tax problems - questions,,,
Question # 00029834
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Updated on: 10/29/2014 11:32 PM Due on: 11/12/2014
16. LO.5 Ellen borrowed $50,000 from her parents for a down payment on the purchase of a new home. She paid interest of $3,200 in 2011, $0 in 2012, and $9,000 in 2013. The
IRS disallowed the deduction. What explanation can you offer for the disallowance?
17. LO.6 The city of Lawrence was hit by a tornado in April 2013, leaving many families in need of food, clothing, shelter, and other necessities. Betty contributed $500 to a family whose home was completely destroyed by the tornado. Jack contributed $700 to the family’s church, which gave the money to the family. Discuss the deductibility of these contributions.
18. LO.6 Mike purchased four $100 tickets to a fund-raising dinner and dance sponsored by the public library, a qualified charitable organization. In its advertising for the event, the library indicated that the cost of the tickets would be deductible for Federal income tax purposes. Comment on the library’s assertion.
19. LO.6 Nancy, who is a professor at State University, does some of her writing and class preparation at home at night. Her department provides faculty members with a $1,500 allowance for a desktop computer for use at school, but does not ordinarily provide computers for use at home. To have a computer for use at school and at home, Nancy has asked the department to provide her with a notebook computer that costs $2,500.
The head of her department is willing to provide the standard $1,500 allowance and will permit Nancy to purchase the $2,500 notebook computer if she makes a donation of $1,000 to the department. If she acquires the notebook computer, Nancy’s home use of the computer will be approximately 60% for business and 40% for personal use not related to her job. Discuss the tax issues that Nancy should consider in deciding whether to acquire the notebook computer under these conditions.
20. LO.6 Susan traveled to rural Tennessee during the year to do volunteer work for one week for Habitat for Humanity. She normally receives $2,000 salary per week at her job and is planning to deduct the $2,000 as a charitable contribution. In addition, Susan incurred the following costs in connection with the trip: $300 for transportation, $700 for lodging, and $250 for meals. What is Susan’s deduction associated with this charitable activity?
21. LO.6, 9 William, a high school teacher, earns about $50,000 each year. In December 2013, he won $1 million in the state lottery. William plans to donate $100,000 to his church. He has asked you, his tax adviser, whether he should donate the $100,000 in 2013 or 2014. Identify the tax issues related to William’s decision.
22. LO.6, 9 Nate, whose combined Federal and state income tax rates total 40% in 2013, expects to retire in 2014 and have a combined tax rate of 30%. He plans to donate $100,000 to his church. Because he will not have the cash available until 2014, Nate donates land (long-term capital gain property) with a basis of $20,000 and fair market value of $100,000 to the church in December 2013. He reacquires the land from the church for $100,000 in February 2014. Discuss Nate’s tax objectives and all tax issues related to his actions.
23. LO.6, 9 Megan decided to have a garage sale to get rid of a number of items she no longer needed, including books, old computer equipment, clothing, bicycles, and furniture.
She scheduled the sale for Friday and Saturday, but was forced to close at noon on
Friday because of a torrential downpour. She had collected $500 for the items she sold before closing. The heavy rains continued through the weekend, and Megan was unable to continue the sale. She had not enjoyed dealing with the people who came to the sale on Friday morning, so she donated the remaining items to several local organizations.
Megan has asked your advice on how she should treat these events on her tax return.
List some of the tax issues you would discuss with her.
P R O B L E M S
24. LO.2 Emma Doyle, age 55, is employed as a corporate attorney. For calendar year 2013, she had AGI of $100,000 and paid the following medical expenses:
Medical insurance premiums $3,700
Doctor and dentist bills for Bob and April (Emma’s parents) 6,800
Doctor and dentist bills for Emma 5,200
Prescription medicines for Emma 400
Nonprescription insulin for Emma 350
Bob and April would qualify as Emma’s dependents except that they file a joint return.
Emma’s medical insurance policy does not cover them. Emma filed a claim for reimbursement of $2,800 of her own expenses with her insurance company in December 2013 and received the reimbursement in January 2014. What is Emma’s maximum allowable medical expense deduction for 2013? Prepare a memo for your firm’s tax files in which you document your conclusions.
25. LO.2 Reba, who is single and age 45, does a lot of business entertaining at home. Lawrence,
Reba’s 84-year-old dependent grandfather, lived with Reba until this year, when he moved to Lakeside Nursing Home because he needs medical and nursing care. During the year, Reba made the following payments on behalf of Lawrence:
Room at Lakeside $11,000
Meals for Lawrence at Lakeside 2,200
Doctor and nurse fees at Lakeside 1,700
Cable TV service for Lawrence’s room at Lakeside 380
Total $15,280
Lakeside has medical staff in residence. Disregarding the 10% of AGI floor, how much, if any, of these expenses qualifies for a medical expense deduction by Reba?
26. LO.2 Paul, age 62, suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts in 2013:
Doctor and hospital bills $ 2,500
Dust elimination system 10,000
Increase in utility bills due to the system 450
Cost of certified appraisal 300
In addition, Paul pays $750 for prescribed medicines.
The system has an estimated useful life of 20 years. The appraisal was to determine the value of Paul’s residence with and without the system. The appraisal states that his residence was worth $350,000 before the system was installed and $356,000 after the installation.
Paul’s AGI for the year was $50,000. How much of the medical expenses qualify for the medical expense deduction in 2013?
27. LO.2 For calendar year 2013, Jean was a self-employed consultant with no employees. She had $80,000 of net profit from consulting and paid $7,000 in medical insurance premiums on a policy covering 2013. How much of these premiums may Jean deduct as a deduction for AGI? How much may she deduct as an itemized deduction (subject to the AGI floor)?
IRS disallowed the deduction. What explanation can you offer for the disallowance?
17. LO.6 The city of Lawrence was hit by a tornado in April 2013, leaving many families in need of food, clothing, shelter, and other necessities. Betty contributed $500 to a family whose home was completely destroyed by the tornado. Jack contributed $700 to the family’s church, which gave the money to the family. Discuss the deductibility of these contributions.
18. LO.6 Mike purchased four $100 tickets to a fund-raising dinner and dance sponsored by the public library, a qualified charitable organization. In its advertising for the event, the library indicated that the cost of the tickets would be deductible for Federal income tax purposes. Comment on the library’s assertion.
19. LO.6 Nancy, who is a professor at State University, does some of her writing and class preparation at home at night. Her department provides faculty members with a $1,500 allowance for a desktop computer for use at school, but does not ordinarily provide computers for use at home. To have a computer for use at school and at home, Nancy has asked the department to provide her with a notebook computer that costs $2,500.
The head of her department is willing to provide the standard $1,500 allowance and will permit Nancy to purchase the $2,500 notebook computer if she makes a donation of $1,000 to the department. If she acquires the notebook computer, Nancy’s home use of the computer will be approximately 60% for business and 40% for personal use not related to her job. Discuss the tax issues that Nancy should consider in deciding whether to acquire the notebook computer under these conditions.
20. LO.6 Susan traveled to rural Tennessee during the year to do volunteer work for one week for Habitat for Humanity. She normally receives $2,000 salary per week at her job and is planning to deduct the $2,000 as a charitable contribution. In addition, Susan incurred the following costs in connection with the trip: $300 for transportation, $700 for lodging, and $250 for meals. What is Susan’s deduction associated with this charitable activity?
21. LO.6, 9 William, a high school teacher, earns about $50,000 each year. In December 2013, he won $1 million in the state lottery. William plans to donate $100,000 to his church. He has asked you, his tax adviser, whether he should donate the $100,000 in 2013 or 2014. Identify the tax issues related to William’s decision.
22. LO.6, 9 Nate, whose combined Federal and state income tax rates total 40% in 2013, expects to retire in 2014 and have a combined tax rate of 30%. He plans to donate $100,000 to his church. Because he will not have the cash available until 2014, Nate donates land (long-term capital gain property) with a basis of $20,000 and fair market value of $100,000 to the church in December 2013. He reacquires the land from the church for $100,000 in February 2014. Discuss Nate’s tax objectives and all tax issues related to his actions.
23. LO.6, 9 Megan decided to have a garage sale to get rid of a number of items she no longer needed, including books, old computer equipment, clothing, bicycles, and furniture.
She scheduled the sale for Friday and Saturday, but was forced to close at noon on
Friday because of a torrential downpour. She had collected $500 for the items she sold before closing. The heavy rains continued through the weekend, and Megan was unable to continue the sale. She had not enjoyed dealing with the people who came to the sale on Friday morning, so she donated the remaining items to several local organizations.
Megan has asked your advice on how she should treat these events on her tax return.
List some of the tax issues you would discuss with her.
P R O B L E M S
24. LO.2 Emma Doyle, age 55, is employed as a corporate attorney. For calendar year 2013, she had AGI of $100,000 and paid the following medical expenses:
Medical insurance premiums $3,700
Doctor and dentist bills for Bob and April (Emma’s parents) 6,800
Doctor and dentist bills for Emma 5,200
Prescription medicines for Emma 400
Nonprescription insulin for Emma 350
Bob and April would qualify as Emma’s dependents except that they file a joint return.
Emma’s medical insurance policy does not cover them. Emma filed a claim for reimbursement of $2,800 of her own expenses with her insurance company in December 2013 and received the reimbursement in January 2014. What is Emma’s maximum allowable medical expense deduction for 2013? Prepare a memo for your firm’s tax files in which you document your conclusions.
25. LO.2 Reba, who is single and age 45, does a lot of business entertaining at home. Lawrence,
Reba’s 84-year-old dependent grandfather, lived with Reba until this year, when he moved to Lakeside Nursing Home because he needs medical and nursing care. During the year, Reba made the following payments on behalf of Lawrence:
Room at Lakeside $11,000
Meals for Lawrence at Lakeside 2,200
Doctor and nurse fees at Lakeside 1,700
Cable TV service for Lawrence’s room at Lakeside 380
Total $15,280
Lakeside has medical staff in residence. Disregarding the 10% of AGI floor, how much, if any, of these expenses qualifies for a medical expense deduction by Reba?
26. LO.2 Paul, age 62, suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts in 2013:
Doctor and hospital bills $ 2,500
Dust elimination system 10,000
Increase in utility bills due to the system 450
Cost of certified appraisal 300
In addition, Paul pays $750 for prescribed medicines.
The system has an estimated useful life of 20 years. The appraisal was to determine the value of Paul’s residence with and without the system. The appraisal states that his residence was worth $350,000 before the system was installed and $356,000 after the installation.
Paul’s AGI for the year was $50,000. How much of the medical expenses qualify for the medical expense deduction in 2013?
27. LO.2 For calendar year 2013, Jean was a self-employed consultant with no employees. She had $80,000 of net profit from consulting and paid $7,000 in medical insurance premiums on a policy covering 2013. How much of these premiums may Jean deduct as a deduction for AGI? How much may she deduct as an itemized deduction (subject to the AGI floor)?
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Solution: tax problems - questions,,,