AC 407 Ch 9 - Assignments for ACC taxation PDF

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Assignments for ACC taxation...

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Explain the Standard Deduction and Evaluate its choice in arriving at taxable income. Computer the 2020 standard deduction for the following taxpayers. a. Ellie is 15 and claimed as a dependent by her parents. She has $800 in dividend income and $1,400 in wages from a part-time job.

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A dependent will get a standard deduction Greater of 1100 or Earned +350. Therefore:

= standard deduction (1400+350) = $1,750 b. Ruby and Woody are married and file a joint tax return. Ruby is age 66, and Woody is 69. Their taxable retirement income is $10,000.

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Married and Elders will get additional $1,300 each with a normal standard deduction of $24,000 for 2019:

= 24,400+(1,300*2) = $27,000 c. Shonda is age 68 and single. She is claimed by her daughter as a dependent. Her earned income is $500, and her interest income is $125.

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A single Elder will get additional $1,650 with a normal standard deduction of $12,200 for 2020 but dependency deduction will be adjusted:

=1,100 + 1,650 = $2,750 d. Frazier, age 55, is married but is filing a separate return. His wife itemizes her deductions.

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Frazier is not eligible to use the standard deduction.

Computational Exercise 3 Paul and Sonja, who are married, had itemized deductions of $13,200 and $400, respectively, during 2020. Paul suggests that they file separately—he will itemize his deductions from AGI, and she will claim the standard deduction. 1. Evaluate Paul’s suggestion. - Paul suggests that he will itemize his deductions from AGI, whereas Sonja will claim the

standard deduction. When a married person files the return separately and another spouse itemized deduction, that person is not eligible for the standard deduction. This means either both Paul and Sonja should itemize their deductions, or both should claim for standard deduction. 2. What should they do?

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Both Paul and Sonja should take the standard deduction only

Computational Exercise 4

Compute the 2020 tax liability and the marginal and average tax rates for the following taxpayers (use the 2020 Tax Rate Schedules in Appendix A for this purpose). 1. Chandler, who files as a single taxpayer, has taxable income of $94,800. 2. Lazare, who files as a head of household, has taxable income of $57,050.

Chandler

Lazare

Tax liability

$13,924

$4,329

Marginal tax

22.00%

12.00%

Average tax

14.69%

7.59%

Computational Exercise 5 George and Aimee are married. George has wage income of $190,000, and Aimee has a sole proprietorship that generated net income of $85,000. They also have interest and dividend income of $21,000. Compute any Net Investment Income Tax [NIIT] and Additional Medicare Tax they owe for the current year.

Net Investment Income Tax = 3.8% of Net Investment Income = 3.8% of $21,000 = $798 Additional Medicare Tax = 0.9% of 25,000 = $225 Income of George and Aimee is $190,000 + $85,000 = $275,000 Problem 7 During the year, Addison is involved in the following transactions: 1. Lost money gambling on a recent trip to a casino. 2. Helped pay for her neighbor’s dental bills. The neighbor is a good friend who is unemployed. 3. Received from the IRS a tax refund due to Addison’s overpayment of last year’s Federal income taxes. 4. Paid a traffic ticket received while double parking to attend a business meeting.

5. Contributed to the mayor’s reelection campaign. The mayor had promised Addison to have some of her land rezoned. The mayor was reelected and got Addison’s land rezoned. 6. Borrowed money from a bank to make a down payment on an automobile. 7. Sold a houseboat and a camper on eBay. Both were personal use items, and the gain from one offset the loss from the other. 8. Paid for dependent grandfather’s funeral expenses. 9. Paid premiums on her dependent son’s life insurance policy. What are the possible income tax ramifications of these transactions?

1) Only to the point of gambling profits can the money lost in gambling be deductible. 2) Even where the claim as a dependent is exempted, no deduction is allowed for the payment of expenses of any other individual. 3) A Federal income tax refund due to Addison's overpayment of last year's Federal income taxes is not income because it is a previous adjustment of a prior expenditure that was not deductible. 4) The penalties and fine are not deductible for any reason. It does not matter whether they stem from personal or business activities. 5) Political contributions are not deductible for any reason. It does not matter that the contribution resulted as a gain to Addison. 6) Borrowing money from a bank to make a down payment on an automobile does not result in income thus there would be not tax effects. 7) Sold a houseboat and a camper on eBay. Because both are personal use items, and the gain from one offset the loss from the other, however the loss cannot offset a gain. Gains are taxable, and the losses are not deductible 8) No exemption can be claimed for income tax purposes for the funeral expenses for any reason. 9) Premiums on personal life insurance policies are not deductible for any reason even when the amount is paid on behalf of a dependent

Problem 8 Which of the following items are inclusions in gross income? 1. During the year, stock that the taxpayer purchased as an investment doubled in value.

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Not included

2. Amount an off-duty motorcycle police officer received for escorting a funeral procession.

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Included

3. While his mother was in the hospital, the taxpayer sold her jewelry and gave the money to his girlfriend.

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Included

4. Child support payments received.

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Not included

5. A damage deposit the taxpayer recovered when he vacated the apartment he had rented.

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Not included

6. Interest received by the taxpayer on an investment in general purpose bonds issued by IBM.

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Included

7. Amounts received by the taxpayer, a baseball “Hall of Famer,” for autographing sports equipment (e.g., balls and gloves).

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Included

8. Tips received by a bartender from patrons. (Taxpayer is paid a regular salary by the cocktail lounge that employs him.)

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Included

9. Taxpayer sells his Super Bowl tickets for three times what he paid for them.

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Included

10. Taxpayer receives a new BMW from his grandmother when he passes the CPA exam.

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Not included

Problem 9 Which of the following items are exclusions from gross income? (Please include the code section if applicable e.g. (§ 104)) 1. Alimony payments received from a divorce settlement in 2016.

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Included in

2. Damages award received by the taxpayer for personal physical injury—none were for punitive damages.

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Excluded from

3. A new golf cart won in a church raffle.

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Included in

4. Amount collected on a loan previously made to a college friend.

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Excluded from

5. Insurance proceeds paid to the taxpayer on the death of her uncle—she was the designated beneficiary under the policy.

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Excluded from

Problem 13 In choosing between the standard deduction and itemizing deductions from AGI, what effect, if any, does each of the following have? 1. The age of the taxpayer(s).

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If the taxpayer is 65 or over, an additional standard deduction is available. This might favor the standard deduction choice

2. The health (i.e., physical condition) of the taxpayer.

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If the taxpayer is blind, an additional standard deduction is available. This might favor the standard deduction choice.

3. Whether taxpayers rent or own their residence.

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If the taxpayer is still making house payments, the interest expense deduction on the home mortgage and real property taxes may make itemizing more attractive.

4. Taxpayer’s filing status (e.g., single, married, filing jointly).

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Because the amount of the standard deduction varies depending on filing status, this factor is highly relevant to the taxpayer's decision.

5. Whether married taxpayers decide to file separate returns.

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If married persons file separate returns, the returns must be consistent. Thus, if one spouse itemizes, the other spouse also must itemize

6. The taxpayer’s uninsured personal residence was recently destroyed by a wildfire (the region was declared a disaster area by the Federal government).

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Because a large casualty loss seems probable, this increases the advantage to be gained by itemizing.

7. The number of dependents supported by the taxpayer.

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Personal and dependency exemptions have no effect on whether a taxpayer itemizes or chooses the standard deduction option.

6. Jury duty fees.

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Included in gross income

7. Stolen funds the taxpayer had collected for a local food bank drive.

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Included in gross income

8. Reward paid by the IRS for information provided that led to the conviction of the taxpayer’s former employer for tax evasion.

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Included in gross income

Problem 21 Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her. She also maintains the household in which her parents live and furnished 60% of their support. Besides interest on City of Miami bonds in the amount of $5,500, Charlotte’s father received $2,400 from a part-time job. Charlotte has a salary of $80,000, a short-term capital loss of $2,000, a cash prize of $4,000 from a church raffle, and itemized deductions of $10,500. Using the Tax Rate Schedules, compute Charlotte’s 2020 tax liability.

Particulars

Amount

Salary

$80,000

Short term capital loss

($2,000)

Cash prizes

$4,000

Adjusted Gross Income

$82,000

Less: Grater of standard or itemized deduction

($24,400)

Taxable Income

$57,600

Tax liability (1,940) +(57,600-19,400)*12%

$6,524

Problem 25 Roy and Brandi are engaged and plan to get married. During 2020, Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable scholarships, he is self-supporting. For the year, Brandi is employed and has wages of $61,000.

How much income tax, if any, can Brandi save if she and Roy marry in 2020 and file a joint return?

Taxable Income = 61,000 + 12,200

$48,800

Income Tax = 4,543 + (48,800 - 39,475) *22%

$6,595

Gross Income and AGI = 9,000 + 61,000

$70,000

Standard deduction

$24,400

Taxable income = 70,000 – 24,400

$45,600

Income tax = 1,940 +(45,600-19,400) *12%

$5,084

Tax Brandi can save= (6,595 – 5,085)

$1,511...