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(solution) I need someone to look over my answers for these questions. there


I need someone to look over my answers for these questions.  there are 30 multiple choice and 2 short answer questions.  i need to know if i have made any mistakes, thanks so much!


Assume a tax system with a tax of $1,000 on taxable income of $10,000 and a $1,500 tax on taxable income of $20,000. Is the tax rate system: a.

 

None of the above

 

b.

 

Progressive

 

c.

 

Regressive

 

d.

 

Proportional Amy makes the following gifts in the year 2016:

 

$25,000 cash gift to her husband:

 

a.

 

$25,000 is taxable because you cannot gift money to your spouse

 

b.

 

Only $11,000 is taxed due to the $14,000 annual gift exclusion c.

 

None is taxable due to $14,000 annual gift exclusion and $11,000 marital deduction d.

 

None is taxable as money transferred to a spouse is never subject to the gift tax Amy makes the following gifts in the year 2016:

 

$15,000 cash contribution to the Denver Rescue Mission a.

 

$15,000 is taxable as the Denver Rescue Mission is not a charity b.

 

$15,000 is non-taxable as the Denver Rescue Mission is a charity c.

 

The $15,000 donation will be limited to 30% of AGI d.

 

The $15,000 is a FOR AGI deduction Amy makes the following gifts in the year 2016:

 

Gift of a personal automobile valued at $40,000 to her adult son a.

 

$40,000 is taxable because you cannot gift money to your child b.

 

Only $26,000 is taxed due to the $14,000 annual gift exclusion c.

 

None is taxable due to $14,000 annual gift exclusion and $26,000 marital deduction d.

 

None is taxable s money transferred to a child is never taxable Determine Betty?s adjusted gross income for the year given the following information:

 

Salary: $78,000

 

Child care credit: $1,000

 

Personal and Dependency Exemptions: $12,000

 

Investment interest: $4,000

 

IRA contribution: $5,500

 

Municipal bond interest: $500

 

Federal income taxes withheld: $6,000

 

Itemized Deductions: $15,300 a.

 

$82,500 b.

 

$82,000

 

c.

 

$76,500 d.

 

$77,000 Determine Betty?s taxable income for the year given the following information:

 

Salary: $78,000

 

Child care credit: $1,000

 

Personal and Dependency Exemptions: $12,000

 

Investment interest: $4,000

 

IRA contribution: $5,500

 

Municipal bond interest: $500

 

Federal income taxes withheld: $6,000

 

Itemized Deductions: $15,300 a.

 

$55,200

 

b.

 

$54,700

 

c.

 

$49,700

 

d.

 

$49,200 In 2016, Joan is single and a homeowner who incurs property taxes on her home of $2,000, makes charitable contributions of $500, and pays

 

mortgage interest of $6,000. Joan?s adjusted gross income is $32,000. What is her taxable income? a.

 

$19,450

 

b.

 

$23,500

 

c.

 

$32,000

 

d.

 

$25,700 Remember the facts from the last question:

 

In 2016, Joan is single and a homeowner who incurs property taxes on her home of $2,000, makes charitable contributions of $500, and pays

 

mortgage interest of $6,000. Joan?s adjusted gross income is $32,000.

 

Assume the same facts as above, but Joan is not a homeowner, so she has no property tax or mortgage interest. Instead, she pays rent of $800

 

per month for her apartment. What is her taxable income now? a.

 

$21,900

 

b.

 

$17,850

 

c.

 

$25,700

 

d.

 

$21,650 Jesse supports three people, all of whom have gross income of less than $4,050; Tina, an unrelated child who lives with him; his cousin Judy,

 

who lives in another state; and his daughter Vicki, who lives in her own home. Assume all other tests not mentioned are met. How many

 

dependency exemptions, if any, may Jesse claim? a.

 

0

 

b.

 

1

 

c.

 

2

 

d.

 

3 Amy and Chris have three children and are unclear whether they can claim their children as dependents. Assume Amy and Chris provide all the

 

support not provided by the children. Information on the children is as follows:

 

Peter, age 25, who served in the military immediately after high school, is a full-time college senior. He worked part-time earning $2,200 and

 

provided 20% of his support. a.

 

Peter is a qualifying child dependent because he is in college full-time b.

 

Peter is not a dependent because he fails the age test c.

 

Peter is a qualifying relative dependent because he meets the qualifying tests d.

 

Peter is not a qualifying relative because he fails the gross income test Amy and Chris have three children and are unclear whether they can claim their children as dependents. Assume Amy and Chris provide all the

 

support not provided by the children. Information on the children is as follows:

 

Mark, age 22, graduated from college in May (he was a full-time student for five months of the year), and accepted a job in June. He lived with

 

his parents for the entire year, earned $28,000, and provided 70% of his support. a.

 

Mark is a dependent child because he was a full-time student, meets the age test and meets the residency test b.

 

Mark is a dependent relative because he meets the residency test c.

 

Mark is not a dependent relative because he fails the age test d.

 

Mark is not a dependent because he fails both the gross income and support tests. In December 2016, Buddy rents an apartment to Gary. Buddy receives the first and last months? rent of $1,200 plus a security deposit of $500.

 

How much income does Buddy, a cash basis taxpayer, report in 2016? a.

 

$0

 

b.

 

$1,100

 

c.

 

$1,200

 

d.

 

$1,700 Sherlock retired last year due to a lay-off. During the current year, he receives $10,000 in Social Security benefits. In addition, he receives

 

$6,000 in cash dividends on stocks that he owned, $8,000 in interest on tax-exempt bonds and $11,000 in unemployment compensation.

 

Assuming that Sherlock is single, how much of his social security benefits are taxable? a.

 

$0

 

b.

 

$2,500 c.

 

$5,000

 

d.

 

$8,500 Cooper was physically injured in a sailboat accident and received $100,000 in punitive damages. The entire $100,000 is taxable. a.

 

True

 

b.

 

False Alice bought a small table at a garage sale for $100. While cleaning it she discovered a nameplate on the bottom. It actually belonged to Ronald

 

Reagan and had a FMV of $1,500. She also found a letter from George H.W. Bush to Reagan that was wedged under the drawer in the table.

 

This letter had a FMV of $300. a.

 

$1,800 is currently taxable because both the table and the note are considered a ?treasure trove" b.

 

$1,700 is currently taxable because both the table and the note are considered a ?treasure trove?, but due to the capital recovery

 

concept, the $100 paid for the table is not taxable c.

 

$0 is currently taxable as there has been no realized income as Alice has not sold the note or the small table. d.

 

$300 is currently taxable as only the note is considered a ?treasure trove?. The bargain purchase on the table will be taxed when

 

Alice sells the table. Betty is a single taxpayer with AGI of $22,000 in 2016. She donated her shares of XYZ stock (acquired in 2002 for $2,000) on June 15, 2016 to

 

the Metropolitan State University Scholarship Fund. At the time the FMV of the stock was $20,000. If this is her only charitable contribution for

 

2016, what is the correct, total amount to be reported for Betty?s charitable contributions on Schedule A on her 2016 tax return? a.

 

$0

 

b.

 

$6,600

 

c.

 

$11,000

 

d.

 

$18,000 Jonathan purchases a block of 10 tickets to next Saturday?s Nugget?s game. The tickets cost $50 each. He keeps two tickets for himself and gives

 

the remaining tickets to his business customers. Each customer receives two tickets, and Jonathan told all of them he would see them Saturday

 

night. How much can Jonathan deduct as a business expense? a.

 

$200

 

b.

 

$250

 

c.

 

$400

 

d.

 

$500 Mike owns a condominium in the mountains and uses it himself for 25 days. This property and his residence are the only

 

homes that he owns. It is rented out for a total of 50 days through a rental agency. His income and expenses for the year are: Income $20,000 Property Taxes $6,000 Interest $9,000 Rental Agency fees $9,000 Utilities $3,000 Depreciation $6,000 Which of the following statements is NOT TRUE? a.

 

The amount of carry-over to potentially be used to offset next year?s vacation home income is equal to $5,000 b.

 

The amount of deferred category #2 expenses is $2,000 c.

 

The rental of the vacation home cannot create a loss that can be utilized against Mike?s wages. d.

 

All of the property taxes and interest expenses can be deducted in the current year, but the amounts will be split between personal

 

and rental deductions. Which of the following is NOT TRUE regarding income tax credits? a.

 

Tax credits have the ability to protect a larger amount of income from taxation on individuals with lower taxable income than those

 

with higher taxable income b.

 

Individual tax credits are generally phased out as adjustable gross income increases c.

 

Some tax credits perform the function of being a ?negative income tax? d.

 

Deductions FOR AGI reduce a taxpayer?s liability more than the same dollar amount claimed as a tax credit Kip is a druggist from 9::00 to 5:00, but enjoys auto racing on weekends. He occasionally wins a race or two from the 4 or 5 he

 

enters out of a 20 race season. He purchased his new car for $200,000 this year. His income and expenses for the year he

 

purchased the car are as follows:

 

Winnings from the races $10,000 Property taxes on his car (Cat #1) $1,000 Operating expenses (Cat #2) $11,000 Depreciation on his race car (Cat #3) $15,000 What are the tax consequences of this activity? a.

 

Since Kip was the driver, he was an active participant in the trade or business and can deduct all losses against his wages as a druggist b.

 

The basis in his car remains $200,000 at the end of the year since no depreciation can be claimed c.

 

Although the activity will be reported on his tax return, the amount of deductions are limited to gross income such that the activity

 

will not show any net income or loss d.

 

Since this is a hobby and he did not make any net income, none of the income or expenses must be reported on his tax return Amy, Kara and Susan own and operate a catering company ? Good Eats, Inc. ? as a Partnership. Amy owns 40%, Kara owns

 

30% and Susan owns 30%. Good Eats reports the following for the current year:

 

Sales Revenue: $1,000,000 Long-term capital gains $10,000 Business expenses $(750,000) Charitable contributions $(9,000) Short Term Capital Loss $(15,000) What is Susan?s share of ordinary income a.

 

$70,800

 

b.

 

$72,300

 

c.

 

$75,000

 

d.

 

$94,400 Amy, Kara and Susan own and operate a catering company ? Good Eats, Inc. ? as a Partnership. Amy owns 40%, Kara owns

 

30% and Susan owns 30%. Good Eats reports the following for the current year:

 

Sales Revenue: $1,000,000 Long-term capital gains $10,000 Business expenses $(750,000) Charitable contributions $(9,000) Short Term Capital Loss $(15,000) In addition to the income and deductions Amy receives from Good Eats, she has long term capital gains of $1,500 and other itemized deductions

 

of $15,000. What are Amy?s total itemized deductions when she includes her receipts from Good Eats? a.

 

$9,400

 

b.

 

$18,600

 

c.

 

$24,600

 

d.

 

$29,000 Penelope owes First Bank $100,000. The bank agrees to reduce the debt to $75,000. Prior to the debt reduction, Penelope?s assets total

 

$250,000 and her liabilities are $260,000. How much income must Penelope recognize, if any, due to this discharge of indebtedness? a.

 

$0

 

b.

 

$10,000

 

c.

 

$15,000

 

d.

 

$20,000

 

e.

 

None of the Above During 2016, Janet keeps the following record of her travel:

 

Home to office 800 miles Office to home 800 miles Home to local clients to home 10,000 miles Office to second job 450 miles Second job to home 300 miles Home to out-of-town clients 2,000 miles If Janet uses the standard mileage rate for 2016, what amount can she deduct as a business expense?

 

a.

 

$6,723 b.

 

$6,885

 

c.

 

$7,158.75

 

d.

 

$7331.25 Chris is a junior at Metropolitan State University pursuing a degree in accounting. During 2016, he receives the following cash

 

payments:

 

State allocated tuition waiver scholarship $2,200 A EKS&H scholarship (for fees and books) $800 Check from his grandmother $1,700 Loan proceeds from the college financial aid office $2,500 Prize won from a Colorado lottery scratch ticket $300 Loan from his roommate $100 Interest received from National Bank CD $400 How much must be included in Chris? gross income? a.

 

$0

 

b.

 

$700

 

c.

 

$1,500

 

d.

 

$3,700

 

e.

 

$8,000 Which of the following constitutes a realization?

 

I.

 

II. Amy prepares a past-due tax return for Will. He pays her by washing her car.

 

Doyle?s horse gives birth. The foal will become a member of Doyle?s Clydesdale team for

 

Budweiser. III. Leadville Mining Company?s coal mine reserves were recently appraised at $4,000,000 more than

 

last year?s appraisal. IV. Pam's employer gives her and all other salaried employees a weekend in Orlando in recognition of

 

their efforts to make this a successful year a.

 

Only statement I is correct b.

 

Only statement II is correct c.

 

Only statements I and II are correct d.

 

Only statements I and IV are correct e.

 

Only statements II, II, and IV are correct. On April 1, Stephanie is given $20,000 worth of City of Denver bonds for her 18 th birthday. On June 30, Stephanie receives the $800 annual

 

interest payment on the bonds. How much income should Stephanie recognize due to these two events? (Read this one closely!) a.

 

$0

 

b.

 

$200

 

c.

 

$800

 

d.

 

$20,000

 

e.

 

$20,800 The ability-to-pay concept is fundamental to the income tax structure. Constructs used to implement this concept include

 

I.

 

II.

 

III. Deductions

 

Progressive tax rates

 

Exclusions IV. Business losses a.

 

Only statement II is correct b.

 

Statements I, II and IV are correct c.

 

Statements I, II and IV are correct d.

 

Statements I and III are correct e.

 

Statements I, II, III and IV are correct Amy purchases a computer for $4,000 and uses it 60% of the time in an active trade or business and 40% for personal use. She

 

claims depreciation on it in the amount of $1,000 and sells it for $800. What are tax consequences? $920 loss $2,200 loss $1,320 loss $1,280 loss Sam owns and manages a rental business where he spends 4 out of his 5 days working behind a desk at location ?A?. On the

 

other day of the week, Sam stops off at office ?A? to make sure everything is OK, and drives to a second store (?B?) that he owns

 

to oversee the activities at that location. From the ?B? location, Sam drives home. A friend tells him that if he puts the name of

 

the business on the side of his car, he can deduct his car expense. What portion of his auto expenses is deductible?

 

a.

 

Since Sam has put the name on the door of his car, all of his auto expenses are deductible as an advertising expense.

 

b.

 

Sam cannot deduct the trip from his home to the ?A? office, but can deduct the costs of driving between ?A? and ?B?

 

offices, and the additional mileage from location ?B? to his home when this mileage is compared to the mileage

 

between his home and the ?A? location. c.

 

Only the mileage between the two offices is deductible.

 

d.

 

If Sam uses the standard mileage rate, rather than the actual costs, it will relieve him of all record keeping. 5 points (Extra Credit)

 

Please answer as if you are writing to your supervisor. Use complete sentences, proper grammar, and state the appropriate tax

 

reasoning.

 

Question 1: 25 Points

 

Please explain why it is important for individual taxpayers to know the difference between deductions for adjusted gross income and

 

deductions from adjusted gross income. Please answer as if you are writing to Andrew, your tax client. Use complete sentences, proper grammar, and state the appropriate tax reasoning. Question 2: 30 Points

 

Andrew recently graduates with an MBA from a CU Denver and will be going to work as an employee of Merrill Lynch. Andrew is not sure

 

whether or not the money he spends entertaining and dining with clients and prospective clients is deductible. Andrew estimates that he will

 

spend approximately $5,000 per year on such activities. He will not be reimbursed from his company for these expenses, so he wants to know if

 

he can at least get some type of tax benefit for these costs. Advise Andrew of the general rules in this area of the tax law. Include a brief

 

discussion of substantiation requirements for such business expenses. 10/08/2016

 

Mrs. Amy Cardillo

 

Supervisor

 

Some Business LLC

 

123 Fake Street

 

Binghamton, NY 13901

 

Dear Mrs. Cardillo:

 

Subject: FOR and FROM AGI deductions

 

When dealing with federal income tax it is important to remember how and why we apply

 

exclusions and deductions to all sources of income to end up with taxable income. In essence the flow

 

of procedures for an individuals tax preparation takes eight basic steps, and are as follows; (1) You start with all income, (2) subtract the exclusions from income, (3) which gives you the gross income, (4) then

 

deductions FOR adjusted gross income are taken out of the gross income, (5) this gives you the adjusted

 

gross income or ?AGI,? (6) then deductions FROM AGI are taken out by choosing the greater amount

 

between the itemized deductions or the standard deduction, (7) then the personal and dependency

 

exemptions are subtracted, (8) this gives you your final number for taxable income. It is important to

 

emphasize the difference between the FOR AGI deductions and the FROM AGI deductions. FOR AGI

 

deductions are separated from the FROM AGI deductions resulting in the FOR AGI deductions always

 

playing a part in the items deducted from gross income to create AGI. FOR AGI deductions include items

 

such as ?trade or business expenses,? rental and royalty expenses,? and ?other specifically allowable

 

deductions. This is opposed to the FROM AGI deductions which may or may not be itemized depending

 

on if the individual standard deduction is a greater amount or not. That being said it is important to

 

avoid as many taxes as legally possible, especially if an individual is a small business owner, by utilizing

 

this formula and organizing the information in a way that yields least taxes while staying within the

 

confines of the law.

 

Sincerely,

 

Galen Grabowski

 

Galen Grabowski

 

Some Business LLC

 

123 Fake Street

 

Binghamton NY 13901 10/08/2016

 

Mr. Andrew Andrews

 

Professional Entertainer

 

Some Business LLC

 

123 Fake Street

 

Binghamton, NY 13901 Dear Andrew,

 

Subject: Deducting Entertainment Expenses

 

I am writing you as a response to your inquiry for tax advising. You mentioned that you were

 

working for Merrill Lynch and were wondering if entertaining your clients could be considered as a tax deduction. The answer depends on the type of entertainment you are providing, along with the content

 

of the time utilized for entertainment. To qualify for a tax deduction you must keep in mind that the

 

event must contain dialog directly regarding the business that your client (or potential clients) and you

 

participate in together. In the event that your entertainment events include this dialog there is more to

 

keep in mind. The environment must be conducted in a place in which doesn?t hinder business from

 

being talked about. There is a humorous case in which a person who bought basketball tickets for his

 

clients was denied a deduction because the volume in the arena was too high to conduct business. In

 

the event that your entertainment events follow these rules you may deduct up to 50% of your

 

entertainment costs. So, to recap, if the entertainment of your clients (1) is directly related to

 

conducting your business and (2) it contains a substantial business discussion directly before, during or

 

after the entertainment event, then you can deduct up to 50% of the costs. Just keep in mind that this

 

only works if you do not get reimbursed or deduct the events in any other way. If you have additional

 

need for advice concerning your taxes please feel free to contact our office and we will be glad to help.

 

Good luck in your dealings.

 

Sincerely,

 

Galen Grabowski

 

Galen Grabowski

 

Some Business LLC

 

123 Fake Street

 

Binghamton NY 13901

 


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