tax problems - questions,.,.,.,.
Question # 00029836
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Updated on: 10/29/2014 11:33 PM Due on: 11/12/2014
28. LO.2 During 2013, Susan, age 49, incurred and paid the following expenses for Beth (her daughter), Ed (her father), and herself:
Surgery for Beth $4,500
Red River Academy charges for Beth:
Tuition 5,100
Room, board, and other expenses 4,800
Psychiatric treatment 5,100
Doctor bills for Ed 2,200
Prescription drugs for Susan, Beth, and Ed 780
Insulin for Ed 540
Nonprescription drugs for Susan, Beth, and Ed 570
Charges at Heartland Nursing Home for Ed:
Medical care 5,000
Lodging 2,700
Meals 2,650
Beth qualifies as Susan’s dependent, and Ed would also qualify except that he receives $7,400 of taxable retirement benefits from his former employer. Beth’s psychiatrist recommended
Red River Academy because of its small classes and specialized psychiatric treatment program that is needed to treat Beth’s illness. Ed, who is a paraplegic and diabetic, enteredHeartland inOctober.Heartland offers the type of care that he requires.
Upon the recommendation of a physician, Susan has an air filtration system installed in her personal residence. She suffers from severe allergies. In connection with this equipment, Susan incurs and pays the following amounts during the year:
Filtration system and cost of installation $6,500
Increase in utility bills due to the system 700
Cost of certified appraisal 360
The system has an estimated useful life of 10 years. The appraisal was to determine the value of Susan’s residence with and without the system. The appraisal states that the system increased the value of Susan’s residence by $2,200. Ignoring the 10% floor, what is the total of Susan’s expenses that qualifies for the medical expense deduction?
29. LO.2 In May, Rebecca’s daughter, Susan, sustained a serious injury that made it impossible for her to continue living alone. Susan, who is a novelist, moved back into Rebecca’s home after the accident. Susan has begun writing a novel based on her recent experiences.
To accommodate Susan, Rebecca incurred significant remodeling expenses (widening hallways, building a separate bedroom and bathroom, and making kitchen appliances accessible to Susan). In addition, Rebecca had an indoor swimming pool constructed so that
Susan could do rehabilitation exercises prescribed by her physician.
In September, Susan underwent major reconstructive surgery in Denver. The surgery was performed by Dr. Rama Patel, who specializes in treating injuries of the type sustained by Susan. Rebecca drove Susan from Champaign, Illinois, to Denver, a total of 1,100 miles, in Susan’s specially equipped van. They left Champaign on Tuesday morning and arrived in Denver on Thursday afternoon. Rebecca incurred expenses for gasoline, highway tolls, meals, and lodging while traveling to Denver. Rebecca stayed in a motel near the clinic for eight days while Susan was hospitalized. Identify the relevant tax issues based on this
Issue ID
CHAPTER 10 Deductions and Losses: Certain Itemized Deductions 10-41
information and prepare a list of questions you would need to ask Rebecca and Susan to advise them as to the resolution of any issues you have identified.
30. LO.2 In 2013, Roger pays a $3,000 premium for high-deductible medical insurance for him and his family. In addition, he contributed $2,600 to a Health Savings Account.
a. How much may Roger deduct if he is self-employed? Is the deduction for AGI or from
AGI?
b. How much may Roger deduct if he is an employee? Is the deduction for AGI or from
AGI?
31. LO.3 Alicia sold her personal residence to Rick on June 30 for $300,000. Before the sale, Alicia paid the real estate tax of $4,380 for the calendar year. For income tax purposes, the deduction is apportioned as follows: $2,160 to Alicia and $2,220 to Rick. What is Rick’s basis in the residence?
32. LO.4 Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2013, she files her state income tax return for 2012 and pays an additional $1,000 in state income taxes. During 2013, her withholdings for state income tax purposes amount to $7,400, and she pays estimated state income tax of $700. In April 2014, she files her state income tax return for 2013, claiming a refund of $1,800. Norma receives the refund in August 2014.
a. Assuming that Norma itemized deductions in 2013, how much may she claim as a deduction for state income taxes on her Federal return for calendar year 2013 (filed
April 2014)?
b. Assuming that Norma itemized deductions in 2013, how will the refund of $1,800 that she received in 2014 be treated for Federal income tax purposes?
c. Assume that Norma itemized deductions in 2013 and that she elects to have the $1,800 refund applied toward her 2014 state income tax liability. How will the $1,800 be treated for Federal income tax purposes?
d. Assuming that Norma did not itemize deductions in 2013, how will the refund of $1,800 received in 2014 be treated for Federal income tax purposes?
33. LO.5 In 2004, Roland, who is single, purchased a personal residence for $340,000 and took out a mortgage of $200,000 on the property. In May of the current year, when the residence had a fair market value of $440,000 and Roland owed $140,000 on the mortgage, he took out a home equity loan for $220,000. He used the funds to purchase a recreational vehicle, which he uses 100% for personal use. What is the maximum amount on which Roland can deduct home equity interest?
34. LO.5 Malcolm owns 60% and Buddy owns 40% of Magpie Corporation. On July 1, 2013, each lends the corporation $30,000 at an annual interest rate of 10%. Malcolm and Buddy are not related. Both shareholders are on the cash method of accounting, and Magpie Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2014, Magpie repays the loans of $60,000 together with the specified interest of $6,000.
a. How much of the interest can Magpie Corporation deduct in 2013? In 2014?
b. When is the interest included in Malcolm and Buddy’s gross income?
35. LO.6 Nadia donates $4,000 to Eastern University’s athletic department. The payment guarantees that Nadia will have preferred seating near the 50-yard line.
a. Assume that Nadia subsequently buys four $100 game tickets. How much can she deduct as a charitable contribution to the university’s athletic department?
b. Assume that Nadia’s $4,000 donation includes four $100 tickets. How much can she deduct as a charitable contribution to the university’s athletic department?
36. LO.6 Liz had AGI of $130,000 in 2013. She donated Bluebird Corporation stock with a basis of $10,000 to a qualified charitable organization on July 5, 2013.
a. What is the amount of Liz’s deduction assuming that she purchased the stock on December
3, 2012, and the stock had a fair market value of $17,000 when she made the donation?
b. Assume the same facts as in (a), except that Liz purchased the stock on July 1, 2010.
c. Assume the same facts as in (a), except that the stock had a fair market value of $7,500 (rather than $17,000) when Liz donated it to the charity.
37. LO.6, 9 Pedro contributes a painting to an art museum in October of this year. He has owned the painting for 12 years, and it is worth $130,000 at the time of the donation.
Pedro’s adjusted basis for the painting is $90,000, and his AGI for the year is $250,000.
Pedro has asked you whether he should make the reduced deduction election for this contribution. Write a letter to Pedro Valdez at 1289 Greenway Avenue, Foster City, CA
94404 and advise him on this matter.
38. LO.6 During the year, Ricardo made the following contributions to a qualified public charity:
Cash $220,000
Stock in Seagull, Inc. (a publicly traded corporation) 280,000
Ricardo acquired the stock in Seagull, Inc., as an investment five years ago at a cost of $120,000. Ricardo’s AGI is $840,000.
a. What is Ricardo’s charitable contribution deduction?
b. How are excess amounts, if any, treated?
39. LO.6, 8 Ramon had AGI of $180,000 in 2013. He contributed stock in Charlton, Inc. (a publicly traded corporation), to the American Heart Association, a qualified charitable organization. The stock was worth $105,000 on the date it was contributed. Ramon had acquired it as an investment two years ago at a cost of $84,000.
a. Assuming that Ramon carries over any disallowed contribution from 2013 to future years, what is the total amount he can deduct as a charitable contribution?
b. What is the maximum amount Ramon can deduct as a charitable contribution in 2013?
c. What factors should Ramon consider in deciding how to treat the contribution for
Federal income tax purposes?
d. Assume that Ramon dies in December 2013. What advice would you give the executor of his estate with regard to possible elections that can be made relative to the contribution?
40. LO.6 On December 27, 2013, Roberta purchased four tickets to a charity ball sponsored by the city of San Diego for the benefit of underprivileged children. Each ticket cost $200 and had a fair market value of $35. On the same day as the purchase, Roberta gave the tickets to the minister of her church for personal use by his family. At the time of the gift of the tickets, Roberta pledged $4,000 to the building fund of her church. The pledge was satisfied by a check dated December 31, 2013, but not mailed until January 3, 2014.
a. Presuming that Roberta is a cash basis and calendar year taxpayer, how much can she deduct as a charitable contribution for 2013?
b. Would the amount of the deduction be any diff
Surgery for Beth $4,500
Red River Academy charges for Beth:
Tuition 5,100
Room, board, and other expenses 4,800
Psychiatric treatment 5,100
Doctor bills for Ed 2,200
Prescription drugs for Susan, Beth, and Ed 780
Insulin for Ed 540
Nonprescription drugs for Susan, Beth, and Ed 570
Charges at Heartland Nursing Home for Ed:
Medical care 5,000
Lodging 2,700
Meals 2,650
Beth qualifies as Susan’s dependent, and Ed would also qualify except that he receives $7,400 of taxable retirement benefits from his former employer. Beth’s psychiatrist recommended
Red River Academy because of its small classes and specialized psychiatric treatment program that is needed to treat Beth’s illness. Ed, who is a paraplegic and diabetic, enteredHeartland inOctober.Heartland offers the type of care that he requires.
Upon the recommendation of a physician, Susan has an air filtration system installed in her personal residence. She suffers from severe allergies. In connection with this equipment, Susan incurs and pays the following amounts during the year:
Filtration system and cost of installation $6,500
Increase in utility bills due to the system 700
Cost of certified appraisal 360
The system has an estimated useful life of 10 years. The appraisal was to determine the value of Susan’s residence with and without the system. The appraisal states that the system increased the value of Susan’s residence by $2,200. Ignoring the 10% floor, what is the total of Susan’s expenses that qualifies for the medical expense deduction?
29. LO.2 In May, Rebecca’s daughter, Susan, sustained a serious injury that made it impossible for her to continue living alone. Susan, who is a novelist, moved back into Rebecca’s home after the accident. Susan has begun writing a novel based on her recent experiences.
To accommodate Susan, Rebecca incurred significant remodeling expenses (widening hallways, building a separate bedroom and bathroom, and making kitchen appliances accessible to Susan). In addition, Rebecca had an indoor swimming pool constructed so that
Susan could do rehabilitation exercises prescribed by her physician.
In September, Susan underwent major reconstructive surgery in Denver. The surgery was performed by Dr. Rama Patel, who specializes in treating injuries of the type sustained by Susan. Rebecca drove Susan from Champaign, Illinois, to Denver, a total of 1,100 miles, in Susan’s specially equipped van. They left Champaign on Tuesday morning and arrived in Denver on Thursday afternoon. Rebecca incurred expenses for gasoline, highway tolls, meals, and lodging while traveling to Denver. Rebecca stayed in a motel near the clinic for eight days while Susan was hospitalized. Identify the relevant tax issues based on this
Issue ID
CHAPTER 10 Deductions and Losses: Certain Itemized Deductions 10-41
information and prepare a list of questions you would need to ask Rebecca and Susan to advise them as to the resolution of any issues you have identified.
30. LO.2 In 2013, Roger pays a $3,000 premium for high-deductible medical insurance for him and his family. In addition, he contributed $2,600 to a Health Savings Account.
a. How much may Roger deduct if he is self-employed? Is the deduction for AGI or from
AGI?
b. How much may Roger deduct if he is an employee? Is the deduction for AGI or from
AGI?
31. LO.3 Alicia sold her personal residence to Rick on June 30 for $300,000. Before the sale, Alicia paid the real estate tax of $4,380 for the calendar year. For income tax purposes, the deduction is apportioned as follows: $2,160 to Alicia and $2,220 to Rick. What is Rick’s basis in the residence?
32. LO.4 Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2013, she files her state income tax return for 2012 and pays an additional $1,000 in state income taxes. During 2013, her withholdings for state income tax purposes amount to $7,400, and she pays estimated state income tax of $700. In April 2014, she files her state income tax return for 2013, claiming a refund of $1,800. Norma receives the refund in August 2014.
a. Assuming that Norma itemized deductions in 2013, how much may she claim as a deduction for state income taxes on her Federal return for calendar year 2013 (filed
April 2014)?
b. Assuming that Norma itemized deductions in 2013, how will the refund of $1,800 that she received in 2014 be treated for Federal income tax purposes?
c. Assume that Norma itemized deductions in 2013 and that she elects to have the $1,800 refund applied toward her 2014 state income tax liability. How will the $1,800 be treated for Federal income tax purposes?
d. Assuming that Norma did not itemize deductions in 2013, how will the refund of $1,800 received in 2014 be treated for Federal income tax purposes?
33. LO.5 In 2004, Roland, who is single, purchased a personal residence for $340,000 and took out a mortgage of $200,000 on the property. In May of the current year, when the residence had a fair market value of $440,000 and Roland owed $140,000 on the mortgage, he took out a home equity loan for $220,000. He used the funds to purchase a recreational vehicle, which he uses 100% for personal use. What is the maximum amount on which Roland can deduct home equity interest?
34. LO.5 Malcolm owns 60% and Buddy owns 40% of Magpie Corporation. On July 1, 2013, each lends the corporation $30,000 at an annual interest rate of 10%. Malcolm and Buddy are not related. Both shareholders are on the cash method of accounting, and Magpie Corporation is on the accrual method. All parties use the calendar year for tax purposes. On June 30, 2014, Magpie repays the loans of $60,000 together with the specified interest of $6,000.
a. How much of the interest can Magpie Corporation deduct in 2013? In 2014?
b. When is the interest included in Malcolm and Buddy’s gross income?
35. LO.6 Nadia donates $4,000 to Eastern University’s athletic department. The payment guarantees that Nadia will have preferred seating near the 50-yard line.
a. Assume that Nadia subsequently buys four $100 game tickets. How much can she deduct as a charitable contribution to the university’s athletic department?
b. Assume that Nadia’s $4,000 donation includes four $100 tickets. How much can she deduct as a charitable contribution to the university’s athletic department?
36. LO.6 Liz had AGI of $130,000 in 2013. She donated Bluebird Corporation stock with a basis of $10,000 to a qualified charitable organization on July 5, 2013.
a. What is the amount of Liz’s deduction assuming that she purchased the stock on December
3, 2012, and the stock had a fair market value of $17,000 when she made the donation?
b. Assume the same facts as in (a), except that Liz purchased the stock on July 1, 2010.
c. Assume the same facts as in (a), except that the stock had a fair market value of $7,500 (rather than $17,000) when Liz donated it to the charity.
37. LO.6, 9 Pedro contributes a painting to an art museum in October of this year. He has owned the painting for 12 years, and it is worth $130,000 at the time of the donation.
Pedro’s adjusted basis for the painting is $90,000, and his AGI for the year is $250,000.
Pedro has asked you whether he should make the reduced deduction election for this contribution. Write a letter to Pedro Valdez at 1289 Greenway Avenue, Foster City, CA
94404 and advise him on this matter.
38. LO.6 During the year, Ricardo made the following contributions to a qualified public charity:
Cash $220,000
Stock in Seagull, Inc. (a publicly traded corporation) 280,000
Ricardo acquired the stock in Seagull, Inc., as an investment five years ago at a cost of $120,000. Ricardo’s AGI is $840,000.
a. What is Ricardo’s charitable contribution deduction?
b. How are excess amounts, if any, treated?
39. LO.6, 8 Ramon had AGI of $180,000 in 2013. He contributed stock in Charlton, Inc. (a publicly traded corporation), to the American Heart Association, a qualified charitable organization. The stock was worth $105,000 on the date it was contributed. Ramon had acquired it as an investment two years ago at a cost of $84,000.
a. Assuming that Ramon carries over any disallowed contribution from 2013 to future years, what is the total amount he can deduct as a charitable contribution?
b. What is the maximum amount Ramon can deduct as a charitable contribution in 2013?
c. What factors should Ramon consider in deciding how to treat the contribution for
Federal income tax purposes?
d. Assume that Ramon dies in December 2013. What advice would you give the executor of his estate with regard to possible elections that can be made relative to the contribution?
40. LO.6 On December 27, 2013, Roberta purchased four tickets to a charity ball sponsored by the city of San Diego for the benefit of underprivileged children. Each ticket cost $200 and had a fair market value of $35. On the same day as the purchase, Roberta gave the tickets to the minister of her church for personal use by his family. At the time of the gift of the tickets, Roberta pledged $4,000 to the building fund of her church. The pledge was satisfied by a check dated December 31, 2013, but not mailed until January 3, 2014.
a. Presuming that Roberta is a cash basis and calendar year taxpayer, how much can she deduct as a charitable contribution for 2013?
b. Would the amount of the deduction be any diff
41. LO.6, 9 In December each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 28% marginal tax bracket, is considering the following alternatives for satisfying the contribution.
Fair Market Value (1) Cash donation $23,000 (2) Unimproved land held for six years ($3,000 basis) 23,000 (3) Blue Corporation stock held for eight months ($3,000 basis) 23,000 (4) Gold Corporation stock held for two years ($28,000 basis) 23,000
Eleanor has asked you to help her decide which of the potential contributions listed above will be most advantageous taxwise. Evaluate the four alternatives, and write a letter to Eleanor to communicate your advice to her. Her address is 2622 Bayshore Drive,
Berkeley, CA 94709.
42. LO.2, 3, 4, 5, 7, 9 Bart and Susan Forrest, both age 47, are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2013. They present you with the following information:
Decision Making
Decision Making
CHAPTER 10 Deductions and Losses: Certain Itemized Deductions 10-43
Bart Susan Joint
Salary $38,000
Business net income $110,000
Interest income 400 1,200 $2,200
Deductions for AGI 2,400 14,000
Medical expenses 10,427 3,358
State income tax 800 1,800
Real estate tax 3,800
Mortgage interest 4,200
Unreimbursed employee expenses 1,200
If they file separately, Bart and Susan will split the real estate tax and mortgage interest deductions equally. Write Bart and Susan a letter in which you make and explain a recommendation on filing status for 2013. Bart and Susan reside at 2003 Highland Drive,
Durham, NC 27707.
43. LO.2, 3, 4, 5, 6, 7, 8 Linda, age 37, who files as a single taxpayer, had AGI of $280,000 for 2013. She incurred the following expenses and losses during the year:
Medical expenses before the 10%-of-AGI limitation $33,000
State and local income taxes 4,500
State sales tax 1,300
Real estate taxes 4,000
Home mortgage interest 5,000
Automobile loan interest 750
Credit card interest 1,000
Charitable contributions 7,000
Casualty loss before 10% limitation (after $100 floor) 34,000
Unreimbursed employee expenses subject to the 2%-of-AGI limitation 7,600
Calculate Linda’s allowable itemized deductions for the year.
44. LO.2, 3, 4, 5, 6, 7, 8 For calendar year 2013, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions are as follows:
Casualty loss after $100 floor (not covered by insurance) $48,600
Home mortgage interest 19,000
Credit card interest 800
Property taxes on home 16,300
Charitable contributions 28,700
State income tax 18,000
Tax return preparation fees 1,200
Calculate the amount of itemized deductions the Gibsons may claim for the year.
Fair Market Value (1) Cash donation $23,000 (2) Unimproved land held for six years ($3,000 basis) 23,000 (3) Blue Corporation stock held for eight months ($3,000 basis) 23,000 (4) Gold Corporation stock held for two years ($28,000 basis) 23,000
Eleanor has asked you to help her decide which of the potential contributions listed above will be most advantageous taxwise. Evaluate the four alternatives, and write a letter to Eleanor to communicate your advice to her. Her address is 2622 Bayshore Drive,
Berkeley, CA 94709.
42. LO.2, 3, 4, 5, 7, 9 Bart and Susan Forrest, both age 47, are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2013. They present you with the following information:
Decision Making
Decision Making
CHAPTER 10 Deductions and Losses: Certain Itemized Deductions 10-43
Bart Susan Joint
Salary $38,000
Business net income $110,000
Interest income 400 1,200 $2,200
Deductions for AGI 2,400 14,000
Medical expenses 10,427 3,358
State income tax 800 1,800
Real estate tax 3,800
Mortgage interest 4,200
Unreimbursed employee expenses 1,200
If they file separately, Bart and Susan will split the real estate tax and mortgage interest deductions equally. Write Bart and Susan a letter in which you make and explain a recommendation on filing status for 2013. Bart and Susan reside at 2003 Highland Drive,
Durham, NC 27707.
43. LO.2, 3, 4, 5, 6, 7, 8 Linda, age 37, who files as a single taxpayer, had AGI of $280,000 for 2013. She incurred the following expenses and losses during the year:
Medical expenses before the 10%-of-AGI limitation $33,000
State and local income taxes 4,500
State sales tax 1,300
Real estate taxes 4,000
Home mortgage interest 5,000
Automobile loan interest 750
Credit card interest 1,000
Charitable contributions 7,000
Casualty loss before 10% limitation (after $100 floor) 34,000
Unreimbursed employee expenses subject to the 2%-of-AGI limitation 7,600
Calculate Linda’s allowable itemized deductions for the year.
44. LO.2, 3, 4, 5, 6, 7, 8 For calendar year 2013, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions are as follows:
Casualty loss after $100 floor (not covered by insurance) $48,600
Home mortgage interest 19,000
Credit card interest 800
Property taxes on home 16,300
Charitable contributions 28,700
State income tax 18,000
Tax return preparation fees 1,200
Calculate the amount of itemized deductions the Gibsons may claim for the year.
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Solution: tax problems - questions,.,.,.,.
Solution: tax problems - questions 34