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Exam 10: Income, Deductions, and Credits

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Question 31

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The earned income credit is available only if the taxpayer has at least one qualifying child in the household.

A) True
B) False

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Question 32

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The taxpayer is a Ph.D. student in accounting at City University. The student is paid $1,500 per month for teaching two classes. The total amount received for the year is $13,500.

A) The $13,500 is excludible if the money is used to pay for tuition and books.
B) The $13,500 is taxable compensation.
C) The $13,500 is considered a scholarship and, therefore, is excluded.
D) The $13,500 is excluded because the total amount received for the year is less than her standard deduction and personal exemption.
E) None of these.

F) A) and E)
G) A) and D)

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Question 33

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

Phyllis, a calendar year cash basis taxpayer who itemized deductions totaling $20,000, overpaid her 2015 state income tax and is entitled to a refund of $400 in 2016. Phyllis chooses to apply the $400 overpayment toward her state income taxes for 2016. She is required to recognize that amount as income in 2016.

Dabney and Nancy are married, both gainfully employed, and have two children who are 3 and 6 years old. Dabney's salary is $35,000 while Nancy's salary is $40,000. During the year, they spend $7,000 for child care expenses that are required so both of them can work outside of the home. Calculate the credit for child and dependent care expenses.

Tom, whose MAGI is $40,000, paid $3,500 of interest on a qualified student loan in 2016. Tom is single. He may deduct the $3,500 interest as an itemized deduction.

Bradley has two college-age children, Clint, a freshman at State University, and Abigail, a junior at Northwest University. Both Clint and Abigail are full-time students. Clint's expenses during the 2016 fall semester are as follows: $2,400 tuition, $250 books and course materials, and $1,600 room and board. Abigail's expenses for the 2016 calendar year are as follows: $10,200 tuition, $1,200 books and course materials, and $3,600 room and board. Tuition and the applicable room and board costs are paid at the beginning of each semester. ​ Bradley is married, files a joint tax return, claims both children as dependents, and reports a combined AGI with his wife Allie of $114,000 for 2016. Determine Bradley's available education tax credit for 2016.

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) :

In April 2016, Bertie, a calendar year cash basis taxpayer, had to pay the state of Michigan additional income tax for 2015. Even though it relates to 2015, for Federal income tax purposes the payment qualifies as a tax deduction for tax year 2016.

Al contributed a painting to the Metropolitan Art Museum of St. Louis, Missouri. The painting, purchased six years ago, was worth $40,000 when donated, and Al's basis was $25,000. If this painting is immediately sold by the museum and the proceeds are placed in the general fund, Al's charitable contribution deduction is $25,000 (subject to percentage limitations).

Richard, age 50, is employed as an actuary. For calendar year 2016, he had AGI of $130,000 and paid the following medical expenses: Derrick and Jane would qualify as Richard's dependents except that they file a joint return. Richard's medical insurance policy does not cover them. Richard filed a claim for $4,800 of his own expenses with his insurance company in November 2016 and received the reimbursement in January 2017. What is Richard's maximum allowable medical expense deduction for 2016?

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.

Paula transfers stock to her former spouse, Fred. The transfer is pursuant to a divorce agreement. Paula's cost of the stock was $75,000 and its fair market value on the date of the transfer is $95,000. Fred later sells the stock for $100,000. Fred's recognized gain from the sale of the stock is $5,000.

Early in the year, Marion was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year: ​ What is the amount that Marion must include in gross income for the current year?

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.

Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2016. The $2,200 contribution is deductible on Sadie's 2016 tax return.

Herbert is the sole proprietor of a furniture store. He can deduct real property taxes on his store building as a business deduction but he cannot deduct state income taxes related to his net income from the furniture store as a business deduction.

Under the alimony rules:

Which of the following statements concerning the credit for child and dependent care expenses is not correct?

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.