Question 1

Moe has a law practice and earns $322,000 which he reports on his Schedule C.His wife, Mindy, works part-time at Wal-Mart and earns $8,300.Mindy does not receive any medical benefits through Wal-Mart.Their 29-year-old daughter, Michelle, who is not a dependent, is working toward earning her Master's degree.Moe and Mindy pay the following amounts: $$\begin{array} { l r } 
\text { Health insurance for Moe and Mindy } & \$ 8,100 \
\text { Dental insurance for Moe and Mindy } & 600 \
\text { Vision care insurance for Moe and Mindy } & 425 \
\text { Health insurance for their daughter } & 3,620 \
\text { Long-term care insurance for Moe who is } 54 \text { years old } & 1,680
\end{array}$$ How much may Moe and Mindy claim on their tax return as a self-employed health insurance deduction?

Accepted Answer

$10,685, calculated as $8,100 + $600 + $425 + $1,560 limitation on long-term care insurance.The health insurance for their daughter is not deductible because she is not under the age of 27.

Question 2

Ellen supports her family as a self-employed attorney.She reports $90,000 of income on her Schedule C and pays $8,000 for health insurance for her family, $2,500 for dental insurance, $4,000 for health insurance for her 23-year-old daughter who is no longer a dependent, and $3,000 for disability insurance for herself.What is Ellen's self-employed health insurance deduction?

Accepted Answer

D

Question 3

Mike and Rose are married and file jointly.Mike earns $45,000 from wages and Rose reports $450 on her Schedule C as an artist.Since Mike's work does not offer health insurance, Rose pays the following health insurance premiums from her business account: $\begin{array}{llcc}
  \text { Family heal th insurance  } & \$9,500 \
 \text { Family dental insurance } &1,000\
\end{array}$
 How much can Mike and Rose deduct as self-employed health insurance?

Accepted Answer

$450.The deduction for self-employed health insurance is only allowed to the extent of the self-employed earnings.The remainder can be treated as an itemized medical deduction.

Question 4

Over the years, Monica contributed $15,000 to a Roth IRA opened 10 years ago.The IRA has a current value of $37,500.She is 54 years old and takes a distribution of $25,000.How much of the distribution will be taxable to Monica?

Accepted Answer

The answer of Over the years, Monica contributed $15,000 to...

Question 5

In some cases, a taxpayer may deduct an otherwise allowable contribution to an IRA, even though the contribution is made after the close of the tax year.

Accepted Answer

According to IRS rules, taxpayers have until the tax return due date (usually April 15th) of the following year to make an IRA contribution and still have it count for the previous tax year. This is known as a "prior-year contribution."

Question 6

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

Accepted Answer

Distributions from HSAs are tax and penalty-free when used for qualified medical expenses. This is one of the main benefits of having an HSA. The other statements are untrue- A) there are specific health insurance requirements to qualify for an HSA, B) contributions to HSAs are deductible for AGI up to certain limits, C) non-medical distributions from HSAs are subject to both income tax and a 20% penalty, and E) taxpayers cannot use HSA distributions for non-medical expenses like buying automobiles.

Question 7

Miki, who is single and 57 years old, has a qualifying high-deductible insurance plan.She had the following transactions with her HSA during the year:​ $\begin{array}{llcc}
  \text { Contributions to her HSA  } &\$3,500  \
 \text { Interest income earned on her  HSA } &9\
 \text { Medical expenses paid from her HSA } &5,739\
 \text { HSA distribution to pay for her daughter's wedding  } &7,650\
\end{array}$
 
a.How much may Miki claim as a deduction for adjusted gross income?
b.What is the amount that Miki must report on her federal income tax return as income from her HSA?
c.How much is subject to a penalty? What is the penalty percentage?

Accepted Answer

The answer of Miki, who is single and 57 years...

Question 8

What percentage of medical insurance payments can self-employed taxpayers deduct for adjusted gross income on their 2018 tax returns, assuming their self-employment income exceeds their medical insurance payments?

Accepted Answer

Self-employed taxpayers can deduct 100% of their medical insurance payments for adjusted gross income, provided their self-employment income exceeds the insurance payments.

Question 9

A taxpayer must make contributions to a regular or Roth IRA prior to the end of the year in order to claim the deduction for that year.

Accepted Answer

Contributions to a regular or Roth IRA for a specific tax year can be made up until the tax filing deadline of the following year, typically April 15, without extensions.

Question 10

Which of the following statements is false about health savings accounts (HSAs)?

Accepted Answer

The statement "deductible contributions to HSAs are unlimited" is false. There are annual contribution limits for HSAs, which are set by the IRS and are subject to change each year. For 2021, the contribution limit for individuals with self-only coverage is $3,600, and the contribution limit for individuals with family coverage is $7,200. Catch-up contributions are also allowed for individuals age 55 and older.

Question 11

Jim lives in California.What is Jim's deadline for making a contribution to traditional IRA or a Roth IRA for 2018?

Accepted Answer

The deadline for making a contribution to traditional IRA or a Roth IRA for 2018 is April 15, 2019. This is because for tax purposes, the contribution is considered to have been made in the previous year.

Question 12

A 42-year-old single taxpayer earning a salary of $136,000 a year can make which of the following IRA contributions if he is not covered by a plan at work?

Accepted Answer

The answer of A 42-year-old single taxpayer earning a salary...

Question 13

Which of the following is true about the self-employed health insurance deduction?

Accepted Answer

The answer of Which of the following is true about...

Question 14

Since a contribution to an IRA is a voluntary action, a taxpayer may withdraw amounts from an IRA at any time without penalty.

Accepted Answer

This statement is false. Since contributions to a traditional IRA are typically tax-deductible, there are penalties for withdrawing funds before age 59 1/2. Exceptions to these penalties include certain hardship withdrawals, funds used for qualified higher education expenses, and funds used for first-time homebuyer expenses, all subject to certain limitations and requirements.

Question 15

Earnings on nondeductible IRA contributions are allowed to accumulate tax-free until they are withdrawn.

Accepted Answer

This is true. Although contributions to a nondeductible IRA are made with after-tax dollars and do not provide a tax deduction, any earnings on those contributions are allowed to grow tax-free until they are withdrawn.

Question 16

If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty.

Accepted Answer

The IRS allows for an exception to the early withdrawal penalty for individuals with disabilities who receive distributions from their IRA before age 59.5. However, regular income tax may still apply to the distribution.

Question 17

A taxpayer who is under 50 years of age and not an active participant in a retirement plan may make a contribution of up to $5,500 to an IRA, subject to the earned income limitation.

Accepted Answer

This is correct as per the IRS rules for 2021. The contribution limit for individuals under 50 who are not active participants in a retirement plan is $6,000 in 2021. However, the earned income of the taxpayer must be at least equal to the amount of the contribution.

Question 18

Subject to the annual dollar limitation and the earned income limitation, deductible IRA contributions are allowed for all taxpayers who do not participate in a qualified retirement plan.

Accepted Answer

This statement is true. Taxpayers who do not participate in a qualified retirement plan may make deductible IRA contributions subject to certain limitations.

Question 19

What is the amount of the deductible HSA for each of the following taxpayers?
a.Amelia and Albert, both age 43, have a qualifying high-deductible insurance plan.They contribute $5,700 to a family HSA.
b.Betsy, who is single, 72 years old and covered by Medicare, wants to contribute the maximum amount to an HSA.
c.Carlo has health insurance through his employer which has low deductible amounts.He is 34 years old and is married.Carlo wants to contribute the maximum to an HSA.
d.Diane is 57 years old.She has a qualifying high-deductible insurance plan.She has contributed $5,350 to her HSA.

Accepted Answer

The answer of What is the amount of the deductible...

Question 20

In 2018, all taxpayers may make a deductible or nondeductible contribution to an IRA.

Accepted Answer

The answer of In 2018, all taxpayers may make a...

Quiz 5: Deductions and Adjustments to Income