Allison and Paul are married and have no children. Paul is a lawyer who earns a salary of $80,000. In November 2018, Allison quit her job as a copy editor and began exploring the possibility of breeding and showing horses. She would run the business on their property. Allison expects to travel to nine or ten horse shows during the year. While researching the activity, she came across an article entitled: “IRS Cracking Down on Horse Breeding—Is It Really a Business or Is It a Hobby?” She is unsure of the tax ramifications discussed in the article and has come to you for advice on whether her activity will be considered a business or a hobby. Allison provides you with the following projections of the 2019 income and expense items for the horse breeding and showing activity:
Revenue:
Expenses:
Paul and Allison expect to receive $6,000 in interest and dividend income, they will have an $8,000 net long-term
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Chapter 5 Solutions
CONCEPTS IN FED.TAX.,2020-W/ACCESS
- I need some guidance with the following question. We do not need to complete form 1040 or any schedules. Just calculations. Thank you kindly. Wendy White, age 29 is single. She lives in San Diego, California. She is employed by KXXR television station as the evening news anchor. An examination of her records for 2018 revealed the following information: 1. Wendy earned $150,000 in salary. Her employer withheld $40,000 in Federal income taxes and the proper amount of FICA taxes. 2. Wendy also received $10,000 in self-employement income from personal appeareances during the year. Her unreimbursed expenses related to this income were: transportation and lodging, $523; meals, $120; and office supplies, $58. 3. Wendy reports the following additional deductions: home mortgage interest, $6,250; charitble contributions, $1,300; state and local income taxes, $3,100; and employment-related expenses, $920. Compute Wendy's taxable income for 2018 and her tax due (including any self-employment…arrow_forwardDanny owns an electronics outlet in Dallas. In 2021, he paid $620 to register for a four-day course in management in Chicago. Danny paid $780 in airfare. After the course, Danny spent the last day sightseeing. During the trip, Danny paid $184 per night for five nights' lodging, $180 per day for meals in restaurants, and $120 per day for a rental car. What amount of these travel expenditures may Danny deduct as business expenses? (Leave no answers blank. Enter zero if applicable.) Danny may deduct travel expenses of $arrow_forwardTimmy, a CPA, caught “long COVID” early in 2020 and had to retire from his accounting firm job. One result was that he no longer could pay the mortgage on the 40-acre ranch he owned in Hunt County. (Timmy had never actually lived there, he’s always lived in Dallas – he was a “gentleman-rancher” only…) Of course once Timmy stopped making his mortgage payments, Friendly Nation-al Bank, the mortgage holder on the ranch, became very much less friendly. It foreclosed and took ownership of the ranch on November 1, 2020. Here are some additional facts: Timmy had purchased the ranch for $1,600,000 in 2016. The principal balance on the mortgage on Nov. 1, 2020, was $1,200,000. Timmy’s 2020 property tax bill for the ranch showed an appraised value of $900,000. In January 2021 the bank sent Timmy a Form 1099-C. In Box 2 (Amount of debt discharged) the bank entered $1,200,000. The bank left Box 7 (Fair market value of property) blank. Timmy was never actually insolvent (in the balance-sheet…arrow_forward
- Unfortunately, Betty’s business was not profitable. She decided to sell the business andseek work in a different industry. She sold her business in May 2020 after spending$22,000 on advertising the sale with an estate agent. Unfortunately, the sales proceedswere not sufficient to discharge her existing bank loan and she was required to makeregular monthly interest payments on the outstanding balance.Please discuss whether the advertising expenses would be deductiblearrow_forwardJohn owns a convenience shop called City Conv. The following events occurred for John during 20192020 financial year. John incurred legal expenses as he was sued for false advertising. John purchased new fridge to the shop - $800. In addition, his builder added more space to the shop front. This cost him $22,000. John ordered 1000 new T-shirts with printed City Conv’s logos for marketing purposes. These costs him $1,500. John received a City of Sydney fine for putting his sales item for display outside his shop without a permit. He required to apply for a permit to use the footpath. Required: With reference to relevant legislation and case law advise John on the assessability and/or deductibility of above events. (maximum 300 words)arrow_forwardHeather owns all of the shares of Thompson Consulting Ltd (TCL), an IT consulting firm with 10 employees. TCL has a December 31 st year-end. Heather delegates all of her oversight tasks to various managers because she is busy at home raising her family. On July 25, 2011, Heather borrowed $100,000 from TCL for the purchase of a new home on a non-interest bearing basis. A loan agreement is in place that requires her to repay the full amount in five years. She has never reported anything on her personal income tax return from the loan. Assuming that you are preparing Heather's personal tax return for the first time, which of the following statements is correct? A). There are no income tax consequences because the funds were borrowed for the purchase of a home and there is a bona fide arrangement to repay the loan. B). Heather will have a deemed interest benefit in 2011,2012 and 2013. C). Heather will have an income inclusion of $100,000 in 2013 and a deemed interest benefit in 2011, 2012…arrow_forward
- On September 1, 2021, Jennifer Wells moves from London to Oakville at the request of her employer. Prior to this date, she spent $875 on a house hunting trip to Oakville. However, she was not successful and, given this, she has signed a one-year lease for an apartment at her new location. The legal fees and real estate commissions associated with the sale of her London house were $8,500. The actual costs of the move, including amounts paid to a moving company, totaled $15,230. Her employer agreed to pay $8,000 of her moving costs. Ms. Well's salary for 2021 was $45,000. Determine Ms. Well's maximum moving expense deduction for 2021, as well as any carry forward that is available. Payment From Employer House Hunting Trip Balance Cost Of Selling London House Moving Costs Available Deduction Income At New Location Carry Forwardarrow_forwardDuring the 2020 tax year, Salomie borrowed money to buy an investment property. The property was immediately rented out. She recorded the following expenses: At the time of purchase, the roof was damaged. She spent $100,000 to replace the entire roof. Two months after moving in, tenants reversed into the fence. Salomie paid $500 to repair the fence. She paid $20,000 interest on her borrowings from the bank. Required: Advise Salomie of her allowable deductions for the 2020 income year. You must refer to relevant law and show calculations.arrow_forwardTim receives a $25,000 gift from his parents for a down payment on a house. They know he cannot buy a house without their help. They write “gift” in the memo line of the check. How much of the gift is taxable to Tim? In your response, please make sure to take all of the facts above into consideration. You can refer back to the text, lecture videos, and the IRS website. Please make sure to support whatever conclusion you decide to present.arrow_forward
- In early 2019, Cyndey Walters received a $2 million settlement as a result of suffering serious injuries in an accident on a construction site. As a result, she immediately quit her job as a plumber for a construction company and began to search for rundown houses in her neighbour hood that she could buy at a low price. Her objective was to bring her houses up to code (i.e., in accordance with building regulations) and then rent them to individuals who could not afford adequate housing. Cyndey charged just enough rent to cover the expenses of each house. By March 2020, she owned five houses that were rented to five families. She continued working part time as a plumber while she took courses toward a degree in social work. Cyndey came from a large family, many members of which were involved in construction. She called on her family for help when her tenants needed services, and they gave her a family dis- count for their services. In June 2021, she learned that the owner of two…arrow_forwardDana Andrews advanced $93, 000 to her nephew in 2016 to enable him to attend a private university. Over the next few years, the nephew repays Dana $16,000 on the loan. However, seven years later Dana comes to you to determine whether she can claim a bad debt deduction for the $77,000 the nephew has not repaid. What planning tips might you give to Dana? Were any mistakes made?arrow_forwardMpumi Madonsela has recently qualified to be a Chartered Management Accountant and she is working at one of the big four accounting firms. Due to the limited salary of an article clerk, Mpumi did not contribute to any provident fund. Fortunately for her, the firm contributed to a pension fund on her behalf. She was not content with only a pension fund but was adamant that she wanted a provident fund to supplement her very extravagant lifestyle.Mpumi decided that on 1 January 2019, she would begin contributing to a selected provident fund. Her contributions towards this provident fund will be monthly in arrears. She wanted to get a lump sum pay-out on the retirement date at the age of 65. Mpumi planned to put the lump sum in a money market account at a bank and withdraw a monthly amount for the rest of her life. The monthly amount must be an amount that will be able to maintain two and a half times her 1st-year post article salary. Additional information:1. Mpumi will be turning 26 on 1…arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
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