Hw #5 - homework PDF

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Andy Zheng Tax 3300 S. Melnik Hw #5 ch6: 33, 34, 35, 40, 42, and 43 33. Amos is a self-employed tax attorney. He and Monica, his employee, attend a conference in Dallas sponsored by the American Institute of CPAs. The following expense are incurred during the trip: Conference registration

900

900

Airfare

1200

700

Taxi fares

100

0

Lodging

750

300

a. Amos pays for all of these expenses. Calculate the effect of these expenses on Amos's AGI. Amos pays for the expenses which are related to his business as a self practicing attorney, thus these expenses reduce his AGI for a total of $4,850. b. Would you answer to part (a) change if the American Bar Association had sponsored the conference? Explain. Answer would not change because these expenses are associated with his business. 34. Daniel, age 38, is single and has the following income and expenses in 2018: Salary Income: $60,000 Net Rent Income: $6,000 Dividend Income: $3,500 Payment of Alimony: $12,000 Mortgage Interest on Residence: $4,900 Property Tax on Residence: $1,200 Contribution to Traditional IRA: $5,000 Contribution to United Church: $2,100 Loss on Sale of Real Estate (Held for Investment): $2,000 Medical Expenses: $3,250 State Income Tax: $300 Federal Income Tax: $7,000 a. Calculate Daniel's AGI

Income Salary

$60,000

Rent

$6,000

Dividend

$3,500

Gross income

$69,500

Deductions for AGI Alimony

$12,000

Contribution to trad. IRA

$5,000

Loss on sale of real estate

$2,000

Total deductions

$19,000

AGI

$50,500

b. Should Daniel itemize his deductions from AGI or take the standard deductions? Explain. Mortgage interest on residence $9,900 Property tax on residence 1,200 Contribution to church 2,100 State income tax 300 Medical expenses [$3,250 − ($50,500 × 7.5%)] -0Total itemized deductions: $13,500 Daniel should take the itemized deduction over standard deduction for single taxpayer of $12,000 for 2018. 35. Janice, age 22, is a student who earns $10,000 working part-time at the college ice cream shop in 2018. She has no other income. Her medical expenses for the year total $3,000. During the year, she suffers a casualty loss of $3,500 when her apartment is damaged by flood waters (part of a Federally declared disaster area). Janice contributes $2,500 to her church. On the advice of her parents, Janice is trying to decide whether to contribute $1,000 to the traditional IRA her parents set up for her. What effect would the IRA contribution have on Janice's itemized deductions? Particulars

With IRA

Without IRA

Salary

$10,000

$10,000

Less: Contribution to IRA

($1,000)

-

AGI

$9,000

$10,000

Charitable contribution

$1,000

$1,000

Medical expenses ($3,000 7.5% of AGI)

$2,325

$2,250

Casualty losses [($3,500 $100) - (7.5% of AGI)

$2,725

$2,625

Total Itemized Deductions

$5,600

$5,400

Itemized deductions

40. Trevor, a friend of yours from high school, works as a server at the ST Cafe. He asks you to help him prepare his Federal income tax return. When you inquire about why his bank deposits substantially exceed his tip income, he confides to you that he is a bookie on the side. Trevor then provides you with the following documented income and expenses for the year: Tip income $16,000 Gambling income 52,000 Gambling Expenses: Payouts to winners $29,000 Employee compensation 8,000 Bribe to a police officer who is aware of Trevor's bookie activity. 7,500 a.) How will the items affect Trevor's AGI (ignore the impact of self employment taxes)? Gross income

$52,000

Less: Deductible expenses Payout to winners

($29,000)

Compensation to employees

($8,000)

Bribe to police officer

$0

Increase in AGI

$15,000

b.) His taxable income? (ignore the impact of self employment taxes) In effect, his taxable income would increase by $15,000

42. Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $53,000. The restaurant begins operations on September 1. Determine the amount that Henrietta can deduct in the current year for investigating these two businesses. Henrietta may deduct $35,000 from her hotel business. Regarding the restaurant chain, she may immediately deduct $2,000 [$5,000 - ($53,000 - $50,000)] and amortize the balance of $51,000 ($53,000 - $2,000) over a period of 180 months. For calendar year 2018, therefore, Dasha can deduct $3,133 [$2,000 + ($51,000 x 4/180)]. 43. Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He incurred the expenses in June and July 2018. Under the following circumstances, what can Terry deduct in 2018? A. Terry was in the hardware store business and did not acquire the two hardware stores. Since Terry operates a business of hardware stores, he may deduct all the expenses ($52,000) even though he did not purchase the two hardware stores. B. Terry was in the hardware store business and acquired the two hardware stores and began operating them on October 1, 2018. Since Terry operates a business of hardware stores and purchases two new stores which begin operations October 1, 2018, he may deduct all of the expenses of $52,000 in 2018. C. Terry did not acquire the two hardware stores and was not in the hardware store business. In this case, Terry neither acquired the business of the two hardware stores nor is in the business of hardware, thus he may not deduct any of the expenses. D. Terry acquired the two hardware stores, but was not in the hardware store business when he acquired them. Operations began on October 1, 2018. Terry may immediately deduct $3,000 [$5,000 - ($52,000 - $50,000)] and amortize $49,000 over 180 months. Thus for this year the deductible expenses are $3,000 + $817 = $3,817....