Chapter 6, 8

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Chapter 6  Which of the following statements are correct when comparing for AGI deductions to from AGI deductions? – certain from AGI deductions may not have an effect on taxable income despite the taxpayer incurring expense; deduction for AGI reduce AGI thus reducing the limitations on other tax benefits that are decreased or phased out for higher income taxpayers  Which of the following descriptions best defines business activities? – profit-motivated and requiring a high level of effort from the taxpayer  Activities which are profit-motivated but do not require a relatively high level of involvement from the taxpayer are referred to as ____ activities. – investment  Investment interest expense is deducted ____ AGI while self-employed business expenses are deducted ___ AGI. – from; for  In order to be deductible, business expenses must be ___ and ___ for the business activity. – ordinary; necessary  Taxpayers have a choice of deducting the standard deduction or their itemized deductions. Therefore, ___ AGI deductions are considered to be beneficial to more taxpayers because – for; they are available to all eligible taxpayers, not just those that itemize deductions  Which of the following statements is correct? – the revenues and expenses from a business are reported on Schedule C and the resulting profit or loss is transferred to Form 1040  Which of the following expenses are deductible FOR AGI? – expenses generated by rental and royalty activities; most expenses generated by business activities  Rental and royalty endeavors are most commonly classified as ___ activities. – investment  Which of the following characteristics are required for a business expense to be deductible? – directly related to business activity; ordinary; necessary  In the current year, Ellen sold investment stock that she had owned for five years. The sale generated a loss of $5000. Assuming she had no other assets during the year, how should Ellen handle the loss for the current tax year purposes? – Ellen can deduct $3000 for AGI  Deductions for business expenses are reported on Schedule C of the Individual’s Form 1040, the main document of the individual tax return.  Which of the following person’s health insurance premiums can be deducted for AGI by a self- employed taxpayer? – taxpayer’s children who are under age 27 and not dependents of the taxpayer; taxpayer; taxpayer’s spouse; taxpayer’s dependent children  Rental activities – may be classified as investment activities or business activities, but expenses are always deducted for AGI  Which of the following statements is not accurate regarding the deduction for qualified education loan interest? – the full amount of interest paid on qualified educational loans is deductible  Which of the following items describe business expenses that would be deductible by the taxpayer? – helpful; appropriate; ordinary; necessary  Which of the following medical payments would be deductible for the taxpayer in the current year? – doctor bills paid by the taxpayer for his dependent son who lives with the taxpayer’s ex- wife  Choose the statement that is incorrect regarding a loss that is generated from the disposal or sale of assets for individuals. – losses from personal use assets are deductible for AGI  A self-employed individual may deduct the cost of his self-employed health insurance premiums even if his spouse’s employer offers family coverage to him  A taxpayer may deduct interest expense paid on qualified ___loans where the proceeds were used for tuition, fees, books, and other necessary expenses. The interest is deductible ____ AGI. – education; for

 Harli is taking her 6-month-old daughter to the doctor to receive vaccinations. Which of the following statements is correct regarding the deductibility of the vaccinations? – the cost of vaccinations is deductible because it is for the prevention of a disease  Mike sold equipment he is no longer using in his business at a loss of $4,000, and he sold investments at a loss of $8,000. Mike had no other sales of property in the current year. What are the tax implications of these losses to Mike? – Deduct the $4000 loss on equipment and $3000 on the loss on investment in the current year. The remaining investment ls is carried forward  Which of the following medical costs would be deductible as qualified medical expenses? – eyeglasses; dental work; laser eye surgery  Isabella, age 50, pays $500 each month for health insurance premiums with after-tax dollars. She is not self-employed. In the current year, she also incurred $200 in doctor bills and $50 in over- the-counter medications. Her AGI is $45,000. What amount for medical expenses will she be able to deduct as an itemized deduction after the AGI floor is applied? – 2825 (6200(500*12+200)-3375(45000*7.5%)  The intent of the terms ordinary and necessary when referring to deductible business expenses means the expenses must be ______. – appropriate and helpful for generating a profit  Which of the following types of taxes may be deducted from AGI as itemized deductions? – real estate taxes on a primary residence; personal property tax on the value of a car; state and local income taxes  Jenny and Jerry have a home with a fair market value of $625,000. They borrowed $400,000 ten years ago to purchase the home (home value at that time was $450,000). They currently owe $250,000 on the acquisition loan. They recently borrowed $110,000 on a home-equity loan. The proceeds were used to purchase a car and take a vacation. What is the maximum amount of their indebtedness that can generate deductible interest in the current year? – 250000  Which of the following medical costs would be deductible as qualified medical expenses? – prescription medications; health insurance premiums paid with after tax dollars; plastic surgery to reduce scarring after a dog bite; chiropractic services  Gary incurred $5200 in qualified medical expenses in 2022. His AGI for the year is $50000. Gary will be able to deduct $1450 itemized deduction  Which of the following types of taxes may be considered when determining the itemized deduction for taxes? – real estate taxes on property held for investment; personal property tax on the value of a boat  For mortgages obtained after 2017, MFJ homeowners may deduct interest on up to $___ of acquisition indebtedness. – 750000  Which of the following donations will qualify as a deductible charitable contribution? – land donated to a public university  Which of the following is CORRECT concerning the deduction of qualified medical expenses for the 2022 tax year? – the expenses must be reduced by 7.5% of AGI  Which one of the following types of charitable contributions is NOT deductible for federal income tax purposes? – Cash paid to purchase fundraising products where a portion of the proceeds go to fund a charitable cause  Donations to ___ organizations are not deductible for federal income tax purposes. – political  In general, when contributing long-term property to charity, taxpayers are allowed to deduct the fair market value of ___ ___ property on the date of the donation. – capital gain  Certain charitable contributions of capital gain property do not qualify for a fair market value deduction. Which of the following characteristics of capital gain property will definitely cause it to qualify for a fair market value deduction? – it is intangible property such as stocks and bonds

 Married filing joint may deduct no more than $___ in total state and local taxes. – 10000  Taxpayers can only deduct the lesser of (1) the property’s fair market value or (2) the property’s adjusted basis when making a charitable donation of ___ ___ property. – ordinary income  Andrew volunteered for the American Red Cross after a recent hurricane. He traveled 200 miles and helped the victims of the disaster in the clean up for five days. He also donated $1,500 to the American Red Cross, but charged the amount of the donation on his credit card. He plans to pay $300 plus interest each month on the credit card charge, so he will pay $900 of the $1,500 charge by the end of the year. What amounts will Andrew be able to deduct for his charitable contributions? – 1500 charged to the credit card during the year; the cost of lodging while he is volunteering; mileage for the 200 miles he drive to the ravaged area  Which of the following statements is INCORRECT regarding charitable donations of capital gain property? – the taxpayer must include the appreciation of the asset in gross income  Cash donations to public charities are limited to ___% of a taxpayer’s AGI. Donations of capital gain property to public charities are generally limited to ___% of a taxpayer’s AGI. And, donations of certain capital gain property to private nonoperating foundations are limited to ____% AGI. – 60; 30; 20  Certain contributions of capital gain property do NOT qualify for a fair market value deduction. Which of the following characteristics of the contribution will cause the asset to NOT qualify for a fair market value deduction? – the tangible personal property’s use is unrelated to the charity’s operation  Patrick has an adjusted gross income of $120,000 in the current year. He donated $62,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of $35,000 to a public charity, and publicly traded stock with a basis of $12,000 and a fair market value of $25,000 to a private nonoperating foundation. Patrick's deductible contribution for the current year is ______. – 62000 in cash to the public charity, 10000 to the public charity, and 0 stock to the private nonoperating foundation  Markita donated stock that she has held for less than a year to a qualified charitable organization. Her basis in the stock is $1,000 and the fair market value of the stock is $1,200. In regards to the donation, the stock is Blank______. – ordinary income property and Markita can deduct 1000  Owen’s adjusted gross income for the year will be 150000 and he is planning to make only one of the following charitable donations. If he contributes 100000 cash to a public charity, he can deduct ___. If he contributes property that is worth 80000 to a public charity, he can deduct ____. Or if he contributes publicly traded stock with a FMV of 60000 and a basis of 40000 to a private non-operating foundation he can deduct___. – 90000; 45000 30000  The overall limitation for cash charitable contribution deductions for individual taxpayer is ___% of AGI. The limit is reduced to ____% for ordinary gain property other than cash, and ____% for long-term capital gain property. – 60; 50; 30  Which of the following terms does NOT describe a casualty that could be deductible for tax purposes if it occurs in a federally-declared disaster area? – weakened  Which of the following statements is accurate when referring to hobby expenses? – hobby expenses are not deductible but revenues generated by the hobby are taxable  Certain contributions of capital gain property do NOT qualify for a fair market value deduction. Which of the following characteristics of the contribution will cause the asset to NOT qualify for a fair market value deduction? – the tangible personal property’s use is unrelated to the charity’s operations  Patrick has an adjusted gross income of $160,000 in the current year. He donated $30,000 in cash to a public charity, capital gain property with a basis of $15,000 and a fair market value of

$40,000 to a public charity, and publicly traded stock with a basis of $20,000 and a fair market value of $35,000 to a private nonoperating foundation. The amount that Patrick can deduct for the stock donation to the private nonoperating foundation is ______. – 8000  A loss from a sudden, unexpected, or unusual event such as a fire, storm, or shipwreck that occurs as part of a(n) ___ ___ disaster is a(n) ___ loss. – federally declared; casualty  Match the amount of the 2023 standard deduction with the filing status of the taxpayer: o Head of household – 20800 o Married filing jointly and surviving spouses – 27700 o Single – 13850 o Additional for age or blindness (married filing jointly or filing separately) – 1500 o Addition for age or blindness (single or head of household) – 1850  Activities classified as hobbies can generate tax deductible losses that can be used against other types of income. – false  Bruce is a CPA who operates his tax service business as a sole proprietorship. He files a joint tax return with his wife. Their tax return reported $330,000 in net profit from his tax business and $300,000 in taxable income before the deduction for qualified business income (QBI). Will Bruce's tax business be deemed a qualified trade or business for purposes of the QBI deduction? – yes  Which of the following statements regarding the deduction for qualified business income is incorrect? – the deduction cannot be claimed unless the taxpayer also itemized his or her deductions  The ___ ___ is a flat amount that most individuals can elect to deduct instead of deducting their itemized deductions. – standard deduction  Lucy is single and has $225,000 of taxable income from services outside her employment before the Qualified Business Income deduction. Which of the following types of services, if it were the service performed by Lucy, would qualify as Qualified Business Income? – engineering  Holly files married filing jointly and reports income of $300,000 ($340,000 AGI - $40,000 itemized deductions) before the deduction for qualified business income. She has no capital gains or dividends included in taxable income. Holly's engineering consulting service generates $20,000 of qualified business income. She paid no wages during the current year. What is Holly's deduction for qualified business income? – 4000  The deduction for qualified business income cannot exceed the greater of: (1) ___ percent of the wages paid with respect to the qualified trade or business or (2) the sum of __ percent of the wages with respect to the qualified trade or business plus 2.5% of the unadjusted basis, immediately after acquisition, of all qualified property in the qualified trade or businesses. – 50; 25  Holly is single and reports taxable income of $240,000 ($260,000 AGI - $20,000 itemized deductions) before the deduction for qualified business income. She has no capital gains or dividends included in taxable income. Holly's engineering consulting service generates $20,000 of qualified business income. She paid $5,000 in wages during the current year and has no qualified property. What is Holly's deduction for qualified business income? – 2500 Chapter 8  The term tax bracket refers to the average tax rate that is applied to an individual’s taxable income. – false  Alex and Alecia used the married filing jointly filing status when they prepared their tax return. During the current year, their joint tax liability totaled $9,300. If they were not married and had both filed as single, Alex would have had a $3,900 tax liability, and Alecia

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