ACC 555 Week 11 Final Exam – Strayer New

ACC 555 Week 11 Final Exam – Strayer New

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Chapters 7 Through 14

Prentice Hall's Federal Taxation 2015 Comprehensive, 28e (Pope)
Chapter 7  Itemized Deductions

1) For individuals, all deductible expenses must be classified as deductions for AGI or deductions from AGI.


2) In 2014, 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 most 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, 2014. Christopher receives $940 but must repay $1,000 on the due date. The amount of interest expense deductible in 2014 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) An accrual-basis corporation can only deduct contributions made by year-end.

40) Corporate charitable deductions are limited to 10% of the corporation's taxable income for the year.


41) Legal fees for drafting a will are generally deductible.


42) A taxpayer can deduct a reasonable amount for small out-of-pocket (i.e. cash) donations.


43) Van pays the following medical expenses this year:
• $1,500 for doctor bills for Van's son who is claimed as a dependent by Van's former spouse.
• $300 for Van's eyeglasses.
• $900 for Van's dental work.
• $3,800 for Van's face lift. Van, a newscaster, is worried about the wrinkles around his eyes.

How much can Van include on his return as qualified medical expenses before limitation?
A) $1,200
B) $2,400
C) $2,700
D) $6,500

44) All of the following are deductible as medical expenses except
A) vitamins and health foods that improve a taxpayer's general health.
B) payments for a vision exam and contact lenses.
C) payments to a hospital for laboratory fees and X-rays for diagnosis of a medical problem.
D) cosmetic surgery necessary to correct a deformity arising from a congenital abnormality.

45) All of the following payments for medical items are deductible with the exception of the payment for
A) insulin.
B) general appointment for teeth cleaning.
C) acupuncture for specific medical purposes.
D) nonprescription medicine for treatment of a specific medical condition.

46) In 2014 Sela traveled from her home in Flagstaff to San Francisco to seek medical care. Because she was unable to travel alone, her mother accompanied her. Total expenses included:

Hotel room en route ($150 × 2 rooms × 3 nights) $900
Mileage, 1,000 miles
Doctors bills in San Francisco 1,600

The total medical expenses deductible before the 10% limitation are
A) $1,600.
B) $2,135.
C) $2,500.
D) $2,460.

47) Leo spent $6,600 to construct an entrance ramp and to widen doorways in his personal residence to make the home accessible for his wife, who is disabled and confined to a wheelchair. The $6,600 expenditure increased the value of the residence by $2,000. How much of the $6,600 is a deductible medical expense (before considering limits based on AGI)?
A) $0
B) $2,000
C) $4,600
D) $6,600

48) Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Linda's qualified medical expense (before considering limits based on AGI)?
A) $0
B) $4,000
C) $9,000
D) $13,000

49) Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a chronic leg injury and must use a wheelchair and undergo therapy to regain and retain strength. Alan's physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures:

Wheelchair $ 1,200
Whirlpool bath 2,000
Maintenance of the whirlpool 250
Increased utility bills associated with whirlpool 450
Entrance ramp, various home modifications 7,200

A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan's deductible medical expenses (before considering limitations based on AGI) will be
A) $6,000.
B) $10,100.
C) $7,000.
D) $7,700.

50) Mitzi's medical expenses include the following:

Medical premiums $10,850
Doctors fees 2,000
Hospital fees 3,350
Prescription drugs 600
Eyeglasses 350
General purpose vitamins 100

Mitzi's AGI for the year is $33,000. She is single and age 49.  None of the medical costs are reimbursed by insurance. A