Question 1

Shannon is 16 years old and is a qualified dependent of her mother.Shannon earns $1,500 as a counselor at a church summer camp and receives $2,500 of interest on a savings account established by her grandparents.Shannon's 2013 taxable income is:

Accepted Answer

As a qualified dependent of her mother, Shannon's standard deduction is $1,000 and her personal exemption is $0. Therefore, her taxable income is calculated as follows:

$1,500 (earned income) + $2,500 (unearned income) = $4,000 (total income)
$4,000 - $1,000 (standard deduction) = $3,000 (taxable income)
However, Shannon is also subject to the "kiddie tax" since she is under 18 years old and has unearned income over $2,000. The kiddie tax requires that the excess unearned income over $2,000 be taxed at the parent's tax rate. In this case, we don't know the parent's tax rate, but assuming it's 25%, the kiddie tax would apply to $500 of Shannon's unearned income. This would result in an additional $125 of tax (25% of $500).

Therefore, Shannon's total taxable income for 2013 is $3,000 (earned and taxable income) + $125 (kiddie tax) = $3,125.

The only answer choice that is close to this amount is C: $2,150 (which is incorrect). The correct answer is therefore C: $3,125.

Question 2

Moran pays the following expenses during the current year:
$\begin{array}{lc}
\text { Subscription to Time magazine } & \$ 80 \
\text { Dues paid to professional organizations } & 300 \
\text { Attorney's fee for tax advice rel ated to his divorce } & 200 \
\text { Life insurance premiums } & 600 \
\text { Valid business entertainment } & 500 \
\text { Fees for investment advise to acquire taxable securities } & 300
\end{array}$
If Moran itemizes his deductions and his adjusted gross income is $35,000,what is his allowable deduction for the above expenses?

Accepted Answer

The answer of Moran pays the following expenses during the...

Question 3

Homer has AGI of $41,500,and makes the following donations in the current year:
•$1,000 cash to the United Way.
•100 hours contributed to the Red Cross to help flood victims (Homer's normal billing rate is $40 per hour in his consulting business).
•15 old dress shirts to Goodwill Industries,(original cost $300; fair market value $60).
•$1,000 cash to an old friend,Sam,to help cover his medical bills
What is Homer's charitable contribution deduction for the current year?

Accepted Answer

The answer of Homer has AGI of $41,500,and makes the...

Question 4

Smokey purchases undeveloped land in 1999 for $20,000.In the current year he contributes the property to the Camp Fire Girls of America to use as their summer camp.The fair market value of the land at the date of the contribution is $25,000.If Smokey's AGI is $100,000,what is his maximum deductible charitable contribution?

Accepted Answer

Smokey can deduct the fair market value of the property at the time of the contribution, which is $25,000. However, there may be limitations on the amount of the deduction based on Smokey's AGI and the type of organization receiving the contribution. In this case, since Smokey's AGI is $100,000 and the recipient organization is a public charity, he can deduct up to 30% of his AGI, which is $30,000. However, since the fair market value of the contribution is only $25,000, the maximum deductible charitable contribution is $25,000.

Question 5

Erin is 67,single and has an adjusted gross income of $14,300.She has no dependents and her itemized deductions are $6,000.What is her 2013 taxable income?

Accepted Answer

The answer of Erin is 67,single and has an adjusted...

Question 6

Dorchester purchased investment realty in 1991 for $25,000.During the current year he contributes it to the American Heart Association to use as the site for its new local headquarters.The realty has a value of $52,000 on the contribution date,and Dorchester's AGI is $100,000.Dorchester's maximum current year contribution deduction is

Accepted Answer

The answer of Dorchester purchased investment realty in 1991 for...

Question 7

Armando has AGI of $80,000 and makes the following charitable contributions:
•$10,000 cash to American Heart Society.
•$ 8,000 cash to Redemption Church.
•$24,000 worth of AOL stock acquired in 2005 with a basis of $10,000 to Upper State University.
What is Armando's maximum charitable deduction in the current year?

Accepted Answer

The answer of Armando has AGI of $80,000 and makes...

Question 8

In 2005,Victor acquires an Andy Warhol painting for $32,000.During the current year he donates the painting to the city museum.Its fair market value at the date of the contribution is $38,000.If Victor's adjusted gross income is $66,000 and he elects to reduce the contribution to its basis,his deductible contribution is

Accepted Answer

Since Victor elects to reduce the contribution to its basis, his deductible contribution is equal to the basis of the painting, which is $32,000 (the amount he acquired it for). Therefore, choice C is the correct answer. The fair market value of the painting is irrelevant in this situation, as Victor chose to use the basis method.

Question 9

Barney's sailboat is destroyed in an unusual accident.The sailboat,which he used for personal purposes,caught fire forcing him and his friends to jump ship and swim for shore.The boat exploded and sank.Barney purchased the boat in 1998 for $75,000.At the time that it is destroyed,the boat has a value of $45,000.Barney's insurance company pays him $25,000 in full settlement of this loss.Barney's adjusted gross income is $60,000.If this is his only casualty loss during the year,what amount can he deduct as a casualty loss?

Accepted Answer

The answer of Barney's sailboat is destroyed in an unusual...

Question 10

Susan is 17 and is claimed as a dependent by her parents.In 2013,she earns $1,000 from a summer job and receives $2,400 of interest from a savings account.How much of Susan's income is taxable at her parents' marginal rate?

Accepted Answer

The answer of Susan is 17 and is claimed as...

Question 11

Louise makes the following contributions during the current year:
$\begin{array}{lr}
\text { Purchase of raflle ticket from church } & \$ 50 \
\text { Cash given to church } & 200 \
\text { Chamber of Commerce dues } & 500 \
\text { Stock acquired in } 2003 \text { donated to State University } &\
\text { (Cost }=\$ 1,000 ; F \mathrm{MV}=\$ 1,800)\
 \text {Clothing donated to Goodwill }\
\text { (Cost }=\$ 800 ; F M V=\$ 200)\
 \text {Volunteer work at local hospital }\
 \text { (Candy-striper uniform $ @ \$ 40 $ )}\
\end{array}$
If Louise's gross income is $35,000,what is her allowable charitable contribution?

Accepted Answer

The allowable charitable contributions include the cash given to the church ($200), the fair market value of the stock donated to the State University ($1,800), and the fair market value of the clothing donated to Goodwill ($200). The raffle ticket purchase, Chamber of Commerce dues, and volunteer work (including the uniform) are not deductible. Therefore, the total is $200 + $1,800 + $200 = $2,200.

Question 12

Hugh donates investment real estate to Habitat for Humanity.The property cost him $10,000 six years ago.The fair market value of the property at the date of the contribution is $18,000.Hugh's AGI is $80,000.What is the maximum amount Hugh can deduct as a charitable contribution?

Accepted Answer

The maximum amount Hugh can deduct as a charitable contribution is the fair market value of the property, which is $18,000. Since his AGI is $80,000, he can deduct up to 30% of his AGI for charitable contributions, which is $24,000. However, he can only deduct up to the amount of the contribution, which in this case is $18,000. Therefore, the answer is D.

Question 13

Kristin has AGI of $120,000 in 2012 and 2013.She makes cash contributions to the American Cancer Society of $63,000 in 2012 and $65,000 in 2013.Kristin's charitable contribution carryover from 2013 is:

Accepted Answer

Kristin's charitable contributions in each year exceed the 50% AGI limitation, so she can carry over the excess contributions for up to five years. In 2013, Kristin had excess contributions of $8,000 ($65,000 - 50% of $120,000). Therefore, her charitable contribution carryover for 2014 and future years is $8,000.

Question 14

Sophia,single,is a employee of JWH Consulting Company.She incurs $5,000 of valid entertaining expenses for which she receives no reimbursement.How much would she benefit from being reimbursed by JWH rather than deducting the expenses on her tax return?
Her annual salary is $100,000,and she has other itemized deductions of $6,000.

Accepted Answer

The answer of Sophia,single,is a employee of JWH Consulting Company.She...

Question 15

Linda's personal records for the current year show the following facts:
•Pays $11,000 to St.John's Church.$4,000 is for her daughter's tuition in the church's middle school and she contributes the balance when she attends church.
•Linda has diabetes and gives $800 to the American Diabetes Association in hopes that she will benefit from a cure
•Pays $300 in annual dues to the Moose Lodge.
•National Airways,Inc.,common stock with a fair market value of $2,000 to the March of Dimes.The stock was purchased 4 years ago for $3,000.
Linda's AGI for the current year is $32,000.What is her charitable contribution deduction?

Accepted Answer

The answer of Linda's personal records for the current year...

Question 16

Cecelia is a loan officer for The Hibernia Street Bank.Her adjusted gross income for the current year is $85,000.Cecelia incurs the following unreimbursed expenses during the current year:
$\begin{array}{lr}
\text { Dues to loan officer association } & 520 \
\text { Subscriptions to professional journals } & 475 \
\text { Parking at work } & 2,260 \
\text { Entertaining clients } & 850 \
\text { Business clothes } & 1,400 \
\text { Tax return prep aration fee } & 950 \
\text { Legal fees related to tax issue on a prior year tax return } & 1,650 \
\text { Safe deposit box rental } & 80 \
\text { Investment fees } & 640
\end{array}$
What is Cecelia's allowable miscellaneous itemized deduction?

Accepted Answer

The answer of Cecelia is a loan officer for The...

Question 17

Patricia contributes artwork to the art museum at Tech University.Her AGI is $50,000.She paid $10,000 for the artwork in 1987,but its fair market value at the contribution date is $30,000.What is Patricia's maximum current year charitable deduction?

Accepted Answer

The answer of Patricia contributes artwork to the art museum...

Question 18

Orrill is single and has custody of his 8-year-old son Jack.Orrill has gross income of $46,000,deductions for adjusted gross income of $2,200 and itemized deductions of $6,000.What is his tax liability for 2013?

Accepted Answer

The answer of Orrill is single and has custody of...

Question 19

Julius is an employee of a large consulting firm.During the year he incurs the following expenses in his job,none of which are reimbursed by his employer.Julius's adjusted gross income is $100,000 before considering these expenses.
$\begin{array}{ll}
\text { Commuting between his home and office } & \$ 3,000 \
\text { Local travel to and from his office to visit clients } & \$ 4,000 \
\text { Local travel to and from his home to visit clients } & \$ 3,000 \
\text { Legitimate business entertainent of clients } & \$ 8,000 \
\text { Hotels accommodations while on business travel } & \$ 3,000 \
\text { Meals while away from home on business travel } & \$ 2,000 \
\text { Subscription fees for publications directly related to his employment } & \$ 1,000 \
\text { Cost of professional wardrobe } & \$ 7,000
\end{array}$
What is Julius's miscellaneous itemized deduction?

Accepted Answer

Julius's miscellaneous itemized deduction is $14,000. This includes the following expenses:- Local travel to and from his office to visit clients: $4,000- Local travel to and from his home to visit clients: $3,000- Legitimate business entertainment of clients: $8,000- Subscription fees for publications directly related to his employment: $1,000

Question 20

Which of the following properties from an income tax standpoint will be the best one for Juan to contribute to his favorite charity?

Accepted Answer

The best property for Juan to contribute to his favorite charity is the stock acquired in 1996 with a basis of $7,000 and FMV of $10,000. By contributing this stock, Juan will be able to deduct the full FMV of the stock ($10,000) on his income tax return, while also avoiding paying capital gains tax on any appreciation in value since the original purchase. The other properties listed either have a lower FMV than their basis or have been held for too long, making them less advantageous for tax purposes.

Quiz 8: Taxation of Individuals