CPA REG
Mr. and Mrs. X plan to file a joint return for 2020. Neither is over 65 or blind, nor do they have any dependents. What is the amount of gross income required before they must file a return?
$24,800
Lee qualified as head of a household for 2020 tax purposes. Lee's 2020 taxable income was $100,000, exclusive of capital gains and losses. Lee had a net long-term capital loss of $8,000 in 2020. What amount of this capital loss can Lee offset against 2020 ordinary income?
$3,000 Capital losses offset capital gains. Excess of capital losses over capital gains (net capital loss) is deductible against ordinary income, but only up to $3,000 in the current tax year.$3,000
In 2020, Alex Burgos, who is 24 years old, paid $600 to Rita, his ex-wife, for child support. Under the terms of his 2020 divorce decree, Alex claims as a dependent his 3-year-old son, William, who lived with Rita for the entire year. Alex's only income in 2020 was from wages of $17,500, resulting in an income tax of $510. How much is Alex's Earned Income Credit for 2020?
$0 Alex does not have a qualifying child since his son does not live with him for more than one-half of the tax year. An individual eligible for the Earned Income Credit without a qualifying child is one who meets three qualifications: (1) The individual has a principal place of abode in the United States for more than one-half of the tax year; (2) the individual is at least 25 years old and not more than 64 at the end of the tax year; and (3) the individual cannot be claimed as a dependent of another taxpayer for the year the credit is being claimed. Since Alex is only 24, he does not meet the qualifications.
In 2020, Smith paid $6,000 to the tax collector of Big City for realty taxes on a two-family house owned by Smith's mother. Of this amount, $2,800 covered back taxes for 2019, and $3,200 covered 2020 taxes. Smith resides on the second floor of the house, and his mother resides on the first floor. In Smith's itemized deductions on his 2020 return, what amount was Smith entitled to claim for realty taxes?
$0 Taxes may be deducted only by the person on whom they are legally levied or by someone with a legally recognized interest in the property. Smith does not own the house, therefore none of the taxes paid can be deducted on his tax return and the payment is treated as a gift to Smith's mother. Smith's mother is entitled to the deduction only if she pays the taxes.
Jim and Nancy Walton, both age 55, had adjusted gross income of $25,000 in 2020. During the year, they paid the following medical-related expenses:Over-the-counter medicines$400Prescription drugs300Doctor fees830Health club membership (recommended bythe family doctor for general health care)800Medical care insurance280How much may the Waltons use as medical expenses in calculating itemized deductions for 2020?
$0 Medical care insurance $ 280 Doctor fees 830 Prescription drugs 300 Total expenses $1,410 Less: 7.5% of AGI (1,875) Allowable medical expense deduction $ 0
interest expense limitation on SCH A?
$0, No limitations
An employee gets a 15% discount on qualified property at the retail store where he works. The store's gross profit percentage is 18%, and the discount resulted in $225 of savings.
$0. Employee discounts on the selling price of qualified property and services can be excluded from AGI. However, the discount may not exceed the gross profit percentage or 20% of the price offered to customers, in the case of qualified services.
Shirley, a single taxpayer, has taxable income of $160,000. She has qualified business income (QBI) of $50,000 and no qualified property. The qualified business paid a total of $15,000 in wages. Under Sec. 199A, what is Shirley's deductible amount for the qualified business?
$10,000 Because Shirley's taxable income of $160,000 is less than $163,300, the W-2 wages/qualified property limit does not apply. Therefore, the deductible amount equals 20% of QBI, or $10,000.
Anna is a 22-year-old student with earned income of $10,000 from a summer job and dividend income of $1,100. Her parents claim her as a dependent on their tax return. What is Anna's basic standard deduction amount?
$10,350 The basic standard deduction amount of a student under age 24 who is claimed as a dependent on another individual's income tax return is limited to the greater of either $1,100 or the dependent's earned income for the year plus $350 up to the otherwise applicable basic standard deduction amount. Earned income does not include either dividends or capital gains from the sale of stock. Since Anna's earned income of $10,000 exceeds $1,100 and is less than the otherwise applicable standard deduction amount of $12,400, Anna's applicable standard deduction is $10,350 ($10,000 earned income + $350).
. Taxpayer's employer's share of FICA for self-employment income of $150,000.
$10,546. The employer's share of FICA taxes for self-employment income is 6.20% of the first $137,700 of net earnings from self-employment for Social Security and 1.45% of total wages for Medicare. The tax is calculated as follows: ($137,700 × 6.20%) + [$150,000 × (1 - .0765) × 1.45%)].
Dangerous, Inc., is in the business of deep sea treasure hunting. Due to the inherently risky nature of this business, Dangerous offers death benefits to its employees. On June 1, one of Dangerous's employees died on the job, and Dangerous paid the employee's family $100,000 in death benefits.
$100,000.00. All benefits received by the beneficiaries or the estate of an employee from or on behalf of an employer are included in gross income. This is for employer-paid death benefits, not to be confused with death benefits of a life insurance plan provided by the employer.
Farr, an unmarried taxpayer, had $70,000 of adjusted gross income and the following deductions for regular income tax purposes: Home mortgage interest on a loan to acquire a principal residence $11,000 State and local taxes 2,000 What are Farr's total allowable itemized deductions for computing alternative minimum taxable income?
$11,000 Only certain itemized deductions are allowed in calculating the AMT. Taxes are not allowed, so the only allowable itemized deduction for computing Farr's AMT is the $11,000 home mortgage interest on a loan to acquire a principal residence.
A 33-year-old taxpayer withdrew $30,000 (pretax) from a traditional IRA. The taxpayer has a 28% effective tax rate and a 35% marginal tax rate. What is the total tax liability associated with the withdrawal?
$13,500 the applicable tax rate is 35% the marginal tax rate and also the penalty is added 30,000*.35=10500+3000penalty=13500
Post Co. has only one employee, and that employee's compensation and related employment taxes (e.g., FICA, FUTA) are Post's only expenses. For the year, Post earned $300,000 in revenue and paid $140,000 as compensation
$149,013. Cash paid to an employee is deductible by the employer. Additionally, the employer may deduct the cost of FICA and FUTA taxes paid. The employer must pay 6.20% of the first $137,700 of wages paid for Social Security tax plus 1.45% of all wages for Medicare tax. FUTA tax is 6.00% of the first $7,000 of wages paid to each employee. Thus, Post has deductible FICA tax expense of $10,567 [($137,700 × 6.20%) + ($140,000 × 1.45%)] and deductible FUTA tax expense of $420 ($7,000 × 6.00%). Therefore, Post has gross profit of $149,013 ($300,000 revenue - $140,000 compensation - $10,567 FICA taxes - $420 FUTA taxes).
The Jacksons, who file a joint return, actively participate in a solely-owned rental real estate activity that produces a $30,000 loss during the current year. Their adjusted gross income was $120,000 before considering the rental activity. How much of the rental loss, if any, are the Jacksons entitled to deduct?
$15,000 Generally, an active participant in rental real estate may deduct up to $25,000 per year in rental real estate losses. For taxpayers whose MAGI exceeds $100,000, the amount of the active real estate loss deduction is reduced for 50% of the excess of MAGI over $100,000. For the Jacksons, this means the currently deductible portion of real estate losses is $15,000 {$25,000 - [($120,000 MAGI - $100,000 base amount) × 50% limitation]}.
In 2020, Rusty paid $5,000 of interest on a qualified education loan. Rusty is not claimed as a dependent by another taxpayer. What is the maximum deduction available to him for the education loan interest?
$2,500 I ndividuals are allowed to deduct interest paid during the tax year on any qualified education loan. The maximum amount that may be deducted is $2,500.
Christopher Scott is a self-employed computer consultant. He earned a net profit of $100,000 in 2020 from his business. During 2020, he paid $2,500 for health insurance coverage for himself and his wife. What is the amount and character of the deduction that the Scotts may claim on their 2020 individual tax return?
$2,500 deduction to arrive at adjusted gross income. Self-employed individuals may deduct 100% of health insurance premiums from gross income to arrive at adjusted gross income.
Under a written agreement between Mrs. Norma Lowe and an approved religious exempt organization, a 10-year-old girl from Vietnam came to live in Mrs. Lowe's home on August 1, 2020, in order to be able to start school in the U.S. on September 3, 2020. Mrs. Lowe actually spent $500 for food, clothing, and school supplies for the student during 2020, without receiving any compensation or reimbursement of costs. What portion of the $500 may Mrs. Lowe deduct on her 2020 income tax return as a charitable contribution?
$200 50 per month are deductible Amounts paid by a taxpayer to maintain an individual other than a dependent as a member of his or her household under a written agreement between the taxpayer and a qualified organization to provide educational opportunity for pupils or students in private homes are deductible up to $50 per month. The student must attend full-time in the 12th or any lower grade of a qualified educational organization located in the United States. The deduction is only available for the months the child is a full-time student
Jerry just graduated from college in Florida and accepted a job in California. This is Jerry's first job. As part of moving to California to accept this position, Jerry incurred the following costs: $2,000 to ship his furniture; $600 for gas, tolls, and lodging; $200 for meals en route; and $300 for the real estate agent that helped him find and lease his apartment. Jerry's employer reimbursed him for all of these expenses.
$3,100.00. As of tax year 2018, there is no deduction for moving expenses or exclusion for reimbursed moving expenses.
Capital losses can be deduct up to
$3000 MFJ and $1500 Single
During 2020, student D, who is single, was claimed as a dependent by his parents. D earned $1,500 from a part-time job at a gas station. How much interest or other unearned income would D have to receive at a minimum to require him to file an income tax return for 2020?
$351 In general, an individual must file an income tax return if his or her gross income equals or exceeds his or her standard deduction [Sec. 6012(a)]. But in the case of an individual who is claimed as a dependent on another's tax return, (s)he must file if unearned income exceeds $1,100 or total income exceeds the standard deduction. For such a person, the standard deduction is limited to the greater of (1) $1,100 or (2) the individual's earned income plus $350 [Sec. 63(c)(5)]. Since D was claimed as a dependent by his parents, his standard deduction is limited to his earned income of $1,500 plus $350 ($1,850).
Sam and Ann Jefferson filed a joint federal income tax return for the calendar year 2020. Among their cash expenditures during 2020 were the following: $3,000 real estate tax on residence; $400 state and city sales taxes; $900 state income tax. What is the maximum deduction for taxes on the Jeffersons' 2020 return?
$3900 Real estate taxes are deductible. you can elect State and city tax OR state income tax, the higher to maximize the itemized dedutions.
French Treats, a small bakery, had $52,300 of start-up expenses and earned $7,000 of revenue during December (the month that business began
$4,024. Taxpayers can deduct up to $5,000 of start-up costs in the taxable year in which the business began. Any start-up costs in excess of $5,000 are capitalized and amortized over a 180-month period beginning in the month in which the active trade or business begins. The amount of this deduction is reduced (but not below zero) by the amount of start-up costs that exceed $50,000. French Treats is allowed a startup deduction of $2,700 [$5,000 - ($52,300 - $50,000)] and an amortization deduction of $276 [($52,300 - $2,700) ÷ 180 months] for December. Therefore, French Treats has net profit of $4,024 ($7,000 - $2,700 - $276).
Alex and Myra Burg, married and filing joint income tax returns, derive their entire income from the operation of their retail candy shop. Their 2020 adjusted gross income was $50,000. The Burgs itemized their deductions on Schedule A for 2020. The following unreimbursed cash expenditures were among those made by the Burgs during 2020: Repair and maintenance of motorized wheelchair for physically handicapped dependent child $ 300 Tuition, meals, and lodging at special school for physically handicapped dependent child in the institution primarily for the availability of medical care, with meals and lodging furnished as necessary incidents to that care 4,000 Without regard to the adjusted gross income percentage threshold, what amount may the Burgs claim in their 2020 return as qualifying medical expenses?
$4,300 Medical care expenses of a taxpayer, a spouse, or a dependent are deductible only to the extent they exceed 7.5% of AGI. Supplies purchased to alleviate a physical defect or provide relief from an ailment qualify as medical expense. Capital expenditures for qualified medical costs are also deductible. If so, the cost of repair and maintenance is also deductible. If the principal reason an individual is in an institution other than a hospital, such as a special school for the handicapped, is the need for, and availability of, the medical care furnished by the institution, the full costs of meals, lodging, and other services necessary for furnishing the medical care are all qualified medical expenditures.
Mary files as head of household and has three dependent children, ages 15, 16, and 19. Mary and the children are U.S. citizens. Her only income is a salary of $202,500. Her tax is $42,284. How much Child Tax Credit and Credit for Other Dependents is she allowed in 2020?
$4,350 The credit is for $2,000 per qualifying child. Also, a Credit for Other Dependents of $500 is allowed for each qualifying relative. However, the credit begins to phase out when modified AGI reaches $200,000 for single and head of household filers. The credit is reduced by $50 for each $1,000, or fraction thereof, of modified AGI above the thresholds. Accordingly, Mary is allowed a Child Tax Credit of $4,500 before the credit is reduced by the threshold, because two of her children are qualified children and the third is a qualified relative. Her credit is reduced by $150 [($202,500 - $200,000) ÷ $1,000 = 2.5 (rounded to 3) × $50], thus allowing Mary a credit of $4,350 ($4,500 - $150).
In 2020, a self-employed taxpayer had gross income of $57,000. The taxpayer paid self-employment tax of $8,000, health insurance of $6,000, and $5,000 of alimony per a 2018 divorce agreement. The taxpayer also contributed $2,000 to a traditional IRA. What is the taxpayer's adjusted gross income?
$40,000 In 2020, self-employed individuals can deduct 50% of FICA taxes paid and 100% of payments made for health insurance coverage for the individual and his or her family. Alimony is gross income to the recipient and deductible by the payor. Contributions of up to $6,000 to an individual retirement account are deductible.
For the year ending December 31, 2020, David Roth, a married taxpayer filing a joint return, reported the following: Investment income from dividends and interest $24,000 Long-term capital gains on stock held for investment 25,000 Investment expenses 4,000 Interest expense on funds borrowed in 2020 to purchase investment property 70,000 What amount can Roth deduct in 2020 as investment interest expense if he elects to pay his capital gains on stock at an ordinary tax rate?
$45000 Roth had investment income of $49,000 ($24,000 + $25,000) and investment expenses of $4,000, or net investment income of $45,000. His investment interest deduction is limited to $45,000. The $25,000 of disallowed investment interest ($70,000 - $45,000) may be carried over and treated as investment interest paid or accrued in the succeeding taxable year.
Lana and Luke are married and have a taxable income of $310,000. Their share of the income from an accounting partnership is $250,000. The accounting partnership pays a total of $90,000 in W-2 wages. Under Sec. 199A, what is their deductible amount for the partnership?
$50,000 Lana and Luke's taxable income is less than $326,600, so they can simply deduct 20% of qualified business income, which is $50,000 ($250,000 × 20%). Though the partnership is an SSTB, the limitations and disallowance do not apply when taxable income is below $326,600 for MFJ. Therefore, at taxable income of only $310,000, the full 20% of QBI is allowed.
Reimbursement by the employer for $500 of moving expenses incurred by an employee.
$500. As of tax year 2018, there is no deduction for moving expenses or exclusion for reimbursed moving expenses.
Spencer, who itemizes deductions, had adjusted gross income of $60,000 in 2020. The following additional information is available for 2020:Cash contribution to church$4,000Purchase of art object at church bazaar (with afair market value of $800 on the date of purchase)1,200Donation of used clothing to Salvation Army (fairvalue evidenced by receipt received)600What is the maximum amount Spencer can claim as a deduction for charitable contributions in 2020?
$5000 The cash contribution to the church is fully deductible. The clothing donation is $600. The amount of the contribution with respect to the art object is the excess of what was given over what was received, or $400.
Two season tickets to football games given to an employee. The tickets cost $350 each.
$700. The value of occasional tickets to entertainment/sporting events are a de minimis fringe benefit. However, season tickets do not qualify as "occasional," and their value must be included in the employee's AGI
An individual taxpayer reports the following items for the current year: Ordinary income from Partnership A, operating a movie theater in which the taxpayer materially participates $70,000 Net loss from Partnership B, operating an equipment rental business in which the taxpayer does not materially participate (9,000) Rental income from building rented to a third party 7,000 Short-term capital gain from sale of stock 4,000 What is the taxpayer's adjusted gross income for the year?
$74,000
Matthews was a cash-basis taxpayer whose records showed the following: 2020 state and local income taxes withheld $1,500 2020 state estimated income taxes paid Dec 30, 2020 400 2020 federal income taxes withheld 2,500 2020 state and local income taxes paid April 15, 2021 300 What total amount was Matthews entitled to claim for taxes on her 2020 Schedule A of Form 1040?
1900, For a cash-basis, calendar-year taxpayer, state and local income taxes paid or withheld during the year are fully deductible as itemized deductions. Federal income taxes are not deductible. State and local income taxes paid in the next calendar year are deductible in the next year.
All of the following individuals, who meet the income and residency requirements, qualify for the Earned Income Credit in 2020 except
A 22-year-old married individual whose spouse is 18 years old.
The XYZ Partnership was formed on January 1 of the current year and incurred a $48,000 loss for the year ending December 31 of the same year. Each of the three partners share profits and losses equally. Mr. Y is a passive investor in the partnership. On January 1 of the current year, Y contributed $6,000. Mr. Y contributed $10,000 more during the year and had draws of $2,500. The partnership has no portfolio income and no partnership liabilities. What is Y's deductible loss from XYZ for the year if he had $9,500 in income from other passive investments?
A partner may deduct his or her distributive share of partnership loss only to the extent of his or her adjusted basis in the partnership at the end of the year in which the loss occurs [Sec. 704(d)]. Further, loss from a passive investment can offset income from passive investments only (Sec. 469). Y's adjusted basis at year end is Adjusted basis January 1 $ 6,000 Contributions during the year 10,000 Distributions during the year (2,500) Adjusted basis December 31 before loss $13,500 Y's distributable share of the loss is $16,000 ($48,000 × 1/3). Y's allowable loss for the year is limited to his December 31 adjusted basis of $13,500. It is further limited to income from other passive investments of $9,500.
Medical Expenses formula
Actual medical exp - (AGI x 0.075)
Employee X is provided with $115,000 of nondiscriminatory group-term life insurance by his employer. The annual cost of a policy of this type is $1.10 per $1,000 of coverage, and X's required contribution is $3.00 per month.
Amount in excess of $50,000 $65,000 Cost of $65,000 policy [$1.10 × ($65,000 ÷ $1,000)] 71.50 Less: Employee's contribution ($3 × 12) (36.00) GI to Employee X $ 35.50
What is the deductible amount for qualified medical expenses as an itemized deduction?
Amounts paid for qualified expenses that exceed 7.5% of AGI may be deducted. Qualified expenses are those primarily for alleviating or preventing a physical or mental disability or illness, not for improving general health or sense of wellness.
What is the tax treatment of net losses in excess of the at-risk amount for an activity?
Any losses in excess of the at-risk amount are suspended and carried forward without expiration and are deductible against income in future years from that activity.
How may taxes paid by an individual to a foreign country be treated?
As a credit against federal income taxes due.
Hannah, a single taxpayer, owns 50% of a partnership and has taxable income of $105,000. She has qualified business income of $70,000 from the partnership. The partnership paid a total of $27,500 in W-2 wages and does not have any qualified property. Under Sec. 199A, what is Hannah's deductible amount for the partnership (i.e., before applying overall limitation)?
Because Hannah's taxable income is less than the $163,300 threshold amount, the W-2 wages/qualified property limit does not apply. Thus, Hannah takes a deduction equal to 20% of qualified business income ($70,000), $14,000.
Tyler and Ross are married, have taxable income of $430,000, and own a partnership together. They have a qualified business income (QBI) of $334,600 from the partnership and do not have any qualified property. The partnership pays a total of $127,500 in W-2 wages. Under Sec. 199A, what is Tyler and Ross's QBID allowed for the partnership?
Because Tyler and Ross do not have any qualified property, the QBI allowed amount for this qualified trade or business is limited to the lesser of 20% of the taxpayer's QBI with respect to the qualified trade or business or 50% of the W-2 wages with respect to the qualified trade or business. Because their taxable income of $430,000 is greater than $426,600, the W-2 wages/qualified property limit needs to be considered. Thus, the partnership's allowed QBI is limited to the lesser of 20% of QBI ($66,920) or 50% of W-2 wages with respect to the partnership ($63,750). The QBI allowed from the partnership is only $63,750. In addition to being the allowed QBI from the partnership, since there is no indication of other qualified businesses or net capital gains, the allowed QBI from the partnership is also the QBID after considering the overall limit (i.e., 20% × Taxable income - Net capital gains).
Under what circumstances is a married filing jointly taxpayer who is engaged in a specified service trade or business allowed to claim the Sec. 199A deduction?
The taxpayer may claim the Sec. 199A deduction if (s)he has taxable income of less than $426,600.
What is the deductible amount for personal casualty and theft losses?
Deductible losses are those Attributable to a federally declared disaster, Not compensated by insurance, and Over $100 and over 10% of AGI. Deductible loss = Casualty loss - Insurance compensation - $100 - 10% of
Which of the following credits can result in a refund even if the individual had no income tax liability?
Earned Income Credit.
For what minimum period should working papers related to tax practice be retained by the independent CPA?
For the statutory period within which legal action may be brought against the independent CPA. Under the Sarbanes-Oxley Act of 2002, auditors of public companies must retain their working papers for at least 7 years. Furthermore, it is a crime for auditors of public companies to fail to maintain all audit or review working papers for at least 5 years.
What are the deductible amounts and limitations for charitable (1) cash, (2) capital gain property, (3) ordinary income property, and (4) services contributions made to 50% limit organizations?
Form of Property Amount of Donation Limitation Cash Cash amount 60% of AGI Capital gain property FMV 30% of AGI Ordinary income property Lower of FMV or AB 50% of AGI Services Unreimbursed expenses 50% of AGI
Which of the following credits is a combination of several tax credits to provide uniform rules for the current and carryback-carryover years?
General Business Credit. Is a set of several credits commonly available to businesses, including credits for investment, research, and work opportunity jobs, among others.
Richard expects income for the first four years of farm operations to be very volatile and is interested in income averaging on his tax return. Which code section and subsection provides the authority for Richard to elect averaging of farm income for purposes of computing his tax liability?
IRC 1301 (a)
Almost Ready, Inc., incurred $15,000 of expenditures in preparing its model car business. The expenditures include market research costs and advertising fees. Almost Ready would like to deduct these expenses on its current tax return as start-up expenditures. Which section and subsection of the Internal Revenue Code defines start-up expenditures?
IRC 195 (c)
Which section of the Internal Revenue Code best describes the substantiation that a taxpayer must maintain in order to claim a valid business deduction for traveling expenses?
IRC 274 (d)
According to the Securities Act of 1933, which of the following statements is correct regarding an issuer of securities?
If an issuer sells a security and fails to meet certain disclosure requirements, the purchaser may sell it back to the issuer and recover the price paid.
Which of the following statements about qualified business income (loss) is correct under Sec. 199A?
If the net amount of qualified income, gain, deduction, and loss is less than zero, the loss must be carried over to the next year.
Regulation D of the Securities Act of 1933 provides a private placement exemption from registration of a securities offering. Federal securities laws and regulations are violated if the securities are sold
In an immediate unregistered reoffering to the public.
Dart Corp. engaged Jay Associates, CPAs, to assist in a public stock offering. Jay audited Dart's financial statements and gave an unmodified opinion, despite knowing that the financial statements contained misstatements. Jay's opinion was included in Dart's registration statement. Larson purchased shares in the offering and suffered a loss when the stock declined in value after the misstatements became known. In a suit against Jay under the anti-fraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, Larson must prove all of the following except
Larson was an intended user of the false registration statement.
While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial statements. Larson's unmodified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose. Which of the following statements is true with regard to a suit against Larson and the client by a purchaser of the securities under Section 11 of the Securities Act of 1933?
Larson will not be liable if it had reasonable grounds to believe the financial statements were accurate
Which of the following is a true statement concerning losses from passive activities?
Losses from one passive activity may offset income from another passive activity.
In a jurisdiction having an accountant-client privilege statute, to whom may a CPA turn over working papers without a client's permission?
State CPA society peer review panel.
Vacation home rented out for only 10 days Payments to owners for services rendered
No Deductible 100% deductible without limitation
Alt Partnership, a cash-basis, calendar-year entity, began business on October 1, 2020. Alt incurred and paid the following in 2020: Legal fees to prepare the partnership agreement $12,000 Accounting fees to prepare the representations in offering materials 15,000 Alt elected to amortize costs. What was the maximum amount (ignoring any immediate expensing allowed) that Alt may deduct on the 2020 partnership return?
Organization expenses are incurred in the formation of the partnership. The partnership may elect to amortize organization expenses over a period of not less than 180 months. The fees related to preparing the partnership agreement are organization expenses, but the expenses related to the issuance or sale of partnership interests (syndication fees) are specifically excluded. The partnership may recognize a maximum of 3 months of amortization expense this year, or $200 ($12,000 ÷ 180 × 3).
Under the traditional doctrine rule, to which of the following parties will a CPA be liable for common law negligence?
Parties in Privity Foreseen Parties Parties in Privity Yes Foreseen Parties No
Plaintiff acquired a security issued under a registration statement that contained a material misstatement of facts. In a suit by Plaintiff under Section 11 of the Securities Act of 1933 against the issuer's auditor,
Plaintiff need not prove intent or causation by the defendant. Under Section 11 of the 1933 act, the existence of a material misstatement or omission is enough to state a claim. Plaintiffs need not prove intent, negligence, or causation by the defendant, or reliance by the plaintiff on the misstatement or omission.
When determining his alternative minimum tax, Edward had the following adjustments and preference items:Itemized deduction for state taxes$1,800Refund of prior year state income tax300Cash contributions800Capital gain700Depletion in excess of adjusted basis700What are the amounts of tax preference items and adjustments to taxable income for alternative minimum tax purposes on Edward's 2020 tax return? Preference Adjustments
Preferences $700 Adjustments $1,500 The depletion is a tax preference item that must be added back for alternative minimum tax purposes. The adjustments, on the other hand, include only the itemized deduction reduced by the refund of prior-year state income tax. Thus, the tax preference items total $700, and the adjustments equal $1,500 ($1,800 - $300).
How does the Securities Act of 1933, which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement, expand auditors' liability to purchasers of securities beyond that of common law?
Privity with purchasers is not a necessary element of proof.
If COGS = Beginning inventory + Purchases - Ending inventory, then Purchases = COGS - Beginning inventory + Ending inventory
Purchases = COGS - Beginning inventory + Ending inventory,
Can negative qualified business income (qualified business loss) be carried back?
Qualified business losses (QBLs) can only be carried forward to reduce the amount of qualified business income (QBI) in later years.
What types of interest are deductible as itemized deductions?
Qualified residence interest expenseOn loans not more than $750,000 ($375,000 for MFS) Investment interest expenseDeduction limited to net investment income (Investment income - Investment expense)
What qualifies business income for the qualified business income deduction (QBID)?
Qualifying business income Is effectively connected with the conduct of a trade or business within the U.S. Is included in taxable income for the tax year Comes from a flow-through entity Is from core activities
What are the two categories of trade or business used to determine the qualified business income deduction (QBID)?
Specified service trade or business (SSTB) Qualified trade or business (QTB)
Which of the following may not be deducted in the computation of alternative minimum taxable income (AMTI) of an individual?
Standard deduction. Standard deductions are added back to taxable income when calculating the Alternative Minimum Tax. Therefore, no deduction is allowed for standard deductions in the computation of AMTI.
Fred Harvey, a cash-basis taxpayer, elected to itemize his deductions on his 2019 income tax return. Harvey plans to itemize again in 2020, and the following information relating to his state income taxes is available:Taxes withheld in 2020$2,500Refund received in 2020 of 2019 tax500Assessment paid in 2020 of 2018 tax700The above information should be reported by Harvey in his 2020 tax return as
State and local income taxes of $3,200 and gross income from state and local income tax refund of $500.
Fred Harvey, a cash-basis taxpayer, elected to itemize his deductions on his 2019 income tax return. Harvey plans to itemize again in 2020, and the following information relating to his state income taxes is available:Taxes withheld in 2020$2,500Refund received in 2020 of 2019 tax500Assessment paid in 2020 of 2018 tax700The above information should be reported by Harvey in his 2020 tax return as
State and local income taxes of $3,200 and gross income from state and local income tax refund of $500. Answer (C) is correct.State and local income taxes are deductible. A cash-basis taxpayer is entitled to deduct state income taxes withheld by his or her employer in the year such amounts are withheld. Assessments of state income taxes are deductible in the year of payment by a cash-basis taxpayer even if the payments relate to prior years. A refund of a prior year's tax payment must be included in the taxpayer's gross income in the year received if the taxpayer deducted the taxes in an earlier year
Johnson worked for ABC Co. and earned a salary of $100,000. Johnson also received, as a fringe benefit, group term life insurance at twice Johnson's salary. The annual IRS-established uniform cost of insurance is $2.76 per $1,000. What amount must Johnson include in gross income?
The cost of group term life insurance up to a coverage amount of $50,000 is excluded from the employee's gross income. Premiums paid by the employer for coverage in excess of $50,000 are included in gross income. As a result, $150,000 ($200,000 life insurance coverage - $50,000 exemption) of the coverage is taxable. Since Johnson must also include his salary in gross income, Johnson has gross income of $100,414 {$100,000 + [($150,000 ÷ $1,000) × $2.76]}.
West & Co., CPAs, expressed an unmodified opinion on the financial statements of Pride Corp. These were included in Pride's registration statement filed with the SEC. Subsequently, Hex purchased 500 shares of Pride's preferred stock, which were acquired as part of a public offering subject to the Securities Act of 1933. Hex has commenced an action against West based on the Securities Act of 1933 for losses resulting from misstatements of facts in the financial statements included in the registration statement.
The misstatements were material.
What is the overall qualified business income deduction (QBID)?
The overall QBID is 20% of the lesser of Qualified business income or Taxable income - Net capital gains. NOTE: Net capital gains = Net long-term capital gains - Short-term capital loss
When is the penalty for IRA distributions made before age 59 1/2 not imposed?
The penalty is not imposed when distributions are for Death or disability Medical expenses in excess of 7.5% of AGI Qualified higher education expenses The purchase of a first home (up to $10,000) Birth or adoption of a child (up to $5,000)
You are the accountant for Company R, and you are requested to file Form 941, Employer's Quarterly Federal Tax Return for Federal Income Tax Withheld from Wages and for Federal Insurance Contributions Act Taxes, for the third quarter of 2020. Given the following information, what is the total FICA tax due for the third quarter (rounded to the nearest dollar)?
The two components of the FICA tax [Social Security (SS) and Medicare] must be reported separately on Form 941. The rate for SS is 6.2% for employers and employees on wages up to $137,700 (in 2020). The rate for Medicare is 1.45% each for employers and employees, with no wage ceiling. With respect to the SS component, the tax is paid until the wage ceiling is reached. Then no SS tax is paid for the rest of the year; i.e., it is not paid ratably over the year. The total wages subject to the SS component in the third quarter of 2020 amount to $29,000 since Y's wages exceed the SS limitation before the end of the quarter. The total FICA tax is 7.65% in 2020. However, the employee and the employer are each required to pay the 7.65%, and the combined percentage of 15.3% is reported on Form 941, separated into its two components.
Ruth Lewis has adjusted gross income of $100,000 for 2020 and itemizes her deductions. On September 1, 2020, she made a contribution to a private nonoperating foundation (not a 50% charity) of stock held for investment for 2 years that cost $25,000 and had a fair market value of $70,000. The foundation sold the stock for $70,000 on the same date. Assume that Lewis made no other contributions during 2020. How much should Lewis claim as a charitable contribution deduction for 2020?
This answer is correct. Generally, contributions to private operating foundations are limited to 30% of the taxpayer's AGI. But contributions of long-term capital gain property to private nonoperating foundations are limited to 20% of the taxpayer's AGI. Lewis's charitable contribution deduction should be limited to $20,000 ($100,000 × 20%). The total charitable contribution is equal to $25,000 (lower of FMV or AB) because it is being made to a private nonoperating foundation. The amount of $20,000 can be deducted in 2020 because of the 20% limit. The remaining $5,000 can be carried forward for up to 5 years.
Terry, a self-employed laboratory consultant specializing in white mice, provided consulting services at a laboratory in Paris concerning the care and feeding of white mice. Terry's expenses were $1,600 for airfare, $400 for food, and $400 for lodging. Terry spent 5 days at the laboratory and 3 days visiting friends. How much can she deduct for the trip?
This trip is subject to the rules under Sec. 274(c), which require all foreign travel for more than 1 week to be allocated between business and personal time when more than 25% of the time is spent on nonbusiness affairs. Therefore, Terry may deduct only 5/8 of the transportation, food, and lodging expenses. Meals are limited to 50% of total cost. Her deduction is as follows: Airfare ($1,600 × 5 ÷ 8) $1,000 Lodging ($400 × 5 ÷ 8) 250 Meals ($400 × 50% × 5 ÷ 8) 125 Total travel expense deduction $1,375
Due to the fact that parking downtown is difficult, Lucas Lawyer parks on the outskirts of the city and uses the subway from there to get to work. Lucas's employer pays all of Lucas's transportation costs, which are $377 monthly for parking and $465 monthly for the subway.
Up to $270 per month may be excluded for the value of employer-provided transit passes. Additionally, an exclusion of up to $270 per month is available for employer-provided parking Qualified parking [($377 - $270) × 12 months] $1,284 Subway passes [($465 - $270) × 12 months] 2,340 Amount included in income $3,624
All of the following payments made to employees would be currently deductible as business expenses except
Wages paid to employees for constructing a new building to be used in the business.
Nova owns a sole proprietorship and is also a one-third owner of a partnership. Both businesses are qualified businesses. Which of the following statements is correct in calculating W-2 wage limitation to determine Nova's deductible amount for each business under Sec. 199A?
When calculating the W-2 wages limitation, Nova should take into account all W-2 wages paid to employees by the sole proprietorship and the allocable share of W-2 wages paid by the partnership, respectively.
