Chapter 8 - Homework

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Saint Mary's University *

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Accounting

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Apr 3, 2024

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Chapter 8 – Homework 1.) What limits are imposed on the medical expense deduction? It may only be allowed for medical expenses actually paid during the year, it must be for taxpayer, spouse, or dependent. Divorced parents may deduct whatever they specifically pay and must be more than 10% AGI or 7.5% for those over the age of 65. 4.) Harry and Mary Holmes had the following health expenses. Which expenses are deductible as medical expenses? e. cost of transportation to and from doctor. 6.) What criteria must be met for personal property taxes to qualify as an itemized deduction? The property taxes are only deductible for the person whom they were imposed, In the given year they were imposed, and only if it is nonbusiness property. 8.) Which of the following taxes are deductible for federal income tax purposes as an itemized deduction? a. Ad valorem personal property tax 12.) Briefly describe the two major categories of qualified charitable organizations for tax purposes. The two categories are public charities and private charities. Public charities are Churches and hospital, educational organizations, organizations supported by the government, private operating foundations and private non-operating foundations that distribute all their contributions to public charities. Private charities which are private non-operating foundations that do not distribute all of their contributions to public charities. 16.) What happens to any unused charitable contributions? They can be carried over for the following 5 years until they are all used. 17.) When is the taxpayer required to attach an appraisal of a charitable contribution to his or her return? The taxpayer is required to attach an appraisal of a charitable contribution to his or her tax return when cash contributions of less than $250 must be substantiated by a bank record or written acknowledge from the charity. Charitable contribution of $250 or more must be substantiate by a written acknowledge from the charity. Non-cash contributions over $500, items exceeding $5,000 with an appraisal of the property’s FMV from a qualified appraiser and for donated vehicles, boats or planes valued over $500.

18.) The deduction for a federal casualty loss is the smaller of the basis of the assets or the reduction in its fair market value, reduced by what two amounts? The deduction for a federal casualty loss is the lesser of the asset’s bases or the reduction in its fair market value, reduced by $100. (The $100 reduction is applied per event not per item damaged). So, the two amounts reduced by is the bases of the asset and the reduction in fair market value, and the third one being the $100 reduction per event. 20.) Are the expenses of being in the trade or business of wagering limited to wagering income? Yes, the expenses of being in the trade or business of wagering are limited to wagering income. This is according to the U.S. Internal Revenue Service (IRS) tax code. 21.) Does the qualified business income deduction reduce self- employment income for self-employment tax purposes? Self-employment tax cannot be lowered by claiming the QBI deduction. This is due to the QBI deduction not reducing self-employed income that is reported on Schedule SE. The QBI deduction is a subtraction to the taxable income that is reported on the 1040 form. 23.) You have a heart ailment. On the advice of your doctor, you install an elevator in your home so you will not have to climb the stairs. It cost $15,000 to install the elevators. The elevators have a 20-year life and increases the fair market value of your home by $3,000. What is the medical deduction for the elevators assuming the 7.5% floor has been met? The deduction will be $15,000 - $3,000 = $12,000 24.) In 2023 Tom and Shannon Shores, both age 40, file a joint return and paid the following? Hospital cost $3,200 Doctor’s bills $1,600 Medicine and drugs $800 Hospitalization to insurance premiums $4,000 In addition, they incurred the following medical expenses for Tom’s mother who is totally dependent upon and lives with Tom and Shannon: Cosmetic surgery (face-lift) $5,400 Doctor’s bill $2,600 Medicines and drugs $1,000

They live 10 miles from the medical center and made 20 trips there for doctor office visits and hospital stays this year. Tom and Shannon’s adjusted gross income is $85,000. What is Tome and Shannon’s medical expenses deduction? $1,600 + $800 + $4,000 + $3,200 + $2,600 + $1,000 = $13,200 AGI $85,000 * 7.5% = $6,375 $13,200 - $6,375 = $6,825 25.) Assume the same facts as in Problem 24, that the insurance company reimbursed Tom and Shannon $4,100 of their hospital and doctor’s bills. Determine the medical expense deduction. $6,825 - $4,100 = Total medical expenses of $2,725 26.) Blake sold a house to Miranda on July 1. Blake paid the entire calendar-year property taxes of $4,380 on June 1. How much will each of them be entitled to deduct for the year? Blake: 6 months (Jan-Jul) = 181 days Miranda: 6 months (365-181) = 184 days (181/365 days) = 0.49589041 (184/365 days) = 0.50410950 $4,380 * 0.49589041 = $2,172 $4,360 * 0.50410950 = $2,198 27.) Carlos Diego paid the following expenses during 2023: Property taxes on real state $5,000 State sales tax $600 Sales tax on purchase of automobile $800 License plate “tax” based on weight of vehicle $35 State income tax paid $6,000 Federal income tax paid $16,000 What is Carlo’s tax expense deduction for 2023? It would be: $6,435. Property taxes on real state $5,000 State sales tax $600 Sales tax on purchase of automobile $800 License plate “tax” based on weight of vehicle $35 29.) In 2023, Sally Morris, a single taxpayer pays $3,000 of interest on unquailed student’s loans. Her AGI is $40,000. What is her qualified student loan interest deduction in 2023? Her student loan interest deduction would be $2,500 as she is single taxpayer, and her AGI is lower than $70,000. 30.) Assume the same facts as in Problem 29, except that Sally has AGI of $80,000. What is her qualified student loan interest deduction for 2023?

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The $2,500 would be faced out since her AGI is above $70,000. 31.) The interest paid on Josephine Young’s personal residence for the year of 2023 totals $4.800; the interest paid on her personal credit card is $80; interest paid on the National Bank (3/4 of which was used to buy state and municipal bonds, the rest to buy stock) is $1,000. If she has interest income of $2,000, what is Josephine’s total interest deduction for the year? Interest Deduction = Personal residence + 1/4 of note to the National Bank $4,800 + ($1,000 * 1/4) = $4,800 + $250 = $5,050 33.) Greg Grove pays $50,000 interest in 2023 on his mortgage on his principal residence. It has an interest rate of 4% and balance of $1,250,000 during the year. He took out the mortgage in 2022. How much of this interest is deductible on Greg’s tax return for 2023? Loan interest deduction = $750,000 * 4% = $30,000 Greg can claim a deduction of $30,000. 36.) On December 1 Bernie took out of 15-year loan for $300,000. He paid 2% in “points” to get the loan, or $6,000. This is essentially prepaid interest. If the loan is used to purchase his principal residence, what is the maximum he can deduct in the current year? If the loan is used to purchase a home he will use as a rental property, what is the maximum he can deduct? If the loan is used to purchase his principal residence, Bernie can deduct the point in full in the year of payment. Maximum amount of deduction = $6,000 If the loan is used to purchase a home that he will use as rental property, Bernie can deduct points by amortizing over the life of the loan. Maximum number of deduction = $6,000 / 15 years = $400 per year / 12 months = $33 37.) Frank Freshman mailed a check for $200 on December 30, 2023, in part payment of a $350 pledge he made to State University on November 1. The University did not deposit the check until January 3, 2024. What is the amount of charitable contribution deduction allowed Frank for 2023? Frank can deduct $200. 39.) Elmore Eisner made the following contributions during 2023: Cash to united Way $5,000 Land to Boy Scouts to be used as a summer camp: Cost $20,000 Fair market value $30,000

Painting to a 20% charity for permanent display in foundation’s public gallery: Cost $5,000 Fair market value $7,000 Cash to individual needy family around town $3,000 a.) $5, 000 + $30, 000 + $7, 000= $ 42, 000. Elmore would therefore deduct $40, 000 - 50% of 80, 000= $40, 000. b.) The charitable contribution is the fair market value, $27, 000. The carryover is the contributions is the number of deductions that exceeds the 50% limit. The excess amount is carried over and can be deducted within the next 5 years. $5, 000+ $27, 000+$7, 000= $39 40.) In each of the following independent cases determine the number of charitable contributions allowed the individual before consideration of any percentage limitation. a.) Charlie Chubs contributed an item of inventory from his sole proprietorship to a public charity for its use. The fair market value of the asset was $800, and his basis was $600. The deduction for ordinary income property given to a charity limited to basis is $600. b.) Durwood Dodson contributed some shares of common stock that he had held long-term to a private charity. The basis of the stock was $8,000 and it had a fair. Th general rule is that when property is five to private charities, the fair market value is used, and the total is $7,000. c.)Esther Ensign contributed tangible personal property that she had held long-term to a public charity. The asset had a fair market value of $10,000 and abasis of $6,000. The charity intended to sell the asset and use the proceeds for charitable purposes. Since the asset is to be sold, it has unrelated use, and the fair market value must be reduced by the gain so is $6,000. 44.) Jackie has QBI of $200,000 from an S-corporation that paid her a total of $30,000 of W-2 wages and that has no qualified property. Jackie’s spouse has $60,000 of W-2 income, and Jackie and her spouse have interest income of $10,000. Thus, total taxable income is $300,000. What is the 20% QBI deduction to be taken on their joint return? The total deduction from the joint return of Jackie QBI from S corporation is $40,000.

The amount available for deduction is $200,000. QBI rate deduction = 20% To get Total QBI deduction = Amount available for deduction * rate on QBI $200,000* 20/100 = $40,000

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