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Exam 10: Individuals: Income, deductions, and Credits

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Question 41

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Fred and Lucy are married,ages 33 and 32,and together have AGI of $120,000 in 2015.They have four dependents and file a joint return.They pay $5,000 for a high deductible health insurance policy and contribute $2,600 to a qualified Health Savings Account.During the year,they paid the following amounts for medical care: $9,200 in doctor and dentist bills and hospital expenses,and $3,000 for prescribed medicine and drugs.In October 2015,they received an insurance reimbursement of $4,400 for the hospitalization.They expect to receive an additional reimbursement of $1,000 in January 2016.Determine the maximum itemized deduction allowable for medical expenses in 2015.

A) $800
B) $3,400
C) $9,200
D) $12,800
E) None of the above

F) B) and D)
G) B) and C)

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Question 42

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Capital assets donated to a public charity that would result in long-term capital gain if sold,are subject to the 30%-of-AGI ceiling limitation on charitable contributions for individuals.

A) True
B) False

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Question 43

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For purposes of computing the deduction for qualified residence interest,a qualified residence includes the taxpayer's principal residence and two other residences of the taxpayer or spouse.

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

Dan contributed stock worth $16,000 to his college alma mater,a qualified charity.He acquired the stock eleven months ago for $4,000.He may deduct $16,000 as a charitable contribution deduction (subject to percentage limitations).

Christie sued her former employer for a back injury she suffered on the job in 2015.As a result of the injury,she was partially disabled.In 2016,she received $240,000 for her loss of future income,$160,000 in punitive damages because of the employer's flagrant disregard for the employee's safety,and $15,000 for medical expenses.The medical expenses were deducted on her 2015 return,reducing her taxable income by $12,000.Christie's 2016 gross income from the above is:

In January 2016,Pam,a calendar year cash basis taxpayer,made an estimated state income tax payment for 2015.The payment is deductible in 2015.

A taxpayer pays points to obtain financing to purchase a second residence.At the election of the taxpayer,the points can be deducted as interest expense for the year paid.

A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for:

Adrienne sustained serious facial injuries in a motorcycle accident.To restore her physical appearance,Adrienne had cosmetic surgery.She cannot deduct the cost of this procedure as a medical expense.

The exclusion of interest on educational savings bonds:

Qualifying tuition expenses paid from the proceeds of a tax-exempt scholarship do not give rise to an education tax credit.

Interest paid or accrued during the tax year on aggregate acquisition indebtedness of $2 million or less ($1 million or less for married persons filing separate returns)is deductible as qualified residence interest.

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

Jena is a full-time undergraduate student at State University and is claimed by her parents as a dependent.Her only source of income is a $10,000 athletic scholarship ($1,000 for books,$5,500 tuition,$500 student activity fee,and $3,000 room and board) .Jena's gross income for the year is:

Edna had an accident while competing in a rodeo.She sustained facial injuries that required cosmetic surgery.While having the surgery done to restore her appearance,she had additional surgery done to reshape her chin,which was not injured in the accident.The surgery to restore her appearance cost $9,000 and the surgery to reshape her chin cost $6,000.How much of Edna's surgical fees will qualify as a deductible medical expense (before application of the AGI limitation) ?

Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program can also qualify for the credit for child and dependent care expenses.

Employee business expenses for travel qualify as itemized deductions subject to the 2% floor if they are not reimbursed.

Ronaldo contributed stock worth $12,000 to the Children's Protective Agency,a qualified charity.He acquired the stock 20 months ago for $6,000.He may deduct $6,000 as a charitable contribution deduction (subject to percentage limitations).

Barry and Larry,who are brothers,are equal owners in Chickadee Corporation.On July 1,2015,each loans the corporation $10,000 at an annual interest rate of 10%.Both shareholders are on the cash method of accounting,while Chickadee Corporation is on the accrual method.All parties use the calendar year for tax purposes.On June 30,2016,Chickadee repays the loans of $20,000 together with the specified interest of $2,000.How much of the interest can Chickadee Corporation deduct in 2015?