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week 3 - Week 3 Problem Set Padavano Week 3 Problem Set...

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Week 3 Problem Set Padavano Week 3 Problem Set Randi Padavano ACC 547/Taxation Cecil Lucy November 28, 2011
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Week 3 Problem Set Padavano 67. Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. 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
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Week 3 Problem Set Padavano 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. Answer: $58,050 Ken’s Gross Income Description Amount Explanation a. Illegal Income $1,200 Gross income includes all income from all sources, illegal or legal b. Gain on stock sale $1,000 Ken recognizes a $1,000 gain on the sale [$32,000 (32 x $1,000) - $31,000 (31 x $1,000)]. c. Annuity $14,500 25,000 – (210,000 / 20) d. Social Security 11,050 MAGI + ½ benefits exceeds $34,000 (13,000 x 84%) e. Foreign earned income 0 91,400 x 181/365 = $45,324 maximum exclusion. $18,000 all excluded. f. Scholarship 200 $200 towards car payments does not qualify for exclusion, but $300 towards books may be excluded g. Paycheck from son 0 Under assignment of income doctrine, the income is taxed to the taxpayer who earned the income h. State income tax refund 50 Portion of refund he received tax benefit for last year i. Interest income 30,000
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