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True/False Accounting

True or False:

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

2. Generally, tax legislation is introduced first in the Senate and referred to the Senate Finance Committee.

3. 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.

4. 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.

5. Section 1231 property includes real or depreciable property used in a trade or business and held for one year or more.

6. Alvin gave his daughter Martha section 1244 stock which he had purchased from the corporation. Martha's basis in the stock was $15,000. If she subsequently sells the stock for $10,000, the $5,000 loss is ordinary.

7. Losses from passive activities that cannot be deducted currently are carried over for 5 subsequent years.

8. When business property involved in a casualty is totally destroyed, the amount of the loss is limited to the lesser of the taxpayer's adjusted basis in the property or the reduction in FMV.

9. In the case of casualty losses of personal-use property, the losses sustained in each separate casualty are reduced by $100, and the amount of each casualty loss for personal-use property is reduced by 10 percent of the taxpayer s AGI for the year.

10. Lisa loans her friend, Grace, $10,000 to finance a new business. If Grace defaults on the loan, Lisa may take a deduction for a business bad debt in the year of total worthlessness.

11. A net operating loss (NOL) occurs when taxable income for any year is negative because itemized deductions and total exemptions exceed business income.

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

14. 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.

15. Net Sec. 1231 gains and losses are treated as capital gains and losses.

16. Neither foreign real property taxes nor foreign income taxes are deductible as itemized deductions.

17. All or part of a refund this year of state income taxes paid last year must be included as income this year even if the taxpayer took the standard deduction last year.

18. A personal property tax that is based partly on value and partly on some other basis is not deductible at all.

19. The annual service charge on personal credit cards is considered interest and is, therefore, deductible.

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

Solution Preview

Solutions:

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

False. Taxpayers may deduct payments to a wide range of medical, dental, and other diagnostic and healing services.

2. Generally, tax legislation is introduced first in the Senate and referred to the Senate Finance Committee.

False. A tax bill is introduced in the House and referred to the Ways and Means Committee

3. 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.

False. As long as one divorced parent qualifies to claim the dependency exemption under Sec. 152(e), the parent who pays medical expenses on behalf of the children may deduct the expenses.

4. 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.

False. Cosmetic surgery is not deductible unless such surgery is necessary to correct a deformity arising from a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.

5. Section 1231 property includes real or depreciable property used in a trade or ...

Solution Summary

This posting provides a detailed solution with explanations for the student's True/False accounting questions.

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