1) In the current tax year, Gunther earned $125,000 from his job as a civil engineer. In addition, he received $30,000 of income from Activity A, and lost $40,000, and 20,000 from Activities B and C respectively. Activities A, B, and C are passive activities that Gunther acquired in the current year. What amount of loss may Gunther deduct on his current year taxes with respect to each activity? What amount of loss, if any, must be carried over to the subsequent year for each activity?
2) During the current year, Beth and Bill, who file a joint return, incurred the following items of income and loss:
Salary $ 130,000
Activity A (passive) 10,000
Activity B (rental real estate/nontrade or business) (30,000)
Activity C (rental real estate/nontrade or business) (20,000)
Beth and Bill actively participate in activities B and C, and they own 100% of each rental property.
a) What is their AGI for the year?
b) What is the amount of suspended losses, if any, that may be carried over with respect to each activity?
3) In the current tax year, Neil’s personal automobile was totaled in a traffic accident. Neil had purchased the automobile two years earlier for $28,000. The FMV of the automobile just prior to the accident was $18,000. The automobile is now worthless. Neil received a $14,000 insurance check in settlement of his accident claim. Later that same year, a thief broke into Neil’s home and took several antiques purchased several years ago for $8,000. Their current FMV at the date of the theft was $12,000. The antiques were not insured. Neil’s AGI for the current year is $60,000. What is the amount of Neil’s deductible casualty loss in the current year?
4) In 2014, Sarah loans Seymour $5,000 for his use in establishing his business. As Seymour has no other assets and needs cash to establish the business, the loan agreement provides that Seymour will repay the $5,000 debt to Sarah with interest at the prevailing rate over a five-year period. Seymour’s business is unsuccessful, and he files for bankruptcy in 2015. By the end of 2015, it is estimated that Seymour’s creditors will receive only 20% of the amount they are owed. In 2016, the bankruptcy proceedings are closed, and the creditors receive 10% of the
amount due on Seymour’s debt obligations. What is Sarah’s bad debt deduction for 2015? 2016? How is Sarah’s bad debt deduction, if any, characterized?
5) During 2016, Kiran, a single taxpayer, reported the following income and expense items relating to her interior design business:
Cost of Goods Sold 41,000
Office supplies 1,700
Contract labor 28,000
Kiran also worked part-time during the year, earning $13,500. She reports a long-term capital gain of $4,200, and a short-term capital loss of $3,800. Her itemized deductions total $5,200.
a) What is Kiran’s taxable income or loss for the year?
b) What is Kiran’s NOL for the year?
6) Brandy is a self-employed consultant who solicits business from numerous clients and receives consulting fees as income. During the current year, Brandy incurred the following expenditures:
Airfare & lodging while away overnight on business $ 4,000
Business meals while traveling at which business was discussed 1,000
Local business transportation costs for automobile, parking & tolls 2,000
Commuting expenses 1,000
Local entertainment of clients 2,000
Total $ 10,000
a) Which of the expenditures listed above, if any, are deductible by Brandy?
b) Which of the above items are classified as For AGI and From AGI deductions?
c) How would your answers to parts (a) and (b) change if Brandy were an employee rather than self-employed and none of the above expenditures were reimbursed by her employer?
7) On February 20, 2016, Charles, who is single and age 32, establishes a traditional deductible IRA and contributes $5,500 to the account. Charles’ AGI is $66,000 in 2015 and
$57,000 in 2016. Charles is an active participant in his employer’s retirement plan.
a) What amount of the contribution is deductible? In what year is it deductible?
b) Is the deduction For AGI or From AGI?
c) How would your answer to part (a) change, if at all, if Charles were not an active participant in his employer’s retirement plan?
d) How would your answer to part (a) change if Charles were married and filed a joint return with his spouse, who has no earned income, assuming their combined AGI is
$85,000? What would be their maximum IRA contribution deduction?
8) Joe and Jean have five grandchildren, ages 19, 16, 15, 12, and 10. The have established Coverdell Education Savings Accounts (CESA) for each of the grandchildren and would like to contribute the maximum amount allowable to each CESA for the 2016 tax year. Joe and Jean’s AGI for 2016 is $196,000.
(a) How much can Joe and Jean contribute to each grandchild’s CESA in 2016?
(b) Assume that the 19-year-old granddaughter is a freshman in college and makes a withdrawal of $7,000 from her CESA during 2016. Her college expenses for 2016 were as follows:
Room & board 2,500
Books & supplies 500
The extra amount withdrawn was used as a down payment on an automobile that the granddaughter purchased during the year. She needed the automobile to drive to school rather than to ride the bus. What are the tax consequences of the $7,000 distribution to
9) Roger is a cash basis self-employed air-conditioning repairman with current year gross business receipts of $20,000. Roger’s cash disbursements were as follows:
Air conditioning parts $ 2,500 Yellow Pages listing 2,000
Estimated federal income taxes on self-employment income 1,000 Business long-distance telephone calls 400
Charitable contributions 200
What amount should Roger report as net profit or loss on Schedule C of his 2014 Form 1040? a. $15,100
b. $14,900 c. $14,100 d. $13,900
10) Robert Corp. granted an incentive stock option for 200 shares to Beverly, an employee, on March 14, Year 12. The option price and FMV on the date of grant was $150. Beverly exercised the option on August 2, Year 14, when the FMV was $180 per share. She sold the stock on September 20, Year 15, for $250 per share. How much gross income did Beverly recognize in Year 12?