Question 1

Matt, a calendar year taxpayer, pays $11,000 in medical expenses in 2018.He expects $5,000 of these expenses to be reimbursed by an insurance company in 2019.In determining his medical expense deduction for 2018, Matt must reduce his 2018 medical expenses by the amount of the reimbursement he expects in 2019.

Accepted Answer

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

Question 2

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 3

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 the IRS rules, a taxpayer can include medical expenses incurred for a dependent, even if the dependent is married and files a joint return with their spouse. Therefore, Bill can include the $2,500 of medical expenses he paid for his daughter Marie when calculating his own medical expense deduction.

Question 4

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 are considered a business expense and can be deducted. However, 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 5

In 2019, Rhonda received an insurance reimbursement for medical expenses incurred in 2018.She is not required to include the reimbursement in gross income in 2019 if she claimed the standard deduction in 2018.

Accepted Answer

This is because if Rhonda claimed the standard deduction in 2018, she did not itemize her deductions, which means she did not include her medical expenses in her itemized deductions. Therefore, the insurance reimbursement she received for those medical expenses is not considered taxable income.

Question 6

Phyllis, who is single, has itemized deductions totaling $20,000.She overpaid her 2017 state income tax and is entitled to a refund of $400 in 2018.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2018.She is required to recognize that amount as income in 2018.

Accepted Answer

The answer of Phyllis, who is single, has itemized deductions...

Question 7

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

The entire amount contributed to a Health Savings Account is deductible for AGI, so the statement is true.

Question 8

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

According to IRS regulations, costs incurred for improvements to property may be added to the basis of the property, but they cannot be deducted as a tax expense. The new curbing installed by the city is considered an improvement to Sergio's property, so he may add the $2,000 to the basis of his property.

Question 9

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

Accepted Answer

FICA (employer's share) payments on household employees are not deductible as an itemized deduction on the individual's tax return.

Question 10

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

These expenses are only deductible as business expenses for self-employed taxpayers and are not deductible for personal reasons.

Question 11

For purposes of computing the deduction for qualified residence interest, a qualified residence includes the taxpayer's principal residence and two other residences of the taxpayer or spouse.

Accepted Answer

A qualified residence for the purpose of computing the deduction for qualified residence interest includes the taxpayer's principal residence and only one other residence of the taxpayer or spouse, not two.

Question 12

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 13

Trent sells his personal residence to Chester on July 1, 2018.He had paid $7,000 in real property taxes on March 1, 2018, the due date for property taxes for 2018.Trent may not deduct the portion of the taxes he paid for the period the property was owned by Chester.

Accepted Answer

Trent cannot deduct the portion of real property taxes paid for the period when the property was owned by Chester, as he no longer owned the property during that time.

Question 14

In April 2018, Bertie, a calendar year cash basis taxpayer, had to pay the state of Michigan additional income tax for 2017.Even though it relates to 2017, for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2018.

Accepted Answer

State income taxes are deductible in the year they are paid, regardless of the tax year to which they relate for federal income tax purposes. Therefore, Bertie can deduct the payment on her 2018 tax return.

Question 15

Tom, whose MAGI is $40,000, paid $3,500 of interest on a qualified student loan in 2018.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

Accepted Answer

The answer of Tom, whose MAGI is $40,000, paid $3,500...

Question 16

In January 2019, Pam, a calendar year cash basis taxpayer, made an estimated state income tax payment for 2018.The payment is deductible in 2018.

Accepted Answer

Since Pam is a cash basis taxpayer, the estimated state income tax payment made in January 2019 cannot be deducted in 2018 as it was not paid in 2018. It can only be deducted in the year it was paid.

Question 17

Interest paid or accrued during 2018 on aggregate acquisition indebtedness of $2 million or less $1 million or less for married persons filing separate returns) is deductible as qualified residence interest.

Accepted Answer

The answer of Interest paid or accrued during 2018 on...

Question 18

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 19

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 by a proprietorship is not deducted as a business expense, but rather as an itemized deduction on the owner's personal income tax return.

Question 20

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 relative to a personal residence is not deductible as it is considered a capital expense related to the improvement of the taxpayer's personal property, rather than a deductible expense for the production of income or business expense.

Quiz 10: Individuals: Income, Deductions, and Credits