Individual Income Taxes
Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 19, Problem 49P
To determine

State the time period in which the bonus is taxable to Person D and it is deductible by the employer.

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Germaine was employed during the first six months of 2021 and earned an $80,000 salary. During the next six months, he collected $7,200 of unemployment compensation. He borrowed $6,000 (using his personal residence as collateral) and withdrew $1,000 from his savings account (on which he had earned $60 interest). Germaine’s parents loaned him $8,000 (interest-free) on July 1 of the current year, when the federal rate was 3%. Germaine did not repay the loan during the year and used the money for living expenses. Please calculate Germaine’s adjusted gross income for the year.
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During the summer of 2019, college student Jason worked for his uncle, a painting contractor, for two weeks, and was paid $1,600 cash for his help painting a house for one of his uncle’s customers. At the end of 2019, his uncle filed a Form 1099MISC indicating he had paid non-employee compensation of $1,600 to Jason (copies of the form were sent to Jason and the IRS). When it came time to file his 2019 income tax return, the tax software indicated he had to pay self-employment tax (in addition to income tax) on the $1,600 payment received from his uncle. You did some research online and found one primary authority (only one), a Tax Court case (John A. and Mary L. Batok vs. Commissioner) that seemed to indicate a one-time job was not considered regular or continuous and thus did not rise to the level of a trade or business subject to self-employment tax. Contacting the IRS to ask how to handle this issue is not an option. Should Jason pay self-employment tax on the $1,600? Is there a…
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