TXX 5761 Taxation of Individuals Assignments.Which of the following items are inclusions in gross income?
a. During the year, stock the taxpayer purchas... [Show More] ed as an investment doubled in value. (NO TAX CONSEQUENCES)
b. Amount an off-duty motorcycle police officer received for escorting a funeral procession. (TAXABLE PAYMENTS FOR SERVICES RENDERED)
c. While his mother was in the hospital, the taxpayer sold her jewelry and gave the money to his girlfriend.
d. Child support payments received. (NO TAX CONSEQUENCES)
e. A damage deposit the taxpayer recovered when he vacated the apartment he had rented. (NONTAXABLE RETURN OF CAPITAL)
f. Interest received by the taxpayer on an investment in general purpose bonds issued by IBM.
g. Amounts received by the taxpayer, a baseball “Hall of Famer,” for autographing sports equipment (e.g. balls, and gloves). (SAME AS B)
h. Tips received by a bartender from patrons. (Taxpayer is paid a regular salary by the cocktail lounge that employs him).
i. Taxpayer sells his Super Bowl tickets for three times what he paid for them.
j. Taxpayer receives a new BMW from his grandmother when he passes the CPA exam. (MAY HAVE GIFT TAX CONSEQUNECES TO GRANDMOTHER BUT IS NONTAXABLE TO THE TAXPAYER).
Pages 3-4 and Exhibit 3.2
4: Which of the following items are exclusions from gross income?
a. Alimony payments received.
b. Damages award received by the taxpayer for personal physical injury – none were for punitive damages.
c. A new golf cart won in a church raffle.
d. Amount collected on a loan previously made to a college friend. (presuming no interest is charged)
e. Insurance proceeds paid to the taxpayer on the death of her uncle – she was the designated beneficiary under the policy.
f. Interest income on City of Chicago bonds.
g. Jury duty fees.
h. Stolen funds the taxpayer had collected for a local food bank drive.
i. Reward paid by the IRS for information provided that led to the conviction of the taxpayer’s former employer for tax evasion.
j. An envelope containing $8,000 found (and unclaimed) by the taxpayer in a bus station.
Exhibits 3.1 and 3.2
5: To save on U.S. income taxes, Lucas (a U.S. citizen and resident of Vermont) invests in foreign stocks and bonds. Is Lucas correct in his approach? Explain Lucas is not correct in his approach because one cannot escape paying taxes. If the investment is a prudent investment then it is acceptable but the intention to invest it to avoid paying taxes is unacceptable. This is unethical and cannot be accepted in any form. He being a resident of Vermont should disclose his investment details to the state of his residence. Whatever income we earn, we need to pay taxes on it. Investment if made in certain securities have to be disclosed and so being a citizen he has to disclose the investment and pay taxes on the same.
Global Tax Issues on page 3-6
6: One class of deductions is variously described as deductions for AGI, above the line deductions and page 1 deductions. Explain the meaning of the various designations. A “deduction for” is one that can be claimed in arriving at AGI. Since AGI is the bottom line of page 1 of Form 1040, a “deduction for” is an “above the line” deduction or a “page 1” deduction.
7: In late 2013, the Polk’s come to you for tax advice. They are considering selling some stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you note that they have large medical expenses and a casualty loss, neither of which is covered by insurance. What advice would you give the Polk’s? The sale of the stock investment will result in a capital loss. The capital loss will offset any capital gain, and any excess (of up to $3,000) can be applied against ordinary income to arrive at AGI. The contribution to the traditional IRA is a deduction for AGI. Thus, both the capital loss and the IRA contribution reduce AGI. By reducing AGI, the Polk’s will increase their allowable medical and casualty deductions. [The medical deduction is the excess over 10% (7.5% if age 65 or over) of AGI in 2013, while the casualty loss is the excess over 10% of AGI.]
Page 3-6 and Examples 3 and 4
8: In choosing between the standard deductions and itemizing deductions from AGI, what effect, if any, does each of the following have?
a. The age of the taxpayer(s). The age of the taxpayer would favor the standard deduction choice if it brought into play the additional standard deduction (age 65 or older)/
b. The health (i.e., physical condition) of the taxpayer. If the taxpayer is blind, an additional standard deduction is available.
c. Whether taxpayers rent or own their residence. If the taxpayer is still making house payments, the interest deduction may make itemizing more attractive.
d. Taxpayer’s filing status (e.g., single, married, filing jointly). Because the amount of the standard deduction varies depending on filing status, this factor is highly relevant to the decision.
e. Whether married taxpayers decide to file separate returns. If married persons file separate returns, the returns must be consistent in the choice made. Thus if one spouse itemizes the other spouse must also itemize.
f. The taxpayer’s uninsured personal residence was recently destroyed by fire. Because a large casualty loss seems probable, this increases the advantage to be gained by itemizing.
g. The number of personal dependency exemptions the taxpayer can claim. Personal and dependency exemptions have no effect on whether a taxpayer itemizes or chooses the standard deduction option. [Show Less]