Chapter 5 Heavily Tested

Question 1

When an employee receives an allowance and does not account to the employer for expenses, the allowance is

Answer 1

Included in gross income and the expenses are deducted as itemized deduction

Question 2

Which itemized deductions are allowed in calculating AMT

Answer 2

Misc. itemized deductions are not allowed, however, home mortgage interest on a loan to acquired a principal residence is included in the calculation of AMT

Question 3

Personal Medical expenses in excess of

Answer 3

10% of AGI may be deducted

Question 4

NOL is defined as

Answer 4

the excess of allowable deductions over gross income.

Question 5

NOL generally includes only items which represent

Answer 5

Business income or loss which includes

1. Personal casualty loss
2. Wage or salary income

Question 6

Investment Interest expense is only deductible to the extent of

Answer 6

Net Investment Income

Question 7

Installment Charge accounts are

Answer 7

Not deductible as they are personal interest

Question 8

Exception to passive activity loss limitation rule is completely phased out when MAGI of

Answer 8

$150,000

Question 9

Passive activity losses after threshold limitation rule of $150,000 can only be deducted

Answer 9

against passive activity income

Question 10

The items subject to phase-out amount of itemized deductions that may be claimed by high-income individuals is

Answer 10

Charitable contributions

Question 11

Casualty Losses are deductible up to

Answer 11

10% of AGI after subtracting the $100 floor

Question 12

A person is entitles to deduct up to $25,000 in losses from passive activity, However, the limit is reduced by 50% when AGI is over

Answer 12

$100,000. So, if AGI is $120,000 the calculation is as follows $120,000 - $100,000 = $20,000 X 50% = $10,000

$25,000 - $10,000 + $15,000 deduction

Question 13

What entities are disallowed the standard deduction

Answer 13

1. Non-resident alien individuals
2. Partnerships
3. Estates
4. Trusts

Question 14

A Tax Credit lowers

Answer 14

Tax liability not taxable income

Question 15

Non-Refundable Personal Credits

Answer 15

1. Foreign Tax Credit
2. Child & Dependent Care Credit
3. Lifetime Learning Credit
4. Retirement Savings Contribution Credit
5. Child Tax Credit
6. Credit for the elderly or Disabled
7. General Business Credit
8. The Adoption Credit

Question 16

Foreign Tax Credit can be

Answer 16

Carried back 1 year and forward 10 Years

Question 17

In order for a child to qualify for Earned Income Credit three tests must be met

Answer 17

1. Relationship
2. Residency
3. Age (Under 19) (Student under 24)

Question 18

Individual Taxpayer may carry forward excess capital losses

Answer 18

Indefinitely

Question 19

NOL are carried

Answer 19

back for 2 years and forward up to 20 years

Question 20

Individuals who participate in Rental Activities or trade or business must

Answer 20

1. Participate more than 500 hours
2. tax payer participation makes up all of the participation in the activity
3. Participates more than 100 hours and exceeds the participation of any other person
4. Materially participates in the activity for any 5 years of the preceding 10 years
5. Materially participated in a personal service activity for any 3 years
6. Participates on a regular basis

Question 21

If a Deduction would reduce basis in a property and part or all of the deduction is disallowed by the at-risk-rule, the basis is

Answer 21

reduced anyway

Question 22

Unreimbursed Travel Expenses are

Answer 22

Deductible only as misc. Itemized deductions subject to a 2% floor

Question 23

Medical Insurance premiums paid from after tax income is

Answer 23

deductible

Question 24

The Three Categories of Misc. Itemized deductions are

Answer 24

1. Employee expenses
2. Tax determination expenses
3. Other expenses

Question 25

A credit is allowed for qualified adoption expense incurred with a maximum of

Answer 25

$13,400 per child