Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below 1. The adjusted gross income (AGI) limitation on medical expenses is 15 percent. a. True b. False ANSWER: False RATIONALE: Medical expenses can …
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Income Tax Fundamentals 2017 35th Edition by Gerald E. Whittenburg – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
1. The adjusted gross income (AGI) limitation on medical expenses is 15 percent.
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2. Premiums paid for life insurance policies are deductible as medical expenses.
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3. The cost of a chiropractor’s services qualifies as a medical deduction.
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4. The cost of over-the-counter aspirin and decongestants is a deductible medical expense even though they are non-prescription drugs.
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5. Jon, age 45, had adjusted gross income of $26,000 in 2016. During the year, he incurred and paid the following medical expenses:
Jon received $900 in 2016 as a reimbursement for a portion of the doctors’ fees. If Jon were to itemize his deductions, what would be his allowable medical expense deduction after the adjusted gross income limitation is taken into account?
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6. During the current year, Mary paid the following expenses:
What is the total amount of medical expenses (before considering the limitation based on adjusted gross income) that would enter into the calculation of itemized deductions on Mary’s current year income tax return?
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7. In 2016, David, age 65, had adjusted gross income of $32,000. During the year he paid the following medical expenses:
What amount can David deduct as medical expenses (after the adjusted gross income limitation) in calculating his itemized deductions for 2016?
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8. Randy is advised by his physician to install an elevator in his residence, since he is afflicted with heart disease. The cost of installing the elevator is $10,000 and it has an estimated useful life of 10 years. He installs the elevator in January of the current year, and it increases the value of his residence by $8,000. Disregarding the limitation based on adjusted gross income, how much of the cost of the elevator may Randy take into account in determining his medical expense deduction for the current year?
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9. Which of the following is not deductible as a medical expense on Schedule A?
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10. Which of the following is not considered a deductible medical expense?
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11. Roberto, age 50, has AGI of $110,000 for 2016. He has medical expenses of $13,200. How much of the medical expenses can Roberto deduct on his Schedule A for 2016?
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12. Which of the following is not an itemized deduction?
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13. During 2016, Sarah, age 29, had adjusted gross income of $12,000 and paid the following amounts for medical expenses:
In 2016, Sarah drove 137 miles for medical transportation in her personal automobile, and she uses the standard mileage allowance. Her insurance company reimbursed Sarah $300 during the year for the above medical expenses. Using the schedule below, calculate the amount of Sarah’s deduction for medical and dental expenses for the 2016 tax year.
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14. For 2016, Betsy and Bob, ages 62 and 68, respectively, are married taxpayers who file a joint tax return with AGI of $50,000. During the year they incurred the following expenses:
In addition, their insurance company reimbursed them $3,100 for the above expenses. Using the format below, calculate Betsy and Bob’s deduction for medical and dental expenses for 2016.
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15. Jake developed serious health problems and had his bathroom remodeled so it is wheelchair-accessible and had a handicapped shower installed, based on a written prescription by his doctor. The cost of the remodel is $15,000 and is deemed to add no value to his house by a real estate appraiser. How is the cost of the remodel treated on Jake’s tax return?
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16. Glenda heard from a friend that prescriptions drugs were considerably cheaper overseas and purchases her regular prescription over the internet from a foreign company for $500. Though technically illegal, Glenda saves quite a bit and is pretty sure “everyone is doing it.” Glenda can include the $500 cost of the prescription as a deductible medical expense.
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17. If a taxpayer installs special equipment in their home for medical reasons, some or all of the cost can be included as a deductible medical expense.
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18. The 2016 standard mileage rate for taxpayer use of a personal auto for transportation for medical care is $.23 per mile.
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19. Lodging for a trip associated with medical care associated with a licensed hospital is not deductible.
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20. If real property is sold during the year, the property taxes must be allocated between the buyer and seller based on the number of days the property was held by each party.
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21. The amount of a special assessment charged to residents for the installation of sidewalks on their street is not deductible on Schedule A as property taxes.
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22. To calculate the amount of state and local income taxes which may be deducted as an itemized deduction, state income taxes paid during the year must be reduced by state income tax refunds received during the year.
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23. The cost of a fishing license is considered a personal property tax and is deductible as an itemized deduction.
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24. In 2016, state income taxes may be deducted as an itemized deduction on Schedule A.
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25. During the current year, Mr. and Mrs. West paid the following taxes:
What amount can the Wests deduct as property taxes in calculating itemized deductions for the current year?
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26. Margo has $2,200 withheld from her wages for state income taxes during 2016. In March of 2016, she paid $400 in additional taxes for her 2015 state tax return. Her state income tax liability for 2016 is $2,700 and she pays the additional $500 when she files her 2016 state tax return in April of 2017. What amount should Margo deduct as an itemized deduction for state income taxes on her 2016 federal income tax return, assuming she elects to deduct state and local income taxes?
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27. During the current year, Seth, a self-employed individual, paid the following taxes:
What amount can Seth claim as an itemized deduction for taxes paid during the current year, assuming he elects to deduct state and local income taxes?
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28. During the current year, George, a salaried taxpayer, paid the following taxes which were not incurred in connection with a trade or business:
What amount can George claim for the current year as an itemized deduction for the taxes paid, assuming he elects to deduct state and local income taxes?
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29. Which of the following taxes is not deductible as an itemized deduction?
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30. Frank is a resident of a state that imposes a tax on income. The following information pertaining to Frank’s state income taxes is available:
What amount should Frank use as state and local income taxes in calculating itemized deductions for his 2016 Federal tax return, assuming he elects to deduct state and local income taxes?
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31. Which one of the following is not tax deductible?
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32. Weber resides in a state that imposes a tax on income. The following information relating to Weber’s state income taxes is available:
Assuming he elects to deduct state and local income taxes, what amount should Weber use as state and local income taxes in calculating itemized deductions for his 2016 Federal income tax return?
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33. Harvey itemized deductions on his 2015 income tax return. Harvey plans to itemize deductions again in 2016 and the following information is available regarding state and local income taxes:
Assuming he elects to deduct state and local income taxes, the above information should be reported by Harvey in his 2016 tax return as:
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34. Which of the following is not deductible as an itemized deduction?
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35. Sherry had $5,600 withheld from her wages for state income taxes during 2016. In May of 2016, she received a $450 refund for her prior year state tax return. The amount of Sherry’s tax on her 2016 tax return is $6,100 and she pays the additional tax of $500 ($6,100 – $5,600) when she files her state income tax return in April of 2017.
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36. Daniel lives in a state that charges a vehicle registration fee of $50 plus $20 for every $1,000 of value. During the current year, Daniel paid $170 for registration of his automobile.
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| 37. Newt is a single taxpayer living in Hollywood, California, with adjusted gross income for the 2016 tax year of $43,050. Newt’s employer withheld $3,700 in state income tax from his salary. In April of 2016, he paid $300 in additional state taxes for his prior year’s return. The real estate taxes on his home are $1,800 for 2016 and his personal property tax based on the value of his automobile is $75. Also, he paid $210 for state gasoline taxes for the year. The IRS estimate of general sales tax for Newt is $1,200 for 2016.
How much should Newt deduct on Schedule A of Form 1040 of his 2016 tax return for taxes paid?
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38. Meade paid $5,000 of state income taxes in 2016. The total actual sales taxes paid during 2016 was $4,500, which did not include $3,000 for the sales taxes paid in 2016 on Meade’s new boat. How should Meade treat the taxes paid in his 2016 tax return?
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39. Taxpayers are permitted to take an itemized deduction for the lesser of state income taxes paid or state sales taxes paid.
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40. Stan, a single taxpayer, has $1,700 of state income taxes withheld from his wages in the current year. In the current year, he also received a $320 refund on his prior year state income tax. Stan did not itemize last year but he intends to do so this year. Stan used the sales tax estimate tables and determined his sales tax deduction amount is $1,600. What amount should Stan deduct for state taxes?
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41. Foreign income taxes paid are deductible.
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42. State sales taxes can be deducted in lieu of state income taxes.
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43. Brittany determined that she paid $450 in gasoline excise taxes during the year when she bought gas for her commute to and from work. Brittany’s gas excise taxes are deductible as an itemized deduction.
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44. Charu is charged $70 by the state she lives in related to vehicle registration based on the weight of her personal auto. Charu can deduct the $70 as an itemized deduction.
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45. Mortgage interest on a taxpayer’s personal residence is not deductible on Schedule A.
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46. To deduct interest paid with respect to indebtedness, the taxpayer must be legally liable for the debt.
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47. The interest paid on a loan used to acquire municipal bonds is not deductible.
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48. The investment interest expense deduction is limited to the taxpayer’s net investment income.
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49. Jerry and Ann paid the following amounts during the current year:
What is the maximum amount they can use as interest expense in calculating itemized deductions for the current year?
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50. Matthew purchases a new principal residence in the current year and pays points of $2,000 to obtain a mortgage loan. What is the proper tax treatment for the points paid?
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51. Shellie, a single individual, received her Bachelor’s degree in 2015, and took a job with a salary of $45,000 per year. In 2016, she began paying interest on qualified education loans. She was able to pay $1,500 in 2016. Which of the following statements is correct?
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52. For the current tax year, David, a married taxpayer filing a joint return, reported the following:
What is the maximum amount that David can deduct in the current year as investment interest expense?
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53. Amy paid the following interest expense during the current year:
What is the amount of Amy’s interest deduction for the current year?
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54. Which of the following interest expense amounts is not deductible in 2016?
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55. During the current year, Cary and Bill incurred acquisition debt on their residence of $1,300,000 and a home equity loan of $200,000. On a joint tax return, what is the amount of their qualified acquisition debt and qualified home equity debt, respectively?
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56. What is the maximum amount of home equity debt (not acquisition debt) on which interest is fully deductible?
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57. Bill has a mortgage loan on his personal residence. He decides to pay 18 months of interest in advance on October 1, 2016. The total advanced interest payment is $36,000. How much of the advance interest payment can he deduct in 2016?
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58. Which of the following is not deductible as interest expense on Schedule A?
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59. Which of the following types of interest is not deductible?
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60. Fran paid the following amounts of interest during 2016:
Calculate the amount of Fran’s interest deduction for 2016.
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61. Douglas and Dena paid the following amounts of interest during the current year:
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| 62. Sally and Jim purchased their personal residence in Santa Barbara 20 years ago for $150,000. The home has a fair market value today of $1,000,000. For the current year, they have a $10,000 first mortgage on their home, on which they paid $1,000 in interest. They also have a home equity loan secured by their home with a balance throughout the year of $110,000. The proceeds of the home equity loan were used to send their two children to college. They paid interest on the home equity loan of $5,500 for the year.
Calculate the amount of their deduction for interest paid on qualified residence acquisition debt and qualified home equity debt for the current year. Qualified residence acquisition debt interest: Qualified home equity debt interest:
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63. Andy borrows $20,000 to invest in bonds. During the current year, his interest on the loan is $2,000. Andy’s interest income from the bonds is $400 and his investment expenses are $300.
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64. Melvin owns his home and has a $200,000 mortgage related to his purchase of the residence. In the fall of the current year, he borrows $40,000 on credit cards for college costs for his two sons. The interest expense on the mortgage is $15,000 and the interest expense on the credit cards is $6,000. How much of the interest is deductible as an itemized deduction and why? If you were Melvin’s accountant, what tax planning suggestion might you have made to him?
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65. For a taxpayer with adjusted gross income of $56,000, private mortgage insurance (PMI) is deductible in 2016.
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66. Which of the following types of interest are not likely to be deductible in 2016?
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67. Alice purchases a new personal auto and finances the purchase through the dealer. The interest of $760 she pays on the car loan during the current tax year is deductible.
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68. Dongkuk uses his holiday bonus to pay his January 2017 mortgage payment in December 2016. The payment would normally be due January 31st. Dongkuk may deduct the interest paid as part of the early mortgage payment.
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69. Richie Rominey purchases a new $4.3 million qualified principal residence in Palo Alto, CA using a mortgage loan of $3 million. Richie’s mortgage interest deduction may be limited.
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70. Perry Mayson, a single taxpayer, graduated law school last year with quite a bit of qualified student loan debt and ends up paying $4,300 in interest on the loan in the current tax year. Fortunately, Perry is well compensated and earns adjusted gross income of $85,000 during the current year. Perry may deduct his student loan interest in the current year.
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71. A taxpayer may donate the free use of property to a charitable organization and deduct the value as an itemized deduction.
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72. If a taxpayer contributes a painting to a museum but reserves the right to use the painting for parties, he may not be allowed a deduction for the charitable contribution.
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73. Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.
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74. Individual taxpayers may carry forward indefinitely charitable contributions that are not allowed as a deduction in the current year due to the adjusted gross income limitation.
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75. Christine saw a television advertisement asking for donations of used vehicles to a charitable foundation and decided to donate her old car. Which of the following statements is correct?
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76. Which of the following charitable contributions is not tax deductible?
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77. For 2016, Eugene and Linda had adjusted gross income of $30,000. Additional information for 2016 is as follows:
What is the maximum amount that they can use as a deduction for charitable contributions for 2016?
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| 78. Stewart had adjusted gross income of $22,000 in 2016. During the year, he made the following contributions to qualified charities:
- $7,000 cash - 1,000 shares of Able Corporation common stock, acquired in 1980 (cost and fair market value of $5,000) Considering the charitable contribution deduction limitation, what amount can Stewart claim as a deduction for charitable contributions in 2016?
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79. Gwen has written acknowledgments for each of the following charitable contributions during the current year:
What is Gwen’s charitable contribution deduction for the current year?
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80. During the current year, Hom donates a sculpture that cost $1,000 to a museum for exhibition. The sculpture’s fair market value was $1,700 on the date of the donation, and Hom’s adjusted gross income is $40,000.
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81. Ronald donates publicly traded Microsystems stock with a basis of $2,000 and a fair market value of $20,000 to the local library, which is considered a public charity. Ronald has $30,000 of adjusted gross income, and he purchased the stock 15 years ago. How is this contribution treated on Ronald’s tax return?
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82. Don gives his old car to a qualified charity. The charity then sells the car at an auction. Describe the tax treatment of the donation.
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83. Frank was so entertained by the Paris Symphony on his visit to France that he mailed them a donation of $100 to support their organization as soon as he returned home to Seattle. Frank may deduct the charitable contribution to the Paris Symphony on his U.S. tax return.
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84. Agnes is retired and has only a $12,000 annual pension as income. In 2016, Agnes’ aunt dies and leaves her land worth $1.2 million. Agnes sees no need for the land and donates it immediately to a qualified public charity. Agnes may deduct a $1.2 million charitable contribution on her 2016 tax return.
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85. Dr. Wheeler donates her time and services to Doctors with No Limits, a qualified charity. Dr. Wheeler can take a tax deduction for the $3,400 market value of her time donated.
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86. Casualty and theft losses must be reduced by amounts recovered from insurance coverage.
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87. If business property is fully destroyed as a result of a casualty, the loss is equal to the decrease in the fair market value of the property.
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88. If personal property is completely destroyed, the casualty loss deduction is still reduced by a floor amount.
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89. All personal casualty losses incurred during the year are added together and only one $100 floor amount is used to reduce the casualty deduction.
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90. A theft loss is deductible in the year the theft is discovered, even if the theft occurred in a prior year.
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91. Damage resulting from which of the following would probably not give rise to a casualty loss deduction?
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92. Which one of the following is not considered a casualty or theft loss for tax purposes?
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93. Harris had adjusted gross income in the current year of $126,000. During the year his personal summer home was almost completely destroyed by a cyclone. Pertinent data with respect to the home follows:
Harris was partially insured for his loss and in the current year he received a $113,000 insurance settlement. What is Harris’ allowable casualty loss deduction for the current year?
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94. Sam operates a manufacturing company as a sole proprietorship. During the current year, the machinery used in the manufacturing process is totally destroyed by a fire in the building. The machinery had an adjusted basis of $16,000 and a fair market value of $11,000 on the date of the fire. The machinery was insured and Sam receives $10,000 from the insurance company. Sam does not replace the machinery. Assuming Sam has adjusted gross income of $60,000 for the current year, calculate the amount of Sam’s casualty loss for the current year.
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95. Kat owns a small bungalow which is destroyed in a fire. Kat is not insured for fire. The bungalow originally cost $22,000, but was worth $45,000 before the fire. Kat has $30,000 of adjusted gross income. How much can Kat claim as a casualty loss in her tax return? Explain.
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96. Diane’s engagement ring is stolen in the current year. It cost $1,500 and was worth $1,500. Diane makes $30,000 as an office manager and has no other income. What is her casualty loss deduction?
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97. Steve keeps a valuable bonsai collection in his back yard. In the current year, thieves disarmed his security system and stole several of the bonsai. The stolen bonsai had a fair market value and adjusted basis of $4,500. Assuming that Steve had no insurance coverage on the bonsai and his adjusted gross income for the current year is $28,000, calculate the amount of his theft loss deduction.
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98. The textbook gives an example in which a house purchased for $25,000 with an appreciated value of $160,000 was completely destroyed. The casualty loss was limited to the taxpayer’s basis of $25,000. Why shouldn’t the full $160,000 be allowed as a loss?
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99. If business property is completely destroyed, the casualty or theft loss is the lesser of the decrease in market value or the adjusted basis of the property.
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| 100. The cost of an appraisal of a painting may be deducted, subject to the 2% of adjusted gross income imitation, if the purpose of the appraisal is related to the preparation of an income tax return.
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101. If a ballet dancer seeks work as a ditch digger, the expenses of job hunting may be deductible.
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102. Expenses of education to improve or maintain existing skills are deductible as a miscellaneous itemized deduction even if the education incidentally leads to qualification in a new job or business.
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103. The cost of uniforms is deductible only by self-employed taxpayers.
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104. If the taxpayer fails to locate a job, job hunting expenses are not deductible.
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105. An employee may deduct the cost of welder’s safety goggles used at work as a miscellaneous itemized deduction.
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106. Peter is a plumber employed by a major contracting firm. During the current year, he paid the following miscellaneous expenses:
If Peter were to itemize his deductions for the current year, what amount could he claim as miscellaneous itemized deductions (before applying the 2 percent of adjusted gross income limitation)?
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107. Which of the following is deductible as a miscellaneous itemized deduction?
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108. Which of the following miscellaneous deductions is subject to the 2 percent of adjusted gross income limitation?
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109. Which of the following miscellaneous deductions are not subject to the 2 percent of adjusted gross income limitation?
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110. Which of the following is a miscellaneous itemized deduction?
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111. During the current tax year, Ruth, a nurse at Dr. Pan’s office, incurred the following expenses:
If Ruth’s adjusted gross income is $29,000, calculate her net miscellaneous deductions after the adjusted gross income percentage limitation.
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| 112. State if the following miscellaneous expenses are:
(1) subject to the 2 percent of AGI limitation, (2) not subject to the 2 percent of AGI limitation, or (3) not deductible. a. Black pants worn by a theater manager b. Investment management fees c. Gambling losses to the extent of gambling winnings d. A reader for a blind person used at work e. A resume service used in finding another sales job for a sales representative f. Postage to mail personal tax returns
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113. The expense of a review course for a state real estate agent’s exam is deductible as a miscellaneous itemized deduction by a taxpayer attempting to become an agent.
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114. Educational expenses are deductible as a miscellaneous itemized deduction even if the education is required to meet the minimum requirements for the taxpayer’s current job.
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115. Unreimbursed employee business expenses are miscellaneous itemized deductions, subject to the 2 percent of adjusted gross income limitation.
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116. If an employee receives a reimbursement for employee business expenses, the amount of the reimbursement is always excluded from gross income and the expenses are deductible as deductions for adjusted gross income.
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117. An accountable expense reimbursement plan:
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| 118. Jean’s employer has an accountable plan for reimbursing employee expenses. Jean is reimbursed for $1,500 of business travel and $500 for various business subscriptions and professional dues. The $2,000 reimbursement should be treated as follows:
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119. What income tax form does an employee use to report business expenses that are not reimbursed by an employer under an accountable plan?
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120. Carla is a high school teacher who is required by her school district to take continuing education courses which are offered at the local college. She is also in the process of taking classes at a different university where she is pursuing her Ph.D. to become a research specialist. She pays the tuition for both schools. Which of the following is true?
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121. Catherine is a CPA employed by a large accounting firm in San Francisco. In the current year, she paid the following amounts:
How much may she deduct on Schedule A as a miscellaneous deduction, before considering the 2 percent of adjusted gross income limitation?
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122. Charles, a corporate executive, incurred business related, unreimbursed expenses in the current year as follows:
Assuming that Charles itemizes his deductions, how much of these expenses should he deduct on his current year Schedule A, before considering the 2 percent of adjusted gross income limitation?
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| 123. April and Wilson are married and file a joint tax return. Wilson is a police officer, and in the current tax year he spends $400 on uniforms and $160 for dry cleaning the uniforms. April is in the National Guard and military regulations restrict her from wearing her uniforms when she is off duty. The cost of uniforms for the year was $220 and the cost of dry cleaning them amounted to $80. April was granted a uniform allowance of $180 for the year. She also purchased a pair of standard black shoes to wear while on duty that cost $75. How much may they deduct on Schedule A for special clothing and uniforms, before considering the 2 percent of adjusted gross income limitation?
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| 124. Which of the following employees may deduct the cost of a uniform?
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125. Lourdes is a paralegal. Since she often deals with legal matters, she feels a law degree would be beneficial to her. May Lourdes deduct her educational expenses for law school as a miscellaneous itemized deduction? Explain.
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| 126. Rachel’s employer does not have an accountable plan for employee expenses. Her employer reimburses her for $3,000 of business travel expenses.
a. How much of the reimbursement must Rachel include in income?
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| 127. Rob’s employer has an accountable plan for employee expenses. His employer reimburses him for $1,000 of professional dues and subscriptions.
a. How much of the reimbursement must Rob include in income?
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128. Tom is employed by a large consulting firm. His employer has an accountable expense reimbursement plan. Tom paid for $3,000 of travel expenses which were directly reimbursed under the plan. How will the travel expenses be treated in Tom’s tax return?
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129. Mary Lou took an $8,000 distribution from her educational savings account and used $6,000 to pay for qualified higher education expenses. The remaining balance of $2,000 was used to purchase clothes. On the date of the distribution, her educational savings account had a $25,000 balance including the $20,000 she had contributed. How much of the $8,000 distribution is tax-free?
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130. Charlie is a single taxpayer with income of $107,000 which includes $22,500 of interest income. Contributions to educational savings accounts are phased out between $95,000 and $110,000. What is the maximum contribution Charlie can make to an educational savings account?
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131. Which of the following is correct for Qualified Tuition Programs?
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132. Jennie receives $12,000 (of which $2,000 is earnings) from a Qualified Tuition Program. She uses the funds to pay for new furniture for her apartment. What amount is taxable to Jennie?
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133. Which of the following is true with respect to an education incentive?
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134. For married taxpayers filing a joint return in 2016, at what AGI level does the phase-out limit for contributions to Qualified Tuition Programs (Section 529 plans) start?
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135. Geoffrey receives $20,000 from a qualified tuition program created by his grandmother. The program had accumulated $6,000 in earnings. He used the full $20,000 to pay for qualified higher education expenses. Calculate the amount of earnings subject to taxation.
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136. Phillip, a single parent, would like to contribute $1,800 to an educational savings account for his 10-year-old son. His AGI is $98,000. Calculate the amount of the contribution he can make.
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137. Melissa took a $1,500 distribution from her educational savings account and used $1,200 to pay for qualified education expenses. Before the distribution, Melissa’s account balance was $4,000, of which $1,000 was earnings. Calculate the following:
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138. All taxpayers may deduct up to $4,000 of higher education tuition expenses.
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139. Toni and Beyonze are married and file jointly. During 2016, they paid tuition for their daughter’s college in the amount of $23,000. If their AGI was $142,000, what is the amount of tuition deduction they are eligible for?
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140. Itemized deductions are subject to a phase-out based on AGI for certain high-income taxpayers.
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141. Pat has a dependent daughter and files as head of household. She has AGI of $376,000. What percentage of the $4,050 personal exemption and $4,050 dependency exemption may she deduct on her 2016 income tax return?
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142. Alicia is a single taxpayer with AGI of $338,400 and itemized deductions of $100,000 which are made up of $30,000 of mortgage interest, $30,000 of state income taxes and property taxes, and $40,000 of contributions to her temple. What is the amount of itemized deductions that Alicia may deduct on her 2016 income tax return after the phase-out for high-income taxpayers?
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| 143. Ellen and Rick are married with one dependent child. They have AGI of $355,300, and itemized deductions consisting of $20,000 state income taxes and $20,000 medical expenses, after applying the 10 percent of AGI limitation.
Compute the following for 2016: a. Itemized deductions allowed after the phase-out for high-income taxpayers. b. Exemption deductions (ordinarily $4,050 x 3) after the high-income phase-out. c. Taxable income.
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