In each of the following problems, identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
Binh met Anika 10 years ago at a cocktail party. Anika was a wealthy investor with extensive holdings in the oil and gas industry. Binh was a real estate agent earning about $35,000 a year. Several months later, Binh proposed marriage and Anika accepted. Just before the wedding, Anika told Binh that she had a “mental hangup” about marriage, and Binh agreed to live with her without being married. In return, Anika promised to leave Binh her entire estate. In the ensuing years, they had an intimate, marriage-like relationship, attending social, business, and family functions together. Anika died in 2015. No will was found immediately. A few months after Anika’s death, her sister found a one-page paper signed by Anika. The paper left Anika’s entire estate to her brothers and sisters and named her sister as executor of the estate. Binh sued Anika’s estate and won a judgment of $2 million for services rendered to Anika during their relationship. The estate appealed the decision, which was affirmed as to liability but reversed and remanded for a new trial on the amount of the judgment. Binh and the estate subsequently worked out an agreement in which the estate paid Binh $1.2 million to settle his claim.
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Chapter 4 Solutions
CONCEPTS IN FED.TAX.,2020-W/ACCESS
- In each of the following problems, identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify. Thans grandmother dies and leaves him jewelry worth 40,000. In addition, he is the beneficiary of a 100,000 life insurance policy that his grandmother had bought before she retired.arrow_forwardMartha is a self-employed tax accountant who drives her car to visit clients on a regular basis. She drives her car 4,000 miles for business and 10,000 for commuting and other personal use. Assuming Martha uses the standard mileage method, how much is her auto expense for the year? Where in her tax return should Martha claim this deduction? _________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________arrow_forwardBonnie is married and has one child. She owns Bonnies Rib Joint, which produces a taxable income of approximately 120,000 per year. a. Assume that Bonnies taxable income is 40,000 without considering the income from the rib joint. How much tax will she pay on the 120,000 of income from the rib joint? b. You work for the firm that prepares Bonnies tax return. Bonnie has asked the partner for whom you work to advise her on how she might lower her taxes. The partner has assigned you this task. Draft a memorandum to the partner that contains at least two options Bonnie could use to lower her taxes. For each option, explain the calculations that support the tax savings from your recommendation.arrow_forward
- What choices do the Carpenters have in the face of the IRS’s decision about their tax liability?arrow_forwardAlison Jacobs (single) purchased a home in Las Vegas, Nevada, for $480,000. She moved into the home on September 1, year 0. She lived in the home as her primary residence until July 1 of year 4, when she sold the home for $744,000. If Alison's tax rate on long-term capital gains is 15 percent, what amount of tax will Alison pay on the $264,000 gain? (Enter only numbers with no dollar signs or other punctuation.)arrow_forwardWould you sign this return if you were Tom and Teri’s Paid Tax Preparer? Why or why not? Your clients, Tom (age 48) and Teri (age 45) Trendy, have a son, Tim (age 27). Tim lives in Hawaii, where he studies the effects of various sunscreens on his ability to surf. Last year, Tim was out of money and wanted to move back home and live with Tom and Teri. To prevent this, Tom lent Tim $20,000 with the understanding that he would stay in Hawaii and not come home. Tom had Tim sign a formal note, including a stated interest rate and due date. Tom has a substantial portfolio of stocks and bonds and has generated a significant amount of capital gains in the current year. He concluded that Tim is a deadbeat and the $20,000 note is worthless. Consequently, Tom wants to his son’s bad debt on his and Teri’s current tax return and net it against his other capital gains and losses. Tom is adamant about this!arrow_forward
- Kim earned $30,000 from Pfizer before she was laid off. She then collected $7,000 of unemployment benefits. Finally, Kim received a $12,500 scholarship for tuition so she could return to college to earn a microbiology degree. How much does Kim need to report as income on her tax return?arrow_forwardjohn and maria support their 21-year-old son, bill. the son earned $12,200 last year working in a part-time job. bill went to college part time in the spring semester of the current year. to complete his degree, bill started school full time in the fall. the fall semester at bill’s college runs from august 20 to december 20. can john and maria claim bill as a dependent on the current year’s tax return, even if bill earns this level of gross income? assume any dependency test not mentioned has been met. in answering this case, use an online tax service with only the internal revenue code database selected. state your keywords and which online tax service you used to arrive at your answer.arrow_forwardLiama MacDonald just turned thirty years old. She is currently single. Liama has gross wages of $95,000 (before deferrals) and has had $14,000 withheld for federal income tax. Given the information presented below, and in the chapter, will she likely have too much or too little withheld for the current tax year (do not consider AMT in your calculations)? Based on your analysis, what should Liama do? •She estimates total itemized deductions of $11,450. •She will not have any interest or dividend income or capital gains. •She will not contribute to an IRA. •She will defer 5 percent of her gross salary into the qualified retirement plan.arrow_forward
- If Jonathon worked for his mother's sole proprietorship, what salary would she have to pay him to generate $10,500 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)? Required information [The following information applies to the questions displayed below.) Tawana owns and operates a sole proprietorship and has a 37 percent marginal tax rate. She provides her son, Jonathon, $10,500 a year for college expenses. Jonathon works as a pizza delivery person every fall and has a marginal tax rate of 15 percent. c. If Jonathon worked for his mother's sole proprietorship, what salary would she have to pay him to generate $10,500 after taxes (ignoring any Social Security, Medicare, or self-employment tax issues)? (Round your answer to the nearest whole dollar amount.)arrow_forward2. Six years ago, Alvin loaned his prospective brother-in-law, Bruno, $20,000. The money was used to help Bruno pay for the wedding to Alvin's sister Kitty. Shortly after the wedding, it was discovered that Bruno was already married to someone else. Before Bruno could be indicted for bigamy, he disappeared and has not been heard from since. In the current year, Alvin dies still holding onto Bruno's note. For tax purposes, what do you suggest as to the handling of Bruno's note?arrow_forwardJohn purchased a house for $300,000. It is now worth $800,000 4 years later. Johns fiancee lived with him for two years but is not on the title. Joe would like to sell the house for a larger home, what might be the tax ramifications?arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
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