Question 1

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?

Accepted Answer

a. Their 2018 regular taxable income is $950,000 [$980,000 - $30,000]; their regular income tax is $290,879 [(950,000 - 600,000) x 37% + $161,379]. They are subject to the Medicare surtax on $730,000 ($980,000 - $250,000) of investment income at 3.8% or an additional $27,740 for a total of $318,619 in income tax. For itemized deductions, the charitable contribution is deductible.
b. If they claim the standard deduction, their 2018 taxable income is $953,400 ($980,000 - $26,600). Standard deduction = $24,000 + $1,300 + 1,300 = $26,600; their income tax would have been increased by $1,258 [($30,000 - $26,600) x 37%)] to $319,877 ($318,619 + $1,258).

Question 2

Beginning in 2019, qualified medical expenses for a 66-year-old single individual must exceed 10 percent of AGI to be deductible for regular income tax purposes.

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

A) True 
 B)False  True

Question 4

In 2018, Jacob earned a salary of $185,000 and also had the following items of investment income: $39,000 net short-term capital gain on sale of stock, $7,000 dividend income, $5,000 interest income from corporate bonds, and $4,000 interest income from tax-exempt municipal bonds. Compute Jacob's net investment income (NII) tax.

Accepted Answer

A)   $0
B)   $1,368
C)   $1,520
D)   $2,090

Question 5

What is the purpose of preserving the rules for determining who is a dependent?

Accepted Answer

The answer of What is the purpose of preserving the...

Question 6

What uses are made of adjusted gross income (AGI) in the individual tax model?

Accepted Answer

The answer of What uses are made of adjusted gross...

Question 7

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?

Accepted Answer

A)   $500
B)   $1,000
C)   $1,500
D)   $2,500

Question 8

Which of the following is a requirement to file for head of household?

Accepted Answer

A)   A single individual (except abandoned spouse) 
B)   Provides over one-half the cost of maintaining a household for a dependent or a child
C)   Qualifying dependent (except a parent)  or child must live in the taxpayer's household
D)   All of the above are requirements

Question 9

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?

Accepted Answer

A)   $11,100
B)   $11,000
C)   $1,100
D)   $1,000

Question 10

How is the deductibility of itemized deductions limited in determining taxable income?

Accepted Answer

The answer of How is the deductibility of itemized deductions...

Question 11

Ethan, age 67, and Abigail, age 64, with good eyesight, are married and file a joint tax return. They have adjusted gross income of $1,200,000 for 2018. They have only $5,000 of itemized deduction, so they claim their standard deduction. How much of their standard deduction is phased out in 2018?

Accepted Answer

A)   $13,850
B)  $12,600
C)  $10,682
D)  0

Question 12

Up to $10,000 ($5,000 if married filing separately) of income and real property taxes are deductible for state, local, and foreign real property.

Accepted Answer

A) True 
 B)False

Question 13

Health insurance premiums that are deductible as medical expenses include premiums paid pre-tax through a flexible spending account.

Accepted Answer

A) True 
 B)False

Question 14

In 2018 safe deposit box rental fees are deductible as miscellaneous itemized deductions and must exceed two percent of AGI to be deductible.

Accepted Answer

A) True 
 B)False

Question 15

28 The NII tax is assessed on the greater of net investment income or modified adjusted gross income.

Accepted Answer

A) True 
 B)False

Question 16

Susan pays $4,700 for daycare for her dependent mother who had a stroke last year. What is her dependent care credit if her AGI is $40,100 if the phaseout begins at $15,000?

Accepted Answer

A)   $600
B)   $660
C)   $940
D)   $1,034

Question 17

Sean bought a home in 2010 for $625,000 financing $550,000 of the purchase price with a 30 year mortgage. In 2018 when his existing mortgage balance was $520,000, he took out a home equity loan for $150,000. He used the proceeds to pay off credit card debt of $40,000 and purchase a car for $85,000; the balance he used to buy an engagement ring for his girlfriend. In 2018 he paid $30,000 interest on the mortgage and paid interest only of $6,600 on the home equity loan. What is his deduction for qualified residential interest for 2018?

Accepted Answer

A)   $36,600
B)   $34,400
C)   $30,000
D)   $6,600

Question 18

In 2018, which of the following is allowed as an addition to a nonitemizer's standard deduction?

Accepted Answer

A)   Sales tax on new automobile purchases
B)   $500 for real property taxes
C)   Medical expenses in excess of 10% of AGI
D)   None of the above

Question 19

What is required for a taxpayer to qualify to file as a surviving spouse?

Accepted Answer

The answer of What is required for a taxpayer to...

Question 20

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?

Accepted Answer

A)   $30,000
B)   $27,500
C)   $25,000
D)   $24,000

Exam 5: Deductions for Individuals and Tax Determination

Beginning in 2019, qualified medical expenses for a 66-year-old single individual must exceed 10 percent of AGI to be deductible for regular income tax purposes.

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

What is the purpose of preserving the rules for determining who is a dependent?

What uses are made of adjusted gross income (AGI) in the individual tax model?

Which of the following is a requirement to file for head of household?

How is the deductibility of itemized deductions limited in determining taxable income?

Ethan, age 67, and Abigail, age 64, with good eyesight, are married and file a joint tax return. They have adjusted gross income of $1,200,000 for 2018. They have only $5,000 of itemized deduction, so they claim their standard deduction. How much of their standard deduction is phased out in 2018?

Up to $10,000 ($5,000 if married filing separately) of income and real property taxes are deductible for state, local, and foreign real property.

Health insurance premiums that are deductible as medical expenses include premiums paid pre-tax through a flexible spending account.

In 2018 safe deposit box rental fees are deductible as miscellaneous itemized deductions and must exceed two percent of AGI to be deductible.

28 The NII tax is assessed on the greater of net investment income or modified adjusted gross income.

Susan pays $4,700 for daycare for her dependent mother who had a stroke last year. What is her dependent care credit if her AGI is $40,100 if the phaseout begins at $15,000?

In 2018, which of the following is allowed as an addition to a nonitemizer's standard deduction?

What is required for a taxpayer to qualify to file as a surviving spouse?