I've attached a document with 20 questions. Any help is appreciate.

ACCT 323 6380 INCOME TAX I (Fall 2016) QUIZ II (1) Lauren is a sole proprietor. She owns, leases, and manages apartment buildings. During the current year, Lauren incurred the following costs. Which of these costs are deductible? If so, are they for AGI or from AGI deductions? (a) Attorney's fees of $350 for title searches on new property Lauren acquired. (b) Legal fees of $600 to collect unpaid rent. (c) CPA fees of $450 to prepare Lauren's 2013 federal income tax return, $350 of which involved preparation of her Schedule C. (d) Legal fees Lauren paid for an attorney to prepare her will. (e) Legal fees Lauren paid for an unsuccessful challenge a county rezoning ordinance that adversely affected her business. 2) Lamont uses the accrual method of accounting for his calendar-year computer sales and repair business. For tax purposes, (a) how should Lamont account for the following transactions; and (b) would your answers change if Lamont were a cash basis taxpayer? (i) During 2015, Lamont hired a contractor to remodel his store. The remodeling was completed on November 28. On December 13, Lamont received a $20,000 bill from the contractor. He immediately contacted the contractor to contest the $7,000 labor charge included in the bill, which Lamont claims should only be $5,000. Lamont did not pay any amount to the contractor. (ii) Lamont provides a one-year warranty on all of its computers. For computer sales during 2015, he paid $12,500 to service warranties during 2015, and he expects to pay $14,000 to fulfill the remaining 2015 warranty obligations in 2016. 3) Joe Smith, a cash-basis taxpayer, earned an annual salary of $80,000 at Resolute Corp. in 2015, but he elected to take only $50,000. Resolute, which was financially able to pay Smith's full salary, credited the unpaid balance of $30,000 to Smith's account on the corporate books in 2015, and actually paid this $30,000 to Smith on January 30, 2016. How much of the salary is taxable to Smith in 2015? Explain. (4) During 2015, Chloe incurred the following costs associated with her beachfront condominium in Ocean City: Insurance $ 500 Repairs & maintenance 700 Mortgage interest 3,000 Property taxes 1,000 Utilities 800 Chloe could also have deducted a total of $8,000 in depreciation if the property had been acquired and used only for investment purposes. However, during the year, Chloe used the condominium 20 days for a much needed vacation. She rented it out for 60 days during the year, which resulted in total gross income of $9,000. (a) What total deduction amount (i) for AGI and (ii) from AGI may Chloe claim for the above condominium costs during 2015? (b) What is the effect of the above costs on Chloe's basis in her condominium? 5) Assume all of the same facts as in Question (4) above, except that Chloe rents her condominium a total of 14 days in 2015. How would she report her income and deductions from the property? 6) During 2015, Lucinda, suffered serious injuries in a snow-boarding accident. She incurred the following costs as a result: Doctor bills $11,700 Hospital bills 9,400 Legal fees to sue the ski resort 3,000 Lucinda is a 30 year old single taxpayer with no dependents. Her 2015 salary was $58,000. She paid $600 in medical and dental insurance premiums, which were withheld from her salary on an after-tax basis, $2,750 in mortgage interest on her personal residence, and $1,200 in interest on her car loan. She was reimbursed for $10,000 in medical expenses by her health insurer. Calculate her 2015 taxable income. 7) During 2015, Megan purchased a beachfront condominium for $600,000. She paid $150,000 down and took out a $450,000 mortgage, secured by the condominium. At the time of the purchase, the outstanding mortgage on Megan's principal residence was $700,000, which was secured by her residence. The fair market value of Megan's principal residence, which she purchased in 1998, is $1.4 million. What is Megan's qualified mortgage indebtedness, the interest on which she may deduct on her 2015 federal income tax return? 8) Jeremiah, an unmarried taxpayer, had $90,000 in adjusted gross income for the current year. During the current year, Jeremiah donated land to a church and made no other contributions. Jeremiah purchased the land 15 years ago as an investment for $14,000. The land's fair market value was $25,000 on the day of the donation. What is the maximum amount of charitable contribution that Jeremiah may deduct as an itemized deduction for the land donation for the current year? 9) During the current year, Walter's residence had an adjusted basis of $150,000 and it was destroyed by a tornado. An appraiser valued the decline in market value at $175,000. Later in the current year, Walter received $130,000 from his insurance company for the property loss and did not elect to deduct the casualty loss in an earlier year. Walter's current year adjusted gross income was $60,000 and he did not have any casualty gains. What total amount can Walter deduct as a current year itemized deduction for casualty loss, after the application of the threshold limitations? Explain. 10) Which expense, both incurred and paid in the same year, can be claimed as an itemized deduction subject to the two percent-of-adjusted-gross-income floor? a. Employee's unreimbursed business car expense. b. Self-employed health insurance. c. Employee's unreimbursed moving expense. d. One-half of the self-employment tax. 11) Monica, a law firm employee, maintains an office at the principal location of the law firm. She frequently travels directly from her home to client locations within and outside of the metropolitan area. Monica is not reimbursed for her transportation costs, and she has incurred the following transportation costs during 2015. Transportation expenses for trips to clients within the metropolitan area $2,000 Transportation expenses for trips to clients located outside the metropolitan area Total 3,000 $5,000 (a) What is the amount of Monica's deduction for transportation expenses? (b) How is the deduction reported on Monica's 2015 tax return? (c) What is the amount of Monica's deduction for transportation expenses and its classification if she is self-employed and operates her office from her home? Assume that the requirements of IRC Sec. 280A are satisfied. 12) Oscar is a self-employed CPA, who uses 15% of his home exclusively as an office. Oscar operates completely out of his home office and makes all of his appointments from the office as well as maintaining his books and records in the office. Oscar's gross income from his accounting practice was $60,000 in 2015. He incurred expenses of $6,000 that directly relate to his business, such as computer and office supplies. Below are additional expenses Oscar incurred in 2015 that related to his residence: Real estate taxes $ 4,000 Mortgage interest 8,000 Insurance 1,000 Depreciation 4,000 Repairs & utilities 1,000 $18,000 (a) Which of the above costs, if any, are deductible by Oscar on his 2015 federal income tax return? Are they for AGI or from AGI deductions? (b) How would your answer change if Oscar were an employee of an accounting firm and maintained an office at home in order to take work home with him so he did not have to spend so many hours at the firm's offices? 13) Steeple Corp. granted an incentive stock option (\"ISO\") to Regina, an employee, on January 1, 2010, when the option price and FMV of the Steeple stock was $80. The option entitled Regina to buy 10 shares of Steeple stock. Regina exercised the option and acquired the Steeple stock on April 1, 2012, when the stock's FMV was $100. Regina, while still employed by the Steeple Corp., sold the stock on May 1, 2014, for $120 per share. (a) What are the tax consequences to Regina and Steeple Corp. on the following dates: January 1, 2010; April 1, 2012; and May 1, 2014? (Assume all ISO qualifications are satisfied.) (b) How would your answer to part (a) change if Regina instead sold the Steeple stock for $130 per share on May 1, 2012? 14) Eloise owns 100 shares of Ajax Corp., a publicly traded company, which Eloise purchased on January 1, Year 1, for $10,000. On January 1, Year 3, Ajax declared a 2-for-1 stock split when the fair market value (FMV) of the stock was $120 per share. Immediately following the split, the FMV of Ajax stock was $62 per share. On February 1, Year 3, Eloise had her broker specifically sell the 100 shares of Ajax stock received in the split when the FMV of the stock was $65 per share. What amount should Eloise recognize as long-term capital gain income on her Form 1040, U.S. Individual Income Tax Return, for Year 3? 15) An individual had the following capital gains and losses for the year: Short-term capital loss $ 70,000 Long-term gain (unrecaptured Section 1250 at 25%) 56,000 Collectibles gain (28% rate) 10,000 Long-term gain (15% rate) 20,000 What will be the net gain (loss) reported by the individual and at what applicable tax rate(s)? 16) In the current year, Owens sold land with a basis of $80,000 to Yancey for $100,000. Yancey paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Owens include in gross income for the year of sale? 17) Maureen and Justin, married taxpayers filing jointly, had the following transactions during Year 9: Gain on sale of stock purchased in Year 1 and sold in June, Year 9 $ 3,000 Ordinary income from employers 80,000 Loss on sale of stock purchased in January, Year 9 and sold in March, Year 9 20,000 What is the amount of the capital loss carryover to Year 10? 18) Upon her grandfather's death, Jayden inherited 10 shares of Axiom Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares in 1995 for $2,500. Four months after her grandfather's death, Jordan sold all her shares of Axiom for $7,500. What was Jayden's recognized gain in the year of sale? 19) Johnson began operating a hardware store in the current year after constructing a building at a total cost of $100,000 on land previously acquired for $50,000. In the current year, the land had a fair market value of $60,000. Johnson paid real estate taxes of $5,000 in the current year. What is the total depreciable basis of Johnson's business property? 20) Which of the following conditions must be satisfied for a taxpayer to expense, in the year of purchase, under IRC Sec. 179, the cost of new or used tangible depreciable personal property? I. The property must be purchased for use in the taxpayer's active trade or business. II. The property must be purchased from an unrelated party. (a) I only. (b) Both I and II. (c) Neither I nor II. (d) II only. Question 1 A must be capitalized and adding back to the property' s basis B and E are reported as expenses on schedule E C with $450 is deducted from 2% of AGI, $350 is reported as expense on schedule C D is not deductible (Note :) These expenses relate to the business of managing apartment complexes and should be deducted on the business schedule. They are not adjustment to AGI Item d is not a business expense and will not be shown on the tax return. Question 2 Question 3 Solution: The taxable salary of Mr. Joe Smith is $ 50,000 in year 2014, and $ 30,000 will be treated as incomes of next year, i.e. 2015, since Smith is a cash - basis taxpayer. A cash - basis taxpayer is the one, who reports incomes and deductions in the year in which there areactually received or paid. Therefore, in 2014, the Taxable salary of Smith is $ 50,000 Question 4 Question 5 According to Section 280A(g), a taxpayer does not have to report any rental income or rental expenses from vacation homes if they meet two tests: The vacation home is used as a residence for the taxable year by the taxpayer. The vacation home is rent for less than fifteen days during the taxable year by the taxpayer. A vacation home qualifies as a residence of a taxpayer, if the taxpayer use the vacation home for personal purposes for more than the greater of 14 days or 10% of the total rental days for the taxable year. In the case cited by the problem, the taxpayer rented the vacation home for 14 days during the year. The condominium is used over 14 days during the year for personal purposes. Thus, the vacation home qualifies as a residence. Hence. the taxpayer does not have to report any of the rental income or rental expenses from the vacation home. Also, the taxpayer can include the interest and property taxes of the vacation home in her itemized deductions. Question 7 $ 700000 is the qualified mortgage indebtness interest that can be claimed as deduction for 2014 in Federal Income tax return. Part 1 of Federal tax laws states that :Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. You can deduct home mortgage interest if all the following conditions are met. You file Form 1040 and itemize deductions on Schedule A (Form 1040). The mortgage is a secured debt on a qualified home in which you have an ownership interest. Question 8 For 50%-type charities only, the taxpayer has the option to deduct long-term (i.e., held longer then 12 months) capital gain appreciated property at the higher fair marker value (higher than cost basis) without paying capital gains tax on the appreciated portion. This deduction is limited to 30% of adjusted gross income (AGI). A 5-year carry forward period applies. Fair market value of appreciated long-term land $25,000 Less: Limitation AGI $90,000*30% Deduction limit = 27,000 Question 9 Standard Deduction = $6,300 Adjusted Basis = $150,000 Less: Insurance = $130,000 Casualty Loss = $20,000 Deduct = $100 Balance = 19900 Less: = 10% of AGI = 6000 Amount of casualty loss itemized deduction = $13,900 Since Itemized deduction is more Walter will prefer deduction of $13,900 Question 10 a. Employee's unreimbursed business car expense, can be claimed as an itemized deduction subject to the two percent-of-adjusted-gross-income floor. As they are allowed under the regulations provided. Question 11 (a) Since Monica has a regular work location away from her residence she may deduct the cost of going between her residence within her metropolitan area as well as outside the metropolitan area Total deductible expense = $5,000 b) Form 2106EZ: you can use this form if you meet the following conditions: 1) you are an employee deducting expenses attributable to your job. 2)You were not reimbursed by your employer for your expense Show your transportation expenses on this form, part I, line 2. After completing form follow directions on that form to deduct your expenses on the appropriate line of your tax return. c) Amount of deduction is only $3000 outside the metropolitan area. When you have an office in your home that you use as your principal place of business; you may deduct the cost of going between your residence and temporary work location outside the metropolitan area where you live and normally work. Question 12 A). apart from depreciation all the given costs are allowed to be deducted to arrive at the AGI for tax purposes, BUT, only the proportion related exclusively to the business/office work or office, that is 15% of these expenses. B) if Oscar was an employee and maintained an office for his own ease, then he can deduct those expenses which are related to work only and are also not reimbursed by the employer. And for example the home office maintenance is concerned, he can only deduct the amount from the gross income if and only the office is a pre-condition for his employment or it is also used by the employer regularly for official work. Question 13 Incentive Stock Option Incentive stock options are a form of compensation given by an employer to employees in the form of stoc In ISO the employer grants to the employee an option to purchase stock in the employer's corporation, or corporations, at a predetermined price, called the exercise price or strike price Strike prices are set at the time the options are granted, but the options usually vest over a period of time value, an ISO provides employees with the ability to purchase stock in the future at the previously locked discount in the purchase price of the stock is called the spread. An ISO can taxed in two way they are: (1) on the spread (2) on any increase (or decrease) in the stock's value when sold or otherwise disposed Inorder to calculate tax treatment of ISO we need following information, (a)Grant date: the date the ISOs were granted to the employee (b)Strike price: the cost to purchase a share of stock (c)Exercise date: the date on which you exercised your option and purchased shares (d) Selling price: the gross amount received from selling the stock (e)Selling date: the date on which the stock was sold. How ISOs are taxed depends on how and when the stock is disposed,Disposition of stock means when the empl also include transferring the stock to another person or giving the stock to charity. A qualifying disposition of ISOs simply means that the stock, which was acquired through an incentive st more than two years from the grant date and more than one year after the stock was transferred to the em date). Exercising an ISO is treated as income solely for the purpose of calculating the alternative minimum tax the purpose of calculating the regular federal income tax. The spread between the fair market value of th strike price is included as income for AMT purposes. inclusion of the ISO spread in AMT income is triggered only if you continue to hold the stock at the end o you exercised the option. If the stock is sold within the same year as exercise, then the spread does not nee AMT income. A qualifying disposition of an ISO is taxed as a capital gain at the long-term capital gains tax rates on the selling price and the cost of the option. The employers are not required to withhold taxes on the exercise or sale of incentive stock options. (a) (1) on january 2010 no tax is requied to pay because option was not excised by the employee, (2) on April 1/2012 ISO is taxed on the basis of spread that is purchase price - FMV ,so spread is 10 so the total spread value =20 X10=200 this spread is included in income for AMT,this inclusion is triggerd only if we continue to hold the stock a If you sold of the sock with in the same year the spread does not need to include on AMT.there for this is i (3) On May 1/2014 It is a qualifying disposel ,so ISO is taxed as a capital gain on the difference betwe option that is 120 -80 =40 per share (b) on may1/2012 this is a disqualifying disposal Disqualifying ISO dispositions are taxed in two ways: there will be compensation income (subject to ordin capital gain or loss (subject to the short-term or long-term capital gains rates). The amount of compensation income is determined as follows: if you sell the ISO at a profit, then your compensation income is the spread between the stock's fair mark the option and the option's strike price. Any profit above compensation income is capital gain. Question 14 The amount of long-term capital gain to be recognized by E should be computed as follows: Sales price of three shares = 100 x $65 = $6,500 Purchase price of the shares = $10,000 / 2 = $5,000 Long-term gain = $6,500 - $5,000 = $1,500 Question 15 Question 16 In the current year, Owens sold land with a basis of $80,000 to Yancey for $100,000. Yancey paid $25,000 down and agreed to pay $15,000 per year, plus interest, for the next five years, beginning in the second year. Under the installment method, what gain should Owens include in gross income for the year of sale? Sale = 100000 Cost of Land Sold = 80000 Gross Profit = 100000 - 80000 = 20000 Gross Profit Percentage = 20000/100000 Gross Profit Percentage = 20% Owens should include in gross income for the year of sale = Cash Collection * Gross Profit Percentage Owens should include in gross income for the year of sale = 25000*20% Owens should include in gross income for the year of sale = $ 5000 Answer Owens should include in gross income for the year of sale = $ 5000 Note : The installment sales method is one of several approaches used to recognize revenue under the US GAAP, specifically when revenue and expense are recognized at the time of cash collection rather than at the time of sale Question 17 Question 18 Upon her grandfather's death, Jayden inherited 10 shares of Axiom Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares in 1995 for $2,500. Four months after her grandfather's death, Jordan sold all her shares of Axiom for $7,500. What was Jayden's recognized gain in the year of sale? Jayden's recognized gain in the year of sale = Sale Value - fair market value at the time of death Jayden's recognized gain in the year of sale = 7500-5000 Jayden's recognized gain in the year of sale = $ 2500 Question 19 The depreciable basis for Johnson's business property will be the price at which the property has been acquired i.e. $ 100000 Therefore, the total depreciable basis will be $ 100000 Question 20 Option B is correct since tangible property must be related to the taxpayer's business as well as should be purchased from the unrelated party, as per section 179 of Internal Revenue Code Section 179