Answer Project Tax

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72. Latrell recently used his Delta Sky miles to purchase a free roundtrip ticket to Milan, Italy (value $1,200). The frequent flyer miles used to purchase the ticket were generated from Latrell’s business travel as a CPA. Latrell’s employer paid for his business trips, and he was not taxed on the travel reimbursement. Use an available tax research service to determine how much Income, if any, does Latrell have to recognize as a result of purchasing an airline ticket with Sky miles earned from business travel.

IRS Announcement 2002-18 states that frequent flier miles earned for business travel and redeemed for in-kind benefits (e.g., a free airline ticket) do not represent taxable income. This ruling only applies to in-kind benefits and not frequent flier miles converted to cash. Since Latrell used his frequent flier miles to purchase an airline ticket, he will have no taxable income from the transaction.

49. Bendetta, a high-tax-rate taxpayer, owns several rental properties and would like to shift some income to her daughter, Jenine. Bendetta instructs her tenants to send their rent checks to Jenine so Jenine can report the rental income. Will this shift the income from Bendetta to Jenine? Why, or why not?

Merely sending the checks to Jenine is not sufficient to shift the rental income from Bendetta to Jenine under the assignment of income doctrine. To shift the rental income to Jenine, she must earn the income. In this case, this means that Jenine must actually own the rental property to report the rental income.

40. Marc and Michelle are married and earned salaries this year (2009) of $64,000 and $12,000, respectively. In addition to their salaries, they received interest of $350 from municipal bonds and $500 from corporate bonds. Marc and Michelle also paid $2,500 of qualifying moving expenses, and Marc paid alimony to a prior spouse in the amount of $1,500. Marc and Michelle have a 10-year-old son, Matthew, who lived with them throughout the entire year. Thus, Marc and Michelle are allowed to claim a $1,000 child tax credit for Matthew. Marc and Michelle paid $6,000 of expenditures that qualify as itemized deductions and they had a total of $5,500 in federal income taxes withheld from their paychecks during the course of the year. a. What is Marc and Michelle’s gross income? b. What is Marc and Michelle’s adjusted gross income? c. What is the total amount of Marc and Michelle’s deductions from AGI? d. What is Marc and Michelle’s taxable income? e. What is Marc and Michelle’s taxes payable or refund due for the year? (Use the tax rate schedules.)

a. What is Marc and Michelle’s gross income?

$76,500. See analysis below.

b. What is Marc and Michelle’s adjusted gross income?

$72,500. See analysis below.

c. What is the total amount of Marc and Michelle’s deductions from AGI?

$22,350 . See analysis below.

d. What is Marc and Michelle’s taxable income?

$50,150 See analysis below.

e. What is Marc and Michelle’s taxes payable or refund due for the year (use the tax rate schedules)?

$188 taxes payable. See analysis below.

|Description |Amount |Computation | |(1) Realized income from all sources |$76,850 |64,000 salary + 12,000 salary + 350 municipal bond interest + | | | |500 corporate bond interest | |(2) Excluded or deferred income |...
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