IRS Deductions and Credits 2 — Questions and Answers
Question 1: A taxpayer pays $8,000 in mortgage interest and $3,500 in state income taxes. The standard deduction is $13,850 (single). What is the most beneficial filing approach?
- Itemize deductions for $11,500 total
- Take the standard deduction of $13,850 (Correct answer)
- Split deductions between standard and itemized
- Always itemize regardless of amount
Correct answer: Take the standard deduction of $13,850
Taxpayers should choose the higher of itemized vs. standard deduction; $13,850 exceeds $11,500 here.
Question 2: Under the SALT deduction cap established by the Tax Cuts and Jobs Act, what is the maximum deductible amount for state and local taxes?
- $5,000
- $10,000 (Correct answer)
- $15,000
- Unlimited
Correct answer: $10,000
The TCJA capped the SALT deduction at $10,000 ($5,000 for married filing separately).
Question 3: Which of the following medical expenses is NOT deductible on Schedule A?
- Prescription medications
- Cosmetic surgery for appearance enhancement (Correct answer)
- Hearing aids
- Long-term care insurance premiums
Correct answer: Cosmetic surgery for appearance enhancement
Cosmetic surgery that merely improves appearance without treating a disease or deformity is not deductible.
Question 4: A married couple filing jointly has an AGI of $200,000 and $18,000 in medical expenses. How much can they deduct?
- $18,000
- $3,000 (Correct answer)
- $2,000
- $0
Correct answer: $3,000
Only medical expenses exceeding 7.5% of AGI ($15,000) are deductible; $18,000 − $15,000 = $3,000.
Question 5: The Child Tax Credit in 2023 is worth up to how much per qualifying child under age 17?
- $500
- $1,000
- $2,000 (Correct answer)
- $3,600
Correct answer: $2,000
The Child Tax Credit is $2,000 per qualifying child under 17 for tax year 2023.
Question 6: Which filing status allows the highest standard deduction?
- Single
- Married Filing Separately
- Head of Household
- Married Filing Jointly (Correct answer)
Correct answer: Married Filing Jointly
Married Filing Jointly has the highest standard deduction, which is roughly double the single amount.
Question 7: A taxpayer donates stock with a fair market value of $5,000 (cost basis $1,000) to a qualifying charity. How much can they generally deduct?
- $1,000 (cost basis only)
- $2,500 (average of basis and FMV)
- $4,000
- $5,000 (fair market value) (Correct answer)
Correct answer: $5,000 (fair market value)
Appreciated capital gain property donated to a qualified charity is deductible at its full fair market value.
IRS Deductions and Credits 2
A taxpayer pays $8,000 in mortgage interest and $3,500 in state income taxes.
The standard deduction is $13,850 (single).
What is the most beneficial filing approach?