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taxation of individuals

Questions and Answers of Taxation of Individuals

Compare and contrast how bad debt expense is determined for financial accounting purposes and how the deduction for bad debts is determined for accrual-method taxpayers. How do cash-method taxpayers
On December 31 of the current year, a taxpayer prepays an advertising company to provide advertising services for the next 10 months. Using the 12-month rule and the economic performance rules,
Describe when economic performance occurs for the following expenses:Worker’s compensation Rebates and refunds Insurance, warranties, and service contracts provided to the business Taxes
Compare and contrast when taxpayers are allowed to deduct amounts for warranties provided by others to the taxpayer and when taxpayers are allowed to deduct expenses associated with warranties they
Compare and contrast the tests for accruing income and those for accruing deductions for tax purposes.
Compare and contrast financial accounting rules with the tax rules under UNICAP (§263A). Explain whether the UNICAP rules tend to accelerate or defer income relative to the financial accounting
Explain why Congress enacted the UNICAP rules and describe the burdens these rules place on taxpayers.
Jack operates a plumbing business as a sole proprietorship on the cash method.Besides providing plumbing services, Jack also sells plumbing supplies to homeowners and other plumbers. The sales of
Compare and contrast the rules for determining the tax treatment of advance payments for services versus advance payments for goods.
Compare and contrast the tax treatment for rental income received in advance and advance payments for services.
Describe the all-events test for determining income and describe how to determine the date on which the all-events test has been met.
Fred is considering using the accrual method for his next business venture.Explain to Fred the conditions for recognizing income for tax purposes under the accrual method.
Why is it not surprising that specific rules differ between tax accounting and financial accounting?
Explain why Congress sometimes mandates that businesses use particular accounting methods while other times Congress is content to require businesses to use the same accounting methods for tax
Describe the 12-month rule for determining whether and to what extent businesses should capitalize or immediately deduct prepaid expenses such as insurance or security contracts. Explain the apparent
Explain when an expenditure should be “capitalized” rather than expensed based upon accounting principles. From time to time, it is suggested that all business expenditures should be expensed for
How does an entity choose its tax year? Is it the same process no matter the type of tax year-end the taxpayer adopts?
Why does the law generally require partnerships to adopt a tax year consistent with the year used by the partners?
Compare and contrast the different year-ends available to sole proprietorships, flow-through entities, and C corporations.
Explain why a taxpayer might choose one tax year over another if given a choice.
What is the difference between a full tax year and a short tax year? Describe circumstances in which a business may have a short tax year.
How do casualty loss deductions differ when a business asset is completely destroyed as opposed to the destruction of a personal-use asset?
Explain the difference between calculating a loss deduction for a business asset that was partially damaged in an accident and a loss deduction for a business asset that was stolen or completely
Describe the limits placed on the domestic production activities deduction, and explain the apparent reason for each limitation.
Describe the calculation of the domestic production activities deduction.
Explain why the domestic production activities deduction is sometimes described as an “artificial” expense and the apparent rationale for this deduction.How might a business begin to determine
Describe the record-keeping requirements for business deductions expenses including mixed-motive expenditures.
Clyde lives and operates a sole proprietorship in Dallas, Texas. This year Clyde found it necessary to travel to Fort Worth (about 25 miles away) for legitimate business reasons. Is Clyde’s trip
What expenses are deductible when a taxpayer combines both business and personal activities on a trip? How do the rules for international travel differ from the rules for domestic travel?
Jenny uses her car for both business and personal purposes. She purchased the auto this year and drove 11,000 miles on business trips and 9,000 miles for personal transportation. Describe how Jenny
Tim employs three sales representatives who often take clients to dinner and provide entertainment in order to increase sales. This year Tim reimbursed the representatives $2,500 for the cost of
Jimmy is a sole proprietor of a small dry-cleaning business. This month Jimmy paid for his groceries by writing checks from the checking account dedicated to the dry-cleaning business. Why do you
Jerry is a self-employed rock star and this year he expended $1,000 on special“flashy” clothes and outfits. Jerry would like to deduct the cost of these clothes as work-related because the
Provide an example of an expense associated with the production of tax-exempt income, and explain what might happen if Congress repealed the prohibition against deducting expenses incurred to produce
What kinds of deductions are prohibited as a matter of public policy? Why might Congress deem it important to disallow deductions for expenditures against public policy?
Jake is a professional dog trainer who purchases and trains dogs for use by law enforcement agencies. Last year Jake purchased 500 bags of dog food from a large pet food company at an average cost of
Tom is an attorney who often represents individuals injured while working(worker liability claims). This year Tom spent $50 on a book entitled Plumbing for Dummies and paid $500 to take a course on
Is cost of goods sold deductible as a business expense for a business selling inventory?Explain.
What is an “ordinary and necessary” business expenditure?
John and Sandy Ferguson got married eight years ago and have a seven-yearold daughter Samantha. In 2016, John worked as a computer technician at a local university earning a salary of $52,000, and
Reba Dixon is a fifth-grade schoolteacher who earned a salary of $38,000 in 2016. She is 45 years old and has been divorced for four years. She received$1,200 of alimony payments each month from her
Matt and Carrie are married, have two children, and file a joint return. Their daughter Katie is 19 years old and was a full-time student at State University.During 2016, she completed her freshman
In 2016, Jack and Diane Heart are married with two children, ages 10 and 12.Jack works full-time and earns an annual salary of $80,000, while Diane works as a substitute teacher and earns
Determine the amount of the late filing and late payment penalties that apply for the following taxpayers.a) Jolene filed her tax return by its original due date but did not pay the $2,000 in taxes
For the following taxpayers, determine the due date of their tax returns.a) Jerome, a single taxpayer, is not requesting an extension this year. Assume the due date falls on a Tuesday.b) Lashaunda, a
For the following taxpayers, determine if they are required to file a tax return in 2016.a) Ricko, single taxpayer, with gross income of $12,000.b) Fantasia, head of household, with gross income of
This year, Santhosh, a single taxpayer, estimates that his tax liability will be$100,000. Last year, his total tax liability was $15,000. He estimates that his tax withholding from his employer will
This year, Paula and Simon (married filing jointly) estimate that their tax liability will be $200,000. Last year, their total tax liability was $170,000.They estimate that their tax withholding from
This year Lloyd, a single taxpayer, estimates that his tax liability will be$10,000. Last year, his total tax liability was $15,000. He estimates that his tax withholding from his employer will be
This year Luke has calculated his gross tax liability at $1,800. Luke is entitled to a $2,400 nonrefundable personal tax credit, a $1,500 business tax credit, and a $600 refundable personal tax
In 2016, Zach is single with no dependents. He is not claimed as a dependent on another’s return. All of his income is from salary and he does not have any for AGI deductions. What is his earned
In 2016, Amanda and Jaxon Stuart have a daughter who is one year old. The Stuarts are full-time students and they are both 23 years old. Their only sources of income are gains from stock they held
In 2016, Laureen is currently single. She paid $2,800 of qualified tuition and related expenses for each of her twin daughters Sheri and Meri to attend State University as freshmen ($2,800 each for a
In 2016, Elaine paid $2,800 of tuition and $600 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. What is the
Julie paid a day care center to watch her two-year-old son while she worked as a computer programmer for a local start-up company. What amount of child and dependent care credit can Julie claim in
Trey claims a dependency exemption for both of his daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. What amount of child credit will Trey be able to claim for his
Terry Hutchison worked as a self-employed lawyer until two years ago when he retired.He used the cash method of accounting in his business for tax purposes.Five years ago, Terry represented his
Eva received $60,000 in compensation payments from JAZZ Corp. during 2016.Eva incurred $5,000 in business expenses relating to her work for JAZZ Corp.JAZZ did not reimburse Eva for any of these
Kyle worked as a free-lance software engineer for the first three months of 2016. During that time, he earned $44,000 of self-employment income. On April 1, 2016, Kyle took a job as a full-time
Alice is self-employed in 2016. Her net business profit on her Schedule C for the year is $140,000. What is her self-employment tax liability for 2016?
Rasheed works for Company A, earning $350,000 in salary during 2016.Assuming he has no other sources of income, what amount of FICA tax will Rasheed pay for the year?
Brooke works for Company A for all of 2016, earning a salary of $50,000.a) What is her FICA tax obligation for the year?b) Assume Brooke works for Company A for half of 2016, earning $50,000 in
In 2016, Deon and NeNe are married filing jointly. They have three dependent children under 18 years of age. Deon and NeNe’s AGI is $811,300, their taxable income is $720,250, and they itemize
In 2016, Janet and Ray are married filing jointly. They have five dependent children under 18 years of age. Janet and Ray’s taxable income is $140,000, and they itemize their deductions as follows:
Steve’s tentative minimum tax (TMT) for 2016 is $15,000. What is his AMT ifa) His regular tax is $10,000?b) His regular tax is $20,000?
In 2016, Juanita is married and files a joint tax return with her husband.What is her tentative minimum tax in each of the following alternative circumstances?a) Her AMT base is $100,000, all
Corbett’s AMTI is $130,000. What is his AMT exemption under the following alternative circumstances?a) He is married and files a joint return.b) He is married and files a separate return.c) His
Olga is married and files a joint tax return with her husband. What amount of AMT exemption may she deduct under each of the following alternative circumstances?a) Her AMTI is $90,000.b) Her AMTI is
In 2016, Sven is single and has $120,000 of regular taxable income. He itemizes his deductions as follows: real property tax of $2,000, state income tax of$4,000, mortgage interest expense of $15,000
In 2016, Nadia has $100,000 of regular taxable income. She itemizes her deductions as follows: real property taxes of $1,500, state income taxes of $2,000, and mortgage interest expense of $10,000
Sylvester files as a single taxpayer during 2016 and claims one personal exemption.He itemizes deductions for regular tax purposes. He paid charitable contributions of $7,000, real estate taxes of
In 2016, Carson is claimed as a dependent on his parent’s tax return. His parents’ordinary income marginal tax rate is 28 percent. Carson’s parents provided most of his support. What is
In 2016, Sheryl is claimed as a dependent on her parents’ tax return. Her parents’ordinary income marginal tax rate is 35 percent. Sheryl did not provide more than half her own support. What is
Henrich is a single taxpayer. In 2016, his taxable income is $425,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios?a) All of his
Lacy is a single taxpayer. In 2016, her taxable income is $40,000. What is her tax liability in each of the following alternative situations?a) All of her income is salary from her employer.b) Her
In 2016, Jasmine and Thomas, a married couple, have taxable income of$150,000. If they were to file separate tax returns, Jasmine would have reported taxable income of $140,000 and Thomas would have
In 2016, Lisa and Fred, a married couple, have taxable income of $300,000. If they were to file separate tax returns, Lisa would have reported taxable income of $125,000 and Fred would have reported
Whitney received $75,000 of taxable income in 2016. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations?a) She files under
Describe the consequences for failing to file a tax return and for paying tax owed late.
What is the due date for individual tax returns? What extensions are available?
What determines if a taxpayer is required to file a tax return? If a taxpayer is not required to file a tax return, does this mean that the taxpayer should not file a tax return?
Describe how the underpayment penalty is calculated.
What are the consequences of a taxpayer underpaying his or her tax liability throughout the year? Explain the safe-harbor provisions that may apply in this situation.
Describe the two methods that taxpayers use to prepay their taxes.
Describe the order in which different types of tax credits are applied to reduce a taxpayer’s tax liability.
When a U.S. taxpayer pays income taxes to a foreign government, what options does the taxpayer have when determining how to treat the expenditure on her U.S. individual income tax return?
Is the foreign tax credit a personal credit or a business credit? Explain.
How are business credits similar to personal credits? How are they dissimilar?
Under what circumstances can a college student qualify for the earned income credit?
Why is the earned income credit referred to as a negative income tax?
Jennie’s grandfather paid her tuition this fall to State University (an eligible educational institution). Jennie is claimed as a dependent by her parents, but she also files her own tax return.
Compare and contrast the lifetime learning credit with the American opportunity credit.
The amount of the child and dependent care credit is based on the amount of the taxpayer’s expenditures to provide care for one or more qualifying persons.Who is considered to be a qualifying
Diane has a job working three-quarter time. She hired her mother to take care of her two small children so Diane could work. Do Diane’s child care payments to her mother qualify for the child and
Is the child tax credit a refundable or nonrefundable credit? Explain.
What is the difference between a refundable and nonrefundable tax credit?
Explain why there is such a large number and variety of tax credits.
What are the three types of tax credits, and explain why it is important to distinguish between the different types of tax credits.
How are tax credits and tax deductions similar? How are they dissimilar?
Mike wanted to work for a CPA firm but he also wanted to work on his father’s farm in Montana. Because the CPA firm wanted Mike to be happy, they offered to let him work for them as an independent

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