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federal taxation
Questions and Answers of
Federal Taxation
After two and one-half years of working with the orphanage and the government, Jake and Nikki adopted a two-year-old girl from Korea. The adoption process, which became final in January 2017,
Joyce has $82,000 total worldwide income, which includes $11,000 of taxable income from China. She paid $2,200 in foreign income taxes to China, and her U.S. tax liability is
Darren paid the following expenses during November 2017 for his son Sean’s college expenses for spring 2018 semester, which begins in January
Avril and John are ages 70 and 72, respectively, and file a joint return. They have an AGI of $18,000 and received $1,000 in nontaxable Social Security benefits. How much can Avril and John
Jamison is a single dad with two dependent children, Zoey, age 7 and Conner, age 3. He has an AGI of $69,000 and paid $4,300 to a qualified day care center for the two children. What amount
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)
Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $14,500 in 2016 for adoption-related expenses. The adoption was finalized in early 2017. Marsha received $3,000 of
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
Use the information in Problem 51. What education tax credits are available if Walt and Deloris report modified AGI of $115,300? Does your answer change if Tiffany is taking one class a semester (is
Which of the following items is not deductible as rental expense?a. Advertising.b. Repairs and maintenance.c. New bathroom addition.d. Insurance.
Jermaine owns a rental home in Lake Tahoe and traveled there from his home in San Francisco for maintenance and repairs three times this year. The round trip from San Francisco to Lake Tahoe is
In 2017 Ann received 1,000 shares of stock as a gift from her husband, Tim, who purchased them in 2008. At the time of the gift, the FMV of the stock was $29,300 and Tim’s basis was
In 2017 Ann received 1,000 shares of stock as a gift from her husband, Tim, who purchased them in 2008. At the time of the gift, the FMV of the stock was $29,300 and Tim’s basis was
Francisco, a single taxpayer, has income from his W-2 of $93,250. He also has a short-term capital loss of $7,311 a short-term capital gain of $2,100, and a long-term capital gain of
Shannon bought an apartment building in July 2011for $360,000 and sold it for $480,000 in 2017. There was $77,994 of accumulated depreciation allowed on the apartment building. Assuming
Alton received a Form 1099-B that shows a net sales price of $3,500 on the sale of 600 shares of FNP Company. He bought the stock on October 21, 2016, and sold it on October 22, 2017. His
Blair sold the following stocks in 2017: 200 shares of Dearborn Investments purchased May 15, 2016, for $3,050 and sold on January 9, 2017 for $4,135; and 40 shares of State Street Investments,
In 2005, Duncan purchased 2,000 shares of stock for $50,000 in a midsize local company with gross assets of $15,000,000. In 2017, Duncan sold the stock for $68,000. How is the gain treated
Medhat and Neveen, married filing jointly, have $390,000 in MAGI and $86,000 of net investment income (NII). They will pay a surtax of:a. $0.b. $2,052.c. $2,580.d. $3,268.
On May 20, 2016, Jessica purchased land for $105,647 to use in her business. She sold it on May 21, 2017 for $102,595. What are the amount and type of loss on this sale if Jessica does not have
In 2014, Grant purchased land for $103,000 for use in his business. He sold it in 2017 for $114,000. What are the amount and type of gain on this sale, before netting of any other gains
Jim sells a parcel of land for $75,000 cash and the buyer assumes Jim’s liability of $10,000 on the land. Jim’s basis is $ 64,000. What is the gain or loss on the sale?a. $1,000 loss.b.
Ramon received a gift of stock from his uncle. The basis of the stock to his uncle was $25,000, and it had a FMV of $18,000 at the date of the gift. The donor held the property for more
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.
During 2017, Roberto sold 830 shares of Casual Investor Mutual fund for $8.875 per share. The shares were purchased on the following dates:
Lois purchased the following blocks of Westgate Stock:DateSharesPriceJune 12, 20141,000$4.225October 21, 20142,000$4.775December 18, 20161,500$5.500Lois sold 1,600 shares of the stock on November 20,
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
Davidson Industries, a sole proprietorship, sold the following assets in 2017:AssetCostAcquiredDepreciationSale PriceSale
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.
Antoine sold the following stock in 2017. ABC, Inc., is a §1202 qualified small business (QSB).AssetCostAcquiredSale PriceSale DateABC, Inc. 200 shares $148,0001/10/09$200,0004/30/17DEF, Inc.
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
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
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
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
The maximum tax bases and percentages for 2017for the two portions of the self-employment tax are which of the following? Social
Frank purchased a vehicle for business and personal use. In 2017, he used the vehicle 70% for business (11,000 business miles incurred equally throughout the year) and calculated his vehicle
On June 30, 2017, Ken purchased an apartment building for $500,000. Determine the cost recovery deduction for 2017:a.$4,925.b.$5,335.
Roy purchased an office building on March 30, 2014, for $250,000. $25,000 of which was for the land. On July 30, 2017, he sold the office building. What is the cost recovery deduction for
Lawrence purchased an apartment building on February 10, 2017, for $330,000, $30,000 of which was for the land. What is the cost recovery deduction for
On April 15, 2015, Andy purchased some furniture and fixtures(7-year property) for $10,000 to be used in his business. He did not elect to expense the equipment under §179 or bonus
Casper used the following assets in his Schedule C trade or business in the tax year 2017:AssetDate PurchasedDateSoldBusinessUse Percentage CostComputer 103/12/14100%$3,000Computer
On May 5, 2012, Jill purchased equipment for $40,000 to be used in her business. She did not elect to expense the equipment under Section 179 or bonus depreciation. On January 1, 2017, she sells the
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.
Jose purchased a vehicle for business and personal use. In 2017 he used the vehicle 18,000 miles (80%) for business and calculated his vehicle expenses using the standard mileage rate (mileage was
In 2015 Jessica bought a new heavy truck for $45,000 to use 80% for her sole proprietorship. Total miles driven include 12,000 in 2015, 14,500 in 2016, and 13,000 in 2017.a. If Jessica uses the
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
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
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
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
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
Betsy acquired a new network system on June 5, 2017 (5-year class property) for $75,000. She expects taxable income from the business will always be about $175,000 without regard to the §179
In 2015, Gerald loaned Main Street Bakery $55,000. In 2016, he learned that he would probably receive only $6,400 of the loan. In 2017, Gerald received $3,000 in final settlement of the loan.
Under current tax law, the deductible amount for expenses under the educator expense deduction is limited per taxpayer to:a. $100.b. $150.c. $200.d. $250.
Which of the following items does not qualify as an educator expense item deduction?a. Books.b. Home schooling expenses.c. Computers and software.d. Professional development expenses
At the beginning of June 2017, Julia left her husband and is currently living in an apartment. The couple has no children. At the end of the current year, no formal proceedings have occurred in
The Renfros were granted a decree of divorce in 2016. In accordance with the decree, Josh Renfro is to pay his ex-wife $24,000 a year until their only child, Evelyn now 10, turns 18, and then
Mia is required under a 2016 divorce decree to pay $600 of alimony and $300 of child support per month for 12 years. In addition, Mia makes a voluntary payment of $100 per month. How much
Shana is a self-employed carpenter who had net earnings from self-employment of $3,500. She paid $325 per month for health insurance over the last year. Shana is entitled to a for AGI deduction for
For 2017, the maximum aggregate annual contribution that a taxpayer, under age 55, can make to a Health Savings Account (HSA) for family coverage is:a. $1,300.b. $3,350.c. $6,750.d.
In 2013 through 2016, Korey, who is single, borrowed a total of $25,000 for higher education expenses on qualified education loans. In 2017, while still living at home and being claimed by his
In the case of a joint return, what is the treatment of educator expenses?
In January 2017, Tran incurred $1,200 of moving expenses when he moved from Des Moines, IA, to Detroit, MI. When he moved, he had no job but found one a week after moving. He stayed on that job for
Indicate whether each of the following items is considered a for AGI, (above-the line) deduction for the 2017 tax year.a. Student loan interest.b. Gambling losses.c. Early withdrawal penalty.d. Child
Rica quit her job in Austin TX and moved to Seattle WA, incurring $1,500 of moving expenses, none of which was reimbursed by her employer. Upon arriving in Seattle, she sought employment and found a
Under the terms of a divorce decree executed May 1, 2017, Ahmed transferred a house worth $650,000 to his ex-wife, Farah, and was to make alimony payments of $3,000 per month. The property has
Chantel has received a 1099-INT from her financial institution showing $75 in box 2 of the form. How should she handle this on her 2017 tax return and why?
In May 2017, Regina graduated from USC with a degree in accounting and moved to Portland to look for work. Shortly after arriving in Portland, she obtained work as a staff accountant in a local
In 2013, Chara incurred a loan to pay for qualified higher education expenses for her 20-year-old daughter who was a dependent. In 2017, her grand daughter graduated from college, moved away to
Fabian, a single account executive, was employed and resided in New Mexico. On July 1, 2017, his company transferred him to Florida. Fabian worked full-time for the entire year. During
For purposes of the student loan interest deduction, what is an eligible educational institution?
Zach attended Champion University during 2012-2016. He lived at home and was claimed by his parents as a deduction during the entire duration of his education. He incurred education expenses of
For 2017, the high income taxpayer limitation percentage of the excess of AGI over the applicable threshold is:a. 3%.b. 2%.c. 1%.d. 0.
In 2017, high-income individuals are required to forfeit part of their itemized deductions. This effectively:a. Reduces their overall tax rate.b. Does not affect their overall tax
Raquel, who works in medical sales, drives her own vehicle to various locations for client sales meetings. Her employer reimburses her $400 each month for various business expenses and does not
Which expense, incurred and paid in 2017, can be claimed as a miscellaneous itemized deduction subject to the 2% of AGI floor?a. Self-employed health insurance.b. Unreimbursed moving
In 2017, the Rinaldis’ vacation cottage was severely damaged by an earthquake. They had AGI of $110,000 in 2017. Following is information related to the cottage:Cost
In 2017, the president of the United States declared a federal disaster due to brush fires in the Southwest. Lisa lives in that area and lost her home in the fires. What choice does she have
Which of the following statements is not true regarding documentation requirements for charitable contributions?a. If the total deduction for all noncash contributions for the year is more than $500,
Which of the following organizations qualifies for deductible charitable contributions?a. A nonprofit educational institution.b. The Salvation Army.c. Churches.d. All of the above.
Referring to the previous question, what is the treatment for the interest expense that Thomas could not deduct in 2017?a. It is lost.b. It cannot be used except as a carry back to previous
For 2017, Thomas, a single parent, reported the following amounts relating to his investments:Net investment
For 2017, the deduction by a taxpayer for investment interest expense isa. Not limited.b. Limited to the taxpayer’s net investment income for 2017.c. Limited to the investment
During 2017 Noriko paid the following taxes related to her home:Real Estate property taxes on residence (paid from escrow account).....................$1,800State personal property tax on her
Daryl, who had significant itemized deductions for 2017 and therefore was eligible to use Schedule A, purchased a new vehicle in 2017 for $40,000 with a state sales tax of 10%. The allocated
For 2017, the amount of the sales tax deduction is calculated by:a. Determining the actual sales tax paid during the year.b. Using the IRS sales tax deduction calculator.c. Using the
For 2017, Perla, who is single and 55 years of age, had AGI of $60,000. During the year, she incurred and paid the following medical costs:Doctor and dentist
Prescription drugs obtained from sources outside the United States, such as Canada, area. Always deductible no matter how they were obtained.b. Deductible only for citizens of Canada
In 2017, Arturo’s pleasure boat that he purchased in 2012 for $48,500 was destroyed by a hurricane. His loss was not totally covered by his insurance. On what form(s) will Arturo report this loss?
During 2017, Raul incurred and paid the following expenses:Prescription drugs..........................................................$ 470Vitamins and over-the-counter cold
The threshold amount for the deductibility of allowable medical expenses is:a. 7.5% of AGI.b. 10% of AGI.c. 10% of taxable income.d. 15% of taxable income.
Generally, a taxpayer may deduct the cost of medical expenses for which of the following? a. Marriage counseling.b. Health club dues.c. Doctor-prescribed birth control pills. d.
The majority of itemized deductions are:a. Business expenses.b. Tax credits.c. Personal living expenses.d. None of the above.
Graciela, who is single, reported itemized deductions of $6,400 on her 2016 tax return. Her itemized deductions included $200 of state taxes paid. In 22017, she received a $150 refund of state taxes
Itemized deductions are taken whena. The taxpayer wants to.b. They are less than the standard deduction.c. They are higher than the standard deduction.d. The standard deduction is
Explain the treatment of itemized deduction limitations for high-income taxpayers in 2017.
The amount of savings bond interest exempt from tax is limited when an individual is single and his or her AGI reachesa. $117,250.b. $77,550.c. $78,150.d. $76,000.
In 2017, Joseph and Patricia Jefferson redeemed $8,000 of Series EE U.S. savings bonds (principal of $5,500 and interest of $2,500), the proceeds from which were used to pay for qualified higher
On July 1, 2017, Rene, a cash-basis taxpayer, purchased $500,000 of the newly issued bonds of Acce Corporation for $452,260. The 10-year bonds carry an interest rate of 8% and were sold to yield
What is an employer-provided fringe benefit?
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