Question: Are all taxpayers allowed a deduction for

> Chanda is 36, single, and an active participant in a qualified employee pension plan. Determine the maximum Roth IRA contribution that she can make in each of the following cases: a. Her adjusted gross income for the year is $66,000. b. Her adjusted gro

> While reading a State College alumni newsletter, Linh is surprised to learn that interest paid on student loans is deductible. Linh graduated from college 2 years ago and paid $1,200 in interest during the current year on loans that he took out to pay h

> Kathy, who is single and 25, inherited $7,000 from her grandmother. A coworker has suggested that Kathy open an Individual Retirement Account with the $7,000. Her friend says that an IRA is a great way to save because you don't have to pay tax on the i

> Lois and Kam are married and file a joint return. Lois earns $64,500 and Kam earns $40,000. Their adjusted gross income is $112,000. Determine the maximum IRA contribution and deduction in each of the following cases: a. Neither Lois nor Kam is covered

> Carlos and Angela are married, file a joint return, and both are 42 years old. During the current year, Carlos’s salary is $70,000. Neither Carlos nor Angela is covered by an employer-sponsored pension plan. Determine the maximum IRA contribution and

> Thomas is single and a self-employed architect. During 2017, Thomas’s income from his business is $144,000. He also pays $2,200 for a medical insurance policy. a. How should the medical insurance policy payment be reflected on his 2017 tax return? b. W

> Evelyn is single and a self-employed engineer. During 2017, Evelyn's income from her engineering business is $55,000. Evelyn pays $3,100 for her medical insurance policy. a. How should the medical insurance policy payment be reflected on Evelyn's 2017

> Norman and Vanessa are married and have 2 dependent children. This is a summary of their 2016 tax return: Adjusted gross income…………………………………………………$103,800 Deductions from adjusted gross income: Standard deduction……………………………………

> The Ballaraat Corporation is cutting costs. The vice president of finance has asked the tax department to justify the company's continued use of an accountable employee expense reimbursement plan. You are the manager of the tax department. Prepare a le

> Alvin is an employee of York Company. During the year, he incurs the following employment-related expenses: Travel…………………………………………….$ 4,000 Meal………………………………………………. 2,400 Lodging……………………………………………2,500 Entertainment ……………………………………1,100 a. How should Alv

> Mona works for Leonardo Corporation as a sales representative. Leonardo gives her a travel allowance of $350 per month. During the current year, she spends the following amounts on valid travel expenses: Transportation……………………………..$ 2,700 Meals…………………

> Diane and Peter were divorced in 2017. The divorce agreement states that Peter is to have custody of their son, Stewart, and that Peter will be entitled to the dependency exemption. In addition, Diane is required to pay Peter $12,000 per year until Stew

> Vince is the third highest paid executive for Sensor Corporation, a publicly traded-corporation. His salary is $1,250,000. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue you identify.

> Audrey opened Hardy Consulting Services during the current year. She has one employee, Deng, who is paid a salary of $30,000. Audrey is confused about the amount of federal unemployment tax she is required to pay on Deng's salary. The state unemployme

> Jennifer is self-employed. At Christmas, she gives the elevator operator in the building where her office is located a pair of gloves. She makes similar gifts to the two parking lot attendants who park her car. Identify the tax issue(s) posed by the fa

> Salvador is an insurance representative for the Hendricken Insurance Company. Recently, he heard that the controller of his largest account, Gore Plastics, was asking other insurance representatives to submit quotes on the cost of providing workers’ com

> Marjorie is an accountant and Alana is an attorney. They have been business acquaintances for about 10 years. They meet every Friday at 6 P.M. at a local tavern to socialize. As always happens with attorneys and accountants, they discuss what is happe

> Stephanie Zane is the sole proprietor of Shear Madness, a hair salon. Her revenue comes from two sources, haircuts and the sale of hair products. Stephanie has three employees whose compensation consists of a weekly salary and a 40% commission on the

> Simon and Sherry divorce during the current year. As part of their property settlement, Simon gives Sherry 25% of the stock in his 100%-owned corporation, Hobday, Inc. The stock has a fair market value of $80,000. Rather than pay Sherry any alimony, S

> Evander, an officer in the Marine Corps, was appointed commanding officer of the Marine training base in Beaufort, S.C. As is customary in connection with changes in command, he hosts a party at his home for officers and guests the night before he assum

> Pierre is a certified high school teacher in Kansas. During the year, his wife’s company transfers her to New Jersey. In applying for a job in New Jersey, Pierre is informed that he will be granted only a 6-month provisional teaching certificate unless

> The Internet is a useful resource for gathering tax information. An important aspect of taxes discussed in this chapter is how deductible IRA’s and Roth IRA’s can be used to save for retirement. One site that provides a comparison of these two retireme

> The use of a “flat tax” to replace the current income tax system has received a considerable amount of interest in recent years. Various flat-tax proposals have been made, but the gist of a flat tax is the use of a single tax rate with very few deductio

> Sam, the owner of The Perfect Cut, a wholesale meat distributor, unexpectedly dies during the current year. In an effort to provide equally for his two children, Sam’s will provides that the entire business less 40% of its accounts receivables be left t

> Scott is single and wants to maximize his retirement income. He contributes the maximum allowable to his company's qualified pension plan. His adjusted gross income for the year is $73,000. Identify the tax issue(s) posed by the facts presented. Deter

> Many legislative, administrative, and judicial resources are available on the Internet. These can be located using a search engine or a tax directory site on the Internet. This assignment is designed to acquaint you with some of the tax directory sites

> As stated in the text, the federal income tax is the largest revenue-producing tax in use in the United States. Why do you think the income tax produces more revenue than any other tax?

> The town of Dinsmore passed a bill requiring that all homes be connected to the town sewer system. Baskin Ridge is the only section of town that does not have town sewers. Dinsmore will finance the project by assessing each homeowner in Baskin Ridge $1

> The Copeland Corporation acquires a machine for $5,000 and pays $250 in state sales tax. The machine has a tax life of 7 years. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue you identify.

> The Gallery is an indoor recreational facility. It employs 95 minimum wage employees and 7 management-level persons. During the past month, all employees of the facility participated in a promotion to enhance sales by distributing discount coupons to p

> Susan loaned $2,000 to her minister a year ago. The loan is not evidenced by a note and does not bear interest. The minister has moved out of town without paying her back. She doesn't want to embarrass him by asking him to repay the loan. Identify t

> Jake loaned his cousin, Arnold, $10,000 in March 2015 to open a cybercafe in Santa Barbara. Arnold signed a loan agreement to pay Jake 7% interest annually, with the principal due in 2018. Jake received his 2015 interest payment but did not receive any

> Carla has a B.S. degree in history and is employed as an administrative assistant for a public accounting firm. After work, she attends Wittman College where she is enrolled in an accounting course. Her goal is to take the necessary courses to sit for

> Based on the information provided in the text, calculate Rufus and Rhonda's taxable income and their tax liability. Assume that they are cash basis taxpayers and want to be as aggressive as possible in taking their allowable deductions. In addition, yo

> Tom is a CPA for a large regional firm. In preparing the tax return for Espresso Industries, he notices that the firm has an unusually high amount of travel, meal, and entertainment expenses. Therefore, he decides to examine the supporting documentation

> What requirements must be met to deduct life insurance premiums paid on an employee's policy?

> Explain the criteria used to determine whether an educational expense is deductible or nondeductible and how education expenses are deducted on a taxpayer's return.

> Under what circumstances are business gifts deductible?

> The purpose of this assignment is to introduce you to the tax information provided by the Internal Revenue Service on its World Wide Web site (http://www.irs.gov/). Go to this site and look at the various types of information provided and write a short

> What records are necessary to properly document travel, entertainment, and gift expenses?

> How is the gross income from a rental property or a royalty property determined?

> What problems does the taxpayer who uses an automobile for both business and personal purposes encounter? What option(s) does the taxpayer have regarding the automobile expense deduction?

> How does an entertainment expense directly related to business differ from an entertainment expense associated with business?

> What requirements must be met for meal and entertainment expenses to be deductible?

> Most expenditures that have a business purpose and meet the ordinary, necessary, and reasonable requirements are deductible. However, specific rules must be adhered to in determining the deductibility of many expenses that meet this test. Why are these

> Explain the general requirements that must be met to obtain a deduction for moving expenses and the type of moving expenses that are deductible.

> Is the interest on education loans always deductible? Explain

> Who is eligible to make and receive contributions to a Coverdell Education Savings Account?

> How does the tax treatment of a conventional IRA differ from a Roth IRA?

> Joey and Camilla are married and have three children, ages 8, 16, and 18. They own a commercial cleaning business that is organized as a sole proprietorship and makes $170,000 annually. They have $30,000 of other taxable income (net of allowable deduct

> How is the degree of completion of a long-term construction contract determined?

> Why are self-employed taxpayers allowed to deduct their medical insurance premiums and self-employment tax for adjusted gross income?

> What is an accountable employee expense reimbursement plan? What is the significance of such a plan?

> Why are deductions for adjusted gross income "better" than deductions from adjusted gross income?

> Are all legal fees paid by a taxpayer deductible? Explain.

> Are sales taxes deductible? Explain.

> Explain how a taxpayer determines qualified production activities income and how a taxpayer calculates their qualified production activities deduction.

> What activities qualify for the qualified production activities deduction?

> Explain how the tax benefit rule may apply to bad debt deductions.

> What accounting method must be used to account for bad debts that result from the sale of merchandise or the provision of services?

> Explain the difference in the of tax treatment business and nonbusiness bad debts.

> This chapter noted that returns on investment are taxable, whereas returns of investment are not taxable. What is the conceptual basis for this treatment? Cite examples of each type of return, and explain why they are or are not taxable.

> Victoria's son needs $5,000 for tuition at the Motown School of Dance. Victoria, who is in the 33% marginal tax rate bracket, intends to pay the tuition by selling stock worth $5,000 that she paid $2,000 for several years ago.

> Is all compensation paid to an employee deductible? Discuss the circumstances in which employee compensation cannot be deducted.

> Can education expense incurred by one taxpayer be deductible whereas the same expense incurred by another taxpayer is not deductible? Explain.

> Norman was the sole shareholder and operator of two successful video arcades. While he was in the hospital with heart problems, his wife, Helen, filed for divorce and took a number of legal steps, including obtaining a temporary restraining order agains

> Brad graduated from law school in Detroit in May 2016. He had lived in the area for 5 years before enrolling in law school. Following his graduation, he prepared for the Michigan bar exam, which he took in July 2016. In August 2016, Brad moved some of h

> Felix and Ismael were college roommates. Five years after they graduate, Ismael is a tax manager in a large public accounting firm, and Felix is still in his first job as an engineer for a construction company. Felix is not sure whether he wants to stay

> Rosita's grandmother dies in November 2016 and leaves her an investment portfolio worth $180,000. In January 2017, when Rosita receives ownership to the investments, the portfolio consists of $112,000 of tax-exempt securities and $68,000 of taxable secu

> Allison and Paul are married and have no children. Paul is a lawyer who earns a salary of $80,000. In November 2016, Allison quit her job as a copy editor and began exploring the possibility of breeding and showing horses. She would run the business o

> Manuel and Fernando own and operate an electronics store, Electronica, as an S corporation. Manuel owns 70%, and Fernando owns 30%. For the current year, the store reports the following: Sales revenue …………………………………………$1,000,000 Long-term capital gains…

> Andy, Azim, and Ashwin operate the Triple-A Steak House, a popular restaurant and bar. The three, who have been friends since childhood, are equal partners in the establishment. For the year, Triple-A reports the following: Sales revenues ……………………………

> What effect does an asset's adjusted basis have in determining the gain or loss realized upon its sale?

> Determine how each of the following expenses would be deducted for tax purposes. If the expense is not deductible, explain why not. a. Chander paid $500 in interest on a loan he used to purchase equipment for his retail business. b. Peter paid $500 in in

> Using the information below, prepare a spreadsheet that will calculate an individual's taxable income. The spreadsheet should be flexible enough to accommodate single and married taxpayers as well as changes in the information provided below. A templat

> Discuss how an individual would deduct each of the following expenditures. If more than one treatment is possible, discuss the circumstances under which each type of deduction would be obtained: a. Amos purchased 500 shares of Lietzke stock for $50 per

> Alexandra is a veterinarian employed by Fast Vet Services. Susan is a self-employed veterinarian. During the current year, Alexandra and Susan have the same amounts of income and deductions. Why might a deductible expense paid by Susan affect her taxa

> Martin Corporation is an accrual basis taxpayer that manufactures cellular phones. The company provides a 5-year limited warranty on its phones and estimates that warranty expenses will be 1.5% of sales. During the current year, Martin has sales of $12

> During the current year, Covino Construction makes $5,000 in political contributions to ten political candidates. What amount can Covino deduct for financial accounting purposes? for tax purposes?

> Lonnie owns 100% of Quality Company's common stock. Lonnie, the president of Quality, is a cash basis taxpayer. Quality is short of cash as of December 31, 2017, the close of its tax year. As a result, it is necessary to accrue a $50,000 bonus payable

> Kai, a cash basis taxpayer, is a 75% owner and president of Finnigan Fish Market. Finnigan, an S corporation, uses the accrual method of accounting. On December 28, 2017, Finnigan accrues a bonus of $40,000 to Kai. The bonus is payable on February 1, 201

> The Parr Corporation incurs the following expenses. When can it deduct the expenses if it uses the accrual method of accounting? the cash method? a. Parr Corporation mails a check for $5,000 to the United Way on December 26, 2017. The company's cance

> Joy incurs the following expenses in her business. When can she deduct the expenses if she uses the accrual method of accounting? the cash method? a. Joy rents an office building for $750 a month. Because of a cash-flow problem, she is unable to pay th

> Explain the difference in determining the amount of income recognized from a conduit entity versus a taxable entity.

> Damon's Lawn and Garden Supply, an accrual basis taxpayer, is the exclusive dealer for Tru-Cut lawn mowers. In 2017, Damon's agrees to pay the Dash Corporation, the manufacturer of Tru-Cut, an additional $15 per lawn mower. In exchange, the Dash Corpor

> Gonzo Company is an accrual basis taxpayer. It provides medical insurance for its employees through a self-insured reimbursement plan. Gonzo pays $150 per month per employee into the plan fund. The fund is then used to reimburse employees' medical exp

> Shawna earns $95,000 as a biologist for Berto Corporation. She also consults with other businesses on compliance with environmental regulations. During the current year, she earns $40,000 in consulting fees. Determine the amount of self-employment tax

> Appliance Sales Corporation sells all types of appliances. In addition, it offers purchasers of its appliances the option of purchasing repair contracts. During the current year, Appliance estimates that repairs totaling $13,100 will be made under the

> The Kane Corporation is an accrual basis taxpayer. State law requires that Kane acquire workers’ compensation insurance from a third-party carrier or maintain a self-funded insurance plan. Kane has decided to create a self-fund workers’ compensation pla

> On July 1, 2017, Andaria borrows $30,000 from the First Financial Bank. The loan is for 1-year at an annual interest rate of 10%. How much interest can Andaria deduct under each of the following situations? a. The bank deducts the interest from her the l

> The Adelaide Advertising Agency, a cash basis taxpayer, bills its clients for services it renders and any out-of-pocket expenses it pays to third parties on behalf of its clients. For example, in creating a television commercial for a client, Adelaide ch

> Charlotte owns a custom publishing business. She uses 500 square feet of her home (2,000 square feet) as an office and for storage. All her business has come from telemarketing (telephone sales), direct mailings, or referrals. In her first year of ope

> Hromas uses a separate room in his home as an office. The room is 500 square feet of the total 2,000 square feet of the house. During the current year, Hromas incurs the following household expenses: / How much of a deduction is Hromas allowed for th

> Explain how the capital recovery concept applies to the taxation of annuities. Consider both purchased annuities and pension payments in your answer.

> Haysad owns a house on Lake Tahoe. He uses a real estate firm to screen prospective renters, but he makes the final decision on all rentals. He also is responsible for setting the weekly rental price of the house. During the current year, the house re

> Matilda owns a condominium on the beach in Rehoboth, Delaware. During the current year, she incurs the following expenses related to the property: Mortgage interest…………&aci

> Mel and Helen own a beachfront home in Myrtle Beach, S.C. During the year, they rented the house for 5 weeks (35 days) at $800 per week and used the house for personal purposes 65 days. The costs of maintaining the house for the year were Mortgage int

> Return to the facts of problem 67. Assume that you are the CPA in charge of preparing the tax return for each of the taxpayers in the problem. Based on the Standards for Tax Services (which can be found at www.cengagebrain.com), explain what you should

> Lee and Sally own a winter retreat in Harlingen, Texas, that qualifies as their second home. This year they spent 40 days in their cabin. Because of its ideal location, it is easy to rent at $120 a day and was rented for 80 days this year. The total u

> Sharon is single and a data-processing manager for the phone company. She also owns and operates a sports memorabilia store. Sharon goes to shows, subscribes to numerous magazines on sports memorabilia, and maintains a Web page on the Internet. She has