Federal Income Tax 3325 Chapter 6 Homework

Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year, he receives interest payments of $3,800. Jarret partially financed the purchase of the bonds by borrowing $100,000 at 5% interest. Jarret's interest payments on the loan this year are $4,900, and his principal payments are $1,100. a. How much reportable interest income does Jarret have this year? b. How much can Jarret deduct as interest expense this year?

$0; $0

Chee, single, age 40, had the following income and expenses during 2018: Income Salary $43,000 Rental of vacation home (rented 60 days, used personally 60 days, vacant 245 days) 4,000 Municipal bond interest 2,000 Dividend from General Electric 400 Expenses Interest on home mortgage 8,400 Interest on vacation home 4,758 Interest on loan used to buy municipal bonds 3,100 Property tax on home 2,200 Property tax on vacation home 1,098 State income tax 3,300 State sales tax 900 Charitable contributions 1,100 Tax return preparation fee 300 Utilities and maintenance on vacation home 2,600 Depreciation on rental 50% of vacation home 3,500 Calculate Chee's net income from the vacation home, itemized deductions and taxable income for the year. If Chee has any options, choose the method that maximizes his deductions. In your computations, round any fractions to four decimal places. Then, round any amounts to the nearest dollar. If an amount is zero, enter "0". Assume 365 days in a year. a. Net income from vacation home: $_____ b. Itemized deductions: $_____ c. Taxable income: $_____

$0; $19,893; $23,507

A list of the items that Faith sold and the losses she incurred during the current tax year is as follows: Yellow, Inc. stock $ 1,600 Faith's personal use SUV 8,000 Faith's personal residence 10,000 City of Newburyport bonds 900 She also had a theft loss of $1,500 on her uninsured business use car. Calculate Faith's deductible loss (before any limitations).

$4000 (1600+1500+900)

Daniel, age 38, is single and has the following income and expenses in 2018: Salary income $ 177,000 Net rent income 3,500 Dividend income 1,900 Payment of alimony in accordance with the separation agreement which was signed in 2018 30,000 Mortgage interest on residence 8,300 Property tax on residence 2,200 Contribution to traditional IRA (assume the amount is fully deductible) 4,200 Contribution to United Church 2,900 Loss on the sale of real estate (held for investment) 450 Medical expenses 3,550 State income tax 1,500 Federal income tax 4,400 Daniel's standard deduction for 2018 is 12,000. a. Classify the following expenses as either "Deductible for AGI", "Deductible from AGI", or "Not deductible". 1. Payment of alimony 2. Mortgage interest on residence 3. Property tax on residence 4. Contribution to traditional IRA (assume the amount is fully deductible) 5. Contribution to United Church 6. Loss on the sale of real estate (held for investment) 7. Medical expenses 8. State income tax 9. Federal income tax b. Daniel's gross income is $_____ and his AGI income is $_____. c. Calculate Daniel's total itemized deductions (after any limitations).

1. Deductible for AGI 2. Deductible from AGI 3. Deductible from AGI 4. Deductible for AGI 5. Deductible from AGI 6. Deductible for AGI 7. Deductible from AGI 8. Deductible from AGI 9. Not deductible a. 182400 [177000+3500+1900] b. 147750 [182400-34650] [30000+4200+450]=34650 c. 14900 [8300+2200+2900+1500]

Karen and Andy own a beach house. They have an agreement with a rental agent to rent it up to 200 days per year. For the past three years, the agent has been successful in renting it for 200 days. Karen and Andy use the beach house for one week during the summer and one week during Thanksgiving. Their daughter, Sarah, a college student, has asked if she and some friends can use the beach house for the week of spring break. Advise Karen and Andy on how they should respond, and identify any relevant tax issues. If the residence is rented for _____ days or more in a year and is not used for personal purposes for more than the _____ of _____ days or _____ % of the total days rented, the residence is treated as rental property. The expenses must be allocated between personal and rental days if there are any personal use days during the year. In prior years, the beach house has been classified as _____ property, since the personal use did _____ the limits outlined above. Thus, if the total available deductions exceeded the rental income, the loss _____ deducted on Karen and Andy's tax return. If Sarah is permitted to use the beach house for one week, the total personal use of the beach house _____ the statutory limit. In this case, the deductions are _____.

15; Great Of; 14; 10; rental; not exceed; should have been; exceeds; only permitted to the extent of rental income.

Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2018, she leases an office building to use in her business for $165,900 for an 18-month period. To obtain this favorable lease rate, she pays the $165,900 at the inception of the lease. How much rent expense may Maud deduct on her 2018 tax return?

165900, because they are using the cash method

Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2018. Stanford incurred the following expenses: Total investigation costs related to the restaurant $41,000 Total investigation costs related to the bakery 53,800 If required, round any division to two decimal places and use in subsequent computation. Round your final answer to the nearest dollar. What is the maximum amount Stanford can deduct in 2018 for investigation expenses?

1784 (Rounded to nearest dollar) [53800-50000]=3800 [5000-3800]=1200 [(53800-1200)/180]=292.22 [292.22*2]=584.44 [1200+584.44]=1784

Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2018. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Expense Payment Date Rental of coliseum $25,000 December 21, 2018 Cost of goods sold: Food 30,000 December 30, 2018 Souvenirs 60,000 December 30, 2018 Performers 100,000 January 5, 2019 Cleaning the coliseum $10,000 February 1, 2019 Because the coliseum was not scheduled to be used again until January 15, the company with which Duck had contracted did not perform the cleanup until January 8-10, 2019. a. Calculate Duck's net income from the concert for tax purposes for 2018. If an amount is zero, enter "0". b. What is the true cost to Duck if it had to defer the $100,000 deduction for the performers until 2019? Assume a 5% discount rate and a 21% marginal tax rate in 2018 and 2019. The present value factor for a single sum at 5% for one year is 0.9524. The present value of the 2019 tax savings is $_____ and the cost of the deferral to Duck is $_____

300,000; 25,000; 30,000; 60,000, 100,000; 0; 215,000; 85,000; b. [21000*.9524]= 20,000.4 [21000-20000.4]=1000

Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year: Rent $31,500 Bribes 47,250 Travel expenses 3,150 Utilities 18,900 Wages 253,000 Payroll taxes 15,750 Property insurance 1,575 Illegal kickbacks 28,350 Vella's total deductible expenses for tax purposes are

323875 (31500+3150+18900+253000+15750+1575)

Tobias has a brokerage account and buys on the margin, which resulted in an interest expense of $50,800 during the year. Income generated through the brokerage account was as follows: Municipal interest $101,600 Taxable dividends and interest 508,000 If required, round any division to two decimal places and use in subsequent computation. Round your final answer to the nearest dollar. How much investment interest can Tobias deduct?

42164 [508000/(508000+101600)]=83.33 [.83*50800]=42164

Alex, who is single, conducts an activity in 2018 that is appropriately classified as a hobby. The activity produces the following revenues and expenses: Revenue $18,000 Property taxes 3,000 Materials and supplies 4,500 Utilities 2,000 Advertising 5,000 Insurance 750 Depreciation 4,000 Without regard to this activity, Alex's AGI is $42,000. Determine the amount of Alex's taxable income assuming he has not other itemized deductions. The standard deduction for single taxpayers is $12,000. Taxable income: $_____

[42,000+18,000]= 60,000 - 12,000= $48,000 Taxable Income

Shanna, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Shanna pays $17,800 rent on April 1, 2018 for the 12 months ending March 31, 2019. If required, round any division to two decimal places. Round your final answer to the nearest dollar. a. Shanna's deduction for rent expense in 2018 is $_____. b. Assume the same facts, except that the $17,800 is for 24 months' rent ending March 31, 2020. Shanna's deduction for rent expense in 2018 is $_____.

a. $17,800 (Total Rent) b. 6,675 [(17,800/18)*9]

Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He incurred the expenses in June and July 2018. Under the following circumstances, what can Terry deduct in 2018? In your computations, round the per month amount to the nearest cent and use rounded amount in subsequent computations. If required, round your final answers to the nearest dollar. If an amount is zero, "0". a. Terry was in the hardware store business and did not acquire the two hardware stores. b. Terry was in the hardware store business and acquired the two hardware stores and began operating them on October 1, 2018. c. Terry did not acquire the two hardware stores and was not in the hardware store business. d. Terry acquired the two hardware stores but was not in the hardware store business when he acquired them. Operations began on October 1, 2018.

a. 52,000 b. 52,000 c. 0 d. 3,817

Falcon, Inc., paid salaries of $608,800 to its employees during its first year of operations. At the end of the year, Falcon had additional unpaid salaries of $60,880. a. Calculate the salary deduction if Falcon is a cash basis taxpayer. b. Calculate the salary deduction if Falcon is an accrual basis taxpayer.

a. 608800 b. 669680 (608800+60880)

Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $74,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $50,400. The restaurant begins operations on May 1. Determine the amount that Henrietta can deduct in the current year for investigating these two businesses. In your computations, round the per-month amount to the nearest dollar and use rounded amount in subsequent computations. If required, round your final answers to the nearest dollar. a. The investigation expenses related to expansion of her hotel chain into another city: $_____ b. The investigation expenses related to opening a restaurant: $_____

a. 74,000 b. 6636 (Rounded to nearest whole number)[5000- (50400-50000)]=4600 [50400-4600]= 45800 [(45800/180)*8]= 2035.52 [2035.52+4600]= 6635.52

Printer Company pays a $20,000 annual membership fee to a trade association for paper wholesalers. The trade association estimates that 60% of its dues are allocated to lobbying activities. If amount is zero, enter, "0". a. Printer's total deductible expenses for tax purposes is $_____. b. Assume the same facts as above, except that the $20,000 was incurred for in-house lobbying expenses. Printer's total deductible expense for tax purposes is $_____.

a. 8000 [20,000*(1-0.60)] b. 0

Classify each of the following expenditures paid in 2018 as a deduction for AGI, partially deductible for AGI, a deduction from AGI, partially deductible from AGI, or not deductible. Ignore any percentage or dollar amount limitations. a. Barak contributes to his H.R. 10 plan (i.e., a retirement plan for a self-employed individual). b. Keith pays child support to his former wife, Renee, for the support of their son, Chris. c. Judy pays professional dues that are not reimbursed by her employer. d. Ted pays $500 as the monthly mortgage payment on his personal residence. Of this amount, $100 represents a payment on principal, and $400 represents an interest payment. e. Oni, a private citizen, pays a moving company for moving her household goods (a qualified moving expense) to Detroit, where she is starting a new job. She is not reimbursed by her employer. f. Ralph pays $6,000 of property taxes on his personal residence and $5,000 of state income taxes.

a. For AGI b. Not deductible c. Not Deductible d. Partially Deductible From AGI e. Not Deductible f. Partially Deductible from AGI

Linda operates an illegal gambling operation. Indicate which of the following expenses that she incurs can reduce taxable income. Select "Deductible", "Partially Deductible", or "Not deductible", whichever is applicable. a. Bribes paid to city employees. b. Salaries to employees. c. Security cameras. d. Kickbacks to police. e. Rent on an office. f. Depreciation on office furniture and equipment. g. Tenant's casualty insurance. h. Utilities.

a. Not Deductible b. Deductible c. Deductible d. Not Deductible e. Deductible f. Deductible g. Deductible h. Deductible

For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. If an amount is zero, enter "0." a. Kiera sells Parchment, Inc. stock (adjusted basis $25,500) to Phillip, her brother, for its fair market value of $9,200. b. Amos sells land (adjusted basis $84,200) to his nephew, Boyd, for its fair market value of $45,000. c. Susan sells a tax-exempt bond (adjusted basis $40,600) to her wholly owned corporation for its fair market value of $24,100. d. Sinbad sells a business truck (adjusted basis $13,800) that he uses in his sole proprietorship to his cousin, Agnes, for its fair market value of $7,400. e. Martha sells her partnership interest (adjusted basis $170,300) in Pearl Partnership to her adult daughter, Kim, for $202,400.

a. Recognized Loss; 0; 9,200 b. Recognized Loss; 39,200; 45,000 c. Recognized Loss; 0; 24,100 d. Recognized Loss; 6,400; 7,400 e. Recognized Gain; 32,100; 202,400

Michael, who is single, age 20 and claimed by his parents as a dependent, earned $20,000 at the K-M Resort Golf Club during the summer prior to his senior year in college. He wants to make a contribution to a traditional IRA for the tax year 2018, but the amount is dependent on whether it reduces his taxable income. If Michael is going to claim the standard deduction, will a contribution to a traditional IRA reduce his taxable income? Because the traditional IRA contribution is a deduction _____ AGI, it _____ reduce his taxable income and _____ impact on his itemized deductions.

for; does; has no