Questions and Answers of Income Tax Fundamentals

Abbe, age 56, is married and has two dependent children, one age 14, and the other a 21 year-old full-time student. Abbe has one job, and her husband, age 58, is not employed. If she expects to earn
Phan Mai is single with two dependent children under age 17. Phan estimates her wages for the year will be $42,000, her dependent care expenses will be $6,300, and her itemized deductions will be
Eric, your friend, received his Form W-2 from his employer (below) and has asked for your help. Eric’s 2018 salary was $145,000 and he does not understand why the amounts in Boxes 1, 3 and 5 are
Using the information from Question 21, what is Oscar’s basis on his new building? a. $130,000 b. $132,000 c. $140,000 d. $142,000Data from Problem 22. Oscar owns a
Teresa’s manufacturing plant is destroyed by fire. The plant has an adjusted basis of $270,000, and Teresa receives insurance proceeds of $410,000 for the loss. Teresa reinvests $420,000 in a
Oscar owns a building that is destroyed in a hurricane. His adjusted basis in the building before the hurricane is $130,000. His insurance company pays him $140,000 and he immediately invests in a
Carey exchanges real estate for other real estate in a qualifying likekind exchange. Carey’s basis in the real estate given up is $120,000, and the property has a fair market value of $165,000.
Fred and Sarajane exchanged land in a qualifying likekind exchange. Fred gives up land with an adjusted basis of $12,000 (fair market value of $15,000) in exchange for Sarajane’s land with a fair
William sold Section 1245 property for $25,000 in 2018. The property cost $37,000 when it was purchased 5 years ago. The depreciation claimed on the property was $17,000. a. Calculate the
Pat sells real estate for $30,000 cash and a $90,000 5year note. If her basis in the property is $90,000 and she receives only the $30,000 down payment in the year of sale, how much is Pat’s
Steve Drake sells a rental house on January 1, 2018, and receives $120,000 cash and a note for $45,000 at 10 percent interest. The purchaser also assumes the mortgage on the property of $35,000.
Virginia has business property that is stolen and partially destroyed by the time it was recovered. She receives an insurance reimbursement of $6,000 on property that had a $14,000 basis and a
Nadia Shalom has the following transactions during the year: Sale of office equipment on March 15 that cost $19,000 when purchased on July 1, 2016. Nadia has claimed $3,000 in depreciation and sells
Jeanie acquires an apartment building in 2007 for $250,000 and sells it for $500,000 in 2018. At the time of sale there is $75,400 of accumulated straightline depreciation on the apartment
During 2018, Paul sells residential rental property for $290,000, which he acquired in 1997 for $145,000. Paul has claimed straightline depreciation on the building of $54,500. What is the amount
Derek purchases a small business from Art on July 1, 2018. He paid the following amounts for the business: Fixed
In 2018, Mary sells for $14,000 a machine used in her business. The machine was purchased on May 1, 2016, at a cost of $13,000. Mary has claimed depreciation on the machine of $8,000. What is the
Tom has a successful business with $100,000 of taxable income before the election to expense in 2018. He purchases one new asset in 2018, a new machine which is 7year MACRS property and costs
Which of the following is Section 1231 property? a. Land held for investment purposes.b. A machine used in a business.c. Accounts receivable.d. Inventor. e. Paintings owned by the artist.
Go to the IRS website (www.irs.gov) and assuming bonus depreciation is used, redo Problem 11, using the most recent interactive Form 4562, Depreciation and Amortization. Print out the completed Form
During 2018, Palo Fiero purchases the following property for use in his calendar yearend manufacturing business: Palo uses the accelerated depreciation method under MACRS, if available, and
Serena is a 40-year-old single taxpayer. She operates a small business on the side as a sole proprietorship. Her 2018 Schedule C reports net profits of $5,624. Her employer does not offer health
In 2018, Gale and Cathy Alexander hosted an exchange student, Axel Muller, for 9 months. Axel was part of International Student Exchange Programs (a qualified organization). Axel attended tenth grade
On September 14, 2018, Jay purchased a passenger automobile that is used 75 percent in his accounting business. The automobile has a basis for depreciation purposes of $43,000, and Jay uses the
A. Bea Jones (birthdate March 27, 1984) moved from Texas to Florida in December 2017. She lives at 654 Ocean Way, Gulfport, FL 33707. Bea’s Social Security number is 466-78-7359 and she is single.
In 2018, Ben purchases and places in service a new auto for his business. The auto costs $57,000 and will be used 100% for business. Assuming the halfyear convention applies and Ben does not elect
On February 2, 2018, Alexandra purchases a personal computer for her home. The computer cost $2,800. Alexandra uses the computer 80 percent of the time in her accounting business, and the remaining
In 2018, Ben purchases and places in service a new auto for his business. The auto costs $57,000 and will be used 60% for business. Assuming the halfyear convention applies and Ben elects out of
During 2018, William purchases the following capital assets for use in his catering business: New passenger automobile (September 30).............$51,500 Baking equipment (June
Which of the following is not considered a limit on the immediate expensing election of Section 179? a. Fifty percent of qualified improvement property.b. Total Section 179eligible property
Calculate the following: a. The first year of depreciation on a residential rental building costing $200,000 purchased July 2, 2018. b. The second year (2019) of depreciation on a computer
Phil and Linda are 25-year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not. a. Assuming Phil’s wages were $27,000 and Linda’s wages
On July 20, 2018, Kelli purchases office equipment at a cost of $12,000. Kelli elects out of bonus depreciation but makes the election to expense for 2018. She is selfemployed as an attorney, and, in
What is the maximum amount a 45-year-old taxpayer and 45-year-old spouse can put into a Traditional or Roth IRA for 2018 (assuming they have sufficient earned income, but do not have an income
Which of the following is not true about the MACRS depreciation system: a. A salvage value must be determined before depreciation percentages are applied to depreciable real estate. b.
On April 8, 2018, Holly purchased a residential apartment building. The cost basis assigned to the building is $800,000. Holly also owns another residential apartment building that she purchased on
James purchased office equipment for his business. The equipment has a depreciable basis of $14,000 and was put in service on June 1, 2018. James decides to elect straightline depreciation under
Mike purchases a new heavyduty truck (5year class recovery property) for his delivery service on April 30, 2018. No other assets were purchased during the year. The truck is not considered a
An asset (not an automobile) put in service in June 2018 has a depreciable basis of $40,000 and a recovery period of 5 years. Assuming bonus depreciation is used, halfyear convention and no
An asset (not an automobile) put in service in June 2018 has a depreciable basis of $25,000 and a recovery period of 5 years. Assuming halfyear convention, no bonus depreciation, and no election to
Lisa Kohl (age 44) is an unmarried high school principal. Lisa received the following tax documents: During the year, Lisa paid the following amounts (all of which can be
Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2018, Owen and Lisa exchange land they both held
Donna, age 42 and a single taxpayer, has a salary of $104,500 and interest income of $20,000. What is the maximum amount Donna can contribute to a Roth IRA? a. $3,300 b. $3,850 c.
Barry is a single, 40-year-old software engineer earning $190,000 a year and is not covered by a pension plan at work. How much can he put into a Roth IRA in 2018?
Bob is a single, 40-year-old doctor earning $190,000 a year and is not covered by a pension plan at work. How much can he put into a deductible Traditional IRA in 2018?
Dori is 58 years old and retired in 2018. She receives a pension of $25,000 a year and no other income. She wishes to put the maximum allowed into an IRA. How much can she contribute to her IRA?
During 2018, Jerry is a self-employed therapist, and his net earned income is $160,000 from his practice. Jerry’s SEP Plan, a defined contribution plan, states that he will contribute the maximum
What is the deadline for making a contribution to a traditional IRA or a Roth IRA for 2018? a. April 15, 2019 b. April 17, 2019 c. December 31, 2018 d. October 15, 2019
Tony is a 45-year-old psychiatrist who has net earned income of $300,000 in 2018. What is the maximum amount he can contribute to his SEP for the year?
Which of the following statements with respect to a qualified retirement plan is not accurate? a. Self-employed individuals are eligible to be members of a SEP. b. Contributions to SIMPLE
Alice purchases a rental house on August 22, 2018, for a cost of $174,000. Of this amount, $100,000 is considered to be allocable to the cost of the home, with the remaining $74,000 allocable to the
What is the maximum tax-deferred contribution that can be made to a Section 401(k) plan by an employee under age 50 in 2018? a. $7,500 b. $10,000 c. $18,000 d. $18,500 e.
During 2018, Jill, age 39, participated in a Section 401(k) plan which provides for maximum employee contributions of 12 percent. Jill’s salary was $90,000 for the year. Jill elects to make the
The following information is available for the Albert and Allison Gaytor family in addition to that provided in Chapters 1–7. On September 14, 2018, Allison purchased the building where her store
Sherry Hopson owns a retail family clothing store. Her store is located at 4321 Heather Drive, Henderson, NV 89002. Her employer identification number is 95 1234321 and her Social Security number
Paul, age 37, participates in a Section 401(k) plan which allows employees to contribute up to 15 percent of their salary. His annual salary is $125,000 in 2018. What is the maximum he can
In 2018, Margaret and John Murphy (both over age 65) are married taxpayers who file a joint tax return with AGl of $25,400. During the year they incurred the following expenses: Medical
The cost of which of the following expenses is not deductible as a medical expense on Schedule A, before the 7.5 percent of adjusted gross income limitation?a. A psychiatrist.b. Botox treatment to
Lyndon’s employer withheld $11,000 in state income taxes from Lyndon’s wages in 2018. Lyndon obtained a refund of $1,700 this year for overpayment of state income taxes for 2017. State income
Mike sells his home to Jane on April 2, 2018. Jane pays the property taxes covering the full calendar year in October, which amount to $2,500. How much may Mike and Jane each deduct for property
Laura is a single taxpayer living in New Jersey with adjusted gross income for the 2018 tax year of $35,550. Laura’s employer withheld $3,300 in state income tax from her salary. In April of 2018,
Mary’s mother defaults on a home loan and Mary pays $600 in loan payments, including $175 in interest. Mary is not legally obligated on the loan and has no ownership interest in her mother’s
In 2018, Jeff spends $6,000 on solar panels to heat water for his main home. What is Jeff’s credit for his 2018 purchases? SCHEDULE EIC OMB No. 1545-0074 Earned Income Credit (Form 1040)
Matthew borrows $250,000 to invest in bonds. During the current year, his interest on the loan is $30,000. Matthew’s taxable interest income from the bonds is $10,000. This is Matthew’s only
Mike bought a solar electric pump to heat his pool at a cost of $2,500 in 2018. What is Mike’s credit?
Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is finalized in 2018. They pay $7,000 in 2017 and $7,500 in 2018 for qualified adoption expenses. In 2018,
Martha and Lew are married taxpayers with $400 of foreign tax withholding from dividends in a mutual fund. They have enough foreign income from the mutual fund to claim the full $400 as a foreign tax
The itemized deduction for state and local in taxes in 2018 is a. Total taxes less 7.5% of AGI b. Limited to no more than $10,000 c. Unlimited d. Only deductible if the taxes are
Ken paid the following amounts for interest during 2018: 3Qualified interest on home mortgage.................$4,800 Auto loan interest.................850 “Points” on the mortgage for
In 2018, Irene, an unmarried individual, pays $6,500 in qualified adoption expenses to an adoption agency for the final adoption of an eligible child who is not a child with special needs. In the
Janie graduates from high school in 2018 and enrolls in college in the fall. Her parents pay $4,000 for her tuition and fees. a. Assuming Janie’s parents have AGI of $170,000, what is the
In connection with the adoption of an eligible child who is a U.S. citizen and who is not a child with special needs, Sean pays $4,000 of qualified adoption expenses in 2017 and $3,000 of qualified
John and Joan pay $16,500 of qualified adoption expenses in 2018 to finalize the adoption of a qualified child. Their AGI is $197,000 for 2018. What is their adoption credit for 2018? a.
Taxpayer L has income of $55,000 from Norway, which imposes a 40 percent income tax, and income of $45,000 from France, which imposes a 30 percent income tax. L has additional taxable income from
Using the information in the previous question, assume that the Collins’ Form 1095-A also indicated that the total advance payment of the premium tax credit was $9,200. Calculate the excess advance
Becky, a college freshman, works part-time and pays $1,650 of her college tuition expenses. Although Becky files her own tax return, her parents claim her as a dependent on their tax return.
Susan and Stan Collins live in Iowa, are married and have two children ages 6 and 10. In 2018, Susan’s income is $38,290 and Stan’s is $12,000 and both are self-employed. They also have $500 in
Joan, a single mother, has AGI of $81,500 in 2018. In September 2018, she pays $5,000 in qualified tuition for her dependent son who just started at Big University. What is Joan’s American
Susan is a single taxpayer, 26 years of age, with AGI of $28,000 and no tax-exempt income. She did not have minimum essential coverage for 8 months in 2018. Compute Susan’s individual shared
John, a single father, has AGI of $51,000 in 2018. During the year, he pays $4,000 in qualified tuition for his dependent son, who just started attending Small University. What is John’s American
Which of the following is not considered a deductible medical expense? a. Dental workb. Prescription eyeglasses. c. Acupuncture. d. Toothbrush.
In November 2018, Simon pays $6,200 to take a course to improve his job skills to qualify for a new position at work. Simon’s employer reimbursed him for the cost of the course. For 2018, Simon’s
In September 2018, Sam pays $2,200 to take a course to improve his job skills to qualify for a new position at work. Assuming there is no phase-out of the credit, his lifetime learning credit for
Jane graduates from high school in June 2018. In the fall, she enrolls for twelve units at Big State University. Big State University considers students who take twelve or more units to be full-time.
Go to the IRS website (www.irs.gov) and redo Problem 10 above using the most recent interactive Form 2441, Child and Dependent Care Expenses. Print out the completed Form 2441.Data in Problem
Mary paid $2,000 of state income taxes in 2018. The total sales tax she paid during 2018 was $4,500, which included $3,000 for the cost of a new car. How should Mary treat the taxes paid on her 2018
Clarita is a single taxpayer with two dependent children, ages 10 and 12. Clarita pays $3,000 in qualified child care expenses during the year. If her adjusted gross income (all from wages) for the
Wilma had $3,100 in state income taxes withheld from her paychecks during 2018. In April of 2018, Wilma paid the $50 due for her 2017 state tax return. Wilma’s total tax liability on her state tax
For purposes of determining shared responsibility, household AGI is a. AGI for the taxpayer and spouse. b. AGI for the taxpayer, spouse and any other household members required to file a
Calculate the amount of the child and dependent care credit allowed for 2018 in each of the following cases, assuming the taxpayers had no income other than the stated amountsa. William and Carla
Taxpayers without minimum essential coverage for part of the year that are not eligible for an exemption musta. Purchase double health insurance for the following tax year.b. Buy a catastrophic
Taxpayers with minimum essential coverage for the entire year for all members of their household will.a. Pay any unpaid health care insurance premiums with their tax return.b. Check a box indicating
Margaret and David Simmons are married and file a joint income tax return. They have two dependent children, Margo, 5 years old (Social Security number 316-31-4890), and Daniel, who was born during
Which of the following is deductible as interest on Schedule A? a. Loan fees that are not “points” b. Fees for having a new home inspected prior to purchase.c. Interest on a loan for a
Janet and James purchased their personal residence 15 years ago for $300,000. For the current year, they have an $80,000 first mortgage on their home, on which they paid $5,750 in interest. They also
Which of the following is not an acceptable cause for claiming an exemption from minimum essential coverage? a. Religious opposition. b. Income below the filing status threshold to
Diane is a single taxpayer who qualifies for the earned income credit. Diane has two qualifying children who are 3 and 5 years old. During 2018, Diane’s wages are $18,300 and she receives dividend
James did not have minimum essential coverage for any part of 2018. If James is single and has 2018 adjusted gross income of $41,000, what is his individual shared responsibility payment? a.
Assuming they all meet the income requirements, which of the following taxpayers qualify for the earned income credit in 2018? a. A married taxpayer who files a separate tax return and has a
A. Steve Jackson (birthdate December 13, 1965) is a single taxpayer living at 3215 Pacific Dr., Apt. B, Pacific Beach, CA 92109. His Social Security number is 465-88-9415. In 2018, Steve’s

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