Explain the two-step evaluation process of FIN 48.
> Michael’s adjusted gross income for 2017 is $90,000. He is age 30 and single with no dependents. What is Michael’s taxable income?
> Joseph provides $12,000 of support for his mother, Miriam, who lives with him. Miriam is single and a U.S. citizen. Her only income is Social Security of $5,000 and taxable pension income of $4,200. Miriam uses the Social Security income for support but
> Suzanne, who is a head of household, has the following deductions before considering any phaseouts: Interest on qualified acquisition debt………$9,800 Real property taxes…………………………………..3,000 State income taxes……………………………………5,000 Charitable contributions………
> Pablo and Adriana, a married couple who file a joint return, purchased a $190,000 home making a $38,000 cash down payment and taking out a mortgage for the balance of the purchase price. They also paid the mortgage company $3,000 in points for originatin
> Priscilla, an employee of Choice Corporation, has an annual salary of $70,000. Choice has a cafeteria plan that allows all employees to choose an amount equal to 8 percent of their annual salary from a menu of nontaxable fringe benefits or to take cash.
> Rebecca and Gregory, a married couple filing a joint return, reported adjusted gross income of $70,000 and total allowable itemized deductions of $13,000, including $3,100 for state income taxes, in 2017. They received a $900 refund of state income taxes
> Daniel’s adjusted gross income is $90,000. During the year he incurred $14,000 of medical expenses and was reimbursed for $3,000 of these expenses. What is his allowable medical expense deduction if he is age 45, single, and itemizes? If this is Daniel’s
> Lynn, age 66, is an unmarried individual who has a dependent grandchild who lives with her. What is Lynn’s standard deduction for 2017?
> Harry and Silvia, a married couple, are both age 67 and legally blind. What is their standard deduction for 2017?
> Clark works all year at the front desk of the Dew Drop Inn and earns a salary of $30,000. He is offered the option of a $400-per-month living allowance or rent-free use of a room at the inn. Clark chooses to live at the inn in a room that normally rents
> Cecilia is married and files a joint return with her husband, Steve. They have modified adjusted gross income of $140,000. Cecilia paid $2,700 in student loan interest this year. How much of this interest is deductible?
> Mark works in a foreign country for the entire calendar year. His salary is $120,000 and he pays $18,000 in tax to the foreign government. His other taxable income (from U.S. sources) after all deductions is $30,000. If he claims the foreign earned incom
> Alexander works as an electrician at a small company that provides no retirement benefits. He receives a salary of $45,000. In addition, Alexander operates a small roof repair service as a sole proprietorship; this business has a net loss of $2,500. In a
> Luis operates a bakery as a sole proprietorship which generated $280,000 in net income. He has four bakers whom he employs on a full-time basis and who participate in a company-paid health insurance plan. Luis is also covered by this same plan. The annua
> Carrie owns a business that she operates as a sole proprietorship. The business had a net profit of $25,000 in 2017. This is Carrie’s only earned income. a. How much must she pay for self-employment taxes? b. How much can she deduct on her tax return?
> Larry has a scholarship to attend the local college. The scholarship provides $7,000 for tuition, books, and related expenses for the academic year. Larry only spent $3,200 for tuition, books, and related supplies from August through December of year 1 a
> Jennifer, age 35, is single and an active participant in her employer’s qualified retirement plan. Compute the maximum Roth IRA contribution that she can make in 2017 if a. her adjusted gross income is $135,000. b. her adjusted gross income is $59,000.
> Nick, age 53, is single and has AGI of $66,000. He contributes $5,000 to his IRA in 2017. a. How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan? b. How much can Nick deduct if he is covered by an employer-s
> Giant Corporation (a U.S. corporation) formed Small Corporation in a foreign country. Giant owns 70% of Small Corporation’s stock and the remaining stock is owned by citizens of the country in which Small is located. This year Small Corporation earned $1
> Sara has a $5,500 per year scholarship to attend the state university. Sara spent $4,000 for tuition, $500 for required textbooks and $1,000 for room and board. Sara also had a part-time job on campus earning $3,000 that covered the balance of her room a
> Mark’s employer pays 55 percent of the premiums for a disability insurance policy and Mark pays for the other 45 percent. The policy pays Mark 65 percent of his normal salary in the event he is injured and cannot return to work for an extended period. Ma
> Jennifer elects to reduce her salary by $2,500 so she can participate in her employer’s flexible spending arrangement. Her salary reduction is allocated as follows: $1,700 for medical and dental expenses and $800 for child care expenses. During the year,
> Myra received a $20,000 gift from her cousin and inherited $80,000 in corporate bonds from her aunt at the beginning of the current year. Myra received $7,000 in interest income from the bonds at the end of the current year. How much does Myra include in
> Markum Corporation owes a creditor $60,000. Markum transfers property purchased four years ago for $45,000 to the creditor to satisfy the debt. The property is currently worth $60,000. Does Markum have any gross income as a result of this transaction?
> Mike was shopping in Produce Market when it was robbed. Mike suffered some injuries during the robbery and filed suit against Produce Market for not maintaining a secure environment for its customers. In an out-of-court settlement, Mike received $12,000
> Carl is a 30 percent partner in the CCF Partnership. At the beginning of the year, his basis in the partnership is $4,000. The partnership reports $7,000 of ordinary income and distributes $3,000 to the partners. What is Carl’s basis at the end of the ye
> John has taxable income of $30,000. William has taxable income of $60,000. Determine their 2017 income taxes if they are both single individuals and claim the standard deduction. Compare their incomes and their income taxes. What does this illustrate?
> Perform the calculation to prove that the 3 percent surtax on corporate income between $15,000,000 and $18,333,333 equals the benefit of the 34 percent tax rate on income of no more than $10,000,000.
> Refer to the information in problem 37. Determine Warner Corporation’s income tax liability. From problem 37: The Warner Corporation has gross income of $560,000. It has business expenses of $325,000, a capital loss of $20,000, and $2,500 of interest in
> Refer to the information in problem 36. Determine the corporation’s income tax liability. From problem 36: Determine a corporation’s taxable income if it has $450,000 of gross receipts, $145,000 cost of goods sold, $276,000 of deductible business expens
> John is a single individual who works for Auto Rental Cars in Japan during the entire calendar year. His salary is $140,000. How much of this salary can he exclude?
> Refer to the information in problem 35. Determine Marlee’s income tax liability for 2017. From problem 35: Marlee, a single parent of one child for whom she claims the exemption, has $15,000 in itemized deductions and files as head of household for 2017
> Refer to the information in problem 34. Determine Amy’s income tax liability for 2017. From problem 34: Determine Amy’s taxable income for 2017 if she has $40,000 of salary income, is single, and claims the standard deduction.
> Determine George and Mary’s taxable income and tax liability for 2017 if George has $65,000 and Mary has $45,000 of salary income, they have $24,000 of allowable itemized deductions, no dependents, and file a joint tax return.
> The Warner Corporation has gross income of $560,000. It has business expenses of $325,000, a capital loss of $20,000, and $2,500 of interest income on temporary investments. What is the corporation’s taxable income?
> Determine a corporation’s taxable income if it has $450,000 of gross receipts, $145,000 cost of goods sold, $276,000 of deductible business expenses, $20,000 of gain on the sale of machinery, and $500 of interest income from State of New York bonds.
> Marlee, a single parent of one child for whom she claims the exemption, has $15,000 in itemized deductions and files as head of household for 2017. Determine her taxable income if she has a salary of $71,000 and interest income of $1,500.
> Determine Amy’s taxable income for 2017 if she has $40,000 of salary income, is single, and claims the standard deduction.
> If a taxpayer has $140,000 of employee salary, how much will be withheld for the Social Security and Medicare taxes in 2017?
> If a taxpayer has $40,000 of employee salary in 2017, how much will be withheld for the Social Security and Medicare taxes?
> Dane City’s total assessed valuation for all of the property in its jurisdiction is $4,000,000,000. It needs $20,000,000 in revenue for the services it provides its citizens. Joe owns property that is assessed at $150,000. How much will he pay in propert
> Gaudy Gift Gallery Corporation (owned 100 percent by Barbara) operates a gift shop. Barbara employs her daughter, Jenny, after school and on weekends. Other employees with similar responsibilities are paid $7 per hour while Jenny earns $15 per hour. Jenn
> Melissa is an employee of Largo Corporation. In 2017 Melissa’s salary was $105,000 and she earned a bonus of $24,000. How much in Social Security and Medicare taxes must be paid by Largo Corporation and how much of these taxes can it deduct? How much Soc
> Explain the differences between the rules governing travel within the United States and those governing travel outside the United States.
> Diane owns and manages a successful clothing store in Dallas. She and her brother, Cameron, investigated the possibility of opening another store in Atlanta for Cameron to manage. Diane and Cameron each paid $1,600 in travel costs while looking for sites
> What records should a taxpayer be able to provide the IRS to substantiate a tax deduction?
> What is an investment activity and how are its expenses deducted?
> Explain the advantages and disadvantages of a publicly held company using LIFO for inventory valuation.
> What are the UNICAP rules, and which businesses do they affect?
> Which corporations are required to file Schedule M-3? What is the purpose of this schedule?
> Differentiate permanent differences and temporary differences. Provide examples of each.
> What is a statute of limitations? What is its significance to taxpayers?
> What factors differentiate a hobby from an active business?
> What are the requirements for a self-employed person to claim a deduction for an office in the home? What are the additional requirements for an employee to take a home office deduction?
> What are the passive activity loss rules and how do they affect the deductibility of losses from rental property?
> How are deductions for expenses of rental property limited if the taxpayer also uses the property as a vacation home?
> What are the characteristics of a qualified trade or business?
> When would a taxpayer claim the standard deduction rather than itemizing deductions?
> Differentiate between an abandoned spouse and a surviving spouse.
> What is the purpose of the abandoned spouse provision?
> What are the requirements to file as head of household?
> What are the filing statuses available to unmarried taxpayers? Which statuses are available only to married taxpayers?
> Are there any restrictions on business use of the cash method of accounting? Explain.
> Describe the two types of Medicare surtaxes and explain how they are computed.
> What is the kiddie tax and when does it apply?
> Explain how a taxpayer determines if he or she is required to file a tax return?
> If an individual has a negative taxable income does that mean that he or she has an NOL? Explain.
> Explain why Congress allows taxpayers to deduct the penalty for a premature withdrawal from a certificate of deposit?
> What is the purpose of the alternative minimum tax for an individual?
> Compare similarities and differences of the American opportunity tax credit and the lifetime learning credit.
> Explain the difference between a refundable and a nonrefundable credit? Provide examples of each.
> Explain the difference between a tax credit and a tax deduction?
> Explain how exemptions are phased out. Can a taxpayer lose the benefit of all of his or her personal and dependency exemptions?
> Your client, Teresa, claimed a dependency exemption for her elderly father. Upon audit, the IRS agent disallowed the dependency exemption. Teresa received a 30-day letter notifying her of the proposed additional tax liability of $1,050. Teresa is very up
> Explain the gross income test for the dependency deduction.
> What is the purpose of a multiple support agreement?
> Compare the requirements for claiming a dependency exemption for a qualifying child and a qualifying relative.
> Which relatives qualify for purposes of claiming a dependency exemption? Which relatives do not qualify?
> Distinguish the personal exemption from the dependency exemption.
> What is the purpose of adjusted gross income?
> Explain how itemized deductions are phased out. Can a taxpayer lose the benefit of all of his or her itemized deductions?
> Describe the types of expenses allowed as miscellaneous itemized deductions. What limitation is imposed on these expenses?
> Collin pledged a $5,000 gift to his church’s building fund. He has 125 shares of stock that he purchased six years ago for $100 per share. They are currently worth $40 per share. Collin plans to give the stock to the church to satisfy his pledge. What ad
> What are “points” paid on a home mortgage and when are they deductible?
> What are the three courts in which a taxpayer initiates tax litigation to settle a dispute with the IRS? To which courts can adverse decisions from these courts be appealed?
> What is qualified residence interest?
> Lynn paid $12,000 of investment interest expense in a year in which she has the following investment income: $3,000 taxable dividend income, $4,000 taxable interest income, $1,000 from a short-term capital gain, and $4,000 from a long-term capital gain.
> Why is investment interest expense limited to net investment income?
> Which types of taxes qualify as itemized deductions?
> Contrast ceiling and floor limitations for itemized deductions. Provide an example of each.
> Briefly explain two deductions that an individual has for adjusted gross income.
> What are the advantages of a qualified retirement plan?
> High-Tec Corporation offers a stock option plan as an incentive to its employees. Few employees participate in the plan because they do not have the cash necessary to exercise the options. What alternative type of incentive plan can High-Tec offer these
> What is the difference between an NQSO and an ISO?
> A taxpayer moves from Atlanta to Chicago on December 3, year 1, to accept a new job. She wants to deduct her $3,000 in unreimbursed direct moving expenses, but she will not meet the time test by the due date for her year 1 tax return, what are her option
> Provide three reasons why generally accepted accounting principles are not allowed for tax purposes.
> What is the difference between a qualified employee discount and a bargain purchase by an employee?
> Anne is an employee of Marvel Corporation that has an educational assistance plan that pays for up to $5,000 in tuition for any work-related courses. Marvel Corporation also provides free on-premises parking (valued at $50 per month) and free child care
> Explain the difference between a tax protection plan and a tax equalization plan. Which one is usually less costly to the employer?
> James and Dean plan to start a new business but have not decided whether to organize as a partnership, an S corporation, or a C corporation. They are interested in taking advantage of any tax-free fringe benefits that may be available to them. Discuss th
