6 59 a True See Example 15 p 6 16 and 529 b True Employees who receive

6 59 a true see example 15 p 6 16 and 529 b true

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6-59 a. True. (See Example 15, p. 6-16 and § 529.) b. True. Employees who receive reimbursements for their child care expenses or whose employer provides child care in kind (e.g., a daycare facility) may ex- clude up to $5,000 annually. (See Example 28, p. 6-28 and § 129.) c. True. (See p. 6-28 and § 127.) d. False. Section 127 provides an annual exclusion of up to $5,250 for employer-pro- vided educational assistance (i.e., tuition, fees, books, supplies and equipment). The exclusion applies to reimbursements or direct payment of expenses related to both undergraduate and graduate level courses. (See p. 6-28 and § 132(a)(7).)
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Solutions to Problem Materials 6-23 All materials are copyright © Pratt-Kulsrud, LLC 6-60 Part I: 2015 Joint Return Income: H’s salary at the bank $125,000 W’s salary as a nurse 50,000 Net profit from jewelry store 75,000 $250,000 Other income: Dividend from ABC Corporation 3,000 Interest on corporate bonds . 7,000 W’s check for outstanding service (1) 400 Group-term life insurance (2) . 48 Land rent (3) . 13,000 Gain on sale of DEF stock (4) . 3,200 Adjusted gross income . $276,648 Less: Itemized deductions Interest on home mortgage . $ 18,000 Property taxes . 4,000 Charitable contributions 6,000 $ 28,000 Total itemized deductions (28,000) Personal exemptions (4 × $4,000 in 2015) (16,000) Taxable income $232,648 Computation of tax liability (2015 married filing jointly rates) Tax on ordinary income ($232,648 − $3,000 dividend − $3,200 gain = $226,448) Tax on $226,448 (2015) . $ 50,457 Tax on LTCG (15% × $3,200) . 480 Tax on dividend (15% × $3,000) 450 Tax before credits $ 51,387 Less: Federal income tax withheld ($11,000 + $30,000) . (41,000) Estimated taxes (35,000) Federal income tax refund . $ 24,613 Notes concerning taxable items: 1. Although the money was received as a length-of-service award, it is taxable to H because only awards of tangible personal property (i.e., not money) qualify as such. (See p. 6-19.)
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6-24 Chapter 6 Gross Income: Inclusions and Exclusions All materials are copyright © Pratt-Kulsrud, LLC 2. H’s taxable income is $48, computed as follows: Total insurance coverage $90,000 .00 Less “tax-free” insurance (50,000 .00) Insurance coverage subject to tax $40,000 .00 Cost of coverage per $1,000 of protection for one- month period . 0 .10 Cost per year per $1,000 coverage includable in H’s gross income (0 .10 × 40 × 12) . $ 48 .00 (See Exhibit 6-6, Example 21, and pp. 6-23 and 6-24.) 3. The value of property received as an inheritance is nontaxable. However, this exclusion does not extend to the $13,000 received from rental of land to the neighboring farmer. (See p. 6-35.) 4. H has an LTCG of $3,200, calculated as follows: Sales proceeds (50 shares × $100 per share) $ 5,000 Less: basis (1,800) LTCG . $ 3,200 Additional comments concerning nontaxable items: The $750 in interest on the State of Michigan bonds is nontaxable. (See Example 4 and p. 6-7.) This distribution will be treated as a nontaxable stock dividend (i.e., common stock distributed to common shareholders with no option to receive cash or other assets in lieu of the XYZ stock). H and W’s basis of $15,000 is allocated among the 10,000 shares (9,000 original shares plus 1,000 new shares) of common stock, or a basis of $1.50 per share ($15,000 ÷ 10,000 shares). (See Example 2 and p. 6-6.) The meals eaten by W were consumed on the hospital’s premises and were provided for the hospital’s convenience. Consequently, the value of the lunch-
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  • Taxation in the United States, Income tax in the United States

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