REG R2 Flagged Questions #15 Flashcards
MCQ-14713
Spencer, who itemizes deductions, had adjusted gross income of $60,000 for the current year. The following additional information is available for the year:
Cash contribution to church $ 4,000
Purchase of art object at church bazaar (with a fair market value of $800 on the
date of purchase)
1,200
Donation of used clothing to Salvation Army (fair value evidenced by receipt
received)
600
What is the maximum amount Spencer can claim as an itemized deduction for charitable
contributions in the current year?
1. $4,400
2. $5,400
3. $5,000
4. $5,200
Choice “3” is correct. The $4,000 cash contribution to the church is deductible. Relative to the purchase of the art object at the church bazaar, only the excess paid over fair market value ($1,200 - $800 = $400) is deductible. The used clothing donation to the Salvation Army is deductible at its fair market value of $600. The total deduction is $5,000 ($4,000 + $400 + $600). The contributions are also well below the appropriate thresholds of 60 percent for the $4,400 cash contributions (temporarily 100 percent in 2021) and 50 percent for the $600 donation of used clothing (ordinary income property).
Choice “1” is incorrect. The used clothing donated to the Salvation Army is deductible at its $600 fair market value.
Choice “2” is incorrect. The deduction for the purchase of the art object is not its fair market value of $800, but the $400 excess paid over its fair market value.
Choice “4” is incorrect. The used clothing donated to the Salvation Army is deductible at its $600 fair market value. In addition, the deduction for the purchase of the art object is only the $400 excess paid over fair market value, not the $1,200 paid.
MCQ-12112
The question below includes actual dates that must be used to determine the appropriate tax treatment of the transaction.
Pat’s divorce decree, finalized in 2016, requires Pat to make the following transfers to Pat’s former spouse during 2021:
-Alimony payments of $9,000 to be reduced to $7,000 when their child attains the age of 18.
-Property division of stock with a basis of $2,000 and a fair market value of $3,500.
What is the amount of Pat’s alimony deduction for the year ending December 31, 2021?
1. $9,000
2. $10,500
3. $1,500
4. $7,000
Choice “4” is correct. Any amount of “alimony” that is dependent on a child reaching the age of 18, will be considered child support (which is not deductible) for tax purposes. Accordingly, only the $7,000 is deductible as alimony. Note that alimony paid on divorce settlements executed after December 31, 2018, is not deductible.
Choice “1” is incorrect as it includes the amount deemed to be child support.
Choices “3” and “2” are incorrect. The property division is considered to be a property settlement and is not considered to be alimony. Accordingly, neither the basis, fair market value, nor realized gain has any effect on the alimony deduction.
MCQ-02121
Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their adjusted gross income was $50,000.
The Burgs itemized their deductions on Schedule A. The following unreimbursed cash expenditures were among those made by the Burgs during the year:
Repair and maintenance of motorized wheelchair for physically handicapped
dependent child $ 300
Tuition, meals, and lodging at special school for physically handicapped
dependent child in the institution primarily for the availability of medical care, with meals and lodging furnished as necessary incidents to that care 4,000
State income tax 1,200
Self-employment tax 7,650
Four tickets to a theatre party sponsored by a qualified charitable organization; not considered a business expense; similar tickets would cost $25 each at the box office 160
Repair of glass vase accidentally broken in home by dog; vase cost $500 5 years ago; fair value $600 before accident and $200 after accident 90
Fee for breaking lease on prior apartment residence located 20 miles from new
residence 500
Security deposit placed on apartment at new location 900
Without regard to the adjusted gross income percentage threshold, what amount may the Burgs claim in their current year return as qualifying medical expenses?
1. $300
2. $4,000
3. $4,300
4. $0
Choice “3” is correct. $4,300 medical expenses.
Wheelchair repair
300
School for handicapped
4,000
Total
4,300
MCQ-14715
Which of the following is not a deduction to arrive at adjusted gross income?
1. Trade or business expenses.
2. Alimony payments pursuant to a divorce settlement finalized on or before 12/31/18.
3. Capital losses in excess of capital gains.
4. Mortgage interest.
Choice “4” is correct. Mortgage interest is an itemized deduction, not a deduction to arrive at adjusted gross income.
Choice “1” is incorrect. Trade or business expenses are deducted on Schedule C. This is before the calculation of adjusted gross income. Accordingly, this is a deduction to arrive at adjusted gross income.
Choice “2” is incorrect. Alimony payments (on divorce agreements finalized on or before December 31, 2018) are an adjustment, which is a deduction to arrive at adjusted gross income. Alimony paid on divorce settlements finalized after December 31, 2018, is not deductible.
MCQ-12543
A 22-year-old full-time student earned $11,000 in salary and received $9,000 in interest from corporate bonds. The bonds were a gift from the student’s grandparents. The student’s
parents pay more than half of the student’s support, including $25,000 in tuition. Which of the following statements is correct regarding the student’s current year income tax?
1. The student’s salary income and no other income will be subject to the “kiddie tax.”
2. Both the student’s salary and a portion of the interest income will be subject to the
“kiddie tax.”
3. Neither the student’s salary nor the interest income will be subject to the “kiddie tax.”
4. A portion of the student’s interest income and no other income will be subject to the
“kiddie tax.”
Choice “4” is correct. Only a portion of the student’s interest income is subject to the kiddie tax. Net unearned income of a dependent child is taxed at the parent’s marginal rate (“kiddie tax”). Net unearned income is unearned income minus $2,200.
Choice “1” is incorrect. The student’s salary income is earned income, so it is not subject to the kiddie tax.
Choice “2” is incorrect. Only a portion of the interest income, not the salary income, is subject to the kiddie tax.
Choice “3” is incorrect. A portion of the student’s interest income is subject to the kiddie tax.
