South-western Federal Taxation 2018: Individual Income Taxes
41st Edition
ISBN: 9781337385886
Author: William H. Hoffman, James C. Young, William A. Raabe, David M. Maloney, Annette Nellen
Publisher: Cengage Learning
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Question
Chapter 3, Problem 1DQ
To determine
Explain the possible consequence on income tax due to the given transactions.
Expert Solution & Answer
Explanation of Solution
Income tax: Income tax is a tax levied on an individual’s income (taxable income). It is a direct tax which means it is levied on and paid by the same individual. It is a progressive tax which means the tax rates will change according to the changes in the level of income.
Possible consequence on income tax:
- a. Gambling losses are deductible to the gambling gain but only to some extent.
- b. Only the expenses for a dependent have an exception and there is no deduction for the payment of some other persons.
- c. Refund of income tax is not income because it is an adjustment transaction to the previous expenditure.
- d. There is no deduction for the payment of fines and penalties even it occurred due to personal or business activities.
- e. There is no deduction for the political contribution even it provide benefit to Mr. A.
- f. Borrowing money from bank or other person is not an income for individual or for the company.
- g. Profit or loss earned by selling the personal use assets does not balance each other. If there is profit, then it is a taxable income and if it is loss, there is no deduction.
- h. Funeral expenses cannot be claimed as deductions.
- i. Premium paid for life insurance policy is also not deductible even it is paid for a dependent.
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Students have asked these similar questions
Strong Arm Steve, a cash basis calendar year taxpayer, runs an illegal protection
business. Basically, small businesses in his neighborhood pay him money to gain
protection from theft. During the current year, a bill, H.R. 55, is introduced into
the state legislature which, if enacted, would legalize his protection racket.
Strong Arm Steve had the following expenses for the year:
Operating expenses in conducting his business
Payoffs to the cops to allow him to bully small businesses
Newspaper ads supporting H.R. 55, no mention of his business in
the ad.
Political contributions to legislators who support H.R. 55
Of these expenditures, Strong Arm teve may deduct:
O $100,000.
O $120,000.
$125,000.
O $135,000.
$100,000
20,000
5,000
10,000
Peter Marwick, an accountant and accrual basis taxpayer, performed accounting services in Year One for Ellie Vader. Peter gave Ellie a bill for $30,000 in Year One. Ellie paid Peter $5,000 in Year One, but Ellie disputes that she owes the other $25,000 because she thinks his work is shoddy. Ellie agreed to put $25,000 in escrow until she and Peter could resolve their legal dispute over Peter's fees. In Year Three after litigation, the dispute is resolved in Peter's favor and he gets the money out of escrow. How much income does Peter have and when?
Question 9 options:
Peter has $30,000 income in Year 1 because he is on the accrual method.
Peter has no income in Year 1 because there is a contested liability.
Ellie has $25,000 in cancellation of indebtedness income in Year 1.
Peter has $5,000 income in Year 1 and $25,000 in Year 3 under the Claim of Right Doctrine.
Dog
Chapter 3 Solutions
South-western Federal Taxation 2018: Individual Income Taxes
Ch. 3 - Prob. 1DQCh. 3 - Which of the following items are inclusions in...Ch. 3 - Which of the following items are exclusions from...Ch. 3 - Prob. 4DQCh. 3 - In choosing between taking the standard deduction...Ch. 3 - Prob. 6DQCh. 3 - Prob. 7DQCh. 3 - Prob. 8DQCh. 3 - Prob. 9DQCh. 3 - Prob. 10DQ
Ch. 3 - Prob. 11DQCh. 3 - Prob. 12DQCh. 3 - Prob. 13DQCh. 3 - Prob. 14DQCh. 3 - Prob. 15DQCh. 3 - Prob. 16DQCh. 3 - Prob. 17DQCh. 3 - Prob. 18DQCh. 3 - During the year, Brandi had the following...Ch. 3 - Prob. 20CECh. 3 - Prob. 21CECh. 3 - Prob. 22CECh. 3 - Prob. 23CECh. 3 - Prob. 24CECh. 3 - Prob. 25CECh. 3 - During the year, Tamara had capital transactions...Ch. 3 - Prob. 27PCh. 3 - Prob. 28PCh. 3 - Prob. 29PCh. 3 - Prob. 30PCh. 3 - Analyze each of the characteristics in considering...Ch. 3 - Prob. 32PCh. 3 - Prob. 33PCh. 3 - Prob. 34PCh. 3 - Prob. 35PCh. 3 - Prob. 36PCh. 3 - Prob. 37PCh. 3 - Prob. 38PCh. 3 - Prob. 39PCh. 3 - Prob. 40PCh. 3 - Prob. 41PCh. 3 - Prob. 42PCh. 3 - Prob. 43PCh. 3 - Prob. 44PCh. 3 - Prob. 45PCh. 3 - Prob. 46PCh. 3 - Prob. 47PCh. 3 - Prob. 48PCh. 3 - Prob. 49PCh. 3 - Prob. 50PCh. 3 - Prob. 51CPCh. 3 - Prob. 52CPCh. 3 - Prob. 1RPCh. 3 - Prob. 2RPCh. 3 - Prob. 4RPCh. 3 - Prob. 1CPACh. 3 - Jane is 20 years old and is a sophomore at Lake...Ch. 3 - Prob. 3CPA
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