Interview Notes • Justin and his wife Jenna want to file a joint tax return. • T

Question

Interview Notes

• Justin and his wife Jenna want to file a joint tax return.

• They have a daughter Ava. • Justin and Jenna have never taken a distribution from a retirement account

. • Jenna has a Master’s Degree in education. She works as a third grade teacher. She tells you that she paid $250 in 2017 for books and supplies used in her classroom.

• During the interview, she mentions that she took a couple of college courses at the local community college to improve her job skills. She has a Form 1098-T and a $300 receipt from the bookstore for books she bought for class. The books are not required as a condition of enrollment

. • Jenna has never claimed the Hope scholarship credit or the American opportunity credit.

• Justin and Jenna purchased a home in July of last year and want to know if they have enough deductions to itemize. They give you receipts and statements for the following items they would like to deduct:

– Unreimbursed doctor bills for Justin, Jenna and Ava for $1,200.

– Unreimbursed prescription drugs for $200.

– Health club dues for Jenna for $100.

– A statement received from their church showing donations made throughout the year totaling $2,000.

– Receipts for donations of furniture in good, used condition to Goodwill. The total estimated fair market value is $250.

– $25 donated to a friend in need through a social networking site.

– Form 1098 showing mortgage interest and real estate tax they paid.

– $1,200 for homeowner’s insurance.

– Union dues for Justin for $200.

• Justin, Jenna and Ava were covered all year under a health care plan through Justin’s employer. The employer paid the entire premium.

• Justin and Jenna used the standard deduction on last year’s federal income tax return. They received a refund of $160 on their 2016 state tax return. Using their state’s website, they confirmed that they received the refund on April 30, 2017.

• They live in a state with no sales tax

26. Which of Justin and Jenna’s expenses are includible as itemized deductions on Schedule A? (Select all that apply)

a. Unreimbursed doctor bills for Jenna, Justin and, Ava for $1,200.

b. Unreimbursed prescription drugs for $200.

c. Health club dues of $100.

d. Real estate taxes of $4,150.

e. $25 donated to a friend.

27. Justin and Jenna had a state refund of $160. Should this amount be included on their tax return as income in 2017? a. Yes b. No

28. To compute the lifetime learning credit, which of Jenna’s expenses qualify? a. Course-related books b. Tuition c. Tuition and books d. No expenses can be claimed since Jenna already has her Master’s Degree

29. What is the amount of Justin and Jenna’s earned income tax credit reported in the payments section on page 2 of their tax return? a. $0 b. $828 c. $836 d. $860

30. What is the total amount of Justin and Jenna’s adjustments to income on their Form 1040, line 36? a. $0 b. $15 c. $250 d. $265

Explanation / Answer

26. a. Unreimbursed doctor bills of $1,200 for self, spouse and children are deductible as itemized items on Schedule.

b. Unreimbursed prescription drugs of $200 are tax deductible as itemized deduction.

c. As per IRS, health clubs dues are not tax deductible as they are recreational activites and are not prescribed by doctor.

d. Real estate taxes are fully deductible as itemized items on Schedule A. Therefore, $4,150 is fully deductible.

e. $25 donated to the friend is not tax deductible as the same is not donated to a charitable organization.

27. State refund of $160 is treated as income of the individual only if following conditions are satisfied.:

1. Individual took itemized deductions last year, instead of taking the standard deduction.

2. Individual claimed state and local income taxes.

3. Claiming the deduction helped increasing the federal refund or lower your tax bill.

In the given case, Jenna & Justin took standard deduction, instead of itemized deduction and therefore state refund of $160 is not to be reported as income in the current year.

28. Lifetime Learning credit is available for the person taking college courses. In the given case, Jenna is taking college classes for improving her skills and therefore she is eligible for Lifetime Learning credit for the tution fees paid to the college. Moreover expenses on books is also eligible if the same is compulsory for enrollment but here in the question it is not compulsory, therefore Jenna can take credit for onlt tution fees paid. Correct answer is B.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.