Fundamentals of Taxation

Business

Quiz 4 :

Adjustments for Adjusted Gross Income

Quiz 4 :

Adjustments for Adjusted Gross Income

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Karen and Carl Sanders obtained a divorce effective May 1, 2010. In accordance with the divorce decree, Carl was required to pay Karen $3,500 per month until their only child turns 18; then the payments would be reduced to $2,000 per month. Karen has full custody of the child and appropriately takes the dependent deduction and child credit. Furthermore, he was to transfer title of their house, which had a cost of $150,000 and a fair value of $200,000 on the date of transfer, to Karen and was to continue making the monthly mortgage payments on behalf of Karen of $2,000. Carl works for a large oil distributor in Santa Fe, New Mexico, and after the divorce lives at 1132 Northgate Avenue in Santa Fe. Karen's social security number is 412-34-5671, and Carl's number is 412-34-5670. His W-2 contained the following information: Wages of $113,100.25. Federal Income Tax Withheld of $28,275.12. Social Security Wages of $106,800. Social Security Tax Withheld of $6,621.60 Medicare Wages of $113,100.25. Medicare Tax Withheld of $1,639.95. He also received a Form 1099-INT from First New Mexico Bank with $336 of interest income in box 1 and a 1099-MISC from Oil Research Quarterly Magazine with other income of $490 for an article that he wrote. Prepare a Form 1040 and a Schedule M for Carl.
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What is a qualified education loan for purposes of the student loan interest deduction?
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Tax law provides certain benefits for student loans who obtain higher education for expenses that occur when they attend qualified higher education. The expenses are paid when they borrow money from bank or any student loan program.
Also loan amount is provided for a person who is legally eligible to pay the interest amount and not any dependant person can obtain the amount.
Qualified educational loan is one obtained for payment for higher education claimed by the taxpayer on behalf of their spouse or any person dependant on the individual. This loan amount should be used only for educational expense and no other payment will be entertained.This loan amount is disbursed 3 months before or after the completion of academic period and the education may be undergraduate or graduate level of study.
Thus, qualified educational loan refers to payment incurred by the taxpayer for educational purpose and they are solely responsible for repayment of the amount within the given time period.

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What are the consequences of an employer contribution to an employee's HSA?
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Health savings account is a tax exempted account that are created to meet the medical expense of a taxpayer, their spouse or any person dependent on them. The contributions to the account are made by the taxpayer which are tax free and its distributions are also tax exempted.The taxpayers have certain criteria to be met with to qualify for the deduction over health savings account and have to be a part of high deductible health plan.
An individual can become eligible for deduction of health savings account when-
• They are above 65 years and self employed
• They have to be employed in a company that does not provide any insurance coverage.• Employee of an employer who maintains high deductible health plan.
• An employee who has purchased a high deductible policy.
These criteria have to be met to qualify for deduction over the account and its interest. Also, the taxpayer should not be dependent over any other individual financially.
Thus the criteria for an employee to claim deduction over health savings account is that they can be self-employed or employee of a company that provides no health insurance cover or for an employer who holds high deductible health plan.

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In February 2010, Phillip and Barbara Jones, and their two dependent children, who are both over 17, moved from Chicago to Albuquerque, a distance of 1,327 miles which they drove in their own car. The children's names are Roger and Gwen. The move was a result of a job transfer for Phillip. The distance from their old home to Phillip's old office was 30 miles. Barbara quit her job in Chicago and decided to perform volunteer work for a year before seeking further employment. Phillip and Barbara incurred expenses of $4,550 to the moving company (which included $320 for furniture storage), hotel charges of $550, meals of $712 en route from Chicago to Albuquerque. Their new home was located at 7432 Desert Springs Way. Phillip, but not Barbara, was employed in the new location throughout the year. Phillip's social security number is 412-34-5670, Barbara's is 412-34-5671, Roger's is 412-34-5672 and Gwen's is 412-34-5673. Phillip is an attorney for a national law firm; his W-2 contained the following information: Wages of $124,220.45. Federal Income Tax Withheld of $29,765.12 Social Security Wages of $ 106,800. Social Security Tax Withheld of $6,621.60 Medicare Wages of $124,220.45 Medicare Tax Withheld of $1,801.20 Employer Moving Expense Reimbursement (Box 12, code P) of $5,000. In addition, both he and Barbara received 1098-E's from the Federal Student Loan Program. Philip's had student loan interest of $1,050 and Barbara's had student loan interest of $750. Prepare a Form 1040 and a Schedule M for Phillip and Barbara, as well as a Form 3903 and a student loan interest worksheet.
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A taxpayer incurs moving expenses in conjunction with a job-related move that meets the distance test. At the end of the year, the taxpayer has not yet met the time test. Under what circumstances can the taxpayer deduct the moving expenses?
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In January 2010, Jeff incurred $1,200 of moving expenses when he moved from Des Moines to Detroit. When he moved, he had no job but found one a week after moving. He stayed on that job for two months, changed to another job for four months, and changed again to a long-term position that he held for the remainder of the year. What is the amount of moving expense deduction Jeff can report in 2010, if any?
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Explain the purpose of a health savings account (HSA).
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Refer to Question 15. How does the tax code attempt to remedy this seeming inequity?
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Describe the types of expenses that can be deducted for moving expenses.
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Explain why self-employed taxpayers pay double the amount of FICA taxes that regular wage earners do.
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Explain the two limitations associated with the deduction for health insurance by self-employed individuals.
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What are the qualifications to be eligible for a Health Savings Account deduction?
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For purposes of the student loan interest, what is modified AGI, and how is it determined?
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Brenda Carlyle attended Kansas State University during 2006-2010. She incurred education expenses of $10,000. To finance her education, she borrowed $7,000 through a federal student loan program and borrowed another $3,000 from Kansas State Credit Union for educational purposes. After graduation, she accepted a position with the Houston Deloitte Touche office and moved there in June 2010. She lives at 4560 Apple Blossom Lane with her cat, Misty. Her social security number is 412-34-5670 Her W-2 contained the following information: Wages of $61,533.05. Federal Income Tax Withheld of $8,829.95. Social Security Wages of $61,533.05. Social Security Tax Withheld of $3,815.05. Medicare Wages of $61,533.05. Medicare Tax Withheld of $892.23. In moving to Houston, she incurred the following moving expenses: $475 in gasoline. $295 for renting a truck from IGOTYA rentals. $75 in food. $410 for motel lodging on the way to Houston. She also received two 1098-E's. One was from the Federal Student Loan Program which showed $850 of student loan interest and the other was from the Kansas State Credit Union and showed $450.75 of student loan interest. Prepare a Form 1040 and a Schedule M as well as a Form 3903 and a student loan interest worksheet for Brenda.
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Explain the three tests associated with deductibility of moving expenses.
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Explain the limitations associated with the deductibility of student loan interest.
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In 2006, Mary incurred a loan to pay for qualified higher education expenses for her 20-year-old daughter who was a dependent. In 2010, her daughter graduated from college, moved away to start a new job, and ceased to be a dependent on Mary's tax return. Mary started making payments on the loan in 2010. Without regard to any modified adjusted gross income limitations, is Mary permitted to deduct interest on the loan?
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For purposes of student loan interest, what is an eligible educational institution?
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Nathan quit his job in Los Angeles and moved to Seattle, incurring $1,500 of moving expenses. Upon arriving in Seattle, he sought employment and found a position three weeks later. Without regard to the time test, what amount, if any, of his moving expenses can Nathan deduct?
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What are qualified education expenses for purposes of the student loan interest deduction?
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