Tax Lesson 5 - Standard Deduction VS Itemized Tax Deductions

Every tax year, you either have to use the standard deduction that is provided to you depending on your filing status and certain other situations. The standard deduction for most taxpayers who do not itemize their deductions is usually higher every year. The standard deduction annual increase is usually due to inflation adjustments. Itemizing your deductions on the other hand is based on any state or real estate taxes, medical and dental expenses, home mortgage interest and job expenses. You have a choice on which of the two deductions to use, standard or itemized. However, you would normally choose the higher amount because it will give your the greater benefit.

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Use IRS Publication 501, Schedule A (1040) instructions to complete this tax topic.

Prepare a Federal Form 1040  return for Rodolfo Ramirez. Fill out a  Schedule A (Form 1040) with all the following deductible expenses to complete the return.
bulletMedical Expenses $3,500
bulletState and local tax $421.07
bulletReal estate taxes $950
bulletOther taxes (DMV tax, tax part only) $500
bulletHome Mortgage Interest $9,860
bulletUnion dues $700
bulletTax Preparation fee $207

Get all their basic information from the following W2, including income information. 


Rodolfo is married and his wife is Anna Ramirez (Anna's SSN 505-57-9464). Have their return prepared and ready to answer the questions. They did not itemize in 2008.

 

1. Look at the Form 1040 you prepared for Rodolfo and Anna Ramirez. What is the amount on Form 1040, Line 38?

A. $ 32,143.
B. $ 19,059.
C. $ 13,084. 
D. $ 1,233.

2. Look at the Form 1040 you prepared. What is the amount on Form 1040, Line 40?

A. $ 32,143.
B. $ 19,059.
C. $ 13,084. 
D. $ 13,250.

3. Look at the Form 1040 you prepared. What is the amount on Form 1040, Line 73a?

A. $ 1,253.
B. $ 1,228.
C. $ 1,273. 
D. $ 1,233.

4. You may benefit from itemizing your deductions on Schedule A (Form 1040) if you had large uninsured casualty or theft losses.

True False

5. The standard deduction for most taxpayers who do not itemize their deductions on Schedule A of Form 1040 is higher is 2008 than it was in 2007.

True False

6. Some of your itemized deductions may be limited if your adjusted gross income (AGI) is more than

A. $ 117,300 ($64,000 MFS).
B. $ 156,400 ($75,900 MFS).
C. $ 159,950 ($79,975 MFS). 
D. $ 195,500 ($97,900 MFS).

7. You must determine your filing status before you can determine your filing requirements,

A. And correct exemptions.
B. And health insurance deduction.
C. Standard deduction and correct tax. 
D. And itemized deductions.

8. Both you and your spouse must include all of your income, exemptions, and deductions on your return. In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return. The type of relief available is   

A. Innocent spouse relief.
B. Separation of liability or equitable relief.
C. Relief from liability arising from community property law. 
D. All of the above.

9. Larry, 46, and Donna, 33, are filing a joint return for 2008. Neither is blind. They decide not to itemize their deductions. Their standard deduction  is

A. $ 5,450.
B. $ 10,900.
C. $ 10,700. 
D. $ 3,400.

 10. Stanley, 48, and Rosalind, 39, are filing a joint return for tax year 2008. Stanley is blind at the end of 2008. Their standard deduction is

A. $ 5,450.
B. $ 11,750.
C. $ 11,950. 
D. $ 7,850.

11. If you elect to deduct state and local general sales taxes, you must check box b on line 5 of Schedule A (Form 1040). To figure your deduction, you can use

A. Your actual expenses.
B. The optional sales tax tables.
C. The percentages at the end of Schedule A. 
D. Both A or B are correct.

12.  Sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate.

True False

13. If you checked the "yes" box and your local general sales tax rate changed during 2008, figure the rate to enter on line 3 by

A. Adding all the rates that were in effect for the whole year.
 B. Multiplying the last tax rate that was in effect by a fraction.
C. Multiplying each tax rate for the period it was in effect by a fraction. 
D. Dividing each tax rate for the period it was in effect by the total number of days in the year (365 days).

14.  In your calculation of actual state and local general sales tax you include sales taxes paid on items used in your trade or business.

True False

15. Use Schedule A (Form 1040) to figure your itemized deductions. In most cases, your federal income tax will be less if you take the larger of your itemized deductions or your standard deductions

True False

16. If you itemize, you can deduct a part of your medical and dental expenses and un-reimbursed employee business expenses.

True False

17. Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. A dollar amount that depends on your filing status, whether you are 65 or older or blind, and whether an exemption can be claimed for you by another taxpayer and reduces the amount of income on which you are taxed is

A. A standard deduction.
B. An itemized deduction.
C. A credit. 
D. A general deduction.

18. If you do not itemize deductions, you are entitled to a higher standard deduction if you are 65 or older at the end of the year. You are considered 65 on the day before your 65th birthday. Therefore, you can take a higher standard deduction for 2008 if you were born before

A. January 2, 1943.
B. January 2, 1944.
C. January 2, 1945.  
D. January 2, 1949.

19. The standard deduction for an individual for whom an exemption can be claimed on another person's tax return is generally limited to

A. $900.
B. The individual's earned income for the year plus $300 (but not more than the regular standard deduction amount).
 C. $5,450.  
D. Either A or B.

20. Marvin is married to Clara and for 2008, due to some marital problems, they will file married filing separate. Clara will itemize her deductions of $11,000 because she had qualifying car expenses. Marvin wants to use the standard deduction on his return, because his total itemized deductions amount is only $4,100 for 2008 and it is less than the standard deduction. Since Clara will itemize her deductions

A. Marvin has to use the standard deduction amount of $5,450.
B. Marvin also has to itemize his deductions using the $4,100 amount.
 C. Marvin can use his $5,450 standard deduction amount.  
D. Marvin should not file a return.

 

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Revised: 08/08/11