...The profit motive distinguishes "business" activities from "personal" activities. True False 2. All business expense deductions are claimed above the line. True False 3. All investment expenses are itemized deductions. True False 4. Rental or royalty expenses are deductible "for" AGI. True False 5. To be deductible, business expenses must be directly related to a business activity. True False 6. The phrase "ordinary and necessary" means that an expense must be appropriate and helpful for generating a profit. True False 7. All reasonable moving expenses are deductible if the move is a minimum of 35 miles in distance. True False 8. To deduct a moving expense, the taxpayer must be employed or self employed for a specific amount of time after the move. True False 9. Self employed taxpayers can deduct the cost of health insurance as long as they do not actually participate in their spouses' employer-provided health plan. True False 10. Self employed taxpayers can choose between claiming a deduction or a credit for the employer portion of self employment taxes paid. True False 11. An individual who forfeits a penalty for prematurely withdrawing a certificate of deposit (CD) is allowed to net the penalty against the interest income from the CD. True False 12. Qualified education expenses for purposes of the deduction of interest on educational loans are expenses paid for the education of the taxpayer, the taxpayer's spouse, or a taxpayer's...
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...Tax deductions are related to the legislative grace and the ability-to-pay concept. 2 Restrictions: 1. Only deductions allowed by the tax law may be subtracted to compute taxable income. Congress allows deductions for the costs of earning income and certain expenditures. 2. A deduction is allowed for an item only if all requirements are satisfied. Business Expense: the expense must have a business purpose that is unrelated to its tax effect. Gross Income: Only the excess of an individual’s capital investement. The deduction for an item may not exceed the cost. Basis: The cost of an asset or an expense. Represents the max amt of an expenditure that can be deducted as a recovery of capital. Trade or business expenses are deducted FOR adjusted gross income (always) Production-of-income expenses are deducted FROM adjusted gross income-Does not apply to Corportations (deduction is reduced by 2% agi. If agi is 40,000 (6%=$800) and exp is $6000, amt of deduction is $5200) Conduit Entity: Investment expenses of individuals & miscellaneous itemized deductions must be reduced by 2% of agi. Most common deductions that must be reported separately -Charitable contributions - Investment interest expense -Investment expense -Section 179 expense -Nondeductible expenses TRADE OR BUSINESS EXPENSES • Sec 162, “ all the ordinary and necessary expenses…including salaries & compensation, traveling expenses (including meals & lodging), and rentals or other payments required)...
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...------------------------------------------------- DISCUSSION QUESTIONS 1. All allowable deductions of individual taxpayers are classified as either for adjusted gross income or from adjusted gross income. Why are deductions for adjusted gross income usually more advantageous than deductions from adjusted gross income? Although both types of deductions reduce taxable income, deductions for adjusted gross income are always deductible. Taxpayers who incur allowable deductions from adjusted gross income may not receive the full advantage of the deduction. First, even though an allowable expense may be incurred, if the taxpayer’s total itemized deductions do not exceed the standard deduction amount, then the taxpayer will deduct the standard deduction and receive no benefit from the allowable expenses. Second, many of the deductions are subject to limitations based on the taxpayer’s adjusted gross income. For example, the deduction for medical expenses is reduced by 7 1/2% of the taxpayer’s adjusted gross income. Thus, many of the allowable deductions from adjusted gross income are not deductible in full. In addition, total itemized deductions are subject to a reduction rule when the taxpayer’s adjusted gross income exceeds a specified amount, further lowering the value of such deductions. Lastly, given the reductions based on adjusted gross income, any deductions for adjusted gross income have the effect of making the allowable deductions from adjusted gross income larger. 4. What are the two primary...
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...CHAPTER 7 DEDUCTIONS AND LOSSES: CERTAIN BUSINESS EXPENSES AND LOSSES SOLUTIONS TO PROBLEM MATERIALS | | | | Status: | Q/P | Question/ | Learning | | | Present | in Prior | Problem | Objective | Topic | | Edition | Edition | | | | | | | | | | 1 | LO 1 | Bad debts: accounts receivable | | New | | 2 | LO 1 | Bad debts: basis | | Unchanged | 2 | 3 | LO 1 | Bad debts: worthlessness | | Unchanged | 3 | 4 | LO 1 | Bad debts: recovery | | Modified | 4 | 5 | LO 1 | Bad debts: business | | Unchanged | 5 | 6 | LO 1 | Bad debts: business | | Unchanged | 6 | 7 | LO 1 | Worthless securities versus theft loss | | Unchanged | 7 | 8 | LO 2 | Worthless securities versus bad debts | | Unchanged | 8 | 9 | LO 2 | Section 1244 stock | | Modified | 9 | 10 | LO 3, 4 | Casualty loss versus business loss | | Modified | 10 | 11 | LO 3, 4 | Casualty loss | | Unchanged | 11 | 12 | LO 4 | Casualty loss: timing | | Unchanged | 12 | 13 | LO 4 | Casualty loss: reimbursement | | Unchanged | 13 | 14 | LO 4 | Casualty loss: measurement rule for theft | | New | | 15 | LO 4 | Casualty loss: insurance claim | | Unchanged | 15 | 16 | LO 4 | Casualty loss: cost of repairs method | | Unchanged | ...
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...CHAPTER 7: DEDUCTIONS AND LOSSES: CERTAIN BUSINESS EXPENSES AND LOSSES 1. James is in the business of debt collection. He purchased a $20,000 account receivable from Green Corporation for $15,000. During the year, James collected $17,000 in final settlement of the account. James can take a $2,000 bad debt deduction in the current year. a. True b. False ANSWER: False RATIONALE: James has a basis of $15,000 in the account receivable and hence, he has income of $2,000. 2. If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year. c. True d. False ANSWER: True 3. Last year, taxpayer had a $10,000 nonbusiness bad debt. Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000. If taxpayer collects the entire $10,000 during the current year, $8,000 needs to be included in gross income. e. True f. False ANSWER: False RATIONALE: The taxpayer must include the $10,000 in gross income to the extent of the tax benefit received last year. The entire $10,000 deduction provided a tax benefit; $8,000 offset by the short-term capital gain and $2,000 offset against ordinary income. 4. A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency. g. True h. False ANSWER: True 5. If an account...
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...Mr. Z, who is in the 33 percent marginal tax bracket and itemizes deductions, recently inherited $30,000. He is considering three alternative options for this windfall. He could buy shares in a mutual fund paying 11 percent interest a year. He could pay off a $30,000 personal debt to a local bank on which he pays $2350 interest each year. He could pay off $30,000 of the mortgage incurred to buy his home. This principal repayment would decrease his annual home mortgage interest expense by $2,900. Mr. Z would like to know what options would be most advantageous to him from a tax-saving point of view. Tax wise - what is the best alternative and why? Under option one, if Mr. Z buy shares in a mutual fund paying interest 11% per shares, then Interest income would be $3,300/-($30,000 x 11%). This income has no exemption for tax purpose. Thus, the tax would be 33% of $3,300/- i..e.. $1019, this interest income after tax would be $3,300 - $1,019 = $2,281/- Under the second option, if he payoff $30,000 personal debt to a local bank on which he pays $2,350 interest each year. Here again, Mr. Z cannot deduct interest paid as an itemized deduction. Under alternatives three, if Mr. Z payoff his home loan those mortgage interest expenses is $2,900/- here Mr. Z can deduct this interest as an itemized deduction. Thus it would save his taxes by 33% of $2,900/- If Mr. Z payoff his home loan, then he would not get exemption for interest on home loan. Thus, he should not choose this option...
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...Tax Research Assignment #1 Facts Ima Nurse is a registered nurse who has been working as a Medicare reimbursement specialist at a hospital since 2008. She has enrolled in an MBA program for two reasons: 1) to increase her financial knowledge and skills needed in her current position and 2) to increase her managerial skills in order to enhance her prospects of eventually obtaining her supervisor’s position. An MBA degree is not a specific requirement for the supervisory position. During 2011, she paid $10,500 for tuition and fees at UMSL. Her employer, the hospital, reimbursed her 60% of tuition costs or $6,300 as part of their education assistance program and this amount was not included in Ima’s Form W-2 wages. Issues 1. What portion of the $6,300 reimbursement (if any) needs to be included in Ima’s gross income on Form 1040 and does she need to pay taxes on it? 2. Is the amount she paid in tuition and fees - $10,500 – fully deductible from AGI or toward AGI, partially deductible from AGI or toward AGI, or not deductible at all? Analysis of Applicable Law and Authority 1. ISSUE 1: What portion of the $6,300 reimbursement (if any) needs to be included in Irma’s gross income on Form 1040 and does she need to pay taxes on it? According to IRC Section 127, an employee is allowed to exclude from gross income up to $5,250 annually of employer-paid education expenses (mainly tuition, books and supplies) under an education assistance program. Therefore, since Ima...
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...ii. What is gross rental income 1. Tenant improvements in lieu of rent 2. Tenant improvement are not in lieu of rent iii. Two troublesome tenants, one comes and tell the landlord that they can’t pay the rent. Gives an interest bearing 90 day note in lieu of the rent. This note is treated as property and should be valued at FMV (fair market value) iv. Tenant hasn’t been in the apartment the entire month of December and has not paid rent. Paid late, landlord received in January 3. Include the rent in previous year’s taxable income v. Own a ten-flat in the city. Landlord lives in one of the ten, rent the other nine out. What is the net rental income? What about the deductions 4. What fractions of the building can you depreciate? 90% vi. Had inside information down in Springfield that a third airport was going to be built in the Chicagoland area. With this inside the information, goes and buys land, pays $50K for it. Thinks the land will appreciate in value. However due to decrease in flights, the airport is never built, the land declines in value to $40K. Can you take a deductible loss? No you cannot take deductible loss. 5. For a deductible loss, there must be a sale or exchange of the property. A. § 162 Ordinary & Necessary...
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...Ken and Mary Jane Blough have failed to keep records of their itemized deductions. The IRS now is asking for verification of these deductions. The standard deduction for the Blough’s is $11,900. If the amount of their itemized deductions is less than the standard deduction than they should have just taken the standard deduction and this audit would not be necessary. In the Blough’s case the total of their itemized deductions is much more than the standard deduction and therefore they must show verification if they want to itemize. The first deduction they took was in regards to medical expenses of $7,102 which only $1,477 was deductible because of the 7.5% floor of AGI from the taxpayer (Internal Revenue Code Sec. 213). The second deduction they took was taxes of $6,050 which are fully deductible as long as none of them are fees (Internal Revenue Code Sec 164). The third deduction they took was interest of $10,659 which is fully deductible depending on the type of interest that is involved (Internal Revenue Code 163). The last deduction they took was charitable contributions of $2,693 which are fully deductible as long they are donated to a 50% organization (Internal Revenue Code 170). No deduction is allowed for a charitable contribution unless the taxpayer gathers the appropriate documentation and substantiation. Therefore the $1,477 is not deductible. The total amount of their itemized deductions is $19,402. This is an estimate because the research problem...
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...Assignment 1 logic application In this paper I will summarize the salient facts of the "guess your card game" and explain my strategy in solving this problem. In doing so, I will respond to each player's comment and apply a strategy of process of elimination and logical deduction to establish new facts and reach conclusions. First when Andy responds "yes" to the question "do you see two or more players whose cards sum the same value," this is revealing. The sum of Belle's cards equal 16 (5+4+7=16). Carols cards sum up to be 12 (2+4+6=12). Since Andy cannot see his own cards he obviously cannot factor his own cards into his conclusion. As a result of this, I can deduce that I must be holding cards that equal either 16 or 12. Next, after Belle draws her question card, "of the five odd numbers, how many different odd numbers do you see?" and proclaims that she see's "all of them." The game contains the numbers 1 through 9. This means that the five odd numbers are 1,3,5,7 and 9. Andy has 1, 5 and 7, Belle has 5,4 and 7 but cannot see her own cards, and Carol has 2,4 and 6. Out of the odd numbers, only Andy has any visible to Belle. Since Andy has 1, 5 and 7, but Belle claims she can see all odd numbers, this must mean I have 3 and 9. 3+9=12 and since I still have one unidentified card to add to my total, and my total equals either 12 or 16 that unidentified card must be a 4. Lastly, Andy knows what numbers he has right away based on the answer to the second question...
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...Luis Alberto Zepeda Professor Juan C. Espinosa IDH2003 5 November 2014 Deductive Reasoning: Explaining Broad Points Deductive reasoning is a method of understanding that takes relatively uncertain claims to make an extremely certain claim. In other words, you can take to generally broad ideas and take the common factor between them to come up with a logical statement. Below, I will attempt to use deductive reasoning to support the following two statements: “We should tolerate all beliefs” and “All true claims rely on presuppositions.” The first claim seems relatively absurd when considering that many religious beliefs state something along the lines of “[insert belief here] is true absolutely, and it is the only absolute truth. It should be firmly believed by all, and a follower of this belief should try to enlighten others.” However, if we truly allow all beliefs to be incorporated into this analysis, there is no way to prove the claim as true, since Gödel's Incompleteness Theorem shows that the system is too broad and will collapse on itself. Said Nursi, a famous Islamic activist from Eastern Anatolia, tried to protect and argue his own religious and educational viewpoints by stating that if your belief is true and absolutely true, you have no need to resort to violence because you have the perfect argument to anything with your absolutely true belief. If we use this as a basis of defining true beliefs and make the edit “We should tolerate all [‘true beliefs’],” we can...
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...main issues in this case is whether or not Rex and Agnes Harrell should be able to make deductions in excess of rental income on their beach house. This deduction depends on if the 14-day personal use provision was exceeded. If the 14-day provision was exceeded than income should be limited to rental income as the ISR decided in this case. However, we have determined that the Harrell’s have not violated the 14-day provision and should therefore be allowed deductions for rental expenses exceeding rental income. Facts: • The Harrell’s purchased a beach house to use occasionally for recreational purposes, but also to rent it out. • The house was in need of significant repairs so the couple decided to make the repairs themselves rather than hiring a contractor. Rex had taken advanced courses in woodwork at a local community college and he applied those skills in his maintenance work. • The log maintained by the Harrell’s showed that the couple occupied the house for 38 days and rented it out for 49 days. On 24 of the 38 days occupied, one or both of them were actively working on the beach house. • On the days they were working on the beach house they sometimes still had time for fun with their two teenage children. Some days they would only work 4 to 5 hours and be able to have fun while other days they would work 8 hours and not have time for fun. • The IRS has limited the deductions to rental income on the grounds that the 14-day personal use provision was exceeded. ...
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...price in the course of wholesale trade. In such a situation, the most convenient - convenient form the point of view of the Revenue as well as the assessee - course would be to treat the price at which the goods are sold to the government as the normal price within the meaning of Section 4(1)(a). In fact, the learned Counsel says, that should be the only method. However, if for some reason, the Revenue is not prepared to adopt this course then, he says, the Revenue has to deduct all the aforesaid expenses and not merely the transportation charges as specifically provided by Sub-section (2) of Section 4. Sri Nariman relies upon the holding in Bombay Tyre International that deductions other than those specifically mentioned in Section 4 are permissible in law, depending no doubt upon the character of the deduction claimed. On the other hand, Sri Chandrasekheran, learned Additional Solicitor General, submits that Sub-section (2) of Section 4 does specifically envisage and provide for the situation concerned herein. It provides expressly that where the price of any excisable goods is not known at the place of removal and the value of such goods is determined with reference to the price charged at the time of their delivery from a place other than the place of removal, the transportation charges incurred for transporting the goods from the place of removal to the place of such delivery shall be excluded. submits that it is not the case of Revenue that the sales to the government are...
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...SCHEDULE A (Form 1040) Department of the Treasury Internal Revenue Service (99) Name(s) shown on Form 1040 ▶ Information Itemized Deductions about Schedule A and its separate instructions is at www.irs.gov/schedulea. ▶ Attach to Form 1040. OMB No. 1545-0074 Attachment Sequence No. 07 Your social security number 2013 Medical and Dental Expenses Taxes You Paid Interest You Paid Note. Your mortgage interest deduction may be limited (see instructions). Caution. Do not include expenses reimbursed or paid by others. 1 Medical and dental expenses (see instructions) . . . . . 1 2 Enter amount from Form 1040, line 38 2 142,565 3 Multiply line 2 by 10% (.10). But if either you or your spouse was 3 born before January 2, 1949, multiply line 2 by 7.5% (.075) instead 4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- . . 5 State and local (check only one box): a Income taxes, or . . . . . . . . . . . 5 b General sales taxes 6 Real estate taxes (see instructions) . . . . . . . . . 6 7 Personal property taxes . . . . . . . . . . . . . 7 8 Other taxes. List type and amount ▶ 8 9 Add lines 5 through 8 . . . . . . . . . . . . . . . . 10 Home mortgage interest and points reported to you on Form 1098 10 11 Home mortgage interest not reported to you on Form 1098. If paid to the person from whom you bought the home, see instructions and show that person’s name, identifying no., and address ▶ 15,565 14,257 . . . . . . 4 1,308 ...
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...The issue in this case is to assess Phillip’s taxable income for the year ended 30 June 2010. According to section 4-15 Income Tax Assessment Act 1997 (ITAA 1997), taxable income equals assessable income (Division 6) minus deductions (Division 8). Assessable Income In order to determine the assessable income, Division 6 of ITAA 1997 would be the relevant legislation and in particular Section 6-1(1) refers assessable income consists of ordinary income and statutory income. - Rental Income Section 6-5(1) defines “assessable income” to include income according to ordinary concepts. In the case of Adelaide Fruit & Produce Exchange Ltd, ordinary income is characterized as exhibiting recurrence and regularity. For Phillip’s case, rent falls under income from property as it exploit the property and considered to be income producing. Whereas Adelaide’s ruling for periodic and regular payment is satisfied by which a tenant contracts to pay the landlord, Phillip, for the use of premises. Hence, rent income of $55 000 is assessable under Section 6-5 ITAA 1997. However, $5 000 rent received on 5 July 2010 is not included since the case is only calculating for year ended 30 June 2010. - Manufacturing of tennis racquets business Section 6-5 ITAA 1997 defines “business” as sustained and regular transactions and transactions done in the course of carrying on a business. This is satisfied by the manufacturing of tennis racquets where it regularly manufacture and...
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