Individual Taxation - Tax Limitations

Question 1

What is the maximum amount of tax-free group-term life insurance coverage that may be provided to an employee by an employer?

Answer 1

$50,000

Question 2

What is the maximum gift amount that is deductible as a business expense?

Answer 2

$25 per recipient each year

Question 3

A special rule permits an individual to offset up to ____ of income that is from non-passive activities by losses from a rental real estate activity (which is always a passive activity) if _____

Answer 3

$25,000

The individual actively participates in the rental real estate activity

Question 4

A special rule permits an individual to offset up to $25,000 of income that is from non-passive activities by losses from a rental real estate activity (which is always a passive activity) if the individual actively participates in the rental real estate activity. This $25,000 is reduced by ___ of the taxpayer’s AGI in excess of _____ and therefore is fully phased out when AGI exceeds _____

Answer 4

50%

$100,000

$150,000

Question 5

T/F

Rules limiting the deductibility of passive activity losses and credits applies to individuals

Answer 5

TRUE

Question 6

T/F

Rules limiting the deductibility of passive activity losses and credits applies to estates & trusts

Answer 6

TRUE

Question 7

T/F

Rules limiting the deductibility of passive activity losses and credits applies to closely held C corporations

Answer 7

TRUE

Question 8

T/F

Rules limiting the deductibility of passive activity losses and credits applies to personal service corporations

Answer 8

TRUE

A personal service corporation is a corporation whose principal activity is the performance of personal services and such services are substantially performed by owner-employees. This limitation of deductibility is intended to prevent taxpayers from sheltering personal service income by creating personal service corporations and acquiring passive activity losses at the corporate level

Question 9

T/F

Rules limiting the deductibility of passive activity losses and credits applies to partnerships

Answer 9

FALSE

Since passive activity income, losses, and credits from partnerships & S corporations flow through to be reported on the tax returns of the owners of such entities, the passive activity limitations are applied at the partner and shareholder level, rather than to partnerships & S Corporations themselves

Question 10

T/F

Rules limiting the deductibility of passive activity losses and credits applies to S Corporations

Answer 10

FALSE

Since passive activity income, losses, and credits from partnerships & S corporations flow through to be reported on the tax returns of the owners of such entities, the passive activity limitations are applied at the partner and shareholder level, rather than to partnerships & S Corporations themselves

Question 11

T/F

Rules limiting the deductibility of passive activity losses and credits applies to widely held C Corporations

Answer 11

FALSE

Question 12

What is the maximum amount of AGI that a taxpayer may have and still qualify to roll over the balance from a traditional individual retirement account (IRA) to a Roth IRA?

Answer 12

There is no maximum AGI limitation

Question 13

An individual is allowed to deduct up to ____ for interest on qualified education loans in arriving at AGI. This deduction is subject to an income phase-out and the loan proceeds must have been used for specific purposes.

Answer 13

$2500

Question 14

An individual taxpayer’s unreimbursed medical expenses are deductible to the extent in excess of _____ of the taxpayer’s AGI

Answer 14

10%

Take Medical Expenses - [AGI * 10%]

Question 15

Deductible medical expenses include those incurred by a taxpayer, taxpayer’s spouse, dependents, or any individual that a taxpayer COULD claim a dependency exemption for except for that the person had gross income of ______ or more (or filed a joint return)

Answer 15

$3950

Therefore, if a taxpayer’s child had gross income of $3950 or more, but was a “dependent” in all other respects, the taxpayer may deduct the medical expenses as if the child was a dependent

Question 16

T/F

To deduct medical expenses of a dependent, there is an age limit of 25 (no dependents over this age)

Answer 16

FALSE

No age limit

Question 17

T/F

The 2014 deduction by an individual taxpayer for interest on investment indebtedness is limited to the investment interest paid in 2014

Answer 17

FALSE

Question 18

T/F

The 2014 deduction by an individual taxpayer for interest on investment indebtedness is limited to the taxpayer’s 2014 interest income

Answer 18

FALSE

Question 19

T/F

The 2014 deduction by an individual taxpayer for interest on investment indebtedness is limited to the taxpayers 2014 net investment income

Answer 19

TRUE

Net investment income includes such income as interest, dividends, and short-term capital gains LESS any related expenses

Question 20

T/F

The 2014 deduction by an individual taxpayer for interest on investment indebtedness is not limited

Answer 20

FALSE

Question 21

Interest on home equity indebtedness loans of up to _______ is deductible as qualified residence interest if the loans are secured by a taxpayer’s principal or second residence, regardless of how the loan proceeds are used

Answer 21

$100,000

Question 22

Charitable contributions are limited in deductibility for up to 20%-50% of AGI. The remaining contributions can be carried forward for up to ____ years, subject to the % limitation in the carry-forward years

Answer 22

5 years

Question 23

The overall limitation for contribution deductions is ____ of AGI before any net operating loss carryback

Answer 23

50%

Question 24

An additional limitation is that contributions of long-term capital gain property to charities are limited to _____ of AGI

Answer 24

30%

Question 25

Another limitation is that some contributions to certain charities are limited to ____ of AGI or a lesser amount

Answer 25

20%

Question 26

If, for charitable purposes, an individual purchases an item for a greater cost than it’s FMV, the charitable deduction is limited to what?

Answer 26

The excess of the Cost over FMV

Question 27

Net casualty loss is deductible as an itemized deduction to the extent that it exceeds ____ of AGI

Answer 27

10%

Question 28

Net casualty loss is reduced by a ____ floor, and then is calculated as deductible to the extent that it exceeds 10% of AGI

Answer 28

$100 Floor

Question 29

Expenditures for state lottery tickets are deductible as a miscellaneous itemized deduction _____ (subject to/not subject to) the 2% of AGI Floor. The deduction amount is limited in amount to _____

Answer 29

Not subject to

The lottery winnings included in gross income on pg. 1 of Form 1040

Question 30

The American Opportunity Credit allows for a maximum credit of up to _____, which is 100% of ____ and 25% of _____

Answer 30

$2,500
$2,000
the next $2,000 of tuition, fees, and course materials

Question 31

The Lifetime Learning Credit provides a credit of ____ of up to ____ of tuition and fees paid by a taxpayer for one or more students for graduate and undergraduate courses at an eligible educational institition

Answer 31

20%

$10,000

Question 32

The Lifetime Learning Credit may be claimed for ____ number of years

Answer 32

An Unlimited

Question 33

A self-employed individual must file an income tax return if net earnings from self-employment are ____ or more

Answer 33

$400