Question 1

Brad,who uses the cash method of accounting,lives in a state that imposes an income tax (including withholding from wages).On April 14,2015,he files his state return for 2014,paying an additional $600 in state income taxes.During 2015,his withholdings for state income tax purposes amount to $3,550.On April 13,2016,he files his state return for 2015 claiming a refund of $800.Brad receives the refund on June 3,2016.If he itemizes deductions,how much may Brad claim as a deduction for state income taxes on his Federal income tax return for calendar year 2015 (filed in April 2016)?

Accepted Answer

Brad can claim the sum of his state income tax payments made in 2015, which is $3,550, plus the additional state income tax payment of $600 made in 2014. He cannot include the $800 refund on his 2015 state taxes as income tax deduction because it was received in 2016. Therefore, Brad may claim a total of $4,150 as a deduction for state income taxes on his federal income tax return for calendar year 2015.

Question 2

Edna had an accident while competing in a rodeo.She sustained facial injuries that required cosmetic surgery.While having the surgery done to restore her appearance,she had additional surgery done to reshape her chin,which was not injured in the accident.The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000.How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the AGI limitation)?

Accepted Answer

The answer of Edna had an accident while competing in...

Question 3

Qualifying tuition expenses paid from the proceeds of a tax-exempt scholarship do not give rise to an education tax credit.

Accepted Answer

This is because tax-exempt scholarship proceeds are not considered taxable income and therefore cannot be used to claim education tax credits.

Question 4

Both education tax credits are available for qualified tuition expenses,and in certain instances,also may be available for room and board.

Accepted Answer

Education tax credits like the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are available for qualified tuition and related expenses, but they do not cover room and board.

Question 5

Rick and Carol Ryan,married taxpayers,took out a mortgage of $160,000 when purchasing their home ten years ago.In October of the current year,when the home had a fair market value of $200,000 and they owed $125,000 on the mortgage,the Ryans took out a home equity loan for $110,000.They used the funds to purchase a sailboat to be used for recreational purposes.The sailboat does not qualify as a residence.What is the maximum amount of debt on which the Ryans can deduct home equity interest?

Accepted Answer

The maximum amount of debt on which the Ryans can deduct home equity interest is limited to the lesser of $100,000 ($50,000 for married taxpayers filing separately) or the difference between the FMV of the home ($200,000) and the outstanding mortgage balance ($125,000), which is $75,000. The fact that they used the home equity loan to purchase a sailboat for recreational purposes does not change this limitation. Therefore, the correct answer is A) $75,000.

Question 6

The education tax credits (i.e. ,the American Opportunity credit and the lifetime learning credit)are available to help defray the cost of higher education regardless of the income level of the taxpayer.

Accepted Answer

The education tax credits phase out at higher income levels, meaning taxpayers with incomes above certain thresholds are not eligible for these credits.

Question 7

Child and dependent care expenses include amounts paid for general household services.

Accepted Answer

Child and dependent care expenses can include amounts paid for household services if those services are necessary for the well-being and protection of the qualifying individual, allowing the taxpayer to work or look for work.

Question 8

The American Opportunity credit is available per eligible student,while the lifetime learning credit is calculated per taxpayer.

Accepted Answer

The American Opportunity credit is per eligible student, while the lifetime learning credit is calculated per taxpayer.

Question 9

For purposes of computing the credit for child and dependent care expenses,the qualifying employment-related expenses are limited to an individual's actual or deemed earned income.

Accepted Answer

The qualifying employment-related expenses for the credit for child and dependent care expenses are limited to an individual's actual or deemed earned income, as stated in the IRS guidelines for this credit.

Question 10

A taxpayer may qualify for the credit for child and dependent care expenses if the taxpayer's dependent is under age 17.

Accepted Answer

The answer of A taxpayer may qualify for the credit...

Question 11

Fred and Lucy are married,ages 33 and 32,and together have AGI of $120,000 in 2015.They have four dependents and file a joint return.They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account.During the year,they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses,and $3,000 for prescribed medicine and drugs.In October 2015,they received an insurance reimbursement of $4,400 for the hospitalization.They expect to receive an additional reimbursement of $1,000 in January 2016.Determine the maximum itemized deduction allowable for medical expenses in 2015.

Accepted Answer

The answer of Fred and Lucy are married,ages 33 and...

Question 12

In 2015,Boris pays a $3,800 premium for high-deductible medical insurance for himself and his family.In addition,he contributes $3,400 to a Health Savings Account.Which of the following statements is true?

Accepted Answer

The answer of In 2015,Boris pays a $3,800 premium for...

Question 13

Pedro's child attends a school operated by the church the family attends.Pedro made a donation of $1,000 to the church in lieu of the normal registration fee of $200.In addition,Pedro paid the regular tuition of $6,000 to the school.Based on this information,what is Pedro's charitable contribution?

Accepted Answer

Pedro's charitable contribution is $800, which is the amount of the donation ($1,000) minus the normal registration fee ($200) that the donation was intended to cover. The tuition payment is not considered a charitable contribution.

Question 14

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19)of the taxpayer.

Accepted Answer

According to the IRS rules, child care payments to a relative who is a child of the taxpayer (under age 19) are not eligible for the credit for child and dependent care expenses.

Question 15

Barry and Larry,who are brothers,are equal owners in Chickadee Corporation.On July 1,2015,each loans the corporation $10,000 at an annual interest rate of 10%.Both shareholders are on the cash method of accounting,while Chickadee Corporation is on the accrual method.All parties use the calendar year for tax purposes.On June 30,2016,Chickadee repays the loans of $20,000 together with the specified interest of $2,000.How much of the interest can Chickadee Corporation deduct in 2015?

Accepted Answer

Chickadee Corporation cannot deduct any interest in 2015 because the interest was not paid until the following year (2016), and the corporation uses the accrual method of accounting.

Question 16

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program can also qualify for the credit for child and dependent care expenses.

Accepted Answer

The answer of Expenses that are reimbursed by a taxpayer's...

Question 17

The maximum credit for child and dependent care expenses is $2,100 if only one spouse is employed and the other spouse is a full-time student.

Accepted Answer

According to the IRS, if one spouse is a full-time student and the other is employed, the maximum credit for child and dependent care expenses is $2,100.

Question 18

The maximum child tax credit under current law is $1,500 per qualifying child.

Accepted Answer

The maximum child tax credit under current law is $2,000 per qualifying child.

Question 19

Joseph and Sandra,married taxpayers,took out a mortgage on their home for $350,000 15 years ago.In May of this year,when the home had a fair market value of $450,000 and they owed $250,000 on the mortgage,they took out a home equity loan for $220,000.They used the funds to purchase a single engine airplane to be used for recreational travel purposes.What is the maximum amount of debt on which they can deduct home equity interest?

Accepted Answer

According to the tax law changes in 2018, taxpayers can only deduct interest on up to $100,000 of home equity debt. Since Joseph and Sandra took out a home equity loan for $220,000, only the interest on the first $100,000 is deductible. Therefore, the maximum amount of debt on which they can deduct home equity interest is $100,000.

Question 20

In the current year,Jerry pays $8,000 to become a charter member of Mammoth University's Athletic Council.The membership ensures that Jerry will receive choice seating at all of Mammoth's home basketball games.Also this year,Jerry pays $2,200 (the regular retail price)for season tickets for himself and his wife.For these items,how much qualifies as a charitable contribution?

Accepted Answer

Only the amount paid for season tickets can be considered as a charitable contribution, as the $8,000 payment for the Athletic Council membership provides a benefit (choice seating) to Jerry. Therefore, the amount that qualifies as a charitable contribution is $2,200.

Quiz 10: Individuals: Income, deductions, and Credits