Since these expenses relate to beths cpa practice and

This preview shows page 8 - 11 out of 34 pages.

33.Since these expenses relate to Beth’s CPA practice and all are paid by her, she candeduct her expenses and those for Steve in calculating AGI. The expenses reduce herAGI by $3,575.Conference registration ($500 + $500)$1,000Airline tickets ($900 + $600)1,500Taxi fares75Lodging ($700 + $300)1,000$3,575pp. 6-2 and 6-334.a.Carlton’s AGI is calculated as follows:Gross income:Salary income$72,000Dividend income4,000Interest income3,000$79,000
Deductions and Losses: In General6-9Deductions forAGI:Alimony paid$12,000Traditional IRA contribution3,000Loss on sale of stock900(15,900)Adjusted gross income$63,100b.Itemized deductions:Contributions to First Church$ 2,500Real estate taxes on personal residence1,800Mortgage interest on personal residence6,000State income taxes3,500Total itemized deductions$13,800Since the standard deduction for 2004 of $4,850 is less than Carlton’s itemizeddeductions of $13,800, he should itemize deductions in 2004. pp. 6-3 to 6-535.With IRAWithout IRAContributionContributionGross income$10,200$10,200Contribution to IRA(3,000)(-0-)AGI$ 7,200$10,200Itemized deductions:Charitable contribution$ 2,000$ 2,000Medical expenses [$2,200 – (7.5% X AGI)]1,6601,435Casualty loss [($3,500 – $100) – (10% X AGI)]2,6802,380Total itemized deductions$ 6,340$ 5,815Thus, the $3,000 IRA contribution would increase Julie’s itemized deductions by $525($6,340 – $5,815). pp. 6-3 to 6-5 and Example 236.a.Drew and Cassie are trying to use the salaries to reduce the taxable income ofThrush to zero ($800,000 – $400,000 – $300,000 – $100,000). By so doing, theycan avoid the potential for double taxation.b.If the salaries paid to the children are deemed reasonable, Thrush’s taxableincome is reduced to zero. Each child will report gross income of $25,000.The more likely result is that a substantial portion of the $100,000 salarypayments will be labeled as unreasonable compensation. In this case, Thrush’staxable income will be increased by the amount of unreasonable compensation.Each of the children will report gross income equal to the amount labeledreasonable compensation. Drew and Cassie will have additional dividendincome equal to the amount of the unreasonable compensation.pp. 6-6 and 6-7 37.a.Jill can deduct the following losses against the $25,000 recognized gain:Loss on sale of Green, Inc. stock$ 3,500Loss on sale of Aqua, Inc. bonds1,500Loss on sale of rental property2,300Loss on sale of investment land5,000
6-10 2005 Comprehensive Volume/Solutions Manual$12,300The $1,200 loss on the sale of Jill’s personal use refrigerator, the $7,000 loss onthe sale of her personal use car, and the $9,000 loss on the sale of her personaluse vacation home are not deductible because they are personal use assets. b.The $12,300 deductible loss is classified as a deduction forAGI (i.e., it offsets$12,300 of the $25,000 recognized gain), since it is a loss on the sale of businessand investment property.pp. 6-4 and 6-738.a.Under the cash method, Falcon can deduct only the salaries paid of $500,000.The $45,000 of unpaid salaries can be deducted when paid next year.b.Under the accrual method, the $500,000 is deductible because both the all eventstest and the economic performance test are satisfied. These tests also are satisfiedfor the $45,000 of unpaid and accrued salaries. Consequently, Falcon can deduct

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture