1.Taylor, an unmarried taxpayer, had $90,000 in adjusted gross income for the current year. During the current year, Taylor donated land to a church and made no other contributions. Taylor purchased the land 15 years ago as an investment for $14,000. The land's fair market value was $25,000 on the day of the donation. What is the maximum amount of charitable contribution that Taylor may deduct as an itemized deduction for the land donation for the current year?

a. $11,000

b. $25,000

c. $14,000

d. $0

答案：B

Explanation

Choice "b" is correct. Individual taxpayers may deduct the FMV of property donated to charity. The limit is 30% of the taxpayer's AGI (30% × $90,000 = $27,000). The FMV of the property is $25,000 and is within the allowable amount.

2.Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 12,000 at a rate of 30 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $1,200 to refund the overpayment to Easel. What amount should be reported in Mel's gross income for the year?

a. $4,800

b. $3,600

c. $1,200

d. $0

答案：A

Explanation

Choice "a" is correct. Under a nonaccountable plan, $4,800 ($400 per month x 12 months) must be reported as part of Mel's gross income for the year (in fact, the $4,800 will be included as part of Mel's taxable wages on Mel's W-2).

Rule: Under a nonaccountable plan (i.e., expenses are not reported to the employer), any amounts received by an employee from the employer must be reported by the employer as part of wages on the employee's W-2 for the year (and subject to income tax withholding requirements). The gross amount received is reported as income.

Rule: Any expenses taken against the gross amount received in a nonaccountable plan (e.g., the car mileage expenses and the reimbursement to the company) are considered miscellaneous itemized deductions and are subject to the 2% AGI limitation.

Note: The examiners have attempted to trick the candidate into thinking that this is in some way an accountable plan because they provided for a return of excess funds received to the employer. However, remember that the question specifically states that the plan is nonaccountable.

Choices "d", "c", and "b" are incorrect, per the above rules.

3.In the current year, Joan Frazer's residence was totally destroyed by fire. The property had an adjusted basis and a fair market value of $130,000 before the fire. During the year, Frazer received insurance reimbursement of $120,000 for the destruction of her home. Frazer's current year adjusted gross income was $70,000. Frazer had no casualty gains during the year. What amount of the fire loss was Frazer entitled to claim as an itemized deduction on her current year tax return?

a. $8,600

b. $2,900

c. $10,000

d. $8,500

答案：B

Explanation

Choice "b" is correct. The casualty loss is measured by the difference in the property's value before ($130,000) and after (zero) the casualty, in other words, $130,000. The casualty loss must be reduced by the $120,000 insurance recovery to $10,000. This loss is reduced by $100 per casualty to $9,900. The sum of all such casualty losses (there is only one in this case) is further reduced by 10% of the taxpayer's adjusted gross income for the year. That is 10% x $70,000 = $7,000. The amount of the casualty loss that is deductible on Frazer's tax return is $9,900 - $7,000 = $2,900.

4.The self-employment tax is:

a. Fully deductible in determining net income from self-employment.

b. One-half deductible from gross income in arriving at adjusted gross income.

c. Fully deductible as an itemized deduction.

d. Not deductible.

答案：B

Explanation

Choice "b" is correct. One-half of the self-employment tax is deductible to arrive at adjusted gross income.

Choice "c" is incorrect. Self-employment tax is partially deductible to arrive at adjusted gross income.

Choice "a" is incorrect. Self-employment tax is not deductible in determining self-employment income.

Choice "d" is incorrect. Self-employment tax is partially deductible to arrive at adjusted gross income.

5.The deduction by an individual taxpayer for interest on investment indebtedness is:

a. Not limited.

b. Limited to the investment interest paid during the year.

c. Limited to the taxpayer's interest income for the year.

d. Limited to the taxpayer's net investment income for the year.

答案：D

Explanation

Choice "d" is correct. The deduction for interest expense on investment indebtedness is limited to net investment income (investment income less investment expenses).

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