★ D avid is age 78, is a widower, and is being claimed as...

  • Baruch College, CUNY
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Chap 3 During the year, Addison is involved in the following transactions. What are the possible Federal income tax effects of these transactions? Lost money gambling on a trip to a casino. Helped pay for her neighbor Howie’s dental bills. Howie is a good friend who is unemployed. Received from the IRS a tax refund due to Addison’s overpayment of last year’s Federal income taxes. Paid a traffic ticket received while double parking to attend a business meeting. Contributed to the mayor’s reelection campaign. The mayor had promised Addi- son to rezone some of her land. Borrowed money from a bank to make a down payment on an automobile. Sold a houseboat and a camper on eBay. Both were personal use items, and the gain from one offset the loss from the other. Her dependent Aunt Katherine died on June 3 of the year. Paid for Katherine’s funeral expenses. Paid premiums on her dependent son’s life insurance policy. 1. (LO 1, 5, 8, 9) • Gambling losses are deductible only to the extent of gambling gains. • Barring an exception for dependents, no deduction is allowed for payment of some other person’s expenses. • A Federal income tax refund is not income because it is an adjustment of a prior expenditure that was not deductible. • Fines and penalties are not deductible. It does not matter whether they stem from personal or business activities. • Political contributions are not deductible. It does not matter that the contribution resulted in a benefit to Addison. • Borrowing money does not result in income. • Gains and losses from the sale of personal use assets cannot offset each other. The gains are taxable, and the losses are not deductible. • A dependency exemption is available for the aunt. The full amount is allowed. • No deduction can be claimed for income tax purposes for the funeral expenses. • Premiums on personal life insurance policies are not deductible even when paid on behalf of a dependent. D avid is age 78, is a widower, and is being claimed as a dependent by his son. How does this situation affect the following? a. David’s own individual filing requirement. b. David’s personal exemption. c. The standard deduction allowed to David. d. The availability of any additional standard deduction.

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