Deck 5: Deductions for Individuals and Tax Determination

Question 1

_____ 10. The basic and additional standard deductions are both indexed for inflation.

Answer 1

True

Question 2

_____ 3. The deduction for student loan interest has limits placed on it based on the taxpayer's AGI.

Answer 2

True

Question 3

_____ 18. A homeowner who itemizes his or her deductions can only deduct the property taxes on his or her primary residence and one other residence.

Answer 3

False

Question 4

_____ 13. Beginning in 2017, qualified medical expenses for a 66-year-old single individual must exceed 10 percent of AGI to be deductible for regular income tax purposes.

Question 5

_____ 15. Real property taxes are deductible for state, local, and foreign real property.

Question 6

_____ 1. The tax model is the formula for how individuals report their tax liability.

Question 7

_____ 2. Contributions to health savings accounts are made with before-tax dollars.

Question 8

_____ 4. To file as a surviving spouse, a taxpayer must maintain a home for a dependent child for the entire year.

Question 9

_____ 19. The itemized deduction for medical expenses is subject to the phase-out applicable to total itemized deductions based on the taxpayer's AGI.

Question 10

_____ 14. Each separate item of miscellaneous itemized deductions must exceed two percent of AGI to be deductible.

Question 11

_____ 12. A married person filing a separate return has the lowest standard deduction amount.

Question 12

_____ 16. Sales taxes levied on the purchase of depreciable business property are deductible as part of depreciation.

Question 13

_____ 8. An abandoned spouse must only live apart from his or her spouse during the last six months of the tax year.

Question 14

_____ 20. Single individuals must reduce their personal exemption if their AGI exceeds $261.500.

Question 15

_____ 9. Jan and James's divorce is final on December 31 of the current year. They must file married filing separately for the tax year.

Question 16

_____ 11. A taxpayer's filing status determines the basic standard deduction allowed.

Question 17

_____ 6. A legally married couple can elect to file as married filing jointly or single individuals.

Question 18

_____ 5. Surviving spouse status may be claimed for three years after the year of the spouse's death.

Question 19

_____ 7. To qualify as head of household, the taxpayer must pay more than half of the costs of a home in which a qualifying person lives for the entire year.

Question 20

_____ 17. A personal theft loss can be deducted if it exceeds $100 plus 10 percent of AGI.

Question 21

_____ 25. Qualifying low-income wage earners may not only deduct their IRA contributions but they may take a credit for their contribution.

Question 22

What is the standard deduction for a person claimed as a dependent on another person's return in 2017?

Question 23

_____ 28 The NII tax is assessed on the greater of net investment income or modified adjusted gross income.

Question 24

Which is more advantageous, a deduction for or a deduction from adjusted gross income? Why?

Question 25

How is the deductibility of itemized deductions limited in determining taxable income?

Question 26

What limits are placed on the deduction for interest on debt that is secured by a person's personal residence?

Question 27

_____ 27. The additional 0.9 percent Medicare surtax applies to earned income of individuals with wages in excess of $200,000 but does not apply to self-employed individuals.

Question 28

What is the purpose of the Health Savings Account?

Question 29

What limits are placed on an individual's charitable contribution deduction?

Question 30

_____ 30. The alternative minimum tax is a tax determined on a broadened definition of income with no deductions permitted.

Question 31

What types of insurance premiums are deductible as an itemized deduction?

Question 32

_____ 21. Under a multiple support agreement, Jim may claim an exemption for his mother if he supplies 25 percent, his brother supplies 40 percent, and his sister supplies 8 percent of the support for their mother.

Question 33

_____ 24. Taxpayers can apply any excess FICA tax paid to their income tax liability.

Question 34

When should a taxpayer itemize deductions rather than taking the standard deduction?

Question 35

What is required for a taxpayer to qualify to file as a surviving spouse?

Question 36

What is included in investment income? What is the limit on the deduction for investment interest?

Question 37

_____ 29 The tax rate applied to the AMTI for individuals is 2 percent higher than the top individual regular tax rate.

Question 38

_____ 26. The maximum annual lifetime learning credit is $2,000 per taxpayer.

Question 39

_____ 23. A taxpayer's exemptions and standard deduction are limited by the taxpayer's AGI if AGI exceeds a certain threshold.

Question 40

_____ 22. A parent cannot be claimed as a dependent if his or her gross income equals or exceeds the amount of the dependency exemption.

Question 41

John is a 36-year-old calendar-year taxpayer whose wife died in August of 2017. His eight year-old son lives with him. During 2017, he had salary income of $52,000, $600 of dividend income, and received $50,000 from the life insurance policy on his wife. He made a $2,000 contribution to his regular IRA and paid $9,800 for a hospital bill and $3,000 for a doctor bill for his deceased wife. He also paid $4,000 in mortgage interest, $800 in property taxes, $300 of credit card interest and $400 in job hunting expenses when he tried to find a better paying job in the same line of work in March. Determine John's income tax liability for 2017 before any allowable credits. (Reference table(s) required for solution.)

Question 42

What uses are made of adjusted gross income (AGI) in the individual tax model?

Question 43

Seth and Clara have three dependent children ages 2, 6, and 10. They have AGI of $119,250 in 2017. What is their allowable child tax credit if it begins to phase out at $110,000?

Question 44

Designate by an R is an item is a deduction FOR AGI or an M is an item is a deduction FROM AGI.
_____ a. Alimony paid
_____ b. Personal exemption
_____ c. Health savings account contribution
_____ d. IRA contribution
_____ e. Charitable contribution
_____ f. Personal property taxes
_____ g. Self-employed health insurance deduction
_____ h. Student loan interest
_____ i. Job hunting expenses
_____ j. State income taxes paid
_____ k. Penalty on early withdrawal of savings
_____ l. Tax preparation expense
_____ m. Theft loss
_____ n. Moving expenses
_____ o. Employee portion of health insurance premium

Question 45

Sophie, age 68, has AGI of $47,000. Her itemized deductions after limitations are $1,400 for medical expenses, $700 in property taxes, $4,500 of mortgage interest and $800 for charitable contributions. What are her AMTI itemized deductions?

Question 46

Explain the difference in benefits between a tax deduction and a tax credit?

Question 47

Carl and Carla are a very wealthy retired couple in their late sixties and file a joint tax return. During 2017 they had AGI of $980,000 that is all from investments and equals their net investment income. Their only itemized deduction was a $20,000 charitable contribution because they had sold their homes last year and spent all 2017 traveling around the world.
a. If they itemize, what is their taxable income for 2017 and their income tax?
b. How would your answers change if they claimed the standard deduction instead of itemizing?
(Reference table(s) required for solution.)

Question 48

Margo is single and has twin sons who are freshmen in college and a daughter who is a junior during 2017. Margo also attends the local college and took one graduate course each semester. She pays $4,000 tuition and fees for each of the three children and $1,900 in tuition and fees for her courses. What are her allowable education credits if her AGI is $60,000 and the LLC phaseout range is $56,000-$66,000?

Question 49

What is the minimum support required to be allowed the dependency exemption as part of a multiple support agreement?

Question 50

Wallace and Clarice (both age 45) have combined salary and wages of $90,000. They each contribute $3,000 to a Roth IRA and take the standard deduction when they file jointly in 2017. If they have a $60,000 preference item, what is their alternative minimum tax?

Question 51

What is Cheryl's AGI if she has a taxable salary of $34,000, receives $6,000 of alimony and $600 of interest on her various savings accounts, contributes $3,000 to her traditional IRA, and paid a $100 penalty for cashing in her Certificates of Deposit early?

A) $40,000
B) $39,600
C) $37,500
D) $36,900

Question 52

Cora, who is single, has $58,000 of salary income, $2,350 in dividends, and $3,800 in interest income. She has $13,200 of itemized deductions. Determine her tax liability for 2017.

Question 53

Charles has gross income of $80,000 and is single but provides the sole support of his elderly parents, paying all their housing, food and clothing costs in 2017.
a. How much may he deduct from his AGI for his personal and dependency exemptions?
b. What is his filing status and how much is his standard deduction?

Question 54

George (49) and Jean (36), a married couple with no dependents, have AGI of $2,400,000. They have $220,000 of medical expenses related to a kidney transplant, $80,000 of property taxes on their principal residence, $65,000 of interest expense on the $980,000 acquisition mortgage, $25,000 in charitable contributions, and $20,000 of miscellaneous itemized deductions before applying any limitations. If they have a $400,000 preference item, what is their regular taxable income, their alternative minimum taxable income, and their alternative minimum tax in 2017? (Exclude any medicare surtaxes on regular taxable income in your solution.) (Reference table(s) required for solution.)

Question 55

John and Joanna have $125,000 in combined salary and wages, $8,000 in dividend income, and $3,000 in interest income. What is their tax liability for 2017 if they are married filing jointly, have $35,000 in itemized deductions, and claim no dependency exemptions?

Question 56

Who are qualifying relatives for a dependency exemption?

Question 57

What is the purpose of the alternative minimum tax?

Question 58

Torri is a sixth grade teacher. In 2017, she earned a salary of $33,500. She contributed $675 to her Roth IRA and paid $800 in student loan interest. What is Torri's taxable income and income tax if she is single and does not itemize deductions? (Reference table(s) required for solution.)

Question 59

Sonja is a talented 18 year-old dancer and has earned quite a bit of money over the last six years that her parents invested for her. During 2017, however, she earned only $5,500 from dancing but $1,900 in interest. If her parents claim her as a dependent, what is her income tax liability in the current year? (Reference table(s) required for solution.)

Question 60

Buffy and Biff are veterinarians. They have two dependent children ages 9 and 10 and they pay $7,200 for child care while they work. In 2017, they have net income from their practice of $170,000. They each put $4,000 into their traditional IRAs (these IRAs are their only retirement plans). Their itemized deductions are $28,000. What is their net tax liability after all allowable credits if they file jointly and the child tax credit begins to phase out at $110,000?

Question 61

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2017 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2017: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $11,000 in real estate taxes on the home.
-$6,250 interest on a home equity loan (principal amount of $125,000) on their home. They spent $50,000 of the loan proceeds for remodeling their kitchen, $30,000 on a European vacation, and $45,000 for a new car.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$4,700 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,800 in state and local general sales taxes
-$490 fee for preparation of their 2016 tax return, paid to their CPA in 2017
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for it fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for taxes for 2017?

A) $11,000
B) $12,800
C) $15,700
D) $17,500

Question 62

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2017 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. What is Sebastian and Kaitlin standard deduction on their 2017 tax return if they do not itemize?

A) $13,950
B) $12,700
C) $10,197
D) $9,250

Question 63

In 2017, which of the following is allowed as an addition to a nonitemizer's standard deduction?

A) Sales tax on new automobile purchases
B) $500 for real property taxes
C) The allowable casualty deduction for disaster areas
D) None of the above

Question 64

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2017 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2017: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $11,000 in real estate taxes on the home.
-$6,250 interest on a home equity loan (principal amount of $125,000) on their home. They spent $50,000 of the loan proceeds for remodeling their kitchen, $30,000 on a European vacation, and $45,000 for a new car.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$4,700 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,800 in state and local general sales taxes
-$490 fee for preparation of their 2016 tax return, paid to their CPA in 2017
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for it fair market value of $17,000 at its fundraising auction.
How much of Sebastian and Kaitlin's total itemized deductions will be disallowed due to the phaseout rules for 2017 if the phaseout begins at $313,800?

A) $290
B) $1,574
C) $2,286
D) zero

Question 65

Which of the following filing statuses can never be used by a single individual?

A) Surviving spouse
B) Head of household
C) Married filing separately
D) Single

Question 66

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2017 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2017: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $11,000 in real estate taxes on the home.
-$6,250 interest on a home equity loan (principal amount of $125,000) on their home. They spent $50,000 of the loan proceeds for remodeling their kitchen, $30,000 on a European vacation, and $45,000 for a new car.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$4,700 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,800 in state and local general sales taxes
-$490 fee for preparation of their 2016 tax return, paid to their CPA in 2017
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for it fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for miscellaneous itemized expenses for 2017?

A) 0
B) $290
C) $7,800
D) $8,090

Question 67

Sean bought a home in 2010 for $625,000 financing $550,000 of the purchase price with a 30 year mortgage. In 2017 when his existing mortgage balance was $520,000, he took out a home equity loan for $150,000. He used the proceeds to pay off credit card debt of $40,000 and purchase a car for $85,000; the balance he used to buy an engagement ring for his girlfriend. In 2017 he paid $30,000 interest on the mortgage and paid interest only of $6,600 on the home equity loan. What is his deduction for qualified residential interest for 2017?

A) $36,600
B) $34,400
C) $30,000
D) $6,600

Question 68

Carl, age 42, is married and has three children. In preparing to go to his accountant, he determines that he has $63,100 of salary income and $250 in dividends. He contributes $4,000 to a Roth IRA and has $6,800 of itemized deductions. His wife has no income. What is the taxable income on their 2017 joint return?

A) $42,350
B) $34,800
C) $30,500
D) $30,250

Question 69

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2017 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2017: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $11,000 in real estate taxes on the home.
-$6,250 interest on a home equity loan (principal amount of $125,000) on their home. They spent $50,000 of the loan proceeds for remodeling their kitchen, $30,000 on a European vacation, and $45,000 for a new car.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$4,700 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,800 in state and local general sales taxes
-$490 fee for preparation of their 2016 tax return, paid to their CPA in 2017
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for it fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for interest expense for 2017?

A) $38,500
B) $38,400
C) $41,800
D) $49,500

Question 70

Lisa's husband died in 2014. Lisa did not remarry, and continued to maintain a home for herself and her dependent daughter during 2015, 2016, and 2017 providing full support for herself and her daughter during these years. For 2017, Lisa's filing status is:

A). Single
B) Married filing separately
C) Head of household
D) Surviving Spouse, using married filing jointly rate

Question 71

All of the following are deductions for AGI except:

A) IRA contributions
B) Student loan interest
C) Interest on loan to purchase stocks
D) Health Savings Account contribution

Question 72

Vera and Jake (both age 45) are a married couple with AGI of $327,300 for 2017. They paid $20,000 of mortgage interest, $8,000 of unreimbursed medical expenses, $4,000 of property taxes, and $9,000 of charitable contributions for the year. How much may they claim for itemized deductions in 2017?

A) $40,220
B) $33,020
C) $32,520
D) $25,000

Question 73

Which of the following expenditures is not subject to some form of limitation on its deductibility based on AGI?

A) Interest on a home equity loan
B) Surgery to replace a hip joint
C) Contribution to a university endowment fund
D) Job-hunting expenses

Question 74

Camila, age 60, is single and has adjusted gross income of $100,000. She paid (with after-tax dollars) the following medical expenses in 2017: $\begin{array}{lr}\text { Medical insurance premiums } & \$ 9,000 \\\text { Doctors' fees } & 5,000 \\\text { Hospital fees } & 3,000\\\text { Eyeglasses }&400\\\text { Prescription drugs }&300\\\text { General purpose vitamins }&100\end{array}$ She received only $2,000 in reimbursements from her insurance company for her medical expenses. How much can Camila deduct for medical expenses in 2017 if she has $30,000 of other itemized deductions?

A) $15,800
B) $8,300
C) $5,800
D) $5,700

Question 75

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2017 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2017: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $11,000 in real estate taxes on the home.
-$6,250 interest on a home equity loan (principal amount of $125,000) on their home. They spent $50,000 of the loan proceeds for remodeling their kitchen, $30,000 on a European vacation, and $45,000 for a new car.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$4,700 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,800 in state and local general sales taxes
-$490 fee for preparation of their 2016 tax return, paid to their CPA in 2017
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for it fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for charitable contributions for 2017?

A) $5,200
B) $7,200
C) $7,700
D) $20,500

Question 76

Ikito had a bad year. In 2017, his home was broken into and his TV, DVD, VCR and computer were all stolen. The properties had a basis of $15,000 and a current fair market value of $9,000. Later that year, his car was hit by a garbage truck. It cost Ikito $9,000 to have the car repaired. Ikito didn't believe in insurance, so he received no reimbursements. In addition, the garbage company filed for bankruptcy after the accident. How much may Ikito deduct as an itemized deduction in 2017 if his AGI is $68,000?

A) $18,000
B) $17,800
C) $11,000
D) $10,200

Question 77

Sonjay had AGI of $60,000 in 2017 and made several charitable contributions as follows: Land donated to county for new school: FMV = $30,000; basis = $20,000
Appraisal fee for the land: $2,500
Contributions to his church: $4,000
Contributions to the Red Cross: $1,000
What is the maximum charitable contribution deduction that Sonjay could claim in 2017?

A) $30,000
B) $27,500
C) $25,000
D) $24,000

Question 78

The 2017 standard deduction for a married taxpayer, age 68, who files a separate return is:

A) $6,350
B) $7,600
C) $7,850
D) $10,800

Question 79

Ethan, age 67, and Abigail, age 64, with good eyesight, are married and file a joint tax return. They have adjusted gross income of $1,200,000 for 2017. They have only $5,000 of itemized deduction, so they claim their standard deduction. How much of their standard deduction is phased out in 2017?

A) $13,850
B)$12,600
C)$10,682
D)0

Question 80

Which of the following is a requirement to file for head of household?

A) A single individual (except abandoned spouse)
B) Provides over one-half the cost of maintaining a household for a dependent or a child
C) Qualifying dependent (except a parent) or child must live in the taxpayer's household
D) All of the above are requirements