Question 1

Sharon is a self-employed hair stylist and had net earnings from self-employment of $4,100. She paid $375 per month for health insurance over the last year. Sharon is entitled to a for AGI deduction for health insurance premiums of:

Accepted Answer

Sharon can deduct the full amount of her health insurance premiums as a self-employed individual, which totals $4,500 ($375 x 12 months).

Question 2

Paola is a freshman in the UC-Davis degree program in veterinary medicine. In 2015, Paola paid $3,000 in tuition, $500 for books, and $250 for supplies for class. Paola also paid room and board of $3,500. What is the total qualifying education expense for the student loan interest deduction for Paola in 2015?

Accepted Answer

The total qualifying education expenses for the student loan interest deduction for Paola in 2015 would be the sum of her tuition ($3,000), book expenses ($500), and supply expenses ($250), which equals $3,750. Additionally, her room and board expenses of $3,500 can also be included in the deduction, bringing the total to $7,250. Therefore, the correct answer is choice A.) $7,250.

Question 3

Under a court-ordered decree of separate maintenance executed in 2015, Rebecca is required to pay her ex-husband, Carl, $4,750 a month until their youngest son turns age 18. At that time, the required payments are reduced to $2,100 per month. How much of each payment is deductible by Rebecca as alimony for 2015?

Accepted Answer

The answer of Under a court-ordered decree of separate maintenance...

Question 4

In 2011 through 2014, Rory borrowed a total of $30,000 for higher education expenses on qualified education loans. In 2015, while still living at home and being claimed by his parents as a dependent, he began making payments on the loan. The first year interest on the loan was reported as $1,750. The amount that Rory can claim on his tax return is:

Accepted Answer

Since Rory is claimed as a dependent by his parents, he cannot claim the student loan interest deduction on his tax return.

Question 5

Rena had the following moving expenses during 2015:  Rena moved to start a new job and met all the required tests for moving expense deductibility. What is the total amount of moving expenses that can be deducted on her 2015 return?

Accepted Answer

The answer of Rena had the following moving expenses during...

Question 6

The percentage of self-employed health insurance premiums that is deductible as a for AGI deduction is:

Accepted Answer

Self-employed individuals can deduct 100% of their health insurance premiums as an adjustment to income (for AGI deduction) on their tax return.

Question 7

The determination for the deduction of the self-employment tax is based upon the:

Accepted Answer

The self-employment tax is based on the net earnings of the business, which is calculated by subtracting expenses from gross earnings. Therefore, choice A is the best answer. Choice B is incorrect because it refers to gross earnings, which does not take into account expenses. Choice C is incorrect because it only represents the FICA tax rate and does not determine the deduction for the self-employment tax. Choice D is incorrect because itemized deductions are not used to calculate the self-employment tax deduction.

Question 8

For a taxpayer to be eligible to fund a Health Savings Account (HSA), he or she must be:

Accepted Answer

All of the options listed make an individual eligible to fund a Health Savings Account (HSA). This includes being an employee (or spouse) with a high deductible health plan through an employer, being an employee of a company that offers no health coverage and purchasing a high deductible health plan on their own, and being a self-employed individual.

Question 9

All of the following are requirements for a payment to be considered alimony except,

Accepted Answer

Alimony payments must be in cash (or cash equivalents) and cannot be in the form of property or services. This is a key requirement for such payments to be considered alimony for tax purposes.

Question 10

In 2014, Robert, who is single, received his Bachelor's degree and started working. In 2015, he began paying interest on qualified education loans and had modified AGI of $70,000. He paid interest of $1,200 in 2015. Which of the following statements is correct?

Accepted Answer

The phase-out rules for the deduction of qualified education loan interest begin at a modified AGI of $65,000 for a single taxpayer in 2015. The deduction is phased out completely at a modified AGI of $80,000 or higher. For a modified AGI between $65,000 and $80,000, the deduction is gradually reduced. Therefore, if Robert's modified AGI were $75,000, the phase-out rules would reduce his deductible interest to zero. Since his modified AGI is $70,000, only a portion of the $1,200 will be deductible. The amount of the deduction is calculated using a formula based on his income and the amount of interest paid.

Question 11

For a taxpayer to be eligible to deduct moving expenses, in addition to the employment test, he or she:

Accepted Answer

To be eligible to deduct moving expenses, the taxpayer must meet both the time and distance tests. The time test requires that the taxpayer work full-time for at least 39 weeks during the first 12 months after arriving in the new location. The distance test requires that the new workplace be at least 50 miles farther from the taxpayer's former home than the old workplace was. If these tests are met, the taxpayer may deduct reasonable moving expenses, such as transportation and storage costs.

Question 12

Which of the following items are considered alimony?

Accepted Answer

Alimony includes payments made to a third party on behalf of the former spouse for specific expenses such as dental expenses, as long as these payments are made under the terms of the divorce or separation agreement and are for the benefit of the former spouse. Payments after the death of the recipient, noncash property settlements, and payments for property transfers do not qualify as alimony.

Question 13

Under a 2015 divorce decree, Antoine is required pay $800 of alimony and $400 of child support each month for the next 10 years. In addition, Antoine makes a voluntary payment of $200 per month. How much of the total monthly payments are deductible by Antoine?

Accepted Answer

Under the tax law effective for divorce agreements executed before 2019, alimony payments are deductible by the payer. Therefore, Antoine can deduct the $800 monthly alimony payment. Child support and voluntary payments are not deductible.

Question 14

Peter, having moved from Oregon to Florida in the current year, met all the requirements to deduct moving expenses. Which of the following expenses that he incurred is not deductible as qualified moving expenses?

Accepted Answer

Home improvements to sell his home in Oregon are not considered qualified moving expenses and therefore are not deductible. The other expenses listed, including shipping costs for his car, temporary storage costs, and the cost of an oil change incurred during the move, are all considered qualified moving expenses and may be deductible.

Question 15

The goal of the alimony recapture rules is to properly define the substance of payments made to a former spouse in order to ensure proper tax treatment. These rules "lookback" to the following years for the calculation:

Accepted Answer

The alimony recapture rules lookback to the first three years after divorce. Specifically, if the alimony paid in the third year decreases by more than $15,000 from the average paid in the first two years, the excess amount may be recaptured as income by the payer and deducted by the recipient in the third year.

Question 16

Charde, who is single, had a student loan for qualified education expenses on which interest was due. For 2015, the total interest payments were $2,000. Assuming she has AGI under $65,000, how much may she deduct in arriving at adjusted gross income for 2015?

Accepted Answer

For 2015, the maximum student loan interest deduction is $2,500. Since Charde's interest payments were $2,000 and her AGI is under the phase-out threshold, she can deduct the full $2,000.

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 (A, B, and D) are deductible moving expenses.

Question 18

Henry graduated from the University of Maryland in 2013. In 2015, to take advantage of lower interest rates, he refinanced his qualified education loans with another qualified student loan. He is not a dependent on another person's tax return. Before AGI limits, what is the maximum deduction available to him for the $3,200 he paid for educational student loan interest in 2015?

Accepted Answer

As Henry's filing status is single and he is not a dependent on another person's tax return, he can take the full deduction of $2,500 as long as his modified adjusted gross income (MAGI) is less than $65,000. There are no AGI limits for the student loan interest deduction. Therefore, the correct answer is C.

Question 19

If an employer contributes to an employee's HSA, the payment will:

Accepted Answer

If an employer contributes to an employee's HSA, the payment will not be counted as income to the employee.

Question 20

Maria files her tax return married filing separately. She has not lived with her husband for over two years. Beginning in January 2015, by court ordered decree, she is to pay her husband $600 per month as separate maintenance. For 2015 how much will she be able to deduct as alimony?

Accepted Answer

Alimony is deductible by the payor and taxable to the recipient. The payments must be made under a divorce or separation agreement. Maria and her husband have been separated for over two years and are living apart. The court has ordered Maria to pay her husband $600 per month as separate maintenance. This means that the payments are alimony and are deductible by Maria. The total amount of alimony that Maria can deduct for 2015 is $7,200 ($600 x 12).

Quiz 4: Adjustments for Adjusted Gross Income