Week 3 Problems 9
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Running head: WEEK 3 PROBLEMS
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Week 3 Problems ACC 547 April 23, 2012
WEEK 3 PROBLEMS
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Week 3 Problems Chapter 5, Problem 67 a. $1,200 is gross income regardless of the legality of the source. b. $32,000(32x$1,000) - $31,000(31x$1,000) = $1,000 reported to gross income. c. $25,000 – ($210,000/20) = $14,500 reported to gross income. d. Since given MAGI + half of benefit >$34,000, $13,000x85% = $11,050 reported to gross income. e. $91,400x(181/365) = $45,324 maximum exclusion, therefore all $18,000 can be excluded. $0 reported to gross income. f. $300 used towards the purchase of books can be excluded but the $200 used for his car cannot. $200 reported to gross income. g. Income is assigned to those who earn it, so $0 of his son’s paycheck is reported to gross income. h. Itemized deductions of $5,500 with an overpayment of $610. The standard deduction was $5,450. This resulted in using the itemized deduction of $5,500. Without the overpayment of $610 the itemized deductions would have been $4,890 and the standard deduction of $5,450 would have been used. This means the tax benefit from the overpayment is the difference, which is $50. This $50 is reported to gross income. i. All $30,000 of the interest is reported to gross income. This means Ken’s 2009 gross income is the sum of a-i, which is $58,000. Chapter 6, Problem 66 a. Ordinary expenses of Jeremy’s business of $103,000 is a for AGI deduction. b. Employee business expenses which are not reimbursed by an employer for FROM AGI deductions. c. Any property taxes and investment expenses are FROM AGI deductions. d. Rental expenses of $8,500 are deductible for AGI. e. Since Alyssa’s new job is more than 50 miles further away from her old residence than her old job was, she is allowed to deduct for AGI any direct expenses. This includes the $2,000 paid to movers and the mileage (50 miles x $.24 = $12). The result is a $2,012 deduction for AGI. f. Since Jeremy is not eligible to be covered on Alyssa’s health insurance, his selfemployed health insurance of $4,500 is a for AGI deduction. g. 50% of self employment taxes can be deducted. This results in a $1,250 deduction for AGI. h. The $4,000 contribution to 401k is a for AGI deduction. i. Alimony is a for AGI deduction but child support is not, the result is a $5,000 for AGI deduction. j. Without deducting an education expense Jeremy and Alyssa have a MAGI of $126,738. Since this is less than $130,000 they may deduct either the education expense or $4,000, whichever is smaller. This results in a $3,100 for AGI deduction. k. Charitable donations are FROM AGI deductions. The sum of all of the above for AGI deductions is $131,362. Subtracting that from the given GI of $255,000 gives Jeremy and Alyssa an AGI of $123,638.
WEEK 3 PROBLEMS
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Chapter 8, Problem 81 a. Since the actual sale of the gadgets is contingent on testing which has not yet occurred, there is $0 income for this event. b. Since significant business was not discussed during the entertaining, the deduction is not allowed. c. Since these life insurance premiums are connected to tax exempt income, their cost is not deductible. d. Only receivables that have actually been identified as either partially or completely uncollectible can be deducted. This is not the case in this situation. e. Joe will have a deduction of $1,000 for year 0 and $2,000 in year 1. f. All of the airfare and lodging expenses ($300 and $350 respectively) are ordinary business expenses and can be deducted. The meals and entertainment ($250 and $150 respectively) can be deducted at a rate of 50%. g. Joe has options for his vehicle expense. He can either use the standard amount or business portion of his operating expenses of the vehicle. Assuming he uses the standard deduction of $.55/mile he can deduct $66, which is $.55 x 120 miles since the 46 that were commuting to not qualify. h. Joe’s trip was primarily for personal reasons so the travel cost is not a business expense. He can deduct the $50 cost of the symposium, the $20 cab ride and 50% of the $50 meal.
WEEK 3 PROBLEMS
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Reference Spilker, B. C., Ayers, B. C., Robinson, J. R., Outslay, E., Worsham, R. G., & Barrick, J. A. (2010). Taxation of individuals and business entities. New York, NY: McGrawHill/Irwin.
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Week 3 Problems ACC 547 April 23, 2012
WEEK 3 PROBLEMS
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Week 3 Problems Chapter 5, Problem 67 a. $1,200 is gross income regardless of the legality of the source. b. $32,000(32x$1,000) - $31,000(31x$1,000) = $1,000 reported to gross income. c. $25,000 – ($210,000/20) = $14,500 reported to gross income. d. Since given MAGI + half of benefit >$34,000, $13,000x85% = $11,050 reported to gross income. e. $91,400x(181/365) = $45,324 maximum exclusion, therefore all $18,000 can be excluded. $0 reported to gross income. f. $300 used towards the purchase of books can be excluded but the $200 used for his car cannot. $200 reported to gross income. g. Income is assigned to those who earn it, so $0 of his son’s paycheck is reported to gross income. h. Itemized deductions of $5,500 with an overpayment of $610. The standard deduction was $5,450. This resulted in using the itemized deduction of $5,500. Without the overpayment of $610 the itemized deductions would have been $4,890 and the standard deduction of $5,450 would have been used. This means the tax benefit from the overpayment is the difference, which is $50. This $50 is reported to gross income. i. All $30,000 of the interest is reported to gross income. This means Ken’s 2009 gross income is the sum of a-i, which is $58,000. Chapter 6, Problem 66 a. Ordinary expenses of Jeremy’s business of $103,000 is a for AGI deduction. b. Employee business expenses which are not reimbursed by an employer for FROM AGI deductions. c. Any property taxes and investment expenses are FROM AGI deductions. d. Rental expenses of $8,500 are deductible for AGI. e. Since Alyssa’s new job is more than 50 miles further away from her old residence than her old job was, she is allowed to deduct for AGI any direct expenses. This includes the $2,000 paid to movers and the mileage (50 miles x $.24 = $12). The result is a $2,012 deduction for AGI. f. Since Jeremy is not eligible to be covered on Alyssa’s health insurance, his selfemployed health insurance of $4,500 is a for AGI deduction. g. 50% of self employment taxes can be deducted. This results in a $1,250 deduction for AGI. h. The $4,000 contribution to 401k is a for AGI deduction. i. Alimony is a for AGI deduction but child support is not, the result is a $5,000 for AGI deduction. j. Without deducting an education expense Jeremy and Alyssa have a MAGI of $126,738. Since this is less than $130,000 they may deduct either the education expense or $4,000, whichever is smaller. This results in a $3,100 for AGI deduction. k. Charitable donations are FROM AGI deductions. The sum of all of the above for AGI deductions is $131,362. Subtracting that from the given GI of $255,000 gives Jeremy and Alyssa an AGI of $123,638.
WEEK 3 PROBLEMS
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Chapter 8, Problem 81 a. Since the actual sale of the gadgets is contingent on testing which has not yet occurred, there is $0 income for this event. b. Since significant business was not discussed during the entertaining, the deduction is not allowed. c. Since these life insurance premiums are connected to tax exempt income, their cost is not deductible. d. Only receivables that have actually been identified as either partially or completely uncollectible can be deducted. This is not the case in this situation. e. Joe will have a deduction of $1,000 for year 0 and $2,000 in year 1. f. All of the airfare and lodging expenses ($300 and $350 respectively) are ordinary business expenses and can be deducted. The meals and entertainment ($250 and $150 respectively) can be deducted at a rate of 50%. g. Joe has options for his vehicle expense. He can either use the standard amount or business portion of his operating expenses of the vehicle. Assuming he uses the standard deduction of $.55/mile he can deduct $66, which is $.55 x 120 miles since the 46 that were commuting to not qualify. h. Joe’s trip was primarily for personal reasons so the travel cost is not a business expense. He can deduct the $50 cost of the symposium, the $20 cab ride and 50% of the $50 meal.
WEEK 3 PROBLEMS
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Reference Spilker, B. C., Ayers, B. C., Robinson, J. R., Outslay, E., Worsham, R. G., & Barrick, J. A. (2010). Taxation of individuals and business entities. New York, NY: McGrawHill/Irwin.
