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In 2018, Amanda and Jaxon Stuart have a daughter who is 1 year old. What is their earned income credit in the following alternative scenarios if they file jointly? Use Exhibit 8-10. a. Their AGI is $18,200, consisting of $6,600 of capital gains and $11,600 of wages.

$0 earned income credit. Based on §32(i), taxpayers with investment income in excess of $3,500 are not eligible for the earned income credit. Because capital gains are considered as investment income for this purpose, the Stuarts are not eligible for the credit.

Trey has two dependents, his daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. What amount of child credit will Trey be able to claim for his daughters under each of the following alternative situations? Use Exhibit 8-8. a. His AGI is $107,900.

$2,500. Because Trey's AGI is less than the phase-out threshold ($400,000) for a joint return, Trey has a $2,000 child tax credit for his qualifying child age 14 (under 17) at year end and a $500 child tax credit for his qualifying dependent (not under 17 at year end).

b. Their AGI is $18,200, consisting of $11,600 of lottery winnings (unearned income) and $6,600 of wages.

$6,600 of wages * 34% (MFJ, MARRIED) = 2244 no phase out needed

Sumner sold equipment that it uses in its business for $30,700. Sumner bought the equipment a few years ago for $79,650 and has claimed $39,825 of depreciation expense. Assuming that this is Sumner's only disposition during the year, what is the amount and character of Sumner's gain or loss?

$79,650- 39,825 =39825 30700 -39825 = 9125 1231 loss There is no depreciation recapture when a §1231 asset is sold at a loss.

c. Rafael received $28,250 cash, a parcel of land worth $69,500, and marketable securities of $18,200. Rafael also paid a commission of $9,650 on the transaction.

(1) Cash received $ 28,250 (2) Land received 69,500 (3) Marketable securities received 18,200 (4) Commission paid (9,650) Amount realized $ 106,300

Morgan's Water World (MWW), an LLC, opened several years ago. MWW has reported the following net §1231 gains and losses since it began business. Net §1231 gains shown are before the lookback rule. Year 1 $(11,000) Year 2 5,000 Year 3 (21,000) Year 4 (4,000) Year 5 17,000 Year 6 (43,000) Year 7(current year) 113,000 What amount, if any, of the year 7 $113,000 net §1231 gain is treated as ordinary income?

(11,000) 5,000 (21,000) (4,000) 17,000 (43,000) = (57,000) 113,000 in year 7, 57,000 is ordinary 56,000 is 1231 long term

Year 1 $(75,000) Year 2 20,000 Year 3 0 Year 4 0 Year 5 14,000 Year 6 0 Year 7 (current year) 55,000 b. Assume that the $55,000 net §1231 gain occurs in year 6 instead of year 7. What amount of the gain would be treated as ordinary income in year 6?

-75,000 +20,000 +14,000 =-41,000 year 7 = 41,000 is ordinary 14,000 is 1231 long term capital dont worry about 5 years since it is now in year 6

Year 1 $(75,000) Year 2 20,000 Year 3 0 Year 4 0 Year 5 14,000 Year 6 0 Year 7 (current year) 55,000 a. What amount, if any, of the year 7 (current year) $55,000 net §1231 gain is treated as ordinary income?

-75,000 +20,000 +14,000 =-41,000 year 7 = 55,000 75,000 isnt offset in 5 years so it stops being carried forward. all 55,00 is 1231 long term capital gain

c. Zach is 29 years old and his AGI is $18,200.

0 chart tells us no credit when agi above 15,270

Standard deduction for dependent on another tax return

1050 or earned income + 350

b. Carson is 23 years old at year-end. He is a full-time student and earned $14,675 from his summer internship and part-time job. He also received $7,500 of qualified dividend income.

14675 earned +7500 unearned =22175 income - 12000 standard deduction =10175 taxable income 7500 unearned 2675 earned (10175 - 7500) 7500 -2100 =5400 7500 -1050 =6450 5400 - 2600=2800 * 15% = 420 1050 * 0% = 0 420 unearned 2675 earned * .10 = 268 earned = 688

b. Assuming Bourne's nonrecaptured net §1231 losses from years 1-5 were $219,000, what amount of Bourne's net §1231 gain for year 6, if any, is treated as ordinary income? Bourne Guitars, a corporation, reported a $207,000 net §1231 gain for year 6.

207,000 are ordinary 12,000 are 1231 long term

c. Their AGI is $27,400, consisting of $21,600 of wages and $5,800 of lottery winnings (unearned income).

21600 is reduced to maximum of 10180 10180 * 34% = 3461 Phase out: 27400 - 24350 = 3050 * 15.98% = 487 3461 - 487 = 2974

In year 0, Longworth Partnership purchased a machine for $44,500 to use in its business. In year 3, Longworth sold the machine for $38,400. Between the date of the purchase and the date of the sale, Longworth depreciated the machine by $31,100. a. What is the amount and character of the gain (loss) Longworth will recognize on the sale?

44500 initial basis -31100 depreciation 13400 adjusted basis 38400 cash received -13400 adjusted basis =25000 ordinary gain

b. What is the amount and character of the gain (loss) Longworth will recognize on the sale if the sale proceeds are increased to $68,000?

44500 initial basis -31100 depreciation 13400 adjusted basis 68,000 cash received -13400 adjusted basis =54600 gain ordinary to extent of depreciation so 31,100 ordinary gain 23500 1231 long term gain

b. She received $5,100 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 16 years old at year-end.

5100 - 2100 (kiddie freebie) = 3000 5100 - 1050 (deduction) = 4050 3000 taxed at estate rate 1050 taxed regularly (4050-3000) ESTATE:(3000-2550)*24% + 255 = 363 REGULAR: 1050 * 10% = 105 363+105 = 468

d. She received $5,100 of qualified dividend income. This is her only source of income. She is 16 years old at year-end.

5100 -2100 (kiddie =3000 5100 -1050 =4050 3000 taxed as estates and trusts 1050 taxed as regular dividends (4050 - 3000) *Net Capital Gains and Qualified Dividends chart 2600 * 0% + 400 * 15% = 60 1050 * 0 = 0

Franco converted a building from personal to business use in May 2016 when the fair market value was $57,500. He purchased the building in July 2013 for $92,000. On December 15 of this year, Franco sells the building for $46,000. On the date of sale, the accumulated depreciation on the building was $5,815. What is Franco's recognized gain or loss on the sale?

57500 initial basis -5815 depreciation =51685 adjusted basis 46000 cash received -51685 adjusted basis =5685 loss

d. Their AGI is $27,400, consisting of $5,800 of wages and $21,600 of lottery winnings (unearned income). (Round your intermediate calculations to the nearest whole dollar amount.)

5800 * 34% = 1972 phase out: 27400 - 24350 = 3050 * 15.98% = 487 1972-487 = 1485

In 2018, Zach is single with no dependents. He is not claimed as a dependent on another's return. All of his income is from salary and he does not have any for AGI deductions. a. Zach is 29 years old and his AGI is $5,800.

5800 * 7.65% = 444

Kimberly sold equipment that she uses in her business for $50,000. Kimberly bought the equipment two years ago for $60,000 and has claimed $30,000 of depreciation expense. What is the amount and character of Kimberly's gain or loss?

60,000 initial basis -30,000 depreciation =30,000 adjusted basis 50,000 cash received -30,000 adjusted basis = 20,000 ordinary gain (less than depreciation used)

Bourne Guitars, a corporation, reported a $207,000 net §1231 gain for year 6. a. Assuming Bourne reported $61,750 of nonrecaptured net §1231 losses during years 1-5, what amount of Bourne's net §1231 gain for year 6, if any, is treated as ordinary income?

61,750 are ordinary gain 145,250 1231 long term gain

Lassen Corporation sold a machine to a machine dealer for $36,000. Lassen bought the machine for $73,750 and has claimed $30,250 of depreciation expense on the machine.

73750 -30250 =43500 36000 -43500 =7500 loss

b. Zach is 29 years old and his AGI is $9,850.

9850 is reduced to 6780 6780 * .0765 - 519 Phase out: 9850 - 8490 = 1360 * .0765= 104 519-104=415

Rafael sold an asset to Jamal. What is Rafael's amount realized on the sale in each of the following alternative scenarios? a. Rafael received $114,000 cash and a vehicle worth $13,200. Rafael also pays $7,450 in selling expenses.

Cash received $ 114,000 (2) Vehicle received 13,200 (3) Selling expenses (7,450) 119,750

Common Examples: -401(k) used by for-profit companies -403(b) used by nonprofit organizations, including educational institutions

Defined Contribution Plans

b. Rafael received $88,500 cash and was relieved of a $47,750 mortgage on the asset he sold to Jamal. Rafael also paid a commission of $6,400 on the transaction.

Description Amount Explanation (1) Cash received $ 88,500 (2) Relief of debt 47,750 (3) Commission paid (6,400) Amount realized $ 129,850

Which of the following describes a defined contribution plan?

Employers and employees generally may contribute to the plan.

Which of the following is used in the calculation of the amount realized?

Fair market value of other property received.

For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not allowed to deduct charitable contributions.

False

The American opportunity credit is available only for those students who are in their first or second year of postsecondary education.

False The AOC is available for the first four years of postsecondary education.

Qualified distributions from traditional IRAs are nontaxable while qualified distributions from Roth IRAs are fully taxable as ordinary income.

False ira distributions are taxed as ordinary income roth distributions arent taxed

The amount realized is the sale proceeds less the adjusted basis.

False Amount Realized - Adjusted Basis = Realized Gain (Loss) Amount Realized = Cash received + FMV of other property received + Buyer's assumption of liabilities - Seller's expenses Adjusted Basis = Initial Basis* - depreciation allowed

Qualified retirement plans include defined benefit plans but not defined contribution plans.

False includes DBP and DCP

a. Carson is 17 years old at year-end and earned $14,675 from his summer job and part-time job after school. This was his only source of income.

Gross income/AGI 14,675 - standard decution (12,000) = 2675 *10% =268

d. Julie paid $2,260 to the day care center and her AGI is $14,000 (all salary).

Least of Dependent care expenditures, Limit of 3000 (6000 for 2), and Julie's earned income. times child care percent in table 2260*35%=791

b. Julie paid $5,650 to the day care center and her AGI is $50,000 (all salary).

Least of Dependent care expenditures, Limit of 3000 (6000 for 2), and Julie's earned income. times child care percent in table 3000*20%=600

c. Julie paid $4,650 to the day care center and her AGI is $25,000 (all salary).

Least of Dependent care expenditures, Limit of 3000 (6000 for 2), and Julie's earned income. times child care percent in table 3000*30%=900

a. Julie paid $2,260 to the day care center and her AGI is $50,000 (all salary).

Least of Dependent care expenditures, Limit of 3000 (6000 for 2), and Julie's earned income. times child care percent in table 2,260*20%=452

e. Julie paid $4,650 to the day care center and her AGI is $14,000 ($2,260 salary and $11,740 unearned income).

Least of Dependent care expenditures, Limit of 3000 (6000 for 2), and Julie's earned income. times child care percent in table 2260*35% = 791

Employee contributions limited to $18,500 if not 50 years old by year-end $24,500 if at least 50 years old by year-end

Sum of the employer + employee contributions to a DCP account is limited to the lesser of: $55,000 ($61,000 if at least 50 years old at end of year), or 100% of the employee's compensation

e. Their AGI is $11,600, consisting of $11,600 of lottery winnings (unearned income).

They are not eligible for the earned income credit because they have no earned income.

c. His AGI is $429,200, and his daughters are ages 10 and 12.

Trey has a $2,000 child tax credit for each of his qualifying children ages 10 and 12 (under 17) at year end ($4,000 total). (1) $429,200 AGI − $400,000 MFJ threshold = $29,200. (2) $29,200 excess AGI divided by 1,000 = 30 [note: round up from [29.2] (3) 30 × $50 = $1,500. This is the amount of the phase-out. (4) $4,000 allowable credit minus $1,500 = $2,500

Trey has two dependents, his daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. What amount of child credit will Trey be able to claim for his daughters under each of the following alternative situations? Use Exhibit 8-8. b. His AGI is $426,400.

Trey has a $2,000 child tax credit for his qualifying child age 14 (under 17) at year end and a $500 child tax credit for his qualifying dependent (not under 17 at year end). (1) $426,400 AGI − $400,000 MFJ threshold = $26,400. (2) $26,400 excess AGI divided by 1,000 = 27.00 [note: round up from [26.40] (3) 27 × $50 = $1,350. This is the amount of the phase-out. (4) $2,500 allowable credit minus $1,350 = $1,150

d. Zach is 24 years old and his AGI is $5,800.

Zach is not eligible for the earned income credit because he is not a qualified individual. To be a qualified individual, Zach must be either (1) an individual with at least one qualifying child or (2) at least 25 years old, but not more than 65, and have lived in the U.S. for at least half of the year. Because he has no children and he is not 25 years old, he does not qualify for the credit.

A distribution from a traditional 401(k) account is excluded from the taxpayer's gross income.

false

Taxpayers never pay tax on the earnings of a traditional 401(k) account.

false

When an employer matches an employee's contribution to the employee's 401(k) account, the employee is immediately taxed on the amount of the employer's matching contribution.

false

Depreciation recapture changes both the amount and character of a gain.

false Depreciation recapture changes the character of the gain, not the amount.

Both employers and employees may contribute to defined contribution plans. However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

false : both limited

Property held for investment and inventory are examples of capital assets.

false, ordinary

traditional ira

for agi deduction

roth ira

non deductible

The sale of computer equipment used in a trade or business for 9 months results in the following type of gain or loss?

ordinary Assets used in a trade or business and held for one year or less are ordinary assets.

Defined benefit plans specify the amount of benefit an employee will receive on retirement while defined contribution plans specify the amounts that employers and employees will (or can) contribute to an employee's plan.

true

Employees who are at least 50 years old at the end of the year are allowed to contribute more to their 401(k) accounts than employees who are not 50 years old by year-end.

true

Regular taxable income is the starting point for determining the alternative minimum tax.

true

Taxpayers are not allowed to deduct the standard deduction for alternative minimum tax purposes.

true

The American Opportunity Credit applies to qualifying education expenses for the first four years of post secondary education.

true