REG R2 Flagged Questions #16 Flashcards
MCQ-02138
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 $100 “floor” and the adjusted gross income percentage threshold, what amount should the Burgs deduct for the casualty loss in their itemized deductions on
Schedule A for the current year?
1. $300
2. $400
3. $0
4. $90
Choice “3” is correct. $0 casualty loss deduction on Schedule A because damage caused in home by dog is controllable, and avoidable, and, thus, is not unexpected and does not qualify as a “casualty.” In addition, a casualty loss is only deductible if it is in a nationally declared disaster area.
MCQ-06477
Frank and Mary Wood have 2 children, Becky, age 10, and Matt, age 14. The Woods incur expenses of $4,000 for after-school care for each child. Their only income is from wages.
Frank’s wages are $60,000, and Mary’s wages are $2,500. What amount of Child and Dependent Care Credit may the Woods claim on their joint tax return?
1. $1,600
2. $800
3. $1,200
4. $500
Choice “4” is correct. First of all we need to determine the eligible expenses. Only expenses for Becky will qualify because Matt is not under 13 years of age. So of the $8,000 spent, only $4,000 will qualify. The maximum eligible for one dependent, though, is $3,000. Then it is further limited because it is limited to the lowest earned income of either spouse. That would be Mary’s $2,500. Due to their combined income level, they are in the 20% credit range. The credit is 20% of $2,500, or $500.
Choices “1”, “2”, and “3” are incorrect, per the above explanation.
MCQ-06532
An individual starts paying student loan interest in the current year. How many years may the individual deduct a portion of the student loan interest?
1. Current year only.
2. Five years.
3. Ten years.
4. Duration of time that interest is paid.
IRC Section 221 allows the deduction of student loan interest (above-the-line for AGI) paid on qualified education loans up to a maximum of $2,500 for the tax year. There is a phase-out for the deduction and other minor restrictions, such as a married couple being required to file joint returns to take the deduction.
Choice “4” is correct. There is no limitation of the number of years that the interest may be deducted, other than that the interest may be deducted only when paid.
Choices “1”, “2”, and “3” are incorrect, based on the above explanation.
MCQ-02125
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
What amount should the Burgs deduct for taxes expense in their itemized deductions on Schedule A for the current year?
1. $5,025
2. $3,825
3. $1,200
4. $7,650
Choice “3” is correct. $1,200 tax deduction for state income tax.
Self-employment tax is not an itemized deduction, but 50% can be used as adjustment in arriving at AGI.
