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Exam 6: Individual for Agi Deductions

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Question 31

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Max, a single taxpayer, has a $270,000 loss from his sole proprietorship.How much of this loss is deductible after considering the excess business loss rules?

A) $270,000.
B) $255,000.
C) $15,000.
D) $0.
E) None of the choices are correct.

F) None of the above
G) C) and D)

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Question 32

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In certain circumstances, a taxpayer could rent her personal residence at a profit and not pay any tax on the income.

A) True
B) False

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Question 33

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Mercury is self-employed and she uses a room in her home as her principal place of business.She meets clients there and doesn't use the room for any other purpose.The size of her home office is 400 square feet.The size of her entire home is 2,400 square feet.During the year, Mercury received $6,300 of gross income from her business activities and she reported $2,500 of business expenses unrelated to her home office.For her entire home in the current year, she reported $3,500 of mortgage interest, $1,000 of property taxes, $600 of insurance, $500 of utilities and other operating expenses, and $3,200 of depreciation expense.What amount of home office expenses is Mercury allowed to deduct in 2019? Indicate that amount and the type of expenses she must carry over to the next year, if any.

Generally, which of the following does not correctly categorize the type of income?

Which of the following is a true statement?

In 2019, Madison is a single taxpayer who is 25 years of age.During 2019, she contributed $3,000 to her employer-sponsored 401(k)account.Her 2019 AGI was $68,500 (before considering IRA deductions).What is the maximum deductible contribution, if any, that Madison can make to her IRA?

Brice is a single, self-employed electrician who earns $60,000 per year in self-employment income.Brice paid the following expenses this year.Which of the expenses are deductible for AGI? 1.The cost of health insurance (not purchased through an exchange) 2) The employer portion of self-employment tax paid 3) Penalty on early withdrawal of funds from a certificate of deposit

Taxpayers with home offices must allocate indirect expenses of the home between personal use and home office use.Only expenses allocated to the home office use are deductible.

Lisa, age 45, needed some cash so she received a $50,000 distribution from her Roth IRA.At the time of the distribution, the balance in the Roth IRA was $200,000.Lisa established the Roth IRA eight years ago.Through a rollover and annual contributions, she has contributed $80,000 to her account.What amount of the distribution is taxable and subject to early distribution penalty?

Lisa, age 45, needed some cash so she received a $50,000 distribution from her Roth IRA.At the time of the distribution, the balance in the Roth IRA was $200,000.Lisa established the Roth IRA 10 years ago.Over the years, she has contributed $20,000 to her account.What amount of the distribution is taxable and subject to early distribution penalty?

Alexandra operates a garage as a sole proprietorship.Alexandra also owns a half interest in a partnership that operates a gas station.This year Alexandra paid or reported the following expenses related to her garage and other property.Determine Alexandra's AGI for 2019. $\begin{array}{llcc} \text {Revenue from auto repairs } &\$143,930 \\ \text {Salaries paid to mechanics } &72,210\\ \text {Supplies and tools } &18,500\\ \text {Revenues from gas station partnership (Alexandra's share) } &125,00\\ \text { Expenses from gas station partnership (Alexandra's share) } &95,200\\ \text { Self-employment tax (half is employer's share) } &12,702\\\end{array}$

To be deductible, business expenses must be directly related to a business activity.

A passive activity is any activity that involves a trade or business or rental activity in which the taxpayer does not materially participate.

Scott is a self-employed plumber and his wife, Emily, is a full-time employee for a university.Emily has health insurance from a qualified plan provided by the university, but Scott has chosen to purchase his own health insurance rather than participate in Emily's plan.Besides paying $5,400 for his health insurance premiums, Scott also pays the following expenses associated with his plumbing business: $\begin{array}{llcc} \text { Plumbing tools and supplies } &\$1,300 \\ \text {Rent on Scott's plumbing shop } &6,250\\ \text {Transportation between Scott's shop and various jobsites } &500\\ \text {Plumber's uniform } &50\\ \text { Plumbing truck rental } &7,200\\ \text { Self-employment tax (half is employer share) } &400\\\end{array}$ What is the amount of deductions for AGI that Scott can claim this year (2019)?

Which of the following statements regarding traditional IRAs is true?

Cassandra, age 33, has made deductible contributions to her traditional IRA over the years.When the balance in her IRA was $40,000, Cassandra received a distribution of $34,000 from her IRA in order to purchase a new car.How much of the $34,000 distribution will she have remaining after paying income taxes and early distribution penalties on the distribution? Her marginal tax rate is 25 percent.

A taxpayer's at-risk amount in an activity is increased by:

All investment expenses are itemized deductions.

This year, Jong paid $3,000 of interest on a qualified education loan.Jong files married filing jointly and reports modified AGI of $152,000.What is Jong's deduction for interest expense on an educational loan?

Tyson owns a condominium near Laguna Beach, California.This year, he incurs the following expenses in connection with his condo: $\begin{array}{llcc} \text { Insurance} & \$1,000 \\ \text { Mortgage interest} &7,500\\ \text {Property taxes } &3,200\\ \text {Repairs and maintenance } &800\\ \text { Utilities } &1,700\\ \text { Depreciation } &5,700\\\end{array}$ During the year, Tyson rented the condo for 100 days, receiving $25,000 of gross income.He personally used the condo for 60 days.Assume Tyson uses the Tax Court method of allocating expenses to rental use of the property.What is Tyson's net rental income for the year? (Assume there are 365 days in the year.)