Federal Taxation Week 2 Questions-Answers

Federal Taxation - Q4-25 Taxable rental income Rent is taxable when received Security deposit that is refundable is not taxable $9,000 Q4-32 a

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Unformatted text preview: Q4-25 Taxable rental income Rent is taxable when received. Security deposit that is refundable is not taxable. $9,000 Q4-32 a. Property settlement does not affect Arnold or Barbara's taxable income. b. Arnold's payment of mortgage is also considered property settlement and it does not affect Arnold or Barbara's taxable income. c. $1500 is for child support, which does not have any tax ramifications. The other half, $1500, is alimony paid to Barbara. Alimony is taxable to payee and deductible to payer. So Barbara should include $1500 in gross income and Arnold can deduct $1500 from his gross income. Q5-26 US Series EE bonds: the interest on US Series EE bonds is tax exempt when the interest is used for educational purpose; otherwise, it's a tax deferred bond, which means the purchaser pays tax when he withdraws the money. bonds for industrial development for mass transit: it's private activity bond which is not tax exempt. qualified veterans' mortgage bonds: Interest on a private activity bond that is a qualified bond is tax exempt. The interest is a preference item and may be subject to AMT. Therefore, the investor should choose qualified veterans' mortgage bonds to minimize his tax liability. Q6-29 Salaries and wages to employees Purchase of new office building Payment of illegal parking fines President's daughter's wedding Entertainment expenses related to business Interest on money borrowed to buy tax-exempt securities Q6-34 Salary and wage expense Tax expense deductible not deductible not deductible not deductible 50% deductible not deductible salaries and wages are business expense capital expenditure is not deductible illegal or in violation of public policy it's considered personal expense meals & entertainment expense is 50% deductible expense related to tax-exampt income is not deductible $675,000 $51,638 The tax expense incurred only consists of the employer's share of OASDI and HI. ...
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This note was uploaded on 03/18/2012 for the course ACCT 550 taught by Professor Cavendar during the Spring '10 term at Keller Graduate School of Management.

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