Exam 6: Accounting Methods and Taxes

Tom, age 13, is claimed as a dependent by his parents.Tom has unearned income of $3,400 and $300 of income from mowing lawns in the neighborhood.If the first $2,550 of Tom's net unearned income is taxed at 10%, what is Tom's 2018 income tax liability?

Salary earned by minors may be included on the parents' tax return.

Which of the following is not an acceptable method of accounting under the tax law?

A taxpayer would be required to pay Social Security and Medicare taxes for a domestic employee in all but one of the following situations.In which situation would this not be required?

Beverly is the sole owner of Bev & Associates, an accrual basis corporation.In 2018, Bev & Associates has an unprofitable year and Beverly lends the corporation $50,000 to meet expenses.The corporation accrues interest expense of $5,000 on the loan from Beverly, but does not pay the interest to her in cash.​How much of the $5,000 in accrued interest expense can Bev & Associates deduct on its 2018 corporate tax return? Explain.

Self-employment taxes:

Which of the following items may be subject to the self-employment tax?

Ellen uses the head of household filing status and has a dependent daughter.Ellen has self-employment income of $310,000 as an architect and $10,000 of self-employment losses from a jewelry making business.​ a.What is Ellen's 0.9% additional Medicare tax for 2018? b.Is Ellen allowed to include a portion of the 0.9% additional Medicare tax in computing the deduction for self-employment taxes reported as an adjustment for AGI on the front page of her income tax return?

Peter and Joan are married and Joan has self-employment income of $240,000.Peter is retired.How much additional 0.9% Medicare tax will Peter and Joan owe with their 2018 income tax return?

Gerald is single and earns $80,000 in dividend income and $180,000 in wage income in 2018.Compute his additional 3.8 percent Medicare tax on net investment income.

For 2018, the maximum base amount for computing the Medicare portion of the self-employment tax is $150,000.

The 3.8 percent ACA Medicare tax does not apply to:

Which of the following is not an adjustment or tax preference item for 2018 for purposes of the individual alternative minimum tax (AMT)?

In determining an employee's FICA tax to be withheld, the maximum amount of wages subject to FICA must be reduced by the taxpayer's self-employment earnings.

In 2018, Tom had net earnings of $80,000 from the plant nursery he owns.What is his liability for self-employment taxes on his earnings?

Assume Karen is 12 years old and her only income is $5,500 of interest income from a bank account with money her parents have given her to save for college.If Karen does not elect to include her income on her parents' return, what is her income tax liability?

If a cash basis business owner pays 18 months of rent expense in advance during the last month of the tax year, how is this treated on the tax return? What is the reason tax law requires this treatment?

Tom, a cash basis sole proprietor, provides the following information: Gross receipts \3 0,000 Dividend income (on personal investments) 200 Cost of sales 15,400 Other operating expenses 3,000 State busines s taxes paid 300 What amount should Tom report as net earnings from self-employment?

Becky is a cash basis taxpayer with the following transactions during her calendar tax year: Cash basis revenue \5 4,000 Cash basis expenses, except rent 25,000 Rent expense (paid on December 1) for use of a building for 24 months 24,000 What is the amount of Becky's taxable income from her business for this tax year?

Under the cash basis of accounting, most expenses are generally deducted in the year they are paid.