Comprehenive Problems Week 3

Topics: Taxation in the United States, Tax, Expense Pages: 6 (1751 words) Published: November 12, 2012
Week 3 individual assignment

Comprehensive problem 67

Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Though Ken is retired, he is still very active. Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2009 gross income.

a. Ken won $1,200 in an illegal game of poker (the game was played in Utah, where gambling is illegal).

b. Ken sold 1,000 shares of stock for $32 a share. He inherited the stock two years ago. His tax basis (or investment) in the stock was $31 per share.

c. Ken received $25,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 20 years, for $210,000.

d. Ken received $13,000 in Social Security benefits for the year.

e. Ken resided in Ireland from July 1, 2008, through June 30, 2009, visiting relatives. While he was there he earned $35,000 working in his cousin’s pub. He was paid $17,000 for his services in 2008 and $18,000 for his services in 2009. Assume Ken elects to use the foreign-earned income exclusion to the extent he is eligible.

f. Ken decided to go back to school to learn about European history. He received a $500 cash scholarship to attend. He used $300 to pay for his books and he applied the rest toward his new car payment

g. Ken’s son, Mike, instructed his employer to make half of his final paycheck of the year payable to Ken. Ken received the check on December 30 in the amount of $1,100.

h. Ken received a $610 refund of the $3,600 in state income taxes his employer withheld from his pay last year. Ken claimed $5,500 in itemized deductions last year (the standard deduction for a single filer was $5,450).

i. Ken received $30,000 of interest from corporate bonds and money market accounts.

The answer is calulated as follows:
A) $1,200 The gross income considers all sources of income B) $1,000 There is a$1000 gain on the sale
C) $14,500 25,000 – (210,000/20)
D) $0 There is no gain here because the policy was purchased by Ken E) $0 $91,500 x 181/365 = $45,374 which would be the maximum exclusion $18,000 excluded F) $200 This was the part of the money used for a car instead of School G) $0 Ken did not earn this income, his son did H) $50 This is the portion Ken received benefits from in previous year I) $30,000 Included in Gross income

$46,950 Ken’s Gross Income

Comprehensive problem 66
66. Jeremy and Alyssa Johnson have been married for five years and do not have any children. Jeremy was married previously and has one child from the prior marriage. He is self-employed and operates his own computer parts store. For the first two months of the year, Alyssa worked for Staples, Inc., as an employee. In March, Alyssa accepted a new job with Super Toys, Inc. (ST) , there she worked for the remainder of the year. This year, the Johnsons received $255,000 of gross income. Determine the Johnson’s AGI given the following information:

a. Expenses associated with Jeremy’s store include $40,000 in salary (and employment taxes) to employees, $45,000 of cost of goods sold, and $18,000 in rent and other administrative expenses. b. As a salesperson, Alyssa incurred $2,000 in travel expenses related to her employment that were not reimbursed by her employer.

c. The Johnsons own a piece of investment real estate. They paid $500 of real property taxes on the property and they incurred $200 of expenses in travel costs to see the property and to evaluate other similar potential investment properties.

d. The Johnsons own a rental home. They incurred $8,500 of expenses associated with the property.

e. The Johnson’s home was...
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