Individual Taxation

Front 1

Don and Cynthia Wallace filed a joint return for 2010 in which they reported adjusted gross income of $35,000. During 2010 they made the following contributions to qualified organizations:



Land held 3 years (stated at fair market value) donated to church for new building site



$22,000

Cash contributions to church


300

Cash contributions to the local community college


200

Assuming that the Wallaces did not elect to reduce the deductible amount of the land contribution by the property’s appreciation in value, how much can they claim as a deduction for charitable contributions in 2010?

Back 1

Since the cash gifts of $300 to church and $200 to the community college are only subject to the 50% of AGI limitation, they are fully deductible. The deduction for the gift of land is limited to 30% of AGI (30% x $35,000 = $10,500) because the land is appreciated capital gain property. Therefore, the total deduction for charitable contributions is $11,000.

Front 2

Willard, a single taxpayer, had $60,000 in adjusted gross income for 2010. During 2010 he contributed $25,000 to his church. He had a $15,000 charitable contribution carryover from his 2009 church contributions. What was the maximum amount of properly substantiated charitable contributions that Willard could claim as an itemized deduction for 2010?

Back 2

The requirement is to determine the maximum amount of properly substantiated charitable contributions that Willard could claim as an itemized deduction for 2010. Willard gave $25,000 to his church during 2010 and had a $15,000 charitable contribution carryover from 2009, resulting in a total of $40,000 of contributions. Since an individual's deduction for charitable contributions cannot exceed an overall limitation of 50% of adjusted gross income, Willard's charitable contribution deduction for 2010 is limited to ($60,000 AGI x 50%) = $30,000. Since Willard's 2010 contributions will be deducted before his carryforward from 2009, Willard will carry over $10,000 of his 2009 contributions to 2011.

Front 3

Tana’s divorce decree requires Tana to make the fol­lowing transfers to Tana’s former spouse during the current year:


Alimony payments of $3,000

Child support of $2,000

Property division of stock with a basis of $4,000 and a fair market value of $6,500

What is the amount of Tana’s alimony deduction?

Back 3

Alimony is a cash payment to (or on behalf of) a spouse or former spouse that is required by a divorce decree or written separation agreement. Alimony does not include child support, or any noncash property settlements. Here, Tana’s alimony deduction is limited to the alimony pay­ments of $3,000.

Front 4

Viking Corp. manufactures action figures for children. During 2010, Viking purchased $830,000 of production machinery to be used in its business. For 2010, Viking’s taxable income before any Sec. 179 expense deduction was $140,000. What is the maximum amount of Sec. 179 expense election Viking will be allowed to deduct for 2010 and the maximum amount of Sec. 179 expense election that can carry over to 2011?

Back 4

Sec. 179 permits a taxpayer to treat up to $250,000 of the cost of qualifying depreciable personal property as an expense rather than as a capital expenditure. However, the $250,000 maximum is reduced dollar-for-dollar by the cost of qualifying property placed in service during the taxable year that exceeds $800,000. Here, the maximum amount that can be expensed is $250,000 – ($830,000 – $800,000) = $220,000 for 2010. However, this amount is further limited as a deduction for 2010 to Viking's taxable income of $140,000 before the Sec. 179 expense deduction. The remainder ($220,000 – $140,000 = $80,000) that is not currently deductible because of the taxable income limitation can be carried over and will be deductible subject to the taxable income limitation in 2011.

Front 5

Taylor, an unmarried taxpayer, had $90,000 in adjusted gross income for year 13. During year 13, Taylor donated land to a church and made no other contributions. Taylor purchased the land in year 1 as an investment for $14,000. The land’s fair market value was $25,000 on the day of the donation. What is the maximum amount of charitable contribution that Taylor may deduct as an itemized deduction for the land donation for year 13?

Back 5

Since the land was purchased as an investment for $14,000 in year 1, a sale in year 13 would have resulted in a LTCG. As a result, the amount of Taylor’s charitable contribution is the land’s FMV of $25,000, which would then be subject to a 30% of AGI limitation. However, since Taylor had $90,000 of AGI, all $25,000 of land contribution would be allowed as an itemized deduction for year 13.

Front 6

Jim Planter, who reached age 65 on January 1, 2010, filed a joint return for 2009 with his wife, Rita, age 50. Mary, their 23-year-old daughter, was a full-time student at a college until her graduation on June 2, 2009. The daughter had $6,500 of income and provided 25% of her own support during 2009. In addition, during 2009 the Planters were the sole support of Rita’s niece, age 28, who had no income. How many exemptions should the Planters claim on their 2009 tax return?

Back 6

4-There is one exemption for Mr. Planter, and one exemption for his spouse. In addition, there is one dependency exemption for their daughter who is a qualifying child (i.e., she did not provide more than half of her own support, and she is a full-time student under age 24). There is also one dependency exemption for their niece who is a qualifying relative (i.e., they provided more than half of her support, and her gross income was less than $3,650). However, there is no additional exemption for being age sixty-five or older.

Front 7

During the current year Alfred Allen sustained a serious injury in the course of his employment. As a result of this injury, Allen received the following amounts during the same year:

Workers’ compensation


$2,400

Reimbursement from employer’s accident and health plan for medical expenses paid by Allen


1,800

Damages for personal physical injuries


8,000

How much of the above amounts should Allen include in his gross income for the current year?

Back 7

None-
All three amounts that Allen received as a result of his injury are excluded from gross income. Benefits received as workers' compensation and compensation for damages for personal physical injuries are always excluded from gross income. Amounts received from an employer's accident and health plan as reimbursement for medical expenses are excluded provided the medical expenses were not previously deducted as itemized deduction

Front 8

A self-employed taxpayer had gross income of $57,000. The taxpayer paid self-employment tax of $8,000, health insurance of $6,000, and $5,000 of alimony. The taxpayer also contributed $2,000 to a traditional IRA. What is the taxpayer’s adjusted gross income?

Back 8

The self-employed taxpayer’s gross income of $57,000 would be reduced by a deduction for 50% of self-employment taxes paid (50% × $8,000 = $4,000), a deduction for 100% of health insurance premiums ($6,000), alimony paid to a former spouse ($5,000), and the $2,000 contributed to a traditional IRA, resulting in AGI of $40,000.

Front 9

Judy Bishop had adjusted gross income of $35,000 in 2010 and itemizes her deductions. Additional information is available for 2010 as follows:

Cash contribution to church


$2,500

Purchase of an art object at her church bazaar (with a fair market value of $500 on date of purchase)



800

Donation of used clothes to Goodwill Charities (fair value evidenced by receipt received)



400

What is the maximum amount Bishop can claim as a deduction for charitable contributions in 2010?

Back 9

The cash contribution of $2,500 and the $400 FMV of used clothing are deductible. The deduction for the art object is limited to the $300 excess of its cost ($800) over its FMV ($500). Therefore, the total deduction is $3,200 ($2,500 + $400 + $300).

Front 10

Nare, an accrual-basis taxpayer, owns a building which was rented to Mott under a 10-year lease expiring August 31, 2014. On January 2, 2010, Mott paid $30,000 as consideration for canceling the lease. On November 1, 2010, Nare leased the building to Pine under a 5-year lease. Pine paid Nare $10,000 rent for the 2 months of November and December, and an additional $5,000 for the last month’s rent. What amount of rental income should Nare report in its 2010 income tax return?

Back 10

Nare's rental income includes the $30,000 lease cancellation payment, the $10,000 rent for the months of November and December, and the $5,000 rent paid in advance for the last month of the lease. Prepaid rent must be included in income in the year received regardless of the period covered or the accounting method used.