R2 INDV TAX - Adj, Ded, Credits 1 (M)

Question 1

Readily Ascertainable Value

Answer 1

The option is traded on an established market

Question 2

Employee Stock Purchase Plan (ESPP)

Answer 2

May grant options to employees to purchase stock in the organization. The exercise price may not be less then 85% of the FMV of the stock when granted or exercised and cannot be exercised more than 27 months after the grant date

Question 3

Life Insurance Proceeds

Answer 3

The proceeds of a life insurance policy paid because of the death of the insured are generally excluded from the gross income of the beneficiary. The interest element on deferred payout arrangements is fully taxable

Question 4

Nonaccountable Plan

Answer 4

Expenses are not reported by the employer, any amounts received from an employee by an employer must be reported by the employer as part of wages on the employee’s W-2 for the year (and subject to income tax withholding requirements). The gross amount received is reported as income. Any expenses taken against the gross amount received are considered miscellaneous itemized deductions and are subject to the 2% AGI limitation

Question 5

Casualty and Theft Losses

Answer 5

Losses are deductible for nonbusiness property to the extent that each individual loss exceeds $100 and that the aggregate of these losses exceeds 10% of AGI

Question 6

Deductible Casualty Loss Formula

Answer 6

Smaller of Loss of cost and FMV
(Ins Proceeds)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Taxpayer's loss
($100)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Eligible loss
(10% AGI)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Deductible Loss

Question 7

Moving Expenses

Answer 7

New workplace must be 50 miles farther from old house than old workplace was
39 week stay
Only direct moving expenses are allowable
Travel and lodging
Transporting household goods

Question 8

Deductible Taxes (State, local, foreign) (RIPS)

Answer 8

Real estate taxes
Income taxes
Personal property taxes
Sales tax

Question 9

Real Estate Taxes (State, Local, Foreign)

Answer 9

The taxpayer must be legally obligated to pay
Prorate taxes in year of sale/purchase
Taxes paid under protest are deductible. Subsequent recovery is included in gross income
Does not include street, sidewalk, and sewer assessment taxes

Question 10

Income Taxes (Local, State, Foreign)

Answer 10

Estimated taxes paid during the year are deductible
Withheld taxes from paychecks during the year are deductible
Assessments paid during the year for prior year’s tax are deductible

Question 11

Sales Tax

Answer 11

A taxpayer may elect to deduct either state or local income taxes or state and local general sales tax

Question 12

IRA Deductibility Requirements

Answer 12

Excessive AGI
Active participation in another qualified plan
An individual is not considered an active participant in an employee-sponsored retirement plan merely because an employee’s spouse is an active participant
Lesser of $5,500 or individual’s compensation

Question 13

Investment Interest Expense

Answer 13

The investment interest expense deduction for individuals is limited to net (taxable) investment income. Interest expense used to pay for tax-free bonds are not deductible

Question 14

Miscellaneous Itemized Deductions (SUUBITE)

Answer 14

Subscriptions to professional journals
Unreimbursed Business Expenses (employee)
Uniforms
Business gifts
Investor Expenses (Safe Deposit Box)
Tax preparation fee
Educational expenses

Question 15

Home Equity Indebtedness

Answer 15

Interest paid on a debt secured by a home mortgage is classified as a deductible qualified residence interest as an itemized deduction limited to $100,000

Question 16

Medical expenses deductions

Answer 16

Paid (cash or check) amounts during the year

Charged amounts during the year (regardless of when paid)