Question 1

Which of the following rentals would be considered to be used "primarily" as a rental:

Accepted Answer

The condo in Aspen is rented for 90 days and used by the owners for only 10 days, indicating it is primarily used as a rental property.

Question 2

What percentage of medical insurance payments can self-employed taxpayers deduct as a deduction for adjusted gross income on their 2011 tax returns?

Accepted Answer

Self-employed taxpayers can deduct 100% of their medical insurance payments as an adjustment to income on their 2011 tax returns.

Question 3

Morton has a Roth IRA to which he has made contributions of $26,000.The Roth IRA has a current value of $41,000.He is 62 years old,has met the 5-year holding requirement,and takes a distribution of $25,000.How much of the distribution will be taxable to Morton?

Accepted Answer

Since Morton has met the 5-year holding requirement and is over age 59 ½, the entire distribution of $25,000 from the Roth IRA will be tax-free.

Question 4

Peter has self-only coverage in a qualifying high-deductible health insurance policy.He is 28 years old and wishes to contribute the maximum amount to his HSA.How much is he allowed to contribute and deduct in 2011?

Accepted Answer

In 2011, the maximum HSA contribution for an individual with self-only coverage was $3,050.

Question 5

Which of the following is a true statement about health savings accounts (HSAs)?

Accepted Answer

Taxpayers covered by Medicare may not contribute to deductible HSAs. This is because Medicare is considered qualifying health insurance and therefore prevents individuals from contributing to HSAs.

Question 6

Pete is 45 and participates in his employer's Section 401(k)plan which allows employees to contribute up to 15 percent of their salary.His annual salary is $120,000 in 2011.What is the maximum he can contribute to this plan on a tax deferred basis under a salary reduction agreement?

Accepted Answer

Pete can contribute up to 15% of his annual salary of $120,000, which is $18,000. This is the maximum he can contribute to the plan on a tax deferred basis under a salary reduction agreement. Choice C is the closest match.

Question 7

During 2011,Henry,age 35,decided to change jobs.Henry asked his old company to give him a check for the $10,000 balance from his retirement account.Since this was not a direct transfer into a new retirement account,the company withheld 20 percent ($2,000)as federal withholding taxes,thereby giving him a net check for $8,000.In order to avoid paying taxes and penalties on this distribution,Henry:

Accepted Answer

Henry must deposit the full $10,000 (including the $2,000 withheld for taxes) into a new retirement account within 60 days to avoid taxes and penalties.

Question 8

Arlene purchased interests in three limited partnerships during the previous 6 years.During 2011,Arlene had income of $22,000 from one of the partnerships and $5,000 from a second.She had a loss from the third partnership of $36,000,salary income of $55,000,and dividend income of $3,000.What is Arlene's net passive income or loss before any limitations?

Accepted Answer

Arlene's net passive income or loss before any limitations is the sum of the income and losses from the limited partnerships, which is ($22,000 + $5,000 - $36,000) = -$9,000.

Question 9

Which type of insurance is deductible as self-employed health insurance?

Accepted Answer

Long-term care insurance premiums are deductible as self-employed health insurance, subject to certain limits based on age.

Question 10

In regards to retirement plans for self-employed individuals,choose the false statement.

Accepted Answer

Self-employed individuals may use other retirement plans besides Simplified Employee Pension plans, such as Solo 401(k)s or traditional IRAs.

Question 11

In 2011,as a single woman,Ashley's adjusted gross income was $12,000.Ashley decided to contribute $2,000 to her IRA.How much is her "Low Income Retirement Plan Contribution Credit"?

Accepted Answer

The answer of In 2011,as a single woman,Ashley's adjusted gross...

Question 12

In order for a plan to be a "qualified" retirement plan,it must meet all of the following requirements except:

Accepted Answer

The correct statement should be "The contributions and benefit cannot discriminate in favor of the highly compensated employees." All of the other options are correct requirements for a plan to be qualified.

Question 13

Lenore rents her vacation home for 9 months and lives in the home during the other 3 months of 2011.The gross rental income from the home is $7,500.For the entire year,real estate taxes are $1,000,interest is $3,500,utilities and maintenance expenses are $2,400,and depreciation expense on the entire home would be $4,000.What is Lenore's allowable net loss from renting her vacation home?

Accepted Answer

The answer of Lenore rents her vacation home for 9...

Question 14

Donna owns a two-family home.She rents out the first floor and resides on the second floor.The following expenses attributable to the total building were incurred by Donna for the year ended December 31,2011:  In addition,the depreciation attributable to the first floor would be $2,000.What is the total amount of the expenses that Donna can deduct on Schedule E of Form 1040 (before any limitations)?

Accepted Answer

The expenses that can be fully deductible on Schedule E are:
- Real estate taxes: $1,200
- Insurance: $800
- Repairs: $1,500
- Utilities: $350 (only the cost of utilities for the first floor, since Donna lives on the second floor)
- Other expenses: $1,000

Total deductible expenses are $4,850. The depreciation of $2,000 is not currently deductible but can be used to reduce any future taxable gain when the property is sold.

Question 15

Which of the following is not deductible as a moving expense?

Accepted Answer

Meals while traveling from the old to the new residence are not deductible as a moving expense. The rest of the options in the given list (A, B, and C) are deductible expenses.

Question 16

Which of the following is deductible as a moving expense?

Accepted Answer

Only lodging expenses for household members during the move are deductible as a moving expense. Meal expenses, pre-move house-hunting trips, and side trips such as going to Disney World are not deductible.

Question 17

Sharon is a lawyer (not covered by a retirement plan)with a salary of $76,000 from the firm where she is employed.She supports her husband,William,who has no earned income.Both are in their 30's.What is the maximum total amount that Sharon and William may contribute to their IRA's and deduct for the 2011 tax year?

Accepted Answer

For 2011, the maximum IRA contribution limit is $5,000 per person. Since Sharon and William are both eligible, they can each contribute $5,000, totaling $10,000.

Question 18

The following is not true of Section 401(k)plans:

Accepted Answer

Section 401(k) plans are not limited to employers with no more than 100 employees. This answer is the only option that is not true of Section 401(k) plans.

Question 19

Sally has the following income and loss: Salary of $42,000
Interest income of $2,000
Passive income from Acme Limited Partnership of $4,000
Passive loss from Beta Limited Partnership of $5,000
How much adjusted gross income will be reported on her
Tax return?

Accepted Answer

The answer of Sally has the following income and loss:...

Question 20

During 2011,Henry,age 35,decided to change jobs.Henry asked his old company to make a direct transfer of his $10,000 balance from his old company's retirement account into his IRA.In order to avoid paying taxes and penalties on this distribution,Henry:

Accepted Answer

A direct transfer from a retirement account to an IRA is not subject to taxes or penalties, so Henry does not need to take any additional action.

Quiz 4: Business Income and Expenses, Part Ii