Chap6%20HW%20Solutions

Chap6%20HW%20Solutions - 86 CCH Federal Taxation-Basic...

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86 CCH Federal Taxation—Basic Principles employed or employees of small employers (typically under 50 employees). MSA earnings are excluda- ble from current income. MSA distributions are tax-free if used to pay for qualified medical expenses of the taxpayer or dependents. In 2005, individuals can deposit funds into a health savings account (HSA) and deduct the amount from taxable income. Withdrawals from the account will be tax free when used to pay qualified medical expenses. ¶6760 Other Deductions from Gross Income Jury pay surrendered to an employer and interest income forfeited because of premature withdraw- als may be deductible from gross income. ANSWER TO KEYSTONE PROBLEM—CHAPTER 6 (¶6401.) The depreciation deduction allowable to Able Garment Co. on its 2005 and 2006 tax returns based on regular MACRS depreciation percentage rates is computed as follows: 2005 2006 Year Class Percentage MACRS Asset Purchased Cost Life Amount 1.Car . .............................. 2005 $19,000 5 yr. 20%* $2,960*** $4,800**** 2.Car . 2005 22,000 5 yr. 20%* 2,960*** 4,800**** 3. Office furniture. .................... 2005 14,250 7 yr. 14 2 /7%* 2,036 3,490 4. Business equipment . ................ 2005 38,950 7 yr. 14 2 5,566 9,539 5. Building (office) Sept. 2005 95,000 39 yr. SL ** 710 2,436 Total MACRS depreciation to be claimed on tax return $14,432 $25,265 —————— * 1 /2 year in year of acquisition **3.5 months in year of acquisition ***$3,800 (car limited to $2,960 in first year) (2005 amounts not available at press time) ****$6,080 (car limited to $4,800 in second year) ANSWERS TO QUESTIONS—CHAPTER 6 Topical List of Questions 1. Categories of Tax Deductions (¶6001) 2. Production of Income Tax Deductions (¶6001 and ¶6025) 3. Deductions for AGI or from AGI (¶6001) 4. Improper Classification of Deductions (¶6001) 5. Trade or Business Expenses (¶6011) 6. Salary Payments to Employee/Owners (¶6011) 7. Small Business Activities (¶6011) 8. Hobby Activities (¶6011) 9. Business v. Personal Expenses Allocation (¶6011) 10. Tax-Exempt Income Expenses (¶6011) 11. Independent Contractor v. Employee (¶6011) 12. Losses Deductions (¶6055) 13. Substantiation of Deductions (¶6125) Chapter 6
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Instructor's Manual 87 14. Advertising Expenses (¶6201) 15. Business v. Nonbusiness Bad Debts (¶6215) 16. Bad Debt Deduction Requirements (¶6215) 17. Salaries and Wages Deduction (¶6225) 18. Rental Payments (¶6255) 19. MACRS Depreciation (¶6401) 20. Election to Expense Capital Assets (¶6401) 21. Amortization of Intangible Assets (¶6425) 22. Cost Depletion v. Percentage Depletion Method (¶6451) 23. Business Gifts (¶6555) 24. Transportation Expenses (¶6601) 25. Travel Expenses (¶6635) 26. Entertainment Expenses (¶6655) 27. Employee Moving Expenses (¶6681) Answers to Questions Categories of Tax Deductions 1. Tax deductions for an individual taxpayer can be divided into the following three categories: (1) Trade or business deductions (2) Production of income deductions (3) Personal deductions Production of Income Tax Deductions 2. Production of income tax deductions are expenses which do not qualify as trade or business expenses yet are still deductible expenses for tax purposes. Production of income expenses are investment expenses and tax planning and compliance expenses. Production of income deductions include expenses incurred for the production or collection of income; expenses incurred for the
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This homework help was uploaded on 04/09/2008 for the course ACCT Acct 308 taught by Professor Lau during the Summer '06 term at CSU Fullerton.

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Chap6%20HW%20Solutions - 86 CCH Federal Taxation-Basic...

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