Exam 2 - Individual Taxation

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

Group starts

• True

• False

Congress allows self-employed taxpayers to deduct the cost of health insurance for AGI because:

• employers are allowed to deduct Social Security (FICA) taxes as a business expense.

• self-employed taxpayers need an alternate mechanism for reducing the cost of health care.

• this deduction provides a measure of equity between employees and the self-employed.

  Correct

• • 
    

    health insurance premiums cannot be deducted otherwise.

• • 
    

    None of the choices are correct.

Which of the following is a true statement?

• 
  

  Congress allows self-employed taxpayers to deduct the employer portion of their self-employment tax.

• • To deduct expenses associated with any profit-motivated activity, taxpayers must maintain a high level of involvement or effort in the activity throughout the year.

• Business activities never require a relatively high level of involvement or effort from the taxpayer.

• All business expenses are deducted for AGI.

• All of these choices are correct.

Mason paid $4,100 of interest on a loan that paid tuition for him to attend a private university this year. How much of this payment can Mason deduct as interest expense on an educational loan if he files single and reports modified AGI of $105,000?

• $4,100

• $4,000

• $2,667

• $2,000

• None of these choices are correct

Opal fell on the ice and injured her hip this winter. As a result she paid $3,180 for a visit to the hospital emergency room and $930 for follow-up visits with her doctor. While she recuperated, Opal paid $680 for prescription medicine and $780 to a therapist for rehabilitation. Insurance reimbursed Opal $1,380 for these expenses. What is the amount of Opal's qualifying medical expense?

• $3,180

• $4,110

• 
  

  $4,190

• • 
    

    $5,570

• All of these choices are correct

Larry recorded the following donations this year:

$700 cash to a family in need

$2,600 to a church

$700 cash to a political campaign

To the Salvation Army household items that originally cost $1,400 but are worth $500.

What is Larry's maximum allowable charitable contribution if his AGI is $62,000?

• $3,300

• • 
    

    $1,400

• • 
    

    $3,100

• $5,400

• None of the choices are correct

Which of the following is a true statement?

• A casualty loss on personal-use assets is generally not deductible.

• A casualty loss on investment property is generally not deductible.

• • 
    

    All casualty losses are deductible.

• A casualty loss on a personal-use asset is deductible for AGI.

• None of the choices are correct

In 2025, Campbell, a single taxpayer, has $400,000 of profits (net of the deduction for self-employment taxes, the self-employed health insurance deduction, and the deduction for contributions to qualified self-employment retirement plans) from her general store, which she operates as a sole proprietorship. She has no employees, $40,000 of qualified property, no capital gains or qualified dividends, and $500,000 of taxable income before the deduction for qualified business income. How much is Campbell's deduction for qualified business income?

tip( Her deduction for qualified business income is limited to 25 percent of her wages ($0) plus 2.5 percent of her qualified property)

• $100,000

• $80,000

• $20,000

• $1000

• $0

Nontax factor(s) investors should consider when choosing among investments include:

• before-tax rates of return

• after-tax rates of return

• liquidity needs

• before-tax rates of return and after-tax rates of return

• before-tax rates of return and liquidity needs

One primary difference between corporate and U.S. Treasury bonds is:

• treasury bonds always pay interest periodically.

• corporate bonds always pay interest periodically.

• interest from Treasury bonds is exempt from federal taxation.

• interest from corporate bonds is exempt from state taxation.

• None of the choices are correct.