University of Maryland BMGT 323 Examination I Workbook Chapter 6 Spring 2013 Professor Cantor Chapter 6 – Individual Deductions Chapter 6 in a Nutshell : Deductions for AGI • Trade or business expenses • Rent and royalty expenses • Recognized losses on business assets • Flow-through entities • Moving expenses • Health insurance deduction for self-employed individuals • Self-employment employer-portion payroll tax deductions • Interest on qualified education loans • Qualified education expenses Phase-out concepts Deductions from AGI • Medical • Taxes • Interest secured by mortgage on home • Charitable contributions • Miscellaneous itemized deductions subject to 2% floor o Employee business expenses o Investment expenses o Tax preparation fees o Hobby losses • Miscellaneous itemized deductions not subject to 2% floor o Gambling losses (only to extent of gambling winnings) o Casualty and theft losses o Unrecovered cost of a life annuity
Standard deduction • Basic standard deduction • Additional standard deduction for age and/or blindness Sample Examination Questions 1. Which of the following is a true statement? (A) All business expenses are deducted for AGI. (B) Investment expenses are typically deducted for AGI. (C) Tax preparation fees are deducted for AGI. (D) Rental and royalty expenses are deducted for AGI. (E) All of the above Answer: D: investment expenses are typically deducted from AGI 2. Which of the following is a true statement? (A) The deduction for interest on educational loans is subject to a phase-out limitation. (B) The deduction for moving expenses is subject to a phase-out limitation. (C) Self-employed taxpayers are allowed to deduct health care premiums even if the taxpayer is eligible to participate in an employer-provided health plan. (D) Taxpayers are not allowed to receive a moving allowance from their employers. (E) All of the above are false. Answer: A: Self-employed taxpayers are not allowed to deduct health care premiums if they are eligible to participate in an employer-provided health plan. 3. This year Jong paid $3,000 of interest on a qualified education loan. Jong files married joint and reports modified AGI of $132,000. What is Jong’s deduction for interest expense on an educational loan? (A) $2,500
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