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Assets
Income & Gains
Deductions
Principles
Hodgepodge
100
How does the Code define a capital asset?
What is The Code does not define what a capital asset is, only what it is not.
100
Josh sold a piece of business equipment that had an adjusted basis to him of $50,000. In return for the equipment, Josh received $90,000 cash and a painting with a fair market value of $20,000 from the buyer. The buyer also assumed Josh's $25,000 loan on the equipment. Josh paid $5,000 in selling expenses. What is the amount of Josh's gain on the sale?
What is $80,000 Amount realized of $135,000 ($90,000 cash + $20,000 art + $25,000 loan assumption) minus $50,000 adj. basis and $5,000 selling expense = $80,000.
100
Al and Amy file a joint return for the 2007 tax year. Their adjusted gross income is $80,000. They had net investment income of $9,000. In 2007, they had the following interest expenses: Personal credit card interest $4,000 Home mortgage interest $8,000 Investment interest (on loans used to buy stocks) $10,000 What is the interest deduction for Al and Amy for the 2007 tax year?
What is Investment interest is deducted to the extent of net investment income ($8,000) IRC sec. 163(d). Personal interest is not deductible. Therefore: $8,000 mortgage interest + $9,000 investment interest = $17,000. $1,000 of the $10,000 investment interest expense is carried forward.
100
Under the cash method of tax accounting, tax deductions are generally taken when:
What is when the payment is made
100
Jane purchased an annuity contract that pays her $800 per month. The annuity cost her $40,000 and it has an expected return of $100,000. How much of each monthly annuity payment is includible in Jane's gross income?
What is $480 Exclusion ratio = 40,000 / 100,000 = 40%. Therefore, 60% of each annuity payment is included in gross income. $800 x .60 = $480.
200
What is "boot" and how is it treated in like-kind exchanges?
What is When property that is not like-kind (i.e., cash or other property, known as boot'') is received, then any realized gain is recognized to the extent of the boot received. If there is a realized loss in a boot received situation, such loss will not be recognized.
200
Ben's property, which has an adjusted basis of $85,000, is condemned by the state government. The authorities replace his property with other qualified property which cost them $120,000. What is Ben's recognized gain?
What is $0 No gain is recognized when condemned property is replaced with other property.
200
Charitable contribution deductions for cash donations made by individuals to public charities are limited to:
What is 50% of AGI
200
A taxpayer may litigate a tax dispute without first paying the tax in the:
What is U.S. Tax Court
200
Explain the Constructive Receipt Doctrine.
What is Generally, any compensation granted to an individual to which the individual has an absolute right is regarded as constructively received income. The taxpayer must include in current income any amounts of compensation which the taxpayer has refused to accept. A distinctive feature of the constructive receipt doctrine is that it affects only cash basis taxpayers, since they are deemed to have received income prior to the time of actual receipt. Because the accrual basis taxpayer is assumed to have recognized income at the moment it is earned, there is no need to apply the constructive receipt doctrine
300
Pam owns a sole proprietorship and Kevin is the sole shareholder of a C (regular) corporation. Each business sustained a $16,000 operating loss and a $2,500 capital loss for the year. Evaluate how these losses will affect the taxable income of the two owners?
What is compare the advantages and disadvantages of both types of entities. For example, Losses of sole proprietorships are passed through to their owners, but losses (operating or capital) of regular corporations are not.
300
For federal tax purposes, royalty income not derived in the ordinary course of a business is classified as
What is portfolio income
300
The following taxes were paid by Tim: Real estate taxes on his home: $2,000 State income taxes: $900 State gasoline tax (personal use of automobile): $150 In itemizing his deductions, what is the amount that Tim may claim as a deduction for taxes?
What is $2,900
300
Which of the following constitutes tax evasion?
What is Failing to disclose a tax liability from a completed transaction.
300
Economic Benefit Doctrine.
What is Any amount of compensation granted or paid to the individual for services rendered, be it cash, bonus, profit sharing, compensation in kind, or any other ingenious method of payment, must be included in gross income. Gross income is defined under the broad language of Code sec. 61(a) of the Internal Revenue Code as all income from whatever source derived. Thus, taxable income may consist of cash, receivables, property, land, or any other form of economic benefit. The economic benefit doctrine addresses the what, and the constructive receipt doctrine addresses the "when.
400
Ken sold a piece of business equipment that had an adjusted basis to him of $60,000 for $85,000 cash plus artwork that had a fair market value of $20,000. The buyer assumed Ken's $15,000 loan on the equipment. Ken paid $6,000 in selling expenses. What is Ken's realized gain and what is his adjusted basis.
What is Amount realized is $120,000 ($85,000 cash + $20,000 art + $15,000 loan assumption) minus $60,000 adj. basis and $6,000 selling expense = $54,000. b. Adjusted basis is determined as follows: Cost (or other adjusted basis) on date of acquisition + capital additions capital recoveries = adjusted basis.
400
Which of the following items is not subject to federal income tax? (1) Life Insurance Proceeds (2) Interest on U.S. Treasury Bonds (3) Gambling Winnings (4) Interest on Loans made in the ordinary course of business
What is Life Insurance Proceeds
400
Sean, a calendar year taxpayer, purchased stock on June 18, 2006, for $7,000. The stock became worthless on June 4, 2007. What is Sean's loss in 2007?
What is $7,000 Long Term Capital Loss The holding period for worthless stock is extended to the last day of the taxable year in which the securities became worthless.
400
Section 197 intangible assets, such as patents and trademarks, are amortized for tax purposes over how many years?
What is 15
400
What role does the Internal Revenue Service play in interpreting, and providing guidance on, the tax law? What types of tax law guidance are published by the IRS?
What is The IRS issues Revenue Rulings, Revenue Procedures, and Technical Information Releases as administrative interpretations of the law. Additionally, the IRS issues Private Letter Rulings, Technical Advice Memoranda, and Determination Letters.
500
Other items to know:
What is How reasonable compensation applies to S-corporations.
500
Sam owes Bob $8,000. Bob cancels (forgives) the debt. The cancellation is not a gift and Sam is neither insolvent nor bankrupt. What are the results of this transaction to Bob? to Sam?
What is Sam recognizes $8,000 of taxable income. When a taxpayer's debt is forgiven (outside of bankruptcy), he recognizes income equal to the amount forgiven.
500
A business bad debt is deductible for tax purposes as a(n):
What is as an ordinary business deduction.
500
Assignment of Income Doctrine (AID) and the "fruit-of-the-tree" doctrine.
What is The taxpayer may not assign income to another, whether compensation, interest, rents, dividends, or any other form of income. Even if the right to the taxpayer's income has been assigned to and is in possession of another, it must be attributed and be included in the gross income of the taxpayer, not in the income of the assignee. Include Lucas vs. Earl
500
Jake, a single individual with a salary of $40,000, paid the following expenses during the year: Alimony: $8,000 Charitable contributions: $2,000 Casualty loss (after $100 floor): $1,000 Mortgage interest on personal residence: $3,000 Moving expenses: $1,500 Student loan interest: $1,000 Contribution to a traditional IRA: $2,000 Analyze the above expenses and determine which ones are deductible for AGI. Please support your position.
What is Only the following expenses are deductible for AGI: alimony, moving expenses, student loan interest, and contribution to traditional IRA. The other expenses, after applying any statutory floors, are deductions from AGI.