Study Unit 7: Other Below-the-Line Deductions and Other Taxes

1. Zachary owns 40% of an S corporation that pays him $70,000 of wages and $10,000 of dividends and allocates him $89,000 of income. What is Zachary’s qualified business income (QBI)?

$70,000

$89,000

$159,000

$99,000

2. Lana and Luke are married and have a taxable income of $340,100. Their share of the income from an accounting partnership is $250,000. The accounting partnership pays a total of $90,000 in W-2 wages. What is their allowed qualified business income deduction (QBID) for the partnership?

$50,000

$125,000

$61,000

3. Hannah, a single taxpayer, owns 50% of a partnership and has taxable income of $85,000. She has QBI of $70,000 from the partnership. The partnership paid a total of $27,500 in W-2 wages and does not have any qualified property. Under Sec. 199A, what is Hannah’s deductible amount for the partnership (i.e., before applying the taxable income/overall limitation)?

$14,000

$13,750

$35,000

$6,875

4. Tom owns a domestic sole proprietorship that allocates $55,000 of income to him and pays $30,000 of wages to employees. He also owns 30% of a foreign trust that allocates $60,000 of income to him and pays him $50,000 of wages. Neither the sole proprietorship nor the trust are specified service businesses. What is the total amount of qualified business income (QBI) for Tom?

$12,000

$110,000

$85,000

$55,000

5. A taxpayer may NOT claim the qualified business income (QBI) deduction if (s)he has qualified business income from which of the following entities?

S corporations.

C corporations.

Sole proprietorships.

Trusts.

6. Robin and Monica are married and filing a joint return. They have a taxable income of $300,000. Robin owns a qualified sole proprietorship that generates qualified business income (QBI) of $50,000, and Monica is the sole owner of a qualified S corporation that generates a QBI of $75,000. How much is Robin and Monica’s combined QBI deduction (QBID) amount for the year?

$25,000

$125,000

$300,000

$60,000

7. Which of the following is considered a specified service trade or business?

Architect.

Collegiate athlete with name, image, and likeness compensation.

Engineer.

Insurance agent.

8. Which of the following items are included in qualified business income (QBI)?

Pre-2018 previously disallowed losses or deductions that are allowed in the current year.

Allocable losses associated with a qualified trade or business.

Short-term capital losses.

Guaranteed payments paid for services rendered with respect to a qualified trade or business.

9. Kevin, a single taxpayer, has a taxable income of $360,600. His share of the income from a law firm LLC is $50,000, and his share of W-2 wages is $70,000. What is Kevin’s deductible qualified business income (QBI) amount for the law firm LLC?

$72,120

$35,000

$360,600

10. When taxable income exceeds the upper threshold limit, for each qualified trade or business, the qualified business income (QBI) deductible amount with respect to the qualified trade or business is

Limited to 20% of the taxpayer’s QBI.

Unlimited (i.e., 100% of QBI).

Subject to additional limitations beyond the 20% overall limit.

Completely disallowed (100% phaseout).

11. Shirley, a single taxpayer, has taxable income of $150,000. She has qualified business income (QBI) of $50,000. The qualified business paid a total of $15,000 in wages. Under Sec. 199A, what is Shirley’s deductible amount for the qualified business?

$7,500

$9,975

$10,000

$15,000

12. Which of the following statements is correct regarding Form 8995, Qualified Business Income (QBI) Deduction Simplified Computation?

C corporations should complete the Form 8995 in order to claim the QBI deduction on their corporate returns.

Taxpayers will receive the Form 8995 from the IRS if they are determined to be eligible for the QBI deduction.

A single individual with QBI, whose taxable income does not exceed the threshold amount, should use the Form 8995 to claim the QBI deduction.

A partnership is required to attach Form 8995 to their partnership tax return in order to claim the QBI deduction.

13. Sandy is single and works as a waitress at a restaurant. In 2025, she made $40,000 in income. Of her income, $10,000 came from tips. How much of her income is included in taxable income?

$30,000

$35,000

$40,000

$50,000

14. All of the following vehicles may be eligible for the “No Tax on Car Loan Interest” deduction EXCEPT

A new vehicle purchased for personal use in 2025.

A new SUV with a gross vehicle weight rating of 12,000 pounds.

A new vehicle with a final assembly in the U.S.

A new vehicle purchased in 2025 for business use.

15. Jim received $26,000 in tips in 2025 while he worked as an employee in a hair salon. Assuming Jim is single with a modified AGI of $156,000, how much of his tips are deductible from his taxable income?

$24,400

$25,000

$26,000

16. David earns $30 per hour while he works as an electrician. On his most recent paycheck, he had a total gross pay of $2,100 for working 60 hours. Assuming any annual deduction limit will not be reached, how much of his earnings from this paycheck will be taxable before any standard or itemized deduction?

$1,200

$1,500

$1,800

$2,100

17. Jill is married filing jointly with a modified AGI of $305,000. Throughout the year, she worked a total of 1,500 hours of overtime, which earned her $90,000. What is her deduction for overtime pay?

$12,000

$24,500

$25,000

$90,000

18. Regarding the car loan interest deduction, all of the following statements are true EXCEPT

Any car purchased with a loan after December 31, 2024, is eligible for the deduction.

The maximum deduction per year is $10,000.

Final assembly must occur within the United States.

The deduction is available for both itemizing and non-itemizing taxpayers.

19. What is the enhanced senior deduction for a single taxpayer above the age of 65 with a modified AGI of $80,000?

$1,000

$5,700

$6,000

20. All of the following statements are true regarding the senior deduction EXCEPT

Taxpayers who are married filing jointly are only allowed a $6,000 deduction.

Taxpayers who are married filing separately are not allowed the senior deduction.

The senior deduction is in addition to the additional standard deduction for those over 65.

The deduction is available for both itemizing and non-itemizing taxpayers.

21. Which of the following would NOT be a part of the computation of alternative minimum tax?

Tax-exempt private activity bond interest.

Standard deductions.

Self-employment tax.

Certain itemized deductions.

22. Which of the following is NOT a tax preference item or an adjustment to taxable income for alternative minimum tax purposes?

Addition of balance of research and experimental expenditures.

Addition of the standard deduction (if claimed).

Addition of all itemized deductions (if claimed).

Subtraction of any refund of state and local taxes included in gross income.

23. Alternative minimum tax for individuals requires certain adjustments and preferences. Which of the following is a preference or adjustment item for noncorporate taxpayers?

Standard deduction.

Incentive stock options.

Tax-exempt interest on certain private activity bonds (not issued in 2009 or 2010).

All of the answers are correct.

24. With regard to the alternative minimum tax for individuals, which of the following is always an adjustment or preference in the computation of alternative minimum taxable income?

Medical expenses.

State income tax payments.

Moving expenses (for military).

Nonbusiness bad debt.

25. In 2024, Ted and Alice had an alternative minimum tax liability of $19,000. This is the first tax year in which they ever paid the alternative minimum tax. They recomputed the alternative minimum tax using only exclusion preferences and adjustments. This resulted in an $8,500 alternative minimum tax liability. In 2025, Ted and Alice have a regular tax liability of $45,000. Their tentative minimum tax liability is $42,000. What is the Minimum Tax Credit carryover to 2026?

$19,000

$16,000

$7,500

26. Alternative minimum taxable income is

Taxable income increased by tax preferences and increased or decreased by adjustments and other statutory modifications.

The sum of all tax preferences.

Applicable for both individuals and corporations.

Taxable income adjusted by tax preferences and reduced by an exemption amount.

27. When determining his alternative minimum tax, Edward had the following adjustments and preference items:

Itemized deduction for state taxes	$1,800
Refund of prior-year state income tax	300
Cash contributions	800
Capital gain	700
Depletion in excess of adjusted basis	700

What are the amounts of tax preference items and adjustments to taxable income for alternative minimum tax purposes on Edward’s 2025 tax return?

Preference

$700

Adjustments

$1,500

Preference

$700

Adjustments

Preference

$1,400

Adjustments

$1,800

Preference

$2,200

Adjustments

$2,200

28. With respect to the alternative minimum tax for individuals, all of the following are tax preference items EXCEPT

Casualty (federally declared disaster) loss from Schedule A.

Tax-exempt interest on private activity bonds (not issued in 2009 or 2010).

Depletion.

Intangible drilling costs.

29. With regard to the alternative minimum tax for individuals, all of the following are adjustments or preferences in the computation of alternative minimum taxable income EXCEPT

Adjusted gain from sale of depreciable property.

Refund of state income tax.

Moving expenses (for military).

Research and experimental expenditures.

30. All of the following are considered adjustments for arriving at alternative minimum taxable income EXCEPT

Local real property taxes.

Local income taxes.

Home mortgage interest (debt used to purchase, build, or substantially improve a residence).

Standard deduction.

31. Which of the following items are NOT adjustments or tax preference items for computing alternative minimum tax?

Research and experimental expenditures.

Standard deduction.

Interest income.

Itemized deduction for state and local taxes.

32. In the alternative minimum tax, all of the following are considered adjustment items for noncorporate taxpayers EXCEPT

The standard deduction.

Foreign income taxes paid.

A balance of research and experimental expenditures.

Charitable contributions.

33. In computing the alternative minimum tax for individuals, which one of the following is NOT an adjustment or tax preference for alternative minimum tax purposes?

Local property taxes paid.

Tax-exempt interest on certain private activity bonds (not issued in 2009 or 2010).

Standard deduction.

Contributions to an Individual Retirement Arrangement (IRA).

34. When determining his alternative minimum tax, Leslie had the following adjustments and preference items:

Itemized deduction for state taxes	$2,800
Refund of prior-year state income tax	300
Cash contributions	2,250
Capital gain	700
Depletion in excess of adjusted basis	400

What are the amounts of tax preference items and adjustments to taxable income for alternative minimum tax purposes on Leslie’s 2025 tax return?

Preference

$400

Adjustments

$2,500

Preference

$1,000

Adjustments

$300

Preference

$1,700

Adjustments

$2,800

Preference

$2,250

Adjustments

$3,200

35. Amy, a single taxpayer age 65, had AGI of $130,000 and taxable income of $107,750 for the current year. Her tax return for the year reflects the following items that may impact on her alternative minimum tax liability:

Tax-exempt interest on private activity
bonds issued in 1987	$5,000
Medical expenses (after the 7.5% floor)	6,000
Real property taxes	5,000
Home mortgage interest	6,250

What is Amy’s alternative minimum taxable income for the current year?

$112,750

$124,000

$123,750

$117,750

36. Johanna, an unmarried taxpayer, had $70,000 of adjusted gross income and the following deductions for regular income tax purposes:

Home mortgage interest on a loan to acquire a principal residence	$11,000
State income tax	2,000
Real property tax	3,000
Medical expenses (after the 7.5% floor)	2,000

What are Johanna’s total allowable itemized deductions for computing alternative minimum taxable income?

$2,000

$13,000

$18,000

37. On their joint tax return, Wade and Dorothy, both age 40, had adjusted gross income (AGI) of $150,000 and claimed the following itemized deductions:

Interest of $15,000 on a $100,000 home equity loan to purchase a motor home
Real estate tax and state income taxes of $18,000
Unreimbursed medical expenses of $13,250 (prior to AGI limitation)

Based on these deductions, what would be the amount of AMT add-back adjustment in computing alternative minimum taxable income?

$27,000

$18,000

$2,000

$10,000

38. Danny had current-year adjusted gross income of $80,000 and potential itemized deductions as follows:

Medical expenses (before percentage limitations)	$12,000
State income taxes	4,000
Real estate taxes	3,500
Qualified housing and residence mortgage interest	10,000
Home equity mortgage interest
(used to consolidate personal debts)	4,500
Charitable contributions (cash)	5,000

What are Danny’s itemized deductions for alternative minimum tax?

$21,000

$15,000

$25,500

$29,000

39. Which of the following itemized deductions is NOT an adjustment when determining the alternative minimum taxable income (AMTI) from taxable income?

State income taxes.

Real property taxes.

Medical expenses in excess of 7.5% of AGI.

Foreign income taxes.

40. Which of the following is NOT a tax preference item when determining the alternative minimum taxable income from taxable income?

Tax-exempt interest on a private activity bond issued in 2009.

Excess of the depletion deduction claimed over adjusted basis.

Excess of intangible drilling costs amortized over 10 years over 65% of net income from oil, gas, and geothermal properties.

Excluded gain realized on the sale or exchange of qualified small business stock acquired before September 27, 2010, and held for more than 5 years.

41. Jack and Janice had adjusted gross income of $145,000 on their joint return for the current year. They planned to itemize the following deductions on their tax return:

State income taxes	$ 2,000
Gambling losses (with gambling winnings of $2,000)	1,800
Charitable contributions	1,300
Real property taxes	1,500
Medical expenses (before the AGI limitation)	20,000
Mortgage interest	3,000

What is the total amount of adjustments needed when computing the alternative minimum taxable income (AMTI) on Jack and Janice’s joint return?

$29,300

$3,500

$5,300

$12,625

42. Taxpayers A and B, filing a joint return, earned box 5 Medicare wages of $190,000 and $110,000, respectively. Determine the amount of additional Medicare tax they owe on their final Form 1040.

$450

$2,700

$25,650

43. All investment income in excess of deductions allowable for such income and income from passive activities are subject to an additional tax, the net investment income tax. Which of the following individuals are NOT subject to this tax?

Taxpayers over the age of 65.

Non-resident aliens.

U.S. citizens.

Spouses filing separately.

44. Rev. Janice Burton is a full-time minister at the Downtown Missionary Church. The church allows her to use the parsonage that has an annual fair rental value of $4,800. The church pays an annual salary of $13,200, of which $1,200 is designated for utility costs. Her utility costs during the year were $1,000. What is Rev. Burton’s income for self-employment tax purposes?

$18,000

$13,200

$12,200

$13,400

45. In which situation would Janice NOT be required to file Schedule H, Household Employment Taxes, for the year 2025?

Paid $2,800 wages to Cynthia for babysitting in Janice’s home.

Withheld $100 federal income tax from payments to her yard worker.

Paid $2,800 to her mother for housekeeping.

Paid household help, other than her mother, $1,000 for the period July, August, and September.

46. A single taxpayer has $130,000 in wages and $200,000 in net self-employment income. What is the amount of additional Medicare tax that would be due on Form 1040 for the year?

$720

$1,170

$1,845

47. Randy Lee is an ordained minister of a tax-exempt church. Randy receives a salary plus a housing allowance for rent and utilities. Which of the following statements is correct?

Randy must claim as income on his return all of his salary and all of his housing allowance. The salary is subject to income tax and self-employment tax, but his housing allowance is subject to income tax only.

Randy does not have to report any income received from the church because the church is tax exempt.

Randy has to pay both income tax and self-employment tax on his salary, but only self-employment tax for the housing allowance. The housing allowance is not subject to income tax.

Randy only has to pay the self-employment tax on both his salary and the housing allowance. Neither is subject to income tax.

48. The Social Security tax does NOT apply to which of the following?

Medical and hospital reimbursements by the employer that are excluded from gross income.

Compensation paid in forms other than cash.

Self-employment income of $1,000.

Bonuses and vacation time pay.

49. Rev. Elvin Snider is the ordained minister at Crossroads United Methodist Church. His salary on his Form W-2 is $20,000. He also receives a $12,000 housing allowance. His housing costs for the year are $14,000. What is Rev. Snider’s self-employment income?

$34,000.

$32,000.

$20,000.

None of the answers are correct.

50. The net investment income tax may apply to which of the following?

Alimony.

Taxable mutual fund distribution.

Tax-exempt municipal bond interest.

Traditional IRA distribution.

51. The 2025 wage threshold for Social Security and Medicare taxes for a household employee is

$2,800 or more in a year.

$625 or more in a quarter.

$625 or more in a year.

$50 or more in a quarter.

52. Patsy pays Anne, an unrelated person, $100 per week to come to her home and care for her children while she works part-time. Anne requests that Patsy withhold $10 federal income tax from each paycheck. Patsy has no other employees. She has other filing obligations, such as Form W-2. Patsy must do which of the following?

File Form 941 quarterly, reporting Social Security, Medicare, and federal withholding.

File Schedule H (Form 1040) quarterly, reporting Social Security, Medicare, and federal withholding.

File Schedule H (Form 1040) as an attachment to her Form 1040, reporting Social Security and Medicare on the wages paid. File Form 941 reporting federal income tax withheld.

File Schedule H (Form 1040) as an attachment to her Form 1040 or Form 1040SS and report Social Security, Medicare, FUTA, and federal tax withholding.

53. A taxpayer who earned $190,000 in wages and files as head of household also received $100,000 from a passive activity interest, for a total MAGI of $290,000. How much net investment income tax does the taxpayer owe?

$3,420

$3,800

$7,600

$11,020

54. Taxpayer A and B file a joint return showing each reported $170,000 from box 5 Medicare wages on their respective W-2s. How much, combined, additional medicare tax should be reported on Schedule 2, Form 1040, under “other taxes?”

$90

$810

$1,530

$3,060

55. Ernesto was an employee of Med-Tech Corporation for all of 2025. He earned $178,100 in salary. What is the amount of FICA taxes paid by Med-Tech Corporation with respect to Ernesto?

$10,918

$13,472

$13,501

$13,625

56. Kathy is an employee of ABC Company. In 2025, she earned $178,600 in salary and received a $20,000 bonus. What is the amount of FICA taxes paid by Kathy and ABC Company with respect to her earnings (round answer to nearest dollar)?

Kathy

$10,918

ABC Company

$10,918

Kathy

$13,798

ABC Company

$13,798

Kathy

$13,472

ABC Company

$13,472

Kathy

$15,193

ABC Company

$15,193

57. Mr. Harrison received $80,000 of wages in 2025. What is the total amount of FICA tax payable to the government on his behalf?

$2,320

$6,120

$9,920

$12,240

58. Gilda Bach is a cash-basis, self-employed consultant. For the year 2025, she determined that her net income from self-employment was $80,000. In reviewing her books, you determine that the following items were deducted in arriving at the net income of $80,000:

Salary drawn by Gilda Bach	$20,000
Estimated federal income taxes paid	6,000
Malpractice insurance premiums	4,000
Cost of attending professional seminar	1,000

Based upon the above information, what should Gilda Bach report as her net earnings from self-employment for 2025?

$89,782

$97,891

$106,000

$110,000

59. What is the amount of earnings Sabrina will have to pay the OASDI portion of the self-employment tax on for 2025?

$176,100

$178,143

$192,900

$199,900

60. What is the amount of earnings on which Sabrina will have to pay the Medicare portion of the self-employment tax for 2025?

$176,100

$178,143

$192,900

$184,608

61. Mr. and Mrs. B file a joint income tax return. Mr. B owns and operates a grocery store that had a net income of $15,000 in 2025. Mrs. B is a self-employed physical therapist, and her net income was $42,900. What is the total amount of self-employment tax Mr. and Mrs. B must report on their joint return for 2025?

$4,090

$6,630

$8,181

$8,859

62. Given the following wage information, what are the total gross wages subject to Federal Unemployment Tax for the current year?

Employee		Wages Paid during the Current Year
T		$ 4,200
E		5,800
M		22,900

$7,000

$12,000

$17,000

$32,900

63. Knight Cafe, an eating and drinking establishment, employs three people. Given the following wage information, what is the total amount of gross wages subject to federal unemployment tax for the year?

Employee		Wages Paid during the Year
Lee		$3,000
Nora		5,400
Taylor		9,600

In addition, Taylor, the only employee who is not paid on a daily basis, has earned accrued wages of $400 as of December 31.

$18,400

$18,000

$15,400

$7,000

64. Regarding the FICA tax, which of the following statements is false?

Employers are required to pay tax based on their employees’ pay.

An employer may have to pay FICA taxes for a household employee.

Contributions made by the employer are tax deductible by the employer.

Contributions made by the employee are tax deductible by the employee.

65. Bennie Boyd, a single taxpayer and employee of a toy manufacturing company, received wages of $150,000 and a bonus of $70,000 during the current year. What is the total amount Bennie needs to pay for the FICA and additional Medicare taxes for the current year?

$14,288

$14,108

$11,098

$3,370

66. Regarding the FUTA tax, which of the following statements is false?

Up to 5.4% of the 6.0% is allowable as a credit based on state unemployment taxes paid.

The tax is imposed on employees. The employer does not pay any portion of FUTA tax.

FUTA tax is 6.0% of the first $7,000 of wages paid to each employee.

Employers are required to pay FUTA Taxes for 2025 if they pay wages of $1,500 or more for any quarter in 2024 or 2025.

Leave a Reply Cancel reply