ANSWER KEY AC499 Unit 7 Project Taxation Individual
1. For each of the following cases, indicate the filing status for the taxpayers) for 2010 using the following legend: A - Single B - Married, filing a joint C - Married, filing separate returns D - Head of household E - Qualifying widow(er) a. Linda is single and she supports her mother (who has no income), including paying all the costs of her housing in an apartment across town. b. Frank is single and he has a dependent child living in his home c. Arthur is single and he supports his 30-year-old brother, who lives in his own home d. Leslie's final decree of divorce was granted on June 18, 2010.She has no dependents. e. Tom and Carry were married on December 31, 2010.
2. Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled to claim on their 2010 income tax returns. a. Donna, a 20-year-old single taxpayer, supports her mother, who lives in her own home Her mother has income of $1,350. b. William, age 43, and Mary, age 45, are married and support William's 19-year-old sister, who is not a student. The sister's income from a part-time job is $3,700. c. Devi was divorced in 2010 and receives child support of $250 per month from her ex-husband for the support of their 8-year-old son, John, who lives with her. Devi is 45 and provides more than half of her son's support.
3. How much of each of the following prizes or awards is taxable? a. Cheline received a $50,000 gift bag at the Oscars in 2010. b. Jon received a gold watch worth $350 for 25 years of service to his accounting firm, c. Kerry won $1,000,000 in her state lottery. c. Deborah is a professor who received $50,000 as an award for her scientific research from the University that employs her.
4. Linda and Richard are married and file a joint return for 2010. During the year, Linda, who works as an accountant for a national airline, used $2,100 worth of free passes for travel on the airline; Richard used the same amount. Linda and Richard also used $750 worth of employee discount coupons for hotel rooms at the hotel chain that is also owned by the airline. Richard is employed at State University as an accounting clerk. Under a tuition reduction plan, Richard saved $1,000 in tuition fees during 2010. He is studying for a master's degree in business. Richard also had $30 worth of personal typing done by his secretary at the University. What is the amount of fringe benefits that should be included in
Linda and Richard’s gross income on their 2010 tax return?
5. Dick owns a house that he rents to college students. Dick receives $750 per month rent and incurs the following expenses during the year: Real estate taxes $ 1,250 Mortgage interest 1,500 Insurance 375 Repairs 562 Association Dues 1,600 Dick purchased the house in 1975 for $48,000. The house is fully depreciated. Calculate Dick's net rental income for the year, assuming the house was rented for a full 12 months.
6. Phil and Linda are 25 year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not.
a. Assuming Phil's wages were $27,000 and Linda's wages were $18,500 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
b. Assuming Phil's wages were $49,000 and Linda's wages were $63,000 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
7. Steinar loaned a friend $9,500 to buy some stock 3 years ago. In the current year the debt became worthless.
a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.)
b. What can Steinar do with the deduction not used this year?
8. Joan is a self-employed -attorney in New York City. Joan took a trip to San Diego, CA, primarily for business, to' consult with a client and take a short vacation. On the trip, Joan incurred the following expenses: Airfare to and from SanDiego 575 Hotel charges while on business 340 Meals while on business 210 Car rental while on business 120 Hotel charges while on vacation 460 Meals while on vacation 290 Car rental while on vacation 180 Total 2,175 Calculate Joan's travel expense deduction for the trip, assuming the trip was made in 2010.
9. Marty is an employee of Apricot, Inc. Marty incurs the following expenses related to entertainment of his clients in 2010: Dues to a country club $4,500 (The country club was used for business
25 days of the total 75 days that it was used.) Business meals at the country club 850 Dues to a tennis club 1,000 (The club was used 75 percent for directly related business.) Tennis fees (personal use) 260 Business meals at various restaurants 2,250 a. How much is Marty's deduction for entertainment expenses for 2010 (before the 2 percent of adjusted gross income limitation)? b. For each item above that you believe is not allowed as a deduction, explain the reason it is not allowed.
10. Margaret started her own business in the current year and will report a profit for her first year. Her results of operations are as follows: Gross income $50,000 Travel 1,000 Transportation 6,173 miles, using standard mileage method Entertainment in" total 4,000 Seven gifts at $50 each 350 Rent and utilities for apartment in total 10,000 (20% is used for a home office) What is the net income Margaret should show on her Schedule C? Show the cal-culation of her taxable business income.
11. In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AG1 of $25,000. During the year they incurred the following expenses: Hospitalization insurance premiums $1,050 Premiums on an insurance policy that pays 300 $100 per day for each day Margaret is hospitalized Medical care lodging (two people, one night) 65 Hospital bills 2.200 Doctor bills 850 Dentist bills 175 Prescription drugs and medicines 340 Psychiatric-care 300 In addition, during the year they drove 109 miles for medical transportation, and their insurance company reimbursed them $900 for the above expenses. Calculate the Murphy's medical expense deduction.
12. Ken paid the following amounts for interest during 2010: Qualified interest on home mortgage $4,700 Auto loan interest 850 “Points" on the mortgage for acquisition of his 300
personal residence Service charges on his checking account 40 Mastercard interest 300 Calculate Ken's itemized deduction for interest on Schedule A.
13. Jerry made the following contributions during 2010: His synagogue (by check) $680 The Republican Party (by check) 180 The American Red Cross (by check) 150 His lodge for a holiday party ' " 100 In addition, Jerry donated used furniture to the Salvation Army costing $2,000 with a fair market value of $400. Assuming Jerry has adjusted gross income of $45,000, has the necessary written acknowledgments, and itemizes deductions. Complete the Gifts to Charity section of Schedule A, what is Jerry’s deduction for 2010.
14. During the 2010 tax year, Irma incurred the following expenses: Union dues $275 Tax return preparation fee 125 Brokerage fees for the purchase of stocks 35 Uniform expenses 300 If Irma's adjusted gross income is $22,000, calculate her miscellaneous deductions on Schedule A of Form 1040.
15. Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases, assuming the taxpayers had no income other than the stated amounts. a. William and Carla file a joint tax return. Carla earned $26,000 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl. b. Raymond and Michele file a joint tax return. Raymond earned $32,500 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13. c. . Beth is a single taxpayer who has two dependent children under age 5. Beth earned $23,500 in wages during the year and paid $6,700 for the care of her children.
16. Janie graduates from high school in 2010 and enrolls in college in the fall. Her parents pay $4,000 for her tuition and fees. a. Assuming Janie's parents have AGI of $170,000, what is the American Opportunity credit they can claim for Janie? b. Assuming Janie's parents have AGI of $75,000, what is the American Opportunity credit they can claim for Janie?
17. Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010. The truck is not considered a passenger automobile for purposes of the listed property and luxury automobile limitations. The truck has a
depreciable basis of $39,080 and an estimated useful life of 5 years. Its estimated salvage value is $1,080. Assume no election to expense is made and no bonus depreciation is taken. a. Calculate the amount of depreciation for 2010 using financial accounting straight-line depreciation (not the straight-line MACRS election) over the truck's estimated useful life. b. Calculate the amount of depreciation for 2010 using the straight-line depreciation election under MACRS over the minimum number of years. c. Calculate the amount of accelerated depreciation for 2010 that Mike could deduct using MACRS.
18. JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation. Z Corporation is owned 80 percent by John and 20 percent by an unrelated party. Brian and Charlie are brothers. Answer each of the following questions about JBC under the constructive ownership rules of Section 267: a. a. What is John's percentage ownership? b. b. What is Brian's percentage ownership?
19. Martin sells a stock investment for $25,000 on August 2, 2010. Martin's adjusted basis in the stock is $14,000. a. If Martin acquired the stock on November 15, 2008, calculate the amount and the nature of the gain or loss. b. If Martin had acquired the stock on September 11, 2007, calculate the amount and nature of the gain or loss.
20. . William sold Section 1245 property for $25,000 in 2010. The property cost $35,000 when it was purchased 5 years ago. The depreciation claimed on the property was $16,000. a. Calculate the adjusted basis of the property. b. Calculate the recomputed basis of the property. c. Calculate the amount of ordinary income under Section 1245. d. Calculate the Section 1231 gain.