Exam (elaborations)
TAX4001 Laursen Fall2021 Exam II (2)
TAX4001 Laursen Fall2021 Exam II (2)
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TAX4001 Laursen Fall2021 Exam IIadditional medicare tax - ANS-0.9% Medicare tax on wages exceeding $250,000 MFJ /
$200,000 HH, QW, S / $125,000 MFS
-not included as part of self-employment income
-employer does not pay this, only employee
Alimony (for tax purposes) - ANS-1) transfer of cash made under a *written separation
agreement/divorce decree*
2) on which payment is *not* designated as *nonalimony*,
3) *spouses do not live together*
4) payments *cannot* continue after death of either party
All business expenses are deductible except for: - ANS-unreimbursed employee
business expenses
All investment expenses are non-deductible except for: - ANS-- rent and royalty
expenses (for AGI)
- investment interest expense (from AGI)
Alternative minimum tax - ANS--paid in addition to regular tax liability
-designed to require taxpayers to pay some minimum level of tax
-use Form 6251 to calculate
-does not apply to corporations anymore
Amount realized - ANS-gross sales price - brokerage fee - any allowable closing
expenses
*or*
sales proceeds - selling expenses
AMT deduction - ANS-Increased in 2018 for individuals
AMT formula - ANS-Regular Taxable Income
+ standard deduction if taken
+/- Other adjustments
= Alternative minimum taxable income
- AMT exemption amount (if any)
= Tax base for AMT
x AMT rate
, = Tentative minimum tax
- Regular tax
= Alternative Minimum Tax
annuity exclusion ratio - ANS-original investment/expected value of the annuity
= return of capital percentage
Annuity Income - ANS-purchaser pays fixed amount for the right to receive a future
stream of payments paid
1) over a fixed period
2) for the duration of a person's life
Assignment of income doctrine - ANS-a taxpayer realizes and must recognize income
from services and income from the property they own
Assume that in October of this year, Courtney sold her home in Cincinnati. Courtney
and her ex-husband purchased the home four years ago for $400,000, and Courtney
received the house in the divorce settlement and lived there until she moved to Kansas
City in January. She sold the home for $550,000. How much taxable gain does she
recognize on the sale of the home? - ANS-$0. Because Courtney satisfies the two-year
ownership and two-year use tests, she may exclude up to $250,000 of gain from the
sale of her home. Thus, Courtney may exclude the entire $150,000 gain that she
realized on the sale ($550,000 sales price less $400,000 basis).
Assume that instead of investing solely in assets that generate portfolio income,
Courtney used $10,000 of the inheritance from Gramps to acquire a 5 percent interest
in a limited partnership (a flow-through entity) called Color Comfort Sheets (CCS).
Courtney's share of CCS's loss for the year is $15,000. What amount of this loss is
Courtney allowed to deduct after applying the tax basis and at-risk amount limitations? -
ANS-$10,000
tax basis and at-risk amount both $10,000 (the amount of cash invested), the tax-basis
and at-risk amount limitations result in the same limitation. Thus, Courtney may deduct
$10,000 of the $15,000 loss before considering the other passive activity loss limits
Before her move from Cincinnati, Courtney decided to donate her excess possessions
to Goodwill Industries. Courtney estimated that she paid over $900 for these items,
including clothing, a table, and a couch. However, although the items were in excellent
condition, they were worth only $160. What amount can Courtney deduct for her
donation of these items? - ANS-$160. Because Courtney's possessions have declined
in value, they are considered to be ordinary income property. Consequently, Courtney
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