Exam 5: Deductions for Individuals and Tax Determination

A legally married couple can elect to file as married filing jointly or single individuals.

Camila, age 60, is single and has adjusted gross income of $100,000. She paid (with after-tax dollars) the following medical expenses in 2018: She received only $2,000 in reimbursements from her insurance company for her medical expenses. How much can Camila deduct for medical expenses in 2018 if she has $30,000 of other itemized deductions?

Contributions to health savings accounts are made with before-tax dollars.

Susan (age 29) is single but has the son of her brother living with her as her dependent. If her AGI is $27,450, what is her tax liability in 2018 before any allowable tax credits?

Toni is 61 and blind; her husband, Saul, is 67. What is their standard deduction if they file a joint tax return in 2018?

A homeowner who itemizes his or her deductions can only deduct the property taxes on his or her primary residence and one other residence.

Ikito's AGI was $68,000 in 2017 and 2018. His home was broken into and his TV, DVD, VCR and computer were all stolen. The properties had a basis of $15,000 and a current fair market value of $9,000. Later that year, his car was hit by a garbage truck. It cost Ikito $9,000 to have the car repaired. Ikito didn't believe in insurance, so he received no reimbursements. In addition, the garbage company filed for bankruptcy after the accident. How much may Ikito deduct as an itemized deduction if these events occurred in 2018 and if they instead happened in 2017, respectively??

Cleo's husband died in January of 2016. She has a 20 year-old son and a sister who live with her. Her son attends a trade school part-time and earned $11,000 from his part-time job. Cleo's sister is a full-time student and only earned $2,800 from her part-time job. What is Cleo's 2018 filing status?

For a 21-year-old child to be considered a dependent in 2018:

What limits are placed on the deduction for interest on debt that is secured by a person's personal residence?

Patricia's AGI was $80,000 in both 2017 and 2018. She made cash contributions to public charities of $43,000 in 2017 and $50,000 in 2018. Patricia's charitable contribution carryover to 2019 is:

The basic and additional standard deductions are both indexed for inflation.

What is the purpose of the alternative minimum tax?

The alternative minimum tax is a tax determined on a broadened definition of income with no deductions permitted.

The maximum annual lifetime learning credit is $2,000 per taxpayer.

Cindy has taxable income of $67,000 excluding a $20,000 taxable gain on the sale of bonds she purchased 7 years ago. If Cindy is single, what is her total tax liability for 2018?

Nonrefundable tax credits

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 the amount of Colin's deductible interest expense if he received $600 in corporate dividends that are taxed at the 15% tax rate?

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. What is Sebastian and Kaitlin's marginal tax rate for 2018 if they do itemize their deductions and file as married filing jointly?

When should a taxpayer itemize deductions rather than taking the standard deduction?