ACC 555 Final Exam Answers


1) For individuals, all deductible expenses must be classified as deductions for AGI or deductions from AGI.


2) In 2013, medical expenses are deductible as a from AGI deduction to the extent that they exceed 7.5 percent of the taxpayer’s AGI.


3) Medical expenses paid on behalf of an individual who could be the taxpayer’s dependent except for the gross income or joint return tests are deductible as itemized deductions.


4) Medical expenses incurred on behalf of children of divorced parents are deductible by the parent who pays the expenses but only if that parent also is entitled to the dependency exemption.


5) The definition of medical care includes preventative measures such as routine physical examinations.


6) Due to stress on the job, taxpayer Charlie began to experience chest pains. In order to relax and relieve the pains, he and his spouse went on an ocean cruise. The cost of the cruise to alleviate this medical condition is tax deductible.


7) Expenditures for a weight reduction program are deductible if recommended by a physician to treat a specific medical condition such as hypertension caused by excess weight.


8) In order for a taxpayer to deduct a medical expense, the amount must be paid to a certified medical doctor (M.D.).


9) Jeffrey, a T.V. news anchor, is concerned about the wrinkles around his eyes. Because it is job-related, the cost of a face lift to eliminate these wrinkles is a deductible medical expense.


10) Expenditures for long-term care insurance premiums qualify as a medical expense deduction subject to an annual limit based upon the age of an individual.


11) Capital expenditures for medical care which permanently improve or better the taxpayer’s property are deductible to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.


12) Expenditures incurred in removing structural barriers in the home of a physically handicapped individual are deductible only to the extent the cost exceeds the increase in fair market value to the property attributable to the capital expenditure.


13) If the principal reason for a taxpayer’s presence in an institution is the need and availability of medical care, the entire cost of lodging and meals is considered qualified medical expenditures.


14) A medical expense is generally deductible only in the year in which the expense is actually paid.


15) If a prepayment is a requirement for the receipt of the medical care, the payment is deductible in the year paid rather than the year in which the care is rendered.


16) If a medical expense reimbursement is received in a year after a deduction has been taken on a previous year’s return, the previous year’s return must be amended to eliminate the reimbursed expense.


17) Assessments or fees imposed for specific privileges or services are not deductible as taxes.


18) Foreign real property taxes and foreign income taxes are not deductible as itemized deductions.


19) A personal property tax based on the weight of the property is deductible.


20) Assessments made against real estate for the purpose of funding local improvements are not deductible in the year paid but rather should be added to the cost basis of the property.


21) Self-employed individuals may deduct the full self-employment taxes paid as a for AGI deduction.


22) Finance charges on personal credit cards are considered interest and are, therefore, deductible.


23) In general, the deductibility of interest depends on the purpose for which the indebtedness is incurred.


24) Interest expense incurred in the taxpayer’s trade or business is deductible as a for AGI deduction without limitation if the taxpayer materially participates in the business.


25) Investment interest expense which is disallowed because it exceeds the taxpayer’s net investment income may be carried over and treated as incurred in subsequent years.


26) Investment interest includes interest expense incurred to purchase tax-exempt securities.


27) Taxpayers may elect to include net capital gain as part of investment income.


28) Taxpayers may not deduct interest expense on personal debt including credit card debt, car loans, and other consumer debt.


29) Qualified residence interest consists of both acquisition indebtedness and home equity interest.


30) Acquisition indebtedness for a personal residence includes debt incurred to substantially improve the residence.


31) A taxpayer is allowed to deduct interest expense incurred on home equity indebtedness limited to the lesser of $100,000 or the home equity (FMV of the residence less the acquisition indebtedness).


32) While points paid to purchase a residence are deductible as interest in the period paid, points associated with the refinancing of a residence must be amortized and deducted over the life of the loan.


33) Christopher, a cash basis taxpayer, borrows $1,000 from ABC Bank by issuing a 3-month note on December 1, 2013. Christopher receives $940 but must repay $1,000 on the due date. The amount of interest expense deductible in 2013 is $20.


34) Charitable contributions made to individuals are deductible if the individuals can show extreme financial need.


35) For charitable contribution purposes, capital gain property includes property which, if sold, would produce a long-term capital gain.

36) A charitable contribution deduction is allowed for the FMV of services rendered to a qualified charitable organization.


37) A charitable contribution in excess of the deduction limit for one taxable year can be carried forward five years.


38) If a taxpayer makes a charitable contribution to a university and in return receives the right to purchase tickets to athletic events, the taxpayer may deduct only 80% of the payment.


39) Corporate charitable deductions are limited to 10% of the corporation’s taxable income for the year.


40) Legal fees for drafting a will are generally deductible.