ACC 555 Week 11 Final Exam Strayer New

Click On The Link Below To Purchase:

http://www.hwmojo.com/products/acc-555-final-exam

Chapters 7 Through 14

Prentice Hall's Federal Taxation 2015 Comprehensive, 28e (Pope)Chapter 7 Itemized Deductions

1) For individuals, all deductible expenses must be classified as deductions for AGI or deductions from AGI.

2) In 2014, medical expenses are deductible as a from AGI deduction to the extent that they exceed 7.5 percent of the taxpayer's AGI.

3) Medical expenses paid on behalf of an individual who could be the taxpayer's dependent except for the gross income or joint return tests are deductible as itemized deductions.

4) Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.

5) The definition of medical care includes preventative measures such as routine physical examinations.

6) Due to stress on the job, taxpayer Charlie began to experience chest pains. In order to relax and relieve the pains, he and his spouse went on an ocean cruise. The cost of the cruise to alleviate this medical condition is tax deductible. 7) Expenditures for a weight reduction program are deductible if recommended by a physician to treat a specific medical condition such as hypertension caused by excess weight.

8) In order for a taxpayer to deduct a medical expense, the amount must be paid to a certified medical doctor (M.D.).

9) Jeffrey, a T.V. news anchor, is concerned about the wrinkles around his eyes. Because it is job-related, the cost of a face lift to eliminate these wrinkles is a deductible medical expense.

10) Expenditures for long-term care insurance premiums qualify as a medical expense deduction subject to an annual limit based upon the age of an individual.

11) Capital expenditures for medical care which permanently improve or better the taxpayer's property are deductible to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.

12) Expenditures incurred in removing structural barriers in the home of a physically handicapped individual are deductible only to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure. 13) If the principal reason for a taxpayer's presence in an institution is the need and availability of medical care, the entire cost of lodging and meals is considered qualified medical expenditures.

14) A medical expense is generally deductible only in the year in which the expense is actually paid.

15) If a prepayment is a requirement for the receipt of the medical care, the payment is deductible in the year paid rather than the year in which the care is rendered.

16) If a medical expense reimbursement is received in a year after a deduction has been taken on a previous year's return, the previous year's return must be amended to eliminate the reimbursed expense.

17) Assessments or fees imposed for specific privileges or services are not deductible as taxes.

18) Foreign real property taxes and foreign income taxes are not deductible as itemized deductions.

19) A personal property tax based on the weight of the property is deductible. 20) Assessments made against real estate for the purpose of funding local improvements are not deductible in the year paid but rather should be added to the cost basis of the property.

21) Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction.

22) Finance charges on personal credit cards are considered interest and are, therefore, deductible.

23) In general, the deductibility of interest depends on the purpose for which the indebtedness is incurred.

24) Interest expense incurred in the taxpayer's trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business.

25) Investment interest expense which is disallowed because it exceeds the taxpayer's net investment income may be carried over and treated as incurred in subsequent years.

26) Investment interest includes interest expense incurred to purchase tax-exempt securities. 27) Taxpayers may elect to include net capital gain as part of investment income.

28) Taxpayers may not deduct interest expense on most personal debt, including credit card debt, car loans, and other consumer debt.

29) Qualified residence interest consists of both acquisition indebtedness and home equity interest.

30) Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.

31) A taxpayer is allowed to deduct interest expense incurred on home equity indebtedness limited to the lesser of $100,000 or the home equity (FMV of the residence less the acquisition indebtedness).

32) While points paid to purchase a residence are deductible as interest in the period paid, points associated with the refinancing of a residence must be amortized and deducted over the life of the loan. 33) Christopher, a cash basis taxpayer, borrows $1,000 from ABC Bank by issuing a 3-month note on December 1, 2014. Christopher receives $940 but must repay $1,000 on the due date. The amount of interest expense deductible in 2014 is $20.

34) Charitable contributions made to individuals are deductible if the individuals can show extreme financial need.

35) For charitable contribution purposes, capital gain property includes property which, if sold, would produce a long-term capital gain.

36) A charitable contribution deduction is allowed for the FMV of services rendered to a qualified charitable organization.

37) A charitable contribution in excess of the deduction limit for one taxable year can be carried forward five years.

38) If a taxpayer makes a charitable contribution to a university and in return receives the right to purchase tickets to athletic events, the taxpayer may deduct only 80% of the payment.

39) An accrual-basis corporation can only deduct contributions made by year-end. 40) Corporate charitable deductions are limited to 10% of the corporation's taxable income for the year.

41) Legal fees for drafting a will are generally deductible.

42) A taxpayer can deduct a reasonable amount for small out-of-pocket (i.e. cash) donations.

43) Van pays the following medical expenses this year:$1,500 for doctor bills for Van's son who is claimed as a dependent by Van's former spouse.$300 for Van's eyeglasses.$900 for Van's dental work.$3,800 for Van's face lift. Van, a newscaster, is worried about the wrinkles around his eyes.

How much can Van include on his return as qualified medical expenses before limitation?A) $1,200B) $2,400C) $2,700D) $6,500

44) All of the following are deductible as medical expenses exceptA) vitamins and health foods that improve a taxpayer's general health.B) payments for a vision exam and contact lenses.C) payments to a hospital for laboratory fees and X-rays for diagnosis of a medical problem.D) cosmetic surgery necessary to correct a deformity arising from a congenital abnormality.

45) All of the following payments for medical items are deductible with the exception of the payment forA) insulin.B) general appointment for teeth cleaning.C) acupuncture for specific medical purposes.D) nonprescription medicine for treatment of a specific medical condition.

46) In 2014 Sela traveled from her home in Flagstaff to San Francisco to seek medical care. Because she was unable to travel alone, her mother accompanied her. Total expenses included:

Hotel room en route ($150 2 rooms 3 nights)$900

Mileage, 1,000 miles

Doctors bills in San Francisco1,600

The total medical expenses deductible before the 10% limitation areA) $1,600.B) $2,135.C) $2,500.D) $2,460.

47) Leo spent $6,600 to construct an entrance ramp and to widen doorways in his personal residence to make the home accessible for his wife, who is disabled and confined to a wheelchair. The $6,600 expenditure increased the value of the residence by $2,000. How much of the $6,600 is a deductible medical expense (before considering limits based on AGI)?A) $0B) $2,000C) $4,600D) $6,600

48) Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Linda's qualified medical expense (before considering limits based on AGI)?A) $0B) $4,000C) $9,000D) $13,000

49) Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a chronic leg injury and must use a wheelchair and undergo therapy to regain and retain strength. Alan's physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures:

Wheelchair$ 1,200

Whirlpool bath2,000

Maintenance of the whirlpool250

Increased utility bills associated with whirlpool450

Entrance ramp, various home modifications7,200

A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan's deductible medical expenses (before considering limitations based on AGI) will beA) $6,000.B) $10,100.C) $7,000.D) $7,700.

50) Mitzi's medical expenses include the following:

Medical premiums$10,850

Doctors fees2,000

Hospital fees3,350

Prescription drugs600

Eyeglasses350

General purpose vitamins100

Mitzi's AGI for the year is $33,000. She is single and age 49. None of the medical costs are reimbursed by insurance. After considering the AGI floor, Mitzi's medical expense deduction isA) $12,900.B) $13,850.C) $14,675.D) $16,325.

51) Caleb's medical expenses before reimbursement for the year include the following:

Medical premiums$11,000

Doctors, hospitals3,500

Prescriptions600

Caleb's AGI for the year is $50,000. He is single and age 58. Caleb also receives a reimbursement for medical expenses of $1,000. Caleb's deductible medical expenses that will be added to the other itemized deduction will beA) $10,350.B) $9,100.C) $14,500.D) $15,100.

52) A review of the 2014 tax file of Gregory, a single taxpayer who is age 40, provides the following information regarding Gregory's 2014 tax status:

Adjusted gross income$40,000

Medical expenses (before percentage limit)5,000

Itemized deductions other than medical5,400

2014 potential standard deduction6,200

In 2015, Gregory receives a reimbursement for last year's medical expenses of $1,200. As a result, Gregory mustA) include $200 in gross income for 2015.B) include $1,200 in gross income for 2015.C) reduce 2015's medical expenses by $1,200.D) amend the 2014 return.

53) Mr. and Mrs. Thibodeaux, who are filing a joint return, have adjusted gross income of $75,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Thibodeaux's mother, Mrs. Watson (age 63). Mrs. Watson provided over one-half of her own support.

Prescription drugs for Mr. Thibodeaux$3,600

General vitamins for Mrs. Thibodeaux$ 100

Doctor bill for Mr. Thibodeaux$1,800

Doctor bill for Mrs. Thibodeaux$4,000

Hospital bill for Mrs. Watson$2,200

Mr. and Mrs. Thibodeaux received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses?A) $1,900B) $2,000C) $4,100D) $9,400

54) Mr. and Mrs. Gere, who are filing a joint return, have adjusted gross income of $50,000. During the tax year, they paid the following medical expenses for themselves and for Mrs. Gere's mother, Mrs. Williams. The Gere's could claim Mrs. Williams as their dependent, but she has too much gross income.

Insulin for Mr. Gere$1,000

Health insurance premiums for Mrs. Gere$3,100

Hospital bill for Mrs. Williams$5,200

Doctor bill for Mrs. Gere$4,000

Mr. and Mrs. Gere received no reimbursement for the above expenditures. What is the amount of their deductible itemized medical expenses?A) $5,200B) $8,300C) $4,300D) $13,300

55) The following taxes are deductible as itemized deductions with the exception ofA) state income taxes.B) federal income taxes.C) foreign real property taxes.D) local personal property taxes.

56) Matt paid the following taxes in 2014:

Real estate taxes on rental property he owns$4,000

Real estate taxes on his own residence3,600

Federal income taxes8,000

State income taxes3,400

Local city income taxes500

State sales taxes700

What amount can Matt deduct as an itemized deduction on his tax return?A) $7,500B) $11,500C) $15,500D) $19,500

57) In 2014, Carlos filed his 2013 state income tax return and paid taxes of $800. Also in 2014, Carlos's employer withheld state income tax of $750 from Carlos's salary. In 2015, Carlos filed his 2014 state income tax return and paid an additional $600 of state income tax due for 2014. How much state income tax can Carlos deduct on his 2014 federal income tax return for state income tax?A) $1,350B) $1,400C) $1,550D) $2,150

58) Doug pays a county personal property tax on his automobile of $1,500. The $1,500 includes $800 based on the weight of the car and $700 based on the value of the car. How much of the tax can Doug deduct on his tax return?A) $0B) $700C) $800D) $1,500

59) During the year Jason and Kristi, cash basis taxpayers, paid the following taxes:

State gift tax$1,000

Property tax on home in the United States4,100

State income tax (withholdings)3,000

Estimated federal income tax4,500

Estimated state income tax (paid by check)800

Special assessment by city for sidewalks and street lighting on their street2,000

What amount can Kristi and Jason claim as an itemized deduction for taxes on their federal income tax return in the current year?A) $7,900B) $8,900C) $10,900D) $15,400

60) In February of the current year (assume a non-leap year), Ken and Kelsey received their property tax statement for last calendar-year taxes of $1,600, which they paid to the taxing authority on March 1 of the current year. They had purchased their home on May 1 last year. What amount of property tax on this statement may they claim as an itemized deduction this year?A) $0B) $1,069C) $1,074D) $1,600

61) On September 1, of the current year, James, a cash-basis taxpayer, sells his farm to Bill, also a cash-basis taxpayer, for $100,000. James' basis in the farm is $65,000. The real property tax year is the calendar year. Real estate taxes on the property for the year are $3,650 and are payable in November of the current year. The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller. Assume Bill pays all of the real estate taxes in the current year. The effects of this sales structure will be:

A) Taxes allocated to JamesTaxes allocated to BillEffect on James' Gain

$0$3,650no effect on gain

B) Taxes allocated to JamesTaxes allocated to BillEffect on James' Gain

$3,650$0decrease gain by $1,220

C) Taxes allocated to JamesTaxes allocated to BillEffect on James' Gain

$2,430$1,220increase gain by $2,430

D) Taxes allocated to JamesTaxes allocated to BillEffect on James' Gain

$1,220$2,430increase gain by $1,220

62) On September 1, of the current year, Samuel, a cash-basis taxpayer, sells his farm to Edward, also a cash-basis taxpayer for $100,000. Samuel's basis in the farm is $65,000. The real property tax year is the calendar year. Real estate taxes on the property for the year are $3,650 and are payable on April 1 of the following year. The sales agreement does not provide for apportionment of real estate taxes between the buyer and seller. Assume Samuel pays all of the real estate taxes prior to the sale. The effects of this sales structure will be:

A) Taxes allocated to SamuelTaxes allocated to EdwardEffect on Samuel's Gain

$1,220$2,430increase gain by $1,220

B) Taxes allocated to SamuelTaxes allocated to EdwardEffect on Samuel's Gain

$2,430$1,220increase gain by $2,430

C) Taxes allocated to SamuelTaxes allocated to EdwardEffect on Samuel's Gain

$2,430$1,220decrease gain by $1,220

D) Taxes allocated to SamuelTaxes allocated to EdwardEffect on Samuel's Gain

$1,220$2,430decrease gain by $1,220

63) Peter is assessed $630 for street improvements in front of his house. Which of the following statements is correct?A) Peter must deduct the assessment as a tax.B) Peter must reduce the property basis by $630.C) Peter must increase the property basis by $630.D) Peter can elect to deduct the $630 currently or increase the basis in the property.

64) Hui pays self-employment tax on her sole proprietorship income, supplemental Medicare surtaxes on excess wages and self-employment income (the .09% tax) and supplemental Medicare taxes on investment income (the 3.8% tax). Which of the following statements is correct regarding the deductibility of these taxes?A) All three of the taxes are deductible as itemized deductions.B) One-half of the self-employment tax is deductible for AGI, and the .09% and 3.8% taxes are itemized deductions.C) None of the taxes are allowed as a deduction.D) One-half of the self-employment tax is deductible for AGI, but the .09% and 3.8% taxes are not allowed as deductions.

65) Which of the following is deductible as interest expense?A) personal credit card interestB) interest to purchase tax-exempt bondsC) bank service charges on personal accountD) interest on a home equity loan to purchase a car

66) Riva borrows $10,000 that she intends to use for purchasing supplies for her business. She temporarily deposits the funds in her personal checking account. Prior to the deposit, the checking account held $40,000 of personal funds. Riva books a vacation for $6,000 and writes a check to the travel agency from her personal account. Later in the month, the business supplies bill arrives and Riva writes a check for $10,000 from the personal account. With respect to the interest expense on the $10,000 loan, A) it will all be treated trade or business expense.B) 60 percent will be treated as personal interest expense and 40 percent as trade or business expense.C) it will all be treated as personal expense.D) 20 percent will be treated trade or business expense.

67) When both borrowed and owned funds are mingled in the same account, for purposes of categorizing interest expense, a repayment of the debt is allocated first toA) personal expenditures.B) trade or business expenditures.C) investment expenditures.D) passive activity expenditures in real estate.

68) All of the following statements are true exceptA) investment interest expense is deductible to the extent of a taxpayer's net investment income.B) short-term capital gains meet the definition of net investment income.C) investment interest expense includes interest expense to purchase or carry tax-exempt securities.D) net investment income is the taxpayer's investment income in excess of investment expenses.

69) In the current year, Julia earns $9,000 in net investment income and incurs $14,000 of investment interest expense. What is the maximum amount of investment interest expense she is allowed to deduct this year?A) $0B) $3,000 deductible this year; $11,000 carried forward to next yearC) $9,000 deductible this year; $5,000 carried forward to next yearD) $14,000 deductible this year; nothing to be carried forward to next year

70) Ted pays $2,100 interest on his automobile loan, $120 interest on a loan to purchase a computer for personal use, $630 interest on credit cards, and $1,100 investment interest expense. Ted has net investment income of $850. Ted's deductible interest isA) $850.B) $1,100.C) $2,950.D) $3,200.

71) Takesha paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense, assuming Takesha does not make any elections?A) $5,400B) $6,400C) $13,100D) $13,000

72) Dana paid $13,000 of investment interest expense in a year in which she earned $4,500 in dividends, $5,400 in interest income, and had a short-term capital gain of $1,000 and a long-term capital gain of $2,200. The capital gains resulted from the sale of stock held as an investment. She has no other investment-related expenses. What is her maximum deduction for investment interest expense if Dana makes the proper elections to raise her ceiling as high as possible?A) $5,400B) $9,900C) $13,100D) $13,000

73) Faye earns $100,000 of AGI, including $90,000 of salary and $10,000 of interest income. Faye does itemize her deductions. The miscellaneous category of her itemized deductions consists of $1,500 of unreimbursed employee business expenses and a $900 fee paid for investment advice. Faye has paid $11,000 of interest expense on a loan used to purchase stocks. How much of the $11,000 interest expense can be deducted this year?A) $11,000B) $10,000C) $9,100D) $9,600

74) Teri pays the following interest expenses during the year:

Home mortgage interest on personal residence$8,500

Credit card interest on personal purchases550

Interest on loans used to purchase investments (Net investmentincome is $2,000)2,400

Interest on loans used for a business conducted as a sole proprietorship3,800

Interest on a credit card used exclusively in the business470

What is the amount of interest expense that can be deducted as an itemized deduction?A) $10,500B) $10,900C) $14,300D) $14,700

75) On July 31 of the current year, Marjorie borrows $120,000 to purchase a new fishing boat. The loan is secured by her personal residence. On the date of the loan, the outstanding balance on the original debt incurred to purchase the residence is $300,000 and the FMV of the home is $450,000. What is the total amount of debt on which Marjorie can deduct interest in the current year?A) $300,000B) $400,000C) $420,000D) $450,000

76) Wayne and Maria purchase a home on April 1 of the current year. In order to obtain a thirty-year mortgage, they are required to pay $7,200 in points at closing. Charging points is a customary business practice in the area. In addition, they pay $4,400 of interest during the year. What is their current year deduction related to their home?A) $4,400B) $4,580C) $7,200D) $11,600

77) Claudia refinances her home mortgage on June 1 of the current year. She obtains a 30 year mortgage at 5%. As part of the refinancing, she pays points of $3,600 (a customary practice in her location). What amount, if any, of the points are deductible?A) $0B) $70C) $120D) $3,600

78) Leslie, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,800. What is the amount and classification of her student loan interest education deduction if her modified AGI is $40,000?A) $2,500 for AGIB) $2,500 from AGIC) $3,800 for AGID) $3,800 from AGI

79) Marcia, who is single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to $3,000. What is the amount and classification of her student loan interest deduction if her AGI is $68,000?A) $500 for AGIB) $2,000 for AGIC) $2,500 for AGID) $3,000 for AGI

80) Don's records contain the following information:1.Donated stock having a fair market value of $3,600 to a qualified charitable organization. He acquired the stock five months previously at a cost of $2,400.2.Paid $700 to a church school as a requirement for the enrollment of his daughter.3.Paid $200 for annual homeowner's association dues.4.Drove 400 miles in his personal auto at 14 cents per mile. The travel was directly related to volunteer services he performed for his church (actual costs were not available).

What is Don's charitable contribution deduction?A) $2,456B) $3,156C) $3,356D) $3,656

81) Erin's records reflect the following information:

1. Paid $200 dues to a fraternal organization (such as the Elks Club)2. Donated stock having a fair market value of $3,500 to a qualified charitable organization. She purchased the stock 2 years earlier for $3,000.3. Paid $1,600 cash to qualified public charitable organizations

Erin's adjusted gross income for this year was $50,000. What is the amount of her charitable contribution deduction for the year?A) $4,600B) $4,800C) $5,100D) $5,300

82) Sacha purchased land in 2010 for $35,000 that she held as a capital asset. This year, she contributed the land to the Boy Scouts of America (a charitable organization) for use as a site for a summer camp. The market value of the land at the date of contribution is $40,000. Sacha's adjusted gross income is $90,000. Assuming no special elections, Sacha's maximum deductible contribution this year isA) $13,000.B) $27,000.C) $35,000.D) $40,000.

83) Doris donated a diamond brooch recently appraised at $25,000 to her local church. Doris had purchased it many years ago for $10,000. The church sold the brooch to provide funding for church programming. Doris' AGI is $40,000. Doris will be able to take a charitable deduction of A) $10,000.B) $25,000.C) $12,000.D) $20,000.

84) Clayton contributes land to the American Red Cross for use as a future site for a new building. His AGI is $50,000. Clayton paid $20,000 for the land eight months ago but its market value at the date of contribution is $25,000. With no special elections, Clayton's deductible contribution this year isA) $7,000.B) $18,000.C) $20,000.D) $25,000.

85) Carl purchased a machine for use in his trade or business two years ago for $30,000. During the current year, Carl donates the machine to the local community college. At the time of the contribution, the machine's adjusted basis is $10,000 and its FMV is $15,000. Carl's AGI for the year is $48,000. What is the amount of his charitable contribution deduction?A) $10,000B) $14,000C) $15,000D) $25,000

86) During the current year, Jane spends approximately 90 hours of her time in developing computer software for a church. As a programmer and data analyst, Jane normally bills her clients at $130 per hour for her time. Jane also drives her car a total of 800 miles in performing her voluntary work. Jane's deductible contribution isA) $0.B) $112.C) $11,700.D) $11,812.

87) Carol contributes a painting to a local museum for display. Her AGI is $60,000. Carol paid $22,000 for the painting in 2006, but its market value at the date of the contribution is $25,000. With no special elections, Carol's deductible contribution this year isA) $ 7,000.B) $18,000.C) $22,000.D) $25,000.

88) Hugh contributes a painting to a local museum for display. His AGI is $35,000. Hugh paid $16,000 for the painting in 2000, but its market value at the date of the contribution is $22,000. If Hugh makes the election to maximize the current year deduction, his deductible contribution for this year will beA) $10,500.B) $16,000.C) $17,500.D) $22,000.

89) Patrick's records for the current year contain the following information. He donated stock having a fair market value of $5,000 to a qualified charitable organization. Patrick acquired the stock two years ago at a cost of $3,000. He paid $1,000 for membership in an athletic scholarship program maintained by the university. The only benefit of the membership is that Patrick is entitled to purchase a season ticket to the university's home football games. He also donated $7,500 cash to a qualified charitable organization. Patrick's adjusted gross income for the year is $100,000. What is the amount of his charitable contribution deduction?A) $11,300B) $11,500C) $13,300D) $13,500

90) Grace has AGI of $60,000 in 2013 and 2014. She makes cash contributions to public charities of $34,000 in 2013 and $31,000 in 2014. Grace's charitable contribution carryover to 2015 isA) $0.B) $1,000.C) $4,000.D) $5,000.

91) Daniel had adjusted gross income of $60,000, which consisted of $55,000 in wages and $5,000 in dividend income from taxable domestic corporations. His expenses include:

Investment counseling fee$800

Attorney fee for preparing a will200

Union dues350

Tax return preparation fee450

What is the net amount deductible by Daniel for the above items?A) $400B) $600C) $1,000D) $1,600

92) Wang, a licensed architect employed by Skye Architects, incurred the following unreimbursed expenses this year:

Subscription to architectural journals$800Dues to Professional Architecture Society400Tax return preparation600Investment advice500

Wang's AGI is $75,000. What is his net deduction for miscellaneous itemized deductions?A) $0B) $1,900C) $800D) $1,500

93) Tasneem, a single taxpayer has paid the following amounts in 2014:

State income taxes$10,000Property taxes on home4,000Mortgage interest on home12,000Charitable contributions14,000

Tasneem's AGI is $360,000. What is her net itemized deduction allowed?A) $40,000B) $38,352C) $36,826D) None of the above.

94) Christa has made a $25,000 pledge to the American Red Cross (a public charity). Christa expects AGI of $200,000 this year. Which of the following assets should she donate? A) $25,000 of cashB) stock purchased three years ago for $18,000 with a current FMV of $25,000C) stock purchased six months ago for $28,000 with a current FMV of $25,000D) Christa should be indifferent among the three choices.

95) Which of the following is not required substantiation for a noncash charitable contribution?A) name and address of charitable organizationB) method used to determine the donated property's fair market valueC) date and location of property donatedD) use of donation by charitable organization

96) During the current year, Deborah Baronne, a single individual, paid the following amounts:

Federal income tax$10,000State income tax$4,000Real estate taxes on land in France$1,500Real estate taxes on land in U.S.$1,700State sales taxes$2,000State occupational license fee$ 600

How much can Deborah deduct in taxes as itemized deductions?

97) Phoebe's AGI for the current year is $120,000. Included in this AGI is $100,000 salary and $20,000 of interest income. In earning the investment income, Phoebe paid investment interest expense of $30,000. She also incurred the following expenditures subject to the 2% of AGI limitation:

Investment expenses:Subscriptions to investment journals$ 500Investment counseling1,500Safe-deposit box rental for stock certificates100Noninvestment expenses:Unreimbursed employee business expenses$1,800Tax return preparation fees (non-business-related)500

What is Phoebe's investment interest expense deduction for the year?

98) On December 1, 2014, Delilah borrows $2,000 from her credit union to use in her business. Under the terms of the contract, Delilah actually receives $1,940 but is required to repay $2,000 in three months.a.What amount may Delilah deduct as interest expense in 2014 and in 2015 if she is a cash basis taxpayer?b.What amount may Delilah deduct as interest expense in 2014 and in 2015 if she is an accrual basis taxpayer?

99) During 2014 Richard and Denisa, who are married and have two dependent children, have the following income and losses:

Total salaries$150,000Bank account interest25,000Short-term capital gains4,000Short-term capital losses( 1,500)

They also incurred the following expenses:Qualified medical expenses$ 8,000State income taxes paid12,000Property taxes on home2,300Qualified residence interest9,000Investment interest expense7,500Cash charitable contributions15,000Tax return preparation fees3,600Unreimbursed employee business expenses4,000

Compute Richard and Denisa's taxable income for the year. (Show all calculations in good form.)

100) Hope is a marketing manager at a local company. Information about her 2014 income and expenses is as follows:

Income received

Salary$150,000

Taxes withheld from salary:Federal income tax $30,000State income tax 8,000Social Security tax 7,254Medicare tax 2,175

Interest income from bank 6,000

Dividend income from U.S. stocks4,000

Short-term capital gain2,000

Long-term capital gain3,000

State income tax refund from last year500

Expenses paid:

Unreimbursed dental and eyecare costs$1,800

Property taxes on her home3,900

Fees paid to town for garbage pick-up400

Stock donated to American Red Cross; FMV $5,000; purchased three years ago for $3,100

Dues paid to American Marketing Association600

Subscription to professional marketing journals300

Fee for preparation of 2013 tax return and IRS audit assistance 2,000

Investment advisor fee1,000

Home mortgage interest10,000

Interest on borrowing to purchase investment assets11,000

Interest on car loan1,100

Compute Hope's taxable income for the year in good form. Show all supporting computations. Hope is single, and she elects to itemize her deductions each year. Assume she does not make any elections regarding the investment interest expense. Also assume that her tax profile was similar in the preceding year.

101) Explain under what circumstances meals and lodging en route to a medical facility may be deductible.

102) Explain when the cost of living in an institution other than a hospital may be deductible.

103) Discuss the timing of the allowable medical expense deduction.

104) Patrick and Belinda have a twelve year old son, Aidan, who is autistic. Patrick and Belinda pay tuition of $20,000 annually for Aidan to attend a school for autistic children. What tax issues should be considered? What additional information would you need?

105) Discuss what circumstances must be met for personal property taxes to be deductible.

106) Explain why interest expense on investments is limited to net investment income.

107) When are points paid on a loan deductible as interest expense?

108) Sharif is planning to buy a new car for personal use and will need to take out a loan. His sources of the financing include (1) a loan from the car dealership charging 6% interest, (2) a loan from his brokerage firm secured against his stock portfolio charging 6.2% and (3) a home equity bank loan secured against his home charging 7%. Sharif has AGI of $150,000 and does itemize his deductions. He is in the 28% tax bracket. Discuss how income taxes can influence his decision regarding the source of financing.

109) May an individual deduct a charitable contribution for services rendered to a charitable organization?

110) What is the result if a taxpayer makes a contribution to a college or university and in return receives the right to purchase tickets to athletic events?

111) What is the treatment of charitable contributions in excess of the applicable limits for the current year?

112) Explain how tax planning may allow a deduction of qualified medical expenses.

113) Explain what types of tax planning are available for taxpayers making charitable contributions.

114) Jill is considering making a donation to her church. She wants to give $50,000 for the new church building. She has some stock with a FMV of $50,000 and an adjusted basis of $10,000 that she has held for 3 years. She is planning to sell the stock and donate the $50,000 proceeds to the church. What should she consider before taking that action?

Chapter 8 Losses and Bad Debts

1) In order to be recognized and deducted on a tax return, a loss must first be realized.

2) The amount of loss realized on the sale of property is computed by subtracting adjusted basis from amount realized.

3) A loss incurred on the sale or exchange of property is deductible only if the property is used in a trade or business or held for investment.

4) The sale of inventory at a loss results in an ordinary loss.

5) Losses incurred in the sale or exchange of personal-use property are deductible as capital losses.

6) A loss on business or investment property which is abandoned is deductible as an ordinary loss to the extent of the property's adjusted basis on the date of abandonment.

7) The total worthlessness of a security generally results in an ordinary loss.

8) A capital loss may arise from the sale or exchange of a capital asset.

9) The destruction of a capital asset by a casualty gives rise to a capital rather than ordinary loss.

10) One of the requirements which must be met for stock to be considered Section 1244 stock is that the stock must be owned by an individual or a partnership.

11) One of the requirements which must be met for stock to be considered Section 1244 stock is that the corporation cannot have more than $10 million of total capital and paid in surplus as of the stock issuance.

12) When applying the limitations of the passive activity rules, a taxpayer's AGI is classified into active income, portfolio income and passive income. For this purpose, portfolio income includes dividends, interest, annuities, and royalties.

13) Losses from passive activities that cannot be deducted currently are carried over for up to 5 subsequent years.

14) Individual taxpayers can offset portfolio income with passive losses.

15) If a taxpayer disposes of an interest in a passive activity, unused carryover losses are available to the purchaser of the interest.

16) A taxpayer may deduct suspended losses of a passive activity when the taxpayer completely terminates his or her ownership of the activity.

17) Once an activity has been classified as passive, it is considered passive with regard to that taxpayer until it is sold.

18) A passive activity includes any rental activity or any trade or business in which the taxpayer does not materially participate.

19) Two separate business operations conducted at the same location may be treated as separate activities under the passive activity rules.

20) Partnerships and S corporations must identify their business and rental activities by applying the passive activity rules at the partnership or S corporation level and then must report the results of their operations by activity to the partners or shareholders. 21) Material participation by a taxpayer in a passive activity is satisfied if the individual participates in the activity for more than 500 hours during the year.

22) For purposes of the application of the passive loss limitations, a closely held C corporation is a C corporation where more than 50 percent of the stock is owned by five or fewer individuals at any time during the last half of the taxable year.

23) A closely held C Corporation's passive losses may offset its active income.

24) Individuals who actively participate in the management of rental real property may deduct up to $25,000 in losses, subject to AGI limitations.

25) For purposes of applying the passive loss limitations for rental real estate, active participation requires a greater time commitment by the taxpayer than does material participation.

26) Taxpayers are allowed to recognize net passive losses from all activities up to a ceiling of $25,000.

27) A taxpayer may deduct a loss resulting from the theft of business and investment property but not a theft of personal-use property.

28) When business property involved in a casualty is totally destroyed, the amount of the loss is limited to the lesser of the taxpayer's adjusted basis in the property or the reduction in FMV.

29) In the case of casualty losses of personal-use property, the losses sustained in each separate casualty are reduced by both $100 and 10 percent of the taxpayer's AGI for the year.

30) A theft loss is deducted in the year in which the theft is discovered.

31) When personal-use property is covered by insurance, no deduction is available for a casualty loss of the property unless the taxpayer timely files an insurance claim for the loss.

32) When the taxpayer anticipates a full recovery on a casualty loss of personal-use property but receives less than full recovery in a subsequent year, the unrecovered portion may be deducted.

33) If a taxpayer suffers a loss attributable to a disaster in an area subsequently declared a disaster area, the casualty loss may be deducted in the year preceding the year in which the loss actually occurs.

34) For a bad debt to be deductible, the taxpayer must have a basis in the debt.

35) A bona fide debtor-creditor relationship can never exist in the case of related parties.

36) A taxpayer guarantees another person's obligation and is forced to pay the debt under the terms of the guarantee. The original debtor does not repay the taxpayer. The taxpayer/guarantor may deduct the loss.

37) Lisa loans her friend, Grace, $10,000 to finance a new business. If Grace defaults on the loan, Lisa may take a deduction for a business bad debt in the year of total worthlessness.

38) A business bad debt gives rise to an ordinary deduction while a nonbusiness bad debt is treated as a short-term capital loss.

39) No deduction is allowed for a partially worthless nonbusiness debt.

40) A net operating loss (NOL) occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.

41) A net operating loss can be carried back three years or carried forward five years.

42) All of the following losses are deductible exceptA) decline in value of securities.B) total worthlessness of securities.C) sale or exchange of business property.D) destruction of personal use property by fire, storm, or casualty.

43) The amount realized by Matt on the sale of property to Caitlin includes all of the following with the exception ofA) cash received by Matt.B) mortgage on the property that is assumed by Caitlin.C) mortgage on the property paid off by Matt prior to the sale.D) the FMV of any other property received by Matt in the transaction.

44) In 2000, Michael purchased land for $100,000. Over the years, economic conditions deteriorated, and the value of the land declined to $60,000. Michael sells the property in this year, when it is subject to a $30,000 nonrecourse mortgage. The buyer pays Michael $34,000 cash and takes the property subject to the mortgage. Michael incurs $5,000 in real estate commissions. Michael's gain or loss on the sale isA) $4,000 gain.B) $1,000 loss.C) $36,000 loss.D) $41,000 loss.

45) Lucia owns 100 shares of Cronco Inc. which she purchased on December 1 of last year for $10,000. The stock is not Sec. 1244 stock. On July 1 of the current year, Lucia receives notice from the bankruptcy court that Conco Inc. has been liquidated, and there are no assets remaining for shareholders. As a result, Lucia will haveA) a short-term capital loss of $10,000.B) a long-term capital loss of $10,000.C) an ordinary loss of $10,000.D) no loss allowed.

46) Jamie sells investment real estate for $80,000, resulting in a $15,000 loss. Jamie's loss isA) an ordinary loss.B) a capital loss.C) a Sec. 1231 loss.D) a Sec. 1244 loss.

47) Juan has a casualty loss of $32,500 on investment property after receiving an insurance settlement. This is Juan's only casualty transaction this year. Juan's loss isA) an ordinary loss.B) a capital loss.C) a Sec. 1231 loss.D) a Sec. 1244 loss.

48) All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception ofA) the stock must be owned by an individual or a partnership.B) the stock must have been issued by a domestic corporation.C) the stock must have been issued for cash or property other than stock or securities.D) a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

49) Stacy, who is married and sole shareholder of ABC Corporation, sold all of her stock in the corporation for $100,000. Stacy had organized the corporation in 2009 by contributing $225,000 and receiving all of the capital stock of the corporation. ABC Corporation is a domestic corporation engaged in the manufacturing of ski boots. The stock in ABC Corporation qualified as Sec. 1244 stock. The sale results in a(n)A) ordinary loss of $125,000.B) long-term capital loss of $125,000.C) long-term capital loss of $100,000 and ordinary loss of $25,000.D) ordinary loss of $100,000 and long-term capital loss of $25,000.

50) Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. The stock basis was $150,000. Amy had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy hasA) a $50,000 ordinary loss and $70,000 LTCL.B) a $50,000 STCL and a $70,000 LTCL.C) a $100,000 ordinary loss and a $20,000 LTCL.D) a $100,000 LTCL and a $20,000 ordinary loss.

51) Sarah had a $30,000 loss on Section 1244 stock, a $15,000 loss on sale of a personal use automobile and a $8,000 loss on stock that is not classified as Section 1244. Without regard to net capital loss limitations, Sarah should recognizeA) a ordinary loss of $38,000.B) a capital loss of $53,000.C) an ordinary loss of $30,000 and a capital loss of $8,000.D) an ordinary loss of $30,000 and a capital loss of $23,000.

52) During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, MarkA) reports AGI of $80,000.B) reports AGI of $90,000 with a $10,000 passive loss carryover.C) reports AGI of $90,000 with a $30,000 passive loss carryover.D) reports AGI of $110,000 with a $30,000 passive loss carryover.

53) Joy reports the following income and loss:

Salary$ 120,000

Income from activity A60,000

Loss from activity B( 35,000)

Loss from activity C( 55,000)

Activities A, B, and C are all passive activities.

Based on this information, Joy hasA) adjusted gross income of $90,000.B) salary of $120,000 and deductible net losses of $30,000.C) salary of $120,000 and net passive losses of $30,000 that will be carried over.D) salary of $120,000, passive income of $60,000, and passive loss carryovers of $90,000.

54) Jana reports the following income and loss:

Salary$ 120,000

Income from activity A60,000

Loss from activity B( 30,000)

Loss from activity C( 70,000)

Activities A, B, and C are all passive activities.Based on this information, Joy has the following suspended losses:

A) Activity BActivity C

$30,000$70,000

B) Activity BActivity C

$0$0

C) Activity BActivity C

$18,000$42,000

D) Activity BActivity C

$12,000$28,000

55) Jeff owned one passive activity. Jeff sold the activity and realized a $2,000 gain on the sale. Prior to the sale, he realized a current year loss from the activity of $6,000. In addition, he has suspended losses from prior years of $7,000. What is the net impact on Jeff's AGI this year due to the passive activity?A) increase of $2,000B) no net changeC) decrease of $4,000D) decrease of $11,000

56) Nancy reports the following income and loss in the current year.

Salary$ 60,000

Income from activity A18,000

Loss from activity B( 9,000)

Loss from activity C( 13,000)

All three activities are passive activities with respect to Nancy. Nancy also has $21,000 of suspended losses attributable to activity C carried over from prior years. During the year, Nancy sells activity C and realizes a $15,000 taxable gain. What is Nancy's AGI as a result of these transactions?A) $50,000B) $55,000C) $64,000D) $71,000

57) Lewis died during the current year. Lewis owned passive activity property with a FMV of $61,000 and a basis of $48,000. Suspended losses of $15,000 were attributable to the property. How much of the suspended loss is deductible on Lewis's final income tax return?A) $0B) $2,000C) $13,000D) $15,000

58) Mara owns an activity with suspended passive losses from prior years of $13,000. In the current year, Mara becomes a material participant in the activity. This year the activity generates $6,000 of income. The net effect of this activity on Mara's current year AGI is a(n)A) increase of $6,000.B) decrease of $13,000.C) 0.D) decrease of $7,000.

59) Charlie owns activity B which was considered a passive activity and generated a $17,000 suspended loss. Charlie increases his involvement with activity B so that this year activity B is not considered passive for Charlie. During this year, activity B produces a $9,000 loss. In addition, Charlie acquires an investment in activity X, a passive activity, this year. Charlie's share of activity X's income is $13,000. Charlie's salary this year is $70,000. As a result, this year Charlie mustA) offset B's loss carryover against X's current income and carry over $9,000 loss from activity B to next year.B) offset B's carryover loss and current loss against X's income first and then offset any remaining loss against salary.C) offset B's $9,000 loss against X's $13,000 income and offset B's loss carryover against the remaining $4,000 of X's income.D) offset B's current $9,000 loss against his salary and offset B's loss carryover against X's income and carry over $4,000 of loss to next year.

60) Jorge owns activity X which produced a $20,000 passive loss last year. Jorge's only income last year was wages of $30,000. Jorge is a material participant in activity X this year when it produces a $14,000 loss. This year, Jorge's wages are $40,000. This year, Jorge also has passive activity income from activity Y of $16,000. What is the total passive activity loss carryover to next year?A) $0B) $3,000C) $4,000D) $18,000

61) Which of the following is not generally classified as a passive activity?A) an activity in which the taxpayer does not materially participateB) a limited partnership interestC) rental real estateD) a business in which the taxpayer owns an interest and works 1,000 hours a year

62) An individual is considered to materially participate in an activity if any of the following tests are met with the exception ofA) the individual participates in the activity for more than 500 hours during the year.B) the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual's participation for the year.C) the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years.D) the individual's participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals.

63) Tom and Shawn own all of the outstanding stock of Brady Corporation (a retail store operated as a C corporation). This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Corporation reportsA) net income of $42,000.B) interest income of $22,000 and a passive loss carryover of $8,000.C) business income of $20,000 and a passive loss carryover of $6,000.D) business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000.

64) A taxpayer's rental activities will be considered a trade or business, rather than a passive activity, ifA) the taxpayer performs more than 750 hours of work during the year managing the rental propertiesB) the taxpayer performs more than 500 hours of work during the year managing the rental properties.C) more than half of the taxpayers personal services performed in all business activities during the year are spent managing the rental properties.D) conditions A and C, but not B, are satisfied.

65) Justin has AGI of $110,000 before considering his $30,000 loss from rental property, which he actively manages. How much of the rental loss can Justin deduct this year?A) $10,000B) $20,000C) $25,000D) $30,000

66) Joseph has AGI of $170,000 before considering the $20,000 rental loss for property which he actively manages. How much of the rental loss can he deduct?A) $0B) $10,000C) $20,000D) $25,000

67) Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss. She actively manages the property. Her deductible loss isA) $0.B) $13,500.C) $25,000.D) $27,000.

68) Brandon, a single taxpayer, had a loss of $48,000 from a rental real estate activity in which he actively participated. He also had $27,000 of income from another rental real estate activity in which he actively participated. He acquired both investments in 2014. If Brandon has no other passive income or losses and has adjusted gross income of $84,000 before considering passive activities, how much loss from rental activities can he use to offset his nonpassive income?A) $21,000B) $24,000C) $25,000D) $45,000

69) Which of the following is most likely not considered a casualty?A) fire lossB) water damage caused by a busted water heaterC) death of a pine tree due to a two-day infestation of pine beetlesD) water damage to the walls and ceiling of a taxpayer's personal residence as the result of gradual deterioration of the roof

70) Nicole has a weekend home on Pecan Island that she purchased in 2005 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole's home. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole's casualty loss amount isA) $0.B) $10,000.C) $120,000.D) $140,000.

71) A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture's adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica's AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica's deductible casualty loss?A) $5,900B) $12,000C) $13,900D) $20,000

72) Lena owns a restaurant which was damaged by a tornado. The following assets were partially destroyed:

Basis Reduction in FMVInsurance Payment

Building$150,000$200,000$100,000

Equipment$30,000$20,000$10,000

Lena has AGI of $50,000. What is the amount of Lena's deductible casualty loss?A) $54,900B) $60,000C) $70,000D) $180,000

73) Leonard owns a hotel which was damaged by a hurricane. The hotel had an adjusted basis of $1,000,000 before the hurricane. A recent appraisal determined that the hotel's FMV was $1,500,000 before the hurricane and $700,000 afterwards. Leonard received insurance proceeds of $500,000. His AGI is $60,000. What is the amount of his deductible casualty loss?A) $293,900B) $300,000C) $793,900D) $800,000

74) Jarrett owns a mountain chalet that he purchased in 2008 for $175,000. This year, the home appraised at $300,000. Shortly after the appraisal, a blizzard hit the area in spring of the current year, destroying trees and severely damaging several homes, including Jarrett's chalet. Its value was reduced to $135,000. Jarrett does not have insurance. Jarrett's AGI is $200,000. Jarrett's deductible loss after limitations isA) $135,000.B) $144,900.C) $164,900.D) $165,000.

75) Hope sustained a $3,600 casualty loss due to a severe storm. She also incurred a $800 loss from a theft in the same year. Both the casualty and theft involved personal-use property. Hope's AGI for the year is $25,000 and she does not have insurance coverage. Hope's deductible casualty loss isA) $1,700.B) $1,800.C) $4,200.D) $4,300.

76) In the current year, Marcus reports the following casualty gains and losses on personal-use property. Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty.

AssetReduction in FMVAdjusted BasisInsuranceHolding Period

X$8,000$2,000$7,0002 years

Y3,0005,0002,00010 months

Z2,5001,3001,0008 months

As a result of these losses and insurance recoveries, Marcus must reportA) a net gain of $3,700.B) a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z.D) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z.

77) Wesley completely demolished his personal automobile in a car accident. Damage to the auto was estimated at $35,000. Wesley had purchased the car a few years ago for $60,000. He received an insurance reimbursement of $28,000. His adjusted gross income this year was $55,000 and he incurred no other losses during the year. What amount can he deduct as a casualty loss on his income tax return after limitations?A) $1,400B) $1,500C) $6,900D) $7,000

78) A flood damaged an auto owned by Mr. and Mrs. South on June 15 of this year. The car was only used for personal purposes.

Fair market value before the flood$18,500

Fair market value after the flood2,000

Cost basis20,000

Insurance proceeds13,000

Adjusted gross income for this year25,000

Business use of auto0

Based on these facts, what is the amount of the South's casualty loss deduction after limitations for this year?A) $900B) $1,000C) $4,400D) $4,500

79) In February 2014, Amelia's home, which originally cost $150,000, is damaged by a windstorm. Amelia had refinanced the home shortly before the storm, and it was appraised at $200,000. After the storm, the home appraised at $120,000. Amelia has received no insurance reimbursement by December 31, but expects to recover 90 percent of the loss. In the subsequent year, the insurance company pays Amelia $50,000. Amelia's AGI is $85,000 in 2014, and her 2015 AGI is $80,000. Amelia suffers no other casualty losses in either year. Amelia may deductA) $7,900 in 2014.B) $22,000 in 2015.C) $13,900 in 2015.D) $14,000 in 2015.

80) This summer, Rick's home (which has a basis of $80,000) is damaged by a tornado. An appraisal by a realtor placed the FMV of the home at $120,000 before the tornado and at $85,000 after the tornado. Rick estimates that the insurance company will reimburse him for 60% of the loss. Next year, the insurance company pays Rick $20,000. Rick's current year's AGI is $50,000 and his next year's AGI is $55,000. Rick suffers no other casualty losses in either year. After limitations, Rick may deduct a casualty loss this year ofA) $ 8,900.B) $ 9,900.C) $15,000.D) $35,000.

81) Juanita, who is single, is in an automobile accident in 2014 and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Juanita does not expect to recover any of the loss from her insurance company. Juanita's 2014 AGI is $31,000, and she deducts a $3,000 loss on her 2014 tax return. Her other itemized deductions in 2014 exceed $12,000. In 2015, Juanita's insurance company reimburses her $2,800. Juanita's 2015 AGI is $28,000. As a result, Juanita mustA) amend 2014 to show a $200 loss.B) do nothing and simply keep the $2,800.C) do nothing to the 2014 return but report $2,800 of income on her 2015 return.D) amend the 2014 return to show $0 loss and file her 2015 return to show a $200 loss.

82) Constance, who is single, is in an automobile accident in 2014, and her car sustains $6,200 in damages. Because both drivers received tickets in the accident, Constance does not expect to recover any of the loss from her insurance company. Constance's 2014 AGI is $31,000. Her casualty loss is $3,000; she has other itemized deductions of $1,200. In 2015, Constance's insurance company reimburses her $2,800. Constance's 2015 AGI is $28,000. As a result, Constance mustA) amend the 2015 return to show the $200 loss.B) do nothing and simply keep the $2,800.C) amend the 2014 return to show $0 loss and file her 2015 return to show $200 loss.D) do nothing to the 2014 return but report $2,800 of income on her 2015 return.

83) Last year, Abby loaned Pat $10,000 as a gesture of their friendship. Although Pat had signed a note payable that contained interest payments and a maturity date, the loan had not been repaid this year when Pat died insolvent. For this year, assuming that the loan was bona fide, Abby should account for nonpayment of the loan as a(n)A) itemized deduction.B) ordinary loss.C) long-term capital loss.D) short-term capital loss.

84) In October 2014, Jonathon Remodeling Co., an accrual-method taxpayer, remodels and renovates an office building for Dale and bills him $30,000. Dale signs a note for the debt. Dale keeps delaying payment and files bankruptcy in 2015. Creditors are informed that no assets are available for payment. Jonathon Remodeling Co. will reportA) $0 income in both years.B) $30,000 income in 2014 and a bad debt deduction of $30,000 in 2015.C) $30,000 income in 2014 and a STCL of $30,000 in 2015 limited to $3,000 after netting.D) $30,000 income in 2014 and then must amend last year's return to show $0 income when advised of the bankruptcy.

85) Martha, an accrual-method taxpayer, has an accounting practice. In 2013, she performs tax analyses for Arnold and sends him an invoice for $10,000. In 2014, Martha sells her practice and all accounts to David. Arnold's debt becomes worthless that year after David has purchased the practice. The result isA) Martha deducts a nonbusiness bad debt in 2014.B) Martha deducts a business bad debt in 2014.C) David deducts a business bad debt in 2014.D) David deducts a nonbusiness bad debt in 2014.

86) Vera has a key supplier for her business who was facing cash flow problems which would impair Vera's ability to get shipments of key components for her production. Vera made a $10,000 loan to the supplier. Unfortunately the supplier filed for bankruptcy and has gone out of business without repaying Vera. Vera will be able to recognize a loss ofA) $10,000.B) $3,000.C) $7,000.D) 0.

87) In 2013 Grace loaned her friend Paula $12,000 to invest in various stocks. Paula signed a note to repay the principal with interest. Unfortunately the market for that industry sector plunged, and Paula incurred large losses. In 2014 Paula declared personal bankruptcy and Grace was unable to collect any of her loan. Grace had no other gains or losses last year or this year. The result isA) Grace deducts a business bad debt of $12,000 in 2014.B) Grace deducts a $12,000 nonbusiness bad debt as a short-term capital loss in 2014.C) Grace deducts a $3,000 nonbusiness bad debt as a short-term capital loss in 2014 and carries $9,000 over to subsequent years.D) Grace deducts a business bad debt of $3,000 in 2014 and carries $9,000 over to subsequent years.

88) Which of the following expenses or losses could create a net operating loss for an individual taxpayer?A) large losses on sales of investment assetsB) an operating loss from a sole proprietorshipC) large charitable contributionsD) all of the above

89) An individual taxpayer has negative taxable income for the year. In calculating the net operating loss created, which of the following expenses or losses will be added back to the negative taxable income?A) capital lossesB) personal and dependency exemptionsC) nonbusiness deductions in excess of nonbusiness incomeD) all of the above

90) A taxpayer incurs a net operating loss in the current year. With respect to the application of the NOL, A) the taxpayer will carry back the NOL three years first, then carry forward any balance for five years.B) the taxpayer must carry forward the loss and has up to 20 years to use it.C) the taxpayer can carry forward the loss indefinitely until there is sufficient taxable income to use it up.D) the taxpayer will first carry back the NOL for two years, then carryforward the balance for a period of 20 years, or the taxpayer can elect to only carry forward the loss for the 20-year allowable period.

91) Kendal reports the following income and loss:

Salary$120,000 Income from activity A36,000 Loss from activity B( 30,000)Loss from activity C( 60,000)

Activities A, B, and C are all passive activities, but none are rental properties. What is the amount of the suspended loss attributable to each activity?

92) During the year, Patricia realized $10,000 of taxable income from activity A, $4,000 loss from activity B, and $6,000 of taxable income from activity C. All three activities are passive activities with regard to Patricia, but are not rental properties. In addition, $32,000 of passive losses from activity C is carried over from prior years. During the current year, Patricia sells activity C for an $18,000 taxable gain. Patricia's salary for the year is $100,000. What is the amount of Patricia's deduction against salary income?

93) Hersh realized the following income and loss this year:

Net taxable income from chocolate shop$50,000Interest income10,000Loss from passive activity (not a rental property) (58,000)

a.Assume Hersh is an individual taxpayer and the chocolate shop is his sole proprietorship. Determine Hersh's AGI and any carryovers.b.Assume the taxpayer is Hersh Inc., a C corporation, owned 100% by the Hersh family. Determine Hersh Inc.'s taxable income and any carryovers.

94) Adam owns interests in partnerships A and B, both of which are Publicly Traded Partnerships. During the current year, Adam's share of the income from A is $12,000. Adam's share of B's loss is $3,500. B also generates portfolio income of which Adam's share is $2,000. What are the tax consequences of these income and loss items?

95) Parveen is married and files a joint return. He reports the following items of income and loss for the year:

Salary$ 135,000 Activity A (passive)13,000 Activity B (nonbusiness rental real estate)( 45,000)

If Parveen actively participates in the management of Activity B, what is his AGI for the year and what is the passive loss carryover to next year?

96) Aretha has AGI of less than $100,000 and a 25% marginal tax rate. During the year, she reports a $36,000 loss from Activity A and a $24,000 loss from Activity B. Additionally, Activity A generates $8,000 of tax credits. Both activities A and B are passive real estate rental activities in which Anita actively participates and owns over 10% of each activity. a.How much loss can be recognized from each activity?b.What is the amount of Aretha's suspended loss from each activity?c.How much of the tax credits can be applied this year?

97) Wes owned a business which was destroyed by fire in May 2014. Details of his losses follow:

Adj. FMV FMVInsurance AssetBasisBeforeAfterReimbursementA$1,000 $2,000$ 0$2,000B15,000 10,0003,0002,000C2,400 5,0002,5001,000

His AGI without consideration of the casualty is $45,000.

What is Wes's net casualty loss deduction for 2013?

98) Determine the net deductible casualty loss on the Schedule A for Alan Michael when his adjusted gross income was $40,000 in 2014 and the following occurred:

Adj. FMV FMVInsurance AssetBasisBeforeAfterReimbursementA$1,200$2,000$ 500$ 100B14,00012,0005,0001,100C6003,0002,775125A and B were destroyed in the same casualty in March. C was destroyed in a separate casualty in July.

All casualty losses were nonbusiness personal use property losses and none occurred in a federally declared disaster area.

What is the amount of the net deductible casualty loss?

99) Frank loaned Emma $5,000 in 2012 with the agreement that the loan would be repaid in three years. In 2013, Emma filed for bankruptcy and based on available information from the bankruptcy court, it was estimated that Frank could expect to receive $.65 on the dollar. In 2014, final settlement was made and Frank received $600.a.Assuming the loan is a business bad debt, what is the amount of and the nature of Frank's deduction in 2013?b.Assuming the loan is a business bad debt, what is the amount of and the nature of Frank's deduction in 2014?c.Assuming instead that the loan is a nonbusiness bad debt, what is the amount of and the nature of Frank's deduction in 2013 and 2014?

100) Becky, a single individual, reports the following taxable items in 2014:

Gross income from business$ 93,000 Minus: Business expenses( 105,000)($ 12,000)Interest income 1,500 AGI($ 10,500)

Itemized deductions:Interest expense$ 3,100State Income Taxes1,900Casualty 3,000Total itemized deductions( 8,000)Minus: Personal exemption( 3,950)Taxable income($22,450)

What is Barbara's NOL for the year?

101) Harley, a single individual, provided you with the following information for this year:

Income:Salary from part-time employment$ 16,000

Interest income from savings1,000

Net long-term capital gain from investment property3,000

Deductions:Net business loss(sales of $100,000 less expenses of $130,000)($30,000)

Personal exemption( 3,950)

Standard deduction( 6,200)

Net-operating loss carryover from last year( 3,000)

What is the amount of Harley's net operating loss for this year?

102) Businesses can recognize a loss on abandoned property. What types of factors would indicate that property had been abandoned?

103) What must an individual taxpayer prove to receive a worthless security deduction?

104) Erin, a single taxpayer, has 1,000 shares of 1244 stock she purchased directly from AAA Corporation for $120,000 five years ago. The stock has a FMV of $30,000, and Erin is thinking of selling the stock. She has no other capital gains or losses for the year. Discuss the tax consequences and planning opportunities relating to selling the stock.

105) Why was Section 1244 enacted by Congress? Specifically, consider and discuss some of the individual qualifying requirements of Sec. 1244.

106) Why did Congress enact restrictions and limitations on losses from passive activities?

107) What is required for an individual to be considered as actively participating in a real estate activity for purposes of utilizing the $25,000 ceiling on rental real estate losses?

108) What is or are the standards that must be present to warrant a casualty loss deduction?

109) A taxpayer suffers a casualty loss on personal-use property for which he has insurance coverage. However, to avoid a premium adjustment, the taxpayer fails to make a timely claim. In this situation is the full deduction for the casualty, after the normal floors, available to the taxpayer? Why or why not?

110) If a loan has been made to a related party, what are some considerations for determining whether the loan is a bona fide debt or is, in fact, merely a gift?

111) Distinguish between the accrual-method taxpayer and the cash-method taxpayer with regard to basis in a receivable.

112) What are some factors which indicate that a debt may be worthless?

113) If an NOL is incurred, when would a taxpayer elect to forgo the carryback period and only carry the loss deduction forward?

114) How is a claim for refund of taxes filed by an individual who carries an NOL deduction back to a prior year?

Chapter 9 Employee Expenses and Deferred Compensation

1) Deferred compensation refers to methods of compensating employees based upon their current service where the benefits are deferred until future periods.

2) If an individual is self-employed, business-related expenses are deductions for AGI.

3) Unreimbursed employee business expenses are deductions for AGI.

4) An employer-employee relationship exists where the employer has the right to control and direct the individual providing services with regard to the end result and the means by which the result is accomplished.

5) A nondeductible floor of 2% of AGI is imposed on unreimbursed employee business expenses, investment expenses, and many other miscellaneous itemized deductions such as tax preparation fees.

6) Gambling losses are miscellaneous itemized deductions subject to the 2% of AGI floor.

7) Personal travel expenses are deductible as miscellaneous itemized deductions subject to the 2% of AGI floor.

8) The deduction for unreimbursed transportation expenses for employees is subject to the 2% of AGI floor.

9) If an individual is not "away from home," expenses related to local transportation are never deductible.

10) Jason, who lives in New Jersey, owns several apartment buildings in Baltimore. His travel expenses to Baltimore to inspect his property are tax deductible.

11) According to the IRS, a person's tax home is the location of the family residence regardless of the location of the taxpayer's principal place of employment.

12) In determining whether travel expenses are deductible, a general rule is that if a person is reassigned for an indefinite period, the individual's tax home shifts to the new location and travel expenses are not deductible.

13) Travel expenses related to temporary work assignments of one year or less are deductible. 14) If the purpose of a trip is primarily personal and only secondarily related to business, the transportation costs to and from the destination are deductible.

15) Incremental expenses of an additional night's lodging and additional day's meals that are incurred to obtain "excursion" air fare rates with respect to employees whose business travel extends over Saturday night are not deductible business expenses.

16) Travel expenses for a taxpayer's spouse are deductible if the spouse is an employee, the travel is for a bona fide purpose, and the expenses are otherwise deductible.

17) Travel expenses related to foreign conventions are disallowed unless the meeting is directly related to the taxpayer's business or is employment related and it is reasonable for the meeting to be held outside of North America.

18) Commuting to and from a job location is a deductible expense.

19) Transportation expenses incurred to travel from one job to another are deductible if a taxpayer has more than one job.

20) Taxpayers may use the standard mileage rate method when five vehicles are used simultaneously for business.

21) If the standard mileage rate is used in the first year, the actual expense method may not be used in future years.

22) A taxpayer goes out of town to a business convention. The 50% reduction applies to the cost of food, entertainment and transportation expenses.

23) Self-employed individuals receive a for AGI deduction for 50% of entertainment expenses paid or incurred in the trade or business.

24) If an employee incurs business-related entertainment expenses that are fully reimbursed, it is the employer who is subject to the 50% limitation.

25) A tax adviser takes a client to a major league hockey game following the conclusion of a meeting involving the signing of a major planning engagement. As it is not "directly related," the entertainment cannot be deductible.

26) "Associated with" entertainment expenditures generally must occur on the same day that business is discussed.

27) Dues paid to social or athletic clubs are deductible if they meet a primary-use test, requiring that more than 50% of the use of the facility be for business purposes.

28) Generally, 50% of the cost of business gifts is deductible up to $25 per donee per year.

29) A gift from an employee to his or her superior does not qualify as a business gift.

30) An accountant takes her client to a hockey game following a business meeting. Because it is a playoff game, and the tickets were purchased that day, a premium was paid. The deduction for the tickets is limited to 50% of the face value.

31) If an employee incurs travel expenditures and is fully reimbursed by the employer, neither the reimbursement nor the deduction is reported on the employee's tax return if reporting is pursuant to an accountable plan.

32) Kim currently lives in Buffalo and works in Rochester, a 60-mile commute each way. Kim accepts a new job in a town outside of Rochester, and the new commute is 75-miles each way. Kim decides the commute for the new job is too long, and she moves to Rochester. Kim is eligible to deduct her moving expenses.

33) Deductible moving expenses include the cost of moving household goods and personal effects as well as temporary living expenses.

34) When a public school system requires advanced education for a teacher to continue employment, the teacher's expenses are a deductible education expense.

35) Educational expenses incurred by a CPA for courses necessary to meet continuing education requirements are fully deductible.

36) Educational expenses incurred by a bookkeeper for courses necessary to sit for the CPA exam are fully deductible.

37) In-home office expenses are deductible if the office is used exclusively on a regular basis as the principal place of business for any trade or business of the taxpayer.

38) In addition to the general requirements for in-home office expenses, employees must also prove that the exclusive use of the office is for the convenience of the employer.

39) In-home office expenses for an office used by the taxpayer for administrative or management activities of the taxpayer's trade or business are never deductible.

40) In-home office expenses which are not deductible in the year in which the costs were incurred due to limitations may be carried forward to subsequent years.

41) An employer receives an immediate tax deduction for pension and profit-sharing contributions made on behalf of employees.

42) In a defined contribution pension plan, fixed amounts are contributed based upon a specific formula and retirement benefits are based on the value of a participant's account at the time of retirement.

43) A qualified pension plan requires that employer-provided benefits must be 100 percent vested after five years of service.

44) Under a qualified pension plan, the employer's deduction is usually deferred until the employee recognizes income.

45) Nonqualified deferred compensation plans can discriminate in favor of highly compensated executives.

46) Corporations issuing incentive stock options receive a tax deduction for compensation expense.

47) Employees receiving nonqualified stock options recognize ordinary income at the grant date or exercise date if there is a readily ascertainable fair market value.

48) A sole proprietor establishes a Keogh plan. The highest effective percentage of earned income she can contribute is 25 percent.

49) SIMPLE retirement plans allow a higher level of employer contributions than do SEP IRAs.

50) The maximum tax deductible contribution to a traditional IRA in 2014 is $5,500 ($6,500 for a taxpayer age 50 or over). 51) The maximum tax deductible contribution to a Roth IRA in 2014 is $5,500 ($6,500 for a taxpayer age 50 or over).

52) A contributor may make a deductible contribution to a Coverdell Education Savings Account for a qualified designated beneficiary of up to $2,000.

53) All taxpayers are allowed to contribute funds to Health Savings Accounts to supplement their health insurance.

54) In which of the following situations is the individual is an independent contractor rather than an employee?A) a nurse who is directly supervised by doctors in an officeB) a computer programmer who is instructed as to what projects to undertake, programming language and format, and hours of workC) a nurse who travels to several different patients. She sets her own hours and is responsible for the delivery of nursing care and end resultD) a teacher whose hours, classroom responsibilities, content and methods of instruction are established by the school

55) Which of the following statements regarding independent contractors and employees is true (ignore temporary provisions)?A) Independent contractors pay Social Security and Medicare tax of 15.3%.B) Employees must pay unemployment taxes.C) Independent contractors and employees pay the same Social Security and Medicare tax rates.D) Independent contractors deduct their business expenses "from AGI."

56) West's adjusted gross income was $90,000. During the current year he incurred and paid the following:

Publications (unreimbursed and related to employment)$2,000

Tax return preparation fee1,000

Dues to professional organizations1,500

Fees for will preparation (no tax advice)800

Life insurance premiums1,400

Assuming he can itemize deductions, how much should West claim as miscellaneous itemized deductions (after limitations have been applied)?A) $2,700B) $4,500C) $3,500D) $5,300

57) Allison, who is single, incurred $4,000 for unreimbursed employee expenses, $10,000 for mortgage interest and real estate taxes on her home, and $500 for investment counseling fees. Allison's AGI is $80,000. Allison's allowable deductions from AGI are (after limitations have been applied)A) $10,500.B) $12,900.C) $14,000.D) $14,500.

58) All of the following are allowed a "For AGI" deduction except:A) Cora owns her own CPA firm and travels from Lafayette, LA. to Washington, D.C. to attend a tax conference.B) Jennifer, who lives in Houston, is the owner or several apartment buildings in Salt Lake City and travels there to inspect and manage her investments.C) Alan is self-employed and is away from home overnight on job-related business.D) Alison is an employee who is required to travel to company facilities throughout the U.S. in the conduct of her management responsibilities. She is not reimbursed by her employer.

59) Ron is a university professor who accepts a visiting position at another university for six months andobtains a leave of absence from his current employer. Ron rents an apartment near the university and purchases his food. These living expenses incurred by Ron while visiting the university will beA) deductible for AGI.B) deductible from AGI, without application of a floor.C) deductible from AGI, subject to the 2% of AGI floor.D) nondeductible.

60) Gwen traveled to New York City on a business trip for her employer. Gwen spent 4 days in business meetings and conferences and then spent 2 days sightseeing in the area. Gwen's plane fare for the trip was $250. Meals cost $160 per day. Hotels and other incidental expenses amounted to $250 per day. Gwen was not reimbursed by her employer for any expenses. Her AGI for the year is $50,000 and she itemizes but has no other miscellaneous itemized deductions. Gwen may deduct (after limitations)A) $570.B) $890.C) $1,890.D) $1,570.

61) Norman traveled to San Francisco for four days on vacation, and while there spent another two days conducting business for his employer. Norman's plane fare for the trip was $500; meals cost $150 per day; hotels cost $300 per day; and a rental car cost $150 per day that was used for all six days. Norman was not reimbursed by his employer for any expenses. Norman's AGI for the year is $40,000 and he did not have any other miscellaneous itemized deductions. Norman may deduct (after limitations)A) $250.B) $800.C) $1,050.D) $1,200.

62) Gayle, a doctor with significant investments in the stock market, traveled on a cruise ship to Bermuda. Investment specialists provided daily seminars which Gayle attended. The cost of the cruise for four days is $2,500. Gayle can deduct (before application of any floors)A) $0.B) $1,250.C) $2,000.D) $2,500.

63) Chelsea, who is self-employed, drove her automobile a total of 20,000 business miles in 2014. This represents about 75% of the auto's use. She has receipts as follows:

Parking (business only)$500

Tolls (business only)200

Repairs$1,000

Chelsea has an AGI for the year of $50,000. Chelsea uses the standard mileage rate method. After application of any relevant floors or other limitations, she can deductA) $10,900.B) $11,900.C) $11,750.D) $12,900.

64) Brittany, who is an employee, drove her automobile a total of 20,000 business miles in 2014. This represents about 75% of the auto's use. She has receipts as follows:

Parking (business only)$500

Tolls (business only)200

Repairs$1,000

Brittany's AGI for the year of $50,000, and her employer does not provide any reimbursement. She uses the standard mileage rate method. After application of any relevant floors or other limitations, Brittany can deductA) $10,900.B) $11,900.C) $10,750.D) $12,900.

65) Rajiv, a self-employed consultant, drove his auto 20,000 miles this year, 15,000 to meetings with clients and 5,000 for commuting and personal use. The cost of operating the auto for the year was as follows:

Gasoline and repairs$7,000

Insurance1,000

Depreciation4,000

Rajiv's AGI is $100,000 before considering the auto costs. Rajiv has used the actual cost method in the past. What is Rajiv's deduction for the use of the auto after application of all relevant limitations?A) $8,325B) $9,000C) $6,325D) $7,000

66) Jordan, an employee, drove his auto 20,000 miles this year, 15,000 to meetings with clients and 5,000 for commuting and personal use. The cost of operating the auto for the year was as follows:

Gasoline and repairs$7,000

Insurance1,000

Depreciation4,000

Jordan submitted appropriate reports to his employer, and the employer paid a reimbursement of $ .50 per mile. Jordan has used the actual cost method in the past. Jordan's AGI is $50,000. What is Jordan's deduction for the use of the auto after application of all relevant limitations?A) $1,500B) $500C) $1,000D) $8,000

67) Sarah incurred employee business expenses of $5,000 consisting of $3,000 business meals and $2,000 customer entertainment. She provided an adequate accounting to her employer's accountable plan and received reimbursement for one-half of the total expenses. How much of the meals and entertainment will be deductible by Sarah without consideration of the 2% of AGI limit?A) $0B) $1,250C) $2,500D) $5,000

68) Austin incurs $3,600 for business meals while traveling for his employer, Tex, Inc. Austin is reimbursed in full by Tex pursuant to an accountable plan. What amounts can Austin and Tex deduct?

A) AustinTex

$0$1,800

B) AustinTex

$0$3,600

C) AustinTex

$1,800$1,800

D) AustinTex

$3,600$0

69) Joe is a self-employed tax attorney who frequently entertains his clients at his country club. Joe's club expenses include the following:

Annual dues$ 5,400

Initiation fees1,200

Charges for personal meals with his family3,100

Meal and entertainment charges related to business use4,000

Assuming the business meals and entertainment qualify as deductible entertainment expenses, Joe may deductA) $2,000.B) $4,700.C) $5,300.D) $4,000.

70) Shane, an employee, makes the following gifts, none of which are reimbursed:

Shane's manager$30

Shane's personal assistant40

4 customers ($27 each)108

What amount of the gifts is deductible before application of the 2% of AGI floor for miscellaneous itemized deductions?A) $125B) $150C) $75D) $178

71) St