Exam 5: Deductions for Individuals and Tax Determination

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.

All of the following are a common filing status for a married person 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. What is Sebastian and Kaitlin's taxable income for 2018 if they do not itemize their deductions and file as married filing jointly?

Vera and Jake (both age 45) are a married couple with AGI of $327,300 for 2018. They paid $20,000 of mortgage interest, $8,000 of unreimbursed medical expenses, $4,000 of property taxes, and $9,000 of charitable contributions for the year. How much may they claim for itemized deductions in 2018?

What is the difference in tax savings between a $1,000 tax credit and a $1,000 tax deduction for a single taxpayer with $45,000 in taxable income?

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?

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

In 2018, Amber earned a salary of $230,000 and also had the following items of investment income: $28,000 net short-term capital gain on sale of stock, $8,000 dividend income, $6,000 interest income from corporate bonds, and $5,000 interest income from tax-exempt municipal bonds. Compute Amber's net investment income (NII) tax if the tax rate is 3.8% and the threshold is $200,000.

Lisa's husband died in 2015. Lisa did not remarry, and continued to maintain a home for herself and her dependent daughter during 2016, 2017, and 2018 providing full support for herself and her daughter during these years. For 2018, Lisa's filing status is:

Torri is a sixth grade teacher. In 2018, she earned a salary of $33,500. She contributed $675 to her Roth IRA and paid $800 in student loan interest. What is Torri's taxable income and income tax if she is single and does not itemize deductions?

Sonjay had AGI of $60,000 in 2018 and made several charitable contributions as follows: Land donated to county for new school: FMV = $30,000; basis = $20,000 Appraisal fee for the land: $2,500 Contributions to his church: $4,000 Contributions to the Red Cross: $1,000 What is the maximum charitable contribution deduction that Sonjay could claim in 2018?

Which of the following is a refundable 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 taxes for 2018?

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 How much are Colin's deductible contributions?

Cailey and Dimitri are married and file a joint tax return. Cailey has $170,000 in salary and Dimitri has $210,000 in self-employment income in 2018. How much must they pay on their individual tax return for their Medicare surtax?

Carl and Carla are a very wealthy retired couple in their late sixties and file a joint tax return. During 2018 they had AGI of $980,000 that is all from investments and equals their net investment income. Their only itemized deduction was a $30,000 charitable contribution because they had sold their homes last year and spent all 2018 traveling around the world. a. If they itemize, what is their taxable income for 2018 and their income tax? b. How would your answers change if they claimed the standard deduction instead of itemizing?

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

Colin (single and age 40) has AGI of $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 for 10 years 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 If Colin does not itemize, what is his total deduction from AGI in 2018:

Which of the following statements is true regarding the deductibility of investment interest expense?