Alright, let's do some questions to emphasize the great stuff we just talked about.
Start with question number 9, numero nueve, nueve.
Clark filed Form 1040 EZ for the tax year.
In July of, the next year Clark received a state income tax refund of 900 dollars plus
interest of 10 for overpayment of his state income tax.
What amount the state tax refund and interest is taxable in Clark's federal income tax return?
So, in the first year we did an EZ.
What was the rule?
I said if I didn't get a benefit in x1, then your refund is not taxable in x2.
If you got a benefit in x1, remember, if you took the itemized deduction on Schedule a,
state taxes, that means it reduced your taxable income in the first year, then in the next
year, what happens?
Then it says taxable refunds from state and local income taxes, you include it.
So, he did an EZ in the first year, then in the next year, what's going to be taxed?
The 900 dollar state refund?
No.
The 10 dollars of interest?
Interest, interest is taxable.
Yes.
Best answer, B, 10 dollars.
Last sentence first because I forgot to do it in the last one.
You see numbers.
The amount of lottery winnings that should be included in their taxable income is what?
So what is the lottery winnings included in their taxable income?
In the year Emile Galle won 5000 in the state lottery.
Also, Emile spent 400 dollars for the purchase of lottery tickets.
Emile elected the standard deduction.
The standard deduction means what?
He's not itemizing, not doing schedule A. He said, �I'll take the 5800 bucks you�re
giving me,� in his tax return.
The amount allotted should be included, so what does he do?
He's got lottery winnings: 5000.
He did not itemize, so we can�t take the 400 dollar deduction here.
What's included?
Net amount: 500.
Answer D. Hmmm...twickie, twickie.
Next one.
Last sentence first.
Disregarding the AGI percentage threshold, what amount can Scott claim in his income
tax return for medical expenses?
So, they're saying disregard the what?
Disregarding the...what is medical?
Seven and a half percent of HF.
forget that.
During the year, Scott charged 4000 on his credit card.
If you charge it, is it an expense?
Yes, even if you haven�t paid for it.
For his dependent son�s medical expenses, payment to the credit card company had not
been made by the time Scott filed his return in x4.
Doesn�t matter.
However, in x3, Scott also paid a physician 2800 for the medical expense of his wife who
died.
I guess he�s not a very good doctor.
Disregarding the AGI percentage, what amount can he claim as medical expenses?
The 4000?
Yes.
He charged it on his credit card, still deductible.
The 2800 for his wife?
Yes.
Therefore, 6800 dollars is what he charged...6800 dollars minus seven and a half percent of
HI.
They said forget that.
How much?
Answer D, 6800.
Next one, number 12...all the following taxes are deductible as itemized deductions by self-employed
except?
So, notice the word �except.� So they're saying, which one is not an itemized deduction?
Okay?
All the following are itemized deductions except...foreign real estate taxes.
Yeah, that would be what?
Taxes.
Taxes paid.
Foreign income taxes?
Yes.
Personal property taxes?
Yes.
Tax, tax, tax, yes, yes, yes.
One half self-employment?
No.
Where does the one half self-employment...right here...one half self-employment?
That is I embrace, that�s on the face.
What about itemized?
Itemize commit.
What's the T?
Taxes.
Foreign, local, deductible.
Federal, no.
Foreign, yes.
Alright, so we answered D. Number 13...the Browns borrowed 20,000 dollars secured by
their home to purchase a new automobile.
At the time at the loan, the fair value of their home was 400,000, and it was encumbered
by other debt.
What does encumbered mean?
Encumbered means subject to other liabilities, encumbrances, debts, mortgages and so on.
The interest on the loan qualifies as what?
So I borrowed 400,000.
I bought a home.
Then, the house went up in value.
I borrowed 20 grand.
That's called equity interest.
You can deduct what?
The interest on that 20,000 no matter what you buy; however, it may be an AMT item later
on today, but the 20,000, I borrowed it to purchase a new car.
So I bought a new car.
Is that okay?
Sure.
What is it?
Deductible personal interest?
No.
Deductible qualified residential interest?
Yeah, called equity interest, yes.
Non-deductible interest?
No.
Investment interest expense?
No, it�s not an investment.
It is resident�s interest, called your equity interest up to 100,000 dollars.
Answer B. Okay, so again those are just some items that emphasize what we've talked about.
Just trying to show you how those different areas show up, how they get tested.
In a minute we'll talk about exemptions, filing status and some more fun and exciting stuff.