Question: How does the tax benefit rule apply in the following

How does the tax benefit rule apply in the following cases?
a. In 2012, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. Orange's cost of the furniture was $600. In 2013, Orange took a bad debt deduction for the $1,000 because Sammy would not pay his bill.
In 2014, Sammy inherited some money and paid Orange the $1,000 he owed. Orange was in the 35% marginal tax bracket in 2012, the 15% marginal tax bracket in 2013, and the 35% marginal tax bracket in 2014.
b. In 2013, Barb, a cash basis taxpayer, was in an accident and incurred $8,000 in medical expenses, which she claimed as an itemized deduction for medical expenses. Because of a limitation, though, the expense reduced her taxable income by only $3,000. In 2014, Barb successfully sued the person who caused the physical injury and collected $8,000 to reimburse her for the cost of her medical expenses. Barb was in the 15% marginal tax bracket in both 2013 and 2014.

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  • CreatedMay 25, 2015
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