In the current year, Sandra rented her vacation home for 75 days, used it for personal use for 22 days, and left it vacant for the remainder of the year. Her income and expenses before allocation are as follows: Rental income …………………………$15,000 Real estate taxes………………………..2,000 Utilities……………………………………….1,500 Mortgage interest……………………….3,800 Depreciation……………………………….7,200 Repairs and Maintenance……………1,300 What is Sandra’s net income or loss from the rental of her vacation home? Use the Tax Court method.
> What is a §1250 asset? How is it related to a §1231 asset?
> What is a §1245 asset? How is it related to a §1231 asset?
> Discuss the netting process of capital gains and losses. What are the possible outcomes of the netting process, and how would each situation be taxed?
> What is a §1202 gain, and how is it taxed?
> Capital gains can be taxed at several different rates. What determines the rate?
> In what ways can a capital asset be acquired, and how is the holding period determined for each method of acquisition?
> How is a net capital loss treated? Include in your answer a discussion of how a net capital loss is treated in relation to other income.
> For rental expenses to be deductible, what criteria must be met? For this question, assume no personal use of the rental property.
> What factors affect the taxability of capital gains and losses?
> Stan has $20,000 in a traditional IRA at a bank. He decided to change trustees from a bank to a financial services firm. He requests, and receives, a check from the bank that he intends to take to the financial services firm to open a new account. He
> Tax-free distributions from a Coverdell Education Savings Account can be used for what purpose? Be specific.
> Briefly discuss the conditions necessary for a taxpayer to be permitted to make tax-deductible contributions to a traditional IRA.
> Anne, a single taxpayer under age 50, has wage income of $74,000 and is not covered under a retirement plan by her employer. She would like to start a retirement plan if possible. What options are available to her?
> What is the maximum annual contribution that can be made to a Roth IRA, and how is the maximum calculated?
> What is the maximum annual contribution that can be made to a SIMPLE plan, and how is the maximum calculated?
> What is the maximum annual contribution that can be made to a traditional IRA, and how is the maximum calculated?
> Why were the hobby loss rules established? What factors determine whether an activity is a trade or business or a hobby? Is any one factor controlling?
> Discuss the limits on home office expense deductibility.
> Discuss the limits on meals and entertainment. Are meals and entertainment expenses always limited to 50%?
> What is considered personal use of a vacation rental property?
> When can a taxpayer use the standard mileage rate? Is the standard mileage rate better than the actual auto costs?
> Briefly discuss the conditions necessary for a taxpayer to be permitted to make tax-deductible contributions to a SIMPLE plan.
> Pension plans have an accumulation period and a distribution period. Explain what those terms mean.
> Discuss the concept of electing §179 expense. Does the election allow a larger expense deduction in the year of asset acquisition?
> Pension plans are subject to certain vesting requirements. What does the word vesting mean? Describe the vesting rules for pension plans.
> What are the similarities and differences between a pension plan and a profit-sharing plan?
> What are the differences between a contributory and a noncontributory pension plan?
> What are the differences between a defined-benefit pension plan and a defined-contribution pension plan?
> On what type of property is depreciation allowed?
> On what form is depreciation reported, and how does it relate to other forms such as Schedules C, E, F, and Form 2106?
> Discuss the three categories of vacation home rentals. Include in your discussion how personal use of the property affects the reporting of income and losses of vacation homes.
> Discuss the concepts of ordinary, necessary, and reasonable in relation to trade or business expenses.
> Discuss the definition of a trade or business. Why does it matter whether a taxpayer is classified as an employee or as self-employed?
> What is meant by an expected return on an annuity contract? How do you calculate expected return for a single person?
> Use the information from problem 62. Would your advice change if the fact(s) changed in each of the following independent instances? Why or why not? a. Jennifer cannot cash the CDs and would need to pay any additional tax liability from the IRA funds
> Jennifer is age 50 and is seeking your advice. She has a traditional IRA with a balance of $100,000 and is considering whether to convert it (roll it over) to a Roth IRA. She has sufficient money in CDs to pay any required tax resulting from the rollov
> Rueben acquires a warehouse on September 1, 2017, for $3 million. On March 1, 2021, he sells the warehouse. Determine Rueben’s cost recovery for 2017 through 2021.
> On February 4, 2017 Jackie purchased and placed in service a car she purchased for $21,500. The car was used exclusively for her business. Compute Jackie’s cost recovery deduction in 2017 assuming no §179 expense but the bonus was taken: ______________
> Janet purchased her personal residence in 2007 for $250,000. In January 2017 she converted it to rental property. The fair market value at the time of conversion was $210,000. a. Determine the amount of cost recovery that can be taken in 2017: ________
> Jake purchased a $235,000 crane for his construction business. He sold the crane for $175,000 after taking $115,000 of depreciation. Assume Jake is in the 33% tax rate bracket. a. On what form would the gain or loss originally be reported? b. What is
> Charles, a self-employed real estate agent, attended a conference on the impact of some new building codes on real estate investments. His unreimbursed expenses were as follows: Airfare…………………………………………………..$480 Lodging……………………………………………………290 Meals……………
> Two methods are used to allocate expenses between personal and rental uses of property. Explain the Tax Court method and the IRS method. Which method is more beneficial to the taxpayer?
> Respond to the following independent situations: a. Jacob is a single taxpayer who has net investment income consisting of $10,000 interest on a certificate of deposit, $5,000 from dividends from a mutual fund, $5,000 from capital gain distributions fr
> In 2017, Jeremy and Celeste who file a joint return, paid the following amounts for their daughter, Alyssa, to attend University of Colorado, during academic year 2017-2018. Alyssa was in her first year of college and attended full-time: Tuition and fe
> Determine the amount of Earned Income Credit in each of the following cases. Assume that the person or persons is/are eligible to take the credit. Calculate the credit using the formulas. a) A single person with earned income of $5,340 and no qualifyi
> Determine the retirement savings contributions credit in each of the following cases. a) A married couple filing jointly with modified AGI of $37,500 and an IRA contribution of $1,600. b) A married couple filing jointly with modified AGI of $58,000 and
> Nicole and Mohammad (married taxpayers filing jointly) are equal owners in an S corporation. The company reported sales revenue of $450,000 and expenses of $310,000. The corporation also earned $20,000 in taxable interest and dividend income and had $1
> Alice rented her personal residence for 13 days to summer vacationers for $4,500. She has AGI of $105,000, before the rental income. Related expenses for the year include the following: Real property taxes……………………………$4,500 Utilities……………………………………………….
> David is a college professor who does some consulting work on the side. He uses 25% of his home exclusively for the consulting practice. He is single and 63 years old. His AGI (without consideration of consulting income) is $45,000. Other information
> Kelvin owns and lives in a duplex. He rents the other unit for $750 per month. He incurs the following expenses during the current year for the entire property: Mortgage interest………………...…………………. $7,500 Property taxes ……………………….…………………..2,000 Utilitie
> Shirelle and Newman are each 50% partners of a business that operates as a partnership. The business reports the following results: Revenue…………………………….………………..$95,000 Business expenses………………….……………..48,000 Investment expenses ……………….………………8,000 Short-t
> What is a §1231 asset? How are gains and losses from the sale of §1231 assets treated? On what tax form are gains and losses from the sale of §1231 assets reported?
> Dominique and Terrell are joint owners of a bookstore. The business operates as an S corporation. Dominique owns 65%, and Terrell owns 35%. The business has the following results in the current year: Revenue………………………………………. $1,500,000 Business expens
> Ricardo acquired a warehouse for business purposes on August 30, 1998. The building cost $420,000. He took $227,600 of depreciation on the building, and then sold it for $500,000 on July 1, 2017. What are the amount and nature of Ricardo’s gain or los
> Antoine sold the following stock in 2017. ABC, Inc., is a §1202 qualified small business (QSB). Asset Cost Acquired Sale Price Sale Date ABC, Inc. 200 shares $148,000 1/10/09 $200,000 4/30/17 DEF, Inc. 100 shares 21,000 11/15/1
> Brantley owns an automobile for personal use. The adjusted basis is $19,500, and the FMV is $16,000. Assume Brantley has owned the automobile for two years. a. Respond to the following if Brantley sells the vehicle for $16,000. (1). What is the amoun
> Respond to the following independent situations: a. Masa and Haiming, husband and wife, filing jointly, earn $275,000 in salaries and do not have any net investment income. (1). How much in surtax will Masa and Haiming be assessed on their Form 1040 for
> Haneen has taxable income of $115,000 without consideration of capital gain or loss transactions. She has a short-term capital gain of $15,000, a long-term capital loss of $7,000, and a short-term capital gain of $4,000. Assume none of the gains or los
> In 2017 Landon has self-employment earnings of $195,000. Compute Landon’s self- employment tax liability and the allowable income tax deduction of the self-employment tax paid.
> Jackie owns a temporary employment agency that hires personnel to perform accounting services for clients. During the year, her entertainment expenses for her clients include the following: Cab fare to and from restaurants…………………………$ 350 Gratuity at
> Alice owns undeveloped land with an adjusted basis of $160,000. She sells the property to George for $205,000. a. What is Alice’s realized and recognized gain? b. To what IRC section does the gain on the property apply? c. If the land is used in a tra
> In 2017, Rosalva sold stock considered short-term for a gain of $925 and stock considered long-term for a loss of $2,165. She also had a $3,000 short-term loss carryover from 2016 and a $1,240 long-term loss carryover from 2015. a. What amount will be
> Can the owner of rental property be treated as conducting a trade or business with respect to the rental property? If so, what must the taxpayer do for it to be considered a trade or business?
> Davidson Industries, a sole proprietorship, sold the following assets in 2017: Asset Cost Acquired Depreciation Sale Price Sale Date Warehouse $150,000 10/10/10 $25,801 $175,000 3/15/17 Truck 18,000 1/15/16 6,480 16,000
> Jordan took a business trip from New York to Denver. She spent two days in travel, conducted business for nine days, and visited friends for five days. She incurred the following expenses: Airfare ……………………………………………. $ 550 Lodging……………………………………………. 3
> Using the following independent situations, answer the following questions: Situation # 1 Clara received from her Aunt Sona property with a FMV at the date of the gift of $40,000. Aunt Sona purchased the property five years ago for $35,000. Clara sol
> Suzette inherited property from her father on April 19, 2017. The FMV at the date of death was $40,000. The property was worth $35,000 six months later and had a basis to her father of $25,000. a. What is the basis of the inherited property to Suzett
> Walt purchased a computer for $5,000. He could use the computer exclusively for his business, or he could allow his family to use the computer 60% of the time and 40% would be for business use. Determine the tax deduction for the year of acquisition un
> Brittany purchased a building for $500,000 on January 1, 2009. The purchase price does not include land. Calculate the cost recovery for 2009 and 2017 if the real property is: a. Residential real property. b. A warehouse.
> On June 10, 2017, Huron purchased equipment (7-year class property) for $75,000. Determine Huron’s cost recovery deduction for computing 2017 taxable income. Assume Huron does not make the §179 election or bonus elections.
> Michael is the sole proprietor of a small business. In June 2017 his business income is $12,000 before consideration of any §179 deduction. He spends $245,000 on furniture and equipment in 2017. If Michael elects to take the §179 deduction and no bonu
> Umair sold some equipment he used in his business on August 29, 2017, that was originally purchased for $70,000 on November 21, 2016. The equipment was depreciated using the 7-year MACRS method for a total of $18,574. Assume there is no additional nett
> Discuss the concept of ordinary income property and give some examples.
> What is a capital asset? What factors affect the determination of whether an asset is classified as a capital asset?
> What are the different classifications of capital assets? List each classification and the rate at which the gains are taxed.
> When we determine whether an asset is a §1231 asset, does the length of time the asset is held affect the classification? Explain.
> Can travel expenses to and from rental property be deducted? If so, what are the rules concerning the deductibility of travel, and how is the deduction calculated?
> What determines whether land is a capital asset? How else can land be classified?
> What type of compensation is subject to employer withholding?
> What is a capital gain distribution, and how is it taxed?
> Who completes Form W-4, and what is its purpose? What information does it provide to employers?
> Why are charitable contributions stated separately on the K-1 but not deducted on a partnership return?
> Why are the income and losses (or expenses) separately stated to the partner, shareholder or owner, and on what form(s) are they reported?
> Two kinds of education tax credits are available. Name them and briefly discuss the criteria necessary to claim each of the credits.
> How can the gain from the sale of property be characterized? Why is it important to correctly characterize the gain on the sale of property?
> Explain the two instances in which taxpayers may choose to deduct foreign taxes as an itemized deduction rather than as a credit.
> Would your answer to Question 10 change if Jake also rented his house (at fair market value) to his brother and his family for 7 days? Data from Question 10: Jake has a vacation rental house at the beach. During the tax year, he and his immediate fami
> Does the length of time a capital asset is held affect the gain or loss on the sale of the asset? Explain.
> Jake has a vacation rental house at the beach. During the tax year, he and his immediate family used the house for 12 days for a personal vacation. Jake and his son spent two more weekends (4 days) repairing steps from the property to the beach. The b
> A taxpayer has $2,000 of qualified employment-related expenses paid on behalf of one qualifying child. Determine the maximum and minimum amount of child and dependent care tax credit available to the taxpayer and explain the circumstances in which the m
> When must employers make payroll tax deposits?
> What are the tip reporting requirements for large food and beverage establishments?
> When are employees required to report tips to their employer? Are tips subject to the same withholding requirements as regular salary?
> In addition to federal tax withholding, what other taxes are employers required to withhold from an employee’s paycheck? How are the calculations made?
> If a taxpayer makes $30,000 per year, will the annual withholding differ depending on whether the taxpayer is paid weekly, semimonthly, or monthly? Explain.
> What is meant by the terms realized gain (loss) and recognized gain (loss) as they apply to the sale of assets by a taxpayer?
> How are household payroll taxes reported? When are they due?
> What is the FUTA tax, and at what percentage is it assessed?
> Why are self-employed taxpayers allowed a deduction for self-employment tax in determining adjusted gross income (AGI)?
> The amount of the premium tax credit is the lesser of what two factors?
