CFP - Income Tax Planning

Noah has been working part-time through college and earned $20,000 last year with a total federal income tax liability of $1,200. This year he will earn $100,000 with an expected income tax liability of $15,000. What is the lowest amount of tax withholding Noah should have to meet the safe harbor rules?

$1,200. He has two choices: 100% of last year's tax liability or 90% of this year's tax liability. Last year's income tax liability was $1,200 and 90% of this year is $13,500. Therefore, the lowest amount that of tax withholding that needs to be met is $1,200.

For the current year, Harry reported salary and taxable interest income of $50,000. His capital asset transactions during the year were as follows: Long-term capital loss = ($5,000); Long-term capital gain = $1,000; For the current year, what amount should Harry report as adjusted gross income?

$47k

On January 1st of this year, Linda sold a piece of land she had had for years to George. Linda's basis in the land was $75,000 and she sold it for $100,000. It was agreed that George would pay Linda $10,000 as a down payment and would make installment payments of $10,000 for the next 9 years plus 10% interest. His second payment was due and payable December 31 of this year. What is Linda's tax consequence of this transaction this year?

$5,000 of long term capital gain and $9,000 of ordinary income George is paying her $100,000. Her amount invested is $75,000. Therefore, over 10 years, her total profit will be $25,000 or $2,500 per year except for the down payment. There are two payments at the end of the year. An interest payment of 10% × $90,000*=$9,000 (ordinary income). The second payment, $10,000, consists of $2,500 capital gain and $7,500 of return of basis. *Recall the amount paid was $100,000 less a down payment of $10,000, so $90,000 was outstanding.

Vince, a single individual, is one of the founders and original shareholders of Security Consulting, Inc., a corporate security consulting firm. The company was initially capitalized with $200,000, and Vince was a 50 percent owner. The company was structured as a C corporation and filing requirements and permissible tax elections that could benefit the owners were made at the time the company was created. After several years of successful operations, Security Consulting lost market share to large national firms, and eventually closed down operations. Since it had no assets other than the goodwill of the business, there was nothing left to distribute to the shareholders. Assuming that there were no changes to Vince's ownership interest over the period of his ownership, and that Vince has no capital transactions in the current year, by how much can Vince reduce his adjusted gross income this year due to the company becoming worthless? $3,000. $50,000. $53,000. $100,000.

$53K - Because it was capitalized with less than $1 million and Vince was an original shareholder, the stock is Section 1244 stock in Vince's hands. Vince can deduct up to $50,000 of losses as an ordinary loss in any one tax year and the remaining loss is treated as a capital loss. Therefore, Vince will be able to deduct $50,000 of his loss as a Section 1244 loss against ordinary income and will qualify for an additional $3,000 long-term capital loss deduction. The remaining capital loss of $47,000 will be carried forward to future tax years.

Two years ago, Bill purchased stock in Pinkley Corporation (the stock is not small business stock) for $1,000. In the current year, the stock became worthless. During the current year, Bill also had an $8,000 loss on small business stock (Section 1244) purchased two years ago, a $9,000 loss on a non-business bad debt, and a $5,000 long-term capital gain. What should Bill report this year?

$8,000 ordinary loss; $3,000 short-term capital loss and a $2,000 short-term capital loss carryover. The non-business bad debt is treated as a short-term capital loss. The loss on worthless stock held for more than one year is a long-term capital loss. The loss on small business stock Section 1244 is recognized as an ordinary loss not subject to the capital loss rules. Note the following calculation: $5,000 (long-term capital gain) - $1,000 (long-term capital loss worthless stock) = $4,000. From this amount, subtract $9,000 (non-business bad debt expense - short-term capital loss) to obtain a net short-term loss of ($5,000.) However, the maximum annual capital loss deduction is net $3,000.

Dakota qualifies as a dependent of his parents. This year, he earned $500 from a part-time job and $1,500 in interest from a savings account. Dakota's taxable income for this year is:

$900. Deduction of the greater of $1,100 or $350+earned income. In this case earned income + $350 is less than $1,100

Jacob is divorced and has full custody of his two children although they spend every other weekend with their mother. How many personal exemptions is Jacob permitted on his Form 1040?

0, personal exemptions have been suspended by tcja

Jason has three capital transactions for the current year: Short-term capital loss of $5,000 Short-term capital gain of $3,000 Long-term capital loss of $2,000 What is the net effect on Jason's taxes if he is in the 35% tax bracket?

1) Net the STCG and STGL = -2K 2) Add the losses up -4k 3) Can offset $3k ordinary income at 35% = 1050

Assuming an asset is sold for a gain, when would Section 1250 ordinary income occur? Depreciable property is sold at a gain. Depreciable property is sold regardless of whether there is a gain or loss. Straight line depreciation is used on real property subject to ACRS. Real property subject to ACRS and accelerated depreciation was used.

1250 has to do with the excess depreciation taken if using accelerated depreciation over straight line. Section 1250 gain applies to the realized gain on real property where the accelerated method was used. The gain is the excess of accelerated over straight line (ACRS). Section 1250 gain is taxed as ordinary income. Under current law (MACRS), only straight line depreciation of real property is used.

Alexander Dumas has a salary of $80,000, dividends of $20,000 and limited partnership income of $15,000. This year, he also invested in an equipment-leasing partnership where he is not a material participant. His initial investment included $50,000 cash and a non-recourse note for $60,000. What is the maximum tax deduction Alexander may take on the equipment leasing investment this year? A.$0 B.$15,000 C.$35,000 D.$50,000

15K - This is a passive activity. His deduction is equal to his limited partnership income from other sources to the extent he is at risk. The maximum investment deduction may not exceed the cumulative investment income. The $60,000 non-recourse note is irrelevant to answering this question. This question also assumes that the investment occurred in the current tax year

During the year, Myrna furnished more than 50% of the support for the following persons: Butch, Myrna's husband, who has no income and does not file a return. Wallace, Myrna's cousin, who does not live with her. Brad, Myrna's father-in-law, who does not live with her. Dawn, Myrna's 18 year old daughter who is a full time student. Presuming all other requirements for qualified dependent are met, on a separate return, how many qualified dependent credits may Myrna claim?

2 dependents. Butch, the husband, is not a qualified dependent, as a he is not eligible to be treated that way. Cousins do not meet the relationship test. The fact that the father-in-law does not live with Myrna does not automatically disqualify him a dependent, if he meets all the other qualifying relative requirements, as stated, Myrna can claim the qualified dependent credit for him. Myrna's daughter is over 17 and ineligible for the qualifying child credit of $2,000 but, as a full time student, she will qualify as a qualified dependent for the $500 credit.

Julian purchased 100 shares of Home Depot, a domestic corporation, common stock on July 7th this year. The ex-dividend date for their quarterly dividend is July 12th. Julian sells the Home Depot stock on August 15th of this year. If Home Depot paid a dividend of $10 on Julian's 100 shares, what are the tax consequences to Julian if Julian is in the 25% tax bracket?

2.5 in taxes since he's in 25% bracket. Considered ordinary income since he held stock for 39 days. Needs to hold it more than 60 days in the 121 days surrounding the ex-div date

Linus (age 64) and Karen (age 63) are raising their granddaughter, Marie, who qualifies as their dependent. Marie is blind. Linus and Karen file a joint return in the current year. What is their standard deduction?

24,400. Linus and Karen's standard deduction is $24,400. They are not age 65 or older so they don't receive an additional standard deduction. They do not receive an additional standard deduction for Marie's blindness because additional standard deductions for age and blindness are allowed only for the taxpayer and spouse, and not for their dependents.

Ginger, age 21 and a full-time student for a degree at State University, qualifies as a dependent on her parents' return. During the summer, she earned $5,500 from a part-time job. Her only other income consisted of $950 interest on a savings account. What is Ginger's taxable income for the current year?

600. The standard deduction for Ginger is the greater of $1,100 or $350 plus earned income but not to exceed the normal standard deduction. Therefore $350 + $5,500 = $5,850 so it is not limited in 2019. The total income is $5,500 + $950 = $6,450. Taxable income is $6,450 - $5,850 = $600.

Which venue is a jury available for tax controversies

A U.S. District Court

For purposes of determining taxable income, which of the following is true? A taxpayer who finds a suitcase of money and spends the money is not required to recognize income. The taxpayer who collects income from a customer during the year, but the customer has sued for a refund, can defer recognition of the income until the suit has been resolved. Embezzlement proceeds are not included in the embezzler's gross income because the embezzler has an obligation to repay the owner. A person who rents out their personal residence 10 days during the year is not required to include any income received.

A person who rents their home for less than 15 days is not required to include the income as it is considered personal property, not rental or mixed use. However, no deductions related to the expense of renting out the home are allowed other than taxes and interest associated with the property that would normally be deductible as an itemized deduction.

Abby and Brock are divorced. They have one daughter, Caroline, who spends exactly six months of the year living with her mother and exactly six months of the year living with her father. Abby has an AGI of $200,000 and Brock has an AGI of $150,000. Caroline is a qualifying child of both Abby and Brock. Who can claim Caroline as a dependent?

Abby. In this case, both parents are eligible to claim Caroline as a dependent because she is a qualifying child for both of them. However, an individual cannot be claimed as a dependent by more than one person. Because Caroline lives with each parent for the same amount of time, the parent with the higher AGI is allowed to claim the dependency exemption. In this case, Abby has a higher AGI than Brock, so she is allowed to claim a dependency exemption for Caroline.

Homer and Marge have been unable to have a baby. They decided last year that adoption would be the best choice for them. They adopted, Maggie, a 4 year old child this year. They paid $15,000 in qualifying adoption expense for the current year. Their MAGI is $170,000 and their tax due before the application of the qualified adoption credit is $11,000. What is Homer and Marge's available adoption credit for the current year?

Adoption credit is about $14k, but its non refundable so the max they can get only $11k of adoption credit.

Alimony is not: Deductible for income taxed purposes by the payor spouse. Ordinary income to the recipient using the constructive receipt rule. Deductible paid to a third party if owed by recipient spouse without agreement. Recaptured in the third year if a front loaded property settlement.

Alimony is deductible by the payor spouse and taxable to the payee spouse if the agreement is dated prior to 12/31/18. There are no gift tax consequences related to qualifying alimony not deductible if paid to a third party without agreement by the recipient spouse.

Janice, who is single, had gross income of $38,000, and incurred the following expenses: Charitable contributions = $2,500 Taxes and interest on home = $9,000 Legal fees incurred in a tax dispute = $1,000 Medical expenses = $4,000 Penalty on early withdrawal of savings = $200 Her AGI is:

All are itemized deductions except early w/d penalties. Those can be deducted from GI. $37,800

Kate owns a downtown office building. Kate originally purchased the building for $900,000 and took depreciation deductions of $400,000. Kate is in the 37% tax bracket. Straight-line depreciation would have been $400,000. What are the tax consequences if Kate sells the building for $2,100,000? Kate will have ordinary income of $0. Kate will have $400,000 of gain taxed at 25%. Kate will have 1231 gains of $1,200,000 taxed at 20%. All of the above.

All of the above. Purchased property at $900k, took $400k in depreciation (deducted it year by year against the income). Adjusted basis is $500k. Sold the property for $2.1MM, so subtract $500k (AB) and you get $1.6MM of gain. Less $400k in depreciation recapture (taxed at 25% because thats the 2019 cap) The remainder $1.2MM is a 1231 gain and treated as LT so either 15% or 20%. The $400k is considered tax recapture and is not ordinary income. If there was accelerated depreciation there may have been a difference between SL and accelerated depreciation that may have been recaptured as OI.

Prior to TCJA, the underlying rationale for the alimony rule is that: The income should be taxed to the person with a claim of right to the income. The income should be taxed to the person who enjoys the benefits of the income. The fruit and tree metaphor. Alimony is a payment for the taxpayer's property obligation and therefore, it is taxed to the recipient.

As a cash basis taxpayer, the person who receives the alimony (the one who benefits from it) will find the alimony received as taxable income. Alimony will be taxable even if the person entitled to it did not in fact receive it (e.g., payor paid expenses of recipient directly to third parties).

Section 1245 recapture applies when: A gain on sale of real property occurs due to the depreciated basis. All or a portion of gain on tangible personal business property resulted from depreciation taken. Tangible personal business property is sold regardless of whether there is a gain. A gain on any class of property occurs due to cost reduction.

B - Section 1245 recapture is treated as ordinary income for the gain realized resulting from depreciation taken that was greater than economic reality.

Two years ago, Bill purchased stock in Pinkley Corporation (the stock is not small business stock) for $1,000. In the current year, the stock became worthless. During the current year, Bill also had an $8,000 loss on small business stock (Section 1244) purchased two years ago, a $9,000 loss on a non-business bad debt, and a $5,000 long-term capital gain. What should Bill report this year? $4,000 long-term capital loss and $9,000 short-term capital loss. $3,000 long-term capital loss and $10,000 long term loss carry forward. $8,000 ordinary loss; $3,000 short-term capital loss and a $2,000 short-term capital loss carryover. $8,000 ordinary loss and $5,000 short-term capital loss.

Business stock (1244 asset) cannot be written off against non business income. Need to just know its a ordinary loss but will not offset non-business income or losses. The non-business bad debt is treated as a short-term capital loss. The loss on worthless stock held for more than one year is a long-term capital loss. The loss on small business stock Section 1244 is recognized as an ordinary loss not subject to the capital loss rules. Note the following calculation: $5,000 (long-term capital gain) - $1,000 (long-term capital loss worthless stock) = $4,000. From this amount, subtract $9,000 (non-business bad debt expense - short-term capital loss) to obtain a net short-term loss of ($5,000.) However, the maximum annual capital loss deduction is net $3,000.

Last year Dan Walker had a rough year in his taxable brokerage account. He sold when he should have bought, he held when he should have sold and he bought just before prices plunged in most instances. Still he managed to eke out $27,000 in short term capital gains, with only $25,000 of short term capital losses. He also had another $2,000 of investment expenses (research reports). All other considerations aside, he had an AGI of $50,000, so what are the implications of Dan's activities? Dan may realize a $2,000 short term gain and deduct $2,000 as a miscellaneous itemized deduction. Dan may deduct $25,000 as short term losses and deduct $2,000 as expenses. Dan may realize a $25,000 passive activity loss and deduct $2,000 as itemized deduction. Dan must recognize a $2,000 short term capital gain, with no other deductions.

D - He gets to net his portfolio losses against his portfolio gains. He will not be able to deduct his expenses.

Which of the following is not an ordinary income asset? Literary compositions in the hands of the author. Depreciable property or real property used in a trade or business. Notes receivable from a trade or business. Stock in trade held for sale to customers in the ordinary course of business.

Depreciable property or real property used in a trade or business is a Section 1231 asset, not an ordinary income asset. All of the other options are ordinary income assets.

Donna sells stock in Martin Corporation to her brother David for $1,800. Donna purchased the stock four years ago for $3,000 and the current fair market value of the stock is $1,800. David paid Donna $1,800 for the stock. Which of the following statements is correct regarding the tax consequences of this transaction? If David subsequently sells the stock to an unrelated party for $3,500, he will realize a gain of $1,700. Donna has a recognized loss of $1,200. If David subsequently sells the stock to an unrelated party for $2,200, he will have no gain or loss. If David subsequently sells the stock to an unrelated party for $3,500, he will have no gain or loss.

Donna's loss is disallowed. The basis is FMV or Donna's cost basis depending on if its a loss or not. If > $3k then the rest is gain If < 1800 then rest is loss if sold between 1800 and 3k. there is no loss or gain.

Arrange the following statutes of limitation from shortest to longest: Collection of deficiency by the IRS. Fraud. General Statue of Limitations under Section 6501. Substantial Understatement of Income greater than 25%. I, II, III, IV. II, III, IV, I. III, IV, I, II. I, IV, III, II.

Figure out what is the longest, then try to figure out shortest, the rest most likely will not matter. The statute of limitations for the collection of a deficiency by the IRS is 10 years. There is no statute of limitations for fraud. The general statute of limitations under Section 6501 is 3 years. The statute of limitations for a substantial understatement of income greater than 25% is 6 years.

For purposes of tax deductibility what is the minimum deductible that a family can have on a high deductible health policy in the current year? $1,350 $2,700 $3,450 $6,850

HDHP for family is $2,700 for 2019. $1,350 is for a single person.

Your client is the sole shareholder of a closely-held corporation. In the current year, the IRS has deemed the operation to be a Personal Holding Company (PHC) because of involvement in a number of investments other than the stated business purpose. It has cited the business as having undistributed holding company income. What are the possible implications of this decision for your client?

If the business is deemed to be a PHC by the IRS, then a penalty tax of 20% can be imposed on the undistributed personal holding company income.

Trevor (age 66) and Susan (age 67 and blind) file a joint return for 2019. What is their standard deduction?

In 2019 the standard deduction for a married couple is $24,400. Since they are both 65 years of age or older they may also take an additional standard deduction of $1,300 each. Lastly, since Susan is blind, she may take an additional standard deduction of $1,300. $24,400 + ($1,300 × 3) = $28,300.

During the current tax year, Sam Malone had $10,000 of passive income from a publicly traded limited partnership. He also has a non-publicly traded limited partnership which generated a $10,000 passive loss. How much of the passive loss is deductible by Sam during the current tax year?

Income from a publicly traded limited partnership may not be offset by any other passive losses.

Tony Scarponi has come to you asking about the basis of property that his brother Calvin gave to him. The property had a market value of $75,000 and Calvin's adjusted basis in the property was $18,000 at the time of the gift. Calvin paid gift tax of $3,500 on the gift. Tony wants to know what his adjusted basis in the property is. Assume Calvin had utilized his annual gift tax exclusion for gifts previously given to Tony that year. What will you tell him? Tony's new basis is $18,000, the same as Calvin's basis was at the time the gift was made. Tony's new basis is the fair market value of the gift at the time of the gift. The adjusted basis for Tony is $20,660. The adjusted basis for Tony is $21,500.

Increase in Donee's Basis = (Appreciation of the Property/ Taxable Gift) × Gift Tax Paid FMV of Property at Date of Gift [($57,000 ÷ $75,000 = .76) × $3,500] + $18,000 = $20,660

Victor and Vivian have a very diverse family. Which of the following children would not be a qualifying child for the purpose of claiming the child tax credit in the current year? Vivian's granddaughter, who turned 4 in the current year and lives with Victor and Vivian for more than half of the year. Victor's brother, who turned 16 in the current year and lives with Victor and Vivian for more than half of the year. Victor and Vivian's daughter, who turned 17 in the current year and does not provide more than half of her support. Victor and Vivian's son, who was born on October 21 of the current year.

Individuals who reach the age of 17 during the tax year are not eligible to be qualifying children for the purpose of the child tax credit. All of the other children are eligible to be qualifying children. Remember the term "age 17 you get no credit"

Veronica has determined that she needs to make a 4th quarter federal estimated income tax payment. When is this payment due?

Jan 15th of next year.

Ginger, age 21 and a full-time student for a degree at State University, qualifies as a dependent on her parents' return. During the summer, she earned $5,500 from a part-time job. Her only other income consisted of $950 interest on a savings account. What is Ginger's taxable income for the current year? $0 $600 $1,050 $5,500

Just remember earned income + 350 or 1150, whichever one is higher. taxable income is 600,

Karen is single, blind, and 72 years old. What is her total standard deduction?

Karen gets the standard deduction for a single person of $12,200 + $1,650 for being blind + $1,650 for being 65 or older. $1,300 if she is MFJ, but since she is single its 1650

Alberto Sanchez purchased a piece of equipment last year for his computer business. Which of the following depreciation methods would provide Alberto with the least depreciation during the period in question? MACRS. ACRS. Units of production. Straight line.

Know that accelerated (MACRS) provides the most and straightline the least. Although available as a tax depreciation method, straight line will provide the least depreciation expense for a given period. Option "A" provides the most depreciation, as well as one which will yield the greatest expense in the early portion of the asset's life. Option "B" is incorrect because ACRS application was discontinued in 1987. Option "C" is incorrect because it is not applicable to the type of equipment in question.

Leona is 68 years old and single. What is the least amount of adjusted gross income that will require Leona to file a tax return?

Leona must file a tax return if her adjusted gross income is $13,850 or more for the current year ($12,200 basic standard deduction + $1,650 additional standard deduction for age).

Michelle's husband passed away in January this year. She does not remarry and still maintains a residence for herself and her son who is 10 years old. When she is filing her tax return for this year she may file as: Single Married filing jointly Married filing separately Qualifying widower I only IV only II and III only II, III, and IV only

MFJ and MFS. Qualifying widower is the for the 2 years following the year of death

Karen and Tom are married filing jointly taxpayers with 3 children. Their MAGI is $85,000. What is the maximum amount of the child tax credit that could be refundable to Karen and Tom?

Max refundable credit is $1400/child if no obligation due

Brenda purchased 50 shares of Walsh Co. stock three years ago for $1,000. Brenda recently gifted the stock to her brother, Brandon. On the date of the gift, the stock had a fair market value of $750. Six months after receiving the stock from Brenda, Brandon decides to sell the stock. Which of the following statements is correct? If Brandon sells the stock for $700, he will have a long-term capital loss. If Brandon sells the stock for $1,100, he will have a short-term capital gain. If Brandon sells the stock for $675, he will have a short-term capital loss. If Brandon sells the stock for $800, he will have a long-term capital gain.

Need to hold the stock 1 year or more after receiving gift to be considered long term capital loss or gain.

Kelly and Terry are separated and in the process of divorce so they are going to file their income tax return for last year separately. Kelly made a large number of charitable contributions from her own separate checking account at the end of last year so she wants to file using itemized deductions. What are Terry's options assuming Kelly files using itemized deductions? Terry may utilize the standard deduction or itemized deduction, whichever is less. Terry may utilize the standard deduction or itemized deduction, whichever is greater. Terry must utilize the standard deduction. Terry must utilize itemized deductions.

Note, they are married still so they are filing separately. In that case terry must use itemized deductions too.

Which is the best source for obtaining a plain language understanding about the current tax law? Commerce Clearing House Federal Tax Guide. Congressional Tax Committee Reports. Treasury Regulations. Tax Court Reports.

Option "A" is correct because Commerce Clearing House (CCH) provides plain language interpretation of tax law. Option "B" is incorrect as the Congressional Committee Reports (sometimes known as the Blue Book) provides congressional reasoning for enacting tax law. This language is often very technical and difficult to understand. Option "D" is incorrect because Tax Court Reports provide rulings of the U.S. Tax Court in the form of case law.

Nancy and Oliver had been married for 25 years when Oliver died suddenly in February of the current year. Although Nancy was deeply depressed about Oliver's death, she knew that Oliver would want her to move on with her life and she began dating again. It wasn't long before Nancy was swept off of her feet by Paul. After a romantic weekend in the Catskills, Paul and Nancy got married in November of the current year. What filing status will be used for Nancy and Oliver for the current year? Nancy and Oliver must both use the single filing status. Nancy will use the married filing jointly status, and Oliver will use the married filing separately status. Nancy and Oliver will both use the married filing jointly status. Nancy will use the surviving spouse filing status, and Oliver will use the married filing jointly status.

Option "A" is incorrect because Nancy is eligible to use the married filing jointly status with Paul. Option "C" is incorrect; Oliver cannot use the married filing jointly status because Nancy was married to someone else at the end of the year. Option "D" is incorrect because Nancy is not eligible to use the surviving spouse filing status. Therefore, Option "B" is the best choice.

Which of the following is not an exception to the passive activity rules for rental activities? A.If the average period of customer use is seven days or less, the activity could be considered an active trade or business. B.If the average period of customer use is 30 days or less but the taxpayer does not provide significant personal services in concert with the rental activity, the activity may be classified as an active trade or business. C.The activity will be considered an active trade or business if the rental of property is incidental to the non-rental activity of the taxpayer. D.A rental activity that the taxpayer customarily makes available during business hours for nonexclusive use by customers will be classified as the active conduct of a trade or business, provided the taxpayer materially participates.

Option "B" is correct because the taxpayer must provide significant personal services in concert with the rental activity and must materially participate in the activity in order to classify the activity as an active trade or business.

Kevin was ordered to pay his ex-wife Janet $12,500 per year for support for 10 years. Kevin simply decided to pay her $50,000 the first and second year and then $25,000 in the third year, and Janet agreed. What will you tell him that the implications of this might be?

P1 + P2 - 2P3 - $37,500 = Recapture, therefore $50,000 + $50,000 - 2($25,000) - $37,500 = $12,500 of alimony recapture.

Payton owns farm land in west Texas where he raises cattle. In March of this year Austin approaches Payton about renting 25% of Payton's land for purposes of growing wheat. Payton and Austin agree that Austin will only pay 3 months of rent at an amount of $8,000 per month if Austin will build a barn on the land, which is the equivalent to 6 months of rent. How much will Payton recognize as rental income this year?

Payton's rental income is the cash received of $24,000 ($8,000 × 3) plus the fair market value of any property received. Since they agreed that 6 months of rent would equal the fair market value of the barn, the additional value is $48,000 ($8,000 × 6).

With regard to Sections 1245 and 1250, Section 1231 will be applied only when: Any depreciable tangible personal property is sold at a profit. Any depreciable tangible personal property is sold at a profit above its adjusted (depreciated) basis. Any depreciable property is sold at a profit above its original cost. Any depreciable property subject to MACRS rules is sold at a profit.

Section 1231 gain is capital gain. Section 1231 gain occurs when the sale price exceeds the original purchase price.

On December 31 of last year, Uli purchased 100 shares of Runway, Inc. (a publicly held company) for $5,000. On March 1 of this year, Runway, Inc. declared that it was bankrupt, that it will wind up operations, and that all of its assets will be used to satisfy secured creditor claims so there will be no residual equity left for the stockholders. Which of the following statements describes the tax treatment of this transaction? Uli may deduct the $5,000 as an ordinary loss. Uli may deduct the $5,000 investment as a short-term capital loss. Uli may deduct the $5,000 investment as a long-term capital loss. No loss deduction is permitted.

Since the company became worthless during the year, a constructive sale of the stock occurs on December 31 of this year. Therefore, Uli has a short-term holding period because she is deemed to have held the stock for exactly one year (long-term holding period requires at least one year and one day). Therefore, Uli will be able to deduct the $5,000 investment as a short-term capital loss.

Which of the following is incorrect? All business deductions are classified as deductions FOR AGI. Some personal deductions are classified as deductions FROM AGI. Some business and some personal deductions are classified as deductions FOR AGI. Some business and some personal deductions are classified as deductions FROM AGI.

Some business and some personal deductions are classified as deductions FROM AGI. Deductions occur above the line (for) AGI and below the line (from) AGI. All business deductions are for AGI (above the line). All business expenses (taken by their owners, i.e. sole proprietor or partner) are taken above the line or FOR AGI. A "business deduction" is tied to the business or owners. These are reported on the sole proprietor's schedule C, or a partner's K-1 (which flows onto the Schedule E of Form 1040), for example. Business deductions are all above the line (FOR AGI). "Personal deductions" are not tied to a business. For example, mortgage interest is a personal deduction below the line (FROM AGI). An HSA contribution is a personal deduction above the line (FOR AGI). "Job-related employee expenses" used to be deductible as a miscellaneous itemized deductions subject to the 2% floor, a below the line deduction (FROM AGI). Those are no longer available for tax years 2018-2025.

Ursula's divorce from her husband Boris became final on December 30 of the current year. Ursula's children lived with her for the first four months of the current year, but moved in with their father after Ursula was declared legally blind. Ursula did not contribute anything to the cost of maintaining the household when the children were living with her husband. Ursula is 40 years old. What filing status can Ursula use during the current year and what is her standard deduction? Married Filing Jointly; $25,700. Head of Household; $20,000. Single; $13,850. Single; $12,200.

Status is determined by marital status on 12/31. She doesn't qualify as head of household since she didn't maintain the kids or monetarily support them for 6 months or more. She has more than the standard deduction of 12,200 because she is blind. So 13,850

Freda purchased a stereo system for her son Wes, age 16. The stereo was placed in Wes' room and is used exclusively by him. Freda also purchased a new sports car in her own name, that was used 90% of the time by Wes. Which of the cost of these items may be considered as support in determining whether Freda may claim Wes as a dependent? A.Both the stereo and the car qualify as support because of the use test. B.Neither the stereo nor the car qualify as support because the car is Freda's and the stereo is diminimus. C.The stereo does not qualify for support but the car does because he uses it 90% of the time. D.The stereo qualifies for support, but the car does not even though it is de minimus.

Stereo qualifies as support - The stereo system purchased and GIVEN to Wes qualifies as support. Because the car was not GIVEN to Wes (although he is allowed to use it) it will not be considered support. However, maintenance costs, such as gas and insurance that the taxpayer provides for his use of the car will qualify as support.

Greg just received his student loan statement that indicates that he has paid $3,000 of interest on his student loan during this tax year. How much of the interest may he deduct? None of the interest is deductible since it is consumer debt. $3,000 as an itemized deduction. $2,500 as an itemized deduction. $2,500 as an adjustment to income.

Student loan interest is an "above-the-line" deduction. The amount that can be taken is limited to $2,500 of interest paid.

Alisha Syrmos, a CFP® Professional and fee-only financial planner, has assisted Bob Martin, a self-employed physician in tax and investment planning during the year. Identify the schedule(s) on which Alisha's fee may be deductible by Bob on his federal income tax return. Schedule A - itemized deductions. Schedule C - profit or loss from business. Schedule D - capital gains and losses. I only. II only. I and II only. I, II and III.

Tax planning fees may no longer be deducted against a taxpayer's itemized deduction, Schedule A. However, because the taxpayer is self-employed, the portion of services related to the business and not personal may be taken as a deductible expense on the taxpayer's Schedule C.

Lucy and Lou are married and normally file a joint return. Under which of the following circumstances are they required to file a tax return? If Lucy is 64 and Lou is 66 and their gross income is $25,000. If Lucy and Lou are both 35 and have one dependent and their gross income is $23,000. If Lucy is 64 and Lou is 64, Lou is blind, and their gross income is $25,000. None of the above.

The MFJ standard deduction is $24,400 and the additional standard deduction for 65 and over is $1,300. In option "A", their total standard deduction is ($24,400 + $1,300) = $25,700. In option "B", their standard deduction is $24,000. In option "C", their standard deduction is $24,400. Lou may benefit from an additional $1,300 additional standard deduction for blindness upon filing. A return must be filed to claim the ASD for blindness. They don't get the additional deduction because they're not over 65 in option C

Edgar pays alimony under a divorce decree dated 6/1/17 to his former spouse, Frances, in the following amounts: $150,000 in year 1; $40,000 in year 2; and $20,000 in year 3. How much, if any, recaptured alimony must be added to Edgar's gross income in year 3?

The alimony recapture in year 3 can be calculated by using the formula: R3 = P1 + P2 - 2P3 - $37,500 R3 is the recapture in year 3. P1 is the payment in year 1, P2 is the payment in year 2, and P3 is the payment in year 3. The amount of alimony recapture in year 3 is $112,500 [$150,000 + $40,000 - (2 × $20,000) - $37,500].

Section 1245 recapture does not apply to business equipment held for 17 months or longer if: The property was destroyed by fire and the insurance recovery exceeds the property's adjusted basis. The property was sold for a gain but was depreciated using straight-line depreciation rather than MACRS. The property was acquired, depreciated, and exchanged for a less valuable asset where the buyer of the asset paid additional cash in the exchange. The property was abandoned as worthless.

The big theme to look out fort here is did you get more money than the property was worth? Is there any type of depreciation recapture? Option "A" is incorrect because if the insurance proceeds exceed the property's adjusted basis, the excess is considered a sale and any portion of gain attributable to depreciation will be subject to Section 1245 recapture. Option "B" is incorrect because Section 1245 recovery occurs any time a gain results from the reduction of basis due to depreciation. Option "C" is incorrect because Section 1245 applies to gain resulting from a reduced basis due to depreciation. Option "D" is correct. Property sold or abandoned below the basis adjusted by depreciation is not subject to Section 1245 recapture because either not all depreciation was taken or there was more likely a loss rather than a gain. For 1245 recapture to occur there must be a gain over the basis.

The carrybacks and carryforwards associated with the general business credit must be used in a specific order. Which of the following correctly describes that order?

The business credit carryforwards to the current year; the amount of the current year business credit; and the business credit carrybacks to the current year. correctly describes the sequence in which the carrybacks and carryforwards associated with the general business credit must be used.

Which of the following income(s) is/are NOT subject to Social Security tax? Rental real estate income. Small part-time repair shop income as a proprietor. Shareholder's share of S corporation's income in excess of salary. Income of an individual working as an independent contractor. I, II and III only. I and III only. II and IV only. II, III and IV only.

The correct answer is B. (Options "I" and "III"). Neither income from rental real estate nor S corporation distributions are subject to self-employment taxes. Option "I" - Income from rental real estate is not subject to self-employment taxes. Option "II" - This implies there is no employee status, and therefore, if services are being provided then the individual's income from those services will be subject to self-employment taxes. Option "III" - A shareholder's distributive share of S corporation profits is recognized as ordinary income and not subject to self-employment taxes. Option "IV" - Income from work as an independent contractor is subject to self-employment tax.

Which of the following imposed the first constitutional federal income tax? Revenue Act of 1861. 16th Amendment. Revenue Act of 1916. None of the above.

The correct answer is D. Answer "A" is incorrect because although the Revenue Act of 1861 did impose a federal income tax, it was later found to be unconstitutional because Congress did not have the power to levy an individual income tax at that time. Answer "B" is incorrect because the 16th Amendment gave Congress the power to impose an individual income tax, but did not itself impose that tax. Answer "C" is incorrect because the Revenue Act of 1916 raised the rates previously imposed under the Revenue Act of 1913. Therefore, answer "D" is correct because the Revenue Act of 1913 imposed the first constitutional income tax.

Which of the following statements regarding family limited partnership is not correct? The primary purpose of a FLP is to transfer assets to younger generations of a family using annual exclusion gifts and valuation discounts. Upon creation of a FLP, there are neither income nor gift tax consequences because the entity created is owned by the same person, or persons, who owned it before the transfer. Publicy traded securities make an ideal asset to transfer to a FLP. The use of a FLP can help protect family assets.

The creation of family limited partnerships and the use of discounts to transfer value at a lower gift tax cost has been regulary contested by the IRS. The risk of the IRS contesting any discounts for publicly traded securities is a significant risk associated with the FLP.

Bill and Renee are married and in community property but living apart and filing separate federal income tax returns. Each earned a salary of $25,000 and Renee received $5,000 in interest on money she inherited from her deceased mother after her marriage to Bill. Which of the following is correct? In some states, Bill's gross income is $55,000. In some states, Renee's gross income is $27,500. In all community property states, Bill's gross income is $25,000. In all community property states, Renee's gross income is $30,000.

The inherited property may be considered separate property, and therefore, in some community property states the income earned from it is separate. In others, it is community.

Under the terms of a divorce agreement dated 1/3/18, Larry is required to pay his wife Joyce $2,100 per month in alimony for a minimum period of 10 years and $300 per month in child support. For a twelve-month period, Larry can deduct from gross income (and Joyce must include in gross income): $0 $25,200 $3,600 $28,800

The key here is to know that "alimony" if it has the possibility of extending beyond death it may not be deductible. The $300 per month for child support is not deductible by Larry. Child support payments are not deductible to the payor nor includable to the payee. Larry's $300 per month in child support will remain part of his gross income. The $2,100 is not alimony since it could extend beyond her death as the required payment is for a minimum of 10 years.

Leon, age 32, is an active participant in his employer's defined benefit plan, but he would also like to make a deductible contribution to a traditional IRA this year. Leon is married, files a joint return with his wife, and has an AGI of $111,000 in the current year. What is the maximum deductible contribution that they each can make to a traditional IRA, assuming his wife is also an active participant?

The phase-out range for taxpayers who are active participants and use the married filing jointly filing status is $103,000 - $123,000 for 2019. Since Leon's AGI is within this range, he may not make a full $6,000 deductible contribution to a traditional IRA, but may make a reduced deductible contribution, as calculated by the following formula: Reduction = Contribution Limit × AGI-Lower Limit ÷ $20,000 Therefore, Leon's deductible contribution is reduced by $3,600 which is calculated as follows: [$6,000 × (111 - 103) / 20)]. Therefore, the maximum deductible contribution that Leon can make to a traditional IRA is (6,000 - 2,400) = $3,600.

Alice owns land "A" with an adjusted basis of $250,000, subject to a mortgage of $50,000. On July 1st, Alice exchanges land "A" and its mortgage for $300,000 in cash, a promissory note for $300,000, and property "B" that has a fair market value of $75,000 with Betty. What is the amount realized by Alice?

The realized amount not only includes the monies and fair market value of property "B" received (and any indebtedness the buyer has to the seller), but also any liabilities for the seller is relieved. In this case, the seller received $675,000 in cash, property, and notes (buyers indebtedness to the seller) as well as relief from $50,000 in mortgage. The total amount realized is $725,000.

Britney owned an office building in Los Angeles that she rented out to several production companies. The building was destroyed by a fire and was a complete loss. Britney received a settlement from her insurance company and would like to reinvest in a new property. Britney wants to make sure that she is eligible for nontaxable exchange treatment. Which of the following is not correct regarding the requirements for nontaxable exchange treatment on Britney's transaction? Because Britney rented out the building instead of using the property directly, the replacement property must meet the functional use test. Britney must invest the proceeds in a replacement property that has a similar use to the property that was destroyed in the fire. Britney must reinvest the insurance proceeds within two years from the end of the year in which she received the insurance proceeds. Since Britney received cash as a result of the involuntary conversion, nonrecognition treatment is not mandatory even if she meets all of the requirements.

The replacement property must meet the taxpayer use test, not the functional use test, since Britney did not use the property directly. The taxpayer use test requires replacement property to be used by the taxpayer in an activity which is treated the same for tax purposes in order to qualify for nontaxable exchange treatment. All of the other statements regarding the nontaxable exchange treatment of Britney's transaction are correct.

In year 1 Justin earns $700 from delivering papers for a newspaper company and he is treated as self-employed. In year 2 the newspaper company hires him as an employee and pays him $700 as W-2 income with no federal or state income tax withholding. Does Justin have to file a tax return in either year?

The rule is that a taxpayer must file if he has greater than or equal to $400 of net earnings from self-employment. If the taxpayer does not have self-employment income there is no requirements to filing unless your income exceeds the standard deduction and personal exemption ($0 for 2018 - 2025) for that year.

Which of the following is not a requirement that must be satisfied in order for a legally married taxpayer to use the head of household filing status? The taxpayer must file a separate tax return from the spouse. The taxpayer must furnish over one-half of the cost of maintaining the household. The spouse must not be a member of the household during the last six months of the tax year. The taxpayer must be legally separated from the spouse. II only. IV only. III and IV only. I, II and III only.

The taxpayer is not required to be legally separated from the spouse in order to qualify as an abandoned spouse and use the head of household filing status. All of the other options are requirements for qualifying as an abandoned spouse.

Walter is a cash basis taxpayer. Which of the following items must be included in his adjusted gross income calculation for the current year. Earnings from Series EE bonds. Business income that was earned on Dec. 15 of the current year. The client mailed a check on Dec. 29 of the current year. The check arrived in Daniel's mailbox on Jan. 2 of the following year. A business sale to a customer made on Oct. 15. Daniel extended the payment due date, and the client has yet to pay the bill. Original Issue Discount on the bonds for the current year.

They key here is that the income is recognized in the year in which it is received. Vs accrual basis which is when the transaction happens. B is incorrect because he did not have constructive receipt of the funds yet. Had he received it prior to year end he would have had to include it. Earnings on EE bonds can be delayed until redeemed or matured. Since he is a cash basis taxpayer, Walter does not have to include the business income until the year in which the check is received. The account receivable will not be included until paid. The original issue discount must be included in the current year's income regardless of receipt.

John owns a rental home in Arizona. He decided that he would like to acquire a rental home in Washington. Ted who lives in Washington has a rental home. For health purposes, Ted must relocate to Arizona. John and Ted decide to exchange properties under section 1031 of the code. The other facts pertaining to the exchange are: Ted's Basis = $100,000 John's Basis = $75,000 Ted and John exchange the two properties, but Ted has to give John an additional $25,000 in cash. The fair market value of Ted's property is $100,000, and the fair market value of John's property is $125,000. What is Ted's recognized gain or loss?

This is a boot question. Draw it out. John has FMV of 125K and a basis of 75k. Since he is trading down and received some cash and there was deferred gain, the deferred gain comes out so the $25K received is considered recognized gain. For ted the $25K he paid john gets added into his new basis. Loan assumptions are also added to the basis for the person that assumed the new loan in the 1031 exchange because using after tax dollars to pay.

Harry and Wilma are married and file a joint income tax return. On their return, they report $60,000 of adjusted gross income ($38,000 salary earned by Harry and $22,000 salary earned by Wilma). During the year, they paid the following amounts to care for their 4-year old son and 6-year old daughter while they worked: ABC Day Care Center = $3,000 Nanny who also cleans the house and does laundry = $2,000 Mrs. Smith (Harry's mother) = $1,500 Harry and Wilma may claim a credit for child and dependent care expenses of:

This is a question about Child Care Credit (CCC) not Child tax credit. The child care credit applies to child care expenses not to exceed $3,000 for one child and $6,000 for two or more children. Based on the AGI, the maximum allowable credit is 20% of the total care costs (to a $6,000 maximum.) $6,000 care cost for two children × 20% = $1,200. It is irrelevant that the nanny also cleans. The money paid to the grandmother is also included in the childcare costs.

Saul was divorced in 1996 and is now single, age 63. He has gross income of $50,000. His bona fide deductible expenses are as follows: Alimony = $8,000; Charitable contributions = $2,000; Contribution to an IRA = $2,000; Net expenses paid on rental property = $5,000; Interest and taxes on personal residence = $7,000; State income tax = $1,200. What is Saul's AGI?

This is an above the line deduction. Saul's AGI is calculated as follows: Gross income of $50,000 minus deductions for AGI of $15,000 (Alimony of $8,000, IRA of $2,000, and expenses on rental of $5,000) = $35,000. The others are deductions from AGI or below-the-line deductions.

Tab owns an apartment building and a DVD rental business. He participates for approximately 600 hours in the apartment building operations and approximately 1,000 hours in the DVD rental activity. Which of the following statements is correct? A.Both the apartment building and the DVD rental businesses are passive activities. B.Neither the apartment building nor the DVD rental business is a passive activity. C.The DVD rental business is a passive activity, but the apartment building is not. D.The apartment building is a passive activity, but the DVD rental business is not.

This is not necessarily about the hours he's worked it has more to do with the nature of the work. Rental real estate is by definition a passive activity, therefore, the apartment rental business is passive. The DVD rental business is not a passive activity in that DVD rentals are short-term. To be considered as passive activities, other rental activity of goods and equipment must be long-term. According to code, short-term is defined as less than seven days.

Isaac is a middle school teacher with gross income this year of $35,000. Based on the following, what is Isaac's adjusted gross income? $4,000 qualified education interest expense $2,000 alimony received under a pre-2018 agreement $1,000 contribution to a traditional IRA $30,000 $31,500 $32,000 $33,500

This one is tricky. Notice when they give you gross income of $35K it already includes the pre-2018 alimony income so you do not need to add it otherwise you'd double count the alimony income. Isaac actually made $33k as a teacher + 2k alimony. $35k-1k IRA contribution - maximum of $2.5k education interest expense

Dudley and Belle were divorced in 2008. Dudley's ex-spouse (Belle) has custody of their 10-year old daughter. During the current year, Dudley made alimony payments of $12,000 to contractors and maintenance workers for upkeep of Belle's house at Belle's direction. In addition, Dudley paid child support payments of $6,000 to Belle. Dudley's adjusted gross income before any deductions for the above-listed expenses was $75,000. What is the appropriate amount of the deduction on Dudley's federal income tax return this year for the above transactions?

This question doesn't care that the AGI is given. The nature of this question is focusing on what is considered deductible. Since this was alimony finalized prior to 12/31/18 it is considered deductible. The child support is not. $12K deduction above the line

Which of the following credits are fully refundable? The Earned Income credit. The American Opportunity credit. Lifetime Learning credit. Child Tax credit. Adoption credit.

This question is asking about fully refundable, not partially refundable. Only Earned Income Credit is fully refundable.

Which of the following is not a requirement of the individual real estate investor exception to the passive activity loss rules? The taxpayer must materially participate in the activity. The taxpayer must own at least 10% of the value of the real estate. The taxpayer must have an AGI of less than $150,000. The taxpayer must actively participate in the activity.

This question is asking what is not necessary to be present in order for someone to be considered an exception to passive activity loss rules. Perhaps look at what is necessary to convert it to active income. Passive activity loss rule prohibits someone from using passive losses to offset active income. If they are considered an exception, the income is then seen as active income and can now only offset active income. Being materially involved with earned or ordinary income-producing activities means the income is active income and may not be reduced by passive losses. Passive losses can be used only to offset passive income. The taxpayer is not required to materially participate in the activity, but the taxpayer must actively participate in the activity. Material participation requires substantial, continuous involvement in the operation of the activity. Active participation means that the taxpayer participates in making management decisions concerning the property, but is not substantially and continuously involved in the operation of the activity.

Which of the following is a tax credit that reduces the tax due on taxable income? Qualified dependent credit. Child tax credit. Earned income credit. Credit for estimated tax payments.

This question is primarily asking about credits/estimated tax payments that reduce the amount of tax you have to pay out of pocket. Even though credit for estimated tax payments is your money it still reduces the amount you have to pay out of pocket. The "Qualified dependent credit" is new under TCJA and applies to qualified dependents and/or qualifying children 17 and over. It is limited to $500. The "child tax credit" applies to qualifying children under age 17 and was expanded under TCJA to $2,000 per child, with the possibility of up to $1,400 per child being refundable. The "earned income credit" is a credit against the calculated tax, available to those with very low income, predominantly from earnings (wages) and it is a refundable credit. The CFP exam considers the prepayment of tax, through withholding and/or estimated tax payments, as credits as well since they also reduce the balance due.

The holding period of property acquired by gift may begin on: The date the property was acquired by the donor only. The date of gift only. Either the date the property was acquired by the donor or the date of the gift. Some other date.

This question is really asking about gains and losses of gifts. So it can be either date depending on if there is a gain or loss. A person receiving a gift has a holding period of the donor plus the donee if at disposition he uses the gain basis. However, the holding period for a gift utilizing the loss basis (where a double basis rule applies) starts the holding period at the date of the gift.

Marsha has the following income and losses for the current year: ($1,000) loss from a 30% interest in Laminate Partnership in which she does NOT materially participate. ($1,500) loss from a 2% limited partnership interest in Venture, a limited partnership. ($3,000) loss from a 12% interest in an S corporation in which she manages one of the departments. $40,000 salary as manager with an S corporation. $1,200 of dividend income from Higher Mutual Fund. Assuming Marsha has sufficient at risk basis in each of the entities, what is Marsha's adjusted gross income?

This question is testing your understanding of active and passive income and the ability to deduct them. Option "I" - A loss from a limited partnership in which there is no material participation is governed under the passive activity loss rules. Since there is no other passive activity income to offset the loss, the loss is not currently deductible. Option "II" - The same passive activity loss rules apply, and therefore, the loss is not currently deductible. Option "III" - Because she is a material participant in managing the S corporation, the losses are deductible. Option "IV" - Wages are always included in AGI. Option "V" - Dividend income unless excluded is included in AGI. $40,000 (wages) minus $3,000 (S corp loss) plus $1,200 (dividends) = $38,200.

Diane purchased a hotel on November 15, five and 1/4 years ago for $5,000,000. Determine the cost recovery deduction for one month.

This question tests your ability to remember non residential is depreciated over a 39 year period and then to prorate the depreciation. They give you extraneous factors to trip you up and make you think its accelerated depreciation or that quarter month convention is used. To depreciate real property, the mid-month convention is used. In addition, a hotel is not considered residential real property and is therefore depreciated using straight line depreciation over 39 years 1 ÷ 39 = .02564 $5,000,000 × 2.564% = $128,200 of annual depreciation expense $128,200 ÷ 12 = $10,683 for one month's depreciation in the current year

Billy, single (he divorced in 2010) and age 42, has the following items of income and expense for the current tax year. Wages: $60,000 Interest: $1,200 Inheritance: $50,000 Alimony paid: $10,000 Child support paid: $8,000 Federal taxes paid: $5,000 State taxes paid: $2,000 Medical expenses: $7,500 Tickets from his employer for one basketball game: $100 What is his taxable income? $39,000 $40,600 $49,000 $49,100

Wages $60,000 Interest $1,200 less Alimony <$10,000> AGI $51,200 Std Deduction $12,200 Taxable Income $39,000 alimony deductible because it was before a certain date

A minority non-employee shareholder in an S corporation: . Receives income when the corporation declares and pays a dividend. Votes for the Board of Directors at the annual shareholders' meeting. Receives a K-1 annually in order to prepare a personal income tax return. Reports on a personal income tax return a pro rata share of the corporate profit or loss.

all of the above are your rights

Sources of "substantial authority" available for tax research include: Internal Revenue Code. Congressional Committee Reports (Blue Book). Treasury Regulations. Private Letter Rulings. I and II only. I, II, and III only. I, II, III and IV. I, III and IV only.

all of them - Substantial authority is official words and rulings which can be relied on to support a tax opinion or position. All of these can be relied on by someone.

The Qualified Dependent Test includes which of the following tests: Gross income. Support. Member of household or family. Citizenship or residence. Joint return.

all of these are part of the qualified dependent test

Maria and Orlando are married taxpayers who file their income tax return jointly. They have asked you to explain to them how the current law will affect their standard deduction for 2019. You tell them: I.Their standard deduction is $24,400. II.Their deduction is 200% of a single tax filer. III.The maximum taxable income in the 22% bracket for MFJ filers will be twice the amount as for single filers.

all three

Eloise is an unmarried elderly woman who lives alone in a small apartment. Eloise is only able to provide 6% of her own support. The remainder of her support is provided by the following people: 10% of her support is provided by her oldest son Frank. 22% of her support is provided by her daughter Gertrude. 30% of her support is provided by her son Henry. 32% of her support is provided by her friend Irene. Which of these individuals is eligible to claim Eloise as a dependent? Irene can claim Eloise as a dependent because she provides more support than anyone else. Frank can claim Eloise as a dependent because he is the oldest son. Henry can claim Eloise as a dependent, but only if Gertrude signs an appropriate statement. None of these individuals may claim Eloise as a dependent.

any of the kids that provide over 10% of income can claim her. Option "A" is not correct; Irene may not claim Eloise as a dependent because she does not meet the relationship test as a qualifying relative. Option "B" is not correct; Frank has not provided more than 10% of Eloise's support, so he is not a qualifying person. Either Gertrude or Henry may claim Eloise as a dependent because they each provided more than 10% of Eloise's support and together they provided more than 50% of her support. In order for one of them to claim Eloise as a dependent, however, the other must sign a statement agreeing not to claim an exemption for Eloise for this year.

Edward told his nephew that if the nephew would care for Edward in his old age, the nephew could have all of Edward's securities when he died. At the time of the promise, the securities had a fair market value of $50,000. The nephew took good care of Edward, whose will left the securities to the nephew. The fair market value of the securities at the time of Edward's death was $80,000. Edward could have gone to a nursing home and obtained the same services as provided by the nephew for $40,000. The nephew's gross income from the above is: $0; this is an inheritance. $40,000; this is earned income at the fair market value. $50,000; this is earned income as of the time of the promise. $80,000; this is earned income equal to the date of death value.

even though it was passed to a family member, this isn't an inheritance its a performance for pay. Because the agreement was to compensate Edward for his services, even though the transfer occurred following death, it is not a gift or bequest. It is compensation for services performed. Compensation of property has a value equal to its fair market value on the date of transfer. The fact that Edward died and a step up in basis would ordinarily occur is immaterial.

If an individual who may otherwise qualify as a dependent does not spend funds that he or she has received (i.e., social security, wages), what is the IRS position regarding these unexpended amounts in terms of their application to the support test and their inclusion in being applied to the gross income test? Income received but not spent is applicable to the gross income test but not the support test. Income received but not spent is not applicable to the gross income test nor to the support test. Income received but not spent is applicable to the gross income test and to the support test. Income received but not spent is not applicable to the gross income test but is applicable to the support test.

income received is subject to gross income test, but not support test

Martha gives her niece a machine to use in her business with a fair market value of $4,200 and a basis of $4,400. What is the niece's basis for depreciation (cost recovery)?

its the lower of FMV or adjusted basis for depreciation

Ford's federal income tax return was due on April 15 of the current year, but Ford did not file his return or pay his taxes until June 30 of the current year. Ford's unpaid tax balance during this period was $400. What is the total penalty that will be imposed on Ford for his failure to file and failure to pay?

mostly need to know the maximum failure to file penalty is 25%. The failure to file penalty is 5% of the unpaid tax balance for each month or part thereof that the tax return is late (up to 25% of the unpaid tax balance). Therefore, Ford's failure to file penalty is $60 (3 months × $400 × 5%). However, if a tax return is filed more than 60 days late (as it is in Ford's case), the minimum failure to file penalty is the lower of $215 or 100% of the tax due. Therefore, Ford's failure to file penalty is actually $215. Ford is also subject to a failure to pay penalty of 0.5% per month or part thereof. Therefore, Ford's failure to pay penalty is $6 (3 months × $400 × 0.5%). Note that the failure to file penalty is reduced by the failure to pay penalty. Therefore, Ford's total penalty is $215 ($215 failure to file penalty - failure to pay= $209, plus $6 failure to pay penalty).

On February 12 of last year, Jason gifted stock in Retro Corp to his brother Aaron. Jason's basis in Retro's stock was $12,000 and it had a $9,000 fair market value on the date it was gifted. On August 31 of the following year, Aaron sold the Retro stock to Amy (an unrelated party) for $10,000. What is the tax treatment of these transactions to Aaron and/or Jason? Jason recognized a loss of $3,000 last year and Aaron recognized a gain of $1,000 in the following year. Neither Jason nor Aaron has a recognized gain or loss in either year. Aaron had a recognized gain of $1,000 in the following year. Jason had a recognized loss of $3,000 last year.

neither recognized any gains. Because of the double basis rule, Aaron's basis is $12,000 for gain and $9,000 for loss. So he has no gain or loss. Because Jason gifted the shares to a related party, he has no recognizable loss. Double basis simply refers to the two transactions, high and low. The donee uses the FMV of the date of gift ($9,000) as the 'loss basis,' and the donor's adjusted taxable basis ($12,000) as the 'gain basis.' When the shares are sold between the FMV (date of gift) $9,000, and the adjusted taxable basis $12,000, the donee uses that value ($10,000) as his adjusted taxable basis.

Refundable tax credits include the: Foreign tax credit. Tax credit for rehabilitation expenses. Disabled access credit. Earned income credit.

only earned income credit is refundable

Which of the following tests must be satisfied by a qualifying child? Relationship Test. Gross Income Test. Abode Test. Citizenship Test.

relationship test, abode test, citizenship test. Makes sense since your child can make money through youtube and make more than you and still be a qualifying child

For the purposes of Earned Income Credit, which loss/losses are disregarded? Net losses from estate and trusts. Net losses from non-business rents. Net capital losses Taxable interest on U.S. government issue securities.

the first three are just disregarded

Which of the following is a condition for receiving a dependent care credit? The taxpayer must provide over 1/2 cost of maintaining the household, which is also the principal residence of the child. The child must be a dependent. If married, both parents must work or go to school. All of the above.

this is about dependent care credit, not child/dependent tax credit. All of the above must be met.

Charlie's daughter Deborah is enrolled as a full-time student at Northwest University. Her enrollment began this past summer and she is in her freshman year of studies. Charlie is paying Deborah's tuition. What credits are available to help Charlie off-set the tuition expense? American Opportunity credit. Lifetime Learning credit. Education IRA credit. College Cost credit.

this is not a question about which to use, the question is focusing on which tax credits can he use. He should use american opportunity credit first as it is higher credit and primarily used for college. For grad school he may need to switch to lifetime learning credit.

How much of the self-employment tax can be deducted from gross income?

up to 50%

Can money paid for child support be structured in a divorce as to be deductible to the payor spouse?

yes if money is structured as part of alimony. If an agreement is reached between former spouses where the decreed amount of alimony is increased to include child support, then the additional alimony would be taxable to the recipient and deductible to the payor. The additional money cannot be based on any contingency such as with the child reaching the age of majority or death.