Chapter 8
Legitimate business entertainment of clients
$8,000
Hotels accommodations while on business travel
$3,000
Meals while away from home on business travel
$2,000
Subscription fees for publications directly related to his employment
$1,000
Cost of professional wardrobe
$7,000
What is Julius’s miscellaneous itemized deduction?
a.
$14,000
b.
$16,000
c.
$21,000
d.
$22,000
e.
None of the above
88. Toby, a single taxpayer with no dependents, is an employee of a large consulting firm. During the year he incurs the
following business expenses that are not reimbursed by his employer:
Business entertainment and other meals
$3,400
Transportation and lodging
4,200
Toby’s AGI is $100,000 and is in the 28% marginal tax rate. In addition to the expenditures described above, his only
other qualified itemized deductions are home mortgage interest of $6,000 and property taxes of $2,000. What is the after-
tax cost to Toby of his unreimbursed employee business expenses?
a.
$- 0 –
b.
$5,600
c.
$6,088
d.
$6,508
e.
$7,600
89. Cecelia is a loan officer for The Hibernia Street Bank. Her adjusted gross income for the current year is
$85,000.Cecelia incurs the following unreimbursed expenses during the current year:
Dues to loan officer association
$520
Subscriptions to professional journals
475
Parking at work
2,260
Entertaining clients
850
Business clothes
1,400
Tax return preparation fee
950
Legal fees related to tax issue on a prior year tax return
1,650
Safe deposit box rental
80
Investment fees
640
What is Cecelia’s allowable miscellaneous itemized deduction?
a.
$1,390
b.
$3,040
c.
$4,740
d.
$7,265
e.
$8,965
90. Sophia, single, is a employee of JWH Consulting Company. She incurs $5,000 of valid entertaining expenses for
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which she receives no reimbursement. How much would she benefit from being reimbursed by JWH rather than deducting
the expenses on her tax return? Her annual salary is $100,000, and she has other itemized deductions of $7,000.
a.
$3,600
b.
$4,160
c.
$4,720
d.
$4,860
e.
$5,000
91. Barney’s sailboat is destroyed in an unusual accident. The sailboat, which he used for personal purposes, caught fire
forcing him and his friends to jump ship and swim for shore. The boat exploded and sank. Barney purchased the boat in
1998 for $75,000. At the time that it is destroyed, the boat has a value of $45,000. Barney’s insurance company pays him
$25,000 in full settlement of this loss. Barney’s adjusted gross income is $60,000. If this is his only casualty loss during
the year, what amount can he deduct as a casualty loss?
a.
$13,900
b.
$14,000
c.
$19,900
d.
$44,900
e.
None of the above.
92. Erin is 67, single and has an adjusted gross income of $14,300. She has no dependents and her itemized deductions are
$6,000. What is her 2015 taxable income?
a.
$2,450
b.
$3,350
c.
$4,650
d.
$4,750
e.
$6,000
93. Orrill is single and has custody of his 8-year-old son Jack. Orrill has gross income of $46,000, deductions for adjusted
gross income of $2,200 and itemized deductions of $6,000. What is his tax liability for 2015?
a.
$3,535
b.
$4,039
c.
$4,333
d.
$4,431
e.
$4,521
94. Susan is 17 and is claimed as a dependent by her parents. In 2015, she earns $1,000 from a summer job and receives
$2,400 of interest from a savings account. How much of Susan’s income is taxable at her parents’ marginal rate?
a.
$- 0 –
b.
$300
c.
$2,100
d.
$2,400
95. Shannon is 16 years old and is a qualified dependent of her mother. Shannon earns $1,500 as a counselor at a church
summer camp and receives $2,500 of interest on a savings account established by her grandparents. Shannon’s 2015
taxable income is:
a.
$- 0 –
b.
$1,500
c.
$2,150
d.
$2,500
e.
$2,950
96. Children under 18 and full time students under 24 are taxed differently than other taxpayers if
I.
Their unearned income exceeds $2,100.
II.
Their parents’ marginal tax rate exceeds 15%.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
97. Robbie is 18, and a dependent on his parent’s return. His income consists of interest of $1,300, and $2,500 from being
a lifeguard. If his parent’s taxable income is $75,000, what is Robbie’s 2015 tax liability?
a.
$-0-
b.
$95
c.
$130
d.
$250
e.
$295
98. During 2015, Stephanie earns $2,700 from a summer job. She also has interest income of $400. Stephanie, age 19, is a
full-time student at Omega College. Her parents claim her as a dependent. What is the amount of Stephanie’s taxable
income for 2015?
a.
$- 0 –
b.
$50
c.
$400
d.
$2,150
e.
$2,700
99. During 2015, Marla earns $2,700 from a summer job. She also has interest income of $2,400. Marla, age 19, is a full-
time student at Western College. Her parents claim her as a dependent. Their taxable income is $100,000. What is Marla’s
tax liability for 2015?
a.
$210
b.
$265
c.
$300
d.
$450
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e.
$525
100. Velma is 16. Her income consists of municipal bond interest of $400 and interest credited to her savings account of
$2,340. If her parent’s taxable income is $88,000, what is Velma’s 2015 tax liability?
a.
$139
b.
$165
c.
$224
d.
$305
e.
$448
101. In which of the following circumstances will income of the child be taxed at the marginal tax rate of the child’s
parent?
I.
Nicole, age 17, has $4,000 of interest income from Microsoft bonds.
II.
Catherine, age 19, has $2,300 of royalty income from oil producing property.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
102. In which of the following circumstances will income of the child be taxed at the marginal tax rate of the child’s
parent?
I.
Martin, age 6, earns $14,000 this year by acting in television commercials.
II.
Allen, age 22 and a full time college student, has $4,000 of interest income on municipal
bonds that he inherited from his grandfather last year.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
103. Susan and Kyle are married and have two children ages 16 and 14. Their adjusted gross income for 2015 is $108,000.
What amount can they claim for the child tax credit?
a.
$- 0 –
b.
$600
c.
$1,000
d.
$1,200
e.
$2,000
104. Darlene and Joseph are married and have two children ages 17 and 15. Their adjusted gross income for 2015 is
$108,000. What amount can they claim for the child tax credit?
a.
$- 0 –
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b.
$600
c.
$1,000
d.
$1,200
e.
$2,000
105. Jerry and Lana are married and have two children ages 12 and 10. Their adjusted gross income for 2015 is $124,000.
What amount can they claim for the child tax credit?
a.
$200
b.
$800
c.
$1,000
d.
$1,300
e.
$2,000
106. Howard is single and has a son age 15. Howard’s adjusted gross income for 2015 is $80,000. What amount can he
claim for the child tax credit?
a.
$- 0 –
b.
$250
c.
$350
d.
$750
e.
$1,000
107. Which of the following individuals or couples qualify for the 2015 earned income credit?
I.
Dennis is single and 25 years old. He is a recent graduate of Holly Technical College.
During the year, Dennis cannot find a full-time job, but makes $7,000 as a waiter.
II.
Matthew and Joan, are both 27, married, and have two children. Joan attends medical
school while Matthew stays home with the children. Joan also works part-time at the
hospital and earns $9,000. In addition, Joan inherits a substantial amount of money from
her grandfather, which pays $5,000 of interest during the year.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
108. Which of the following individuals or couples qualify for the 2015 earned income credit?
I.
Holly is single, 23 years old, and has just finished drama school. She earns $2,000 doing
commercials and another $6,000 as a taxicab driver.
II.
Larry and Shari are both 30 years old. Larry works part-time and earns $6,000, and Shari,
who is starting her own business, earns $9,000. They have one child.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
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d.
Neither statement is correct.
109. Concerning the credit for child and dependent care
I.
If a taxpayer’s adjusted gross income exceeds $43,000, the child and dependent care credit
rate is reduced to 20%.
II.
No credit is allowed for expenses incurred outside the home.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
110. Concerning the credit for child and dependent care
I.
If a taxpayer’s adjusted gross income does not exceed $43,000, the child and dependent
care credit rate is 30%.
II.
Expenditures qualifying for credit can exceed the earned income of the taxpayer.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
111. Which of the following individuals or couples qualify for the child and dependent-care credit?
I.
Lois is single and earns $45,000 for the year. She pays $2,600 in child-care costs for her 8–
year-old daughter.
II.
Patrick and Carol are married and together they earn $67,000 ($42,000 and $25,000
respectively). They pay $5,000 in child-care costs for their twin boys, age 11.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
112. Which of the following individuals or couples qualify for the child and dependent-care credit?
I.
Jeff and Marion are married with 2 children ages 5 and 7. Jeff earns $57,000 and Marion is
a part-time graduate student at the local university and also works as a volunteer for the
local hospital. When Marion is in class or working as a volunteer, they hire their neighbor
to care for the children. During the year they paid $1,200 to their neighbor.
II.
Michael is single and earns $75,000. Michael pays $10,000 for a nurse to help care for his
father who is disabled and lives with him. Michael is entitled to the dependency exemption
for his father.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
Chapter 8
d.
Neither statement is correct.
113. Larry is a single parent with an 11-year-old daughter. Larry’s adjusted gross income is $27,000, and he pays $2,100
in qualified child-care expenses. Larry can claim a child and dependent-care credit of:
a.
$420
b.
$441
c.
$609
d.
$735
e.
$2,100
114. Rodrigo and Gwen are married and have 2 children. Gwen earns $65,000, and Rodrigo has a part-time job from
which he earns $4,000 during the year. They pay $6,000 in qualified child-care expenses during the year. Rodrigo and
Gwen can claim a child-care credit of:
a.
$- 0 –
b.
$800
c.
$1,200
d.
$4,000
e.
$6,000.
115. George and Kelly have their three children in daycare at an exclusive River Oaks pre-kindergarten center. They incur
$20,000 in expenses to keep their children in daycare. George is a physician and Kelly is an assistant district attorney.
Together their adjusted gross income is $450,000. What amount can they claim as a child-care credit?
a.
$- 0 –
b.
$600
c.
$1,200
d.
$1,800
e.
$4,000
116. Arnold is single and has two children in college. Maureen is a sophomore, and Rick is a senior. Arnold pays $3,000
in tuition and fees for Maureen and $6,000 for her room and board. Rick’s tuition and fees are $5,000, and his room and
board expenses are $3,600. Arnold’s adjusted gross income is $80,000. What amount can he claim as a higher education
tax credit?
a.
$2,500
b.
$3,250
c.
$3,500
d.
$4,750
e.
$5,470
117. Cory and Leslie are married and have two children in college. Jason is a sophomore, and Justine is a senior. They pay
$2,500 in tuition and fees for Jason, $900 for his books and $3,000 for his room and board. Justine’s tuition and fees are
$5,000, her book expense is $800, and her room and board expenses are $2,600. Their adjusted gross income is $50,000.
What amount can they claim as a tax credit for the higher education expenses she pays?
Chapter 8
a.
$2,250
b.
$3,125
c.
$3,250
d.
$3,540
e.
$4,850
118. Reggie and Ramona are married and have two children in college. Jason is a sophomore, and Justine is a senior. They
pay $2,500 in tuition and fees for Jason, $900 for his books and $3,000 for his room and board. Justine’s tuition and fees
are $5,000, her book expense is $800, and her room and board expenses are $2,600. Their adjusted gross income is
$170,000. What amount can they claim as a tax credit for the higher education expenses she pays?
a.
$-0-
b.
$2,425
c.
$3,125
d.
$3,638
e.
$4,850
119. Carey and Corrine are married and have two children in college. Jason is a sophomore, and Justine is a senior. They
pay $2,000 in tuition and fees for Jason, $600 for his books and $3,000 for his room and board. Justine’s tuition and fees
are $3,000, her book expense is $800, and her room and board expenses are $2,600. Their adjusted gross income is
$165,000. What amount can they claim as a tax credit for the higher education expenses she pays?
a.
$-0-
b.
$1,150
c.
$3,450
d.
$4,600
e.
None of the above
120. Garcia is single, 65 years old, and has no dependents. Garcia will not have to file a tax return in 2015 if:
I.
his gross income does not exceed $11,700.
II.
his only income is $21,000 of social security benefits.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
121. Canfield is single, 70 years old, and has no dependents. Canfield will not have to file a tax return in 2015 if:
I.
his gross income does not exceed $11,850.
II.
his only income is $4,000 of self-employment income.
a.
Only statement I is correct.
b.
Only statement II is correct.
c.
Both statements are correct.
d.
Neither statement is correct.
Chapter 8
122. Discuss why the distinction between deductions for adjusted gross income and deductions from adjusted gross
income is important for individual taxpayers.
123. Explain the support test and the gross income test to be a qualifying relative.
124. Explain the non-support test and the principle residence test to be a qualifying child.
125. In each of the following independent cases determine the total number of personal and dependency exemptions Ivan
may claim. Assume that Ivan is single, 32 years old and any dependency test not mentioned has been met.
a.
Ivan provides 80% support of his nephew (age 17), who lives with him. During the year, the
nephew has gross income of $4,800 and is a full time student.
b.
Ivan and his two brothers each provide 20% of the support of their mother. The mother derives
the remainder of her support from Social Security benefits of $9,300.
c.
Ivan provides 60% support of his mother, age 69. His mother received dividend income of
$3,350 and Social Security benefits of $8,500.
the gross income test. Only a qualifying child does not have to meet the gross income test. He
126. In each of the following independent cases determine Mei-ling’s filing status.
a.
Mei-ling’s husband died in 2014. She maintains a household for her unmarried son during
2015, who did not qualify as her dependent.
b.
Mei-ling is unmarried and lives in an apartment. Mei-ling’s parents do not live with her. She is
not able to claim them as dependents for 2015.
provides more than 50% of the cost of providing a household for him she cannot file as head of
b.
Single. Even though her parents do not live with her, she could claim head of household if they
127. For each of the following situations, determine whether or not the item is deductible, how it would be deducted on
the taxpayer’s return (if there are alternatives possible, discuss the conditions which would determine the treatment) and
any limitations which might be placed on the deduction.
a.
Rickie, who is 35, pays $1,800 for dental work during the current year.
b.
Jamie incurs $1,400 of employee business expenses during the current year. Her employer
reimburses all of the expenses.
unreimbursed medical expenses. Total unreimbursed medical expenses are limited to the
128. Chad pays $2,000 of interest on $20,000 of debt incurred for the purchase of municipal bonds and corporate bonds.
Chad receives $800 of interest on the municipal bonds and $800 of interest on the corporate bonds. What is his allowable
deduction on the $2,000 of interest? Explain your answer and show all calculations.
carried forward to subsequent year(s).
129. Eileen pays $14,000 of interest related to her purchase of investments. During the current year, Eileen’s adjusted
gross income is $80,000, which includes investment related income of $19,000. Her other investment expenses are
$9,000. Determine whether the interest is deductible, how it would be deducted on the taxpayer’s return (if there are
alternatives possible, discuss the conditions which would determine the treatment) and any limitations that might be
placed on the deduction.
himself. His mother’s gross income does not exceed $3,950. Because his mother’s Social
Security is not taxable, it is not included in gross income.
Chapter 8
investment expenses are deductible as miscellaneous itemized deductions and are limited to the excess of 2%
of adjusted gross income, resulting in a $7,400 [$9,000 – (2% × $80,000)] deduction.
130. Describe the rules that apply to individual taxpayers for determining the deductibility of each of the following types
of interest. Include in your discussion whether the interest is deducted for or from AGI, and any limitations that apply.
a.
Interest associated with trade or business activities
b.
Interest associated with investment activities
c.
Interest associated with constructing or purchasing a taxpayer’s residence
d.
Interest associated with personal purchases and activities
a.
Trade or business interest is deductible for adjusted gross income without limit.
Investment interest is deductible from adjusted gross income to the extent of net investment
also deduct the interest on home equity loans up to $100,000.
d.
Unless the interest is incurred through a home equity loan, the interest is not deductible.
131. For each of the following situations, determine the amount of the allowable deduction. Be sure to show any
necessary calculations and provide explanations of how you determined the deductible amount.
a.
Ukarie has an adjusted gross income of $40,000. She made the
following contributions to qualified charities:
Property Given
Basis
Fair
Market Value
Household Furniture
$8,000
$3,000
Inventory from her retail
store
6,000
10,000
GE stock (purchased in
1978)
2,000
20,000
b.
Carla purchased her home in 1994 by paying $60,000 in cash and
borrowing $140,000. The home is currently worth $400,000 and her
mortgage is $110,000. Carla is involved in a lawsuit (unrelated to
any business interests) during the current year and she borrows
$125,000 using the equity in her home as collateral for the loan to pay
her legal fees and court costs. She pays $9,800 of interest on her
original mortgage and $8,000 of interest on the home equity loan
during the current year.
c.
Tracy is a resident of Kansas and the sole owner of The Bakery.
During 2015, Tracy makes the following payments:
Estimated federal income
taxes
$8,000
Estimated state income
taxes
3,300
Self-employment taxes
5,600
Chapter 8
Sales tax from Federal
Sales tax table
2,100
Property tax on personal
residence
900
Tax assessment for
sidewalk in front of
personal residence
3,000
2014 state tax paid in
2015 with 2014 state tax
return
200
contributions. However, charitable contributions can never exceed 50% of adjusted gross
Furniture (fair market value)
Inventory (basis)
Total contributions
Overall limitation – $40,000 × 50%
total itemized deductions are $4,400 ($3,300 + $900 + $200). The tax assessment for the
132. During the year, Arlene donates stock she had purchased in 2005 for $30,000 to a qualified public charitable
organization. The fair market value of the stock at the time of the donation is $40,000. Her adjusted gross income for the
year is $80,000. If the stock donation is her only charitable contribution, what is Arlene’s charitable contribution
deduction? What should she consider in determining the amount of the deduction?
probably not as advantageous as having the $16,000 available to carry forward. Factors to consider would
133. Mr. and Mrs. Bachman, both age 65, file a joint return. In 2015 they have wages of $30,000, dividends of $6,200,
Chapter 8
municipal bond interest of $3,000 and received $10,300 for the sale of stock that cost $4,000 in 1992. They made a $3,000
contribution to their Roth IRA, paid $4,100 in deductible mortgage interest and real estate taxes and made a $2,500
charitable contribution. What is their gross income, adjusted gross income, and taxable income?
134. Alli is 23 years old, a full time student, and a dependent of her parents. She earns $2,000 from her job as a waitress
and receives $3,000 of interest on a savings account established by her grandparents.
a.
What is Alli’s taxable income?
b.
What is Alli’s tax liability on the taxable income (assume that her parent’s taxable income
is $200,000)?
does not receive a personal exemption and her standard deduction is the greater of $1,000 or
Alli’s tax liability is $427 [($900 × 28%) + ($1,750 × 10%)].
taxable income is taxed at Alli’s 10% marginal tax rate, resulting in a tax of $175 and a total tax liability of
135. Byron, 54, is a single, self-employed, carpenter. During 2015, he earns gross revenues of $60,000 and incurs $6,000
of business expenses. His itemized deductions for the year are $8,000. Determine Byron’s taxable income and his total tax
liability.
Gross business revenues
less: business expenses
Self-employment tax rate
Self-employment tax
Gross business revenues
Less: Deduction for AGI (50% × $7,630)
Adjusted gross income
136. COMPREHENSIVE TAX CALCULATION PROBLEM. Girardo and Gloria are married with 3 children, ages 14,
11, and 8. Gloria is a senior vice-president for a security firm and Girardo is a househusband who spends 15 hours a week
doing volunteer work for local organizations. Girardo inherited $800,000 from his grandfather in 1999. He spends 10
hours a week managing the rental property they purchased with part of the inheritance and the family’s stock portfolio.
Prior to becoming a househusband, Girardo was an award winning high school accounting teacher. In February of 2015,
Girardo is approached by the high school principal about returning to his former position. Girardo would receive an
annual salary of $50,000. He is a little hesitant about accepting the offer, because he enjoys his volunteer work. Girardo’s
accountant has provided him with the following projection of their 2015 tax liability:
Gloria’s salary
$130,000
Interest income
6,500
Short-term capital gains
2,500
Rental loss
(5,000)
Adjusted gross income
$134,000
Itemized deductions:
State taxes
$3,330
Home mortgage interest
5,440
Real estate taxes
1,800
Personal property taxes
420
Charitable contributions
1,610
Total itemized deductions
(12,600)
Exemptions
(20,000)
Taxable income
$101,450
Tax liability before tax credit
$16,950
Child credit ($1,000 × 3) – ($50 × 24)
(1,800)
Net tax liability
$15,150
Girardo’s projection from his accountant does not include his salary from teaching. Assume that Girardo’s pro-rata salary
for the year will be $30,000. Calculate Girardo and Gloria’s tax liability, if Girardo decides to return to teaching. Also
determine the marginal and effective tax rates on Girardo’s salary.
Less: Itemized deductions
Less: Personal exemption
Taxable income
Income tax liability: $5,156.25 + [25% × ($38,185- $37,450)]
Self-employment tax liability:
137. COMPREHENSIVE TAX RETURN PROBLEM. Your cousin, Antonia, who is 30 years old, single and a restaurant
manager, heard that you have enrolled in the Masters of Taxation program at State University. She has asked you for help
in preparing her 2014 tax return and provides you with the following information:
Salary
$50,000
Alimony received
3,600
Interest on GMAC Bonds
800
Interest on City of New Orleans Bonds
1,300
Interest on a bank savings account
600
Berlinco, Inc. (a foreign corporation) (nonqualified dividend)
100
Long-term capital gain
2,000
Long-term capital loss
(1,000)
Short-term capital gain
5,000
Short-term capital loss
(3,000)
Short-term capital loss carryover from 2014
(5,000)
Cash award from local United Way [1]
300
Christmas turkey [2]
30
Parking at office [2]
500
Membership in professional organizations [2]
100
Group term life insurance ($40,000 policy) [2]
135
Unreimbursed medical expenses:
Medical insurance premiums
$1,900
Prescription drugs
250
Dentist
2,250
Emergency room fee
885
Cold pills, aspirin, other over-the-counter medicine
120
Rental fee for crutches
80
Real estate taxes
$600
State income tax withheld
1,150
Tax Calculation with Girardo’s New Job:
Gloria’s salary
Girardo’s salary
Interest income
Short-term capital gains
Rental loss
Adjusted gross income
Itemized deductions:
State taxes
Home mortgage interest
Real estate taxes
Personal property taxes
Charitable contributions
Total itemized deductions
Exemptions
Taxable income
Tax liability:
Child credit [($3,000 – (59 × $50)]
Chapter 8
State income tax paid in 2015 for 2014 tax return
150
Home mortgage interest
3,800
Home equity interest [3]
500
Charitable contributions – cash
350
Charitable contributions – clothes [4]
Tax preparation fee for 2014 return, paid in 2015
300
Unreimbursed business expenses [5]
888
Note:
[1] Antonia kept the award from the United Way.
[2] Benefits paid by the employer.
[3] Antonia borrowed $12,000 and used the proceeds to purchase a new car.
[4] The original cost of the clothes were $480 and the current FMV is $200
[5] Of the $888 in expenses, $180 are for meals and entertainment.
Compute Antonia’s: adjusted gross income, taxable income, and tax liability.
Interest income ($800 + $600)
Capital loss
Cash award
Adjusted gross income
Adjusted gross income
Itemized deductions:
Real estate taxes
State income taxes ($1,150 + $150)
Interest ($3,800 + $500)
Charitable contribution ($350 + $200)
Personal exemption
Taxable income
Match each statement with the correct term below.
Chapter 8
a.
Unmarried without dependents.
b.
Generally used when financial disagreement exists.
c.
Unmarried and provides a household for a dependent.
d.
Use the same tax rate schedule as married, filing jointly.
e.
Determines which tax rate schedule and standard deduction amount is applicable.
138. Filing status
139. Head of household
140. Married, filing separately
141. Single
142. Surviving spouse
Match each statement with the correct term below.
a.
Prepaid interest.
b.
An amount that each taxpayer who is neither a qualifying child nor a qualifying relative, and who files a return, is
allowed to deduct.
c.
One test for a qualifying relative.
d.
The minimum amount a taxpayer can deduct for personal expenditures.
e.
A deduction in this category is always allowed. That is, there is no minimum allowable amount and generally no
income limitation placed on these deductions.
f.
Generally, these deductions are for specifically allowed personal expenditures.
g.
An exception to this test is a custodial parent.
h.
Interest paid on debt used to buy securities.
i.
Interest paid on credit cards, personal loans, car loans, etc.
j.
Interest paid on a mortgage secured by the taxpayer’s residence. The proceeds of the loan can be used for any
purpose and the interest is still deductible.
k.
A tax designed to prevent the shifting of unearned income to children of the taxpayer.
143. Deductions for AGI
144. Deductions from AGI
145. Gross income test
146. Home equity loan interest
Chapter 8
147. Investment interest
148. Kiddie tax
149. Personal exemption amount
150. Personal interest
151. Points
152. Standard deduction
153. Support test
Indicate the proper treatment in the current year for the underlined amounts. Treat each item as an independent event.
Indicate whether the amount is deductible or not; if deductible whether it is deductible FOR or FROM AGI; and indicate
the amount of the deduction for the current year considering any relevant limitations. Assume the taxpayer has deductions
greater than the standard deduction, has AGI of $69,000 without regard to the following transactions and has no “total”
income limitations related to itemized deductions.
a.
Not Deductible
b.
Deductible – For AGI
c.
Deductible – From AGI
154. Qualified contribution of $6,500 to an IRA by a 52 year old married taxpayer who is covered by his employer’s
pension plan. Amount: $6,500
155. Self-employed sports agent pays $6,000 of self-employment tax. Amount: $3,000
156. Self-employed salesman spends $1,000 on “directly related” entertainment of his customers. Amount: $500
157. Travel and lodging expense of $800 incurred by an employee on a business related trip (no reimbursement). Amount:
$800
158. Federal quarterly estimate of $3,000 paid by a self-employed taxpayer.
159. Taxpayer contribution of $250 to the Democratic Party.
160. Sale of stock results in a loss of $7,000. The only other capital transaction for the year results in a gain of $6,000.
Amount: $7,000
161. Moving expenses incurred on a job related move consisting of $2,500 for the moving van, $300 for lodging en route,
$100 for mileage during the move, and $80 for meals. Amount: $2,900
162. Hobby expenses of $2,500. Hobby income is $2,000. Amount $2,000, subject to 2% of AGI
163. Taxpayer’s only passive activity is a rental activity that results in a loss of $8,000. Amount: $8,000, since AGI is less
than $100,000