Tyler Keegan

Tung Nguyen
Group #9
Tax Case Study Project Explanations

1. Robert has income of $175,000 in 2015. This includes his 2015 salary of $125,000 and
his 2014 bonus of $50,000. Since he is using cash basis, his 2015 bonus of $83,000 is not
included because he doesnt receive it until 2016.

2. Roberts $12,000 of employment related expenses will not be deductible since he was
reimbursed buy his employer. He cant deduct the $3,000 paid in traffic fines, as
violation of the law is not deductible.

3. Lisa will be able to get a deduction for the money she spent on supplies ($5,000), legal
fees ($7,000), CPA license fee ($1,500), subscription to professional journals ($6,500),),
and new computer for the office ($10,000). These are all business-related expenses, and
taken as a deduction for AIG. Only $1,125 of the dues to professional organizations is
deductible since 10% is for PACs which is not deductible. Since it is not a business
related expense, the $10,000 in volunteer time is not deductible. Her car (Acura) is a
mixed used asset because she uses it for personal and business reasons. Even though she
drove the car 20,000 miles, only the 8,000 miles for job assignments is deductible.

4. Since Lisa wants to use a simplified method, she can take a deduction for a max of 300
sq. feet as that is the limit for home offices. However, any expenses spent on her house
will not give a tax benefit because she does not use the office exclusively for business
(falling asleep and watching TV is personal use).

5. Lisa does not have to pay any tax on the 150 shares of Pfizer since they were a gift from
her father. The purchase price for these 150 shares is the cost basis for her father
($1,300). Dividends received on the Texas Instrument shares are tax free because of the
capital recovery concept. Since all of the stocks are held for longer than a year, they
result in Long Term Capital Gains or Losses. Sale of 150 Pfizer shares results in a $4,700
LTCG. Sale of 300 Texas Instruments shares results in a $9,290 LTCG. Sale of 50
Allergan shares results in a $1,275 LTCL. Sale of 25 ExxonMobil shares results in a
$1,800 LTCL. Sale of 60 Texaco shares results in a $1,310 LTCG. Sale of 300 HulaHoop
shares results in a $2,975 LTCG. The result is a net Long Term Capital Gain of $15,200.

6. Robert cant take any capital loss on the 5,000 shares of Zyniga. There was no Arms-
Length Transaction on the stock. Robert would have to first sell the stock to recognize a
loss.
7. Lisas consulting income of $140,000 is taxable income under all-inclusive income.
Smiths $25,000 municipal bond income is non-taxable. Investment income of $19,000
from Ford Motor Company bonds is taxable income under all-inclusive income. The
Loan payment of $30,000 by Sarah Duval is not taxable as Lisa is simply receiving her
money back and not receiving a profit. The $20,000 in cash from Lisas parents are not
taxable since they are gifts. On the other hand, Lisas parents will have to pay a gift tax
since the amount exceeds the $10,000 max. Federal income tax refund of 9,000 is tax free
because federal refunds are never taxable. Lisa wont be able to take a loss of $6,000 for
the work she did 2013 because she never showed it as an income and is using cash basis.
Also, Lisa does not include $15,000 as income as the cash has not yet been received.

8. $4,000 spent on life insurance premiums are not deductible since the payments arent
taxable. The $20,000 spent on non-coverable dental medical expense does not have any
tax benefits for the Smiths since to get an itemized deduction for medical expense, the
amount has to be higher than 10% of adjusted gross income. The $8,000 spent on state
and local taxes is not deductible. The $11,000 contribution to Salvation Army is
deductible since it is a charitable organization. The contributions to a family that has
fallen on hard times is likely not deductible as it is not an official charitable organization.
If the Smiths can prove it was a charitable contribution then it may be deductible.
$10,000 donated to the committee for BillHill is not deductible under the legislative
Grace concept. Since the $30,000 stock is donated to Canada and is not taxed, it will not
give any tax benefit. The Smiths will recognize a $6,000 write off for the stock donated
to Goodwill Insustries but cannot recognize a $4,000 loss. The Smiths will have to count
the $10,000 in gambling winnings under all-inclusive income. The gambling loss will be
limited $10,000 as it cannot exceed gains unless it is your profession.

9. On Lisas tract of land sale, she recognizes a gain of $400,000. The land is sold for
$900,000 ($700,000 worth of land $200,000 cash) while it has a basis of $500,000.

10. The Smiths can only claim Anna Marie as a dependent. Anna Marie does not generate
any income, is under 18, and gets more than 50% of her expenses paid for. They will not
be able to claim Tyler as a dependent because he generates his own income and does not
pass the gross income test. He cannot assign his income to his parents under assignment
of income and will have to file taxes on his own. The Smiths will be able to get a
personal exemption of $4,050 for their daughter. They will not receive a child credit of
$1,000 because their daughter is not under 17 at the end of the year.