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Exam 10: Income, Deductions and Credits

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Question 51

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Phyllis, a calendar year cash basis taxpayer who itemized deductions totaling $20,000, overpaid her 2016 state income tax and is entitled to a refund of $400 in 2017.Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2017.She is required to recognize that amount as income in 2017.

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B) False

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Question 52

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During 2017, Kathy, who is self-employed, paid $650 per month for an HSA contract that provides medical insurance coverage with a $3,000 deductible.The plan covers Kathy, her husband, and their three children.Of the $650 monthly fee, $300 was for the high-deductible policy, and $350 was deposited into an HSA.How much of the amount paid for the high-deductible policy can Kathy deduct as a deduction for AGI?

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Because Kathy is self-employed, she can ...

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Question 53

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An individual generally may claim a credit for adoption expenses in the year in which the expenses are paid.

In 2017, Allison drove 800 miles to volunteer in a project sponsored by a qualified charitable organization in Utah.In addition, she spent $250 for meals while away from home.In total, Allison may take a charitable contribution deduction of $112 (800 miles × $.14) relating to her volunteer work.

All employees of United Company are covered by a group hospitalization insurance plan, but the employees must pay the premiums ($8,000 for each employee) .None of the employees has sufficient medical expenses to deduct the premiums.Instead of giving raises next year, United is considering paying the employee's hospitalization insurance premiums.If the change is made, the employee's after-tax and insurance pay will:

The maximum child tax credit under current law is $1,500 per qualifying child.

Kevin and Sue have two children, ages 8 and 14.They spend $6,200 per year on eligible employment related expenses for the care of their children after school.Kevin earned a salary of $20,000 and Sue earned a salary of $18,000.What is the amount of the credit for child and dependent care expenses?

Under the terms of a divorce agreement, Lanny was to pay his wife Joyce $2,000 per month in alimony and $500 per month in child support.For a twelve-month period, Lanny can deduct from gross income (and Joyce must include in gross income) :

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2017.The $2,200 contribution is deductible on Sadie's 2017 tax return.

Tom, whose MAGI is $40,000, paid $3,500 of interest on a qualified student loan in 2017.Tom is single.He may deduct the $3,500 interest as an itemized deduction.

George and Martha are married and file a joint tax return claiming their two children, ages 10 and 8 as dependents.Assuming their AGI is $119,650, George and Martha's child tax credit is:

Shirley pays FICA (employer's share) on the wages she pays her housekeeper to clean and maintain Shirley's personal residence.The FICA payment is not deductible as an itemized deduction.

Child care payments to a relative are not eligible for the credit for child and dependent care expenses if the relative is a child (under age 19) of the taxpayer.

In 2017, Brandon, age 72, paid $3,000 for long-term care insurance premiums.He may include the $3,000 in computing his medical expense deduction for the year.

Both education tax credits are available for qualified tuition expenses, and in certain instances, also may be available for room and board.

Charles, who is single and age 61, had AGI of $400,000 during 2017.He incurred the following expenses and losses during the year. $\begin{array}{lr}\text { Medical expenses before 10\%-of-AGI floor } & \$ 39,500 \\\text { State and local income taxes } & 5,200 \\\text { Real estate taxes } & 4,400 \\\text { Home mortgage interest } & 5,400 \\\text { Charitable contributions } & 4,800\\\text { Casualty loss before } 10 \% \text { limitation (after } \$ 100 \text { floor) } & 47,000 \\\text { Unreimburs ed employee expenses subj ect to } 2 \% \text {-o f-AG I limitation } & 8,900 \\\text { Gambling losses (Charles had } \$ 7,400 \text { of gambling income) } & 9,800\end{array}$ Compute Charles's total itemized deductions for the year.

Harry and Sally were divorced three years ago.In July of the current year, their son, Joe, broke his arm falling out of a tree.Joe lives with Sally and Sally claims him as a dependent on her tax return.Harry paid for the medical expenses related to Joe's injury.Can Harry claim the medical expenses he paid for Joe on his tax return?

In 2017, Theresa was in an automobile accident and suffered physical injuries.The accident was caused by Ramon's negligence.In 2018, Theresa collected from his insurance company.She received $15,000 for loss of income, $10,000 for pain and suffering, $50,000 for punitive damages, and $6,000 for medical expenses which she had deducted on her 2017 tax return (the amount in excess of 10% of adjusted gross income).As a result of the above, Theresa's 2018 gross income is increased by $56,000.

Leona borrows $100,000 from First National Bank and uses the proceeds to purchase City of Houston bonds.The interest Leona pays on this loan is deductible as investment interest subject to the investment interest limits.

Joe, a cash basis taxpayer, took out a 12-month business loan on December 1, 2017.He prepaid all $3,600 of the interest on the loan on December 1, 2017.Joe can deduct only $300 of the prepaid interest in 2017.