Chapter 4,5,6

Chapter 4,5,6

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Q4-25 | | | | | | |
Taxable rental income |   $                                         9,000 | | | |
Rent is taxable when received. | | | |
Security deposit that is refundable is not taxable. | | | |
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Q4-32 | | | | | | |
a. Property settlement does not affect Arnold or Barbara's taxable income. | |
b. Arnold's payment of mortgage is also considered property settlement and it does not affect Arnold or Barbara's taxable income. |
c. $1500 is for child support, which does not have any tax ramifications. | |
The other half, $1500, is alimony paid to Barbara. Alimony is taxable to payee and deductible to payer. |
Barbara should include $1500 in gross income and Arnold can deduct $1500 from his gross income. |
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Q5-26 | | | | | | |
US Series EE bonds: the interest on US Series EE bonds is tax exempt when the interest is used for educational purpose; If this is not used for educational purposes then it's a tax deferred bond, which means the purchaser pays tax when he withdraws the money. |
bonds for industrial development for mass transit: it's private activity bond which is not tax exempt. |
qualified veterans' mortgage bonds: Interest on a private activity bond that is a qualified bond is tax exempt. |
Therefore, the investor should choose qualified veterans' mortgage bonds to minimize his tax liability. |
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Q6-29 | | | | | | |
Salaries and wages to employees | deductible | salaries and wages are business expense |
Purchase of new office building | not deductible | capital expenditure is not deductible |
Payment of illegal parking fines | not deductible | illegal or   in violation of public policy |
President's daughter's wedding | not deductible | it's considered personal expense |
Entertainment expenses related to business | 50% deductible | meals & entertainment expense is 50% deductible |
Interest...

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