...

Question 13

Hugh donates investment real estate to Habitat for Humanity.The property cost him $10,000 six years ago.The fair market value of the property at the date of the contribution is $18,000.Hugh's AGI is $80,000.What is the maximum amount Hugh can deduct as a charitable contribution?

Accepted Answer

The maximum amount Hugh can deduct as a charitable contribution is the fair market value of the property, which is $18,000. Since the property has been held for more than one year, the deduction is limited to 30% of Hugh's AGI or $24,000 (30% x $80,000 = $24,000), whichever is lower. As $18,000 is less than $24,000, the maximum deduction is $18,000. Option A is incorrect as there is a charitable contribution, Option B is incorrect as $5,000 is not the maximum amount that can be deducted, and Option C is incorrect as the fair market value exceeds the original cost. Option E is incorrect as it exceeds the maximum contribution limit.

Question 14

Which of the following properties from an income tax standpoint will be the best one for Juan to contribute to his favorite charity?

Accepted Answer

Donating the stock acquired in 1996 with a basis of $7,000 and FMV of $10,000 will give Juan a tax deduction for the full FMV of the stock without triggering any capital gains tax. Donating the other properties will either result in a smaller tax deduction because the FMV is lower than the basis (choices A and D) or require Juan to recognize a capital gain (choice C) when donating inventory items that have appreciated in value.

Question 15

Barney's sailboat is destroyed in an unusual accident.The sailboat,which he used for personal purposes,caught fire forcing him and his friends to jump ship and swim for shore.The boat exploded and sank.Barney purchased the boat in 1998 for $75,000.At the time that it is destroyed,the boat has a value of $45,000.Barney's insurance company pays him $25,000 in full settlement of this loss.Barney's adjusted gross income is $60,000.If this is his only casualty loss during the year,what amount can he deduct as a casualty loss?

Accepted Answer

The answer of Barney's sailboat is destroyed in an unusual...

Question 16

Orrill is single and has custody of his 8-year-old son Jack.Orrill has gross income of $46,000,deductions for adjusted gross income of $2,200 and itemized deductions of $6,000.What is his tax liability for 2013?

Accepted Answer

Orrill's taxable income is $46,000 - $2,200 - $6,000 = $37,800. His tax liability is $3,420.

Question 17

Erin is 67,single and has an adjusted gross income of $14,300.She has no dependents and her itemized deductions are $6,000.What is her 2013 taxable income?

Accepted Answer

Erin's taxable income is $14,300 - $6,000 = $8,300. The standard deduction for a single person in 2013 is $5,950. Therefore, Erin's taxable income is $8,300 - $5,950 = $2,350. However, the minimum taxable income for a single person in 2013 is $2,800. Therefore, Erin's taxable income is $2,800.

Question 18

Dorchester purchased investment realty in 1991 for $25,000.During the current year he contributes it to the American Heart Association to use as the site for its new local headquarters.The realty has a value of $52,000 on the contribution date,and Dorchester's AGI is $100,000.Dorchester's maximum current year contribution deduction is

Accepted Answer

The maximum current year contribution deduction is 30% of Dorchester's AGI, which is $30,000. Since the fair market value of the investment realty at the time of contribution is $52,000, Dorchester's deduction is limited to that amount. Therefore, the best choice is C, which is the closest option to $30,000 but not exceeding the fair market value of the property.

Question 19

Moran pays the following expenses during the current year:
$\begin{array}{lr}
 \text {Subscription to Time magazine  } &\$ 80 \
 \text { Dues paid to professional organizations } &300 \
 \text { Attorney's fee for tax advice rel ated to his divorce } &200 \
 \text {Life insurance premiums  } &600 \
 \text { Valid business entertainment } &500 \
 \text {Fees for investment advise to acquire taxable securities  } &300
\end{array}$
If Moran itemizes his deductions and his adjusted gross income is $35,000,what is his allowable deduction for the above expenses?

Accepted Answer

The allowable deductions are the dues paid to professional organizations ($300) and 50% of the valid business entertainment ($250), totaling $550. However, investment advice fees are not deductible, and the other expenses are personal.

Question 20

Julius is an employee of a large consulting firm.During the year he incurs the following expenses in his job,none of which are reimbursed by his employer.Julius's adjusted gross income is $100,000 before considering these expenses.
$\begin{array}{ll}
\text { Commuting between his home and office } & \$ 3,000 \
\text { Local travel to and from his \underline{office} to visit clients } & \$ 4,000 \
\text { Local travel to and from his home to visit clients } & \$ 3,000 \
\text { Legitimate business entertainment of clients } & \$ 8,000 \
\text { Hotels accommodations while on business travel } & \$ 3,000 \
\text { Meals while away from home on business travel } & \$ 2,000 \
\text { Subscription fees for publications directly related to his employment } & \$ 1,000 \
\text { Cost of professional wardrobe } & \$ 7,000
\end{array}$
What is Julius's miscellaneous itemized deduction?

Accepted Answer

Julius's miscellaneous itemized deduction is $14,000. This includes the following expenses:- Local travel to and from his office to visit clients: $4,000- Local travel to and from his home to visit clients: $3,000- Legitimate business entertainment of clients: $8,000- Subscription fees for publications directly related to his employment: $1,000

Quiz 8: Taxation of Individuals