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Advanced Tax

In: Business and Management

Submitted By gaudypeacock
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ADVANCED TAX

Consider the following examples designed to illustrate the point that you should study the law and not problems.

General rule on income: All income is taxable unless something in the tax law says that it is not.

General rule on deductions: Nothing is deductible unless some provision in the tax law says that it is.

General rule on losses: The only losses that are deductible are for 1) Investment, 2) Business, or 3) Casualty.

Example #1: Bill is in love and buys his girlfriend, Hillary, an engagement ring at a cost of $100. Later, she notices his roving eye and returns the ring to him and he sells it for $95. What is the tax result? (Megan and Phuong)
SP = 95, basis = 100 ( loss =
The loss is not deductible because the only losses that are deductible are for investment, business or casualty.

Example #2: Bill is in love and buys his girlfriend, Hillary, an engagement ring at a cost of $100. Later, she notices his roving eye and returns the ring to him and he sells it for $105. What is the tax result? (Phuong and Jake)
The gain of $5 is taxable because nothing says it’s not

HEAD OF HOUSEHOLD – The requirements are as follows:

1. The person must be unmarried. 2. The person must a) provide at least half the cost of a household in which at least one b) dependent c) relative lives. Note that in the case of a dependent parent, the parent need not live with the taxpayer.

EXAMPLE #3: Justin is single, lives alone, and fully supports his mother who lives in a nursing home. What is his filing status – head of household or single? (Jake and Justin)
Yes because the dependent who doesn’t live with the TP is the parent.

EXAMPLE #4: Cydney is single, lives alone, and fully supports her sister who lives in a nursing home. What is her filing status – head of household or single? (Justin and Cydney)
No because the dependent

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