| | | | | | | Q4-25 | | | | | | | Taxable rental income | $ 9,000 | | | | Rent is taxable when received. | | | | Security deposit that is refundable is not taxable. | | | | | | | | | | | Q4-32 | | | | | | | a. Property settlement does not affect Arnold or Barbara's taxable income. | | b. Arnold's payment of mortgage is also considered property settlement and it does not affect Arnold or Barbara's taxable income. | c. $1500 is for child support, which does not have any tax ramifications. | | The other half, $1500, is alimony paid to Barbara. Alimony is taxable to payee and deductible to payer. | Barbara should include $1500 in gross income and Arnold can deduct $1500 from his gross income. | | | | | | | | Q5-26 | | | | | | | US Series EE bonds: the interest on US Series EE bonds is tax exempt when the interest is used for educational purpose; If this is not used for educational purposes then it's a tax deferred bond, which means the purchaser pays tax when he withdraws the money. | bonds for industrial development for mass transit: it's private activity bond which is not tax exempt. | qualified veterans' mortgage bonds: Interest on a private activity bond that is a qualified bond is tax exempt. | Therefore, the investor should choose qualified veterans' mortgage bonds to minimize his tax liability. | | | | | | | | Q6-29 | | | | | | | Salaries and wages to employees | deductible | salaries and wages are business expense | Purchase of new office building | not deductible | capital expenditure is not deductible | Payment of illegal parking fines | not deductible | illegal or in violation of public policy | President's daughter's wedding | not deductible | it's considered personal expense | Entertainment expenses