Quiz 4: Adjustments for Adjusted Gross Income
Business
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Tax law provides certain benefits for student loans who obtain higher education for expenses that occur when they attend qualified higher education. The expenses are paid when they borrow money from bank or any student loan program. Also loan amount is provided for a person who is legally eligible to pay the interest amount and not any dependant person can obtain the amount. Qualified educational loan is one obtained for payment for higher education claimed by the taxpayer on behalf of their spouse or any person dependant on the individual. This loan amount should be used only for educational expense and no other payment will be entertained.This loan amount is disbursed 3 months before or after the completion of academic period and the education may be undergraduate or graduate level of study. Thus, qualified educational loan refers to payment incurred by the taxpayer for educational purpose and they are solely responsible for repayment of the amount within the given time period.
Q 2Q 2
Brenda Carlyle attended Kansas State University during 2006-2010. She incurred education expenses of $10,000. To finance her education, she borrowed $7,000 through a federal student loan program and borrowed another $3,000 from Kansas State Credit Union for educational purposes. After graduation, she accepted a position with the Houston Deloitte Touche office and moved there in June 2010. She lives at 4560 Apple Blossom Lane with her cat, Misty. Her social security number is 412-34-5670
Her W-2 contained the following information:
Wages of $61,533.05.
Federal Income Tax Withheld of $8,829.95.
Social Security Wages of $61,533.05.
Social Security Tax Withheld of $3,815.05.
Medicare Wages of $61,533.05.
Medicare Tax Withheld of $892.23.
In moving to Houston, she incurred the following moving expenses:
$475 in gasoline.
$295 for renting a truck from IGOTYA rentals.
$75 in food.
$410 for motel lodging on the way to Houston.
She also received two 1098-E's. One was from the Federal Student Loan Program which showed $850 of student loan interest and the other was from the Kansas State Credit Union and showed $450.75 of student loan interest.
Prepare a Form 1040 and a Schedule M as well as a Form 3903 and a student loan interest worksheet for Brenda.
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Qualified educational expense refers to the expense spent for attending an eligible educational institution which would include all the necessities of education. Educational expense to become qualified for deduction when they are used for non-educational expense.Qualified educational expense are those that include- • Tuition • Fees • Books • Supplies • Equipment • Room • Board • Transportation • Any necessary expense of attendance However, the taxpayer should reduce the qualified expense by gaining support to exclude it from gross income.Thus, qualified educational expense includes those that are spent for attending eligible educational institution that are necessary for the study.
Q 4Q 4
In February 2010, Phillip and Barbara Jones, and their two dependent children, who are both over 17, moved from Chicago to Albuquerque, a distance of 1,327 miles which they drove in their own car. The children's names are Roger and Gwen. The move was a result of a job transfer for Phillip. The distance from their old home to Phillip's old office was 30 miles. Barbara quit her job in Chicago and decided to perform volunteer work for a year before seeking further employment. Phillip and Barbara incurred expenses of $4,550 to the moving company (which included $320 for furniture storage), hotel charges of $550, meals of $712 en route from Chicago to Albuquerque. Their new home was located at 7432 Desert Springs Way. Phillip, but not Barbara, was employed in the new location throughout the year. Phillip's social security number is 412-34-5670, Barbara's is 412-34-5671, Roger's is 412-34-5672 and Gwen's is 412-34-5673.
Phillip is an attorney for a national law firm; his W-2 contained the following information:
Wages of $124,220.45.
Federal Income Tax Withheld of $29,765.12
Social Security Wages of $ 106,800.
Social Security Tax Withheld of $6,621.60
Medicare Wages of $124,220.45
Medicare Tax Withheld of $1,801.20
Employer Moving Expense Reimbursement (Box 12, code P) of $5,000.
In addition, both he and Barbara received 1098-E's from the Federal Student Loan Program. Philip's had student loan interest of $1,050 and Barbara's had student loan interest of $750.
Prepare a Form 1040 and a Schedule M for Phillip and Barbara, as well as a Form 3903 and a student loan interest worksheet.
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Q 6Q 6
Karen and Carl Sanders obtained a divorce effective May 1, 2010. In accordance with the divorce decree, Carl was required to pay Karen $3,500 per month until their only child turns 18; then the payments would be reduced to $2,000 per month. Karen has full custody of the child and appropriately takes the dependent deduction and child credit. Furthermore, he was to transfer title of their house, which had a cost of $150,000 and a fair value of $200,000 on the date of transfer, to Karen and was to continue making the monthly mortgage payments on behalf of Karen of $2,000. Carl works for a large oil distributor in Santa Fe, New Mexico, and after the divorce lives at 1132 Northgate Avenue in Santa Fe. Karen's social security number is 412-34-5671, and Carl's number is 412-34-5670.
His W-2 contained the following information:
Wages of $113,100.25.
Federal Income Tax Withheld of $28,275.12.
Social Security Wages of $106,800.
Social Security Tax Withheld of $6,621.60
Medicare Wages of $113,100.25.
Medicare Tax Withheld of $1,639.95.
He also received a Form 1099-INT from First New Mexico Bank with $336 of interest income in box 1 and a 1099-MISC from Oil Research Quarterly Magazine with other income of $490 for an article that he wrote.
Prepare a Form 1040 and a Schedule M for Carl.
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Q 9Q 9
In 2006, Mary incurred a loan to pay for qualified higher education expenses for her 20-year-old daughter who was a dependent. In 2010, her daughter graduated from college, moved away to start a new job, and ceased to be a dependent on Mary's tax return. Mary started making payments on the loan in 2010. Without regard to any modified adjusted gross income limitations, is Mary permitted to deduct interest on the loan?
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Q 15Q 15
A taxpayer incurs moving expenses in conjunction with a job-related move that meets the distance test. At the end of the year, the taxpayer has not yet met the time test. Under what circumstances can the taxpayer deduct the moving expenses?
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Q 16Q 16
Nathan quit his job in Los Angeles and moved to Seattle, incurring $1,500 of moving expenses. Upon arriving in Seattle, he sought employment and found a position three weeks later. Without regard to the time test, what amount, if any, of his moving expenses can Nathan deduct?
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Q 17Q 17
In January 2010, Jeff incurred $1,200 of moving expenses when he moved from Des Moines to Detroit. When he moved, he had no job but found one a week after moving. He stayed on that job for two months, changed to another job for four months, and changed again to a long-term position that he held for the remainder of the year. What is the amount of moving expense deduction Jeff can report in 2010, if any?
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Q 18Q 18
Explain why self-employed taxpayers pay double the amount of FICA taxes that regular wage earners do.
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Q 20Q 20
Explain the two limitations associated with the deduction for health insurance by self-employed individuals.
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Q 21Q 21
What is meant by a penalty on early withdrawal of savings , and under what circumstances is it deductible?
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Q 24Q 24
Who is eligible to take an above-the-line AGI deduction for educator expenses and what is the maximum amount of the permitted deduction?
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Q 28Q 28
Mr. Mrs. Lopez paid tuition of $1,400 and required fees of $650 for their 25-year-old daughter who is attending State University, living on her own, and working 30 hours per week at a restaurant hostess. Their AGI is $50,000. The daughter paid for all of her other school and living expenses, which amounted to more than 50% of her total living expenses. What is the permitted amount of tuition and fees deduction for the Lopezes? Why?
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Q 29Q 29
For AGI, or above-the-line, deductions: a. Are determined by the taxpayer.
B) Are set by statute.
C) Increase tax liability.
D) Are reported in Schedule A.
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Q 30Q 30
For AGI, or above-the-line, deductions: a. Increase AGI.
B) Reduce tax credits.
C) Are only available for MFJ.
D) Can reduce overall tax liability.
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Q 32Q 32
Taxpayers eligible to take the student loan interest deduction do not include: a. A student who is claimed as a dependent on another's return.
B) A self-supporting student.
C) The parents of a dependent student who took out the loan on their child's behalf.
D) A married student filing jointly.
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Multiple Choice
Q 33Q 33
In 2006 through 2009, Korey, who is single, borrowed a total of $25,000 for higher education expenses on qualified education loans. In 2010, while still living at home and being claimed by his parents as a dependent, he began making payments on the loan. The first year's interest on the loan was reported as $550 and his AGI for year was less than $60,000. The amount that Korey can claim on his tax return is: a. $0.
B) $225.
C) $340.
D) $550.
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Q 34Q 34
For 2010, the maximum aggregate annual contribution that an individual taxpayer, under age 55, can make to a Health Savings Account (HSA) for family coverage is: a. $1,200.
B) $3,050.
C) $6,150.
D) $11,900.
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Q 35Q 35
To be eligible to fund a Health Savings Account (HSA), a taxpayer must be: a. An employee (or spouse) who works for an employer with a high deductible health plan.
B) An uninsured employee who has purchased a high-deductible health plan on their own.
C) A self-employed individual.
D) All of the above.
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Q 36Q 36
To be eligible to deduct moving expenses, a taxpayer: a. Must meet the time test.
B) Must meet the distance test.
C) Must meet one of the change of job location, time, or distance tests.
D) Must meet all three of the change of job location , time, and distance tests.
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Q 37Q 37
Deductible expenses for moving do not include: a. The cost of transporting household goods.
B) Hotel costs while moving to the new location.
C) Meals incurred during the move.
D) Temporary storage of household goods for a limited time upon arrival at the new location.
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Q 38Q 38
To meet the distance test, the new job location must be: a. 100 miles from the old job location.
B) At least 50 miles farther than the old residence was from the old job location.
C) At least 50 miles farther than the new residence from the old job location.
D) 100 miles from the old residence.
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Q 39Q 39
The deduction for half of the self-employment tax is: a. Based on a total of 7.65% of FICA taxes.
B) Based on the gross earnings of the business.
C) Based on filing status.
D) Based on the net earnings of the business.
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Q 40Q 40
As a for AGI deduction, self-employed health insurance premiums are deductible at: a. 50%.
B) 70%.
C) 80%.
D) 100%.
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Q 41Q 41
Rick is a self-employed carpenter who had net earnings from self-employment of $3,500. He paid $325 per month for health insurance over the last year. Rick is entitled to a for AGI deduction for health insurance of: a. $0.
B) $325.
C) $3,500.
D) $3,900.
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Q 42Q 42
Penalties for the early withdrawal of savings are reported by the financial institution on: a. Box 2 of Form 1099-INT.
B) Form EWIP.
C) A letter of notification.
D) None of the above.
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Multiple Choice
Q 43Q 43
Roger is required under a 2008 divorce decree to pay $600 of alimony and $300 of child support per month for 12 years. In addition, Roger makes a voluntary payment of $100 per month. How much of each total monthly payment can Roger deduct in 2010? a. $100.
B) $300.
C) $600.
D) $700.
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Q 44Q 44
If an employer contributes to an HSA on behalf of an employee, :
b. Is the payment considered income to the employee?
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Q 45Q 45
The Hamiltons were granted a decree of divorce in 2009. In accordance with the decree, Rick Hamilton is to pay his ex-wife $24,000 a year until their only child, Evelyn now 10, turns 18, and then the payments will decrease to $14,000 per year. For 2010, how much can Rick deduct as alimony for the year? a. $10,000.
B) $14,000.
C) $24,000.
D) None of the above.
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Q 46Q 46
At the beginning of June 2010, John left his wife and is currently living in an apartment. The couple has no children and, at the end of the current year, no formal proceedings have occurred in relation to the separation or potential divorce. John has been making a $2,000 a month maintenance payment since moving out. How much can John deduct as alimony for 2010? a. 0
B) $2,000.
C) $12,000.
D) $24,000.
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Q 47Q 47
What are some of the limitations concerning deductibility of student loan interest? Be specific and comprehensive.
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Q 48Q 48
Discuss the characteristics of an eligible educational institution as it relates to the deductibility of student loan interest.
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Q 49Q 49
Barbara attended State University during 2005-2009. She lived at home and was claimed by her parents as a deduction during the entire duration of her education. She incurred education expenses of $10,000 during college of which $2,000 was paid for by scholarships. To finance her education, she borrowed $7,000 through a federal student loan program and borrowed another $3,000 from a local lending institution for educational purposes. After graduation, she married and moved with her husband to a distant city. In 2010, she incurred $700 of interest on the federal loans and $300 on the lending institution loan. She filed a joint return with her husband showing modified AGI of $122,000. What amount of student loan interest can Barbara and her husband deduct in 2010, if any?
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Q 50Q 50
Juan, who is single, is a self-employed carpenter and is also an employee of Frame It, Inc. His self-employment net income is $35,000, and he received a W-2 from Frame It for wages of $25,000. He is covered by his employer's pension plan, but his employer does not offer a health plan in which he could participate.
b. How much of Juan's self-employment taxes would be deductible?
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Q 51Q 51
If an employer contributes to an HSA on behalf of an employee, :
a. Is the contribution deductible by the employee?
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Q 52Q 52
Jose, an engineer, was employed and resided in New Hampshire. On July 1, 2010, his company transferred him to Florida. Jose worked full-time for the entire year. During 2010, he incurred and paid the following expenses related to the move:
He did not receive reimbursement for any of these expenses from his employer; his AGI for the year was $85,500. What amount can Jose deduct as moving expenses on his 2010 return?
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Q 53Q 53
In May 2010, Maria graduated from the University of San Diego with a degree in accounting and moved to Denver to look for work. Shortly after arriving in Denver, she obtained work as a staff accountant in a local CPA firm. In her move to Denver, Maria incurred the following costs:
$450 in gasoline.
$250 for renting a truck from UPAYME rentals.
$100 for a tow trailer for her car.
$85 in food.
$35 in double lattes from Starbucks.
$300 for motel lodging on the way to Denver.
$350 for a previous plane trip to Denver to look for an apartment.
$175 in temporary storage costs for her collection of antique bassoons.
How much, if any, may Maria take as a moving expense deduction on her 2010 tax return? Is that deduction subject to any conditions that could change its deductibility in the future?
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Q 54Q 54
Three types of payments are associated with a decree of separation or a divorce
b. Which one has a tax consequence?
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Q 55Q 55
Are the moving expenses of other people besides the taxpayer deductible and, if so, what are the requirements for deductibility?
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Q 56Q 56
Three types of payments are associated with a decree of separation or a divorce
c. What is the timing rule regarding the "recapture" period of those payments?
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Q 57Q 57
Juan, who is single, is a self-employed carpenter and is also an employee of Frame It, Inc. His self-employment net income is $35,000, and he received a W-2 from Frame It for wages of $25,000. He is covered by his employer's pension plan, but his employer does not offer a health plan in which he could participate.
a. Up to how much of his self-employed health insurance premiums could he deduct for this year, if any? Why?
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Q 58Q 58
Sheniqua has received a 1099-INT from her financial institution showing $90 in box 2 of the form. How should she handle this on her 2010 tax return and why?
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Q 59Q 59
Under the terms of a divorce decree executed May 1, 2010, Rob transferred a house worth $650,000 to his ex-wife, Linda, and was to make alimony payments of $3,000 per month. The property has a tax basis to Rob of $300,000.
b. Of that amount, how much is taxable gain or loss that Linda must recognize related to the transfer of the house?
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Q 60Q 60
Three types of payments are associated with a decree of separation or a divorce
a. What are those three payments?
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Q 61Q 61
Under the terms of a divorce decree executed May 1, 2010, Rob transferred a house worth $650,000 to his ex-wife, Linda, and was to make alimony payments of $3,000 per month. The property has a tax basis to Rob of $300,000.
a. How much of this must be reported on Linda's tax return?
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Q 62Q 62
Under the alimony recapture rules, what amounts are designated for recapture reclassification, and what are the tax consequences?
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Q 63Q 63
Indicate whether each of the following items is considered a for AGI, (above-the line) deduction for the 2010 tax year.
a. Student loan interest.
b. Gambling losses.
c. Early withdrawal penalty.
d. Child support payments.
e. Charitable contributions.
f. One-half of self-employment taxes.
g. Alimony.
h. Scholarships for tuition and books.
i. Moving expenses.
j. Property taxes.
k. Self-employed health insurance premiums.
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