Deck 6: Individual Deductions

Question 1

Rental or royalty expenses are deductible "for" AGI.

Answer 1

True

Question 2

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, reducing the amount of gross income reported.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

Excess business losses are carried back and then forward.

Question 5

All reasonable moving expenses are deductible by employees.

Question 6

Taxpayers may elect to deduct state and local sales taxes instead of deducting state and local income taxes.

Question 7

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

Question 8

Self-employed taxpayers can deduct the cost of health insurance as a "for" AGI deduction as long as they do not actually participate in their spouses' employer-provided health plans.

Question 9

To be deductible, business expenses must be appropriate and helpful for generating a profit.
⊚ false
⊚ true

Question 10

For married taxpayers filing separately, excess business losses are fully deductible in 2020.

Question 11

Excess business lossesin 2020 are carried back and then forward.

Question 12

For married taxpayers filing separately, excess business losses are defined as aggregate business deductions over the sum of aggregate business gross income or gain of the taxpayer plus $259,000.

Question 13

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

Question 14

The deduction for medical expenses is limited to the amount of unreimbursed qualifying medical expenses paid during the year reduced by 2 percent of the taxpayer's AGI.

Question 15

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

Question 16

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 postsecondary institution of higher education.

Question 17

All investment expenses are itemized deductions.

Question 18

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

Question 19

All business expense deductions are claimed as "from" AGI deductions.

Question 20

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

Question 21

An individual who is eligible to be claimed as a dependent on another's return and has $1,000 of earned income may claim a standard deduction of $1,350.

Question 22

The deduction to individual taxpayers for charitable contributions paid in cash to public charities is limited to 10 percent of the taxpayer's AGI.

Question 23

This year, Jong paid $3,000 of interest on a qualified education loan. Jong files married filing jointly and reports modified AGI of $152,000. What is Jong's deduction for interest expense on an educational loan?

A)$2,500
B)$3,000
C)$1,500
D)$1,000
E)None of the choices are correct.

Question 24

Taxpayers generally deduct the lesser of their standard deduction or their itemized deductions.

Question 25

In 2020, the deduction to individual taxpayers for charitable contributions paid in cash to public charities is limited to 10 percent of the taxpayer's AGI.

Question 26

Which of the following is a true statement?

A)For purposes of the deduction for educational interest, expenses do not include expenses for room, board, and travel
B)For purposes of the deduction for educational interest, qualified education expenses are those paid for the education of the taxpayer, the taxpayer's spouse, or the taxpayer's dependent
C)The maximum deduction for interest expense on qualified education loans is $6,000
D)A penalty paid for prematurely withdrawing a certificate of deposit or similar deposit is deductible from AGI as an investment expense
E)All of these choices are false.

Question 27

Which of the following is a true statement?

A)For purposes of the deduction for educational interest, an educational loan must be used to pay tuition to any type of school
B)The maximum deduction for educational interest is $5,000 for married taxpayers filing jointly
C)Self-employed taxpayers are not allowed to deduct health care premiums if the taxpayer is eligible to participate in their spouse's employer-provided health plan
D)Self-employment taxes paid by self-employed taxpayers are deductible as business expenses
E)All of these choices are correct.

Question 28

Which of the following is a true statement?

A)Unreimbursed employee business expenses are not deductible
B)Investment advisory expenses are not deductible
C)Business deductions are one of the most common deductions for AGI, but they are not readily visible on Schedule 1 of Form 1040
D)The distinction between business and investment expenses is critical for determining whether a deduction is claimed for AGI, or as an itemized deduction, or not at all
E)All of these choices are correct.

Question 29

The deduction for investment interest in excess of the net investment income carries forward to the subsequent year.

Question 30

Which of the following is a true statement?

A)Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax
B)To deduct expenses associated with any profit-motivated activity, taxpayers must maintain a high level of involvement or effort in the activity throughout the year
C)Business activities never require a relatively high level of involvement or effort from the taxpayer
D)All business expenses are deducted for AGI
E)All of these choices are correct.

Question 31

Generally, service businesses are considered qualified trade or businesses for purposes of the deduction for qualified business income.

Question 32

Which of the following is a true statement?

A)Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax
B)To deduct expenses associated with any profit-motivated activity, taxpayers must maintain a high level of involvement or effort in the activity throughout the year
C)Business activities never require a relatively high level of involvement or effort from the taxpayer
D)All business expenses are deducted for AGI
E)All of these choices are correct.

Question 33

Which of the following is a true statement?

A)The deduction for interest on educational loans is subject to a phase-out limitation
B)The deduction for moving expenses is subject to a phase-out limitation
C)Self-employed taxpayers are allowed to deduct health care premiums even if the taxpayer is eligible to participate in an employer-provided health plan
D)Excess business losses are deductible up to $100,000
E)All of these choices are false.

Question 34

Unreimbursed employee business expenses and hobby expenses are not deductible.

Question 35

To qualify as a charitable deduction, the donation must be made by cash or by check.

Question 36

Taxpayers are allowed to deduct mortgage interest on up to $1,000,000 of acquisition debt for their qualified residence if the acquisition debt is incurred after December 15, 2017.

Question 37

Taxpayers filing single and taxpayers filing married separate have the same basic standard deduction amount.

Question 38

Which of the following is a true statement?

A)Individuals qualify for the moving expense deduction only if they change employers
B)Individuals qualify for the moving expense deduction if their employer does not pay for the moving expenses
C)Moving expenses are deductible from AGI
D)Moving expenses are generally not deductible.

Question 39

Bunching itemized deductions is one form of tax evasion.

Question 40

In general, taxpayers are allowed to deduct the fair market value of long-term capital gain property on the date of the donation to a qualified charitable organization.

Question 41

Ned is a head of household with a dependent son, Todd, who is a full-time student. This year Ned made the following expenditures related to Todd's support: What amount can Ned include in his itemized deductions?

A)$1,700 included in Ned's other itemized deductions
B)$2,050 included in Ned's other itemized deductions
C)$950 included in Ned's other itemized deductions
D)$600 included in Ned's medical expenses
E)None of the choices are correct.

Question 42

Mason paid $4,100 of interest on a loan that paid tuition for him to attend a private university this year. How much of this payment can Mason deduct as interest expense on an educational loan if he files single and reports modified AGI of $90,000?

A)$4,100
B)$4,000
C)$2,667
D)$2,000
E)None of the choices are correct.

Question 43

Which of the following costs are deductible as an itemized medical expense?

A)The cost of prescription medicine and over-the-counter drugs
B)Medical expenses incurred to prevent disease
C)The cost of elective cosmetic surgery
D)Medical expenses reimbursed by health insurance
E)None of these costs are deductible.

Question 44

Hector is a married, self-employed taxpayer, and this year he paid $3,000 for his health insurance premiums (not through an exchange). Under which of the following alternative conditions can Hector deduct the cost of the premiums for AGI?

A)Hector chose not to participate in the employer-sponsored plan of his spouse
B)Hector's spouse participates in an employer-sponsored plan, but Hector is not eligible to participate in this plan
C)Neither Hector nor his spouse participates in an employer-sponsored plan although both are eligible to participate in a plan
D)Hector can deduct the health insurance premiums regardless of the insurance status of his spouse
E)None of the choices - health insurance premiums can only be deducted as an itemized deduction.

Question 45

Bruce is employed as an executive and his wife, Marie, is a self-employed realtor. Besides Bruce's salary, Bruce and Marie own a warehouse that they rent to a local business for storage. This year they paid $1,250 for electric service in the warehouse. Marie also paid self-employment tax of $6,200 and Bruce had $7,000 of Social Security taxes withheld from his pay. Marie paid a $45 fee to rent a safe-deposit box to store records associated with her realty operation. Which of the following is a true statement?

A)One-half of the Social Security tax is deductible for AGI
B)Only the electric bill is deductible for AGI
C)The self-employment tax is not deductible
D)The safe-deposit fee and the electric bill are deductible for AGI
E)None of the choices are correct.

Question 46

Which of the following taxes will not qualify as an itemized deduction?

A)Personal property taxes assessed on the value of specific property
B)State, local, and foreign income taxes
C)Real estate taxes on a residence
D)Gasoline taxes on personal travel
E)None of the choices qualify as itemized deductions.

Question 47

Max, a single taxpayer, has a $270,000 loss from his sole proprietorship in 2020. How much of this loss is not deductible after considering the excess business loss rules?

A)$270,000
B)$259,000
C)$11,000
D)$0
E)None of the choices are correct.

Question 48

Opal fell on the ice and injured her hip this winter. As a result she paid $3,000 for a visit to the hospital emergency room and $750 for follow-up visits with her doctor. While she recuperated, Opal paid $500 for prescription medicine and $600 to a therapist for rehabilitation. Insurance reimbursed Opal $1,200 for these expenses. What is the amount of Opal's qualifying medical expense?

A)$3,000
B)$3,750
C)$3,650
D)$4,850
E)All of these choices are correct.

Question 49

Max, a single taxpayer, has a $270,000 loss from his sole proprietorship in 2020. How much of this loss is deductible after considering the excess business loss rules?

A)$270,000
B)$259,000
C)$11,000
D)$0
E)None of the choices are correct.

Question 50

This year Amanda paid $749 in federal gift taxes on a gratuitous transfer to her nephew. Amanda lives in Texas and does not pay any state or local income taxes. Which of the following is a true statement?

A)Amanda cannot deduct federal gift taxes
B)Amanda can deduct federal gift taxes for AGI
C)Amanda can deduct federal gift taxes paid as an itemized deduction
D)Amanda must include federal gift taxes with other itemized deductions
E)None of the choices are true.

Question 51

Han is a self-employed carpenter and his wife, Christine, works full time as a grade school teacher. Han paid $525 for carpentry tools and supplies, and Christine paid $3,600 as her share of health insurance premiums (not with pretax dollars)for Han and herself in a qualified plan provided by the school district (not through an exchange). Which of the following is a true statement?

A)The tools and supplies are deductible for AGI while the health insurance is an itemized deduction
B)Both expenditures are deductible for AGI
C)The tools and supplies are an itemized deduction but the health insurance is deductible for AGI
D)Both expenditures are itemized deductions
E)Neither of the expenditures is deductible.

Question 52

Brice is a single, self-employed electrician who earns $60,000 per year in self-employment income. Brice paid the following expenses this year. Which of the expenses are deductible for AGI?The cost of health insurance (not purchased through an exchange)The employer portion of self-employment tax paidPenalty on early withdrawal of funds from a certificate of deposit

A)Numbers 1 and 2 only
B)Numbers 1 and 3 only
C)Numbers 2 and 3 only
D)None of the choices is deductible for AGI.
E)All of these choices are deductible for AGI.

Question 53

Max, a single taxpayer, has a $270,000 loss from his sole proprietorship. How much of this loss is deductible after considering the excess business loss rules?

A)$270,000
B)$259,000
C)$11,000
D)$0
E)None of the choices are correct.

Question 54

This fall Millie finally repaid her student loan. She originally borrowed the money to pay tuition several years ago, when she attended State University (a qualified educational institution). This year Millie paid a total of $2,400 of interest on the loan. If Millie files single and reports $75,000 of income and no other items of income or expense, how much of the interest can she deduct?

A)Millie can deduct $2,400 for AGI
B)Millie can deduct $1,600 for AGI
C)Millie can deduct $2,400 as an itemized deduction
D)Millie can deduct $800 for AGI
E)None-the tuition is not deductible.

Question 55

This year Riley files single and reports modified AGI of $76,000. Riley paid $1,200 of interest on a qualified education loan. What amounts can Riley deduct for qualifying education interest?

A)The deduction for qualifying education interest is $1,200
B)The deduction for qualifying education interest is $1,000
C)The deduction for qualifying education interest is $720
D)The deduction for qualifying education interest is $200
E)None of the choices are correct.

Question 56

Which of the following costs is NOT deductible as an itemized medical expense?

A)The cost of eyeglasses
B)Payments to a hospital
C)Transportation for medical purposes
D)The cost of insurance for long-term care services
E)All of these choices are deductible as medical expenses.

Question 57

Which of the following is a true statement?

A)A taxpayer can deduct medical expenses incurred for members of his family who are dependents
B)A taxpayer can deduct medical expenses incurred for a qualified relative even if the relative does not meet the gross income test
C)A divorced taxpayer can deduct medical expenses incurred for a child even if the child is claimed as a dependent by the former spouse
D)Deductible medical expenses include long-term care services for disabled spouses and dependents
E)All of these choices are true.

Question 58

Lewis is an unmarried law student at State University, a qualified educational institution. Last year Lewis borrowed $30,000 and used the proceeds to pay his university tuition. This year Lewis paid $1,500 of interest on the loan. Which of the following is a true statement if Lewis reports $40,000 of salary and no other items of income or expense?

A)Lewis can deduct all the interest on his student loan for AGI
B)Lewis can deduct all the interest on his student loan as an itemized deduction
C)Lewis can only deduct $1,000 of the interest on his student loan for AGI
D)Lewis can only deduct $1,000 of the interest on his student loan as an itemized deduction
E)All of these choices are false.

Question 59

Opal fell on the ice and injured her hip this winter. As a result she paid $3,100 for a visit to the hospital emergency room and $850 for follow-up visits with her doctor. While she recuperated, Opal paid $600 for prescription medicine and $700 to a therapist for rehabilitation. Insurance reimbursed Opal $1,280 for these expenses. What is the amount of Opal's qualifying medical expense?

A)$3,100
B)$3,950
C)$3,970
D)$5,250
E)All of these choices are correct.

Question 60

Max, a single taxpayer, has a $270,000 loss from his sole proprietorship. How much of this loss is not deductible after considering the excess business loss rules?

A)$270,000
B)$259,000
C)$11,000
D)$0
E)None of the choices are correct.

Question 61

Margaret Lindley paid $15,060 of interest on her $300,600 acquisition debt for her home (fair market value of $500,600), $4,060 of interest on her $30,060 home-equity loan, $1,060 of credit card interest, and $3,060 of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,060 of interest income this year and no investment expenses. How much of the interest expense may she deduct this year?

A)$23,240
B)$22,180
C)$19,120
D)$18,120
E)None of the choices are correct.

Question 62

When taxpayers donate cash and capital gain property to a public charity, the AGI percentage limitation is applied in the following order:

A)a 30 percent of AGI limitation is applied to the aggregate donation
B)a 60 percent of AGI limitation is applied to the cash donation and a 20 percent of AGI limitation is applied to the fair market value of the capital gain donation
C)a 30 percent of AGI limitation is applied to the cash donation and a 20 percent of AGI limitation is applied to the fair market value of the capital gain donation
D)a 60 percent of AGI limitation is applied to the cash donation and the fair market value of the capital gain donation is subject to the lesser of a 30 percent of AGI limitation or a 50 percent of AGI limitation after subtracting the cash contributions
E)donations to public charities are not subject to AGI limitations

Question 63

Campbell, a single taxpayer, has $95,000 of profits (net of the deduction for self-employment taxes, the self-employed health insurance deduction, and the deduction for contributions to qualified self-employment retirement plans)from her general store, which she operates as a sole proprietorship. She has no employees, $40,000 of qualified property, and $50,000 of taxable income before the deduction for qualified business income. How much is Campbell's deduction for qualified business income?

A)$95,000
B)$19,000
C)$10,000
D)$8,000
E)$0

Question 64

Which of the following is a true statement?

A)The standard deduction is increased for taxpayers who are blind or deaf at year-end
B)A married couple is only entitled to one addition to their standard deduction even if both spouses are both over age 65
C)Bunching itemized deductions is a legal method of tax avoidance
D)The standard deduction is subject to a phase-out based on AGI
E)All of these choices are true.

Question 65

Glenn is an accountant who races stock cars as a hobby. This year Glenn was paid a salary of $80,000 from his employer and won $2,000 in various races. What is the effect of the racing activities on Glenn's taxable income if Glenn has also incurred $4,200 of hobby expenses this year? Assume that Glenn itemizes his deductions.

A)Increase in taxable income of $2,000
B)Increase in taxable income of $1,640
C)No change in taxable income
D)Decrease in taxable income of $560
E)Decrease in taxable income of $2,200

Question 66

This year Norma, a single taxpayer, paid $11,200 of real estate taxes on her personal residence and $9,500 of state income taxes. Which of the following is true?

A)Norma can deduct $11,200 of real estate taxes as an itemized deduction
B)Norma can deduct $9,500 of state income taxes as a for AGI deduction
C)Norma can deduct $10,000 of taxes as an itemized deduction
D)If Norma has no other itemized deductions, she should still itemize her deductions
E)None of the choices are correct.

Question 67

When taxpayers donate cash and capital gain property to a public charity, the AGI percentage limitation is applied in the following order in 2020:

A)a 30 percent of AGI limitation is applied to the aggregate donation
B)there is no limit applied to the cash donation and a 20 percent of AGI limitation is applied to the fair market value of the capital gain donation
C)a 30 percent of AGI limitation is applied to the cash donation and a 20 percent of AGI limitation is applied to the fair market value of the capital gain donation
D)there is no limit applied to the cash contribution; the fair market value of the capital gain donation is subject to the lesser of a 30 percent of AGI limitation or a 50 percent of AGI limitation after subtracting the cash contributions
E)donations to public charities are not subject to AGI limitations

Question 68

Which of the following is a true statement?

A)Taxpayers may only deduct interest on up to $1,500,000 of acquisition indebtedness
B)Taxpayers may deduct interest on up to $1,000,000 of home-equity debt
C)The deduction for investment interest expense is not subject to limitation
D)A taxpayer who incurs acquisition indebtedness in 2018 may only deduct interest on up to $750,000 of acquisition indebtedness
E)None of the choices are correct.

Question 69

Larry recorded the following donations this year: $520 cash to a family in need
$2,420 to a church
$520 cash to a political campaign
To the Salvation Army household items that originally cost $1,220 but are worth $320.
What is Larry's maximum allowable charitable contribution if his AGI is $60,200?

A)$2,940
B)$1,040
C)$2,740
D)$4,680
E)None of the choices are correct..

Question 70

Which of the following is deductible as an other itemized deduction?

A)Gambling losses to the extent of gambling winnings
B)Fees for investment advice
C)Employee business expenses
D)Tax preparation fees
E)All of these choices are correct.

Question 71

Simone donated a landscape painting (tangible capital gain property)to a library, a public charity. She purchased the painting five years ago for $50,000, and on the date of the gift, it had a fair market value of $200,000. What is her maximum charitable contribution deduction for the year if her AGI is $300,000?

A)$100,000
B)$200,000
C)$90,000 if the library uses the painting in its charitable purpose
D)$150,000
E)None of the choices are correct.

Question 72

Andres and Lakeisha are married and file jointly. Andres is 72 years old and in good health. Lakeisha is 62 years old and blind. What amount of standard deduction can Andres and Lakeisha claim in 2020?

A)$27,400
B)$28,100
C)$26,250
D)$26,100
E)None of the choices are correct.

Question 73

Margaret Lindley paid $15,000 of interest on her $300,000 acquisition debt for her home (fair market value of $500,000), $4,000 of interest on her $30,000 home-equity loan, $1,000 of credit card interest, and $3,000 of margin interest for the purchase of stock. Assume that Margaret Lindley has $10,000 of interest income this year and no investment expenses. How much of the interest expense may she deduct this year?

A)$23,000
B)$22,000
C)$19,000
D)$18,000
E)None of the choices are correct.

Question 74

Frieda is 67 years old and deaf. If Frieda files as a head of household, what amount of standard deduction can she claim in 2020? Use Exhibit 6-12. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

A)$12,400
B)$14,050
C)$18,650
D)$19,950
E)$20,300

Question 75

Which of the following is a true statement in 2020?

A)The deduction of cash contributions to public charities is limited to 30 percent of AGI
B)The deduction of capital gain property to private nonoperating foundations is limited to 50 percent of AGI
C)The deduction of capital gain property to public charities is limited to 20 percent of AGI
D)The deduction of cash contributions to private nonoperating foundations is limited to 30 percent of AGI
E)None of the choices are true.

Question 76

Which of the following is a true statement?

A)A casualty loss on personal-use assets is generally not deductible
B)A casualty loss on investment property is generally not deductible
C)All casualty losses are deductible
D)A casualty loss on a personal-use asset is deductible for AGI
E)None of the choices are correct.

Question 77

Which of the following is a true statement?

A)The deduction of cash contributions to public charities is limited to 30 percent of AGI
B)The deduction of capital gain property to private nonoperating foundations is limited to 50 percent of AGI
C)The deduction of capital gain property to public charities is limited to 20 percent of AGI
D)The deduction of cash contributions to private nonoperating foundations is limited to 30 percent of AGI
E)None of the choices are true.

Question 78

Carly donated inventory (ordinary income property)to a church. She purchased the inventory last month for $100,000, and on the date of the gift, it had a fair market value of $92,000. What is her maximum charitable contribution deduction for the year related to this inventory if her AGI is $200,000?

A)$100,000
B)$92,000
C)$60,000
D)$46,000 if the church sells the inventory
E)None of the choices are correct.

Question 79

Larry recorded the following donations this year: $500 cash to a family in need
$2,400 to a church
$500 cash to a political campaign
To the Salvation Army household items that originally cost $1,200 but are worth $300.
What is Larry's maximum allowable charitable contribution if his AGI is $60,000?

A)$2,900
B)$1,000
C)$2,700
D)$4,600
E)None of the choices are correct.

Question 80

Madeoff donated stock (capital gain property)to a public charity. He purchased the stock three years ago for $100,000, and on the date of the gift, it had a fair market value of $200,000. What is his maximum charitable contribution deduction for the year related to this stock if his AGI is $500,000?

A)$100,000
B)$200,000
C)$150,000
D)$250,000
E)None of the choices are correct.