True/False. T-1, a lawyer, drafts a will for T-2, in exchange for which T-2 (also a lawyer) drafts a will for T-1. T-1's services are worth $10,000, and T-2's services are worth $10,000. Both T-1 and T-2 must recognize $10,000 as income for federal income tax purposes. True/False. T buys a classic car for $30,000 in Year 1. In Year 5, while detailing the car for a classic car show, he discovers $10,000 in cash hidden away in the trunk. T will not be required to recognize the $10,000 as income because he has not yet fully recovered his investment in the car. True/False. For federal income tax purposes, T deducts $5,000 of state income taxes withheld from his wages in Year 1, thereby reducing his federal income tax liability for
True/False. T-1, a lawyer, drafts a will for T-2, in exchange for which T-2 (also a
lawyer) drafts a will for T-1. T-1's services are worth $10,000, and T-2's services are
worth $10,000. Both T-1 and T-2 must recognize $10,000 as income for federal income
tax purposes.
True/False. T buys a classic car for $30,000 in Year 1. In Year 5, while detailing the car
for a classic car show, he discovers $10,000 in cash hidden away in the trunk. T will
not be required to recognize the $10,000 as income because he has not yet fully
recovered his investment in the car.
True/False. For federal income tax purposes, T deducts $5,000 of state income taxes
withheld from his wages in Year 1, thereby reducing his federal income tax liability for
that year. T receives a $1,000 refund of those taxes in Year 2 when he files his state
income tax return for Year 1 (because his employer withheld too much in Year 1). T
will be required to include the refund as an item of income for federal income tax
purposes in Year 2 under the tax benefit theory.
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