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Income tax concepts unit 2


Using your text, complete the following. In these problems, apply your knowledge of the inclusions and exclusions recorded for tax purposes on income tax forms.

● Problem 34, on page 3-35.

● Problem 38, on page 3-36.

● Problem 39, on page 3-37.

● Problem 41, on page 3-37.

● Problem 43, on page 3-37.


In 2014   Marie borrowed $10,000. In 2019 the debt was forgiven. Marie does not believe   she should report the forgiveness of debt as income because she received   nothing at the time the debt was forgiven in 2019. Do you agree or disagree?   Support your position.


Determine   the amount of tax liability in the following situations. In all cases, the   taxpayer is using the filing status of married filing jointly.

a. Taxable income of $62,449 that   includes a qualified dividend of $560.

b. Taxable income of $12,932 that includes   a qualified dividend of $322.

c. Taxable income of $144,290 that   includes a qualified dividend of $4,384.

d. Taxable income of $43,297 that   includes a qualified dividend of $971.

e. Taxable income of $262,403 that   includes a qualified dividend of $12,396.


Each of   the following taxpayers received a state income tax refund in 2019. In all   cases, the taxpayer has a filing status of married filing jointly. What   amount of the refund is properly included in 2019 income?

a. Refund of $729; taxpayer did not   itemize deductions in 2018.

b. Refund of $591; taxpayer had   $25,391 of itemized deductions in 2018.

c. Refund of $927; taxpayer had   itemized deductions of $24,300 in 2018.

41. Carl and Karina file a joint return. Karina earned a salary of $38,000 and received dividends of $3,000, taxable interest income of $2,000, and nontaxable interest of $1,000. Carl received $9,000 of social security benefits and a gift of $6,000 from his brother. What amount of social security benefits is taxable to Carl and Karina?


43.Burger   Store is located near many large office buildings, so at lunch it is   extremely busy. Burger Store management previously permitted lunchtime   employees a half-hour off-premises lunch break. However, employees could not   easily return in a timely manner. Thus, a new policy was instituted to allow   employees a 20-minute break for free lunch (only on the Burger Store   premises). The company’s accountant believes that the cost of these meals   must be allocated to employees as additional compensation because the meals   do not qualify as a nontaxable fringe benefit for employee discounts. In your   opinion, should the cost of these meals be taxable or tax-free to employees?   Support your answer.



Adjusted Gross Income

Using your text, complete the following. In this problem, apply your knowledge of the adjustments for adjusted gross income that are necessary for completion of income tax forms.

● Problem 45, on page 4-27.

● Problem 47, on page 4-27.

● Problem 50, on page 4-28.

● Problem 53, on page 4-29.

● Problem 55, on page 4-29.

45.Zach attended Champion University during 2014–2018. He lived at home and was claimed by his parents as a dependent during his entire education. He incurred education expenses of $10,000 during college, of which $2,000 was paid for by scholarships. To finance his education, he borrowed $7,000 through a federal student loan program and borrowed another $3,000 from a local lending institution for educational purposes. After graduation, he married and moved with his spouse to a distant city. In 2019 he incurred $700 of interest on the federal loans and $300 on the lending institution loan. He filed a joint return with his spouse showing modified AGI of $128,000. What amount of student loan interest can Zach and his spouse deduct in 2019, if any?

47. Fabian, a single member of the military, was stationed at White Sands, New Mexico. On July 1, 2019, his army company transferred him to Florida as a permanent duty station. Fabian worked full time for the entire year. During 2019 he incurred and paid the following expenses related to the move:

Pre-move house-hunting costs  $1,500

Lodging and travel expenses (not meals) while moving  1,800

Cost of moving furniture and personal belongings  2,700

He did not receive reimbursement for any of these expenses from the army; his AGI for the year was $35,500. What amount can Fabian deduct as moving expenses on his 2019 return?

50.Juan, who is single, is a self-employed carpenter as well as an employee of Frame It, Inc. His self-employment net income is $35,000, and he received a W-2 from Frame It for wages of $25,000. He is covered by his employer’s pension plan, but his employer does not offer a health plan in which he could participate.

a.Up to how much of his self-employed health insurance premiums could he deduct for this year, if any? Why?

b.How much of Juan’s self-employment taxes would be deductible

53.Under the terms of a divorce decree executed May 1, 2018, Ahmed transferred a house worth $650,000 to his ex-wife, Farah, and was to make alimony payments of $3,000 per month. The property has a tax basis to Ahmed of $300,000.

  1. How      much of this must be reported on Farah’s 2019 tax return?
  2. Of      that amount, how much is taxable gain or loss that Farah must recognize      related to the transfer of the house?

55.Indicate whether each of the following items is considered a for AGI (above-the-line) deduction for the 2019 tax year:

Student loan interest.

Gambling losses.

Early withdrawal penalty.

Child support payments.

Charitable contributions.

One-half of self-employment taxes.


Scholarships for tuition and books.

Moving expenses for service members.

Property taxes.

Self-employed health insurance premiums

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