Question 1

During 2015, Mark's employer withheld $2,000 from his wages for state income tax. Mark claimed the $2,000 as an itemized deduction on his 2015 federal income tax return. His total itemized deductions for 2015 were $8,000. Mark's taxable income for 2015 was a negative $20,000 due to substantial business losses. Mark received the $2,000 as a refund from the state during 2016. What amount must Mark include in income in 2016?

Accepted Answer

The answer of During 2015, Mark's employer withheld $2,000 from...

Question 2

Jeannie, a single taxpayer, retired during the year, to take over the management of some rental property. She had the following items of income and expense:
 $\begin{array}{ll}
\text { Salary prior to retirement date } & \$ 34,000 \
\text { Dividends from domestic corporation } & 4,000 \
\text { Interest from City of Los Angeles bonds } & 5,000 \
\text { Anntity ( } 60 \% \text { exclusion ratio) } & 12,000 \
\text { Share of partnership income } & 14,000 \
\text { Partnership distribution } & 10,000 \
\text { Rent income } & 17,000 \
\text { Rent expenses } & 9,000
\end{array}$ What is Jeannie's adjusted gross income for the year?

Accepted Answer

The answer of Jeannie, a single taxpayer, retired during the...

Question 3

Betty is a single retiree who receives Social Security benefits of $12,000, tax-exempt interest of $4,000 and a taxable pension. Determine the amount of taxable Social Security benefits assuming her annual pension is
a. $10,000.
b. $20,000.
c. $50,000.

Accepted Answer

The answer of Betty is a single retiree who receives...

Question 4

Adanya's marginal tax rate is 39.6% and she is trying to decide whether to invest in tax-exempt bonds which pay 5% interest or taxable bonds paying 7% interest. The bonds have equivalent risk. Which of the bonds would yield the highest amount of income after taxes?

Accepted Answer

The answer of Adanya's marginal tax rate is 39.6% and...

Question 5

On April 1, 2016, Martha, age 67, begins receiving payments of $3,000 monthly from her employer's qualified retirement plan. She had contributed $90,000 to the plan in after-tax dollars. The anticipated number of payments is 210. Using the simplified method, how much of the payments are taxable in 2016?

Accepted Answer

The answer of On April 1, 2016, Martha, age 67,...

Question 6

Ellen is a single taxpayer with qualified dividend income of $5,000, and itemized deductions of $13,000.
Required: Determine Ellen's taxable income and tax liability in 2016, assuming the following salaries
a. $40,000.
b. $100,000.

Accepted Answer

The answer of Ellen is a single taxpayer with qualified...

Question 7

Buzz is a successful college basketball coach. In April 2015, he signed a contract to coach at Mountain State University. In April 2016, Buzz accepted a position as head basketball coach at Beach University. The terms of his contract with Mountain State require that Buzz repay the university $150,000 he received in 2015. Discuss the tax issues encountered by Buzz and your recommendation for their treatment.

Accepted Answer

The answer of Buzz is a successful college basketball coach....

Question 8

An electrician completes a rewiring job and is paid $1,000 by the customer in November. The customer has a small fire in his house and sues the electrician for the repayment of the $1,000 fee plus damages in December. The electrician reaches a settlement with the customer in the following February and refunds the $1,000 fee. How should the electrician treat these events when he files his tax return in April?

Accepted Answer

The electrician should report the $1,000 as income for the year in which it was received (in this case, November). When the refund is made in February of the following year, the electrician can claim it as a deduction on the tax return for that year. This is known as the "claim of right" doctrine, which allows for the deduction of any previously reported income that the taxpayer is required to repay.

Question 9

Gwen's marginal tax bracket is 25%. Gwen pays alimony of $24,000 per year. Gwen's after tax cost for the $24,000 payment is

Accepted Answer

The after tax cost for the alimony payment can be calculated by multiplying the payment amount by (1-marginal tax rate). So, Gwen's after tax cost for the $24,000 payment is $18,000 ($24,000 x 0.75).

Question 10

Billy, age 10, found an old baseball glove while exploring his new home. His father, Al, took the glove to a dealer in baseball memorabilia who verified that the glove belonged to Babe Ruth. Al sold the glove for $75,000. What tax issues should Al consider?

Accepted Answer

The answer of Billy, age 10, found an old baseball...

Question 11

Kevin is a single person who earns $70,000 in salary for 2016 and has other income from a variety of investments, as follows:
 $\begin{array}{lr}
\text { Bank savings account interest}&\$5,500\
\text {Interest from State of Missouri Bonds }&3,500\
\text {Dividends from XYZ Corp. }&7,000\
\end{array}$
 Kevin received tax refunds when he filed his 2015 tax returns in April 2016. His federal refund was $600 and his state refund was $300. Kevin deducted his stated taxes paid in 2015 as an itemized deduction on his 2015 return. Due to changes in circumstances, Kevin is not itemizing deductions on his 2016 return.
Compute Kevin's taxable income for 2016.

Accepted Answer

The answer of Kevin is a single person who earns...

Question 12

On January 1, 1996, Erika Greene purchased a single premium annuity for $15,000 that will pay her $5,000 every year for life beginning on January 1, 2016. Based on actuarial tables published by the IRS, her life expectancy multiple is 10.
a. What is the amount to be excluded Erika's income for 2016?
b. What is the amount to be excluded in Erika's income for the year 2026?

Accepted Answer

The answer of On January 1, 1996, Erika Greene purchased...

Question 13

Marisa and Kurt divorced in 2014. Under the terms of the divorce agreement, Marisa was to pay Kurt $110,000 in 2014 and $60,000 each year following until Kurt's death or remarriage. What must Kurt report on his tax return for 2016 regarding these transactions?

Accepted Answer

The answer of Marisa and Kurt divorced in 2014. Under...

Question 14

Parents often wish to shift income to young children in order to lower the family tax burden. Tax policies and provisions that limit that practice include all of the following except

Accepted Answer

The answer of Parents often wish to shift income to...

Question 15

Leigh inherited $65,000 of City of New York bonds in January 2016. In March 2016, she received $4,000 of interest on the bonds. In July 2016, she sold the bonds at a $10,000 gain. Leigh also redeemed Series E U.S. Savings bonds in October 2016 that she had purchased several years ago and received accumulated interest of $2,600. In December 2016, she received $800 of interest on City of Paris, France, bonds. What amount, if any of gross income must Leigh report?

Accepted Answer

The answer of Leigh inherited $65,000 of City of New...

Question 16

Emma is the sole shareholder in Pacific Corporation and has owned the stock for five years. The basis in her stock is $50,000. Pacific distributes $35,000 to Emma. Accumulated earnings and profits at the beginning of the year equal $25,000 and current earnings and profits equal $5,000.
Required:
a. What are the tax consequences of this information?
b. What are the tax consequences of this information if, instead of distributing $35,000 to Emma, Pacific distributes $100,000 to Emma?

Accepted Answer

The answer of Emma is the sole shareholder in Pacific...

Question 17

Edward is considering returning to work part-time to supplement his pension and Social Security benefits. His current marginal tax rate is 15%. What should he consider from a tax perspective before returning to work?

Accepted Answer

The answer of Edward is considering returning to work part-time...

Question 18

Under the terms of a divorce agreement dated January 1, 2016, Edmond was to pay his wife Donna $3,000 per month in alimony and $500 per month in child support. Payments began on January 1, 2016. In addition, Donna received the family residence with a cost basis of $210,000 and a fair market value of $260,000.
a. What is the amount that Donna must include in income for the twelve-month period ended December 31, 2016?
b. What is the basis in the home which Donna received as a result of the divorce?

Accepted Answer

The answer of Under the terms of a divorce agreement...

Question 19

Daniel plans to invest $20,000 in either a corporate bond paying 5% or a tax-exempt bond with a 4% interest rate. The bonds have an equivalent level of risk. Daniel has a 33% marginal tax rate and wants to maximize his after-tax earnings. Daniel should

Accepted Answer

Since Daniel has a 33% marginal tax rate, his after-tax return on the corporate bond would only be 3.35% (5% x (1-0.33)). This is lower than the 4% yield on the tax-exempt bond, so he should choose to invest in the tax-exempt bond to maximize his after-tax earnings.

Question 20

Rocky owns The Palms Apartments. During the year, Molly Ann, a tenant, moved to another state. Molly Ann paid Rocky $1,500 to cancel the two-year lease she had signed. Rocky then rented the apartment to Elvis who paid the first and last months' rents of $500 each and a security deposit of $800. Rocky also owns a building used as a dance club. The owner of the club requested that Rocky add on another room to be used for private parties. Rocky refused but allowed the club owner to make the addition at a cost of $20,000. What amount should be included in Rocky's income with regard to these items?

Accepted Answer

The answer of Rocky owns The Palms Apartments. During the...

Quiz 18: Gross Income: Inclusions

Betty is a single retiree who receives Social Security benefits of $12,000, tax-exempt interest of $4,000 and a taxable pension. Determine the amount of taxable Social Security benefits assuming her annual pension is a. $10,000. b. $20,000. c. $50,000.