acc 460 exam 4
Early in the year, Marion was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year: Reimbursement of medical expenses Marion paid by a medical insurance policy he purchased $10,000 Damage settlement to replace his lost salary 15,000 What is the amount that Marion must include in gross income for the current year?
$0
This year, Carol, a single taxpayer, purchased a vacation home for $400,000 using a home equity loan of $350,000 on her principal residence. She has no other debt on her principal residence. Carol paid $16,000 of interest on the debt this year. How much of this interest is deductible assuming that Carol itemizes her deductions?
$0 -bc the debt isn't secured by the vacation home, it's home equity debt on principal residence, which isn't deductible -if the debt was secured by the vacation home instead, it would b e acquisition debt & if total acquisition debt doesn't exceed $750,000, the interest would be deductible
Early in the year, Marlon was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year: Reimbursement of medical expenses Marlon paid by a medical insurance policy he purchased $10,000 Damage settlement to replace his lost salary 15,000 What is the amount that Marlon must include in gross income for the current year?
$0 -medical exps of $10,000 that were reimbursed by marlon's medical insurance policy can be excluded from gross income -the $15,000 marlon received for physical personal injury damage settlement can be excluded from gross income even though the payment replaces his salary
Bryan and Beth, a married couple (both under 65) who file a joint tax return and have adjusted gross income of $50,000, incurred the following expenses for themselves and their three dependent children for medical and dental services during the year: 1. Cost of routine dental services, $300. 2. Prescription drugs, $1,000. 3. Nonprescription medications and vitamins, $200. 4. Annual fee for family health club, $500. 5. Contact lenses, $200. 6. Medical insurance premiums paid by Bryan, $2,400. 7. Doctor and hospital costs not compensated for by insurance, $1,500. 8. Shaun T's workout videos, $100. 9. Organically grown fruits and vegetables from the local health food store, $200 What is the net medical expense deduction that Bryan and Beth may claim on their current year's tax return?
$1,650 -1,2,5,6,7 qualify - apply the hurdle
Myers, who is single, reports compensation income of $73,000 in 2021. He is an active participant in his employer's qualified retirement plan. Myers contributes $6,000 to a traditional IRA. Of the $6,000 contribution, how much can Myers deduct?
$1,800 ($73,000 - $66,000)/$10,000 = $4,200 $6,000 - $4,200 = $1,800 -If the taxpayer is an active participant in a qualified plan, the traditional IRA deduction limitation is phased out proportionately between certain AGI ranges. For a taxpayer filing single, the phaseout begins at $66,000 and the phaseout range is $10,000.
Pat generated self-employment income in 2021 of $76,000. The self-employment tax is:
$10,738.46 $76,000 x 92.35% x 15.3% = $10,738.46
Jarrod receives a scholarship of $18,500 from East State University to be used to pursue a bachelor's degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses. Which of these amounts, if any, may Jarrod exclude from his gross income?
$13,500 $12,000 tuition + $1,500 books & supplies = $13,500 -$4,00 spent for room & board & the $1,000 spent for personal exps are includible in his gross income
Ashley (a single taxpayer) is the owner of ABC LLC. The LLC (a sole proprietorship) generates QBI of $900,000 and is not a "specified services" business. ABC paid total W-2 wages of $300,000, and the total unadjusted basis of qualified property held by ABC is $30,000. Ashley's taxable income before the QBI deduction is $740,000 (this is also her modified taxable income). What is Ashley's QBI deduction for 2021?
$148,000 $740,000 x 20% = $148,000 1. 20% of qualified business income ($900,000 × 20%) $180,000 2. But no more than the greater of: •50% of W-2 wages ($300,000 × 50%), or $150,000 •25% of W-2 wages ($300,000 × 25%) plus $75,000 •2.5% of the unadjusted basis of qualified property ($30,000 × 2.5%)750 $75,750 And no more than: 3. 20% of modified taxable income ($740,000 × 20%) $148,000
In 2021, Meghann Babson, a single taxpayer, has QBI of $110,000 and modified taxable income of $78,000 (this is also her taxable income before the QBI deduction). Given this information, what is Meghann's QBI deduction? Meghann's QBI deduction is
$15,600
Mr. T has been a night watchman at Y company for 10 years. During he current year, he received the following payments from Y Company: Salary $15,000 Hospitalization insurance premiums 3,600 Required lodging on Y's premises for Y's convenience to T's employment 2,400 Reward for preventing a break-in 1,000 Reimbursed community college tuition under a plan available to all employees 200 What amount is includible in Mr. T's gross income in the current year?
$16,000
Paul, a calendar year single taxpayer, has the following information for 2021: AGI $175,000 State income taxes 13,500 State sales tax 3,000 Real estate taxes 18,900 Gambling losses (gambling gains were $12,000) 6,800 Paul's allowable itemized deductions for 2021 are:
$16,800 $10,000 + $6,800 = $16,800 -state taxes are limited to $10,000 -itemized deductions allowed are $16,800 ($10,000 + $6,800)
Gary and Gladys invest in bonds. In the current year, they received the following interest: California general revenue bonds $800 New York City sanitation fund bonds 1,000 Seattle School District bonds 400 AT&T 20-year bonds 600 The state and local bonds are not private activity bonds.How much interest income may Gary and Gladys exclude from gross income on their joint return?
$2,200
Sally, a single, full-time college student, had over one-half of her support provided by her parents who claimed Sally as their dependent. For the year, Sally earned $1,500 from a summer job, $100 in dividends from stock of a domestic corporation she inherited from her grandmother, and $3,000 in interest from a savings account funded by her parents and transferred to Sally several years ago. What is Sally's taxable income for the year?
$2,750
In 2021, Meghann Babson, a single taxpayer, has QBI of $110,000 and modified taxable income of $178,000 (this is also her taxable income before the QBI deduction). Given this information, what is Meghann's QBI deduction? Meghann's QBI deduction is $
$22,000
For the current year 31, David, a married taxpayer filing a joint return, reported the following: Interest income from corporate bonds $24,000 Long-term capital gains on stock held for investment 25,000 Tax-exempt interest income 4,000 David had borrowed the funds to purchase investments producing the above income, and paid $70,000 of interest expense on the loan. Assuming David does not make the special election for the LTCG, what amount can David deduct this year as investment interest expense?
$24,000
Under the terms of a divorce agreement entered into in 2017, Maria was to pay her wife Joyce $2,000 per month in alimony and $500 per month in child support. For a 12-month period, Maria can deduct from gross income (and Joyce must include in gross income):
$24,000 -the $500 per month for child support isn't deductible by maria
Jim is a single taxpayer, over age 65. His AGI is $40,000 and itemized deductions of $13,000. What is his taxable income?
$25,750 -note the underlined part, don't forget the additional standard deductions
Jack received a court award in a civil libel and slander suit against National Gossip. He received $120,000 for damages to his professional reputation, $100,000 for damages to his personal reputation, and $50,000 in punitive damages. Jack must include in his gross income as a damage award:
$270,000 -none of the damages received were the result of a physical personal injury or sickness & therefore the total amt received must be included in gross income -even if the damages were the result of physical personal injury, the punitive damages would be included in his gross income
George Ball, a salaried taxpayer, paid the following taxes which were not incurred in connection with a trade or business during the year: Federal income tax (withheld by employer) $250 State income tax (withheld by employer) 900 FICA tax (withheld by employer) 700 State sales taxes 300 Property tax on principal residence 2,000 Property tax on vacation home 800 What total taxes are allowable itemized deductions for taxes?
$3,700
Frank established a Roth IRA at age 25 and contributed a total of $131,244 to it over 38 years. The account is now worth $376,000. How much of these funds can Frank withdraw tax-free?
$376,000 -assuming frank met the AGI limitations at the time of his contributions, all of the funds may be withdrawn tax-free -he satisfies the 5-yr holding period requirement for a roth IRA & is over age of 59 1/2 at the time of the distribution
Sang-hoon, who uses the cash method of accounting, lives in a state that imposes an income tax (including withholding from wages). On April 14, 2021, he files his state return for 2020, paying an additional $600 in state income taxes. During 2021, his withholdings for state income tax purposes amount to $3,550. On April 13, 2022, he files his state return for 2021 claiming a refund of $800. Sang-hoon receives the refund on June 3, 2022. If he itemizes deductions, how much may Sang-hoon claim as a deduction for state income taxes on his Federal income tax return for calendar year 2021 (filed in April 2022)?
$4,150 $600 + $3,550 = $4,150 -he's a cash basis taxpayer -his deduction is limited to the amts paid in 2021 -the $800 refund is reported as income in 2022 under the tax benefit rule -his state income tax deduction for 2021 is determined as $600 (paid april 14, 2021 for 2020) + $3,550 (withholdings for 2021) = $4,150 (total deduction)
During the year, Molly paid the following interest charges: Home mortgage $4,200 On loan to purchase new car 800 On loan to purchase City of New Orleans general purpose bonds (wholly tax-exempt) 1,300 If Molly itemizes her deductions, the amount deductible as interest expense is:
$4,200
Dana, age 31 and unmarried, is an active participant in a qualified retirement plan. Her AGI is $129,000. The phase-out range for Roth IRAs is $125,000 - $140,000. What amount, if any, may Dana contribute to a Roth IRA in 2021?
$4,400 -apply the hurdles for medical & miscellaneous
During the year, John (a self-employed management consultant) went from Milwaukee to Hawaii on business. Preceding a five-day business meeting, he spent four days vacationing at the beach. Excluding the vacation costs, his expenses for the trip are: Airfare $3,200 Lodging 900 Meals 800 Entertainment 600 Presuming no reimbursement, deductible expenses are:
$4,500 ($3,200 + $900 + $400 x (50% x $800)) = $4,500 -no allocation is required for domestic tansportation costs (ie. airfare) since the trip is primarily business related
Ernie's employer pays 100% of the cost of all employees' group-term life insurance under a nondiscriminatory plan. What is the maximum amount of coverage that may be provided tax-free by his employer under this plan?
$50,000
Jack borrowed $120,000 on a home equity loan during the year. He spent $50,000 of the loan to remodel his home and install a swimming pool and $70,000 for a Corvette (canary yellow, in case you're interested). The interest on what amount of the loan is treated as qualified (deductible) residence interest?
$50,000 -$50,000 qualifies as acquisition debt & $70,000 qualifies as home equity
Sammy, age 31, is unmarried and is not an active participant in a qualified retirement plan. His modified AGI is $56,000 in 2021. The maximum amount that Sammy can deduct for a contribution to a traditional IRA is:
$6,000 -he can deduct $6,000 bc he isn't an active participant in a qualified retirement plan
During the year, Al made the following contributions to his church: Cash $20,000 Stock in Wren Corporation (FMV) 60,000 The stock in Wren was acquired as an investment three years ago at a cost of $32,000. Al's AGI is $140,000. Assuming no special election is made, what is Al's charitable contribution deduction?
$62,000 -be sure to apply the 30% & 50% limits correctly
During 2021, Enrique had the following transactions: Salary $70,000 Interest income on Xerox bonds 2,000 Inheritance from uncle 40,000 Contribution to traditional IRA 5,500 Capital losses 2,500 Enrique's AGI is:
$64,000 $70,000 + $2,000 - $5,500 - $2,500 = $64,000 -$70,000 (salary) + $2,000 (interest) - $5,500 (IRA contribution) - $2,500 (capital losses) = $64,000 -inheritance is a nontaxable exclusion -the capital losses are deductible
Roger, age 19, is a full-time student at State College and is a dependent of his parents. During the year, he received the following payments: State scholarship for 10 months (tuition and books) $3,600 Loan from college financial aid office 1,500 Cash support from parents 3,000 Cash dividends 700 What is Roger's adjusted gross income for the year?
$700
Indicate whether the following items are "Included in" or "Excluded from" gross income.
-Alimony payments received from a 2016 divorce settlement: Included in *any divorces after jan 1, 2019, alimony payments aren't taxable nor are they deductible if the divorce was settled prior to 2019 they are deducted or included* -Damages award received by the taxpayer for personal physical injury—none were for punitive damages.: Excluded from -A new golf cart won in a church raffle.: Included in -Amount collected on a loan previously made to a college friend.: Excluded from -Insurance proceeds paid to the taxpayer on the death of her uncle—she was the designated beneficiary under the policy.: Excluded from -Interest income on City of Chicago bonds.: Excluded from -Jury duty fees.: Included in -Stolen funds the taxpayer had collected for a local food bank drive.: Included in -Reward paid by the IRS for information provided that led to the conviction of the taxpayer's former employer for tax evasion.: Included in -An envelope containing $8,000 found (and unclaimed) by the taxpayer in a bus station.: Included in
Under the category of filing considerations, the following questions need to be resolved:
-Is the taxpayer required to file an income tax return? -If so, which form should be used? -When and how should the return be filed? -What is the taxpayer's filing status?
Patrick and Eva are planning to divorce in 2021. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alternatively, Patrick will transfer to Eva common stock that he owns with a fair market value of $100,000. What factors should Eva and Patrick consider in deciding between these two options? Select either "True" or "False" to classify the following regarding the two options.
-The stock cannot be transferred without recognition of a gain by Patrick or Eva.: False -The cash payments, as presently structured, will not qualify as alimony.: True -Eva's cost basis in the stock will be fair market value on the day Patrick transfers it to her: False -The cash payments qualify as alimony and are deductible by Patrick only if Eva agrees to report the alimony as income.: false
BUSINESS (and a bit of personal) TRAVEL Larry is the sole proprietor of a consulting business. This year, he took a business trip to Miami, spending 4 days conducting business and 6 days vacationing. His expenses for the entire trip were as follows: Air fare $ 700 Lodging 1,000 Meals (eaten at a restaurant) 600 Golf green fees (half was with a client) 450 Explain how the expenses are treated on Larry's return. Be very specific as to amounts and locations of reportable items.
-air fare: $640 deductible to AGI -lodging: allocate the business/personal costs as necessary -meals: since meals were eaten at a restaurant, then 100% is deductible for 2021 & 2020 -golf green fees: golf green fees & client entertainment is no longer deductible
Darron died in 2018. His wife, Samantha, did not remarry, continued to maintain a home for herself and her dependent four-year old daughter, and provided full support for herself and her child for all years in question. Determine Samantha's filing status for 2018, 2019, and 2021 *(note that I skipped 2020)*.
2018: married, joint 2019: surviving spouse 2021: head of household
Tyler, a self-employed taxpayer, travels from Denver to Miami primarily on business. He spends five days conducting business and two days sightseeing. His expenses are $400 (airfare), $150 per day (meals at local restaurants), and $300 per night (lodging). What are Tyler's deductible expenses if this travel took place in the below year:
2023: $2,275 2022: $2,650 -Airfare: This is considered a transportation expense. $400 -Lodging: The deduction is limited to business days. (5 x $300) = $1,500. -Meals: The deduction is limited to business days and the 50% cutback. (5 x $150) = $750 x 50% cutback for meals = $375 -If the year is 2023, then the deductible expenses are $2,275 {$400 airfare + $375 meals [(5 days × $150) × 50% limit] + $1,500 lodging (5 × $300)} -If the year is 2022, then all of the meals expense ($750) would be deductible and total deductible expenses would be $2,650.
age test
A qualifying child must be under age 19 or under age 24 in the case of a full-time student. An individual cannot be older than the taxpayer claiming him or her as a qualifying child.
residence test
A qualifying child must live with the taxpayer for more than half of the year. For this purpose, temporary absences are disregarded.
Heather is a full-time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees. Which of the following is correct?
Heather reduced her salary by $1,200, and received only $900 as reimbursement for her actual medical expenses. She is not refunded the $300 remaining balance, but her gross income is reduced by $1,200.
support test
To be a qualifying child, the individual must not provide more than one-half of his or her own support. In the case of a child who is a full-time student, scholarships are not considered to be support.
Sally was an all-state soccer player during her junior and senior years in high school. She accepted an athletic scholarship from State University. The scholarship provided the following: Tuition and fees $15,000 Housing and meals $6,000 Books and supplies $1,500 Transportation $1,200 Determine the effect of the scholarship on Sally's gross income.
Tuition and fees: excluded from Housing and meals: included in Books and supplies: excluded from Transportation: included in
Carri and Dane, ages 34 and 32, respectively, have been married for 11 years, and both are active participants in employer-qualified retirement plans. Their total AGI in 2021 is $201,000, and they earn salaries of $89,000 and $95,000, respectively. Compute the following amounts. If an amount is zero, enter "0". Do not round intermediate computations. a. The amount each can contribute to a regular IRA. b. The amount each can deduct for regular IRA contributions. c. The amount each can contribute to a Roth IRA. d. The amount each can deduct for Roth IRA contributions.
a) $6,000 -Carri and Dane both can contribute $6,000 ($12,000 combined) to their traditional IRA. b) $0 -Neither Carri nor Dane can deduct their contributions to a traditional IRA because their AGI exceeds the phaseout ceiling of $125,000. c) $4,200 -Carri and Dane both can contribute $4,200 ($8,400 combined) to a Roth IRA calculated as follows. $201,000 - $198,000 threshold = $3,000 excess AGI ($3,00010,000) × $6,000=$1,800 phaseout $6,000 ceiling - $1,800 phaseout = $4,200 (for each taxpayer) contribution ceiling d) $0 -Unlike a traditional IRA, contributions to a Roth IRA are nondeductible.
For purposes of computing the deduction for qualified residence interest, a qualified residence includes only the taxpayer's principal residence.
false -a qualified residence includes the taxpayer's principal residence & 1 other residence of the taxpayer or spouse
Ten years ago, Liam, who is single, purchased a personal residence for $340,000 and took out a mortgage of $200,000 on the property. In May 2021, when the residence had a fair market value of $440,000 and Liam owed $140,000 on the mortgage, he took out a home equity loan for $220,000. He used the funds to purchase a fully-equipped recreational vehicle, which he uses 100% for personal use. a. Can Liam deduct all of the interest related to the original mortgage? (yes or no) b. Can Liam deduct any of the interest related to the home equity loan of $220,000? (yes or no) c. If the RV was the security for the loan, the maximum amount of debt on which Liam could deduct interest is $
a. yes b. no c. $360,000 -acquisition debt 1) loan proceeds are used to buy, build, remodel principal residence & 2nd home 2) the home that the loan $ were used for must be the collateral for the loan
Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2021. •Hospitalization insurance premiums for Rex and his dependents. The cost of the coverage for Rex is $2,900 per year, and the additional cost for his dependents is $3,800 per year. The plan applies a $2,000 deductible, but his employer contributed $1,500 to Rex's Health Savings Account (HSA). Rex withdrew only $800 from the HSA, and the account earned $50 of interest during the year. •Insurance premiums of $840 for salary continuation payments. Under the plan, Rex will receive his regular salary in the event he is unable to work due to illness. Rex collected $4,500 on the policy to replace lost wages while he was ill during the year. •Rex is a part-time student working on his bachelor's degree in engineering. His employer reimbursed his $5,200 tuition under a plan available to all full-time employees. For each of the following items, enter the amount to be included in Rex's gross income
a.Hospitalization insurance premiums for Rex and his dependents.$0 -Section 105(b) generally excludes payments received for medical care of the employee, spouse, and dependents. The premiums are deductible by the employer and excluded from the employee's income. b.Insurance premiums of $840 for salary continuation payments.$0 -The premiums for accident and health benefits, disability insurance, and long-term care plans are deductible by the employer and excluded from the employee's income. c.The $4,500 Rex collected on the salary continuation policy to replace lost wages while he was ill during the year.$4,500 -Rex is required to include in gross income the $4,500 received from the wage continuation policy while he was ill. This amount is included in gross income only because the employer paid for the policy. d.Tuition reimbursement under a plan available to all full-time employees.$0 -Qualified employer-provided educational assistance (tuition, fees, books, and supplies) at the undergraduate and graduate level is excludable from gross income. The exclusion is subject to an annual employee statutory ceiling of $5,250.
EMPLOYEE BUSINESS EXPENSES Joe Bob took a business trip to Dallas. His expenses for the trip were as follows: Air fare $700 Lodging 600 Meals (eaten at a restaurant) 300 Joe Bob received a $1,500 reimbursement from his employer for the cost of the trip. Explain how the reimbursement and expenses are treated on Joe Bob's return if the reimbursements is under (a) an accountable plan, and (b) a nonaccountable plan.
accountable plan: $0 impact on gross income -$1,500 reimbursement is offset by $1,500 deduction to AGI (net zero effect) non accountable plan: $1,500 increase in gross income -no deduction for the exps
Under the Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year. I. Group medical and hospitalization insurance for the employee, $3,600 a year. II. Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III. Child-care payments, actual cost but not more than $4,800 a year. IV. Cash required to bring the total of benefits and cash to $8,000. Which of the following statements is true?
all of the above are true -Sam, a full-time employee, selects choices II and III and $2,000 cash. His gross income must include the $2,000. -Paul, a full-time employee, elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him. Paul is required to include the $8,000 in income. -Sue, a full-time employee, elects to receive choices I, II, and $3,200 for III.Sue is not required to include any of the above in gross income.
In December of each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 24% marginal tax bracket, is considering the following alternatives for satisfying the contribution. Fair Market Value (1) Cash donation $23,000 (2) Unimproved land held for six years ($3,000 basis) $23,000 (3) Blue Corporation stock held for eight months ($3,000 basis) $23,000 (4) Gold Corporation stock held for two years ($28,000 basis) $23,000 Eleanor has asked you to help her decide which of the potential contributions listed above will be most tax advantageous. Evaluate the four alternatives and complete a letter to Eleanor. Determine the amount of the charitable contribution for each option.
amount deductible: 1) $23,000 2) $23,000 3) $3,000 4) $23,000 *best choice is the unimproved land* -she gets a tax-free step-up from her $3,000 cost to a $23,00 deduction
Which of the following is NOT a benefit of qualified retirement plans?
any employer contributions to the plan are never taxed to the employee
Which of the following best describes the tax treatment of charitable contributions that are made in excess of the maximum amount that the taxpayer is allowed to deduct in a given year?
any excess amt may be carried forward for 5 yrs
The kiddie tax, applies to any child who is under age 19 (or under age 24 if a full-time student) and has unearned income of more than $1,100.
false
The tax benefits resulting from tax credits and tax deductions are both affected by the tax rate bracket of the taxpayer.
false
For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.
false $1,000 of tax-exempt income is equivalent to $1,538 ($1,000)/(1.00 - 0.35) of income that is subject to taxation -income before tax of $1,538 yields $1,000 [$1,538 × (1.00 - 0.35)] of after-tax income
Which, if any, of the following is a deduction for AGI?
contributions to a traditional individual retirement account (IRA)
Jason and Peg are married and file a joint return. Both are over 65 years of age and Jason is blind. Their standard deduction for 2021 is $27,800.
false $25,100 + $1,350 + $1,350 + $1,350 = $29,150 -their standard deduction is $29,150 ($25,100 (MFJ standard deduction) + $1,350 (age, jason) + $1,350 (blindness, jason) +$ 1,350 (age, peg)
Beth received $10,000 in compensatory damages in a lawsuit she filed against a tanning parlor for severe burns she received from using the parlor's tanning equipment. Beth also received $30,000 in punitive damages in the lawsuit against the tanning parlor.
excluded in gross income included in gross income
Joanne received compensatory damages of $75,000 from a cosmetic surgeon who botched her nose job. Joanne also received $300,000 in punitive damages from the cosmetic surgeon who botched her nose job.
excluded in gross income included in gross income
George and Aaron divorced in 2022, and George is required to pay Aaron $20,000 of alimony each year. George earns $75,000 a year. Aaron is required to include the alimony payments in gross income although George earned the income.
false -bc the divorce occurred after 2018, the taxpayer gets no deduction & the payment isn't taxable to the recipient
Ethan, a bachelor with no immediate family, uses Pine Shadows Country Club exclusively for his business entertaining. All of Ethan's annual dues for his club membership are deductible.
false -dues to country clubs aren't deductible
A taxpayer who lives and works in Tulsa travels to Buffalo for five days. If three days are spent on business and two days are spent on visiting relatives, only 60% of the airfare is deductible.
false -for domestic mixed travel (ie. both business & personal), no allocation of transportation is required
Ronaldo contributed stock worth $12,000 to the Children's Protective Agency, a qualified charity. He acquired the stock 20 months ago for $7,000. He may deduct $7,000 as a charitable contribution deduction (subject to percentage limitations).
false -his deduction is $12,000, the FMV of the property -capital gain property contributions usually are measured by FMV, not basis
Meg's employer carries insurance on its employees that will pay an employee their regular salary while the employee is away from work due to illness. The premiums for Meg's coverage were $1,800. Meg was absent from work for two months as a result of a kidney infection. Her employer's insurance company paid Meg's regular salary of $8,000 while she was away from work. Meg also collected $2,000 on a wage continuation policy she had purchased. Meg must include $11,800 in her gross income.
false -insurance premiums of $1,800 paid by the employer & the $2,000 she collected on the wage continuation policy she purchased are excluded from gross income -the sick pay benefits received $8,000 must be included in her gross income
Debby, age 18, is claimed as a dependent by her mother. During 2021, Debby earned $1,200 in interest income on a savings account. Her standard deduction is $1,550 ($1,200 + $350).
false -interest income is unearned income -standard deduction is $1,100 the greater of $1,100 or $350 (earned income plus $350)
Once a child reaches age 19, the kiddie tax no longer applies.
false -kiddie tax applies if the child is a full-time student under the age of 24
Francisco and Minerva divorced in December 2021. Since they were married for more than one-half of the year, they are considered as married for 2021.
false -must be married on the last day of the yr (unless 1 spouse dies) to be considered married
Roy and Linda divorced in 2020. The divorce decree awards custody of their children (all under age 17) to Linda but is silent as to who is entitled to treat them as dependents for purposes of claiming the child tax credit. If Roy furnished more than half of their support, he can claim the child tax credit for them in 2021.
false -not unless she consents
For all of the current year, Randy (a calendar year taxpayer) allowed the Salvation Army to use rent-free a building he owns. The building normally rents for $24,000 a year. Randy will be allowed a charitable contribution deduction this year of $24,000.
false -rent-free use of building space isn't deductible as a charitable contribution
Benjamin, age 16, is claimed as a dependent by his parents. During 2021, he earned $850 at a car wash. Benjamin's standard deduction is $1,450 ($1,100 + $350).
false -standard deduction is the greater of $1,100 or $1,200 ($850 (earned income) + $350)
Code § 199A permits an individual to deduct 25% of the qualified business income generated through a sole proprietorship, a partnership, or an S corporation.
false -the deduction is 20% (not 25%)
Emily, whose husband died in December 2020, maintains a household in which her dependent mother lives. Which (if any) of the following is her filing status for the tax year 2021?
head of household
James is single and supports his grandmother who lives with him
head of household
Ms. Oak was divorced on January 1 of the current year. She had an unmarried son living in her home for the entire year. It cost $3,000 to maintain Ms. Oak's home for the year, of which she contributed $2,000 and Joe Oak, her ex-husband, contributed $1,000 through support payments. Joe Oak, however, provides more than half of the son's total support and claims him as his dependent, as Ms. Oak signed a waiver. Which is the most advantageous filing status for which Mrs. Oak can qualify?
head of household
Eloise received $150,000 in the settlement of a sex discrimination case against her former employer.
included in gross income
Nell received $10,000 for damages to her personal reputation. Nell also received $40,000 in punitive damages.
included in gross income included in gross income
Tim and Janet were divorced in 2018. Their only marital property was a personal residence with a value of $120,000 and cost of $50,000. Under the terms of the divorce agreement, Janet would receive the house and Janet would pay Tim $15,000 each year for 5 years, or until Tim's death, whichever should occur first. Tim and Janet lived apart when the payments were made to Tim. The divorce agreement did not contain the word "alimony."
janet is allowed to deduct $15,000 ea yr for alimony paid -payments do not meet the def of tax alimony (note the death issue)
For the same amount of taxable income, which filing status will generally yield the lowest gross tax liability?
married filing jointly
Tedra has two dependent children. Her husband Fred died during the year
married, filing jointly -marital status ends at death (vs 12/31)
In the current tax year, Blake Smith provided more than half of the support for his cousin, niece, and a close family friend. Blake lives alone and sends a monthly support check to each person. None of the individuals whom Blake supports has any income or files a tax return. All three individuals are U.S. citizens. Which of the three people Blake supports can he claim as a dependent on his tax return?
niece -meets the SUPPORT test for qualifying relative status -cousins & family don't meet the R (relative) or T (taxpayer lives w/individual) tests -all 3 ppl whom he supports fail the residency test for a qualifying child
During the current year, Mrs. A operated a business from her personal residence. She used 20% of her residence exclusively for business purposes. It was her principal place of business. The income and expenses attributable to the business portion of her residence were as follows: Gross income $4,000 Supplies expense 2,000 20% of interest on residence 600 20% of taxes on residence 800 20% of maintenance, insurance, and utilities on residence 400 Allowable depreciation on residence 1,200 Mrs. A's current-year return should reflect:
no profit or loss from business & a $1,000 exp carryover to the next yr
In which of the following plans is this statement true: A deduction is allowed for contributions to the plan, and no income tax consequences result from distributions to the participant at retirement.
none of these choices are correct -it is not: traditional IRAs keogh (H.R. 10) plans roth IRAs -a deduction is allowed for contributions to traditional IRAs & keogh (H.R. 10) plans but not to roth IRAs -distributions are free of income tax in the case of roth IRAs & keogh (H.R. 10) plans -the combo of a deduction & tax-free distributions don't exist
The self-employment tax is
one-half deductible from gross income in arriving at AGI
Determine the amount of the standard deduction allowed for 2021 in the following independent situations. In each case, assume that the taxpayer is the dependent of another taxpayer.
range: maximum = $12,550 earned income + $350 minimum = $1,100 a. Curtis, age 18, has income as follows: $700 interest from a certificate of deposit and $12,600 from repairing cars.: $12,550 -$12,600 (earned income) + $350 = $12,950 but the amt allowed cannot exceed that available in 2021 for single taxpayers, which is $12,550 b. Mattie, age 18, has income as follows: $600 cash dividends from investing in stock and $4,700 from lifeguarding at a local pool.: $5,050 -$4,700 (earned income) + $350 c. Jason, age 16, has income as follows: $675 interest on a bank savings account and $800 for painting a neighbor's fence.: $1,150 -greater of $1,100 or $1,150 ($800 earned income + $350) d. Ayla, age 15, has income as follows: $400 cash dividends from a stock investment and $500 from grooming pets.: $1,100 -greater of $1,100 or $500 (earned income + $350) e. Sarah, age 67 and a widow, has income as follows: $500 from a bank savings account and $3,200 from babysitting.: $5,250 -$3,200 (earned income) + $350 + $1,700 (additional standard deduction)
CHARITABLE CONTRIBUTIONS James, a single taxpayer with an expected AGI of $350,000 in 2020, has promised the NAU Franke College of Business a $100,000 contribution this year. For each of the following possible property contributions below, determine the amount of the contribution deduction on James' return. Property description Deductible Amount Rollo Co. stock acquired in 2002 (basis = $65,000; FMV = $100,000) DotCom stock acquired in 2021 (basis = $50,000; FMV = $100,000) DropCo stock acquired in 2016 (basis = $130,000; FMV = $100,000) Which of the above properties would you recommend that James contribute?Explain your reasoning
rollo: $100,000 dotcom: $50,000 drop co.: $100,000 *rollo is best bc of free step-up*
In 2021, Miranda records net earnings from self-employment of $158,500. She has no other gross income. Determine the amount of Miranda's self-employment tax and her for AGI income tax deduction.
self-employment: $21,952 deduction for AGI: $10,976 ($158,000 x 92.35%) x 2.9% + ($142,800 x 12.4%) = $21,952 $21,952.07 x 50% = $10,976.04 1.Net earnings from self-employment $158,500.00 2.Multiply by 92.35% $146,374.75 3.Multiply line 2 by 2.9% $4,244.87 4.Add $17,707.20* to line 3 $21,952.07
James and Edna Smith are a childless married couple who lived apart for all of the current year. On December 26, they were legally divorced. Which of the following is the only filing status choice available to them for the current year?
single
Bob provides more than half of his mother's support. His mother earns $6,000 per year as a hairdresser. She lives in an apartment across town. Bob is unmarried and has no children. What is Bob's most advantageous filing status?
single -doesn't meet criteria to file as head-of-household -not available to unmarried taxpayers who maintain a household for more than 1/2 the yr for an unmarried son or daughter (not required to be a dependent, but must live w/taxpayer), father or mother (must be dependent but not required to live w/the taxpayer), or other dependent relative (must live w/taxapayer) -his mom fails the qualifying relative gross income test to be his dependent
Alfred is single and fully supports his friend who lives in another state
single -for hoh, must be 1) related & 2) live in same house (except for parents)
The ceiling amounts and percentages for 2021 for the two portions of the self-employment tax are:
social security portion: $142,800; 12.4% medicare portion: unlimited; 2.9%
Archie has one dependent child. His wife died two years ago.
surviving spouse -last yr
Mark established an IRA at age 40 and made qualifying contributions of $2,000 per year to the account for 25 years. At his retirement, the balance in the IRA is $100,000. If Mark withdraws $10,000 from his IRA, what is the amount of the distribution that is included in Mark's gross income if the IRA is (1) a traditional IRA and (2) a Roth IRA?
traditional: $10,000 roth: $0
A participant who is at least age 59 1/2 can make a tax-free qualified withdrawal from a Roth IRA after a five-year holding period.
true
In 2021, a child who has unearned income of $2,200 or less cannot be subject to the kiddie tax.
true
In 2022, the child tax credit is based on the number of the taxpayer's qualifying children under age 17.
true
Points paid by the owner of a personal residence to refinance an existing mortgage must be capitalized and amortized over the life of the new mortgage.
true
Qualified business income (QBI) is defined as the ordinary income less ordinary deductions that a taxpayer earns from a qualified trade or business (e.g., from a sole proprietorship, S corporation, or partnership) conducted in the United States by the taxpayer.
true
The kiddie tax does not apply if both parents are deceased.
true
There are three limitations on the qualified business income deduction: an overall limitation (based on modified taxable income), another that applies to high income taxpayers, and a third that applies to certain types of service businesses.
true
Under the regular (actual expense) method, the portion of the office in the home deduction that exceeds the income from the business can be carried over to future years.
true
Unearned income includes income such as taxable interest, dividends, capital gains, rents, royalties, pension and annuity income.
true
Darren, age 20 and not disabled, earns $4,500 during 2021. Darren's parents cannot claim him as a dependent unless he is a full-time student.
true -being age 20, he cannot be a qualifying child unless he is a full-time student -cannot be a qualifying relative, since he fails the gross income test ($4,300 in 2021)
Katelyn is divorced and maintains a household in which she and her daughter, Crissa, live. Crissa, age 22, earns $11,000 during 2021 as a model. Katelyn does not qualify for head of household filing status.
true -crissa isn't katelyn's dependent -she fails the age test for qualifying child purposes & the gross income test for the qualifying relative category
Lucas, age 17 and single, earns $6,000 during 2021. His parents cannot claim him as a dependent if he does not live with them.
true -doesn't meet the def of a qualifying child if the abode test is failed -fails the gross income test for a qualifying relative ($4,300 in 2021)
Capital assets donated to a public charity that would result in long-term capital gain if sold are subject to the 30%-of-AGI ceiling limitation on charitable contributions for individuals.
true -however, a limited exception applies if the LTCG property is tangible personalty that's put to an unrelated use by the charity -in this situation, the deduction is subject to the 50% of AGI limitation
A hobby activity results in all of the hobby income being included in AGI and no deductions being allowed for hobby-related expenses.
true -income from hobby activities are included in income -hobby-related exps are miscellaneous itemized deductions (subject tot he 2% of AGI floor) & not deductible from 2018 through 2025
Neha, who is single, has itemized deductions totaling $20,000. She overpaid her 2020 state income tax and is entitled to a refund of $400 in 2021. Neha chooses to apply the $400 overpayment toward her state income taxes for 2021. She is required to recognize that amount as income in 2021.
true -it doesn't matter for federal income tax purposes whether the overpayment is refunded or applied toward the 2021 state income tax liability if the overpayment resulted in a tax benefit
Ed is divorced and maintains a home in which he and a dependent friend live. Ed does not qualify for head of household filing status.
true -to be head of household, the dependent involved must meet the relationship test -not the case w/a friend
A scholarship recipient may exclude from gross income the scholarship proceeds received for:
tuition, books & supplies
A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for:
tuition, books & supplies.