Exam 5: Deductions for Individuals and Tax Determination

A parent cannot be considered as a dependent if his or her gross income equals or exceeds the amount of the dependency exemption.

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?

How is qualified business income (QBI) defined and how is the QBI deduction calculated?

Buffy and Biff are both employed. They have two dependent children ages 9 and 10 and they pay $7,200 for child care while they work. In 2018, their combined salary and wage income is $560,000. They each put $4,000 into their traditional IRAs (these IRAs are their only retirement plans). Their itemized deductions are $28,000. What is their net tax liability after all allowable credits if they file jointly and the child tax credit begins to phase out at $400,000?

Amelia, an accountant, normally bills her clients $125 per hour for her time and her adjusted gross income for 2018 was $100,000. In January and February 2018, however, Amelia spent 80 hours of her time volunteering for the Salvation Army doing accounting work. She paid $100 out of her own pocket for supplies and made an additional cash contribution of $1,000 to the Salvation Army in 2018.What is Amelia's charitable contribution deduction for 2018?

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

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 taxpayer's standard deduction is limited by the taxpayer's AGI if AGI exceeds a certain threshold.

For 2018-2025, the personal and dependency exemption is essentially zero. Although the deduction is suspended, the rules for determining who is a dependent may be used in other provisions (such as determining head of household status and the child tax credit).

Which of the following expenditures is not subject to some form of limitation on its deductibility based on AGI?

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

Which of the following filing statuses can never be used by a single individual?

Tina is 60 and single. She has AGI of $71,000. If she paid for $9,625 in unreimbursed medical expenses, what is her medical deduction for AMTI 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

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

All of the following are deductions for AGI except:

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?

The 2018 standard deduction for a married taxpayer, age 68, who files a separate return is:

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. What is Sebastian and Kaitlin standard deduction on their 2018 tax return if they do not itemize?

Nonrefundable tax credits