This is a total of 5 homework assignments for Accounting Federal income Tax. This is due by next monday 10/11 @ 5pm central time
Homework & Solutions 1 Homework Assignments: Chapter 7 35. At the beginning of his current tax year David invests $12,000 in original issue U.S. Treasury bonds with a $10,000 face value that mature in exactly 10 years. David receives $700 in interest ($350 every six months) from the Treasury bonds during the current year and the yield to maturity on the bonds is 5 percent. a. How much interest income will he report this year if he elects to amortize the bond premium? b. How much interest will he report this year if he does not elect to amortize the bond premium? 41. John bought 1,000 shares of Intel stock on October 18, 2017 for $30 per share plus a $750 commission he paid to his broker. On December 12, 2021, he sells the shares for $42.50 per share. He also incurs a $1,000 fee for this transaction. a. What is John’s adjusted basis in the 1,000 shares of Intel stock? b. What amount does John realize when he sells the 1,000 shares? c. What is the gain/loss for John on the sale of his Intel stock? What is the character of the gain/loss? 46. Grayson (single) is in the 24 percent tax rate bracket and has the sold the following stocks in 2021: Date Purchased Basis Date Sold Amount Realized Stock A 1/23/1997 $7,250 7/22/2021 $4,500 Stock B 4/10/2021 14,000 9/13/2021 17,500 Stock C 8/23/2019 10,750 10/12/2021 15,300 Stock D 5/19/2011 5,230 10/12/2021 12,400 Stock E 8/20/2021 7,300 11/14/2021 3,500 a. What is Grayson’s net short-term capital gain or loss from these transactions? b. What is Grayson’s net long-term gain or loss from these transactions? c. What is Grayson’s overall net gain or loss from these transactions? d. What amount of the gain, if any, is subject to the preferential rate for certain capital gains? 2 49. In 2021 Tom and Amanda Jackson (married filing jointly) have $200,000 of taxable income before considering the following events: a) On May 12, 2021, they sold a painting (art) for $110,000 that was inherited from Grandma on July 23, 2019. The fair market value on the date of Grandma's death was $90,000 and Grandma's adjusted basis of the painting was $25,000. b) They applied a long-term capital loss carryover from 2020 of $10,000. c) They recognized a $12,000 loss on 11/1/2021 sale of bonds (acquired on 5/12/2011). d) They recognized a $4,000 gain on 12/12/2021 sale of IBM stock (acquired on 2/5/2021). e) They recognized a $17,000 gain on the 10/17/2021 sale of rental property (the only §1231 transaction) of which $8,000 is reportable as gain subject to the 25 percent maximum rate and the remaining $9,000 is subject to the 0/15/20 percent maximum rates (the property was acquired on 8/2/2015). f) They recognized a $12,000 loss on 12/20/2021 sale of bonds (acquired on 1/18/2021). g) They recognized a $7,000 gain on 6/27/2021 sale of BH stock (acquired on 7/30/2012). h) They recognized an $11,000 loss on 6/13/2021 sale of QuikCo stock (acquired on 3/20/2014). i) They received $500 of qualified dividends on 7/15/2021. Complete the required capital gains netting procedures and calculate the Jacksons’ 2020 tax liability. 3 56. Mickey and Jenny Porter file a joint tax return, and they itemize deductions. The Porters incur $2,000 in investment expenses. They also incur $3,000 of investment interest expense during the year. The Porters’ income for the year consists of $150,000 in salary, and $2,500 of interest income. a. What is the amount of the Porters’ investment interest expense deduction for the year? b. What would their investment interest expense deduction be if they also had a ($2,000) long-term capital loss? 58. George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $20,000 loan to facilitate the stock acquisition. The loan terms are 8 percent interest with interest-only payments due each year for five years. At the end of the five-year period the entire loan principal is due. When George closed on the loan on April 1, 2021, he decided to invest $16,000 in stock and to use the remaining $4,000 to purchase a four-wheel recreation vehicle. George is unsure how he will treat the interest paid on the $20,000 loan. In 2021, George paid $1,200 interest expense on the loan. For tax purposes, how should he treat the 2021 interest expense? (Hint: Visit www.irs.gov and consider IRS Publication 550) http://www.irs.gov/ Homework & Solutions 1 Homework Assignments: Chapter 8 48. In 2021, Lisa and Fred, a married couple, have taxable income of $300,000. If they were to file separate tax returns, Lisa would have reported taxable income of $125,000 and Fred would have reported taxable income of $175,000. What is the couple’s marriage penalty or benefit? 63. Henrich is a single taxpayer. In 2021, his taxable income is $450,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios? a. All of his income is salary from his employer. b. His $450,000 of taxable income includes $2,000 of long-term capital gain that is taxed at preferential rates. c. His $450,000 of taxable income includes $55,000 of long-term capital gain that is taxed at preferential rates. d. Now assume that Henrich has $195,000 of taxable income, which includes $50,000 of long-term capital gain that is taxed at preferential rates. Assume his modified AGI is $210,000. 64. Brooke, a single taxpayer, works for Company A for all of 2021, earning a salary of $50,000. a. What is her FICA tax obligation for the year? b. Assume Brooke works for Company A for half of 2021, earning $50,000 in salary and she works for Company B for the second half of 2021, earning $90,000 in salary. What is Brooke’s FICA tax obligation for the year? 2 69. Terry Hutchison worked as a self-employed lawyer until two years ago, when he retired. He used the cash method of accounting in his business for tax purposes. Five years ago, Terry represented his client ABC corporation in an antitrust lawsuit against XYZ corporation. During that year, Terry paid self-employment taxes on all of his income. ABC won the lawsuit, but Terry and ABC could not agree on the amount of his earnings. Finally, this year, the issue got resolved and ABC paid Terry $90,000 for the services he provided five years ago. Terry plans to include the payment in his gross income, but because he spends most of his time playing golf and absolutely no time working on legal matters, he does not intend to pay self-employment taxes on the income. Is Terry subject to self-employment taxes on this income? 74. In 2021, Amanda and Jaxon Stuart have a daughter who is one year old. The Stuarts are full- time students and they are both 23 years old. Their only sources of income are gains from stock they held for three years before selling and wages from part-time jobs. What is their earned income credit in the following alternative scenarios if they file jointly? a. Their AGI is $15,000, consisting of $5,000 of capital gains and $10,000 of wages. b. Their AGI is $15,000, consisting of $10,000 of lottery winnings (unearned income) and $5,000 of wages. c. Their AGI is $28,000, consisting of $23,000 of wages and $5,000 of lottery winnings (unearned income). d. Their AGI is $28,000, consisting of $5,000 of wages and $23,000 of lottery winnings (unearned income). e. Their AGI is $10,000, consisting of $10,000 of lottery winnings (unearned income). 77. This year Lloyd, a single taxpayer, estimates that his tax liability will be $10,000. Last year, his total tax liability was $15,000. He estimates that his tax withholding from his employer will be $7,800. a. Is Lloyd required to increase his withholding or make estimated tax payments this year to avoid the underpayment penalty? If so, how much? b. Assuming Lloyd does not make any additional payments, what is the amount of his underpayment penalty? Assume the federal short-term rate is 5 percent. 3 82. Determine the amount of the late filing and late payment penalties that apply for the following taxpayers. a. Jolene filed her tax return by its original due date but did not pay the $2,000 in taxes she owed with the return until one and a half months later. b. Oscar filed his tax return and paid his $3,000 tax liability seven months late. c. Wilfred, attempting to evade his taxes, did not file a tax return or pay his $10,000 in taxes for several years. 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