Income Tax 2020

Which of the following types of income is subject to the self-employment tax?

Income from a sole proprietor's law practice

Which of the following is true about the self-employed health insurance deduction?

Long-term care insurance is allowed as a deduction, subject to a dollar limitation.

During 2020, William purchases the following capital assets for use in his catering business: New passenger automobile (September 30) $65,400 Baking equipment (June 30) 19,620 Assume that William decides to use the election to expense on the baking equipment (and has adequate taxable income to cover the deduction) but not on the automobile (which has a 5-year recovery period), and he also uses the MACRS accelerated method to calculate depreciation but elects out of bonus depreciation. Assume he has adequate taxable income. Click here to access the depreciation table and click here to access the annual automobile depreciation limitations. Calculate William's maximum depreciation deduction for 2020, assuming he uses the automobile 100 percent in his business.

Not done 9460+ New passenger automobile (September 30) $65,400 65400 -18100 = 47300 47300 x 20% = 9460 Baking equipment (June 30) 19,620 19620 x 14.29% = 2803.698

Amy is a calendar year taxpayer reporting on the cash basis. Indicate which of the following income or expense items should not be included in her 2020 tax return.

She prepays half a year of interest in advance on her mortgage on the last day of 2020.

Which of the following itemized deductions may not be deducted in computing the individual alternative minimum tax?

State income taxes

Matthew purchases a new principal residence in the current year and pays points of $2,000 to obtain a mortgage loan. What is the proper tax treatment for the points paid?

The points are fully deductible in the current year.

An individual may claim both a credit and an exclusion from income in connection with the adoption of an eligible child, but may not claim both a credit and an exclusion for the same expense.

True

For purposes of the additional 0.9% Medicare tax on earned income, a single taxpayer having earned income of more than $200,000 is generally subject to the tax.

True

Generally, cash basis taxpayers must deduct payments of prepaid interest using the accrual method.

True

If a taxpayer receives an early distribution from an IRA due to disability, he or she will not be subject to a penalty.

True

In 2020, a taxpayer who is under 50 years of age and not an active participant in a retirement plan may contribute no more than $6,000 to a traditional IRA, subject to the earned income limitation.

True

Married taxpayers must generally file a joint tax return to claim the child and dependent care credit.

True

The child tax credit is not available for children ages 17 and older.

True

The cost of a chiropractor's services qualifies as a medical deduction.

True

The use of the earned income credit could result in a taxpayer receiving a refund even though he or she has not paid any income taxes.

True

(No COVID provisions) Fiduciary Investments paid its employee, Yolanda, wages of $139,000 in 2020. Calculate the FICA tax: If required, round your answers to two decimal places. Yolanda's wages: Social Security: Medicare: Paid by Fiduciary: Social Security: Medicare: Total FICA Tax:

Yolanda's wages: Social Security: 8537.4 (137700 x 6.2%) Medicare: 2015.5 (139000 x 1.45%) Paid by Fiduciary: Social Security: 8537.4 (137700 x 6.2%) Medicare: 2015.5 (139000 x 1.45%) Total FICA Tax: 21105.8( Add all of the above together) Note that for social security, 137700 is the maximum for 2020 and the given wage is 139000 which exceeds the maximum so use 137700.

(COVID provisions) Lamden Company paid its employee Trudy, wages of $61,500 in 2020. Of this amount, $2,400 was allocated to sick pay for two weeks due to Trudy's spouse contracting COVID and Trudy being quarantined. Trudy spent another 10 weeks at home caring for their children that were unable to attend school. Lamden allocated $10,000 in wages to family leave. Lamden allocated $6,000 of Trudy's wages to the employee retention credit (5 weeks). The allocation of health care costs is $200 per week. Compute Lamden's: Round your answers to two decimal places. a. Credit for sick pay b. Credit for family leave c. Employee retention credit

a. social security = 61500 x 0.062 = 3813 medicare = 61500 x 0.0145 = 891.75 a. Sick pay credit: Qualified wages + health care costs (# of weeks x weekly amount) + Medicare tax (wages x 1.45%). 2400 + b. Family leave credit: Qualified wages + health care costs (# of weeks) + Medicare tax (wages x 1.45%). c. Employee retention credit: 50% of the total of wages + health care cost (# of weeks x amount per week).

Mr. and Mrs. Vonce, both age 62, file a joint return for 2020. They provided all the support for their daughter who is 19 years old, legally blind, and who earns no income. Their son, age 21 and a full-time student at a university, had $4,300 of income and provided 70 percent of his own support during 2020. What is the other dependent credit Mr. and Mrs. Vonce may claim on their 2020 tax return? a. $500 b. $1,000 c. $0 d. $2,000 e. None of these choices are correct.

a. $500 The Vonce's son does not meet the support test.

Kele and Nova wish to form the Sioux Partnership. Kele contributes property with an adjusted basis of $70,000, a fair market value of $200,000 that is subject to an $80,000 liability in exchange for 40 percent of Sioux. Nova receives a 60 percent interest in Sioux in exchange for providing services worth $10,000 and $170,000 cash. a. What amount of gain or loss must Kele recognize as a result of transferring the property to the partnership? b. What is Kele's basis in the partnership interest immediately after the formation of the partnership including allocation of partnership liabilities? c. What is the partnership's basis in the property contributed by Kele? d. What is Nova's basis (after considering Kele's liability assumed by the partnership) in the partnership interest immediately after the formation of the partnership including allocation of partnership liabilities? e. How much income does Nova recognize on the exchange?

a. 0 b. 22000 80000x60%=48000 70000-48000=22000 c. 70000 d. 228000 170,000+10,000=180,000 80,000x60%=48,000 180,000+48,000=228,000 e. 10000

Teresa's manufacturing plant is destroyed by fire. The plant has an adjusted basis of $365,800, and Teresa receives insurance proceeds of $548,700 for the loss. Teresa reinvests $576,135 in a replacement plant within 2 years of receiving the insurance proceeds. If an amount is zero, enter "0". a. Calculate Teresa's recognized gain if she elects to utilize the involuntary conversion provision. b. Calculate Teresa's basis in the new plant.

a. 0 b. 393235 365800-548700+576135 = 393235

Jasper is single and a computer software consultant with a college degree. He feels that one of the reasons for his success is that he continually updates his knowledge by taking classes at the local college in various areas related to software design and information technology. This year he spent $2,000 on course tuition and fees. a. Assuming Jasper has AGI of $92,000, how much lifetime learning credit can Jasper claim on his tax return? b. If Jasper were married and supporting a wife who was not working, how much lifetime learning credit can Jasper claim? c. b. Assuming Jasper is single and has AGI of $45,000, how much lifetime learning credit can Jasper claim on his tax return?

a. 0 Jasper's income is too high to qualify for the lifetime learning credit. The ceiling for claiming any part of the credit for single taxpayers is $69,000. b. 400 If Jasper were married and supporting a nonworking wife, however, he would qualify for the full credit since the credit begins to phase-out for married taxpayers at $118,000. If he were married, his credit would be $400, or 20% of $2,000. c. 400 Jasper qualifies for the full credit of $400, or 20% of $2,000 as his income (as a single filer) is below the phase out range of $57,000 to $69,000.

For each of the following situations, indicate the amount of the penalty that could be imposed on the tax return preparer: a. A tax return preparer understates the taxpayer's tax liability with a frivolous position and does not disclose the position.The greater of or percent of the income derived by the tax preparer for an undisclosed unrealistic position. b. A tax return preparer fails to furnish his identifying number. c. A tax return preparer aids a taxpayer (an individual) in understating a tax liability. d. A tax return preparer endorses and cashes a client's tax refund check.

a. 1000;50 b. 50 c. 1000 d. 540

Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is finalized in 2020. They pay $7,000 in 2019 and $7,500 in 2020 for qualified adoption expenses. In 2020, Carl and Jenny have AGI of $150,000. a. What is the adoption credit Carl and Jenny can claim in 2020? b. How much credit could they claim if the adoption falls through and is never finalized? c. How much credit could they claim if their AGI was $219,520?

a. 14300 They may claim the maximum credit of $14,300 in 2020 since that is the year the foreign adoption was finalized and their qualified adoption expenses exceed the amount of the credit. b. 0 In the case of the adoption of a child who is not a U.S. citizen or resident of the United States, the credit for qualified adoption expenses is not available unless the adoption becomes final. c. 12512 7000 + 7500 = 14500. Use 14300 because it is the limit (219520 - 214520)/40000) = 1788 14300 - 1788 = 12512

Telly, age 38, has a $159,400 IRA with Blue Mutual Fund. He has read good things about the management of Green Mutual Fund, so he opens a Green Fund IRA. Telly asked for a distribution rollover and received his balance from the Blue Fund on May 1, 2020. Telly opted to have no withholding on the distribution. a. What amount will Telly receive from the Blue Fund IRA? b. What amount must Telly contribute to the Green Fund IRA to avoid having taxable income and penalties for early withdrawal? c. When is the last day Telly can roll over the amount received into the Green Fund IRA and avoid taxation in the current year, assuming no unusual circumstances? d. What amount would Telly receive if the distribution were from his employer's qualified retirement plan?

a. 159400 b. 159400 c. June 30, 2020 d. 127520 159400 x 80% = 127520

Sophie is a single taxpayer. For the first payroll period in July 2020, she is paid wages of $2,200 monthly. Sophie claims one allowance on her pre-2020 Form W-4. Click here to access the withholding tables. https://cxp-cdn.cengage.info/protected/prod/assets/2a/b/2abe533e-2c89-4d68-b1a7-1736412cd283.pdf?__gda__=st=1637951404~exp=1638556204~acl=%2fprotected%2fprod%2fassets%2f2a%2fb%2f2abe533e-2c89-4d68-b1a7-1736412cd283.pdf*~hmac=26f4f4f612af8a8dc953262e11f0227a1f812586bd87568feb00d06ccac94726 IRS Publication 15-T, Federal Income Tax Withholding Method Pay period 2020 Allowance Amount Weekly $ 83 Biweekly 165 Semimonthly 179 Monthly 358 Quarterly 1,075 Semiannually 2,150 Annually 4,300 a. Use the percentage method to calculate the amount of Sophie's withholding for a monthly pay period. Sophie's withholding: $fill in the blank b. Use the wage bracket method to determine the amount of Sophie's withholding for the same period.$fill in the blank c. Use the percentage method assuming Sophie completed a 2020 Form W-4 and checked only the single box in Step 1(c).$fill in the blank d. Use the wage bracket method using the same assumptions in part c of this question.

a. 166.54 1. 358(monthly) x 1(allowance) = 358 2. 2200-358=1842 3. In the linked "withholding tables" find the "2020 Percentage Method Tables for Manual Payroll Systems with Forms W-4 from 2019 and earlier." Carefully look through this table until you find the table for a monthly payroll and a single person. 4. Find the line for the "Adjusted Wage Amount" range matching what you calculated for Sophie in #2 above. 5. 1842-1140=702 702x12% = 84.24 Subtract the amount in the right column from Sophie's adjusted pay and multiply this net amount times the percentage is given. 6. 84.24+82.3 = 166.54 Add the amount from #5 plus the "tentative amount to withhold" to calculate the total amount to withhold. b. 169 In the linked "withholding tables" find the "2020 Wage Bracket Method Tables for Manual Payroll Systems with Forms W-4 from 2019 and earlier." Carefully look through this table until you find the table for a monthly payroll and a single person. Using Sophie's full amount of wages (not subtracting allowance) find the row her wage amount falls within and then scroll over to her number of allowances and you will have her withholding amount. c. and d. are the same as a. and b. but using "2020 or Later versions" of each table. c. 1. 358x1=358 2. 2200-358=1842 5. 1842-928=914 914x12%=109.68 6. 109.68+41.10=150.78 d. 123

Meredith has a 40 percent interest in the assets and income of the Gantt Partnership, and the basis in her partnership interest is $60,000 at the beginning of 2020. During 2020, the partnership's net loss is $45,000 and Meredith's share of the loss is $18,000. Also, Meredith receives a cash distribution from the partnership of $8,000 on June 30, 2020. a. Indicate the amount of income or loss from the partnership that should be reported by Meredith on her 2020 individual income tax return. b. Calculate Meredith's basis in her partnership interest at the end of 2020.

a. 18000 loss b. 34000 60000-18000=42000 42000-8000=34000

Calculate the total child and other dependent credit for the following taxpayers. a. Jeremy is a single (head of household) father with $80,100 of AGI and has a dependent 8-year-old son: b. Jerry and Ann have $100,000 of AGI, file jointly, and claim two dependent preschool children: c. James and Apple have AGI of $430,300, file jointly, and claim three dependent children (ages 7, 10, and 19):

a. 2000 The maximum child tax credit in 2020 is $2,000 per child b. 4000 2000 x 2(children) = 4000 c. 2950 430300 - 400000 = 30300 30300/1000 = 30.3 round up to 31 31x50=1550 4000(2 qualify dependent children) - 1550 = 2450

Allen (age 32) takes a distribution of $20,000 from his traditional IRA account which he plans to deposit into an IRA with a different bank. During the 60-day rollover period, he gambles and loses the entire IRA balance. What income and/or penalties must he show on his tax return related to the failed rollover? a. Income b. Penalty

a. 20000 b. 2000 20000x10%=2000

Janie graduates from high school in 2020 and enrolls in college in the fall. Her parents (who file a joint return) pay $10,475 for her tuition and fees. a. Assuming Janie's parents have AGI of $163,600, what is the American Opportunity tax credit they can claim for Janie? b. Assuming Janie's parents have AGI of $65,440, what is the American Opportunity tax credit they can claim for Janie?

a. 2050 180,000-163600 = 16400 / 20000(difference between 180000 and 160000) = 0.82 2500(limit) x 0.82 = 2050 b. 2500(limit in 2020)

K&T Company is a partnership with two equal partners, Kai and Taonga. The partnership has income for the year of $39,600 before guaranteed payments. Guaranteed payments of $23,760 are paid to Kai during the year. Calculate the amount of income that should be reported by Kai and Taonga from the partnership for the year. a. Kai should report income of: b. Taonga should report income of: $

a. 31680 23760+7920=31680 b. 7920 39600-23760=15840 15840/2=7920

Kana is a single wage earner with no dependents and taxable income of $168,700 in 2020. Her 2019 taxable income was $155,000 and tax liability was $31,375. Calculate Kana's 2020 income tax liability and the minimum required 2020 annual payment necessary to avoid any penalty. Round your answers to two decimal places. Click here to access the income tax rate schedules. https://cxp-cdn.cengage.info/protected/prod/assets/85/6/856fc4dd-2ed3-433c-9ffa-caa624b94f5d.pdf?__gda__=st=1638122267~exp=1638727067~acl=%2fprotected%2fprod%2fassets%2f85%2f6%2f856fc4dd-2ed3-433c-9ffa-caa624b94f5d.pdf*~hmac=4787970a3061699b28ca28adc7fa891ec4e8c9fa8a1d731a1263124c7279403b a. Kana's 2020 income tax liability: b. Kana's minimum required 2020 annual payment necessary to avoid any penalty:

a. 34999.5 168700-163300=5400 5400x32%=1728 1728+33271.5 = 34999.5 b. 31499.55 34999.5 x 90% = 31499.55

Steve Drake sells a rental house on January 1, 2020, and receives $90,000 cash and a note for $55,000 at 7 percent interest. The purchaser also assumes the mortgage on the property of $30,000. Steve's original cost for the house was $172,000 on January 1, 2012 and accumulated depreciation was $32,000 on the date of sale. He collects only the $90,000 down payment in the year of sale. a. If Steve elects to recognize the total gain on the property in the year of sale, calculate the taxable gain c. Assuming Steve collects $5,000 (not including interest) of the note principal in the year following the year of sale, calculate the amount of income recognized in that year under the installment sale method.

a. 35000 90000+55000+30000 = 175000 172000-32000 = 140000 175000-140000=35000 c. 1205 35000/145000=0.241 5000x0.241=1205

Linda underpaid her taxes for the current year by $18,400 due to negligence. a. Calculate Linda's accuracy-related penalty for negligence. b. Assume that the underpayment of taxes by Linda was determined to be fraudulent, and calculate the total amount of Linda's fraud penalty.

a. 3680 20%x18400=3680 b. 13800 75%x18400=13800

Compute the penalty described for the following taxpayers. If an amount is zero, enter "0". If required, round your answers to two decimal places. a. Wilson filed his individual tax return on the original due date, but failed to pay $1,710 in taxes that were due with the return. If Wilson pays the taxes exactly 5 months late, calculate the amount of his failure-to-pay penalty b. Joan filed her individual income tax return 5 months after it was due. She did not request an extension of time for filing. Along with her return, Joan remitted a check for $625, which was the balance of the taxes she owed with her return. Disregarding interest, calculate the total penalties that Joan will be required to pay, assuming the failure to file was not fraudulent. c. Jack filed his tax return 4 months and 25 days late and did not request an extension of time for filing. Jack's return indicated that he is to receive a $11,795 refund in taxes. Calculate the amount of Jack's penalty for failure to file his tax return on time, assuming the failure-to-file was not fraudulent.

a. 42.75 (0.005x1710)x5=42.75 b. 450.63 (0.005x625)x5=15.625 (0.05x625)x5=156.25 Minimum failure to file after 60 days = 435 435+15.625=450.625=450.63 c. 0

Calculate the following: Click here to access the various depreciation tables. If required, round your final answers to the nearest dollar. If your answer is zero, enter "0". a. The first year of depreciation on a residential rental building that cost $250,000 purchased June 2, 2020. b. The second year (2021) of depreciation on a computer that cost $5,000 purchased in May 2020, using the half-year convention and accelerated depreciation considering any bonus depreciation taken. c. The first year of depreciation on a computer costing $2,800 purchased in May 2020, using the half-year convention and straight-line depreciation with no bonus depreciation. d. The third year of depreciation on business furniture costing $10,000 purchased in March 2018, using the half-year convention and accelerated depreciation but no bonus depreciation.

a. 4925 250000x1.970%(june is 6 months into the year)= 4925 b. 0 c. 280 2800x10%=280 d. 1749 10000x17.49% = 1749

From the dropdown list, select the correct MACRS depreciation life for each asset listed. a. An automobile b. Business furniture c. A computer d. Residential real estate e. Commercial real estate f. Land

a. 5 years b. 7 years c. 5 years d. 27.5 years e. 39 years f. indefinite life

Calculate the amount of the child and dependent care credit allowed before any tax liability limitations or other credits for 2020 in each of the following cases, assuming the taxpayers had no income other than the stated amounts. a. William and Carla file a joint tax return. Carla earned $27,500 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl. b. Raymond and Michele file a joint tax return. Raymond earned $13,000 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13. c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $25,500 in wages during the year and paid $6,700 for the care of her children.

a. 608 250x9 = 2250(William attended law school full-time for 9 months) The tax for 27500 is 27% The credit will be based on the spouse with the lowest income so use 2250 2250 x 0.27 = 607.5 = 608 b. 1860 13000+9000 = 22000 The tax for 22000 is 31% 3000 is the limit for 1 children so 2 children is 6000 6000 x 0.31 = 1860 c. 1740 The tax for 25500 is 29% 3000 is the limit for 1 child so 2 children are 6000 6000 x 0.29 = 1740

Walter receives cash of $45,400 and land with a fair market value of $181,600 (adjusted basis of $108,960) in a current distribution. His basis in his partnership interest is $38,590 before the distribution. If an amount is zero, enter "0". a. What amount of gain must Walter recognize as a result of the current distribution? b. What is Walter's basis in the land received? c. What amount of gain must the partnership recognize as a result of the distribution? d. What is Walter's basis in his partnership interest immediately after the distribution?

a. 6810 45400-38590=6810 b. 0 c. 0 d. 0

Van makes an investment in a partnership in the current year. Van's capital contributions to the partnership consist of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse liability (seller financing) of $20,000. a. Calculate the amount that Van has at-risk in the partnership immediately after making the capital contributions/ b. If Van's share of the loss from the partnership is $100,000 in the current year, and assuming that Van has sufficient amounts of passive income, how much of the loss may he deduct in the current year? c. What may be done with any nondeductible loss in Part b? The remaining loss may be________for________

a. 80000 30000+7000=100000 100000-20000=80000 b. 80000 100000-20000=80000 c. carried forward; an indefinite period

For each of the following situations, select the nature of the penalty and calculate the amount that could be imposed. a. Larry is a tax protester and files his tax return in the name of "Mickey Mouse." b. Anne writes a check for $900 in payment of her taxes that she knows will not clear the bank due to insufficient funds in her account. c. Gerald understated his tax liability by $10,000. The total amount of tax that should have been shown on his return was $70,000.

a. Filling a frivolous tax return 5000 b. Bad check 25 c. Accuracy-related penalty, substantial understatement 10000x20%=2000

Mitchell, Max, and Romeo form a partnership to operate a grocery store. For each of the following contributions by the partners, indicate (1) the amount of income or gain recognized, if any, by the partner, and (2) the partner's basis in the partnership interest immediately after the contribution including the allocation of liabilities. a. Mitchell contributes property with a basis of $45,000 and subject to a $75,000 liability to the partnership for a one-third partnership interest worth $105,000. The partnership assumes the liability. Income or gain recognized: Mitchell's basis in the partnership interest: b. Max contributes property with a basis of $25,000 and a fair market value of $105,000 to the partnership for a one-third partnership interest. Income or gain recognized: Max's basis in the partnership interest after considering the liability assumed by the partnership in part (a): c. Romeo performs services valued at $105,000 for the partnership for a one-third interest in the partnership. Income or gain recognized: Romeo's basis in the partnership interest after considering the liability assumed by the partnership in part (a):

a. Income or gain recognized: 0 Mitchell's basis in the partnership interest: 5000 75000x(2/3)= 50000 50000-45000=5000 b. Income or gain recognized: 0 Max's basis in the partnership interest after considering the liability assumed by the partnership in part (a): 50000 75000-25000=50000 c. Income or gain recognized: 105000 Romeo's basis in the partnership interest after considering the liability assumed by the partnership in part (a): 130000 105000+25000=130000

Select either "True" or "False" for each of the following statements: a. A field audit by the IRS is an audit conducted at the IRS field office. b. A low Discriminant Function System score for a tax return increases the possibility that the return will be selected for audit. c. The IRS charges interest on underpayments of taxes, but never pays interest on amounts of overpayments of taxes. d. If a taxpayer fails to file a tax return on its due date, he or she may be subject to a failure-to-file penalty. e. The tax law includes a penalty for preparing a tax return in a negligent manner. f. If a taxpayer fails to file a tax return, the IRS may impose both the failure-to-file penalty and the fraud penalty.

a. false b. false c. false d. true e. true f. false

From the dropdown lists, select the date the statute of limitations will run out on each of the following 2020 individual tax returns: a. A fraudulent tax return that was filed April 15, 2021. b. A tax return that was filed May 19, 2021. c. A tax return that was filed February 12, 2021. d. A tax return that was filed March 1, 2021, and omitted $15,000 in income. The total gross income shown on the tax return was $50,000.

a. never b. May 19, 2024 c. April 15, 2024 d. April 15, 2027

Interest and Penalties, Statute of Limitations, Preparers, Proof, and Privilege, The Taxpayer Bill of Rights (LO 12.3, 12.4, 12.5, 12.6) Select either "True" or "False" for each of the following statements. a. The tax law includes a penalty for writing a "bad" check in payment of the taxpayer's tax liability. b. The statute of limitations for a tax return is normally 4 years. c. If a fraudulent tax return is filed, the IRS may assess a deficiency at any time in the future. d. Enrolled agents work for the IRS. e. A commercial tax preparer may represent tax clients in any proceeding with the IRS. f. The IRS is entitled to choose a place and time for an audit, without regard to the inconvenience to the taxpayer or the reasonableness of the request.

a. true b. false c. true d. false e. false f. false

Select either "Yes" or "No" to indicate whether the statement is one of the rules that all taxpayers must meet in order to claim the earned income credit (EIC). a. AGI may not be higher than set limits b. Foreign income exclusion not permitted c. Investment income cannot exceed $3,650 (2020 limit) d. Married filing separately not allowed e. Must have earned income f. Taxpayer, spouse and all qualifying children must have a SSN g. Only U.S. citizens can claim the credit h. Taxpayer must have at least one qualifying child

a. yes b. yes c. yes d. yes e. yes f. yes g. no h. no

Oscar and Mary have no dependents and file a joint income tax return for 2020. They have adjusted gross income (all wages) of $140,000 and itemized deductions of $30,000. What is the amount of taxable income that Oscar and Mary must report on their 2020 income tax return? a. $102,000 b. $110,000 c. $140,000 d. $93,600 e. $115,200

b. $110,000 ($140,000 − $30,000).

Partnership income is reported on: a. Form 1120S. b. Form 1040PTR. c. Form 1040X. d. Form 1065.

d

Partnerships: a. Are taxed in the same manner as individuals. b. File tax returns on Form 1041. c. File tax returns on Form 1120. d. Are not taxable entities.

d. Are not taxable entities.

For taxpayers who do not itemize deductions, the standard deduction amount is subtracted from the taxpayer's adjusted gross income.

true

Peter and Joan are married and Joan has self-employment income of $240,000. Peter is retired. How much additional 0.9% Medicare tax will Peter and Joan owe with their 2020 income tax return?

$0

Monica contributed $15,000 to a Roth IRA when she opened the account 10 years ago. The IRA has a current value of $37,500. She is 64 years old and takes a distribution of $25,000. How much of the distribution will be taxable to Monica?

$0 The taxpayer is 59.5 years of age or older.

On December 1, 2020, Carlos entered into a lease on a building for use in his business for $1,000 per month. Under the lease terms, Carlos pays 18 months' rent ($18,000) in advance on December 1. How much can Carlos deduct for rent in 2020?

$1,000 Because the rental period extends for more than 12 months, rent must be accounted for on the accrual basis.

Clark, a widower, maintains a household for himself and his two dependent preschool children. For the year ended December 31, 2020, Clark earned a salary of $32,000. He paid $3,600 to a housekeeper to care for his children in his home, and also paid $1,500 to a kiddie play camp for child care. He had no other income or expenses during 2020. Before considering any limitation due to tax liability, how much can Clark claim as a child and dependent care credit in 2020?

$1,326 26% × ($3,600 + $1,500)

Stan, a single taxpayer, has $1,700 of state income taxes withheld from his wages in the current year. In the current year, he also received a $320 refund on his prior year state income tax. Stan did not itemize last year but he intends to do so this year. Stan used the sales tax estimate tables and determined his sales tax deduction amount is $1,600. What amount should Stan deduct for state taxes?

$1,700 Taxpayers are eligible for the greater of their state income taxes paid or the state sales and use tax paid. Because a state income tax refund would be includable in gross income (not serve as a reduction of the current year state income tax deduction), Stan's state income tax deduction amount is $1,700 while his sales tax amount is $1,600. He may deduct the greater of the two. As an aside, because Stan did not itemize last year, his refund is not includable in income in the current year.

Over the years, Monica contributed $15,000 to a Roth IRA opened 10 years ago. The IRA has a current value of $37,500. She is 54 years old and takes a distribution of $25,000. How much of the distribution will be taxable to Monica?

$10,000 25000 - 15000 = 10000

Keith has a 2020 tax liability of $2,250 before taking into account his American Opportunity tax credit. He paid $2,600 in qualifying expenses, was a full-time student, was not claimed as a dependent on his parents' return, and his American Opportunity tax credit was not subject to phase-out. What is the amount of his American Opportunity tax credit allowed?

$2,150 100% × $2,000 + 25% × $600

For the 2020 tax year, Sally, who is single, reported the following items of income: Interest income $600 Wages $4,100 Earnings from self-employment $3,000 She maintains a household for herself and her 1-year-old son who qualifies as her dependent. What is the earned income credit available to her for 2020, using the tables?

$2,423 Table value for one qualifying child and earned income of $7,100.

In 2020, Alex has income from wages of $16,000, adjusted gross income of $18,000, and tax liability of $300 before the earned income credit. What is the amount of Alex's earned income credit for 2020, assuming he is single and his 5-year-old dependent son lives with him for the full year?

$3,584 AGI is below the $19,330 so AGI need not be used to determine EITC.

Nan's salary in 2020 is $40,000. Nan elects to defer 5% of her salary into her employer's 401(k) plan. Her employer provides a matching contribution on the first 4% contributed. What is the net impact on Nan's 2020 taxable income from these items?

$38,000 $40,000 wages less 401k contribution of $2,000 ($40,000 x 5 percent). The employee match of $1,600 ($40,000 x 4%) is excluded from Nan's 2020 income.

Bob and Carol file their tax returns using the married filing jointly status. Their AGI is $132,500. They have two children, ages 11 and 7. How much child tax credit can Bob and Carol claim for their two children?

$4,000 2000 x 2(children)

An office machine used by Josie in her accounting business was completely destroyed by fire. The adjusted basis of the machine was $47,200 (original basis of $70,800 less accumulated depreciation of $23,600). The machine was not insured. Calculate the amount and nature of Josie's gain or loss as a result of this casualty. (Assume this is the taxpayer's only casualty gain or loss.) Amount of gain or loss: $

$47200

Donald, a 40-year-old married taxpayer, has a salary of $55,000 and interest income of $6,000. He is an active participant in his employer's pension plan. What is the maximum amount Donald can contribute to a Roth IRA in 2020?

$6,000

Robert and Mary file a joint tax return for 2020 with adjusted gross income of $34,000. Robert and Mary earned income of $20,000 and $14,000, respectively, during 2020. In order for Mary to be gainfully employed, they pay the following child care expenses for their 4-year-old son, John: Union Day Care Center for John $1,700 Wilma (Robert's mother) for babysitting John $1,000 What is the amount of the child and dependent care credit they should report on their tax return for 2020 (assume no tax liability limitation)?

$675 25% × ($1,700 + $1,000) = $675

Phillip and Naydeen Rivers are married with two dependent children. The family has household income of $41,200 in 2020. They paid $11,000 for health care for the year through the health care exchange. A designated silver plan would have cost $9,800 and the poverty level for a family of 4 is $25,750. The applicable percentage is 4.59 percent. What is the Rivers' premium tax credit?

$7,909 $41,200 / $25,750 = 160% of Federal poverty level making the applicable percentage 4.59%. $41,200 × 4.59% = $1,891.$9,800 − $1,891 = $7,909

Serena and Venus are sisters. Venus sold stock to Serena for $5,000, its fair market value. The stock cost Venus $10,000 five years ago. Also, Venus sold Carol (an unrelated party) stock for $2,000 that cost $10,000 three years ago. What is Venus' recognized loss before the $3,000 capital loss limitation?

$8,000 $2,000 − $10,000. The related party loss between Venus and Serena is disallowed.

During the current year, Mary paid the following expenses: Prescription drugs $490 Aspirin and over the counter cold capsules $130 Hospital and doctors $700 Life insurance $260 What is the total amount of medical expenses (before considering the limitation based on adjusted gross income) that would enter into the calculation of itemized deductions on Mary's current year income tax return?

1190 $490 + $700

During the current year, George, a salaried taxpayer, paid the following taxes which were not incurred in connection with a trade or business: Federal income tax (withheld by employer) $1,500 State income tax (withheld by employer) $1,100 FICA tax (withheld by employer) $700 Real property taxes $300 Federal auto gasoline taxes $200 Federal excise tax on telephone bills $50 What amount can George claim for the current year as an itemized deduction for the taxes paid, assuming he deducts state and local income taxes?

1400 1100+300

In 2020, Jeff spends $6,000 on solar panels to heat water for his main home.

1560 Math: 6000 x 0.26(26%) = 1560

George and Amal file a joint return in 2020 and have AGI of $38,200. They each make a $1,600 contribution to their respective IRAs. Assuming that they are not eligible for any other credits, what is the amount of their Saver's Credit?

1600 Math: 1600 x 2(George and Amal) = 3200 3200 x 0.5 = 1600

What is the maximum investment income a taxpayer is allowed to have and still be allowed to claim the earned income credit?

3650

What is the maximum investment income a taxpayer is allowed to have and still be allowed to claim the earned income credit? Why is there an investment income limit in the tax law regarding the credit?

3650 The earned income credit is meant to assist low-income level taxpayers who work.

Louise owns 45 percent of a partnership, and her brother owns the remaining 55 percent interest. During the current tax year, Louise sold a building to the partnership for $160,000 to be used for the partnership's office. She had held the building for 3 years, and it had an adjusted basis of $120,000 at the time of the sale. What is the amount and nature of Louise's gain on this transaction?

40000 Ordinary Income 160000-120000=40000

Roberto, age 50, has AGI of $110,000 for 2020. He has medical expenses of $13,200. How much of the medical expenses can Roberto deduct on his Schedule A for 2020?

4950 $4,950. $13,200 - (7.5% × $110,000)

Tom, age 13, is claimed as a dependent by his parents whose tax rate is 35%. Tom has unearned income of $3,400 and $300 of income from mowing lawns in the neighborhood. If the rate on Tom's portion of income is 10%, what is Tom's 2020 income tax liability?

560 Net unearned income is $1,200 ($3,400 - $1,100 standard deduction and $1,100 statutory amount). $1,200 x 35% = $420. Tom's portion of income that is taxable taxable at Tom's rate $1,400 ($3,700 - $1,100 - $1,200) x 10% = $140$420 + $140 = $560.

Susan and Stan Collins live in Iowa, are married and have two children ages 6 and 10. In 2020, Susan's income is $43,120 and Stan's is $12,000 and both are self-employed. They also have $500 in interest income from tax exempt bonds. The Collins enrolled in health insurance for all of 2020 through their state exchange but did not elect to have the credit paid in advance. The 2020 Form 1095-A that the Collins received from the exchange lists the following information: Annual premiums $9,800 Annual premium for the designated silver plan in the state $10,800 Federal Poverty Line for a family of four $25,750 Click here to access the 2020 Applicable Figure Table. Compute the Collins' premium tax credit for 2020.

6868 43120 + 12000 + 500 = 55620 family of 4 = 25750 55620/25750 = 2.16 2.16 = 0.0707 55620 x 0.0707 = 3939.697 10800(Annual premium for the designated silver plan in the state) - 3932 = 6868

Jim has foreign income. He earns $26,000 from Country A which taxes the income at a 20 percent rate. He also has income from Country B of $18,000. Country B taxes the $18,000 at a 10 percent rate. His US taxable income is $90,000, which includes the foreign income. His US income tax on all sources of income before credits is $19,000. What is his foreign tax credit?

7,000 $7,000 calculated as the lesser of ($26,000 × 20%) + ($18,000 × 10%) = $7,000 or ($26,000 + $18,000) / $90,000 × $19,000 = $9,289

On February 2, 2020, Alexandra purchases a personal computer. The computer cost $4,200. Alexandra uses the computer 85 percent of the time in her accounting business, and the remaining 15 percent of the time for various personal uses. Calculate Alexandra's maximum depreciation deduction for 2020 for the computer, assuming half-year convention and she does not make the election to expense or take bonus depreciation. Click here to access the depreciation table. If required, round your answer to nearest dollar.

714 4200x20%=840 840x85%=714 5 years half year convention: Year 1 = 20% Year 2 = 32% Year 3 = 19.20% Year 4 = 11.52% Year 5 = 11.52% Year 6 = 5.76% the remaining half year

Van makes an investment in an LLC in the current year. Van's capital contributions to the LLC consist of $30,000 cash and a building with an adjusted basis of $70,000, subject to a nonrecourse liability (seller financing) of $20,000. Calculate the amount that Van has at-risk in the LLC immediately after making the capital contributions.

80000 70000+30000=100000 100000-20000=80000

Which of the following items may be subject to the self-employment tax?

A partner's distributive share of partnership income

A parent may elect to include a child's income in the parent's return if: a. No estimated tax has been paid in the name of the child and the child is not subject to backup withholding. b. The child's gross income is more than $1,100 and less than $11,000. c. The child's income is only from interest and dividend distributions. d. All of these must be met for a parent to elect to include a child's income in the parent's return.

All of these must be met for a parent to elect to include a child's income in the parent's return.

The child and dependent care provisions:

Are available for the care of spouses incapable of self-care.

Self-employment taxes: a. Are not affected by wages the taxpayer earns as an employee. b. Are calculated based on unearned income such as interest and dividends as well as net earnings from self-employment. c. Consist of Medicare tax and Social Security tax. d. Apply to taxpayers with less than $400 in self-employment earnings.

Consist of Medicare tax and Social Security tax.

The 0.9 percent Medicare tax applies to:

Earned income

Taxpayers are required to wait until they file their tax return to receive the premium tax credit.

False

For 2020, the maximum base amount for computing the Medicare portion of the self-employment tax is $250,000.

False All self-employment income is subject to the Medicare portion of the self-employment tax. There is no maximum base amount when calculating the Medicare portion of the tax.

To be eligible for the earned income credit, a taxpayer must have a "qualifying child."

False As long as adjusted gross income (AGI) is below a certain level and the taxpayer is over 25 and under 65 years old and not claimed as a dependent on another return, a taxpayer may be eligible for the earned income credit even if the taxpayer does not have a qualifying child.

Dr. Wheeler donates her time and services to Doctors with No Limits, a qualified charity. Dr. Wheeler can take a tax deduction for the $3,400 market value of her time donated.

False Donations of time and services are not deductible.

In determining an employee's FICA tax to be withheld, the maximum amount of wages subject to FICA must be reduced by the taxpayer's self-employment earnings.

False If an individual has self-employment income, then his maximum base amount subject to self-employment taxes is reduced by any wages which are subject to FICA taxes.

In 2020, all taxpayers may make a deductible or nondeductible contribution to an IRA.

False In 2020, deductible IRA contributions may be limited, depending on whether a taxpayer is an active participant in another qualified retirement plan and the taxpayer's adjusted gross income. Deductible and nondeductible IRA contributions may be limited by the taxpayer's earned income.

"Annualizing" is a method by which the taxpayer can usually decrease the amount of tax he or she pays.

False In order to calculate the tax for a short period, a taxpayer must annualize his or her income from the short period.

In 2020, medical expenses must exceed 10 percent of a taxpayer's AGI to be deductible as an itemized deduction.

False Medical expenses can be deducted to the extent that they exceed 7.5 percent of the taxpayer's AGI in 2020.

Salary earned by minors may be included on the parents' tax return.

False Only unearned income of minors may be included on the parents' tax return.

Amounts paid to a relative generally do not qualify as child care expenses for purposes of the child and dependent care credit.

False Payments to relatives are eligible for the child and dependent care credit, unless the payments are to a dependent of the taxpayer or to the taxpayer's child who is under the age of 19 at the end of the tax year.

Perry Mayson, a single taxpayer, graduated law school last year with quite a bit of qualified student loan debt and ends up paying $4,300 in interest on the loan in the current tax year. Fortunately, Perry is well compensated and earns adjusted gross income of $90,000 during the current year. Perry may deduct his student loan interest in the current year.

False Perry's income of $90,000 exceeds the maximum threshold ($85,000 for single taxpayers) for deduction of student loan interest.

Premiums paid for life insurance policies are deductible as medical expenses.

False Premiums paid for life insurance policies are not deductible.

Recognition of sales of property at a gain may be disallowed under the related party rules of the Internal Revenue Code.

False Sales of property at a loss may be disallowed under the related party rules.

Taxpayers are permitted an itemized deduction for the lesser of state income taxes paid or state sales taxes paid.

False Taxpayers are permitted to deduct the greater of state income paid or sales taxes paid.

A taxpayer with earned income of $50,000 is not eligible to claim the credit for child and dependent care expenses.

False Taxpayers at all levels of income are eligible to claim a credit of at least 20 percent of qualified expenses for child and dependent care expenses.

The foreign tax credit applies only to foreign corporations.

False The foreign tax credit applies to US taxpayers who earned income from a foreign country and who were subject to income taxes in that foreign country.

In 2020, the unearned income of a 16-year-old child is taxed at trust and estate rates.

False The use of trust and estate rates for the unearned income of a minor was repealed in 2020 (and for 2018 and 2019).