75. Which of the following is a miscellaneous itemized deduction?
76. Which of the following is true with respect to an education incentive?
A. Contributions to Qualified Tuition Programs (Section 529 plans) are deductible.
77. Roberto’s AGI is $110,000. He has medical expenses of $12,000. How much of the medical expenses can
Roberto deduct on his Schedule A for 2011?
78. Which one of the following is not tax deductible?
79. Bill has a mortgage loan on his personal residence. He decides to pay 24 months of interest in advance on
July 1, 2011. The total advanced interest payment is $72,000. How much of the advance interest payment can
he deduct in 2011?
80. Which of the following charitable contributions is not tax deductible?
81. Which one of the following is not considered a casualty or theft loss for tax purposes?
82. Due to an accident, Barbara is a paraplegic. She wants to continue her work at the ABC Company where
she is employed as a tax accountant. Therefore, Barbara has installed a voice-activated program to her office
computer. This program allows Barbara to operate her telephone, computer, and calculator. The software
program cost $10,000. Her AGI in 2011 is $40,000. How much of the $10,000 may Barbara deduct as a
miscellaneous deduction on her 2011 return, assuming that she elects to itemize her deductions and has no other
miscellaneous deductions?
83. Catherine is a CPA employed by a large accounting firm in San Francisco. In 2011, she paid the following
amounts:
CPA Society dues
$ 200
One year tax service
700
“Wiley Accountant” magazine
70
“Modern Sailing” magazine
75
How much may she deduct on Schedule A as a miscellaneous deduction, before considering the 2 percent of adjusted gross income limitation?
84. Charles, a corporate executive, incurred business related, unreimbursed expenses in 2011 as follows:
Entertainment
$ 900
Transportation
700
Education
400
Assuming that Charles itemizes his deductions, how much of these expenses should he deduct on his 2011 Schedule A (before the 2 percent of
adjusted gross income limitation)?
85. April and Wilson are married and file a joint tax return. Wilson is a police officer, and in the current tax
year he spends $375 on uniforms and $150 for dry cleaning the uniforms. April is in the National Guard and
military regulations restrict her from wearing her uniforms when she is off duty. The cost of uniforms for the
year was $225 and the cost of dry cleaning them amounted to $75. April was granted a uniform allowance of
$200 for the year. She also purchased a pair of standard black shoes to wear while on duty that cost $45. How
much may they deduct on Schedule A for special clothing and uniforms (before applying the 2 percent of
adjusted gross income limitation)?
86. Which of the following employees may deduct the cost of a uniform?
87. An accountable expense reimbursement plan:
88. Jean’s employer has an accountable plan for reimbursing employee expenses. Jean is reimbursed for
$1,500 of business travel and $500 for various business subscriptions and professional dues. The $2,000
reimbursement should be treated as follows:
89. What income tax form does an employee use to report expenses that are not reimbursed by an employer
under an accountable plan?
90. Carla is a high school teacher who is required by her school district to take continuing education courses
which are offered at the local college. She is also in the process of taking classes at a different university where
she is pursuing her Ph.D. to become a research specialist. She pays the tuition for both schools. Which of the
following is true?
A. She may deduct all of the tuition from each school because they are education expenses related to job skill
improvement.
91. During 2011, Sarah had adjusted gross income of $12,000 and paid the following amounts for medical
expenses:
Medical insurance
$360
Prescription medications
150
Hospital bills
650
Doctors’ bills
300
Dental bills
120
In 2011, Sarah drove 94 miles (one-half before July 1 and one-half after) for medical transportation in her personal automobile, and she uses the
standard mileage allowance. Her insurance company reimbursed Sarah $300 during the year for the above medical expenses. Using the schedule
below, calculate the amount of Sarah’s deduction for medical and dental expenses for the 2011 tax year.
______________________________
______________________________
______________________________
______________________________
______________________________
______________________________
Total
Less 7.5% of adjusted gross income
Medical deduction
92. During 2011, Ho donates a sculpture that cost $1,000 to a museum for exhibition. The sculpture’s fair
market value was $1,500 on the date of the donation, and Ho’s adjusted gross income is $40,000.
a.
If Ho had held the sculpture for 4 months and the $500 ($1,500 – 1,000) of appreciation would have been a short-term capital gain,
calculate the amount of his itemized deduction for the contribution.
b.
If Ho had held the sculpture for 2 years and the $500 gain would have been a long-term capital gain, calculate the amount of his itemized
deduction for the contribution.
93. Sherry had $5,600 withheld from her wages for state income taxes during 2011. In May of 2011, she
received a $450 refund from her prior year state tax return. The amount of Sherry’s tax on her 2011 tax return is
$6,100 and she pays the additional $500 ($6,100 – 5,600) when she files her return in April of 2012.
a.
Assuming she elects to deduct the state income tax, how much should Sherry deduct on Schedule A of Form 1040 of her 2011 federal
income tax return?
b.
How should Sherry report the $450 refund?
94. Fran paid the following amounts of interest during 2011:
Qualified home mortgage interest
$7,000
Automobile loan interest
500
Qualified interest on second residence
5,000
Credit card interest
300
Calculate the amount of Fran’s interest deduction for 2011.
95. Douglas and Dena paid the following amounts of interest during 2011:
Qualified home mortgage interest
$13,000
Other consumer interest
5,000
Investment interest
10,000
(no investment income)
a.
Calculate the amount of their allowable deduction for investment interest for 2011.
b.
Calculate the amount of Douglas and Dena’s total allowable deduction for interest for 2011.
a.
b.
a.
The $450 refund should be reported as income on Sherry’s 2011 income tax return, assuming she itemized deductions on her 2010 tax
return.
96. Daniel lives in a state that charges a vehicle registration fee of $50 plus $20 for every $1,000 of value.
During 2011, he paid $170 for registration of his automobile.
a.
How much of the vehicle registration fee is deductible as a personal property tax on Schedule A of Daniel’s Form 1040?
b.
Explain your answer.
97. Sam operates a manufacturing company as a sole proprietorship. During 2011, the manufacturing machinery
used in the manufacturing process is totally destroyed by a fire in the building. The machinery had an adjusted
basis of $18,000 and a fair market value of $12,000 on the date of the fire. The machinery was insured and Sam
receives $10,000 from the insurance company. Sam does not replace the machinery. Assuming Sam has
adjusted gross income of $60,000 for 2011, calculate the amount of Sam’s casualty loss for 2011.
98. For 2011, Betsy and Bob are married taxpayers who file a joint tax return with AGI of $50,000. During the
year they incurred the following expenses:
Medical insurance premiums
$3,000
Hospital bills (knee replacement for Bob)
2,200
Hospital bills (face lift for Betsy)
2,500
Doctor bills
850
Dentist bills
150
Eyeglasses
340
Acupuncture treatments (for Bob’s knee pain prior to his operation)
300
b.
Daniel may deduct the portion of the registration fee that is based on the value of the automobile.
In addition, their insurance company reimbursed them $3,000 for the above expenses.
Using the format below, calculate Betsy and Bob’s deduction for medical and dental expenses for 2011.
______________________________
______________________________
______________________________
______________________________
______________________________
______________________________
Total
Less 7.5% of adjusted gross income
Medical deduction
99. Newt is a single taxpayer living in Hollywood, California, with adjusted gross income for the 2011 tax year
of $43,050. Newt’s employer withheld $3,800 in state income tax from his salary. In April of 2011, he paid
$400 in additional state taxes for his prior year’s return. The real estate taxes on his home are $1,800 for 2011
and his personal property tax based on the value of his automobile is $55. Also, he paid $210 for state gasoline
taxes for the year.
Assuming he elects to deduct state and local income taxes, how much should Newt deduct on Schedule A of
Form 1040 of his 2011 tax return for taxes paid?
State tax withheld
$3,800
Payment for prior year’s state taxes
Personal property tax
Total taxes
Hospital bills (Bob)
2,200
Doctor bills
Dentist bills
Acupuncture (Bob)
300
Total qualifying expenses
$6,840
Less reimbursement
3,000
Deductible expenses
$3,840
Medical deduction
100. Sally and Jim purchased their personal residence in Santa Barbara 20 years ago for $150,000. The home
has a fair market value today of $1,000,000. For the current year, they have a $10,000 first mortgage on their
home, on which they paid $1,000 in interest. They also have a home equity loan secured by their home with a
balance throughout the year of $110,000. The proceeds of the home equity loan were used to send their two
children to college. They paid interest on the home equity loan of $11,000 for the year.
Calculate the amount of their deduction for interest paid on qualified residence acquisition debt and qualified
home equity debt for 2011.
Qualified residence acquisition debt interest:
Qualified home equity debt interest:
101. Andy borrows $20,000 to invest in bonds. During 2011, his interest on the loan is $2,000. Andy’s interest
income from the bonds is $400 and his investment expenses are $300.
a.
Calculate Andy’s itemized deduction for investment interest for this year.
b.
Is Andy entitled to a deduction in future years?
The remaining $1,900 disallowed interest expense is carried over and may be deducted in succeeding years subject to the investment
102. Gwen has written acknowledgments for each of the following 2011 charitable contributions.
Cash contributions to her church
$1,250
Contribution of old clothes and household goods to AMVETS, valued at thrift shop prices (original cost, $1,000)
200
Gwen’s estimate of the value of her time donated to a local soup kitchen
800
Cash donated to homeless people asking for money for food
50
What is Gwen’s 2011 charitable contribution deduction?
Qualified residence acquisition debt interest
Qualified home equity debt interest
Interest rate: $11,000 / $110,000 = 10%
Maximum allowable: $100,000 ´ 10% =
103. Steve keeps a valuable bonsai collection in his back yard. In 2011, thieves disarmed his security system
and stole several of the bonsai. The stolen bonsai had a fair market value and adjusted basis of $4,500.
Assuming that Steve had no insurance coverage on the bonsai and his adjusted gross income for 2011 is
$30,000, calculate the amount of his theft loss deduction.
104. During the 2011 tax year, Ruth incurred the following expenses:
Brokerage account custodial fee
$ 30
Professional subscriptions to nursing magazines
100
Tax return preparation fee
200
Tax advice related to 2008 IRS audit
250
Nursing uniform expenses
200
105. In 2011, Geoffrey receives $20,000 from a qualified tuition program created by his grandmother. The
program had accumulated $6,000 in earnings. He used the full $20,000 to pay for qualified higher education
expenses. Calculate the amount of earnings subject to taxation.
106. Phillip, a single parent, would like to contribute $1,800 to an educational savings account for his 10-year-
old son. His AGI is $100,000. Calculate the amount of the contribution he can make.
Basis
$4,500
Less floor
-100
Casualty loss
$4,400
Less 10% of $30,000 AGI
-3,000
Casualty loss deduction
107. Melissa took a $1,500 distribution from her educational savings account and used $1,200 to pay for
qualified education expenses. Before the distribution, Melissa’s account balance was $4,000, of which $1,000
was earnings. Calculate the following:
a. The tax-free return of capital
b. Her new adjusted basis for her savings account
c. Distribution of earnings potentially subject to tax
d. The excludable portion of the earnings
e. The taxable portion of her earnings
108. Jake has developed serious health problems and has had his bathroom remodeled so it is wheelchair-
accessible and has a handicapped shower installed, based on a written prescription by his doctor. The cost of the
remodel is $15,000 and is deemed to add no value to his house by a real estate appraiser. How is the cost of the
remodel treated on Jake’s tax return?
109. Meade paid $5,000 of state income taxes in 2011. The total sales tax he paid during 2011 was $4,500,
which included $3,000 for the cost of a new boat. How should Meade treat the taxes paid in his 2011 tax
return?
110. Melvin owns his home and has a $200,000 mortgage related to his purchase of the residence. In the fall of
2011, he borrows $40,000 on credit cards for college costs for his two sons. The interest expense on the
mortgage is $15,000 and the interest expense on the credit cards is $6,000. How much of the interest is
deductible as an itemized deduction and why? If you were Melvin’s accountant, what tax planning suggestion
might you have made to him?
111. Ronald donates publicly traded Microsystems stock with a basis of $2,000 and a fair market value of
$20,000 to the local library, which is considered a public charity. Ronald has $30,000 of adjusted gross income,
and he purchased the stock 15 years ago. How is this contribution treated on Ronald’s tax return?
112. Kat has a small bungalow which burns up in a fire. Kat is not insured for fire. The bungalow originally cost
$20,000, but was worth $45,000 before the fire. Kat has $30,000 of adjusted gross income. How much can Kat
claim as a casualty loss in her tax return? Explain.
113. Diane’s engagement ring is stolen in the current year. It cost $1,500 and was worth $1,500. Diane makes
$30,000 as an office manager and has no other income. What is her casualty loss deduction?
114. Lourdes is a paralegal. Since she often deals with legal matters, she feels a law degree would be beneficial
to her. May Lourdes deduct her educational expenses for law school as a miscellaneous itemized
deduction? Explain.
115. Rachel’s employer does not have an accountable plan for employee expenses. Her employer reimburses
her for $3,000 of business travel expenses.
a. How much must Rachel include in income?
b. How much can Rachel take as a miscellaneous itemized deduction subject to the 2 percent floor?
116. Rob’s employer has an accountable plan for employee expenses. His employer reimburses him for $1,000
of professional dues and subscriptions.
a. How much must Rob include in income?
b. How much can Rob claim as a miscellaneous itemized deduction subject to the 2 percent floor?
117. Tom is employed by a large consulting firm. His employer has an accountable expense reimbursement
plan. Tom paid for $3,000 of travel expenses which were directly reimbursed by the plan. How will the travel
expenses be treated in Tom’s tax return?
118. The text gives an example in which a house purchased for $25,000 with an appreciated value of $160,000
was completely destroyed. The casualty loss was limited to the taxpayer’s basis of $25,000. Why shouldn’t the
full $160,000 be allowed as a loss?
119. Don gives his old car to a qualified charity. The charity then sells the car at an auction. Describe the tax
treatment of the donation.