Individuals - Chapter 3

  1. Which would you rather have?
    • A credit of $100.
    • A deductible expense of $100.
    • A capital gain of $100.
    • A deductible loss of $100.
  2. The following are always included in your income except:
    • A bonus of $100.
    • Alimony received of $100.
    • Unemployment compensation of $100.
    • Social Security payments of $100.
  3. Which of the followingis normally not deductible?
    • The fair market value of old clothes given to a charity.
    • Personal credit card interest.
    • Job-hunting expenses.
    • Tax planning advice.
  4. Which of the following is normally not deductible?
    • Home equity interest on principal borrowed in excess of $100,000
    • Long-distance charges for calls to your investment broker
    • A subscription to Value Line for investment purposes
    • Business compensation paid to your children under age 18
  5. Which of the following is not deductible as a medical expense?
    • Life insurance premiums
    • Expense of transportation to physician's appointments
    • Swim club dues when a physician has prescribed swimming to alleviate a medical condition
    • Whirlpool treatments prescribed for your arthritis
  6. If you are self employed:
    • You can deduct wages paid to your children over age 14, even if they perform no meaningful work.
    • You can escape Social Security taxes on payments to your children under age 18.
    • You can depreciate the cost of your home office over a 28-year period.
    • You can deduct investment expenses whether or not you itemize deductions.
  7. An IRS audit:
    • Can be done on any tax year at any time.
    • May require you to substantiate your deductions.
    • Always takes place at the IRS office.
    • Will never happen to you.
  8. The marriage penalty:
    • Is a function of the progressive nature of our tax system.
    • Includes the potential loss of IRA deductions.
    • Is compounded by the standard deduction.
    • All of the above.
  9. If you change jobs during the year and have reached the maximum income amount subject to Social Security tax on your first job, you will still have to pay Social Security taxes at your new job. You can claim the excess Social Security tax paid as a credit on your 1040 return.
    • True.
    • False.
  10. Your medical deduction:
    • Includes home improvements made to accommodate a family member with a physical handicap.
    • Includes travel deductions at 12 cents a mile.
    • Is reduced by 7.5 percent of your adjusted gross income in excess of $100,000.
    • Includes payments for cosmetic surgery.
  11. Personal property taxes are deductible if:
    • They're based on either the value or weight of the property.
    • The tax is charged on a yearly basis.
    • The tax is not called a registration fee.
    • The tax is paid within 30 days of the end of the year.
  12. The IRS will now allow a deduction of up to $2,500 a year for repaying:
    • Education loans
    • Credit card debt
    • Loans to pay taxes
    • Auto loans
  13. The amount you pay in "points":
    • Must always be deducted proportionally over the life of the loan.
    • Is never deductible on the refinancing of a home.
    • Is deductible in full in the year of payment if the loan is to acquire your main home.
    • Can never be deducted by a buyer if paid by a seller.
  14. If you sell your principal house after living in it only two years, and you net $150,000 in profit:
    • You owe 15% capital gains tax.
    • You owe 28% capital gains tax.
    • You owe tax at your top marginal rate.
    • You owe nothing.
  15. If you rent out your primary home for two weeks each year:
    • You owe income tax on the rental income, minus expenses.
    • You can deduct 1/26th of the cost of operating your home.
    • You must depreciate the house.
    • You do not report income or expenses from the rental.
  16. The maximum amount that you can receive for the HOPE Scholarship Credit is:
    • $1,000
    • $1,200
    • $1,500
    • $2,000
  17. Charitable contributions:
    • Include the original retail cost of clothes given to Goodwill.
    • Include medical transportation at 31.5 cents per mile.
    • Include out-of-pocket volunteer expenses for a Boy Scout troop.
    • Require written confirmation from the charity for donations in excess of $200.
  18. A casualty loss:
    • Is normally deducted in the year of the loss.
    • Must be reduced by all insurance payments unless you paid the insurance premiums.
    • Must be reduced by 10 percent of your adjusted gross income for each loss event.
    • Must be reduced, in the aggregate, by $1,000.
  19. Which of the following can be taken as an itemized deduction on Schedule A?
    • The broker's commission on a stock sale
    • IRA or Keogh fees deducted from your account
    • Job-related expenses
    • Nonbusiness bad debts
  20. If you sell stock that you have held for at least one year, what is the maximum capital gains rate?
    • 10%
    • 15%
    • 20%
    • 39%
  21. A Roth IRA allows you to withdraw funds without paying a tax penalty for which of these reasons:
    • College
    • Non-deductible medical premiums
    • Insurance premiums not paid by your employer
    • First-time homebuyer
    • All of the above
  22. The advantage of a Roth IRA over a traditional IRA is that with a Roth IRA:
    • Contributions grow tax deferred.
    • You can roll a Roth IRA into a traditional IRA.
    • Contributions are not tax deductible.
    • Qualified distributions from a Roth IRA are tax free.
  23. You may be eligible to make a full or partial Roth IRA contribution if your adjusted gross income on a joint return does not exceed:
    • $61,000
    • $100,000
    • $150,000
    • $160,000
  24. At age 50, you can never withdraw money from your IRA account without paying an extra 10 percent penalty on what you take out.
    • True
    • False
  25. If you receive an IRS notice that you owe money, you should:
    • Pay it immediately, to save on penalties and interest.
    • Check to be sure the notice is correct before sending in the money.
    • Return to sender, marked "deceased."
    • Move.