all work must be in excel
Accounting 344: Howard Bunsis Exam 1: Fall 2021 You are to work alone Your file(s) should be emailed to me by 5pm on Friday, October 1st. If you have any questions or are unsure of anything, you can put your questions in writing. Q1=15; Q2=30; Q3=12; Q4=43 1. Consider the following information for two SINGLE taxpayers for 2021 (no children) For each situation: a. What was the tax owed? b. What was the effective tax rate based on taxable income? c. What was the marginal tax rate? 2. For the following situations, determine the following for 2021: a. Tax owed b. How much did this taxpayer save in taxes due to the lower rate on capital gains? Show how this savings is computed, reconciling the amount saved using the appropriate tax rates 3. A couple is considering getting married by the end of 2021: · Spouse 1 has wage income of 105,000 and spouse 2 has wage income of 55,000 · Neither spouse had any interest income, dividend income, or capital gain income · Neither spouse can itemize whether they file as single or MFJ · Spouse 1 gave 120 to charity and spouse 2 gave 680 to charity during the year a. Report the tax each would owe if they each file as Single b. Report the tax they would owe if they married and file as MFJ c. What would you advise them to do? 4. Answer the following questions for the following four scenarios, based on the information below: a. What is the tax owed? b. How much did this taxpayer save in taxes due to the lower rate on capital gains? Show how this savings is computed, reconciling the amount saved using the appropriate tax rates c. Why is there a lower rate for long-term capital gains and qualified dividends? Answer with words only. d. How much did the taxpayers save in taxes by making the charitable contribution? e. How much did the Affordable Care Act (ObamaCare) cost each taxpayer(s) in additional taxes? Bonus: A MFJ couple has combined wage income of $110,000 and also runs a side business (non-SSTB) with total revenues of $475,000 and total expenses of $330,000. Assume they do not itemize and gave nothing to charity, had no interest, dividend or capital gain income, no children. What is the QBID? What is the tax owed? All 4 sceinarios have a line 16 worksheet Ignore reimbursed tax expenses ex 3 1. Situation A Situation B Wage Income 120,000 81,000 Tax free intertest income 1,955 1,955 Inhertiance received 110,000 110,000 Medical expenses paid 8,900 8,900 Social security taxes paid 7,440 5,022 Medicare taxes paid 1,740 1,175 State income taxes paid 5,700 4,200 Local property taxes paid 0 3,200 Mortgage Interest paid 0 4,500 Charitbale contributions paid in cash 2,800 580 Federal taxes withheld 20,000 10,000 1. Situation ASituation B Wage Income 120,00081,000 Tax free intertest income 1,9551,955 Inhertiance received 110,000110,000 Medical expenses paid 8,9008,900 Social security taxes paid 7,4405,022 Medicare taxes paid 1,7401,175 State income taxes paid 5,7004,200 Local property taxes paid 0 3,200 Mortgage Interest paid 0 4,500 Charitbale contributions paid in cash2,800580 Federal taxes withheld 20,00010,000 Situation C Situation D Situation E Status MFJ MFJ MFJ Minor children 0 0 0 Wage Income 110,000 210,000 310,000 Interest income from IBM Co. bonds 0 2,750 3,700 Qualified dividend income 0 3,500 5,000 Sold Gamestock stock purchased 2 years ago: Proceeds in 2021 28,000 105,000 165,000 Cost 2 years ago 45,000 45,000 45,000 Life insurance proceeds received 80,000 80,000 80,000 IRA Contribution made (payment by taxpayers) 2,000 3,000 4,000 Medical costs out of pocket paid 2,300 2,300 2,300 State income taxes paid 5,100 10,100 39,000 Property taxes paid 0 12,000 18,000 Mortage interest paid 0 9,900 15,900 Charitable contributions paid in cash 180 4,400 5,900 Tax preparation fees paid in cash 2,000 2,500 4,000 Federal taxes withheld 10,000 40,000 75,000 Situation CSituation DSituation E Status MFJMFJMFJ Minor children 0 0 0 Wage Income 110,000210,000310,000 Interest income from IBM Co. bonds 0 2,7503,700 Qualified dividend income 0 3,5005,000 Sold Gamestock stock purchased 2 years ago: Proceeds in 2021 28,000105,000165,000 Cost 2 years ago 45,00045,00045,000 Life insurance proceeds received 80,00080,00080,000 IRA Contribution made (payment by taxpayers) 2,0003,0004,000 Medical costs out of pocket paid 2,3002,3002,300 State income taxes paid 5,10010,10039,000 Property taxes paid 0 12,00018,000 Mortage interest paid 0 9,90015,900 Charitable contributions paid in cash 1804,4005,900 Tax preparation fees paid in cash 2,0002,5004,000 Federal taxes withheld 10,00040,00075,000 Scenario W Scenario X Scenario Y Scenario Z Status Single HH MFJ MFJ Minor children 0 0 0 0 Wage Income 165,000 250,000 500,000 1,000,000 Interest income on corporate bonds 2,000 10,000 3,000 5,000 Inetrest income on tax-free municipal bonds 750 3,500 2,500 0 Qualified dividend income 0 4,000 8,000 100,000 Non-Qualified dividend income 0 1,400 1,400 0 Procceeds from selling stock that was purchased 3 years ago 40,000 65,000 190,000 255,000 Cost of that stock 3 years ago 13,000 40,000 65,000 180,000 IRA Contribution (payment) 0 4,000 5,000 0 Medical expenses paid 3,900 3,900 3,900 3,900 Home mortgage interest paid 0 6,000 12,500 15,800 State income taxes paid 9,700 8,500 29,900 95,000 Local property taxes paid 0 7,000 12,000 19,000 Charitable contributions paid 780 2,300 7,500 200 Unreimbursed job expenses 1,400 1,000 1,850 0 Federal income taxes withheld 35,000 62,000 148,000 348,000 Scenario WScenario XScenario YScenario Z Status SingleHH MFJMFJ Minor children 0 0 0 0 Wage Income 165,000250,000500,0001,000,000 Interest income on corporate bonds 2,00010,0003,0005,000 Inetrest income on tax-free municipal bonds 7503,5002,500 0 Qualified dividend income 0 4,0008,000100,000 Non-Qualified dividend income 0 1,4001,400 0 Procceeds from selling stock that was purchased 3 years ago 40,00065,000190,000255,000 Cost of that stock 3 years ago 13,00040,00065,000180,000 IRA Contribution (payment) 0 4,0005,000 0 Medical expenses paid 3,9003,9003,9003,900 Home mortgage interest paid 0 6,00012,50015,800 State income taxes paid 9,7008,50029,90095,000 Local property taxes paid 0 7,00012,00019,000 Charitable contributions paid 7802,3007,500200 Unreimbursed job expenses 1,4001,0001,850 0 Federal income taxes withheld 35,00062,000148,000348,000 ACC 344 Chapter 1 Outline Accounting 344: Howard Bunsis Introduction to Taxation: Chapter 1 Outline Fall 2021 What this class is about: · Income: Do we count something as income? · If yes, for how much · If yes, when do we count it (this year or a future year)? · Deductions: Do we get to take an item as a deduction? · If yes, for how much · If yes, when do we count it (this year or a future year)? · Understanding the rationale behind the tax rules · Basic principles · Political considerations History of U.S. Taxation · 1861: First Federal individual income tax enacted but repealed after the Civil War ended. · 1894:New Federal individual income tax enacted but found unconstitutional. The tax was considered an invasion of privacy · 1909:First Federal corporate income tax enacted · 1913:16th Amendment ratified. · This sanctioned both Federal individual and corporate income taxes. · The tax helped finance World War I · 1986: Last major change in tax law until: · 2017: Most significant change in 33 years! Called the TCJA or Tax Cuts and Jobs Act, and was signed into law by President Trump in December of 2017 · 2020: CARES Act passed in March had several tax provisions in the bill · 2020: Stimulus bill passed in December also had several tax provisions · 2021: Biden has proposed numerous individual tax changes (see page 3) What is a Tax? A tax is a payment required by a government that is unrelated to any specific benefit or service received from the government Key components of a tax: · Payment required · Payment imposed by government agency (federal, state, local) · Payment not tied directly to benefit received by the taxpayer Tax Basics Before the 2017 tax law, about 31% of taxpayers itemized on Schedule A In 2018, the line count data report that only 11.6% of taxpayers itemized This change is due to: · The almost doubling of the standard deduction · The $10,000 limit on state and local taxes Proposed Tax Changes of President Biden and Congressional Democrats as of August 2021 Grant Thornton, August 25, 2021 https://www.grantthornton.com/library/alerts/tax/2021/Legislative-Updates/budget-passage-speed-up-timeline-for-tax-bill.aspx Individual Tax Changes - relevant to this ACC 344 class · Increase the top individual marginal rate from 37.0% to 39.6%. It is unclear if other rates will be increased, as President Biden has stated that only those with income over $400,000 will see tax increases; this could affect the current 35% bracket · Raise the capital gain rate (rate you pay when you sell stock for a gain) from 20% to 28% or possibly 39.6% for some taxpayers · Currently, the top rate on capital gains is 20.0%, with an additional 3.8% of Net Investment Income Tax, for a total of 23.8% · The capital gains are taxed the same as ordinary (wage) income, the top capital gain rate becomes: 39.6% + 3.8% = 43.4% · Reduce or eliminate the $10,000 of state and local taxes tax deduction (SALT). The limit on this deduction has hurt wealthy taxpayers in blue states Most Americans wouldn’t benefit from SALT cap repeal CNBC, 4/16/2021 · While the SALT cap is a top-of-mind issue in some parts of the country, repealing it wouldn’t help most Americans. Instead, those with the highest incomes would benefit the most. · The top 20% of earners would reap more than 96% of the benefits of a SALT repeal, · The top 1% of all earners would see 57% of benefits, according to the Tax Policy Center. · Only 9% of American households would see any benefit from a repeal of the SALT cap. Tax Foundation, 8/25/2021 Two factors drive the variation in SALT deductions regionally: 1. The first is taxpayer income. High-income taxpayers are more likely to itemize, while low-income taxpayers are more likely to take the standard deduction. The SALT deduction is most valuable in high-income counties despite the cap. 2. The second is variation in state and local tax burdens across the country. The greatest beneficiaries generally have