Individual Taxation - Tax Limitations Flashcards
What is the maximum amount of tax-free group-term life insurance coverage that may be provided to an employee by an employer?
$50,000
What is the maximum gift amount that is deductible as a business expense?
$25 per recipient each year
A special rule permits an individual to offset up to ____ of income that is from non-passive activities by losses from a rental real estate activity (which is always a passive activity) if _____
$25,000
The individual actively participates in the rental real estate activity
A special rule permits an individual to offset up to $25,000 of income that is from non-passive activities by losses from a rental real estate activity (which is always a passive activity) if the individual actively participates in the rental real estate activity. This $25,000 is reduced by ___ of the taxpayer’s AGI in excess of _____ and therefore is fully phased out when AGI exceeds _____
50%
$100,000
$150,000
T/F
Rules limiting the deductibility of passive activity losses and credits applies to individuals
TRUE
T/F
Rules limiting the deductibility of passive activity losses and credits applies to estates & trusts
TRUE
T/F
Rules limiting the deductibility of passive activity losses and credits applies to closely held C corporations
TRUE
T/F
Rules limiting the deductibility of passive activity losses and credits applies to personal service corporations
TRUE
A personal service corporation is a corporation whose principal activity is the performance of personal services and such services are substantially performed by owner-employees. This limitation of deductibility is intended to prevent taxpayers from sheltering personal service income by creating personal service corporations and acquiring passive activity losses at the corporate level
T/F
Rules limiting the deductibility of passive activity losses and credits applies to partnerships
FALSE
Since passive activity income, losses, and credits from partnerships & S corporations flow through to be reported on the tax returns of the owners of such entities, the passive activity limitations are applied at the partner and shareholder level, rather than to partnerships & S Corporations themselves
T/F
Rules limiting the deductibility of passive activity losses and credits applies to S Corporations
FALSE
Since passive activity income, losses, and credits from partnerships & S corporations flow through to be reported on the tax returns of the owners of such entities, the passive activity limitations are applied at the partner and shareholder level, rather than to partnerships & S Corporations themselves
T/F
Rules limiting the deductibility of passive activity losses and credits applies to widely held C Corporations
FALSE
What is the maximum amount of AGI that a taxpayer may have and still qualify to roll over the balance from a traditional individual retirement account (IRA) to a Roth IRA?
There is no maximum AGI limitation
An individual is allowed to deduct up to ____ for interest on qualified education loans in arriving at AGI. This deduction is subject to an income phase-out and the loan proceeds must have been used for specific purposes.
$2500
An individual taxpayer’s unreimbursed medical expenses are deductible to the extent in excess of _____ of the taxpayer’s AGI
10%
Take Medical Expenses - [AGI * 10%]
Deductible medical expenses include those incurred by a taxpayer, taxpayer’s spouse, dependents, or any individual that a taxpayer COULD claim a dependency exemption for except for that the person had gross income of ______ or more (or filed a joint return)
$3950
Therefore, if a taxpayer’s child had gross income of $3950 or more, but was a “dependent” in all other respects, the taxpayer may deduct the medical expenses as if the child was a dependent
T/F
To deduct medical expenses of a dependent, there is an age limit of 25 (no dependents over this age)
FALSE
No age limit
T/F
The 2014 deduction by an individual taxpayer for interest on investment indebtedness is limited to the investment interest paid in 2014
FALSE
T/F
The 2014 deduction by an individual taxpayer for interest on investment indebtedness is limited to the taxpayer’s 2014 interest income
FALSE
T/F
The 2014 deduction by an individual taxpayer for interest on investment indebtedness is limited to the taxpayers 2014 net investment income
TRUE
Net investment income includes such income as interest, dividends, and short-term capital gains LESS any related expenses
T/F
The 2014 deduction by an individual taxpayer for interest on investment indebtedness is not limited
FALSE
Interest on home equity indebtedness loans of up to _______ is deductible as qualified residence interest if the loans are secured by a taxpayer’s principal or second residence, regardless of how the loan proceeds are used
$100,000
Charitable contributions are limited in deductibility for up to 20%-50% of AGI. The remaining contributions can be carried forward for up to ____ years, subject to the % limitation in the carry-forward years
5 years
The overall limitation for contribution deductions is ____ of AGI before any net operating loss carryback
50%
An additional limitation is that contributions of long-term capital gain property to charities are limited to _____ of AGI
30%
Another limitation is that some contributions to certain charities are limited to ____ of AGI or a lesser amount
20%
If, for charitable purposes, an individual purchases an item for a greater cost than it’s FMV, the charitable deduction is limited to what?
The excess of the Cost over FMV
Net casualty loss is deductible as an itemized deduction to the extent that it exceeds ____ of AGI
10%
Net casualty loss is reduced by a ____ floor, and then is calculated as deductible to the extent that it exceeds 10% of AGI
$100 Floor
Expenditures for state lottery tickets are deductible as a miscellaneous itemized deduction _____ (subject to/not subject to) the 2% of AGI Floor. The deduction amount is limited in amount to _____
Not subject to
The lottery winnings included in gross income on pg. 1 of Form 1040
The American Opportunity Credit allows for a maximum credit of up to _____, which is 100% of ____ and 25% of _____
$2,500
$2,000
the next $2,000 of tuition, fees, and course materials
The Lifetime Learning Credit provides a credit of ____ of up to ____ of tuition and fees paid by a taxpayer for one or more students for graduate and undergraduate courses at an eligible educational institition
20%
$10,000
The Lifetime Learning Credit may be claimed for ____ number of years
An Unlimited
A self-employed individual must file an income tax return if net earnings from self-employment are ____ or more
$400
