ACC 555 Week 11 Final Exam Answers
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ACC 555 Week 11 Final Exam
Answers
1) For individuals, all deductible
expenses must be classified as deductions for AGI or deductions from AGI.
2) In 2013, 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 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, 2013. Christopher receives $940 but must repay $1,000 on the due
date. The amount of interest expense deductible in 2013 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) Corporate charitable
deductions are limited to 10% of the corporation’s taxable income for the year.
40) Legal fees for drafting
a will are generally deductible.
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