Exam 4: Business Income and Expenses, Part II

If a residence is rented for 15 days or more and is used for personal purposes for not more than 14 days or 10 percent of the days rented, whichever is greater, no allocation of expenses is required and the taxpayer may claim a deduction for the full amount of the expenses.

Barrett is a 45-year-old political commentator who has self-employed net earned income of $170,000 in 2015. What is the maximum amount he can deduct for contributions to his simplified employee pension (SEP) for the year?

Wages are considered "active income."

Ned has active modified adjusted gross income before passive losses of $160,000. He has a loss of $15,000 on rental property he actively manages. How much of the loss is he allowed to deduct against his other income?

Passive losses are fully deductible as long as they do not exceed $50,000 during the year.

In some cases, a taxpayer may deduct an otherwise allowable contribution to an IRA, even though the contribution is made after the close of the tax year.

What is the maximum amount a 30-year-old taxpayer and a 35-year-old spouse can put into a Traditional or Roth IRA for 2015, assuming they earn $50,000 in total and are not covered by pension plans?

Without regard to their involvement in the management of the rental property, individual taxpayers may deduct up to $25,000 of rental real estate losses against other income, provided their income does not exceed certain limits.

Miki, who is single and 57 years old, has a quaifying high-deductible insurance plan. She had the following transactions with her HSA during the year: a.How much may Miki claim as a deduction for adjusted gross income? b.What is the amount that Miki must report on her tax return as income from her HSA? c.How much is subject to a penalty? What is the penalty percentage?

Thelma works at a liquor store in 2015 and makes $44,000. She also has dividend income of $12,000 and interest income of $1,000. She owns a beach house that gives her $11,000 in net rental income and she owns a stake in a limited partnership that generates a $15,000 loss. What is her adjusted gross income in 2015?

Under the SEP plan provisions, deductible contributions to a qualified retirement plan on behalf of an employee whose net earned income is $20,000 are limited to:

Mike and Rose are married and file jointly. Mike earns $45,000 from wages and Rose reports $450 on her Schedule C as an artist. Since Mike's work does not offer health insurance, Rose pays the following health insurance premiums from her business account: How much can Mike and Rose deduct as self-employed health insurance?

Ralph has a $130,000 IRA with the Red Association. For personal reasons, he decides to move his funds to the Blue Association. He requests that his funds be distributed to him on August 20, 20xx. a.What amount will Ralph receive from the Red Association? b.What is the last day Ralph can deposit the funds from the Red Association and avoid taxation in the current year? c.If the funds were distributed from a qualified retirement plan (not an IRA), how much would Ralph receive? d.Assuming the funds were distributed from a qualified retirement plan, not an IRA, how much will Ralph have to contribute to the Blue Association to avoid taxable income and any penalties?

Lester rents his vacation home for 6 months and lives in the home during the other 6 months of 2015. The gross rental income from the home is $4,500. For the entire year, real estate taxes are $800, interest is $3,000, utilities and maintenance expenses are $2,200, and depreciation expense on the entire home would be $4,000. What is Lester's allowable net loss from renting his vacation home?

Walt and Jackie rent out their residence in San Diego to friends for 10 days while they vacation in Europe. They collect $1,000 of rental income. How is the rental income treated on their tax return? Explain.

Johnice's employer contributes $3,000 to a qualified retirement plan in 2015 for Johnice's retirement. a.Is the $3,000 deductible by Johnice's employer in 2015? Explain. b.Is the $3,000 income to Johnice in 2015? Explain. c.Is either the interest or dividend earnings on the $3,000 contribution taxable to Johnice in 2015? Explain.

What is the amount of the deductible HSA for each of the following taxpayers? a.Amelia and Albert, both age 43, have a qualifying high-deductible insurance plan.They contribute $5,700 to a family HSA. b.Betsy, who is single, 72 years old and covered by Medicare, wants to contribute the maximum amount to an HSA. c.Carlo has health insurance through his employer which has low deductible amounts.He is 34 years old and is married.Carlo wants to contribute the maximum to an HSA. d.Diane is 57 years old.She has a qualifying high-deductible insurance plan.She has contributed $4,350 to her HSA.

Donald owns a two-family home. He rents out the first floor and resides on the second floor. The following expenses attributable to the total building were incurred by Donald for the year ended December 31, 2015: In addition, the depreciation attributable to the entire building would be $2,000. What is the total amount of the expenses that Donald can deduct on Schedule E of Form 1040 (before any limitations)?

Ben is a 19-year-old single software inventor earning $200,000 a year and is not covered by a pension plan at work. How much can he put into a Roth IRA in 2015?

Serissa Corporation has a Section 401(k) plan for its employees. The plan provides for a maximum contribution equal to 15 percent of the employees' salaries. Scott, a 40-year-old employee of Serissa Corporation, elects to contribute the maximum amount possible to the Section 401(k) plan. During 2015, Scott has $42,000 in wages. For 2015, what is the maximum amount that Scott may contribute to the plan on a tax-deferred basis?