Question 1

The medical expense deduction is designed to provide relief for doctors and medical practitioners.

Accepted Answer

The medical expense deduction is designed to provide relief for taxpayers who incur significant medical expenses, not specifically for doctors and medical practitioners.

Question 2

To be deductible, business expenses must be directly related to a business activity.

Accepted Answer

To be deductible, a business expense must have a direct and clear connection to a business activity. The expense must be ordinary and necessary for the business to be considered deductible.

Question 3

Taxpayers are allowed to deduct mortgage interest on up to $1,000,000 of acquisition debt for their qualified residence and on up to $500,000 of home-equity debt.

Accepted Answer

False

Question 4

Rental or royalty expenses are deductible "for" AGI.

Accepted Answer

Rental or royalty expenses are deductible "for" AGI, which means they are deducted before calculating adjusted gross income (AGI).

Question 5

All investment expenses are itemized deductions.

Accepted Answer

While some investment expenses may be deductible, not all of them are itemized deductions. Some may be subject to limitations or only deductible if they exceed a certain threshold of income. It is important to consult with a tax professional or utilize tax software to determine which investment expenses are deductible and how they should be reported on your tax return.

Question 6

Self employed taxpayers can deduct the cost of health insurance as long as they do not actually participate in their spouses' employer-provided health plan.

Accepted Answer

The answer of Self employed taxpayers can deduct the cost...

Question 7

Deductible medical expenses include payments to medical care providers such as doctors, dentists, and nurses and medical care facilities such as hospitals.

Accepted Answer

Deductible medical expenses do include payments to medical care providers such as doctors, dentists, and nurses and medical care facilities such as hospitals.

Question 8

The deduction for medical expenses is limited to the amount of unreimbursed qualifying medical expenses paid during the year reduced by five percent of the taxpayer's AGI.

Accepted Answer

The deduction for medical expenses is limited to the amount of unreimbursed qualifying medical expenses that exceed 7.5% of the taxpayer's AGI, not five percent.

Question 9

The itemized deduction for taxes includes all types of state, local, and foreign taxes.

Accepted Answer

The itemized deduction for taxes is limited to state and local taxes, and does not include all types of foreign taxes. It primarily includes state and local income taxes or sales taxes, and property taxes, but there are limitations and not all foreign taxes are deductible under this category.

Question 10

All reasonable moving expenses are deductible if the move is a minimum of 35 miles in distance.

Accepted Answer

The Tax Cuts and Jobs Act of 2017 suspended the deduction for moving expenses for most taxpayers from 2018 through 2025, except for active-duty military members moving due to a military order.

Question 11

Qualified education expenses for purposes of the deduction of interest on educational loans are expenses paid for the education of the taxpayer, the taxpayer's spouse, or a taxpayer's dependent to attend a post-secondary institution of higher education.

Accepted Answer

Qualified education expenses for the deduction of interest on educational loans are expenses paid for the education of the taxpayer, the taxpayer's spouse, or a taxpayer's dependent to attend a post-secondary institution of higher education.

Question 12

The profit motive distinguishes "business" activities from "personal" activities.

Accepted Answer

The profit motive is the driving force behind business activities, whereas personal activities are driven by personal interests and desires rather than a desire to make a profit.

Question 13

The phrase "ordinary and necessary" means that an expense must be appropriate and helpful for generating a profit.

Accepted Answer

The phrase "ordinary and necessary" is a test used by the IRS to determine if a business expense is deductible. An expense is considered ordinary if it is common and accepted in the industry or trade, and it is considered necessary if it is appropriate and helpful for generating a profit.

Question 14

To deduct a moving expense, the taxpayer must be employed or self employed for a specific amount of time after the move.

Accepted Answer

To deduct a moving expense, the taxpayer must meet the time and distance test. This includes being employed or self-employed for a minimum of 39 weeks during the 12 months following the move.

Question 15

An individual who forfeits a penalty for prematurely withdrawing a certificate of deposit (CD) is allowed to net the penalty against the interest income from the CD.

Accepted Answer

The answer of An individual who forfeits a penalty for...

Question 16

The definition of qualifying expenses is more restrictive for the qualified educational expense deduction than it is for the education loan interest expense deduction.

Accepted Answer

The definition of qualifying expenses for the qualified educational expense deduction is limited to tuition, fees, books, and supplies required for enrollment or attendance at an eligible educational institution. In contrast, the education loan interest expense deduction allows for a broader range of expenses, including room and board, transportation, and other necessary expenses related to attending school.

Question 17

Taxpayers traveling for the primary purpose of receiving essential and deductible medical care may deduct the cost of travel.

Accepted Answer

According to IRS Publication 502, taxpayers may deduct the cost of travel for the primary purpose of receiving essential and deductible medical care.

Question 18

In 2013, taxpayers may elect to deduct state and local sales taxes instead of deducting state and local income taxes.

Accepted Answer

This is true. The option to deduct state and local sales taxes instead of state and local income taxes was allowed for the 2013 tax year and continues to be an option for taxpayers in subsequent years.

Question 19

All business expense deductions are claimed above the line.

Accepted Answer

This statement is false. While some business expenses may be claimed above the line, such as those related to self-employment or rental activities, many others are claimed below the line as itemized deductions.

Question 20

Self employed taxpayers can choose between claiming a deduction or a credit for the employer portion of self employment taxes paid.

Accepted Answer

Self-employed taxpayers must pay both the employee and employer portions of Social Security and Medicare taxes, but they can only claim a deduction for the employer-equivalent portion of these taxes on their income tax return. There is no option to claim a credit for these taxes.

Quiz 6: Individual Deductions