Question 1

Tom,whose MAGI is $40,000,paid $3,500 of interest on a qualified student loan in 2015.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

Accepted Answer

False

Question 2

In January 2016,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2015.The payment is deductible in 2015.

Accepted Answer

The estimated state income tax payment made in January 2016 is not deductible in 2015, as the payment was made in the following year. The payment would be deductible in 2016, when Pam files her tax return for the 2015 tax year.

Question 3

Georgia contributed $2,000 to a qualifying Health Savings Account in the current year.The entire amount qualifies as an expense deductible for AGI.

Accepted Answer

Contributions to a Health Savings Account (HSA) are tax-deductible up to certain limits, and Georgia has contributed $2,000 which is within the limit, and therefore qualifies as an expense deductible for AGI.

Question 4

Shirley pays FICA (employer's share)on the wages she pays her maid to clean and maintain Shirley's personal residence.The FICA payment is not deductible as an itemized deduction.

Accepted Answer

FICA payments made by an employer (including an individual as an employer) for domestic services performed in or around a private residence are not deductible as an itemized deduction.

Question 5

Upon the recommendation of a physician,Ed has a swimming pool installed at his residence because of a heart condition.If he is allowed to deduct all or part of the cost of the pool,Ed's increase in utility bills due to the operation of the pool qualifies as a medical expense.

Accepted Answer

The increase in utility bills due to the operation of the pool would qualify as a medical expense if Ed is allowed to deduct all or part of the cost of the pool based on the recommendation of a physician for his heart condition.

Question 6

Herbert is the sole proprietor of a furniture store.He can deduct real property taxes on his store building as a business deduction but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.

Accepted Answer

Real property taxes on the store building can be deducted as a business expense, but state income taxes related to the proprietor's net income from the business are considered personal expenses and cannot be deducted as a business expense.

Question 7

In 2016,Rhonda received an insurance reimbursement for medical expenses incurred in 2015.She is not required to include the reimbursement in gross income in 2016 if she claimed the standard deduction in 2015.

Accepted Answer

This is true according to IRS rules. If Rhonda claimed the standard deduction in 2015, she can exclude the insurance reimbursement from her gross income in 2016. However, if she itemized deductions in 2015 and claimed a deduction for the medical expenses that were later reimbursed, she must include the reimbursement in her gross income in 2016.

Question 8

Phyllis,a calendar year cash basis taxpayer who itemized deductions totaling $20,000,overpaid her 2014 state income tax and is entitled to a refund of $400 in 2015.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2015.She is required to recognize that amount as income in 2015.

Accepted Answer

The answer of Phyllis,a calendar year cash basis taxpayer who...

Question 9

A taxpayer may not deduct the cost of new curbing (relative to a personal residence),even if the construction is required by the city and the curbing provides an incidental benefit to the public welfare.

Accepted Answer

The cost of new curbing for personal residences is considered a capital improvement and is not deductible as a business expense or as a personal expense, even if required by the city and providing an incidental benefit to the public welfare.

Question 10

Adrienne sustained serious facial injuries in a motorcycle accident.To restore her physical appearance,Adrienne had cosmetic surgery.She cannot deduct the cost of this procedure as a medical expense.

Accepted Answer

Cosmetic surgery is generally not deductible as a medical expense unless it is medically necessary to correct a deformity arising from a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. In Adrienne's case, the cosmetic surgery was done for the purpose of restoring her physical appearance, which does not meet the criteria for a deductible medical expense.

Question 11

Grace's sole source of income is from a restaurant that she owns and operates as a proprietorship.Any state income tax Grace pays on the business net income must be deducted as a business expense rather than as an itemized deduction.

Accepted Answer

State income tax paid on business net income from a sole proprietorship is not deducted as a business expense on Schedule C but is instead deducted as an itemized deduction on Schedule A of the individual's personal income tax return.

Question 12

The election to itemize is appropriate when total itemized deductions are less than the standard deduction based on the taxpayer's filing status.

Accepted Answer

The election to itemize is appropriate when total itemized deductions exceed the standard deduction based on the taxpayer's filing status.

Question 13

In April 2015,Bertie,a calendar year cash basis taxpayer,had to pay the state of Michigan additional income tax for 2014.Even though it relates to 2014,for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2015.

Accepted Answer

The payment of additional state income tax in 2015 qualifies as a tax deduction for the 2015 tax year, even though it relates to the 2014 tax year. This is because Bertie is a calendar year taxpayer and uses the cash basis method for tax purposes.

Question 14

Sergio was required by the city to pay $2,000 for the cost of new curbing installed by the city in front of his personal residence.The new curbing was installed throughout Sergio's neighborhood as part of a street upgrade project.Sergio may not deduct $2,000 as a tax,but he may add the $2,000 to the basis of his property.

Accepted Answer

The cost of new curbing installed by the city is considered a capital improvement to the property and can be added to the taxpayer's basis. However, it is not deductible as a tax.

Question 15

Matt,a calendar year taxpayer,pays $11,000 in medical expenses in 2015.He expects $5,000 of these expenses to be reimbursed by an insurance company in 2016.In determining his medical expense deduction for 2015,Matt must reduce his 2015 medical expenses by the amount of the reimbursement he expects in 2016.

Accepted Answer

The answer of Matt,a calendar year taxpayer,pays $11,000 in medical...

Question 16

Fees for automobile inspections,automobile titles and registration,bridge and highway tolls,parking meter deposits,and postage are not deductible if incurred for personal reasons,but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.

Accepted Answer

Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.

Question 17

Personal expenditures that are deductible as itemized deductions include medical expenses,Federal income taxes,state income taxes,property taxes on a personal residence,mortgage interest,and charitable contributions.

Accepted Answer

Federal income taxes are not deductible as itemized deductions; however, state income taxes, property taxes on a personal residence, mortgage interest, and charitable contributions are deductible.

Question 18

Chad pays the medical expenses of his son,James.James would qualify as Chad's dependent except that he earns $7,500 during the year.Chad may claim James' medical expenses even if he is not a dependent.

Accepted Answer

If a person provides more than half of the support for someone who would otherwise qualify as their dependent, they may still claim that person's medical expenses on their tax return, even if they cannot claim them as a dependent. Therefore, Chad may claim James' medical expenses.

Question 19

For purposes of computing the deduction for qualified residence interest,a qualified residence includes only the taxpayer's principal residence.

Accepted Answer

A qualified residence includes both the taxpayer's principal residence and one other residence selected by the taxpayer that is used for personal purposes for a certain minimum amount of time during the taxable year.

Question 20

Bill paid $2,500 of medical expenses for his daughter,Marie.Marie is married to John and they file a joint return.Bill can include the $2,500 of expenses when calculating his medical expense deduction.

Accepted Answer

According to IRS guidelines, a taxpayer can include medical expenses paid for their child, even if the child is married and files a joint return. Therefore, Bill can include the $2,500 of medical expenses for Marie when calculating his own medical expense deduction.

Quiz 10: Individuals: Income, deductions, and Credits