Chapter 6 Flashcards

Chapter 6 Flashcards During 2014 Jacob, a 19 year old full-time student, earned $4,500 during the year and was not eligible to participate in an employer-sponsored retirement plan. The general limit for deductible contributions during 2014 is $5,500. How much of a tax-deductible contribution can Jacob make to an IRA?A. $0 (Full-time students are not allowed to participate in IRAs)B. $500C. $4,500D. $5,500 C Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $20,000 of debt she is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of the debt resulting in a tax basis of $7,000 and an at risk amount of $5,000. During the year, ABC LP generated a ($70,000) loss. How much of Sue's loss is disallowed due to her tax basis or at-risk amount?A.Zero; all of her loss is allowed to be deductedB. $2,000 disallowed because of her at-risk amountC. $2,000 disallowed because of her tax basisD. $4,000 disallowed because of her tax basisE. $4,000 disallowed because of her at-risk amount B Daniela retired at the age of 65. The current balance in her Roth IRA is $200,000. Daniela established the Roth IRA 10 years ago. Through a rollover and annual contributions Daniela has contributed $80,000 to her account. If Daniela receives a $50,000 distribution from the Roth IRA, what amount of the distribution is taxable?A. $0B. $20,000C.

$30,000D. $50,000

A Bryan, who is 45 years old, had some surprise medical expenses during the year. To pay for these expenses (which were claimed as itemized deductions on his tax return), he received a $20,000 distribution from his traditional IRA (he has only made deductible contributions to the IRA). Assuming his marginal ordinary income tax rate is 15%, what amount of taxes and/or early distribution penalties will Bryan be required to pay on this distribution?A. $3,000 income tax; $2,000 early distribution penaltyB. $3,000 income tax; $0 early distribution penaltyC.$0 income tax; $2,000 early distribution penaltyD. $0 income tax; $0 early distribution penalty B Ilene rents her second home. During 2014, Ilene reported a net loss of $15,000 from the rental. If Ilene is an active

participant in the rental and her AGI is $140,000, how much of the loss can she deduct against ordinary income in

2014?A. $15,000B. $10,000C. $5,000D. $0

C

Brady owns a second home that he rents to others. During the year, he used the second home for 50 days for personal use and for 100 days for rental use. Brady collected $20,000 of rental receipts during the year. Brady allocated $7,000 of interest expense and property taxes, $10,000 of other expenses, and $4,000 of depreciation expense to the rental use. What is Brady's net income from the property and what type and amount of expenses will he carry forward to next year, if any?A. $0 net income. $1,000 depreciation expense carried forward to next year.B.($1,000) net loss. $0 expenses carried over to next year.C.$0 net income. $1,000 of other expense carried over to next year.D. $0 net income. $1,000 of interest expense and property taxes carried over to next year.A Which of the following is a true statement?A. For purposes of the deduction for educational interest, an educational loan must be used to pay tuition to any type of school.B.The maximum deduction for educational interest is $5,000 for married taxpayers filing jointly.C. Self-employed taxpayers are not allowed to deduct health care premiums if the taxpayer is eligible to participate in their spouse's employer-provided health plan.D. Self-employment taxes paid by self-employed taxpayers are deductible as business expenses.E. All of these are true.C Jill currently lives in the suburbs and commutes 25 miles to her office in downtown Freeport. She is considering quitting her current job to look for new employment in the downtown area. Which of the following statements best describes how Jill can satisfy the distance test for deducting moving expenses if she accepts a new job in downtown Freeport?A. Jill must move at least 25 miles further away from downtown Freeport.B. Jill must move 25 miles east from downtown Freeport.C. Jill must move 50 miles further away from downtown Freeport.D. Jill need not move her residence because she is starting a new job.E.Jill cannot satisfy the distance test if she accepts a job in downtown Freeport.E Congress allows self-employed taxpayers to deduct the cost of health insurance above the line (for AGI)

because:A. employers are allowed to deduct social security

(FICA) taxes as a business expense.B. self-employed taxpayers need an alternate mechanism for reducing the cost of health care.C. this deduction provides a measure of equity between employees and the self-employed.D. health insurance premiums cannot be deducted otherwise.E.

None of these C 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 insurance2.The employer portion of self-employment tax paid3.Penalty on early withdrawal of funds from a certificate of depositA. Numbers 1 and 2 only.B. Numbers 1 and 3