Exam Federal Income Tax

Lynette is the CEO of publicly traded TTT Corporation and earns a salary of $380,000 in the current year. What is TTT Corporation's after-tax cost of paying Lynette's salary excluding FICA taxes?

$380,000 * (1-21%) = $300,200

Antonio received 40 ISOs (each option gives him the right to purchase 20 shares of Zorro stock for $3 per share) at the time he started working for Zorro Corporation six years ago. Zorro's stock price was $3 per share at the time. Now that Zorro's stock price is $50 per share, Antonio intends to exercise all of his options and immediately sell all the shares he receives from the options exercise. Note: Enter all amounts as positive values. Leave no answers blank. Enter zero if applicable. a. What are Antonio's taxes due on the grant date, the exercise date, and the date the shares are sold, assuming his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

Grant date = 0 Exercise date and sale date $12,032 (50-3) * (40*20) * 32%

b. If Dave's stock price predictions are correct, what are the tax consequences of these transactions to RRK?

Grant date = 0 Vesting date = $6,300 30*1000*21% Sale date=0

d. Assume that Yost's options were exercisable at $22 and expired after five years. If the stock only reached $20 during its high point during the five-year period, what are Yost's tax consequences on the grant date, the exercise date, and the date the shares are sold, assuming his ordinary marginal rate is 35 percent and his long-term capital gains rate is 15 percent?

Grant date = 0 sale date = 0 exercise date = 0

On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave's restricted shares will vest at the end of year 2. He intends to hold the shares until the end of year 4, when he intends to sell them to help fund the purchase of a new home. Dave predicts the share price of RRK will be $30 per share when his shares vest and will be $40 per share when he sells them. Note: Leave no answer blank. Enter zero if applicable. Input all amounts as positive values. a. If Dave's stock price predictions are correct, what are the taxes due on these transactions to Dave if his ordinary marginal rate is 32 percent and his long-term capital gains rate is 15 percent?

Grant date =0 Vesting date = $9,600 30 *1000 * 32% vest price * shares * marginal rate Sale Date = $1,500 (40-30) *1000*15% sale price - vest price * shares * long term capital rate

North Incorporated is a calendar-year C corporation, accrual-basis taxpayer. At the end of year 1, North accrued and deducted the following bonuses for certain employees for financial accounting purposes. $9,750 for Lisa Tanaka, a 30 percent shareholder. $15,200 for Jared Zabaski, a 25 percent shareholder. $17,200 for Helen Talanian, a 20 percent shareholder. $6,450 for Steve Nielson, a 0 percent shareholder. Unless stated otherwise, assume these shareholders are unrelated. How much of the accrued bonuses can North Incorporated deduct in year 1 under the following alternative scenarios? Note: Leave no answer blank. Enter zero if applicable. Input all amounts as positive values. a. North paid the bonuses to the employees on March 1 of year 2. b. North paid the bonuses to the employees on April 1 of year 2.

a) 9,750 + 15,200 + 17,200 + 6,450 = $48,600 b) $0

For each of the following citations, identify the type of authority (statutory, administrative, or judicial). Required: a) Section 280A(c)(5) b) Revenue Procedure 2004-34, 2004-1 C.B. 911 c) Lakewood Associates, RIA TC Memo 95-3566. d) TAM 200427004 e) United States v. Muncy, 2008-2 USTC paragraph 50,449 (Eastern District Arkansas 2008)

a) Statutory b) Administrative c) Judicial d) Administrative e) Judicial

c. If property 1 is Jesse's primary residence and property 2 is a parcel of land he holds for investment, what is his taxable income after taking property taxes into account?

a) Taxable income - $53,800 70,000 - (12,000 + 3,000 + 1,200)

Salvador and Jenna Porter purchased a home in Kenosha, Wisconsin, for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until November 1 of year 1, when they sold the home for $500,000. The Porters' marginal ordinary tax rate is 35 percent. a-1. Assume that the Porters sold their home and moved because they didn't like their neighbors. How much gain will the Porters recognize on their home sale? a-2. At what rate, if any, will the gain be taxed?

a-1) Recognized gain - $100,000 500,000 - 400,000 a-2) Tax rate - 35%

Brady recently graduated from SUNY−New Paltz with his bachelor's degree. He works for Makarov & Company CPAs. The firm pays his tuition ($10,000 per year) for him so that he can receive his Master of Science in Taxation, which will qualify him to sit for the CPA exam. How much of the $10,000 tuition benefit does Brady need to include in gross income?

$4,750 10,000 - 5,750 tuition benefit - excludable amount

Meg works for Freedom Airlines in the accounts payable department. Meg and all other employees receive free flight benefits (for the employee, family, and 10 free buddy passes for friends per year) as part of its employee benefits package. If Meg uses 50 flights with a value of $24,300 this year, how much must she include in her compensation this year?

0

Latoya filed her tax return on February 10th this year. When will the statute of limitations expire for this tax return?

3 years from April 15th

In 2023, Nitai (age 40) contributes 8 percent of his $111,000 annual salary to a Roth 401(k) account sponsored by his employer, AY Incorporated. AY Incorporated matches employee contributions dollar-for-dollar up to 8 percent of the employee's salary. However, AY matches by contributing to the employee's traditional 401(k) account because the employer contributions are not fully vested to the employee at the time of the contribution. Nitai expects to earn a 9 percent before-tax rate of return. Assume he leaves the contributions in the Roth 401(k) and traditional 401(k) accounts until he retires in 20 years and that he makes no additional contributions to either account. What are Nitai's after-tax proceeds from the Roth 401(k) and traditional 401(k) accounts after he receives the distributions, assuming his marginal tax rate at retirement is 30 percent? (Use Table 1, Table 2.)

After tax Roth 401K- $49,767 Before tax contributions- 8,880 Future value - 49,767.17 <<8880 * ((1+0.09)^20) Less taxes payable- 0 taxes After tax proceeds = $49,767.17 After tax Traditional 401K- $34,837 Before tax contributions- 8,880 Future value - 49,767.17 <<8880 * ((1+0.09)^20) Less taxes payable- 14,930.15 <<49,767.17*30% After tax proceeds = $34,837.02

Brooklyn has been contributing to a traditional IRA for seven years (all deductible contributions) and has a total of $30,000 in the account. In 2023, she is 39 years old and has decided that she wants to get a new car. She withdraws $20,000 from the IRA to help pay for the car. She is currently in the 24 percent marginal tax bracket. What amount of the withdrawal, after tax considerations, will Brooklyn have available to purchase the car?

After tax withdrawal - $13,200 Amount withdrawn - 20,000 Marginal tax -24% Taxes - 4,800 < 20,000 * 24% Penalty fee percent - 10% Penalty fee amount - 2,000 < 20,000*10% Total Deducted = 6,800 << 4,800 + 2,000 Total left after deduction - $13,200 << 20,000 - 6,800

Rita owns a sole proprietorship in which she works as a management consultant. She maintains an office in her home (500 square feet) where she meets with clients, prepares bills, and performs other work-related tasks. Her business expenses, other than home office expenses, total $5,720. The following home-related expenses have been allocated to her home office under the actual expense method for calculating home office expenses. Real property taxes$ 1,660 Interest on home mortgage 5,190 Operating expenses of home 830 Depreciation 1,636 Also, assume that, not counting the sole proprietorship, Rita's AGI is $61,200. Rita itemizes deductions, and her itemized deduction for non-home business taxes is less than $10,000 by more than the real property taxes allocated to business use of the home. Assume Rita's consulting business generated $15,300 in gross income.

Answers below

Randy deducted a high level of itemized deductions two years ago relative to his income level. He recently received an IRS notice requesting documentation for his itemized deductions. What audit procedure likely identified his tax return for audit?

Discriminant Function System

Clayton participates in his employer's nonqualified deferred compensation plan. For 2023, he is deferring 10 percent of his $344,000 annual salary. Assuming this is his only source of income and his marginal income tax rate is 32 percent, how much does deferring Clayton's income save his employer (after taxes) in 2023? The employer's marginal tax rate is 21 percent (ignore payroll taxes).

Employer's after tax savings - $27,176 Annual salary - 344,000 Deferring rate - 10% Deferring salary - 34,400 << 344,000* 10% Employer tax - 21% Employer after tax savings - 27,176 << 34,400 * (1-0.21)

Sherry, who is 52 years of age, opened a Roth IRA three years ago. She has contributed a total of $13,200 to the Roth IRA ($4,400 a year). The current value of the Roth IRA is $18,350. In the current year, Sherry withdraws $16,000 of the account balance to purchase a car. Assuming Sherry's marginal tax rate is 24 percent, how much of the $16,000 withdrawal will she retain after taxes to fund her car purchase?

Fill in the blank Amount of withdrawal - 16,000 Non-taxable amount - 13,200 Amount subject to tax - 2,800 << 16,000 - 13,200 Tax Rate - 24% Penalty rate - 10% Tax - 672 << 2,800 * 24% Penalty - 280 After tax withdrawal - 15,048 << 16,000 - 280 - 672

a. What is the total amount of for AGI deductions relating to the condo that Alexa may deduct in the current year? Assume she uses the IRS method of allocating expenses between rental and personal days.

For AGI Deductions - $38,168 Total expenses * (151/(151+8)) (2,400 + 8,900 + 3,600 + 1,290 + 3,500 + 20,500) * (151/(151+8))

b. What are Cutter Corporation's tax consequences (amount of deduction and tax savings from deduction) on the grant date, the exercise date, and the date Yost sold the shares?

Grant date amount of deduction = 0 tax savings= 0 sale date amount of deduction = 0 tax savings = 0 exercise date amount of deduction = $27,000 (26-17) * (300*10) exercise price - market price * shares tax savings= $5,670 27,000*21%

Yost received 300 NQOs (each option gives Yost the right to purchase 10 shares of Cutter Corporation stock for $17 per share). At the time he started working for Cutter Corporation three years ago, Cutter's stock price was $17 per share. Yost exercised all of his options when the share price was $26 per share. Two years after acquiring the shares, he sold them at $53 per share. Note: Input all amounts as positive values. Leave no answer blank. Enter zero if applicable. a. What are Yost's taxes due on the grant date, exercise date, and sale date, assuming his ordinary marginal rate is 35 percent and his long-term capital gains rate is 15 percent?

Grant date = $0 Exercise Date = $9,450 (26-17) * (300*10) *35% exercise price - market price * shares * marginal rate Sale Date= $12,150 (53-26) *(300*10) *15% sale price - exercise price * shares * long term cap rate

Jamarcus, a full-time student, earned $2,800 this year from a summer job. He had no other income this year and will have zero federal income tax liability this year. His employer withheld $420 of federal income tax from his summer pay. Is Jamarcus required to file a tax return? Should Jamarcus file a tax return?

He is not required to file an income tax return because his gross income of $2,800 is well below the gross income threshold for a single taxpayer ($13,850 for 2023). He should still file a tax return to receive a refund of the $420 previously withheld.

Sophia recently won a tax case litigated in the 7th Circuit. She has just heard that the Supreme Court denied the writ of certiorari. Should she be happy or not, and why?

Sophia should feel happy as the denial of the writ of certiorari means the 7th Circuit ruling stands.

Paula could not reach an agreement with the IRS at her appeals conference and has just received a 90-day letter. If she wants to litigate the issue but does not have sufficient cash to pay the proposed deficiency, what is her best court choice?

U.S. Tax Court

Molto Stancha Corporation had zero earnings this fiscal year; in fact, it lost money. Must the corporation file a tax return?

Yes, all corporations are required to file an income tax return regardless of their taxable income.

Alexa owns a condominium near Cocoa Beach in Florida. In 2023, she incurs the following expenses in connection with her condo: Insurance$ 2,800 Mortgage interest 7,700 Property taxes 2,640 Repairs & maintenance 1,800 Utilities 4,100 Depreciation 16,500 During the year, Alexa rented out the condo for 100 days. She did not use the condo at all for personal purposes during the year. Alexa's AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income. Assuming Alexa receives $23,200 in gross rental receipts, answer the following questions: a. What effect does the rental activity have on her AGI for the year? b. Assuming that Alexa's AGI from other sources is $90,000, what effect does the rental activity have on Alexa's AGI? Alexa makes all decisions with respect to the property

a) AGI - No effect $0 b) AGI - Decreases by $12,340 total expenses - gross receipts

In 2023, Nina contributes 8 percent of her $83,000 annual salary to her 401(k) account. She expects to earn a 10 percent before-tax rate of return. Assume she leaves the funds in the account until she retires in 20 years when she receives a distribution of the 2023 contribution and its associated earnings. What would be the after-tax proceeds of the distribution? a. Assume Nina's marginal tax rate at retirement is 30 percent. b. Assume Nina's marginal tax rate at retirement is 20 percent. c. Assume Nina's marginal tax rate at retirement is 40 percent.

a) After tax proceeds from distribution - $31,269 Before tax contribution - 6,640 << 83,000 * 8% contribution rate Future Value - 44,670.60 << 6640 * ((1+0.10) ^20 After tax proceeds - 31,269 << 44,670.60 * 70% b)After tax proceeds from distribution - $35,736 Before tax contribution - 6,640 << 83,000 * 8% contribution rate Future Value - 44,670.60 << 6640 * ((1+0.10) ^20 After tax proceeds - 35,736 << 44,670.60 * 80% c) After tax proceeds from distribution - $26,802 Before tax contribution - 6,640 << 83,000 * 8% contribution rate Future Value - 44,670.60 << 6640 * ((1+0.10) ^20 After tax proceeds - 26,802 << 44,670.60 * (1-40%)

Javier and Anita Sanchez purchased a home on January 1, 2023, for $768,000 by paying $256,000 down and borrowing the remaining $512,000 with a 7 percent loan secured by the home. The loan requires interest-only payments for the first five years. The Sanchezes would itemize deductions even if they did not have any deductible interest. The Sanchezes' marginal tax rate is 32 percent. a. What is the after-tax cost of the interest expense to the Sanchezes in 2023? b. Assume the original facts, except that the Sanchezes rent a home and pay $35,840 in rent during the year. What is the after-tax cost of their rental payments in 2023?

a) After-tax cost on the interest expense - $24,371 Interest expense - 35,840 = 512,000 * 7%< loan amount * interest Tax Savings - 11,469 = 35,840 * 32% < interest expense * marginal rate After tax cost - 24,371 << 35,840 - 11,469 b) After-tax cost on the interest expense - $35,840 Rent paid is not tax-deductible so the after- tax cost is the full amount paid

Javier recently graduated and started his career with DNL Incorporated. DNL provides a defined benefit plan to all employees. According to the terms of the plan, for each full year of service working for the employer, employees receive a benefit of 1.5 percent of their average salary over their highest three years of compensation from the company. Employees may accrue only 30 years of benefit under the plan (45 percent). Determine Javier's annual benefit on retirement, before taxes, under each of the following scenarios (Use Exhibit 13-1): a. Javier works for DNL for three years and three months before he leaves for another job. Javier's annual salary was $65,000, $75,000, $82,000, and $86,000 for years 1, 2, 3, and 4, respectively. DNL uses a five-year cliff vesting schedule.

a) Annual before tax benefit = $0 Average in Salaries Year 1 - 65,000 Year 2 - 75,000 Year 3 - 82,000 Year 4 - 86,000 << don't include since he didn't work the full year Average -74,000 5-year cliff - 0% << Exhibit 13-1 Benefit tax - 4.5% < 3 year * 1.5% a year Annual Tax benefit - $0 < multiply the average, 5-year cliff and tax

Michael is single and 35 years old. He is a participant in his employer's sponsored retirement plan. How much can Michael directly contribute to a Roth IRA in 2023 in each of the following alternative situations. a. Michael's AGI before the IRA contribution deduction is $61,000. Michael contributed $3,800 to a traditional IRA. b. Michael's AGI is $91,000 before any IRA contributions. c. Michael's AGI is $168,500 before any IRA contributions.

a) Contribution to Roth IRA - $2,700 b) Contribution to Roth IRA - $6,500 Max contribution is 6,500 for 2023 His AGI is higher than phaseout of 83,000 but lower than 138,000 upper limit c) Contribution to Roth IRA - $0 His AGI is above 138,000 upper limit

On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.92 million by paying $270,000 down and borrowing the remaining $1.65 million with a 5.2 percent loan secured by the home. The Franklins paid interest only on the loan for year 1, year 2, and year 3 (unless stated otherwise). a. What is the amount of interest expense the Franklins may deduct in year 3 assuming year 1 is 2017? b. What is the amount of interest expense the Franklins may deduct in year 2 assuming year 1 is 2022? c. Assume that year 1 is 2023 and that in year 2, the Franklins pay off the entire loan, but at the beginning of year 3, they borrow $335,000 secured by the home at a 5 percent rate. They make interest-only payments on the loan during the year, and they use the loan proceeds for purposes unrelated to the home. What amount of interest expense may the Franklins deduct in year 3 on this loan?

a) Deductible interest expense - $52,000 1,000,000 *5.2% << eligible borrowing amount * interest rate b) Deductible interest expense - $39,000 750,000 * 5.2% << year 2 eligible amount is 750,000 c) Deductible interest expense - $0 can't use the money to purposes unrelated to the home

Alexa owns a condominium near Cocoa Beach in Florida. In 2023, she incurs the following expenses in connection with her condo: Insurance$ 2,000 Mortgage interest 6,500 Property taxes 2,000 Repairs & maintenance 1,400 Utilities 2,500 Depreciation 14,500 During the year, Alexa rented out the condo for 100 days. She did not use the condo at all for personal purposes during the year. Alexa's AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income. Assume Alexa receives $30,000 in gross rental receipts. a. What effect do the expenses associated with the property have on her AGI? b. What effect do the expenses associated with the property have on her itemized deductions?

a) Effect of expenses on AGI- $28,900 add all expenses b) Effect on itemized deductions - Remains the same drop down question

Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2023). In 2023, her net Schedule C income was $274,000. This was her only source of income. This year, Rita is considering setting up a retirement plan. What is the maximum amount Rita may contribute to the self-employed plan in each of the following situations? a. She sets up a SEP IRA. b. She sets up an individual 401(k).

a) Max Contribution - $52,080 Self Employment tax - 27,203 << (160,200*12.4%) + (274,000 * 92.35% * 2.90%) Max amount of social security - 160,200 Self employed use 92.35% Net income - 260,399 << 274,000 + (27,203 * 50%) Contribution to SEP - 52,080 << 260,399 * 20% b) Max Contribution - $66,000 The max you can contribute is 66,000 Self employment earning - 253,039 << 274,000 * 92.35% Contribution - 85,759.75 << (253,039 * 25% ) +22,500

William is a single writer (age 35) who recently decided that he needs to save more for retirement. His 2023 AGI before the IRA contribution deduction is $80,000 (all earned income). a. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution William can make in 2023? b. If he does participate in an employer-sponsored plan, what is the maximum deductible IRA contribution William can make in 2023? c. Assume he does participate in an employer-sponsored plan, and his AGI before the IRA contribution deduction is $89,000. What is the maximum deductible IRA contribution William can make in 2023?

a) Maximum deductible IRA contribution - $6,500 Max is 6,500 for age under 50 Max is 7,500 for age over 50 b) Maximum deductible IRA contribution - $1.950 AGI - 80,000 Lower phaseout limit - 73,000 AGI above limit - 7,000 << 80,000 - 73,000 Reduced Contribution - 4,550 << (7,000/10,000) * 6,500 <<10,000 = upper limit minus lower limit - 83,000 - 73,000 Max contribution - 1,950 << max 6,500 - 4,550 c) Maximum deductible IRA contribution - $0 AGI is above 83,000 limit

Tim has worked for one employer his entire career. While he was working, he participated in the employer's defined contribution plan [traditional 401(k)]. At the end of 2023, Tim retires. The balance in his defined contribution plan at the end of 2022 was $2,000,000. (Use Exhibit 13-3.) a. What is Tim's required minimum distribution for 2023 that must be distributed in 2024 if he is 68 years old at the end of 2023? b-1. What is Tim's required minimum distribution for 2023 if he turns 73 during 2023? b-2. When must he receive this distribution? c. What is Tim's required minimum distribution for 2023 that must be distributed in 2024 if he turns 75 years old in 2023?

a) Minimum Required Distribution = $0 b1) Minimum Required Distribution = $75,400 Balance - 2,000,000 Applic. Percent at 73 - 3.77% << Exhibit 13-3 Balance * Percent b2) He must receive his distribution by April 1, 2024 c) Minimum Required Distribution = $81,400 Balance - 2,000,000 Applic. Percent at 75 - 4.07% << Exhibit 13-3 Balance * Percent

Steve Pratt, who is single, purchased a home in Riverside, California, for $587,500. He moved into the home on February 1 of year 1. He lived in the home as his primary residence until June 30 of year 5, when he sold the home for $937,500. a. What amount of gain will Steve be required to recognize on the sale of the home? b. Assume the original facts, except that the home is Steve's vacation home and he vacations there four months each year. Steve does not ever rent the home to others. What gain must Steve recognize on the home sale? c. Assume the original facts, except that Steve married Giuseppina on February 1 of year 3 and the couple lived in the home until they sold it in June of year 5. Under state law, Steve owned the home by himself. How much gain must Steve and Giuseppina recognize on the sale (assume they file a joint return in year 5)?

a) Recognized gain on sale - $100,000 (937,500 - 587,500) - 250,000 250,000 - excludable gain b) Recognized gain on sale - $350,000 937,500 - 587,500 no excludable gain on vacation homes c) Recognized gain on sale - $0 couples have a $500,000 excludable gain with the excludable gain being 350,000, that is less than 500,000 so the full 350,000 is excludable

Penny is 57 years old, and she participates in her employer's 401(k) plan. During the year, she contributed $2,000 to her 401(k) account. Penny's AGI is $39,000 after deducting her 401(k) contribution. What is Penny's saver's credit in each of the following alternative scenarios? (Use Exhibit 13-8) a. Penny is not married and has no dependents. b. Penny files as a head of household and has three dependents. c. Penny files as a head of household and has one dependent. d. Penny is married and files a joint return with her spouse. They have three dependents. e. Penny files a separate tax return from her husband. She claims two dependent children on her return.

a) Saver's credit - $0 She has no dependents b) Saver's credit - $200 2,000 * 10% c)Saver's credit - $200 2,000 * 10% d) Saver's credit - $1,000 2,000 * 50% e) Saver's credit - $0 AGI IS above 36,500 Percentages are retrieved on Exhibit 13-8

Jesse Brimhall is single. In 2023, his itemized deductions were $12,000 before considering any real property taxes he paid during the year. Jesse's adjusted gross income was $70,000 (also before considering any property tax deductions). In 2023, he paid real property taxes of $3,000 on property 1 and $1,200 of real property taxes on property 2. He did not pay any other deductible taxes during the year. a. If property 1 is Jesse's primary residence and property 2 is his vacation home (he does not rent it out at all), what is his taxable income after taking property taxes into account? b. If property 1 is Jesse's business building (he owns the property) and property 2 is his primary residence, what is his taxable income after taking property taxes into account (ignore the deduction for qualified business income)?

a) Taxable income - $53,800 70,000 - (12,000 + 3,000 + 1,200) b) Taxable income - 53,150 Standard deduction - 13,850 for 2023 Itemized deductions = 12,000+1200 = 13,200 use standard since more 70,000 -13,850

a. What is Rita's home office deduction for the current year? b. What would Rita's home office deduction be if her business generated $10,300 of gross income instead of $15,300? (Answer for both the actual expense method and the simplified method.) c. Given the original facts, what is Rita's AGI for the year? d. Given the original facts, what types and amounts of expenses will she carry over to next year?

a) home office deduction - $9,316 using the actual expense method 1,660 + 5,109 + 830 + 1,636 b) Actual expense method - $6,850 Tier 1 expenses - Real property taxes + interest on home mortgage Simplified method - $3,080 $3 * 500 square feet c) AGI - $61,464 61,200 + (15,300 - ( 1,660 + 5,190 + 830 + 1,636 + 5,720) D) Tier 1, tier 2 and tier 3 do not have any carry over

Alexa owns a condominium near Cocoa Beach in Florida. In 2023, she incurs the following expenses in connection with her condo: Insurance$ 2,400 Mortgage interest 8,900 Property taxes 3,600 Repairs & maintenance 1,290 Utilities 3,500 Depreciation 20,500 During the year, Alexa rented out the condo for 151 days. Alexa's AGI from all sources other than the rental property is $200,000. Unless otherwise specified, Alexa has no sources of passive income. Assume that in addition to renting the condo for 151 days, Alexa uses the condo for 8 days of personal use. Also assume that Alexa receives $41,000 of gross rental receipts, her itemized deductions exceed the standard deduction before considering expenses associated with the condo, and her itemized deduction for non-home business taxes is less than $10,000 by more than the real property taxes allocated to rental use of the home. Answer the following questions:

answers on next card

b. What are Zorro's tax consequences on the grant date, the exercise date, and the date Antonio sells the shares? c. What are the cash flow effects of these transactions to Antonio, assuming his ordinary marginal rate is 24 percent and his long-term capital gains rate is 15 percent?

b) Grant Date = 0 exercise date and sale date = $7,896 (50-3) * (40*20) * 21% c) Grant date = 0 cash flow consequenes exercise and sale date = $28,576 net cash inflow (50-3) * (40*20) * 24%

b. Javier works for DNL for three years and three months before he leaves for another job. Javier's annual salary was $65,000, $75,000, $82,000, and $86,000 for years 1, 2, 3, and 4, respectively. DNL uses a seven-year graded vesting schedule. c. Javier works for DNL for six years and three months before he leaves for another job. Javier's annual salary was $95,000, $105,000, $112,000, and $118,000 for years 4, 5, 6, and 7, respectively. DNL uses a five-year cliff vesting schedule.

b) Annual before tax benefit = $666 Average from above - 74,000 7-year cliff - 20% << Exhibit 13-1 Benefit Tax - 4.5% << 3 years * 1.5% a year Annual tax benefit - 666 < multiply the average, 7-year cliff, and tax c) Annual before tax benefit = $9,360 Average in Salaries Year 4 - 95,000 Year 5 - 105,000 Year 6 - 112,000 Year 7 - 118,000 << don't include since he didn't work the full year Average -104,000 5-year cliff - no cliff << not applicable for years 6 at 5 year vest Benefit tax - 9% < 6 years * 1.5% a year Annual Tax benefit - $9,360 < multiply the average and tax

b. Assume the Porters sell the home because Jenna's employer transfers her to an office in Texas. How much gain will the Porters recognize on their home sale? c. Assume the same facts as in part (b), except that the Porters sell their home for $700,000. How much gain will the Porters recognize on the home sale? d. Assume the same facts as part (b), except that on December 1 of year 0 the Porters sold their home in Kenosha and excluded the $300,000 gain from income on their year 0 tax return. How much gain will the Porters recognize on the sale of their Kenosha home?

b) Recognized gain - $0 c) Recognized gain - $112,500 (700,000-400,000) * (9/24) d)0

c. Assuming that Alexa's AGI from other sources is $120,000, what effect does the rental activity have on Alexa's AGI? Alexa makes all decisions with respect to the property. d. Assume that Alexa's AGI from other sources is $200,000. This consists of $138,000 salary, $13,200 of dividends, $29,800 of long-term capital gain, and net rental income from another rental property in the amount of $19,000. What effect does the Cocoa Beach condo rental activity have on Alexa's AGI?

c) AGI - Decreases by $12,340 total expenses - gross receipts d) AGI - Decreases by $12,340 total expenses - gross receipts

c. Assuming the interest expense is their only itemized deduction for the year and that Javier and Anita file a joint return, have great eyesight, and are under 60 years of age, what is the after-tax cost of their 2023 interest expense?

c) After-tax cost on the interest expense - $33,235 Interest expense - 35,840 = 512,000 * 7%< loan amount * interest Excess interest - 8,140 << 35,840 -27,700 <27,700=standard deduction after tax cost - 33,325 << 35,840 - (8,140 *32%)

c. North paid the bonuses to employees on March 1 of year 2 and Lisa and Jared are related to each other, so they are treated as owning each other d. North paid the bonuses to employees on March 1 of year 2 and Lisa and Helen are related to each other, so they are treated as owning each other's stock in North.

c) since Lisa and Jared percents are >50% together, they are not deductible year 1 and only Helen and Steve's are -> 17,200 + 6,450 = $23,650 d) since Lisa and Helen's percent's are <50% together, all amounts are deductible in year 1 -> $48,60

d. Javier works for DNL for six years and three months before he leaves for another job. Javier's annual salary was $95,000, $105,000, $112,000, and $118,000 for years 4, 5, 6, and 7, respectively. DNL uses a seven-year graded vesting schedule. e. Javier works for DNL for 32 years and three months before retiring. Javier's annual salary was $200,000, $210,000, $217,000, and $225,000 for his final four years of employment. Note that in the year he retired he didn't work for the entire year, so he received only a portion of the annual salary for that year.

d) Annual before tax benefit = $7,488 Average in Salaries Year 4 - 95,000 Year 5 - 105,000 Year 6 - 2112,000 Year 7 - 118,000 << don't include since he didn't work the full year Average -104,000 7-year cliff - 80% << Exhibit 13-1 7 year vest at 6 years Benefit tax - 9% < 6 years * 1.5% a year Annual Tax benefit - $7,488 < multiply the average, 5-year cliff and tax e) Annual before tax benefit = $94,050 Average in Salaries Year 4 - 200,000 Year 5 - 210,000 Year 6 - 217,000 Year 7 - 225,000 << don't include since he didn't work the full year Average -209,000 No cliff since over 30 years Benefit tax - 45% < 30 years * 1.5% a year Annual Tax benefit - $94,050 < multiply the average and tax