...AC553 Homework Week 1 3.31 Tom & Linda married filing Jointly Itemized deduction $11,950.00 4 Exemptions @ 3700 $14,800.00 AGI $40,000.00 AGI $40,000.00 (Standard/Itemized deduction) $(11,950.00) (Personal Exemption) $(14,800.00) Taxable Income $13,250.00 3.32 Marie Single 2 dependent Children AGI $70,000.00 Itemized deduction $9,000.00 AGI $70,000.00 (Standard/Itemized deduction) $(9,000.00) (Personal Exemption) 3@3700 $(11,100.00) Taxable Income $49,900.00 3.36 Stanley age 16, dependent Wages $1,000.00 Interest from bonds $2,000.00 Gross Income $3,000.00 Gross Income $3,000.00 Standard deduction (1000+300) $(1,300.00) Taxable Income $1,700.00 13.55 Mr. Z (Non dealer) Installation Plan Year Installation Sales Gross Profit Collections Profit/Sales Collection*% 2009 $200,000.00 $50,000.00 $25,000.00 0.25 $6,250.00 2010 $300,000.00 $81,000.00 $80,000.00 0.27 $21,600.00 2011 $400,000.00 $96,000.00 $125,000.00 0.24 $30,000.00 $57,850.00 13.69 Bill is cash basis, calendar year taxpayer December Items-Gross income or deductions Gross A) Check...
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...AC553: FINAL EXAM STUDY GUIDELINES The Final Exam will be administered during Week 8. It consists of 16 multiple-choice questions (five points each), totaling 80 points; and 10 essay questions (17 points each) totaling 170 points, for a grand total of 250 points. It is a 3.5-hour exam. There are some basic calculations involved, so a simple calculator may be useful. Showing your work will count towards your overall points, so make sure that your answer consists of more than just numbers. The Final Exam is cumulative. It covers all of the readings, lectures, threaded discussions, and homework assignments from Weeks 1 – 7. However, most of your preparation should focus on the following: 1. The assigned problems for Weeks 1 – 7; 2. The threaded discussions from Weeks 1 – 7; 3. Quizzes 1 and 2; and 4. The concepts that you learned in the You Decide Projects 1 and 2. Also, make sure that you review the following concepts and examples. TCO A: Demonstrate familiarity with the basic fundamentals and forms of taxation and the underlying policy considerations that drive the imposition of income and other taxes. 1. Schedule A Tax Deductions 2. U.S. Tax Court 3. U.S. District Court 4. Tax Evasion TCO B: Illustrate the impact of taxation as a transaction cost, understand the importance and methods of research and planning to minimize tax liability, and describe the framework for tax compliance. 1. Taxation of Corporations--review Problems...
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...AC553 Week 3 Home Work Reading Chapter 7: Deductions: Business/Investment Losses and Passive Activity Losses Chapter 8: Deductions: Itemized Deduction Homework Questions: 7-7 and 7-13 Problems (Show your work.): 7-46, 8-34, and 8-40 Chp.7. 7. Differentiate between the following: active income, passive income, and portfolio income. Sol. 1.Active Income Income an individual earns through participating in some activity with the goal of earning income. Also referred to as earned income. 2.Passive Income Income earned through a trade or investment in which the individual does through little or no effort. Ex:Rental property income managed by management company. 3.Portfolio Income Income is derived directly from investments such as stock earnings, mutual fund investments, or interest income. 13. Briefly, what is "material participation"? Why is the determination of whether a taxpayer materially participates important? Sol. Material participation is the point at which an individual becomes Actively or Continuously involved in a project . Earned revenue from the project is no longer considered passive income. This is important as this determines whether income is active or passive inconsideration of how loses are deducted and how this income is taxed. 46. Mary Beth is a CPA, devoting 3,000 hours per year to her practice. She also owns an office building in which she rents out space to tenants. She devotes none of her time to the management of the office...
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...AC553: FINAL EXAM STUDY GUIDELINES The Final Exam will be administered during Week 8. It consists of 16 multiple-choice questions (five points each) totaling 80 points and 10 essay questions (17 points each) totaling 170 points for a grand total of 250 points. It is a 3.5-hour exam. There are some basic calculations involved, so a simple calculator may be useful. Showing your work will count towards your overall points, so make sure that your answer consists of more than just numbers. The Final Exam is cumulative. It covers all of the readings, lectures, threaded discussions, and homework assignments from Weeks 1-7. However, most of your preparation should focus on the following: 1. The assigned problems for Weeks 1-7 2. The threaded discussions from Weeks 1-7 3. Quizzes 1 and 2 4. The concepts that you learned in the You Decide Projects 1 and 2 Also, make sure that you review the following concepts and examples: TCO A: Demonstrate familiarity with the basic fundamentals and forms of taxation and the underlying policy considerations that drive the imposition of income and other taxes. 1. Schedule A tax deductions 2. U.S. Tax Court 3. U.S. District Court 4. Tax evasion TCO B: Illustrate the impact of taxation as a transaction cost, understand the importance and methods of research and planning to minimize tax liability, and describe the framework for tax compliance. 1. Taxation of corporations--Review Problem 14-5. 2. Schedule A charitable contributions...
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...PAPER WORK WEEK SEVEN (AC553) Solution: (A) ADJUSTED GROSS INCOME: This is a measure of income and it used to establish eligibility for financial benefits. It is calculated as gross income from taxable sources minus allowable deductions. Adjusted gross income is important to individual income taxation because it controls individual qualification for numerous deductions and credits. Besides, it can affect individual eligibility for retirement plans. (B) How does ADJUSTED GROSS INCOME AFFECT: (1) Medical Deduction on Form 1040, Schedule A Only the part of medical expenses that exceed 7.5% of the amount on Form 1040, line 38 is deductible. To the extent you were not reimbursed, you can deduct the amount you paid for: Prescription medicines or insulin, Medical examination, diagnostic test etc. (2) Miscellaneous Itemized Deduction on Form 1040, Schedule A This is subject to expense that is more than 2 % of your adjusted gross income. This 2% limit can only be applied after you apply any other deduction limit. For example, unreimbursed employee expenses, Tax preparation fee, and all other expenses that will appear on line 11 of Form 1040. (3) The Deduction for Charity on Form 1040, Schedule A Donations to charity are tax deductible expenses but subject to limitation.1) you must make an assessment of the fair market value of the property you contribute. 2) You must attach IRS Form 8283 if your total non-cash contribution exceeds $500. 3) If you contribute a car...
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...AC553 You Decide Week 4 John and Jane Smith Tax issues and recommendation 1. John Smith Tax Issues: 1(a) How is the $300,000 treated for purposes of Federal Income Tax? Since the $300,000 was derived from a business activity the amount should be included in the Gross Income reported for the John Smith LLC (IRS Regulation 1.61-3(a)). The assumption is being made that none of the income has been reported previously and that the LLC using a cash basis accounting method (IRS Publication 334). Because the income is reported in the LLC the income will also be reduced by all appropriate Cost of Goods Sold relevant to the business activity. The deductions from income will follow the guidelines relating to IRS Code Sections 62, 162 and 212 which focus on clarifying that the expenses are reasonable and that they are necessary for the performance of the business activity. Once the applicable deductions and credits (including any Net Operating Loss carry forward amounts) have been realized from a tax perspective at the business level the Net Income from the business will flow through to the personal income level where it will be taxed at the marginal tax rate of the individual. Summary: The $300,000 will be reported as gross income for the business LLC (IRS Regulation 1.61-3(a)), which will then be reduced by the appropriate Cost of Goods Sold and any applicable Tax Credits (IRS Code Sections 62, 162 and 212). At that point the Net Income from the business will flow...
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...AC553 – You Decide 1. John Tax Issues: a. How is the $300,000 treated for purposes of Federal tax income? The $300,000 is included in John’s Gross Income. Section 61 of the IRS Tax code generally defines gross income as all income from whatever source derived, including the compensation for services, fees, commissions, fringe benefits and similar items. Therefore the $300,000 is classified as compensation John received for legal services rendered. b. How is the $25,000 treated for purposes of Federal tax income? The $25,000 should also be included in gross income, as they are also included in the fees for the legal services) provided. c. What is your determination regarding reducing the taxable amount of income for both a and b In order for John to reduce the taxable amount of his income of $300,000, he must maximize his deductions as business expenses. Business expenses are the cost of carrying on a trade or business. Expenses are usually deductible if the business is operated to make a profit. The tax code Section 162- Trade or business expenses indicates for a business expenses to be deductible, it must be both ordinary and necessary. An ordinary expense is one that is common and accepted in the business, while a necessary expense is one that is helpful and appropriate for the business. The other requirements for an expense to be deductible as a business expense include, it being reasonable in amount and practice; an expense is allowable...
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