A329 Exam 1

Grady received $8,800 of Social Security benefits this year. Grady files single and reports salary of $13,600 and interest income of $400. What amount of the benefits must Grady include in his gross income?

$0

Simon lost $8,350 gambling this year on a trip to Las Vegas. In addition, he paid $2,990 to his broker for managing his $299,000 portfolio and $935 to his accountant for preparing his tax return. In addition, Simon incurred $2,710 in transportation costs commuting back and forth from his home to his employer's office, which were not reimbursed. Calculate the amount of these expenses that Simon is able to deduct.

$0

Larry recently invested $22,500 (tax basis) in purchasing a limited partnership interest. His at-risk amount is also $22,500. In addition, Larry's share of the limited partnership loss for the year is $2,125, his share of income from a different limited partnership is $1,050, and he has $3,250 of dividend income from the stock he owns. How much of Larry's $2,125 loss from the limited partnership can he deduct in the current year?

$1,050 because he is limited to the amount of passive income during the year

Ellen won a $1,480 cash prize in a school essay contest. The school is a tax-exempt entity, and Ellen plans to use the funds to pay for her college education. How much should be included in gross income?

$1,480

Clem paid self-employment tax of $24,300 (the employer portion is $12,150), and Wanda had $4,650 of Social Security taxes withheld from her pay. What amount is deductible from AGI?

$12,150

Although Hank is retired, he is an excellent handyman and often works part time on small projects for neighbors and friends. Last week his neighbor, Mike, offered to pay Hank $650 for minor repairs to his house. Hank completed the repairs in December of this year. Mike paid Hank $250 in cash in December of this year and promised to pay the remaining $400 with interest in three months. What is Hank's gross income for the year?

$250

Jerry was awarded $3,150 from his employer, Acme Toons, when he was selected most handsome employee for Valentine's Day this year. How much should be included in gross income?

$3,150

Clem is self-employed, and this year he incurred $925 in expenses for tools and supplies related to his job. Because neither was covered by a qualified health plan, Wanda paid health insurance premiums of $4,050 to provide coverage for herself and Clem. What amount is deductible from AGI?

$4,975

Phil won $945 in the scratch-off state lottery. There is no state income tax. How much should be included in gross income?

$945

Leron and Sheena bought the home five years ago for $717,500. They lived in the home for three years until they decided to buy a smaller home. Their home has been vacant for the past two years. This year, Leron and Sheena sold their home for $1,168,500

-$0 taxable gain -(1168500-717500)-500000

State income tax withholding $1,175 State income tax estimated payments $640 Federal income tax withholding $2,975 Social Security tax withheld from wages $1,840 State excise tax on liquor $370 Automobile license $285 State sales tax paid $405 What amount id deductible?

-$1,815 -state income tax withholdings and state income tax estimated payments

Assume Brooke works for Company A for half of 2020, earning $52,000 in salary, and she works for Company B for the second half of 2020, earning $92,000 in salary. What is Brooke's FICA tax obligation for the year?

-$10,625 -calculate payment based on total salary for the year

Anwer owns a rental home and is involved in maintaining it and approving renters. During the year he has a net loss of $17,800 from renting the home. His other sources of income during the year are a salary of $101,250 and $23,200 of long-term capital gains. How much of Anwer's $17,800 rental loss can he deduct currently if he has no sources of passive income?

-$12,775 -lesser of loss (17800) or phase-out (12775) -(124450-100000)*.5 = 12775

State inheritance tax on the land $1,670 County real estate tax on the land $1,550 School district tax on the land $771 City special assessment on the land (new curbs and gutters) $984 State tax on airline tickets (paid on vacation) $348 Local hotel tax (paid during vacation) $233 What amount is deductible from AGI?

-$2,321 -county real estate tax and school district tax -city special assessment is capitalized

Elmer was an extremely diligent employee this year, and his employer gave him three additional days off with pay (Elmer's gross pay for the three days totaled $2,500, but his net pay was only $1,975). What must be included in gross income?

-$2,500 -not required to work but still got the money

Alice is single and self-employed in 2020. Her net business profit on her Schedule C for the year is $168,000. What is her self-employment tax liability?

-$21,574 -137700*15.3% = 21068 -((168000*.9235)-137700)*2.9% = 506

This year Randy paid $28,600 of interest on his residence. (Randy borrowed $458,000 to buy his residence, and it is currently worth $508,000.) Randy also paid $2,700 of interest on his car loan and $4,500 of margin interest to his stockbroker (investment interest expense). Randy received $2,360 of interest this year and no other investment income or expenses. His AGI is $75,000. How much of this interest expense can Randy deduct as an itemized deduction under the following circumstances?

-$30,960 -home loan interest and amount of interest received -cannot deduct full 4500 because he only received 2360 of interest income -would carry forward 2140 of expenses to next year

Lacy had taxable income of $46,000 which includes $5,000 of qualified dividends. What is her tax liability?

-$4810+$750 -(41000-40125)*22% + 4617.5 -5000*.15

Tim is a single, cash-method taxpayer with an AGI of $50,000. In April of this year, Tim paid $920 with his state income tax return for the previous year. During the year, Tim had $4,650 of state income tax and $16,650 of federal income tax withheld from his salary. In addition, Tim made estimated payments of $1,110 and $1,720 for state and federal income taxes, respectively. Finally, Tim expects to receive a refund of $425 for state income taxes when he files his state tax return for this year in April next year. What is the amount of taxes that Tim can deduct as an itemized deduction?

-$6,680 -$920 for state income tax for previous year, $4,650 of state income tax withheld, $1,110 of estimated payments for state income tax

Wayne lost $660 on the bets he made at the race track, but he won $65 playing slot machines.

-$65 is deductible from AGI -$595 is not deductible

Grady received $8,800 of Social Security benefits this year. Grady files married joint and reports salary of $78,000 and interest income of $650. What amount of the benefits must Grady include in his gross income?

-$7,480 -must include 85% because his AGI is above $44,000 minimum for MFJ

Dennis is currently considering investing in municipal bonds that earn 7.80 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 10.40 percent. At what tax rate would he be indifferent between the bonds? What strategy is this decision based upon?

-25% -7.8% = 10.4%*(1-x) -conversion planning strategy

Juanita, a 5th circuit resident, is researching a tax question and finds a 5th Circuit case ruling that is favorable and a 9th Circuit case that is unfavorable. Which circuit case has more "authoritative weight"?

-5th circuit because she is a resident there -If Juanita lived in the 6th Circuit, the 5th and 9th Circuit cases would have equal weight

Athens Academy School-Cash- (cost) $5,600 (FMV) $5,600 United Way-Cash- (cost) $7,200 (FMV) $7,200 American Heart Association-Antique painting- (cost) $16,100 (FMV) $80,500 First Methodist Church- Coca-Cola stock- (cost) $12,900 (FMV) $19,350

-Cash deduction amount = $12,800 -Property donations amount = $35,450 (16100+19350)

Salary $360,000 Health insurance $12,500 Dental insurance $900 Membership to Heflin Country Club $15,800 Season tickets to Atlanta Braves games $4,400 Tuition reimbursement for graduate courses $3,800 Housing allowance $34,000

-Gross Income = $414,200 -salary, country club membership, season tickets, housing allowance

Dentist charges $1,740 Physician charges $2,190 Optical charges $515 Cost of eyeglasses $495 Hospital charges $3,600 Prescription drugs $285 Over-the-counter drugs $860 Medical insurance premiums (not through an exchange) $1,220 AGI of $52,000

-Medical expenses included in itemized deductions = $6,145 -all expenses are deductible except over the counter drugs -$10,045 of expenses - 3900 -subtract lesser of 3900 and AGI*10%

Leron and Sheena bought the home three years ago for $205,000 and lived in the home until it sold. This year, Leron and Sheena sold their home for $1,168,500.

-Taxable gain of $463,500 -(1168500-205000)-500000

Terry was ill for three months and missed work during this period. During his illness, Terry received $4,500 in sick pay from a disability insurance policy.

-include $4,500 in income if employer provided fringe benefit -do not include if Terry paid the premiums himself -do not include if Terry elected to include premiums as part of compensation

A gift of $20,600 from Grady's grandfather

-realized income -not included in gross income

One thousand shares of GM stock worth $132 per share inherited from Grady's uncle. The uncle purchased the shares for $28 each, and the shares are worth $137 at year-end

-realized income -not included in gross income

Sheryl is claimed as a dependent on her parents' tax return. Her parents report taxable income of $500,000 (married filing jointly). This was her only source of income. She is 16 years old at year-end. 1) She received $5,500 from a part-time job 2) She received $5,500 of interest income from corporate bonds she received several years ago 3) She received $5,500 of qualified dividend income What is her tax liability?

1) $0 -all earned income, no unearned income -standard deduction for dependent = earned income + 350 2) $1,265 -kiddie tax because she is under 18 and has unearned income 3) $660 -kiddie tax applies to parents rate of capital gains tax of 20% -(5500-2200)*.2

Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $23,000 bill from her accountant for consulting services related to her small business. Reese can pay the $23,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and will be 37 percent next year, and that she can earn an after-tax rate of return of 7 percent on her investments. 1) What is after-tax cost if she pays in December? 2) What is after-tax cost if she pays in January?

1) $15,650 -23000-(23000*.32) 2) $15,047 -23000-(23000*.37) then discount tax savings back one year

Roquan, a single taxpayer, is an attorney and practices as a sole proprietor. This year, Roquan had net business income of $90,000 from his law practice (net of the associated for AGI self-employment tax deduction). Assume that Roquan pays $40,000 in wages to his employees, has $10,000 of property (unadjusted basis of equipment he purchased last year), and has no capital gains or qualified dividends. His taxable income before the deduction for qualified business income is $100,000 Calculate Roquan's deduction for qualified business income. Assume the same facts provided above, except Roquan's taxable income before the deduction for qualified business income is $300,000.

1) $18,000 (90000*.2) because QBI is less than 163300 2) $0

Elaine paid $2,800 of tuition and $640 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. 1) Elaine's AGI is $83,200 2) Elaine's AGI is $197,000 What amount can be claimed for the American opportunity tax credit?

1) $2,360 -(2000*100%) + ((3440-2000)*25%) 2) $0 -AGI is above max threshold of $180,000

1) Trey has two dependents, his daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. His AGI is $105,600 2) Trey has two dependents, his daughters, ages 14 and 12, at year-end. Trey files a joint return with his wife. His AGI is $424,800 What is his child tax credit?

1) $2,500 -2000 for qualifying child and 500 for qualifying dependent 2) $2,750 -((424800-400000)/1000)*50=1250 -round up the multiplication factor number -4000-1250=1275

Rubio recently invested $26,500 (tax basis) in purchasing a limited partnership interest. His at-risk amount is $19,550. In addition, Rubio's share of the limited partnership loss for the year is $30,450, his share of income from a different limited partnership is $5,975, and he has $46,500 in wage income and $13,250 in long-term capital gains. 1) How much of Rubio's $30,450 loss is allowed considering only the tax-basis loss limitations? 2) How much of the loss from part (a) is allowed under the at-risk limitations? 3) How much of Rubio's $30,450 loss from the limited partnership can he deduct in the current year considering all limitations?

1) $26,500 -3950 would carry over 2) $19,550 -6950 would carry over (26500-19550) 3) $5,975 -can only deduct the loss in the current year to the extent of passive income -13575 loss carry forward (19550-5975)

Larry purchased an annuity from an insurance company that promises to pay him $11,000 per month for the rest of his life. Larry paid $1,156,320 for the annuity. Larry is in good health and is 72 years old. Larry received the first annuity payment of $11,000 this month. 1) How much of the first payment should Larry include in gross income? 2) If Larry lives more than 15 years after purchasing the annuity, how much of each additional payment should he include in gross income? 3) What are the tax consequences if Larry dies just after he receives the 100th payment?

1) $4,400 -(1-($1,156,320/(14.6*12*11000))*11000 2) all $11,000 because the annuity table predicts he will live 14.6 years 3) deduct $496,320 -would have already recognized $660,000 (6600*100) -would deduct the remaining balance (1156320-660000)

1) Zach is 29 years old and his AGI is $6,200 2) Zach is 29 years old and his AGI is $18,600 3) Zach is 24 years old and his AGI is $6,200 What is his earned income credit?

1) $474 -6200*7.65% 2) $0 -AGI is above max threshold of $15,820 3) $0 -age does not fall within range of 25-65

1) Julie paid $2,380 to the day care center and her AGI is $50,000. 2) Julie paid $5,950 to the day care center and her AGI is $50,000 3) Julie paid $2,380 to the day care center and her AGI is $14,000 What is her child care credit?

1) $476 -2380*.2 2) $600 -max expenses that qualify is 3000 so 3000*.2 3) $833 -2380*.35

Anne purchased an annuity from an insurance company that promised to pay her $20,000 per year for the next 10 years. Anne paid $145,000 for the annuity, and in exchange she will receive $200,000 over the term of the annuity. 1) How much of the first $20,000 payment should be included in gross income? 2) How much will she recognize over the term of the annuity?

1) $5,500 -(1-(145/200))*20000 2) $55,000

Tawana owns and operates a sole proprietorship and has a 37 percent marginal tax rate. She provides her son, Jonathon, $6,000 a year for college expenses. Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent. 1) How much pretax income does it currently take Tawana to generate the $6,000 (after-taxes) given to Jonathon? 2) If Jonathon worked for his mother's sole proprietorship, what salary would she have to pay him to generate $6,000 after taxes?

1) $9,524 -6000/(1-.37) 2) $7,059 -6000/(1-.15)

1) Reg. Sec. 1.111-1(b) 2) IRC Sec. 469(c)(7)(B)(i) 3) Rev. Rul. 82-204, 1982-2 C.B. 192 4) Amdahl Corp., 108 TC 507 (1997) 5) PLR 9727004 6) Hills v. Comm'r, 50 AFTR2d 82-6070 (11th Cir., 1982)

1) administrative 2) statutory 3) administrative 4) judicial 5) administrative 6) judicial

1) Dorothy and Rudolf, married taxpayers, both age 68, with gross income of $26,925. 2) Janyce, single taxpayer, age 73, with gross income of $12,800. Do they have to file a tax return?

1) not required because their income is less than the threshold of $27,400 [$24,800 standard deduction + (2 × $1,300)] additional standard deduction for age 2) not required because her income is less than the applicable threshold of $14,050 ($12,400 + $1,650 additional standard deduction for age).

Elroy, who is single, has taken over the care of his mother Irene in her old age. Elroy pays the bills relating to Irene's home. He also buys all her groceries and provides the rest of her support. Irene has no gross income. What is his filing status?

Head of household

Kano and his wife, Hoshi, have been married for 12 years and have two children under the age of 9. The couple has been living apart for the last two years and both children live with Kano. Kano has provided all the means necessary to support himself and his children. Kano and Hoshi do not file a joint return.

Head of household

Jamarcus, a full-time student, earned $3,700 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 $481 of federal income tax from his summer pay. Is Jamarcus required to file a tax return? Should Jamarcus file a tax return?

Jamarcus is not required to file an income tax return because his gross income of $3,700 is well below the gross income threshold for a single taxpayer. He should still file a tax return to receive a refund of the $481 previously withheld

The Samsons are trying to determine whether they can claim their 22-year-old adopted son, Jason, as a dependent. Jason is currently a full-time student at an out-of-state university. Jason lived in his parents' home for three months of the year, and he was away at school for the rest of the year. He received $9,775 in scholarships this year for his outstanding academic performance and earned $4,965 of income working a part-time job during the year. The Samsons paid a total of $5,220 to support Jason while he was away at college. Jason used the scholarship, the earnings from the part-time job, and the money from the Samsons as his only sources of support.

Jason is a dependent

Charlie intended to file a joint return with his spouse, Sally. However, Sally died in December. Charlie has not remarried.

Married filing joint with no dependents

Edith and her spouse support their 35-year-old son, Slim. Slim is a full-time college student who earned $5,500 over the summer in part-time work.

Married filing joint with no dependents

Elroy, who is single, has taken over the care of his mother Irene in her old age. Elroy pays the bills relating to Irene's home. He also buys all her groceries and provides the rest of her support. Irene has no gross income. Elroy's mother, Irene, lives with him and receives an annual $5,850 taxable distribution from her retirement account. Elroy still pays all the costs to maintain the household. What is his filing status?

Single

Lacy is divorced and the custodial parent of a three-year-old girl named Bailey. Lacy and Bailey live with Lacy's parents, who pay all the costs of maintaining the household (such as mortgage, property taxes, and food). Lacy pays for Bailey's clothing, entertainment, and health insurance costs. These costs comprised only a small part of the total costs of maintaining the household. Lacy does not qualify as her parents' dependent.

Single

Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $36,500 from County Bank and paid interest of $2,190. Lionel used the loan proceeds to pay his law school tuition. Lionel's AGI before deducting interest on higher-education loans is $50,000.

The maximum interest deduction is the amount paid up to $2,500. The deduction is phased out as AGI exceeds $70,000. Consequently, because his AGI is below the trigger amount for the phase-out, Lionel can deduct $2,190, which is the lesser of (1) $2,500 or (2) $2,190 (the amount of interest expense he paid). Lionel paid $36,500 of qualified educational expenses. Because his modified AGI ($50,000 − $2,190 deduction for interest on higher education loan = $47,810) is less than the trigger for the deduction for qualified education expense phase-out ($65,000), Lionel can deduct $4,000 for qualified education expenses, which is the lesser of (1) $4,000 or (2) $36,500 (qualified education expenses paid). -If his income was $90,000 he wouldn't be able to deduct any expenses

Shane has never filed a tax return despite earning excessive sums of money as a gambler. When does the statute of limitations expire for the years in which Shane has not filed a tax return?

The statute of limitations remains open indefinitely for years in which the taxpayer fails to file a return

John and Tara Smith are married and have lived in the same home for over 20 years. John's uncle Tim, who is 64 years old, has lived with the Smiths since March of this year. Tim is searching for employment but has been unable to find any—his gross income for the year is $2,000. Tim used all $2,000 toward his own support. The Smiths provided the rest of Tim's support by providing him with lodging valued at $5,000 and food valued at $2,200.

Tim is a dependent

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

Trey is a self-employed, special-duty nurse. He spent $570 for uniforms.

amount is deductible for AGI

Timothy, a plumber employed by ACE Plumbing, spent $136 for small tools to be used on his job, but he was not reimbursed by ACE

amount is not deductible

Sherri has a short-term loss of $2,540 and a long-term loss of $5,100. How much loss can Sherri deduct?

limited to $3,000 loss for the year

Bart is the beneficiary of a $157,500 whole life insurance policy on the life of Thelma. Thelma died this year, and Bart received $157,500 in cash. Bart inherited 500 shares of stock from Thelma's estate. Thelma purchased the shares many years ago for $2,350, and the shares are worth $68,000 at her death.

not included in gross income

A loan of $5,150 for school expenses from Grady's aunt

not realized income and should not be included in gross income

Janus sued Tiny Toys for personal injuries from swallowing a toy. Janus was paid $41,000 for medical costs and $305,000 for punitive damages.

only $305,000 is income