Exam 8: Taxation of Individuals

COMPREHENSIVE TAX RETURN PROBLEM. Your cousin, Antonia, who is 30 years old, single and a restaurant manager, heard that you have enrolled in the Masters of Taxation program at State University. She has asked you for help in preparing her 2018 tax return and provides you with the following information: Salary \ 50,000 Alimony received (Pre-2018 agreement) 3,600 Interest on GMAC Bonds 800 Interest on City of New Orleans Bonds 1,300 Interest on a bank savings account 600 Berlinco, Inc. (a foreign corporation) (nonqualified dividend) 100 Long-term capital gain 2,000 Long-term capital loss (1,000) Short-term capital gain 5,000 Short-term capital loss (3,000) Short-term capital loss carryover from 2017 (5,000) Cash award from local United Way [1] 300 Christmas turkey [2] 30 Parking at office [2] 500 Membership in professional organizations [2] 100 Group term life insurance ( \ 40,000 policy) [2] 135 \text { Unreimbursed medical expenses: Medical insurance premiums \ 1,900 Prescription drugs 250 Dentist 2,250 Emergency room fee 885 Cold pills, aspirin, other over-the-counter medicine 120 Rental fee for crutches 80 Real estate taxes \ 1,600 State income tax withheld 2,150 State income tax paid in 2018 for 2017 tax return 150 Home mortgage interest 4,800 Home equity interest [3] 500 Charitable contributions - cash 1,950 Charitable contributions - clothes [4] Tax preparation fee for 2017 return, paid in 2018 300 Unreimbursed business expenses [5] 888 Note: [1] Antonia kept the award from the United Way. [2] Benefits paid by the employer. [3] Antonia borrowed $12,000 and used the proceeds to purchase a new car. [4] The original cost of the clothes was $480 and the current FMV is $200 [5] Of the $888 in expenses, $180 are for meals and entertainment. Compute Antonia's: adjusted gross income, taxable income, and tax liability. ?

Indicate the proper treatment in the current year for the underlined amounts. Treat each item as an independent event. Indicate whether the amount is deductible or not; if deductible whether it is deductible FOR or FROM AGI; and indicate the amount of the deduction for the current year considering any relevant limitations. Assume the taxpayer has deductions greater than the standard deduction, has AGI of $69,000 without regard to the following transactions and has no "total" income limitations related to itemized deductions. -Federal quarterly estimate of $3,000 paid by a self-employed taxpayer.

In each of the following independent cases determine the total number of Ivan's dependents. Assume that Ivan is single, 32 years old and any dependency test not mentioned has been met. a.Ivan provides 80% support of his nephew (age 17), who lives with him. During the year, the nephew has gross income of $4,800 and is a full time student. b.Ivan provides 60% of the support of his mother. The mother derives the remainder of her support from a pension of $9,300 that was financed 100% by her employer. c.Ivan provides 60% support of his mother, age 69. His mother received dividend income of $3,350 and Social Security benefits of $8,500.

Susan is 17 and is claimed as a dependent by her parents. In 2018, she earns $1,000 from a summer job and receives $2,400 of interest from a savings account. How much of Susan's income is taxable at the rates applicable to estates and trusts?

Explain the non-support test and the principle residence test to be a qualifying child.

Carlos had $3,950 of state taxes withheld from his salary this year. If he deducts the full amount as an itemized deduction and receives a refund in the following year, he must file an amended return and reduce the deduction he received by the amount of the refund.

Match each statement with the correct term below. -Support test

Samantha incurs the following medical expenses for the current year: ? Face-lift for cosmetic purposes \ 800 Dentist fees 500 Doctors' fees for Samantha's daughter 400 How much may Samantha include as qualified medical expenses on her current tax return before any limitation?

Lilly and her husband Ben have a serious argument. In fact, Lilly moved out in August, left town, and has not been heard from since. Ben supports their two children after the split up and maintains their household. What is Ben's filing status for the current year?

Mary is a 21 year old full-time student. Mary's support is provided as follows: ? Mary 60\% Mary's parents 40\% Assuming all other tests for dependency not mentioned are satisfied. ? ?

Indicate the proper treatment in the current year for the underlined amounts. Treat each item as an independent event. Indicate whether the amount is deductible or not; if deductible whether it is deductible FOR or FROM AGI; and indicate the amount of the deduction for the current year considering any relevant limitations. Assume the taxpayer has deductions greater than the standard deduction, has AGI of $69,000 without regard to the following transactions and has no "total" income limitations related to itemized deductions. -Sale of stock results in a loss of $7,000. The only other capital transaction for the year results in a gain of $6,000. Amount: $7,000

Velma is 16. Her income consists of municipal bond interest of $400 and interest credited to her savings account of $2,340. If her parent's taxable income is $88,000, what is Velma's 2018 tax liability?

Ricardo pays the following taxes during the year: ? Real estate taxes on his personal residence \ 2,500 Real estate taxes on rental property 2,000 State sales taxes 600 State income taxes 4,000 City income taxes 1,000 Federal income taxes 5,400 What is the amount Ricardo can deduct for taxes as an itemized deduction for the year?

Which of the following individuals can be claimed as a dependent in the current year? (Assume any test not mentioned has been satisfied). I.Kelly's mother, Dana, lives with her for 10 of 12 months during the year. Kelly provides all the support for Dana during that time. The other two months were spent with Dana's other daughter, Alice. Dana's annual income consists of $12,750 in Social Security and $1,850 of savings account interest. Kelly may claim Dana as a dependent. II.Bart is a 22-year-old college student. His tuition of $7,000 is paid by a scholarship he received for his good high school record. He lives with his parents, who also provide him with $450 monthly support. Bart earns $1,950 mowing lawns in the neighborhood for other support. He may be claimed as a dependent of his parents. ​

Indicate the proper treatment in the current year for the underlined amounts. Treat each item as an independent event. Indicate whether the amount is deductible or not; if deductible whether it is deductible FOR or FROM AGI; and indicate the amount of the deduction for the current year considering any relevant limitations. Assume the taxpayer has deductions greater than the standard deduction, has AGI of $69,000 without regard to the following transactions and has no "total" income limitations related to itemized deductions. -Qualified contribution of $6,500 to an IRA by a 52 year old married taxpayer who is covered by his employer's pension plan. Amount: $6,500

Moran, a single taxpayer, pays the following amounts during the current year: ? Property taxes on residence \ 1,800 State income taxes withheld from paycheck 3,000 Federal income taxes withhel d from paycheck 8,000 Mortgage interest on residence 6,000 Cash contributions to church 2,200 Credit card interest 500 If his adjusted gross income is $80,000, what is his taxable income?

Eileen pays $14,000 of interest related to her purchase of investments. During the current year, Eileen's adjusted gross income is $80,000, which includes investment related income of $9,000. Determine whether the interest is deductible, how it would be deducted on the taxpayer's return (if there are alternatives possible, discuss the conditions which would determine the treatment) and any limitations that might be placed on the deduction.

Morris is a single individual who has total itemized deductions in 2018 of $12,500. His itemized deductions include $2,000 for state income taxes. After filing his 2018 state income tax return he receives a refund of $275.

Byron, 54, is a single, self-employed, carpenter. During 2018, he earns gross revenues of $60,000 and incurs $6,000 of business expenses. His itemized deductions for the year are $12,185. Determine Byron's taxable income and his total tax liability.

To recognize such basic personal living costs as food and clothing, each individual taxpayer is allowed a personal exemption of $4,150 in 2018.