Exam 5: Deductions for Individuals and Tax Determination

Wallace and Clarice (both age 45) have combined salary and wages of $114,900. They each contribute $3,000 to a Roth IRA and take the standard deduction when they file jointly in 2018. If they have a $60,000 preference item and the AMT exemption is $109,400, what is their alternative minimum tax?

Qualifying low-income wage earners may not only deduct their IRA contributions but they may take a credit for their contribution.

Which of the following is true regarding miscellaneous itemized deductions?

The taxpayer must provide more than half the support for an individual to be considered a dependent.

The tax model is the formula for how individuals report their tax liability.

What is included in investment income? What is the limit on the deduction for investment interest?

A single taxpayer, studying for his master's degree, has an AGI of $58,000. In 2018 he paid $8,000 for college tuition and $2,500 interest on his student loan. In 2018:

Designate by an R is an item is a deduction FOR AGI or an M is an item is a deduction FROM AGI. -Alimony paid (divorce agreement executed in 2017) b. Standard deduction c. Health savings account contribution d. IRA contribution e. Charitable contribution f. Personal property taxes g. Self-employed health insurance deduction h. Student loan interest i. Investment interest expense j. State income taxes paid k. Penalty on early withdrawal of savings l. Costs for prescription drugs and insulin m. Mortgage interest expense n. Educator expenses (classroom supplies for elementary school teacher) o. Employee portion of health insurance premium

Colin (age 40) is single and itemizes his deductions. His AGI is $100,000. Colin provided the following information about his cash expenditures for 2018: Interest on loan to purchase corporate securities $ 900 Interest on American Express card 1,200 Points to refinance his home at the end of December 2,600 Mortgage interest payments 11,800 Real estate taxes 2,100 State income taxes withheld on salary 5,400 Additional state income tax estimated payment 1,200 Contribution to Republican Party 2,000 Contribution to United Way 500 What is Colin's deduction for taxes?

What is the purpose of the Health Savings Account?

29 The tax rate applied to the AMTI for individuals is 2 percent higher than the top individual regular tax rate.

In 2017, a personal theft loss could be deducted if it exceeded $100 plus 10 percent of AGI.

All of the following are allowable deductions in determining the alternative minimum tax except:

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2018: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $8,250 in real estate taxes on the home. -$6,000 investment interest expense -$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses) -$1,650 in state income taxes to the state of California where Sebastian worked for part of the year -$1,400 in state and local general sales taxes -$490 fee for preparation of their 2017 tax return, paid to their CPA in 2018 -$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for its fair market value of $17,000 at its fundraising auction. How much can Sebastian and Kaitlin deduct for interest expense for 2018?

The additional 0.9 percent Medicare surtax applies to earned income of individuals with wages in excess of $200,000 but does not apply to self-employed individuals.

John and Mary have three children: Aaron (age 14), Anna (age 16), and Tammy (age 21). Anna works after school and earned $4,000 in 2018. Tammy works 30 hours per week and is a part-time student at the local community college earning $8,400 in 2018. If John and Mary's AGI in 2018 is $200,000, how much can they claim on their joint tax return for the child tax credit?

Sebastian (age 46) and Kaitlin (age 45) are married and file a joint tax return. Their 2018 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income). They provided 100% of the support for their daughter, Olivia, age 26, who lives with them, and earned $4,700 from her part-time job. They also provided 100 percent of the support for Sebastian's mother, Emily, who is 67, blind, and lives in a nursing home. Emily received $4,000 in Social Security benefits and $450 of interest income. Sebastian and Kaitlin also paid the following amounts in 2018: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995. The principal amount of the mortgage is $1,250,000. They also paid $8,250 in real estate taxes on the home. -$6,000 investment interest expense -$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses) -$1,650 in state income taxes to the state of California where Sebastian worked for part of the year -$1,400 in state and local general sales taxes -$490 fee for preparation of their 2017 tax return, paid to their CPA in 2018 -$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships. They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army, which was then sold for its fair market value of $17,000 at its fundraising auction. How much can Sebastian and Kaitlin deduct for charitable contributions for 2018?

A married person filing a separate return has the lowest standard deduction amount.

What is the standard deduction for a person who is a dependent of another person in 2018?

All of the following are qualifying relatives who can qualify as dependents except: