Individual CRFF MCQ

Question 1

Childcare Tax Credit

Answer 1

For one child, up to $3000 and for two or more children, up to $6,000 in payments (as long as necessitated by employment).

Depends on AGI:
$15,000 or less, 35 percent.
reduced gradually to 20 percent > $43,000

EXAMPLE: $6,000 times 20 percent) = 1200 CREDIT

Question 2

Childcare Tax Credit

Answer 2

For two or more children, up to $6,000 of payments (as long as necessitated by employment.

depends on AGI:
$15,000 or less, 35 percent.
reduced gradually to 20 percent > $43,000

EXAMPLE: $6,000 times 20 percent) = 1200 CREDIT

Question 3

Under normal circumstances, income tax credits

Answer 3

are nonrefundable.

can reduce income taxes to zero but cannot use them to create credits

Exceptions:
Earned income credit (regardless of amount owed)
First-time home buyer credit
American opportunity credit (40% refundable)

Question 4

Earned income credit.

Answer 4

designed to provide benefit to 
low-income workers 
who have wages or salaries 
(and, in most cases, a qualifying child)
fully refundable regardless of amount owed

Question 5

Lifetime learning credit and the American opportunity credit

Answer 5

money paid for education costs of taxpayers/dependents

both credits cannot be taken for any one student

American opportunity credit (formerly the Hope Scholarship credit) is available for the first four years of post-secondary education.

Question 6

The payment of a foreign income tax

Answer 6

can be itemized deduction or credit

Normally, the benefit is larger if a credit is taken but allows option of itemized deduction.

Question 7

excess w/h of ss

Answer 7

credit for the excess social security withholding

limits to maximum amount for that year

employers are not at fault as long as neither withheld more than the maximum

Question 8

Casualty losses over a specified amount

Gambling losses

Answer 8

Casualty losses and gambling losses are both included with ITEMIZED DEDUCTIONS.

Question 9

Moving expenses if job related and over a specified distance

Answer 9

Moving expenses that relate to employment are deductible FOR AGI if the taxpayer is forced to move at least fifty miles.

Question 10

The cost of child care that is job related

Answer 10

The cost of child care is a tax CREDIT that reduces the amount of income taxes.

Question 11

Alimony

Answer 11

is taxable income for the recipient
is a deduction to arrive at adjusted gross income for payor

is cash paid to a spouse (or for the benefit of the spouse) after a legal decree of separate maintenance or after the couple is divorced.

NOT alimony and NOT deductible:

Money paid as a property settlement
Payment made before the decree
Child support

Question 12

early withdrawal penalty

Answer 12

To show interest earned but not received, reduce income by a deduction FOR AGI

Question 13

With approved individual retirement accounts, there is usually a tax advantage

Answer 13

when the money is put into the account or
when the money is removed from the account
but not at both times

Question 14

For a Roth IRA, the advantage occurs when

Answer 14

the money is removed.

There is no deduction when the money is placed in the account.

As long as the person is 59 1/2, is disabled, or uses the money for a first-time home purchase (capped at $10,000), all money received from the Roth IRA is tax free.

Question 15

For a traditional IRA, the advantage occurs when

Answer 15

the money is placed into the account.

Up to a maximum limit, there is a deduction FOR AGI when the money is placed in the account.

When the money is removed, the entire amount must then be included in the taxpayer’s taxable income.

There is a penalty if the money is removed before the taxpayer is 59 1/2 (except for specific cases such as qualified costs paid for higher education and a first-time home purchase).

Question 16

Allowable deductions FOR AGI.

Answer 16

allowed regardless of whether the taxpayer uses the standard deduction or takes itemized deductions

They include (within various monetary limits):
Educator expenses (qualified),
Student loan interest,
Moving expenses that are job related (qualified),
Alimony paid,
Traditional IRA plan contributions
Early withdrawal penalty on a savings account

ESMATE

Question 17

Allowable deductions FOR AGI.

Answer 17

allowed regardless of whether the taxpayer uses the standard deduction or takes itemized deductions

They include (within various monetary limits):
Educator expenses (qualified),
Student loan interest,
Moving expenses that are job related (qualified),
Alimony paid,
Traditional IRA plan contributions
Early withdrawal penalty on a savings account
Self-employment tax (one-half of the amount paid)

ESMATES

Question 18

Deductible moving expenses

Answer 18

Deductible FOR AGI

Move must be related to employment and at least 50 miles.

Cost of physically moving possessions and people can be deducted.

Other costs such as the cost of breaking a lease are not deductible.

Question 19

Educator expense deduction

Answer 19

Educators in grades from k-12

allowed to deduct out-of-pocket costs up to a maximum amount ($250 in recent years)

Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment, software, etc.

Question 20

Educator expense deduction

Answer 20

Educators in grades from k-12

allowed to deduct out-of-pocket costs up to a maximum amount ($250 in recent years)

Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment, software, etc.

Expenses for home schooling are not allowable

Question 21

Deductible moving expenses

Answer 21

Deductible FOR AGI

Move must be related to employment and at least 50 miles.

Cost of physically moving possessions and people can be deducted.

Other costs such as the cost of breaking a lease are not deductible.

Question 22

Tests that must be met before moving expenses can be deducted.

Answer 22

must move within a year of taking the new job unless circumstances arose that prevent it (son finishing high school)

must work at least 39 weeks in the general area of the new location

must be a change in the taxpayer’s main home (house, apartment, condominium, houseboat)

new job must be a commute of 50 or more miles farther than the previous commute

Question 23

For an education IRA,

Answer 23

no benefit when the money is put into the fund

tax-free when the money is pulled out and properly used

beneficiary does not have to be related to the taxpayer

beneficiary does have to be under 18

Taxpayers with high levels of income lose the right to create such plans.

Question 24

Union dues are deductible

Answer 24

on Schedule A as an itemized deduction

reported on line 21 as “job expenses and certain miscellaneous deductions.”

deduct only the amount in excess of 2 percent of adjusted gross income.

Question 25

If you and your spouse are filing jointly and both of you were eligible educators,

Answer 25

Maximum deduction is $500 Neither spouse can deduct more than $250 of his or her qualified expenses on Line 23. You may be able to deduct expenses that are more than the $250 (or $500) limit on Schedule A, Line 21. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide who worked in a school for at least 900 hours during a school year. Qualified expenses include ordinary and necessary expenses.

Question 26

two categories of capital assets for individual taxpayers

Answer 26

personal property, such as household furniture and tools, investment property, such as real estate and securities (stocks and bonds)

Question 27

G/L and capital assets for individuals

Answer 27

report gains and losses on investment property, only reports gains on personal property.

Question 28

Wash sale

Answer 28

occurs when substantially identical securities are bought within 30 days either before or after the date of the sale or disposal cannot sell capital assets to create losses to offset capital gains if replace the capital asset cannot deduct the loss because the taxpayer still holds the same shares gains on stocks sold under the same scenario are fully taxable

Question 29

net capital loss IND

Answer 29

up to $3,000 is deductible against ordinary income FOR AGI remaining loss is carried forward indefinitely to impact future capital gain and loss computations.

Question 30

related party transactions

Answer 30

Gains taxed losses not deductible in sale to his spouse or former spouse neither a gain nor loss typically recognized

Question 31

net capital loss IND

Answer 31

up to $3,000 is deductible against ordinary income FOR AGI for all filing status except married filing separately (only one-half the amount granted on joint return--$1500) remaining loss is carried forward indefinitely to impact future capital gain and loss computations.

Question 32

Non-business bad debts

Answer 32

written-off in the year the loan is deemed worthless categorized as short-term irrespective of the time period involved foregone interest is not deductible

Question 33

Non-business bad debts

Answer 33

written-off on Schedule D of the Form 1040 in the year the loan is deemed worthless categorized as short-term irrespective of the time period involved foregone interest is not deductible

Question 34

The basis of a gift received

Answer 34

CARRY OVER BASIS - remains the basis it had in the hands of the gift giver EXCEPTION: gift received is sold for less than the basis in the hands of the previous owner, seller uses the lower of basis or FV at the date of the gift which limits loss If sales price is > FV at the date of the gift and

Question 35

The value of assets received through inheritance

Answer 35

not reportable on an income tax return inheriting assets is not the same as earning income tax basis = FV on date of death* *executor may choose alternate valuation date (6 months from the date of death or conveyance, if earlier).

Question 36

taxation of STCG and LTCG

Answer 36

Net short-term capital gains are taxed at ordinary income rates. Net long-term capital gains are taxed at lower rates. The specific rate depends on the income level of the taxpayer. Net long-term capital gains receive this tax advantage to encourage investors to buy capital assets and hold them for longer than one year.

Question 37

Qualified dividends

Answer 37

from a U.S. domestic corporation or a qualified foreign corporation To encourage investments in these companies, the dividends are taxed at the same reduced rate that applies to long-term capital gains.

Question 38

like-kind exchange and no boot (cash) received

Answer 38

no taxable gain or loss recognized for the new property, taxpayer retains the tax basis given up plus any cash given

Question 39

trade of not of like-kind property

Answer 39

basis of the property given up plus cash given is removed asset received basis is recorded at FV Gain (loss) is the difference

Question 40

Like-kind exchanges (boot received, usually cash to even up the exchange)

Answer 40

gain is recognized at the lower of boot rec'd or gain on exchange gain determined by taking the tax basis surrendered and comparing it to FV received

Question 41

The value of assets received through inheritance

Answer 41

not reportable on an income tax return inheriting assets is not the same as earning income tax basis = FV on date of death* *executor may choose alternate valuation date (date of conveyance or six months after death, whichever comes first)

Question 42

involuntary conversion | G/L

Answer 42

property is condemned, destroyed, or stolen If owner receives amount below tax basis, a loss must be recognized If owner receives more than tax basis, gain is reported for tax purposes for the amount of the proceeds left over after similar replacement property is acquired. The excess must be reported for tax purposes.

Question 43

involuntary conversion | G/L

Answer 43

property is condemned, destroyed, or stolen If owner receives amount below tax basis, a loss must be recognized If owner receives more than tax basis, gain is reported for tax purposes for the amount of the proceeds left over after similar replacement property is acquired.

Question 44

involuntary conversion | G/L

Answer 44

property is condemned, destroyed, or stolen If owner receives amount below tax basis, a loss must be recognized If owner receives more than tax basis, gain is reported for tax purposes for the lower of the gain or the amount of the proceeds left over after similar replacement property is acquired.

Question 45

impact of selling personal residence on taxable income

Answer 45

MFJ - maximum exclusion of $500,000 of gain ($250,000 Single) has to be principal residence for at least two of the most recent five years cannot be taken in two consecutive years

Question 46

Deduction and carry overs for individual S/T and L/T capital losses.

Answer 46

For individual taxpayers filing a joint return, $3,000 in capital losses can be deducted each year. Short-term losses are deducted first. The remaining amounts can be carried forward indefinitely. In the carryover process, short-term losses remain short-term and long-term losses remain long-term. Corporate rules are quite different for capital gains and losses.

Question 47

Hobby loss rules

Answer 47

apply to individuals, S corporations, partnerships, estates, and trusts attributable to an activity not engaged in for profit Taxpayers are presumed to be engaged in a hobby if the operation fails to earn a profit in any three of the most recent five years including the tax year in question. Losses from a business can be used to reduce other income but expenses related to a hobby are deductible only to the extent of revenues earned.

Question 48

Partnership income,

Answer 48

TI

Question 49

interest earned on savings,

Answer 49

TI

Question 50

alimony

Answer 50

TI

Question 51

Child support

Answer 51

NOT TI

Question 52

life insurance proceeds

Answer 52

NOT TI

Question 53

Cafeteria plans

Answer 53

provide options from which employees choose their coverage. Benefits received under a cafeteria plan are not taxable unless received in cash. Child care reimbursements that are received the cash.

Question 54

The cost of the group-term life insurance

Answer 54

is not taxable if coverage is not above $50,000 of benefit. Only the cost of group-term life insurance above $50,000 is taxable.

Question 55

Unemployment compensation benefits

Answer 55

TI

Question 56

Employer-provided health insurance http://www.cpareviewforfree.com/exams.cfm?name=question&test_id=3389263#sthash.nL3Jh4uh.dpuf

Answer 56

NOT TI tax-free fringe benefit

Question 57

debt forgiven by an employer

Answer 57

TI same as a cash payment to the employee

Question 58

breach of contract damages

Answer 58

TI

Question 59

wages, compensation for services

Answer 59

TI

Question 60

jury duty fees

Answer 60

TI

Question 61

gifts, inheritance

Answer 61

NOT TI

Question 62

workers' compensation

Answer 62

NOT TI not compensation for work done

Question 63

Stock dividends issued on common stock

Answer 63

are normally not taxable. cost of the original shares must be spread over all the shares (old and new) because that is the taxpayer's actual cost. The gain or loss on the stock will be included on the tax return when the stock is eventually sold. Exceptions: taxable if the taxpayer has the right to choose cash instead of the stock dividend is on preferred stock

Question 64

Stock dividends issued on common stock

Answer 64

are normally not taxable. cost of the original shares must be spread over all the shares (old and new) because that is the taxpayer's actual cost. The gain or loss on the stock will be included on the tax return when the stock is eventually sold. Exceptions (taxable): 1. taxpayer has the right to choose cash instead of stock 2. dividend is on preferred stock 3. some owners are given common stock and some are given preferred stock, the total value given is taxable.

Question 65

Cafeteria plans

Answer 65

provide options from which employees choose their coverage. Benefits received under a cafeteria plan are not taxable unless received in cash. Child care reimbursements are taxable as employees received the cash. Cash received in lieu of benefits offered under these plans are taxable.

Question 66

Employer-provided health insurance

Answer 66

NOT TI tax-free fringe benefit

Question 67

Winnings and losses from gambling activities

Answer 67

are reported within the income of the taxpayer. Losses are shown as miscellaneous itemized deductions. Losses deducted cannot exceed the amount of gambling winnings being reported.

Question 68

Interest revenue on United States treasury bonds

Answer 68

TI

Question 69

Interest revenue on US Series EE bonds

Answer 69

is tax exempt but only when it meets specific rules: bonds must have been purchased by the taxpayer who was over 24 years old proceeds must be used to pay college costs for taxpayer, spouse or a dependent

Question 70

Interest revenue on state and municipal bonds

Answer 70

always tax free on a federal return

Question 71

Passive activity losses

Answer 71

are not deductible on an individual income tax return. They are carried over and used to offset passive income in the future until used up.

Question 72

A passive activity

Answer 72

is a business in which the taxpayer serves as an owner but does not materially participate in the operation. Rental activities and limited partnerships are also included in this category, regardless of the owner's participation.

Question 73

Passive activity losses

Answer 73

are not deductible on an individual income tax return. They are carried over and used to offset passive income in the future until used up. are not deductible against ordinary income.

Question 74

Passive losses on rental activities

Answer 74

are deductible up to $25,000 as long as the owner is an active participant in the management. The deductibility of this $25,000 is lost gradually if the taxpayer's income is especially high.

Question 75

Passive activity losses

Answer 75

are not deductible on an individual income tax return. They are carried over and used to offset passive income in the future until used up. are not deductible against ordinary income. PAL's are netted but net loss is not deducted but carried forward.

Question 76

social security benefits payments

Answer 76

Not taxable at low income levels, at reasonably high income levels, social security is 85 percent taxable There is a relatively small transitional level of income where 50 percent of social security is taxable.

Question 77

Scholarships

Answer 77

that cover part or all of college tuition (and course related costs) are tax free. become taxable income if: 1. recipient is not seeking a degree 2. recipient is required to perform work in exchange

Question 78

Scholarships

Answer 78

tax free if received for tuition (and course related costs) become taxable income if: 1. recipient is not seeking a degree 2. recipient is required to perform work in exchange

Question 79

Prizes and awards

Answer 79

TI not impacted by the efforts of the recipient to win

Question 80

provisional income

Answer 80

AGI and tax-exempt income and 50% of social security benefits determines taxability of social security benefits

Question 81

property rented out for less than 15 days,

Answer 81

no rental income is includable expenses attributable to the rental are not deductible property taxes are still deductible in full on Schedule A

Question 82

Passive activity losses

Answer 82

are not deductible on an individual income tax return. They are carried over and used to offset passive income in the future until used up. are not deductible against ordinary income. PAL's are netted but net loss is not deducted but carried forward. Exception: up to $25,000 deductible on rental activity with active participation (phased out at higher incomes)

Question 83

state income tax refund

Answer 83

taxable if taxpayer itemized deductions in previous tax year

Question 84

Dividends on a life insurance policy

Answer 84

not TI treated as a reduction in the expense of the policy

Question 85

Interest revenue on US Series EE bonds

Answer 85

is tax exempt but only when it meets specific rules: bonds must have been purchased by the taxpayer who is sole (or joint owner) and over 24 years old proceeds must be used to pay college costs for taxpayer, spouse or a dependent The bond will indicate the name of the owner but not the eventual recipient of the proceeds.

Question 86

Life insurance premiums

Answer 86

not deductible proceeds received at the time of death are not taxable as “income”

Question 87

ordinary dividends

Answer 87

total amount of dividends that have been received reported on Form 1040

Question 88

qualifying dividends

Answer 88

portion of ordinary dividends (total dividends received) that qualify for a lower tax rate

Question 89

The benefit received rule requires

Answer 89

when a taxpayer makes a contribution to a qualified charity, the deductible charitable contribution is reduced by the value of whatever is received by the taxpayer.

Question 90

contributions made to a college or university when the donor receives the right to purchase tickets to an athletic event.

Answer 90

Eighty percent of the payment is treated as a charitable contribution regardless of whether the tickets would have been otherwise available.

Question 91

The value of donated services or foregone income

Answer 91

are not tax deductible but unreimbursed expenses related to these activities may be deductible.

Question 92

Dues paid to social or fraternal organizations

Answer 92

are not deductible.

Question 93

The purchase of a chance to win something

Answer 93

is a gamble and is not deductible.

Question 94

Donation of a work of art to a qualified organization is

Answer 94

deductible as an itemized deduction. There are limits, The donor can deduct the fair value of the art but the amount will be limited to 30 percent of adjusted gross income unless an election is made to forgo the deduction of the appreciation. The limit would then be 50 percent of adjusted gross income.

Question 95

Surgery that is only cosmetic in nature (liposuction) and nonprescription medicine (such as for heartburn and migraines)

Answer 95

are not deductible for income tax purposes.

Question 96

Mileage for health care

Answer 96

is deductible at the medical mileage rate in effect at the time.

Question 97

The medical ramp if medically necessary.

Answer 97

is deductible

Question 98

Medical deduction

Answer 98

the total amount of deductible items that exceeds 10.00% of adjusted gross income (7.5% for older taxpayers).

Question 99

To be deductible, points

Answer 99

must be paid to secure a home equity or home acquisition loan. If the points are on the original mortgage or the purpose of the loan is to make improvements to the property, the points can be deducted in the year paid. Otherwise, the points must be amortized and deducted over the life of the loan.

Question 100

Points paid to refinance an existing mortgage

Answer 100

must be amortized over the life of the loan.

Question 101

Points paid on a home equity loan used to improve the property (such as by adding a swimming pool)

Answer 101

are deductible when paid.

Question 102

Prepayments of mortgage interest

Answer 102

are required to be matched with the tax years to which the interest applies.

Question 103

To determine itemized deductions, a taxpayer includes medical and dental costs incurred for the taxpayer and spouse as well as

Answer 103

any dependents paid for a person who would have been a dependent except for the income test cannot deduct those paid for one who is not a dependent due to support test (provides more than 1/2 of own support)

Question 104

If states have both an income tax and a sales tax

Answer 104

a taxpayer can take either the amount paid as a state income tax or the amount paid as a sales tax but not both. The selected amount is included by the taxpayers as an itemized deduction.

Question 105

Only three types of interest can be taken as an itemized deduction by an individual taxpayer:

Answer 105

interest on a home acquisition loan (to buy, construct, or improve home) of up to $1 million of debt, interest on a home equity loan (the house is used as security but the money is not used to buy, construct, or improve home) of up to $100,000 of debt, and interest expense to buy investments (but only the interest up to the amount of net investment income can be deducted).

Question 106

Interest expense is a deductible expense when money is borrowed to make investments. The amount of the deduction is limited to

Answer 106

the net investment income. Income that is tax-free is not included in that maximum limitation.

Question 107

Where the income is tax free, related expenses

Answer 107

are not usually deductible.

Question 108

short term capital asset donated to qualified charity

Answer 108

deduct the lower of the fair value or the cost

Question 109

long term capital asset donated to qualified charity

Answer 109

deduct fair value

Question 110

itemized deductions subject to phase out due to high income levels

Answer 110

Charitable contributions, taxes paid, job expenses and other miscellaneous deductions (except gambling losses), and interest expense (except when incurred to get investment income)

Question 111

Individual taxpayers can deduct the fair value of contributions made to qualified charities. For long-term capital gain property,

Answer 111

the amount of the deduction is limited to 30 percent of adjusted gross income. The limitation is 50 percent of adjusted gross income if the amount of the gain is not included.

Question 112

Gambling winnings/losses

Answer 112

winnings are included as taxable income on a federal income tax return. losses can be deducted as a miscellaneous itemized deduction (not subject to the 2% of AGI floor) but only up to the amount of the winnings.

Question 113

Organizations can qualify as 501(c)(3)

Answer 113

if they have a mission that includes: religious, charitable, scientific, public safety, literary,educational, to promote the arts, or for the prevention of cruelty to children or animals. All income that is earned by these organizations that is not unrelated business income is tax free. Most contributions can be deducted for tax purposes by the donor.

Question 114

501(c)(4) organizations are

Answer 114

generally civic leagues and other corporations operated exclusively for the promotion of "social welfare", such as civics and civics issues, or local associations of employees with membership limited to a designated company or people in a particular municipality or neighborhood. Most contributions to 501(c)(4) organizations are not tax deductible by the donor.

Question 115

to disqualify as head of household

Answer 115

live together during the last six months of the year under the abandoned spouse rule

Question 116

Taxpayers who meet the requirements for qualifying widow(er) have no reason to file as head of household

Answer 116

because that status has fewer tax breaks. However, head of household is taxed at lower tax rate than single filers but at a higher rate than joint filers. Head of household also gets a higher standard deduction than single filers but lower than joint filers. Single taxpayers pay the highest tax rate of the three and have the lowest standard deduction.

Question 117

When a married taxpayer dies during the year,

Answer 117

the filing status for that year is determined as of the date of death. Because the couple was married when he died, the surviving spouse can file a joint tax return for the year of death. For the next two years, the surviving spouse can file as a qualifying widow or widower if there is a dependent child (child, stepchild, adopted child or a foster child) living in the taxpayer's home. After those two years, file as head of household as long as does not remarry and either an unmarried child or dependent relative lives with taxpayer.

Question 118

The statute of limitations

Answer 118

is the time available to correct errors on a return by both the taxpayer and government. The statute is normally the due date for the return. three year statute of limitations begins on the later of the due date or filing date

Question 119

If the taxpayer files before the due date,

Answer 119

the statute still starts to run on the due date for the return.

Question 120

If the taxpayer files an extension,

Answer 120

the statute starts to run when the return is filed.

Question 121

if there is fraud involved,

Answer 121

there is no statute of limitations.

Question 122

If the taxpayer omits more than 25 percent of the gross income reported on the return,

Answer 122

the statute of limitations is extended to six years.

Question 123

Interest revenue on municipal and state bonds

Answer 123

is not taxable on a federal income tax return.

Question 124

If the couple itemizes their deductions, the state income tax return amounts are

Answer 124

based on the year of payment.

Question 125

Refunds are

Answer 125

income when received;

Question 126

payments (through withholding, with the return, or through quarterly payments) are

Answer 126

included as deductions when paid.

Question 127

If the standard deduction is used, refunds and payments

Answer 127

are disregarded when preparing the federal return.

Question 128

Taxable income is AGI

Answer 128

minus the amount associated with the taxpayer's personal exemptions (including those for the elderly and the blind) and minus standard or itemized deductions.

Question 129

All tax credits are deducted

Answer 129

from the tax itself.

Question 130

All personal exemptions are deducted,

Answer 130

not just the special deduction for the elderly or blind.

Question 131

One-half of self employment tax is

Answer 131

deducted when calculating AGI.

Question 132

Qualifying relatives

Answer 132

include parent, grandparents, child, grandchild, siblings, aunts. uncles, nephews, nieces, and in-laws, or anyone who lived in the taxpayer's household for the entire year. Not cousins (unless live in HH entire year)

Question 133

a dependent by another party, does not get

Answer 133

any reduction in connection with personal exemption when filing own return

Question 134

Several rules must be met before a person can be claimed on a tax return as a dependent.

Answer 134

must either be a blood relative or live with the person for the entire year cannot have too much income Age and student status come into play in connection with the income requirement. a person who files a joint return cannot be taken by another party as a dependent

Question 135

tax benefit for the elderly

Answer 135

increased level for the Standard Deduction. if one does not itemize deductions, take a standard deduction that is somewhat higher because of age

Question 136

For alternative minimum taxable income (AMTI) computation made by an individual taxpayer, certain tax advantages are added back to net income.

Answer 136

interest expense on home equity loans (unless the money was used to buy, build, or improve a home), personal exemptions, and the standard deduction. medical expense deduction is reduced but not eliminated

Question 137

A person who files as head of household is allowed a standard deduction that

Answer 137

falls between that of single or MFJ

Question 138

reasonable basis has been defined as

Answer 138

a one-third likelihood of success

Question 139

In computing an individual’s AMT, preference items versus adjustments.

Answer 139

there are only a few preference items and they tend to exist in only relatively unusual cases (such as the excess depletion that is allowed in excess of an asset’s cost in connection with a wasting asset and tax exempt interest on certain private activity bonds) Most changes in arriving at the AMT figure are adjustments and they often come from relatively common areas such as: state and local income tax payments, miscellaneous itemized deductions in excess of 2 percent of AGI, personal exemptions, standard deduction, interest on home equity loans (not used to buy or improve the home), some part of the medical expense itemized deduction and other items.

Question 140

to arrive at the alternative minimum taxable income (AMTI).

Answer 140

begin with their taxable income make certain specified adjustments (which can either increase or decrease the taxable income figure). then add back the benefit derived from any preference items in their individual return

Question 141

An individual must file an amended income tax return by

Answer 141

three years from the due date of the return. if the taxpayer filed the original return after the due date (with an extension, for example), the term is three years from the date of filing