Book 4 Pages 61-120

Question 1

true or false?

self employed individuals can deduct expenses attributable to a home office as an itemized deduction

Answer 1

false, they can deduct it as an above the line deduction

Question 2

true or false?

regular employees can deduct expenses attributable to a home office as an itemized deduction

Answer 2

true, subject to 2% AGI floor

Question 3

what is the simplified method option in regards to deducting home office expenses?

Answer 3

$5 per square foot for a maximum of 300 square feet or $1,500 of deductible expenses

Question 4

does the simplified method under home office expense deductions allow you to deduct depreciation?

Answer 4

no

Question 5

does the simplified method under home office expense deductions allow you to carry forward any expenses (loss) above your gross income from the business?

Answer 5

no

Question 6

true or false?

seeking new employment in the same trade or business is deductible whether you get the job or not

Answer 6

true

Question 7

true or false?

seeking employment in a different trade or business is not deductible

Answer 7

true

Question 8

true or false?

no deduction is allowed if you are seeking employment for the first time

Answer 8

true

Question 9

true or false?

malpractice insurance is an available itemized deduction

Answer 9

true

Question 10

true or false?

medical expenses are an available itemized deduction

Answer 10

true

Question 11

are casualty losses itemized or above the line deductions?

Answer 11

itemized

Question 12

medical expenses are subject to a ___% AGI floor in order to be deductible

Answer 12

10%

Question 13

true or false?

self employed individuals can deduct health insurance premiums as above the line deductions

Answer 13

true

Question 14

true or false?

state and local sales tax is deductible

Answer 14

true

Question 15

true or false?

state, local, and foreign income taxes are deductible

Answer 15

true

Question 16

true or false?

assessments (things that add value to a property) are deductible

Answer 16

false

Question 17

in a real estate transfer, if the buyer pays all the tax what happens to the buyer’s basis in the property?

Answer 17

it increases by an equal value

Question 18

in a real estate transfer, if the buyer pays all the tax what happens to the seller of the property?

Answer 18

the seller’s portion of tax paid is added to the amount realized by the seller

Question 19

in a real estate transfer, if the seller pays all the tax what happens to the buyer’s basis in the property?

Answer 19

it decreases by an equal value

Question 20

in a real estate transfer, if the seller pays all the tax what happens to the seller of the property?

Answer 20

the buyer’s portion of tax paid is deducted from the amount realized by the seller

Question 21

How much can Robin deduct for her 2017 taxes if she itemizes based on the following info?

her 2016 state tax refund was $700 (she took standard deduction in 2016)
her employer withheld $4,200 of state income tax for 2017
she also paid an additional $1,200 in state income tax estimated payments

Answer 21

if she itemizes she can deduct $5,400

the $700 tax refund does not offset against the itemized deductions because the refund is from a year where she took the standard deduction

Question 22

how much of the following expenses can Sherry deduct for 2017?
state taxes withheld $7,200
refund received from over payments of 2016 state tax liability $1,500 (she itemized in 2016)
deficiency assessed and paid for 2015 as a result of audit by the state $3,000
Interest paid on the tax deficiency $500

Answer 22

she can deducted $10,200

the interest on the deficiency is personal interest and not deductible
the refund is reported as income under the tax benefit rule and does not affect the deductible amount

Question 23

true or false?

you can deduct state and local sales tax, and state and local income tax in the same year

Answer 23

false, only can deduct one

i.e. state and local income taxes = 1

Question 24

true or false?

qualified dividends are not included in investment income

Answer 24

true

Question 25

true or false?

capital gains are included in investment income

Answer 25

false, they are not

Question 26

is investment income an itemized or an above the line deduction?

Answer 26

itemized

Question 27

Mario had the following items of income and expense for the current year:
interest income from bonds = $5,000
interest income from state bonds = $1,000
margin interest expense = $7,000

how much can Mario deduct if he itemizes?

Answer 27

he can only deduct $5,000

although the interest expense is $7,000 he can only deduct up to the amount of his investment income which is $5,000 since the state bonds are tax free

Question 28

what is the maximum loan amount that you can deduct mortgage interest on?

Answer 28

$1 million

Question 29

what is the maximum loan amount that you can deduct Home Equity Line of Credit interest on?

Answer 29

$100k

Question 30

true or false?

the borrower can deduct points up to funds provided plus the seller’s paid points

Answer 30

true

Question 31

how much can Steph deduct given the following info and what happens to the basis of her home? What happens to Tim?

she takes out a $100k mortgage
she is charged 1 percentage point
tim who sold her the home also paid one percentage point to help her get the mortgage
steph only provides $750 as a down payment

Answer 31

steph can deduct $1,750 and her basis gets reduced by $1,000 (the amount Tim paid)

Tim’s amount realized gets reduced by the $1,000

Question 32

if interest is paid for a business use or the production of income is it deductible ___ AGI

Answer 32

for (above the line)

Question 33

if interest is paid for personal use (investment interest and qualified residence interest) it is deductible ___ AGI

Answer 33

from (itemized)

Question 34

true or false?

credit card debt interest is deductible

Answer 34

false

Question 35

true or false?

auto loan interest is deductible

Answer 35

false

Question 36

During the current year, Albert paid the following interest charges:

mortgage $9,000
loan for household furniture $800
loan to purchase state bond $750

if Albert itemizes how much can he deduct?

Answer 36

$9,000

the furniture is nondeductible consumer interest
the loan to purchase state bonds is not deductible

Question 37

When are points on a home loan deductible?

Answer 37

in the current year that they were paid

Question 38

true or false?

is termite damage a casualty loss

Answer 38

no

Question 39

true or false?

a tornado is a casualty loss

Answer 39

true

Question 40

true or false?

earthquakes are a casualty loss

Answer 40

true

Question 41

true or false?

floods are not a casualty loss

Answer 41

false, they are

Question 42

are theft losses considered deductible casualty losses?

Answer 42

yes

Question 43

when are theft losses deductible?

Answer 43

in the year they are discovered

Question 44

the amount of the casualty loss is the lesser of the ______ or the _______

Answer 44

adjusted basis ; decline in FMV resulting from the event

Question 45

true or false?
casualty losses are reduced by any insurance recovery that would have been received, regardless if a claim was filed or not

Answer 45

true

Question 46

in 2017, Larry had art worth $10,000 with a basis of $15,000 stolen from his apartment. During the year he had a salary of $30,000 and no other deductions. How much can Larry deduct from the theft?

Answer 46

use the less of the basis or FMV 
FMV = $10,000
subject to 10% agi floor (10% x $30,000) = $3,000
subject to $100 floor
$10,000 - $3,000 - $100 = $6,900

Question 47

true or false?

full time military uniforms are usually not deductible

Answer 47

true

Question 48

true or false?

work uniforms are not a deductible item

Answer 48

false, they can be if it is a condition of employment and not suitable for everyday wear

Question 49

true or false?

the unrecovered investment in an annuity contract can be deducted when the taxpayer dies

Answer 49

false

Question 50

churches, educational institutions, hospitals, medical research organizations are known as ____ charities

Answer 50

public

Question 51

True or false?

American Red Cross or Goodwill are examples of public charities

Answer 51

true

Question 52

true or false?

cost of childcare while performing charitable activities is deductible

Answer 52

false, it is not

Question 53

true or false?

donating blood is nondeductible

Answer 53

true

Question 54

true or false?

rental value of property donated to and used by a qualified charity is deductible

Answer 54

false, it is not

Question 55

noncash property between $____ and $_______ does not need an appraisal

Answer 55

$500 ; $5,000

Question 56

true or false?

the appraisal costs associated with charitable giving is also included in the charitable gift deduction

Answer 56

false

Question 57

are the appraisal costs associated with charitable giving deductible at all?

Answer 57

yes, as miscellaneous itemized deductions

Question 58

use related property can be deducted up to ____% of a taxpayer’s AGI

Answer 58

30%

Question 59

true or false?

with use related property you can deduct the fair market value

Answer 59

true

Question 60

true or false?

with use unrelated property a taxpayer is limited to a deduction of the lesser of the basis or the FMV

Answer 60

true

Question 61

Karen is meeting with her client Jack who donated his collection of impressionist paintings to a private art museum. Jack’s original purchase price of the painting was $50,000 and the FMV today is $300,000. Jack’s gross income for the year was $1 million. How much of the donation can be deducted on his tax return?

Answer 61

$300,000 can be deducted

because he donated the art to an art museum it is classified as use related property and therefor can deduct the FMV as long as it doesn’t exceed 30% of his AGI, which is $1 million

Question 62

charitable cash gifts have a ____% of AGI deduction limit if made to public charities or private operating foundations and ____% of AGI deduction limit if made to most private nonoperating foundations

Answer 62

50% ; 30%

Question 63

true or false?

charitable cash gifts are deductible for an amount equal to the fair market value of the cash

Answer 63

true

Question 64

ordinary income property and short-term capital gain property can be deducted for the lesser of _____ or _____ and up to ___% of AGI

Answer 64

adjusted basis ; fair market value ; 50%

Question 65

real property donated to a charity can be deducted in which two ways?

Answer 65

fair market value subject to 30% of AGI

Basis election subject to 50% of AGI

Question 66

related use tangible property can be deducted in which two ways?

Answer 66

fair market value subject to 30% AGI

basis election subject to 50% AGI

Question 67

unrelated use tangible property can be deducted by the lesser of ______ or ______ and subject to a ____% of AGI

Answer 67

adjusted basis ; FMV ; 50%

Question 68

intangibles can be deducted in which two ways?

Answer 68

fair market value subject to 30% of AGI

Basis election subject to 50% of AGI

Question 69

Gina graduated from Mumford University. She donated $2,000 to the athletic department of the university to guarantee priority to purchase two premium season tickets to home football games. In addition Gina purchased two season tickets for the regular price of $500 ($250 each). What is Gina’s charitable contribution for the year?

Answer 69

Because Gina is donating money for the right to buy season tickets only 80% of the donation is deductible

$2,000 x 80% = $1,600

Question 70

when a donor or seller transfers property to a charity in exchange for a sum that is less than the FMV of the property transferred

Answer 70

bargain sale to charity

Question 71

Steve owns property with a basis of $60,000 and a current value of $120,000, which he sells to charity for $100,000. How much must Steve realize as gain and how much can he deduct as a charitable contribution?

Answer 71

First you have to allocate basis between the sale and the charitable gift.

adjusted basis for entire property x (amount realized on sale / fmv of entire property)

$60k x ($100k / $120k) = $50k

Steve will realize $50k in capital gain calculated as follows: $100k - $50k ($100k is the sales price & $50k is the adjusted basis allocated to asset sale)

Steve will also have a FMV for charitable income tax deduction purposes of $20,000 calculated as follows: $120,000 - $100,000 ($120k is the FMV and $100k is the sales price)

Steve will also have an adjusted tax basis for charitable income tax deduction purposes of $10,000 calculated as follows:

$60,000 - $50,000 ($60k is the adjusted basis & $50k is basis allocated to sale)

Question 72

Clarence makes the following charitable donations:

Inventory for resale from business with basis of $8k and FMV of $6k (assumed transferred to public school)

Stock acquired 2 years ago with basis of $10k and FMV of $40k (assumed transferred to church)

Coin collection held as an investment for 10 years with a basis of $1k and FMV $10k (assume transferred to boy scouts)

what is Clarence’s charitable contribution for the year?

Answer 72

$6k (inventory is considered ordinary income property and requires the lesser of the adjusted basis or FMV to be used for charitable deductions)
$40k (stock is intangible property so the FMV can be used)
$1k (coin collection is tangible property and since it is going to boy scouts it is unrelated use property which means you have to use the lesser of the adjusted basis or FMV

total = $47,000

Question 73

the maximum charitable deduction a C-corp can take in a taxable year is limited to ____% of the corporation’s taxable income before certain deductions

Answer 73

10%

Question 74

in the current year , XYZ corp had net income from operations of $60,000 and received a dividend of $4,000 which is eligible for the 70% dividends received deduction. During the year, the corporation donated $8,000 in cash to the University of New Jersey. What is the maximum charitable deduction the corporation can take? What is the corporation’s taxable income for the year? How much of the charitable gift can the corporation carry forward and for how long?

Answer 74

$6,400 is the maximum charitable deduction

the 70% dividends received deduction on the $4,000 dividends do not get deducted until after the charitable deductions are determined

i.e. total income subject to the 10% max charitable contribution for corporations is $64,000 ($60k + $4k)

$54,800 is the corporation’s taxable income for the year

($64,000 - $6,400 - ($4,000 x 70%))

$1,600 can be carried forward for 5 years

$8,000 - $6,400

Question 75

true or false?

usually a corporation can deduct the basis of ordinary income property if the property is gifted to charity

Answer 75

true

Question 76

true or false?

generally a corporation can deduct the FMV of capital gain property if donated to a charity

Answer 76

true

Question 77

if the corporation donates use unrelated property then the deduction is limited to the _____

Answer 77

adjusted basis

Question 78

in determining a corporations AGI for eligible charitable income tax deductions, which deductions are not accounted for?

Answer 78

dividend received deduction
net operating loss carryback
capital loss carryback

Question 79

the maximum deductible loss for an activity is limited to ___________________________

Answer 79

the amount that the investor has at risk at the end of the current tax year

Question 80

the rule that states the maximum deductible loss for an activity is limited to the amount that the investor has at risk at the end of the current tax year

Answer 80

at risk rule

Question 81

how do you determine the amount that is at risk?

Answer 81

total of cash/property invested - the debt the investor is personally liable for

Question 82

a liability for which the partner has no risk of economic loss if the liability is not satisfied by the partnership

Answer 82

nonrecourse debt

Question 83

true or false?
if a loss is disallowed because of at-risk rules, the loss can be carried forward and taken in the first year the at-risk amount become positive

Answer 83

true

Question 84

in year 1 Bob invested $50k for a 20% interest in a partnership in which he was a material participant during the year. The partnership incurred a loss and Bob’s share was $75,000

how much of the loss can Bob claim this year? How much can he carry forward?

Answer 84

$50k

$25k

Question 85

true or false?

Passive losses may only be deducted against passive income

Answer 85

true

Question 86

a corporation where the primary economic activity is the performance of personal services by the owners of the corporation

Answer 86

personal service corporation

Question 87

closely held corporations may offset passive ____ against active ______ but not ________ income

Answer 87

losses ; income ; portfolio

Question 88

what are the 3 classifications of income and losses?

Answer 88

active, passive, and portfolio

Question 89

prevent the taxpayer from deducting any passive losses against active or portfolio income

Answer 89

passive loss limitations

Question 90

wages, salaries, and other employee compensation are examples of ____ income

Answer 90

active

Question 91

interest, dividends, annuities, and royalties are examples of _____ income

Answer 91

portfolio

Question 92

trade or business income when the taxpayer is a material participant is considered ____ income

Answer 92

active

Question 93

if there is a passive loss from activity 1 equal to $15k, a $30k passive loss from activity 2, and $10,000 of passive income from activity 3 equal to $10,000 , what is the taxpayer’s net passive loss?

Answer 93

$35,000 - calculated as follows:

($15,000 / $45,000) x $35,000 = $11,666.67 to activity 1
($30,000 / $45,000) x $35,000 = $23,333.33 to activity 2

Question 94

which conditions create a passive activity?

Answer 94

a taxpayer does not materially participate

the activity is rental activity

Question 95

true or false?

if a taxpayer completes more than 500 hours of participation during the year then the activity is not passive

Answer 95

true

Question 96

true or false?
if the individual’s participation in the activity constitutes substantially all of the participation in the activity of all individuals for the year then it is considered passive activity

Answer 96

false, it would be an active activity

Question 97

if a taxpayer participates in the activity for more than 100 hours and their participation is equal to or more than any other individual, is it consider passive activity or active?

Answer 97

active

Question 98

true or false?
if a taxpayer materially participates in the activity in at least 5 out of the last 10 years then it is not considered a passive activity

Answer 98

true

Question 99

true or false?

losses from a publicly traded partnership can only be used to offset income for that same company

Answer 99

true

Question 100

true or false?

losses from a non publicly traded partnership can only be used to offset income for that same partnership

Answer 100

false, it can be used to offset income from other non publicly traded partnerships not just the same one that has the loss

Question 101

true or false?

losses from non publicly traded partnerships can only be used offset income from other non publicly traded partnerships

Answer 101

true

Question 102

what is another term for publicly traded partnerships?

Answer 102

master limited partnerships

Question 103

Dana purchased an interest in a non publicly traded partnership that had income in the current year of $15,000. She also purchased interest in a master limited partnership with $20,000 of losses for the year. What are the tax consequences to Dana for the current year?

Answer 103

Dana will recognize $15k of passive income from the non publicly traded partnership

she will not be allowed to deduct the $20k this year because losses from a publicly traded partnership (master limited partnership) can’t be used to offset the income from the non publicly traded partnership. She will have a $20,000 carry forward however.

Question 104

if real estate is greater than ____% of a taxpayer’s personal services in all trades or businesses for the year then it is not considered a passive activity

Answer 104

50%

Question 105

if the taxpayer performs greater than ___ hours of service in real property trades or business in which the tax payer materially participates then it is not considered passive activity

Answer 105

750 hours

Question 106

individuals can deduct up to $_____ of rental real estate losses against active and portfolio income

Answer 106

$25,000

Question 107

to be eligible for the $25,000 deduction associated with rental real estate losses an individual must meet what two tests?

Answer 107

active participation in the activity (make management decisions)
own 10% or more of all interests in the activity during the year

Question 108

the $25,000 rental real estate loss deduction is phased out between $____ and $____

Answer 108

$100k ; $150k

Question 109

what if your AGI is $110,000 how much of a rental real estate loss can you deduct?

Answer 109

$20,000

$25k - ($110k - $100k x 50%)

Question 110

what is Larry’s AGI based off the following info:

Salary for managing an S corp = $50k
Dividend income from stock = $1,000
loss from a 20% limited partnership interest = $4,000
loss from a 10% interest in an S corp, which he work full time managing one of the branches = $3,000

Answer 110

AGI = $48,000

the $3,000 loss from the limited partnership is a passive loss and cannot be deducted because limited partners aren’t materially participants

Question 111

Reggie is a high-income wage earner currently earning $180k annually. Recently, he has invested $30k for a 15% interest in a RELP as limited partner. Operations of the activity resulted in a loss of $300k of which Reggie’s share was $45k. Reggie does not have any passive income in the year. Can Reggie claim a deduction/loss this year? If so how much?

Answer 111

No he cannot claim a loss or deduction because he did not have passive income

$15,000 of Reggie’s loss is suspended due to the at risk rule ($45k - $30k)
The other $30k is suspended under the passive activity loss rules

Question 112

Mavis died owning an investment in a passive activity for which she had a basis of $50k. The FMV of her investment in the activity was $70k. She had suspended losses in the activity of $40k. What is the deduction allowed on Mavis’s final tax return?

Answer 112

$20k

FMV - basis

Question 113

true or false?

the personal exemption increases if over 65

Answer 113

false

Question 114

true or false?

the standard deduction increases if over 65

Answer 114

true

Question 115

what is the standard deduction for a 55 year old who is also blind, based on 2017?

Answer 115

$7,900

$6,350 + $1,550

Question 116

what is the standard deduction for a 68 year old couple who are both blind, based on 2017?

Answer 116

$17,700

$12,700 + (4 x $1,250)

Question 117

what is the age test for qualifying a child as a dependent?

Answer 117

under age 19 or under age 24 and is full time student

permanently disabled qualifies as well

Question 118

what is the support test for qualifying a child or relative as a dependent?

Answer 118

must not provide 50% of own support

Question 119

true or false?

only one person can claim a dependency exemption for an individual

Answer 119

true

Question 120

who gets to claim a child as a dependent if the child lives with both parents an equal amount of time?

Answer 120

the parent with the higher AGI

Question 121

who gets to claim a child as a dependent if neither person is the child’s parent?

Answer 121

person with the higher AGI

Question 122

Erin and Brian are both age 50 and file a joint return for the current year. They provided all the support for their 19 year old unmarried daughter, who had no income and lived with them for the entire year. Their 23 year old son, a full time student at a university had $5,000 in income and provided 70% of his own support.

How many exemptions can they Erin and Brian claim?

Answer 122

3

one for each of them and one for their daughter
no exemptions for son because he provided 70% of his own support

Question 123

Dennis age 50, filed a joint return with his wife, Kelly, age 24. Their son Derek was born December 16 of the taxable year. Dennis provided 60% of the support for his 73 year old widowed mother until May 1 when she died. His mother’s only income was from SSI totaling $4k which she used $1k of for her own support.

How many exemptions can Dennis and Kelly claim?

Answer 123

4

Question 124

Andre provided more than one half of the support for his cousin, his niece, and his foster parent. None of them lived in Andre’s household. None of these relatives had any income nor did any of them file an individual or joint return. All of these relatives are US citizen .

Which of the people is considered a qualifying relative to Andre?

Answer 124

only the niece

Question 125

Claudia age 15 has lived with her older sister Nancy age 19 for the past two years . There are no parents living in the home. Nancy provides all of Claudia’s support.

Can Nancy claim Claudia as a dependent?

Answer 125

yes

Question 126

Gary and Lori are the parents of Neil, age 6. They provide 100% of Neil’s support. Under the divorce settlement entered into in 2009, Lori is the custodial parent. Gary is required by the same agreement to provide health insurance to Neil through his employer.

Who can claim Neil as a dependent?

Answer 126

Only Lori

Gary can claim Neil as a dependent child for medical insurance purposes

Question 127

true or false?

if you divorce your spouse you can never claim your former brother/sister in law as dependent

Answer 127

false, you can. Death/Divorce do not affect your ability to claim them as a dependent

Question 128

for 2017 what is the standard deduction for people who can be claimed as a dependent by another in the same year?

Answer 128

the greater of $1,050 or earned income plus $350

Question 129

Andrea is claimed as a dependent on her parents’ return. She earned $2,900 and received dividend income of $2,000. What is Andrea’s standard deduction for the year?

Answer 129

$3,250

$2,900 + $350

Question 130

what are the five filing status categories?

Answer 130

single
MFJ
MFS
Head of household
qualifying widow(er) with dependent child also called surviving spouse

Question 131

an unmarried, separated, or divorced individual who does not qualify for another status must file as a _____ taxpayer

Answer 131

single

Question 132

true or false?
if a married couple files as married filing separately they can still take the credit for child and dependent care expenses

Answer 132

fasle

Question 133

true or false?

if a married couple files as married filing separately they can still take the earned income credit

Answer 133

false

Question 134

true or false?

if a married couple files as married filing separately they can still take education credits

Answer 134

false

Question 135

unmarried individuals who maintain a household for a qualifying person for more than one half of the tax year

Answer 135

Head of Household

Question 136

if filing as head of household does an unmarried child have to be claimed as a dependent to be a qualified person

Answer 136

no

Question 137

if filing as head of household does a married child have to be claimed as a dependent to be a qualified person

Answer 137

yes

Question 138

if filing as head of household does a parent have to be claimed as a dependent to be a qualified person?

Answer 138

yes

Question 139

which of the following qualified persons does not have to live in the household for more that 50% of the year to still be a qualified person under head of household filing:

single child
married child
other relative
parents

Answer 139

parents only can live in another home for more than 50% of the year

Question 140

John’s wife died in 2015. John has not remarried and for 2016 and 2017 he maintained a home for himself and his dependent child. Can John file a joint return for years 2016 and 2017? What about 2018?

Answer 140

yes because he is considered a qualifying widower with a dependent child

For 2018 he could file as head of household because the qualifying widower with dependent child filing only lasts for two years

Question 141

true or false?
if you are single individual and your income does not exceed the exemption amount plus the applicable standard deduction then you do not have to file taxes

Answer 141

true

Question 142

true or false?
if you are head of household and your income does not exceed the exemption amount plus the applicable standard deduction then you do not have to file taxes

Answer 142

true

Question 143

true or false?
if you are surviving spouse and your income does not exceed the exemption amount plus the applicable standard deduction then you still have to file taxes

Answer 143

false, you do not have to file

Question 144

true or false?
if you are married and filing jointly and your income does not exceed the exemptions amount plus the applicable standard deduction then you do not have to file taxes

Answer 144

true

Question 145

in 2017, a single individual who is claimed by a parent as a dependent has earned income of only $3,900. Would this person need to file a return?

Answer 145

no, because earned income would be less than the standard deduction amount of $4,250 ($3,900 + $350)

Question 146

In 2017, a single, blind individual who is claimed as dependent by a parent has unearned income of $1,200. Does this individual need to file a return?

Answer 146

no, because gross income does not exceed the standard deduction of $2,600 ($1,050 + $1,550)

$1,050 is being used because it is greater than the earned income which is $0. $1,550 is the additional standard deduction for being blind

Question 147

In 2017, a single individual claimed as a dependent by a parent has earned income of $2,000 and unearned income of $1,800. Does this individual need to file a return?

Answer 147

Yes, because gross income is more than the applicable standard deduction

gross income = $3,800
standard deduction = ($2,000 +$350) = $2,350

Question 148

which form should a taxpayer use to file taxes if taxable income is less than $100k and no dependents or adjustments to income are claimed?

Answer 148

1040EZ

Question 149

which form should a taxpayer use to file taxes if the only adjustments to income are for deductible IRA contributions and student loan interest?

Answer 149

1040A

Question 150

what form allows a tax payer to file an extension?

Answer 150

4868

Question 151

dollar for dollar reductions of the income tax liability of the taxpayer

Answer 151

tax credits

Question 152

tax credits that are paid to the taxpayer even if the amount exceeds the taxpayer’s tax liability

Answer 152

refundable credits

Question 153

tax credits that at best reduce a taxpayer’s tax liability to zero

Answer 153

nonrefundable tax credits

Question 154

true or false?

the credit for elderly or disabled is a nonrefundable credit

Answer 154

true

Question 155

this credit applies to taxpayers 65 and older or those under 65 who are retired an permanently or totally disabled

Answer 155

credit for elderly or disabled

Question 156

if the tax in the foreign jurisdiction is more than the US tax, then taking the tax credit is generally _______ advantageous

Answer 156

more

Question 157

true or false?

a taxpayer can take advantage of both the foreign tax credit and the foreign earned income exclusion

Answer 157

false

Question 158

true or false?

the adoption credit is a nonrefundable credit

Answer 158

true

Question 159

the child tax credit is reduced $____ for every $________ above MAGI threshold

Answer 159

$50 ; $1,000

Question 160

true or false?

room and board are qualifying expenses under the american opportunity tax credit

Answer 160

false

Question 161

____% of the american opportunity tax credit is refundable

Answer 161

40%

Question 162

the child tax credit is a _____ credit

Answer 162

refundable

Question 163

under the lifetime learning credit a taxpayer may claim ____% of qualified expenses up to $_____

Answer 163

20% ; $10,000

Question 164

true or false?

both the lifetime learning credit and american opportunity tax credit can be claimed if married filing separately

Answer 164

false, neither can be claimed

Question 165

assumes that depreciation is uniform throughout the useful life of the assets

Answer 165

straight line depreciation

Question 166

how to calculate straight line depreciation

Answer 166

(Cost - residual value) / useful life

Question 167

Under MACRS depreciation residential real estate has a depreciation life of ____ years and non residential real estate has a depreciation life of ____ years

Answer 167

27.5 years ; 39 years

Question 168

the maximum write-off under section 179 for tangible personal property used in a trade or business is $__________ for 2017

Answer 168

$510,000

Question 169

In 2017 ABC corporation purchased and placed in service a piece of machinery costing $25,000. Assuming ABC corp had taxable income of $22,000 (without regard to section 179 expense) what would be the maximum section 179 expense that ABC could take for 2017?

Answer 169

$22,000 would be the maximum section 179 expense ABC could take because you can’t take more than your taxable income. ABC can carry forward $3,000

Question 170

In 2017, Betty Corp purchased and placed in service a machine to be used in its manufacturing operations. This machine cost $2,040,000. What portion of the cost may Betty elect to treat as an expense rather than as a capital expenditure assuming net taxable income of $4million? What is the new basis of the purchased machinery?

Answer 170

$500,000 calculated as follows

$510,000 is the normal maximum write off, but because the equipment was purchased for more than $2,030,000 the write off gets reduced by the excess between the purchase price and $2,030,000

$510,000 - ($2,040,000 - $2,030,000)

new basis = $2,040,000 - $500k = $1,540,000

Question 171

Certain intangible assets are amortized over ____ years (copyrights, trademarks, patents, etc.)

Answer 171

15 years

Question 172

Maria acquired a business on July 1 of the current year. The purchase price included a copyright valued at $30k. How much can Maria claim as amortization this year and in following years?

Answer 172

This year = 6 months of having copyright or 50% of the year x $30k / 15 = $1k

Following years = $30k / 15 = $2k

Question 173

depletion method in which the asset basis is divided by the estimated total number of recoverable units of the asset and then multiplied by the number of units sold

Answer 173

cost depletion

Question 174

depletion method a statutory percentage is applied to the gross income from the property limited to 50% of AGI

Answer 174

percentage depletion

Question 175

Cole owns a sulfur mine that had 100,000 total estimated tons when he purchased it for $2million. In the current year 20,000 tons were extracted and 18,000 tons were sold. The statutory depletion % for sulfur is 22%. Gross income for the year was $1million. How much depletion deduction can Cole take?

Answer 175

under cost method he can take $360k calculated as follows:

($2million / 100k) x 18,000 = $360k

under the percentage depletion method he can take $220k calculated as follows:

$2million x 22% = $220k

Question 176

Peggy a cash-basis taxpayer has the following items of income for the current year:
salary = $40k
bonus check issued and available at payroll office =$5k
Borrowed $10k on home equity loan
original issue discount bond accrual amount = $2k
US Savings bond that increased in redemption value = $200 (last year she elected to include this redemption value increase in her income)

what is Peggy’s gross income?

Answer 176

$47,200

Question 177

true or false?
for both cash basis and accrual basis tax payers an increase in redemption value of a original issue discount must be included in income in the year the increase occurs

Answer 177

true

Question 178

requires reporting of expenses when incurred and income when earned for any single tax year

Answer 178

accrual method

Question 179

method that states that expenses do not have to be paid to be deductible nor does income have to be received to be taxable

Answer 179

accrual method

Question 180

In Year 1, ABC Corp entered into a contract to build a hotel that will be completed by December year 2. The contract price was $2million and the estimated cost of construction was $1million. During year 1, actual costs incurred were $600k. In year 2, the hotel was completed at a total cost of $1.1 million. What net income will ABC corp report for years 1 and 2?

Answer 180

Year 1 = $2 million x ($600k / $1 million) - $600k = $600k

Year 2 = $2 million - $1.2 million - $500 = $300k

Question 181

allows the taxpayer to defer revenue recognition until the contract is completed

Answer 181

completed contract method

Question 182

if the total amount of property placed in service exceeds $_____ the $510,000 section 179 allowance is reduced dollar for dollar

Answer 182

$2,040,000