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FTax IRGTB ch05 p001-040

FTax IRGTB ch05 p001-040 - 5 Gross Income Solutions to Tax...

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Gross Income Solutions to Tax Return Problems 5-52 The treatment of the various items is discussed below. 1. David s salary of $70,000 is taxable and is reported on line 7 of Form 1040. The withholding is treated as a credit against the taxes owed and is reported on line 54 of Form 1040. 2. The $3,000 bonus is taxable as wages. The bonus is reported in the current year under the doctrine of constructive receipt. As a practical matter, the bonus should be included with the wages reported on his W-2. 3. The total sales price of the bond must be reduced by the $700 of interest accrued to the date of the sale. This interest is reported as interest income on line 8. The sale of the bond results in a capital loss of $1,000 ($9,000 ± $10,000). This amount should be reported on Schedule D and line 13. 4. The Gibbs report none of the $30 as income because they do not own the bonds. Income from property is taxed to the owner of the property. 5. The lottery winnings of $50 are fully taxable. 6. The sale of the stock results in a long-term capital loss of $4,000 ($10,000 ± $14,000). The loss is reported on Schedule D. 7. Barbara s income from self-employment of $5,000 is reported on Schedule C along with the deduction of $100 for the software. The net income of $4,900 is subject to self-employment tax. 8. The medical expenses of $7,468 are deductible to the extent they exceed 7.5% of the couple s A.G.I. or $1,820 [$7,468 ± (7.5% × $75,304 ¼ $5,648)]. The mortgage interest $8,500 on a primary or secondary residence is fully deductible, as are the property taxes of $5,000, state income taxes of $3,750 and the charitable contributions of $2,000 for a total of $21,070. Because the itemized deductions exceeds the standard deduction, it is better for the taxpayers to itemized their deductions. 9. The Gibbs are entitled to the child tax credit since both children are less than 17 years of age and are claimed as dependents. The credit is $1,000 per child for a total of $2,000. The child tax credit is phased out if income exceeds a certain threshold but the Gibbs income does exceed this amount so the phase-out does not apply and consequently the Gibbs are allowed the entire credit of $2,000. 10. The solution reflects the Making America Work credit of $800 which was available in 2010. 5 5-1
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Tax Return Problem 5-52 Form 1040 Department of the Treasury—Internal Revenue Service (99) IRS Use Only—Do not write or staple in this space. U.S. Individual Income Tax Return 20 10 Name, Address, and SSN See separate instructions. P R I N T C L E A R L Y For the year Jan. 1–Dec. 31, 2010, or other tax year beginning , 2010, ending , 20 OMB No. 1545-0074 Your first name and initial Last name Your social security number If a joint return, spouse’s first name and initial Last name Spouse’s social security number Home address (number and street). If you have a P.O. box, see instructions. Apt. no. Make sure the SSN(s) above and on line 6c are correct.
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FTax IRGTB ch05 p001-040 - 5 Gross Income Solutions to Tax...

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