29,41,53,55
29. Determine the Taxpayer’s gross income for tax purposes in each of the following situations:
a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for corporate stock with a fair market value of $12,000 at the time of the exchange. Deb’s cost of the bond was $10,000. The value of the stock had decreased to $11,000 by the end of the year.
Deb will have to recognize a gain of $1,700. 12,000-300= 11,700 and deduct this from the cost of 10,000.
b. Deb needed $10,000 to make a down payment on her house. She instructed her broker to sell some stock to raise the $10,000. Deb’s cost of the stock was $3,000. Based on her broker’s advice, instead of selling the stock, she borrowed the $10,000 using the stock as collateral for the debt.
No income needs to be realized as she borrowed on her own property.
c. Deb’s boss gave her two tickets to the Rabid Rabbits rock concert because she met her sales quota. At the time she received the tickets, each ticket had a face price of $200 and was selling on ebay for $300. On the date of the concert, the tickets were selling for $250 each. Deb and her son attended the concert.
Deb must recognize 600 in income. 300 X 2 or fair value market when they were received
41. Troy, a cash basis taxpayer, is employed ty Eagle Corporation, also a cash basis taxpayer. Troy is a full-time employee of the corporation and receives a salary of $60,000 per year. He also receives a bonus equal to 10% of all collections from clients he serviced during the year. Determine the tax consequences of the following events to the corporation and to Troy:
a. On December 31, 2014, Troy was visiting a customer. The customer gave Troy a $10,000 check payable to the corporation for appraisal services Troy performed during 2014. Troy did not deliver the check to the corporation until January 2015.
The 10,000 check would be a cash equivalent and must be recognized when received in 2014.
b. The facts are the same as in (a), except that the corporation is an accrual basis taxpayer and Troy deposited the check on December 31, but the bank did not add the deposit to the corporation’s account until January 2015.
The income of 10,000 would still be recognized in 2014 when services were provided.
c. The facts are the same as in (a), except that the customer told Troy to hold the check until January 2015 when the customer could make a bank deposit that would cover the check.
Income would not be recognized in 2014 because of the restrictions being placed on it. It is no longer cash equivalent.
53. The LMN Partnership has a group term life insurance plan. Each partner has $150,000 of protection, and each employee has protection equal to twice his or her annual salary. Employee Alice (age 32) has $90,000 of insurance under the plan, and partner Kay (age 47) has $150,000 of coverage. Because the plan is a “group plan,” it is impossible to determine the cost of coverage for an individual employee or partner.
a. Assuming that the plan is nondiscriminatory, how much must Alice and Kay each include in gross income as a result of the partnership paying the insurance premiums?
Alice- Nothing included as only makes 45,000 and has a 50,000 exclusion
Kay- $45 75,000 annual salary-50,000 exclusion/1,000 =25 X .15 = $3.75 X 12 mos= $45
b. Assume that the partnership is incorporated. Kay becomes a shareholder and an employee who receives a $75,000 annual salary. The corporation provides Kay with $150,000 of group term life insurance coverage under a nondiscriminatory plan. What is Kay’s gross income as a result of the corporation paying the insurance premiums?
$135- 75,000/1,000= 75 (no more exclusion) X .15= 11.25 X 12 mos= $135
55. Linda and Don are married and file a joint return. In 2014, they received $12,000 in social security benefits and $35,000 in taxable pension benefits and interest.
a. Compute the couple’s adjusted gross income on a joint return.
$39,500
SS= .5(35k+.5(12k)-32kapplicable ss base)= .5(9k)= 4,500 to 35 k= $39,500
b. Don would like to know whether they should sell for $100,000 (at no gain or loss) a corporate bond that pays 8% in interest each year and use the proceeds to buy a $100,000 nontaxable State of Virginia bond that will pay $6,000 in interest each year.
Decrease in income would be $650
2,000 loss in interest income 8000 -6000
Taxable down by 9,000 but only in 15% tax rate bracket so only $1,350. So net decreas is only $650.
c. If Linda in (a) works part-time and earns $30,000, how much will Linda and Don’s adjusted gross income increase?
By 30k the same amount of increase in wages earned… Not sure I’m reading this right though. Or if it’s looking the for the difference that will occur in SS benefits and that will go up to $10,200 from 4,500.