ACCT4311 - TAX

HOMEWORK - CHAPTER 6 

36. Clem is married and is a skilled carpenter. Clem’s wife, Wanda, works part-time as a substitute grade school teacher. Determine the amount of Clem’s expenses that are deductible for AGI this year (if any) under the following independent circumstances: 

a. Clem is self-employed and this year he incurred $525 in expenses for tools and supplies related to his job. Since neither were covered by a qualified health plan, Wanda paid health insurance premiums of $3,600 to provide coverage for herself and Clem (not through an exchange). 

$4,125 – The tools and supplies and the health insurance are deductible for AGI.

b. Clem and Wanda own a garage downtown that they rent to a local business for storage. This year they incurred expenses of $1,250 in utilities and $780 of depreciation. 

$2,030 – The utilities and depreciation are deductible for AGI (rental activity).

c. Clem paid self-employment tax of $15,300 (the employer portion is $7,650) and Wanda had $3,000 of Social Security taxes withheld from her pay. 

$7,650 –The employer portion of the self-employment tax is deductible for AGI but the Social Security tax is not deductible.

d. Clem paid $45 to rent a safe deposit box to store his coin collection. Clem has collected coins intermittently since he was a boy and he expects to sell his collection when he retires.
$0 – The safe deposit fee is an itemized deduction (it appears that Clem is investing in rare coins rather than a dealer in coins – a business).

ACCT 4311 - Homework Assignments: Chapter 1

ACCT4311-PRINCIPLES OF FEDERAL INCOME TAXATION

UHV Texas

Solutions to Homework Assignments: Chapter 1

2. What are some aspects of business that require knowledge of taxation? What are some aspects of personal finance that require knowledge of taxation?

Taxes play an important role in fundamental business decisions such as the following:
 What organizational form should a business use?
 Where should the business locate?
 How should business acquisitions be structured?
 How should the business compensate employees?
 What is the appropriate mix of debt and equity for the business?
 Should the business rent or own its equipment and property?
 How should the business distribute profits to its owners?

One must consider all transaction costs (including taxes) to evaluate the merits of a transaction.

Common personal financial decisions that taxes influence include: choosing investments, retirement planning, choosing to rent or buy a home, evaluating alternative job offers, saving for education expenses, and doing gift or estate planning