1) Dolly is a college student who works as a part-time server in a restaurant. Her usual tip is 20% of the price of the meal. A customer ordered a piece of pie and said that he would appreciate prompt service. Dolly abided with the customer's request. The customer's bill was $8, but the customer left a $100 bill on the table and did not ask for a receipt. Dolly gave the cashier $8 and pocketed the $100 bill.
Dolly concludes that the customer thought that he had left a $10 bill, although the customer did not return to correct the apparent mistake. The customer had commented about how much he appreciated Dolly's prompt service. Dolly thinks that a $2 tip would be sufficient and that the other $98 is like "found money." How much should Dolly include in her gross income?
2) Wilbur has been offered a job at a salary that would put him in the 25% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the first offer on an after-tax and insurance basis. The cost of health insurance comparable to that provided by the other potential employer is $9,000 per year. How much more in salary must the second potential employer pay so that Wilbur's financial status will be the same under both offers?
3) Dolly is a cash basis taxpayer.In 2014, she filed her 2013 South Carolina incometax return and received a $2,200 refund.Dolly took thestandard deduction on her 2013Federal income tax return, but will itemize her deductions in 2014.Molly, a cash basistaxpayer, also filed her 2014 South Carolina income tax return in 2014 and received a$600 refund.Molly had$12,000 in itemized deductions on her 2013 Federal income taxreturn, but will take the standard deduction in 2014. How does the tax benefitrule applyto Dolly's and Molly's situation? Explain
4) Adrian was awarded an academic scholarship to State University for the 2014-2015academic year.He received $6,500 in August and $7,200 in December 2014.Adrianhad enough personal savings to pay allexpenses as they came due.Adrian'sexpenditures for he relevant period are as follows:Tuition, August 2014: $3,700Tuition, January 2015: $3,750Room and board: August-December 2014: $2,800; January-May 2015: $2,500Books and educational supplies: Aug-Dec 2014: 1,000; January- May 2015 $1,200
Determine the effect on Adrian`s gross income for 2014and 2015
5) Mauve Corporation has a group hospitalization insurance plan that has a $200deductible amount for hospital visits and a $15deductible for doctor visits and prescriptions. Thedeductible portion paid by employees who have children has become substantial for someemployees. The company is considering adopting a medical reimbursement plan or a flexiblebenefits plan to cover the deductible amounts. Either of these plans can be tailored to meet theneeds of the employers. What are the cost considerations to the employer that should beconsidered in choosing between these plans?
6) Larry and Susan each invest $10,000 in separate investment activities. They each incur deductible expenses of $800 associated with their respective investments. Explain why Larry's expenses might be properly classified as deductions from AGI (itemized deductions) and Susan's expenses might be appropriately classified as deductions for AGI.
7) Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for 2014 by buying $65,000 worth of supplies for his business on December 27, 2014. The supplies will be used up in 2014.
a. Can Aubry deduct the expenditure for 2014?
b. would your answer in part (a) change if Aubry bought the supplies because the seller was going out of business and offered a large discount on the price ? Explain.
8) Paul operates a restaurant in Cleveland. He travels to Columbus to investigate acquiring a business. He incurs expenses as follows: $1,500 for travel, $2,000 for legal advice, and $3,500 for a market analysis. Based on the different tax consequences listed below, describe the circumstances that were involved in Paul's investigation of the business.
a. Paul deducts the $7,000 of expenses.
b. Paul cannot deduct any of the $7,000 of expenses.
c. Paul deducts $5,000 of the expenses and amortizes the $2,000 balance over a period of 180 months
9) Vermillion, Inc., a publicly held corporation (not a TARP recipient), pays the following salaries to its executives: Salary Bonus Retirement Plan Contribution CEO $2,000,000 $100,000 $80,000 Executive vice president 1,800,000 90,000 72,000 Treasurer 1,600,000 -0- 64,000 Marketing vice president 1,500,000 75,000 60,000 Operations vice president 1,400,000 70,000 56,000 Distribution vice president 1,200,000 60,000 48,000 Research vice president 1,100,000 -0- 44,000 Controller 800,000 -0- 32,000 Vermillion normally does not pay bonuses, but after reviewing the results of operations for the year, the board of directors decided to pay a 5% bonus to selected executives. What is the amount of these payments that Vermillion may deduct?
Elisa and Clyde operate a retail sports memorabilia shop. For the current year, sales revenue is $55,000 and expenses are as follows:
Cost of goods sold $21,000
Advertising 1,000
Utilities 2,000
Rent 4,500
Insurance 1,500
Wages to Boyd 8,000
Elisa and Clyde pay $8,000 in wages to Boyd, a part-time employee. Because this amount is $1,000 below the minimum wage, Boyd threatens to file a complaint with the appropriate Federal agency. Although Elisa and Clyde pay no attention to Boyd's threat, Chelsie (Elisa's mother) gives Boyd a check for $1,000 for the disputed wages. Both Elisa and Clyde ridicule Chelsie for wasting money when they learn what she has done. The retail shop is the only source of income for Elisa and Clyde.
a. Calculate Elisa and Clyde's AGI.
b. Can Chelsie deduct the $1,000 payment on her tax return? Explain.
c. How could the tax position of the parties be improved?