Question 1. Mr. and Mrs. Jones, ages 40 and 38, have no dependents and plan to file a joint tax return for the year. They have salary income of $70,000, dividend income of $2,300, hobby loss of $1,700, and deductions for adjusted gross income of $4,200. In addition, their itemized deductions total $11,800. Assume a standard deduction amount of $12,600 for married filing jointly status and a personal exemption amount of $4,000. What should be the amount of taxable income for Mr. and Mrs. Jones?
Question 2. Describe the three sources of tax law and the importance of each. Which source do you think is the most important, and why?
Question 3. Jane owns and actively manages an apartment complex. The complex generated a net loss of $45,000 in 2015. If Jane's adjusted gross income before considering the loss is $108,000, and she has no other passive activities, how much of the loss is deductible in 2015?
Question 4. Robert, a single taxpayer, made three gifts this year; $7,500 cash to his nephew; $70,000 cash to a qualified charitable organization; and land to his brother. Robert's tax basis in the land was $350,000, and its fair market value was $450,000 on the date of the gift. Compute Robert's taxable gifts for the year assuming the annual gift tax exclusion is $14,000 per donee.
Question 5. Mr. and Mrs. Adams moved from Chicago, IL to Detroit, MI so that Mrs. Adams could accept employment with Ultra Corporation. As part of her employment contract, Mrs. Adams received a $12,000 moving allowance. What is the effect of this $12,000 cash receipt on the couple's AGI assuming the following?
Their deductible moving expenses totaled $9,000.
Their deductible moving expenses totaled $17,000.
Question 6. During the audit of Mr. and Mrs. Greenwood's income tax return, the revenue agent concluded that the couple had claimed a $26,300 deduction that was not allowed by law. The improper deduction reduced the couple's tax by $9,400. The Greenwood's total tax deficiency was $13,890.
Compute the penalty that the IRS agent can impose if the agent concludes that the improper deduction was attributable to negligence.
Compute the penalty that the IRS agent can impose if the agent concludes that the improper deduction was attributable to fraud.