Acc 555 week 11 final exam answers

1. ACC 555 Week 11 Final Exam Answers
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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.

2. 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.

3. 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.

4. 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.

5. 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.