Question 1

This year, David paid his physician $6,200 for routine examinations and lab tests and received a $3,000 reimbursement from his medical insurance company. David is allowed to deduct the $3,200 unreimbursed medical expense as an above-the-line deduction.

Accepted Answer

A) True 
 B)False

Question 2

Gary is a successful architect who also sings at weddings. This year, he received $5,400  fees from his singing and spent $6,250 on singing lessons, sheet music, and travel to the weddings. If Gary considers this activity as a hobby for federal tax purposes, which of the following statements is true?

Accepted Answer

A)  Gary is not required to include the $5,400 in gross income. 
B)  Gary is allowed to deduct $5,400 of his expenses as an above-the-line deduction. 
C)  Gary is not allowed to deduct any of his hobby expenses. 
D)  Gary is allowed to deduct $5,400 of his expenses as an itemized deduction.

Question 3

Which of the following tax payments is allowed as an itemized income tax deduction?

Accepted Answer

A)  Federal gift tax 
B)  Payroll tax on wages paid to a housekeeper 
C)  Social Security tax withheld from salary 
D)  Local property tax on personal automobile

Question 4

Taxpayers include a maximum of 85% of Social Security benefits in gross income.

Accepted Answer

A) True 
 B)False

Question 5

Mr and Mrs King had only one casualty loss this year when a tornado (a federally declared disaster) severely damaged their home, decreasing its value by $70,000. The couple received a $48,000 reimbursement from their insurance company. Compute the Kings' itemized deduction for casualty losses if their AGI was $98,200.

Accepted Answer

A)  $22,000 
B)  $21,900 
C)  $12,080 
D)  $60,080

Question 6

William took out a $440,000 mortgage to purchase his personal residence. The residence is worth almost $1 million, and William wants to take out a $200,000 second mortgage and use the proceeds to consolidate his credit card debt. William can deduct the interest he pays on both mortgages.

Accepted Answer

A) True 
 B)False

Question 7

Mr Jain paid the following taxes this year.
Federal income tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 32,450
Federal self-employment tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$ 7,921
State and local income tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $\quad$$ 3,450
State and local sales tax $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$   $ 4,060
Local property tax on principal residence $\quad$$\quad$$ 4,320
Local property tax on investment land $\quad$$\quad$$\quad$ $ 1,880
Local property tax on two automobiles $\quad$$\quad$$\quad$$ 750
Compute Mr Jain's itemized deduction for taxes.

Accepted Answer

The answer of Mr Jain paid the following taxes this...

Question 8

Mia inherited $1 million from her deceased grandfather. Mia must include the inheritance in gross income.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements about divorce settlements is true?

Accepted Answer

A)  Property transfers pursuant to divorce have no income tax consequences. 
B)  Child support is excluded from the recipient's gross income. 
C)  Child support is an above-the-line deduction for the payer. 
D)  Statements A. and B. are true.

Question 10

Bjorn contributed $600,000 cash to qualified public charities this year. Her AGI was $814,000. Which of the following statements is true?

Accepted Answer

A)  Ms. Bjorn's charitable contribution deduction is limited to $488,400, and she has a $111,600 contribution carryover to future years. 
B)  Ms. Bjorn's charitable contribution deduction is $360,000. 
C)  Ms. Bjorn's charitable contribution deduction is limited to $488,400. The $111,600 nondeductible amount will never result in a tax benefit. 
D)  Ms. Bjorn's charitable contribution deduction is $600,000.

Question 11

For federal income tax purposes, a taxpayer may elect to deduct state and local sales taxes ($10,000 maximum) as itemized deductions.

Accepted Answer

A) True 
 B)False

Question 12

Mr and Mrs Darwin sold their principal residence on September 12, 2017, and purchased and moved into a new residence three weeks later. They excluded their $353,000 gain realized on this sale from gross income. On October 2, 2018, the Darwins realized a gain on sale of the new residence. Which of the following statements about this gain is true?

Accepted Answer

A)  If the Darwins sold the new residence because of a change in place of Mr. Darwin's employment, they may exclude up to $500,000 of the gain from gross income. 
B)  The Darwins may not exclude any of the gain from gross income. 
C)  The Darwins may exclude $147,000 of the gain from gross income. 
D)  None of the above statements is true.

Question 13

Carl had $2,000 gambling winnings and $8,400 gambling losses this. Carl must include $2,000 in gross income and can deduct $8,400 as an itemized deduction.

Accepted Answer

A) True 
 B)False

Question 14

The cost of commuting to and from a place of employment is a nondeductible personal expense.

Accepted Answer

A) True 
 B)False

Question 15

Any gain recognized on the sale of a personal residence is excluded from the seller's gross income.

Accepted Answer

A) True 
 B)False

Question 16

Mrs Hanson's financial support this year consisted of: $14,650 Social Security benefits, $9,600 pension from her former employer's qualified retirement plan, and $15,000 cash gifts from her children. Compute Mrs Hanson's AGI.

Accepted Answer

The answer of Mrs Hanson's financial support this year consisted...

Question 17

Mary Stone, a single individual, sold a personal residence on June 3, 2017, and excluded her $93,600 gain from gross income. If she sells another personal residence before June 4, 2019, she can exclude a maximum of $156,400 of any gain.

Accepted Answer

A) True 
 B)False

Question 18

The federal income tax system provides incentives for individual taxpayers to meet their housing needs by purchasing instead of renting a home.

Accepted Answer

A) True 
 B)False

Question 19

Mr Haugh owns a sporting goods store as a sole proprietorship. This year, he donated baseball equipment (bats, gloves, balls) to the local YMCA to use in their community sports programs. His cost basis in the inventory items was $45,700, and their retail value was $68,200. Which of the following statements about this donation is true?

Accepted Answer

A)  Mr. Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 business deduction. 
B)  Mr. Haugh must recognize $22,500 ordinary business income and is allowed a $68,200 charitable contribution deduction. 
C)  Mr. Haugh is allowed a $45,700 charitable contribution deduction. 
D)  Mr. Haugh is allowed a $68,200 charitable contribution deduction.

Question 20

Which of the following is not a tax incentive for individuals to purchase a home instead of renting?

Accepted Answer

A)  Real property taxes on the home are deductible. 
B)  Premiums paid on homeowner's insurance are deductible. 
C)  Interest paid on a home mortgage is deductible. 
D)  All of the above are tax incentives.

Exam 17: Tax Consequences of Personal Activities

This year, David paid his physician $6,200 for routine examinations and lab tests and received a $3,000 reimbursement from his medical insurance company. David is allowed to deduct the $3,200 unreimbursed medical expense as an above-the-line deduction.

Which of the following tax payments is allowed as an itemized income tax deduction?

Taxpayers include a maximum of 85% of Social Security benefits in gross income.

William took out a $440,000 mortgage to purchase his personal residence. The residence is worth almost $1 million, and William wants to take out a $200,000 second mortgage and use the proceeds to consolidate his credit card debt. William can deduct the interest he pays on both mortgages.

Mia inherited $1 million from her deceased grandfather. Mia must include the inheritance in gross income.

Which of the following statements about divorce settlements is true?

Bjorn contributed $600,000 cash to qualified public charities this year. Her AGI was $814,000. Which of the following statements is true?

For federal income tax purposes, a taxpayer may elect to deduct state and local sales taxes ($10,000 maximum) as itemized deductions.

Carl had $2,000 gambling winnings and $8,400 gambling losses this. Carl must include $2,000 in gross income and can deduct $8,400 as an itemized deduction.

The cost of commuting to and from a place of employment is a nondeductible personal expense.

Any gain recognized on the sale of a personal residence is excluded from the seller's gross income.

Mrs Hanson's financial support this year consisted of: $14,650 Social Security benefits, $9,600 pension from her former employer's qualified retirement plan, and $15,000 cash gifts from her children. Compute Mrs Hanson's AGI.

Mary Stone, a single individual, sold a personal residence on June 3, 2017, and excluded her $93,600 gain from gross income. If she sells another personal residence before June 4, 2019, she can exclude a maximum of $156,400 of any gain.

The federal income tax system provides incentives for individual taxpayers to meet their housing needs by purchasing instead of renting a home.

Which of the following is not a tax incentive for individuals to purchase a home instead of renting?