Deck 5: Deductions for Individuals and Tax Determination

Question 1

The tax model is the formula for how individuals report their tax liability.

Answer 1

True

Question 2

Jan and James's divorce is final on December 31 of the current year. They must file married filing separately for the tax year.

Answer 2

False

Question 3

Contributions to health savings accounts are made with before-tax dollars.

Answer 3

True

Question 4

Sales taxes levied on the purchase of depreciable business property are deductible as part of depreciation.

Question 5

In 2018 safe deposit box rental fees are deductible as miscellaneous itemized deductions and must exceed two percent of AGI to be deductible.

Question 6

A taxpayer's filing status determines the basic standard deduction allowed.

Question 7

Beginning in 2019, qualified medical expenses for a 66-year-old single individual must exceed 10 percent of AGI to be deductible for regular income tax purposes.

Question 8

A legally married couple can elect to file as married filing jointly or single individuals.

Question 9

Up to $10,000 ($5,000 if married filing separately) of income and real property taxes are deductible for state, local, and foreign real property.

Question 10

The basic and additional standard deductions are both indexed for inflation.

Question 11

A married person filing a separate return has the lowest standard deduction amount.

Question 12

For 2018-2025, the personal and dependency exemption is essentially zero. Although the deduction is suspended, the rules for determining who is a dependent may be used in other provisions (such as determining head of household status and the child tax credit).

Question 13

To file as a surviving spouse, a taxpayer must maintain a home for a dependent child for the entire year.

Question 14

An abandoned spouse must only live apart from his or her spouse during the last six months of the tax year.

Question 15

Surviving spouse status may be claimed for three years after the year of the spouse's death.

Question 16

The deduction for student loan interest has limits placed on it based on the taxpayer's AGI.

Question 17

Health insurance premiums that are deductible as medical expenses include premiums paid pre-tax through a flexible spending account.

Question 18

In 2017, a personal theft loss could be deducted if it exceeded $100 plus 10 percent of AGI.

Question 19

A homeowner who itemizes his or her deductions can only deduct the property taxes on his or her primary residence and one other residence.

Question 20

To qualify as head of household, the taxpayer must pay more than half of the costs of a home in which a qualifying person lives for the entire year.

Question 21

The alternative minimum tax is a tax determined on a broadened definition of income with no deductions permitted.

Question 22

What is required for a taxpayer to qualify to file as a surviving spouse?

Question 23

A parent cannot be considered as a dependent if his or her gross income equals or exceeds the amount of the dependency exemption.

Question 24

Taxpayers can apply any excess FICA tax paid to their income tax liability.

Question 25

What limits are placed on the deduction for interest on debt that is secured by a person's personal residence?

Question 26

The taxpayer must provide more than half the support for an individual to be considered a dependent.

Question 27

Qualifying low-income wage earners may not only deduct their IRA contributions but they may take a credit for their contribution.

Question 28

The additional 0.9 percent Medicare surtax applies to earned income of individuals with wages in excess of $200,000 but does not apply to self-employed individuals.

Question 29

What is included in investment income? What is the limit on the deduction for investment interest?

Question 30

What types of insurance premiums are deductible as an itemized deduction?

Question 31

When should a taxpayer itemize deductions rather than taking the standard deduction?

Question 32

What is the purpose of the Health Savings Account?

Question 33

Which is more advantageous, a deduction for or a deduction from adjusted gross income? Why?

Question 34

What limits are placed on an individual's charitable contribution deduction?

Question 35

28 The NII tax is assessed on the greater of net investment income or modified adjusted gross income.

Question 36

A taxpayer's standard deduction is limited by the taxpayer's AGI if AGI exceeds a certain threshold.

Question 37

What is the standard deduction for a person who is a dependent of another person in 2018?

Question 38

The maximum annual lifetime learning credit is $2,000 per taxpayer.

Question 39

29 The tax rate applied to the AMTI for individuals is 2 percent higher than the top individual regular tax rate.

Question 40

How is the deductibility of itemized deductions limited in determining taxable income?

Question 41

John is a 36-year-old calendar-year taxpayer whose wife died in August of 2018. His eight year-old son lives with him. During 2018, he had salary income of $52,000, $600 of dividend income, and received $50,000 from the life insurance policy on his wife. He made a $2,000 contribution to his regular IRA and paid $9,800 for a hospital bill and $3,000 for a doctor bill for his deceased wife. He also paid $4,000 in mortgage interest, $800 in property taxes, $300 of credit card interest and $400 in job hunting expenses when he tried to find a better paying job in the same line of work in March. Determine John's income tax liability for 2018, before any allowable credits, if he itemizes his deductions. Should John consider using the standard deduction?

Question 42

Cora, who is single, has $58,000 of salary income, $2,350 in dividends, and $3,800 in interest income. She has $13,200 of itemized deductions. Determine her tax liability for 2018.

Question 43

What is the purpose of the alternative minimum tax?

Question 44

Buffy and Biff are both employed. They have two dependent children ages 9 and 10 and they pay $7,200 for child care while they work. In 2018, their combined salary and wage income is $560,000. They each put $4,000 into their traditional IRAs (these IRAs are their only retirement plans). Their itemized deductions are $28,000. What is their net tax liability after all allowable credits if they file jointly and the child tax credit begins to phase out at $400,000?

Question 45

Explain the difference in benefits between a tax deduction and a tax credit?

Question 46

Carl and Carla are a very wealthy retired couple in their late sixties and file a joint tax return. During 2018 they had AGI of $980,000 that is all from investments and equals their net investment income. Their only itemized deduction was a $30,000 charitable contribution because they had sold their homes last year and spent all 2018 traveling around the world.
a. If they itemize, what is their taxable income for 2018 and their income tax?
b. How would your answers change if they claimed the standard deduction instead of itemizing?

Question 47

Sophie, age 68, has AGI of $47,000. Her itemized deductions after limitations are $1,400 for medical expenses, $700 in property taxes, $4,500 of mortgage interest and $800 for charitable contributions. What are her AMTI itemized deductions?

Question 48

George (49) and Jean (36), a married couple with no dependents, have AGI of $2,400,000. They have $120,000 of medical expenses related to a kidney transplant, $80,000 of property taxes on their principal residence, $65,000 of interest expense on the $680,000 acquisition mortgage, and $25,000 in charitable contributions before applying any limitations. If they have a $400,000 preference item, what is their regular taxable income, their alternative minimum taxable income, and their alternative minimum tax in 2018? (Exclude any medicare surtaxes on regular taxable income in your solution.)

Question 49

What is the purpose of preserving the rules for determining who is a dependent?

Question 50

Sonja is a talented 18 year-old dancer and has earned quite a bit of money over the last six years that her parents invested for her. During 2018, however, she earned only $5,500 from dancing but $1,900 in interest. If she qualifies as a dependent of her parents, what is her income tax liability in the current year?

Question 51

How is qualified business income (QBI) defined and how is the QBI deduction calculated?

Question 52

Wallace and Clarice (both age 45) have combined salary and wages of $114,900. They each contribute $3,000 to a Roth IRA and take the standard deduction when they file jointly in 2018. If they have a $60,000 preference item and the AMT exemption is $109,400, what is their alternative minimum tax?

Question 53

Charles has gross income of $80,000 and is single but provides the sole support of his elderly parents, paying all their housing, food and clothing costs in 2018
What is his filing status and how much is his standard deduction?

Question 54

Torri is a sixth grade teacher. In 2018, she earned a salary of $33,500. She contributed $675 to her Roth IRA and paid $800 in student loan interest. What is Torri's taxable income and income tax if she is single and does not itemize deductions?

Question 55

Margo is single and has twin sons who are freshmen in college and a daughter who is a junior during 2018. Margo also attends the local college and took one graduate course each semester. She pays $4,000 tuition and fees for each of the three children and $1,900 in tuition and fees for her courses. What are her allowable education credits if her AGI is $61,000 and the LLC phaseout range is $57,000-$67,000?

Question 56

Designate by an R is an item is a deduction FOR AGI or an M is an item is a deduction FROM AGI.
Alimony paid (divorce agreement executed in 2017)
b. Standard deduction
c. Health savings account contribution
d. IRA contribution
e. Charitable contribution
f. Personal property taxes
g. Self-employed health insurance deduction
h. Student loan interest
i. Investment interest expense
j. State income taxes paid
k. Penalty on early withdrawal of savings
l. Costs for prescription drugs and insulin
m. Mortgage interest expense
n. Educator expenses (classroom supplies for elementary school teacher)
o. Employee portion of health insurance premium

Question 57

What uses are made of adjusted gross income (AGI) in the individual tax model?

Question 58

Who are qualifying relatives for the dependency exemption that was allowed prior to 2018? When will this deduction be reinstated?

Question 59

Seth and Clara have three dependent children ages 2, 6, and 10. They have AGI of $409,250 in 2018. What is their allowable child tax credit if it begins to phase out at $400,000?

Question 60

John and Joanna have $125,000 in combined salary and wages, $8,000 in dividend income, and $3,000 in interest income. What is their tax liability for 2018 if they are married filing jointly and have $35,000 in itemized deductions?

Question 61

Colin (age 40) is single, itemizes his deductions, and has AGI of $100,000. Colin provided the following information about his cash expenditures for 2018: Interest on American Express card 1,200
Points to refinance his home for 10 years at the end of December 2,600
Mortgage interest payments on $250,000 principal amount 11,800
Real estate taxes 2,100
State income taxes withheld on salary 5,400
Additional state income tax estimated payment 1,200
Contribution to Republican Party 2,000
Contribution to United Way 500
If Colin itemizes, what are his total itemized deductions in 2018:

A) $18,100
B) $21,000
C) $24,200
D) $27,000

Question 62

What is Cheryl's AGI if she has a taxable salary of $34,000, receives $6,000 of alimony (from a divorce agreement executed in 2017) and $600 of interest on her various savings accounts, contributes $3,000 to her traditional IRA, and paid a $100 penalty for cashing in her Certificates of Deposit early?

A) $40,000
B) $39,600
C) $37,500
D) $36,900

Question 63

Which of the following filing statuses can never be used by a single individual?

A) Surviving spouse
B) Head of household
C) Married filing separately
D) Single

Question 64

Sean bought a home in 2010 for $625,000 financing $550,000 of the purchase price with a 30 year mortgage. In 2018 when his existing mortgage balance was $520,000, he took out a home equity loan for $150,000. He used the proceeds to pay off credit card debt of $40,000 and purchase a car for $85,000; the balance he used to buy an engagement ring for his girlfriend. In 2018 he paid $30,000 interest on the mortgage and paid interest only of $6,600 on the home equity loan. What is his deduction for qualified residential interest for 2018?

A) $36,600
B) $34,400
C) $30,000
D) $6,600

Question 65

In 2018, which of the following is allowed as an addition to a nonitemizer's standard deduction?

A) Sales tax on new automobile purchases
B) $500 for real property taxes
C) Medical expenses in excess of 10% of AGI
D) None of the above

Question 66

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2018: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $8,250 in real estate taxes on the home.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$1,650 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,400 in state and local general sales taxes
-$490 fee for preparation of their 2017 tax return, paid to their CPA in 2018
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for its fair market value of $17,000 at its fundraising auction.
What is Sebastian and Kaitlin's marginal tax rate for 2018 if they do itemize their deductions and file as married filing jointly?

A) 12%
B) 22%
C) 24%
D) 32%

Question 67

Which of the following is a requirement to file for head of household?

A) A single individual (except abandoned spouse)
B) Provides over one-half the cost of maintaining a household for a dependent or a child
C) Qualifying dependent (except a parent) or child must live in the taxpayer's household
D) All of the above are requirements

Question 68

Carl, age 42, is married and has three children. In preparing to go to his accountant, he determines that he has $63,100 of salary income and $250 in dividends. He contributes $4,000 to a Roth IRA and has $6,800 of itemized deductions. His wife has no income. What is the taxable income on their 2018 joint return?

A) $63,350
B) $39,350
C) $30,500
D) $30,250

Question 69

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2018: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $8,250 in real estate taxes on the home.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$1,650 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,400 in state and local general sales taxes
-$490 fee for preparation of their 2017 tax return, paid to their CPA in 2018
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for its fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for charitable contributions for 2018?

A) $5,200
B) $7,200
C) $7,700
D) $20,500

Question 70

All of the following are deductions for AGI except:

A) IRA contributions
B) Student loan interest
C) Interest on loan to purchase stocks
D) Health Savings Account contribution

Question 71

Lisa's husband died in 2015. Lisa did not remarry, and continued to maintain a home for herself and her dependent daughter during 2016, 2017, and 2018 providing full support for herself and her daughter during these years. For 2018, Lisa's filing status is:

A). Single
B) Married filing separately
C) Head of household
D) Surviving spouse, using married filing jointly rate

Question 72

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2018: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $8,250 in real estate taxes on the home.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$1,650 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,400 in state and local general sales taxes
-$490 fee for preparation of their 2017 tax return, paid to their CPA in 2018
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for its fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for taxes for 2018?

A) $11,000
B) $12,800
C) $9,900
D) $17,500

Question 73

The 2018 standard deduction for a married taxpayer, age 68, who files a separate return is:

A) $6,350
B) $7,600
C) $12,000
D) $13,300

Question 74

Which of the following expenditures is not subject to some form of limitation on its deductibility based on AGI?

A) IRA contribution
B) Surgery to replace a hip joint
C) Contribution to a university endowment fund
D) Property taxes

Question 75

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2018: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $8,250 in real estate taxes on the home.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$1,650 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,400 in state and local general sales taxes
-$490 fee for preparation of their 2017 tax return, paid to their CPA in 2018
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for its fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for interest expense for 2018?

A) $30,800
B) $33,400
C) $2,600
D) $49,500

Question 76

Ethan, age 67, and Abigail, age 64, with good eyesight, are married and file a joint tax return. They have adjusted gross income of $1,200,000 for 2018. They have only $5,000 of itemized deduction, so they claim their standard deduction. How much of their standard deduction is phased out in 2018?

A) $13,850
B)$12,600
C)$10,682
D)0

Question 77

Colin (age 40) is single and itemizes his deductions. His AGI is $100,000. Colin provided the following information about his cash expenditures for 2018: Interest on loan to purchase corporate securities $ 900
Interest on American Express card 1,200
Points to refinance his home at the end of December 2,600
Mortgage interest payments 11,800
Real estate taxes 2,100
State income taxes withheld on salary 5,400
Additional state income tax estimated payment 1,200
Contribution to Republican Party 2,000
Contribution to United Way 500
How much are Colin's deductible contributions?

A) $500
B) $1,000
C) $1,500
D) $2,500

Question 78

Colin (age 40) is single and itemizes his deductions. His AGI is $100,000. Colin provided the following information about his cash expenditures for 2018: Interest on loan to purchase corporate securities $ 900
Interest on American Express card 1,200
Points to refinance his home at the end of December 2,600
Mortgage interest payments 11,800
Real estate taxes 2,100
State income taxes withheld on salary 5,400
Additional state income tax estimated payment 1,200
Contribution to Republican Party 2,000
Contribution to United Way 500
What is the amount of Colin's deductible interest expense if he received $600 in corporate dividends that are taxed at the 15% tax rate?

A) $11,800
B) $12,400
C) $12,700
D) $14,400

Question 79

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. What is Sebastian and Kaitlin standard deduction on their 2018 tax return if they do not itemize?

A) $13,950
B) $12,700
C) $24,000
D) $25,300

Question 80

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2018: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $8,250 in real estate taxes on the home.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$1,650 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,400 in state and local general sales taxes
-$490 fee for preparation of their 2017 tax return, paid to their CPA in 2018
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for its fair market value of $17,000 at its fundraising auction.
What is Sebastian and Kaitlin's taxable income for 2018 if they do not itemize their deductions and file as married filing jointly?

A) $333,700
B) $366,000
C) $377,300
D) $390,000