Cengage HW 7 Questions and Answers

Cengage HW 7 Questions and Answers Complete the following statements regarding the general rules for the QBI deduction and how is it computed. The QBI deduction is available to ---------- taxpayers. It applies to the qualified business income generated through -----------. In general, the deduction for qualified business income is the ------ of: -------- of qualified business income, or -------- of modified taxable income. The QBI deduction is a deduction ------ AGI. Further, the deduction is available -------------. 1. noncorporate 2. a sole proprietorship, a partnership, or an S corporation 3. lesser 4. 20% 5. 20% 6. from 7. whether a taxpayer uses the standard deduction or itemizes deductions Complete the following statements below regarding how each can be used in determining the QBI deduction. a. Modified taxable income is taxable income -------- the deduction for qualified business income reduced by any net capital gain. b. Qualified Business income (QBI) is defined as the ordinary income ------------ ordinary deductions a taxpayer earns from a "qualified trade or business" conducted in the United States by the taxpayer. c. A qualified trade or business is any trade or business -------- providing services as an employee. In addition, a "specified services trade or business" ------------ a qualified trade or business. a. before b. less c. excluding, is not Indicate whether the following are considered a specified service trade or business: a. Services consisting of investing and investment management b. Performance of services in law c. Performance of services in accounting d. Performance of services in the performing arts e. Operating a retail furniture store f. Performance of services in athletics a. yes b. yes c. yes d. yes e. no f. yes Identify the requirements that must be met in order to aggregate businesses for purposes of the QBI deduction. a. The same person or group of persons must own, directly or indirectly, 50% or more of each business to be aggregated. b. Control is met for the "majority" of the tax year. c. At least 50% of businesses share the same tax year d. All of the businesses are "specified services" businesses. a. yes b. yes c. no d. no Cindy, who is self-employed, maintains an office in her home that comprises 8% (200 square feet) of total floor space. Gross income for her business is $42,000, and her residence expenses are as follows: Real property taxes = $2,400 Interest on mortgage = 4,000 Operating expenses = 2,200 Depreciation (based on 8% business use) = 450 a. What is Cindy's office in the home deduction based on the Regular Method? b. What is Cindy's office in the home deduction based on the Simplified Method? a. 1138 b. 1000 In 2020, Meghann Carlson, a single taxpayer, has QBI of $110,000 and modified taxable income of $78,000 (this is also her taxable income before the QBI deduction). Given this information, what is Meghann's QBI deduction? 15,600 Jackson, a self-employed taxpayer, uses his automobile 90% for business and during 2020 drove a total of 14,000 business miles. Information regarding his car expenses is listed below. Business parking = $140 Auto insurance = 1,300 Auto club dues (includes towing service) = 180 Toll road charges (business-related) = 200 Oil changes and engine tune-ups = 210 Repairs = 160 Depreciation allowable = 2,850 Fines for traffic violations (incurred during business use) = 320 Gasoline purchases = 2,800 What is Jackson's deduction in 2020 for the use of his car if he uses: a. The actual cost method? b. The automatic mileage method? a. 7090 b. 8390 What records must Jackson maintain? (car expenses) Keeping a written or electronic log of miles driven, the dates the automobile was used, the location of travel, and the business purpose is enough evidence for the ------------- . If the -------------- is used, keeping copies of receipts, canceled checks, and bills in addition to a mileage log is sufficient. Records and logs should be kept contemporaneously (e.g., updated weekly or daily). standard rate method actual expense method In June of this year, Dr. and Mrs. Bret Spencer traveled to Denver to attend a three-day conference sponsored by the American Society of Implant Dentistry. Bret, a self-employed practicing oral surgeon, participated in scheduled technical sessions dealing with the latest developments in surgical procedures. On two days, Mrs. Spencer attended group meetings where various aspects of family tax planning were discussed. On the other day, she went sightseeing. Mrs. Spencer does not work for her husband, but she prepares their tax returns and handles the family investments. Expenses incurred in connection with the conference are summarized below. Airfare (two tickets) = $2,000 Lodging (single and double occupancy are the same rate—$250 each day) = 750 Meals ($200 x 3 days)* = 600 Conference registration fee (includes $120 for Family Tax Planning sessions) = 620 Car rental = 300 *Split equally between Dr. and Mrs. Spencer. a. $0 b. Airfare (one ticket) = 1000 Lodging = 750 Meals = 300 Less: meals limitation = 150 Meals: Adjusted = 150 Registration fee = 500 Car rental = 300 Total = $2700 In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses). If an amount is zero, enter "0". Click here to access Exhibit 9.1 Limitations for Qualified Tuition Deduction. a. Lily is single and is employed as an architect. During 2020, she spends $4,100 in tuition to attend law school at night. Her modified AGI (MAGI) is $64,000. How much is her deduction for AGI under § 222 (qualified tuition and related expenses)? a. 4000 In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses). b. Liam is single and is employed as a pharmacist. During 2020, he spends $2,400 ($2,100 for tuition and $300 for books) to take a course in herbal supplements at a local university. His MAGI is $81,000. How much is his deduction for AGI under § 222 (qualified tuition and related expenses)? b. $0 In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses). c. Hailey is married and is employed as a bookkeeper. She spends $5,200 for tuition and $900 for books and supplies in her pursuit of a bachelor's degree in accounting. Her MAGI is $40,000 on the separate return she files. How much is her deduction for AGI under § 222 (qualified tuition and related expenses)? c. $0 In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses). d. John spends $6,500 of his savings on tuition to attend Carmine State College. John is claimed as a dependent by his parents. How much is his deduction for AGI under § 222 (qualified tuition and related expenses)? d. $0 Identify the the following items as "Deductible for AGI", "Deductible from AGI" or "Not deductible". Assume no reimbursement takes place and that employee business expenses are not deductible. a.Tax return preparation fee incurred by an employed plumber b.Safety glasses purchased by an employed pipefitter c.Dues to auto club (e.g., AAA) for taxpayer who uses the automatic mileage method d.Nursing refresher course for taxpayer who retired from nursing five years ago a. Not deductible b. not deductible c. not deductible d. not deductible Identify the the following items as "Deductible for AGI", "Deductible from AGI" or "Not deductible". Assume no reimbursement takes place and that employee business expenses are not deductible. e.Gambling loss not in excess of gambling gain by a self-employed architect f.Contribution to Roth IRA by a self-employed attorney g.Business travel expenses by a statutory employee h.Job hunting expense by an elementary school teacher seeking a position as an elementary school principal i.Cost of bar exam review course taken by a recent law school graduate e. Deductible from AGI f. Not deductible g. Deductible for AGI h. Not deductible i. Not deductible Lara uses the standard mileage method for determining auto expenses. During 2020, she used her car as follows: 19,400 miles for business, 3,880 miles for personal use, 5,820 miles for a move to a new job, 1,940 miles for charitable purposes, and 970 miles for medical visits. Presuming that all the mileage expenses are allowable (i.e., not subject to percentage limitations), what is Lara's deduction for: If required, round your answers to the nearest dollar. a. Business? b. Charitable? c. Medical? a. 11,155 b. 272 c. 165 Brenda, a self-employed taxpayer, travels from Chicago to Barcelona (Spain) on business. She is gone 10 days (including 2 days of travel) during which time she spends 5 days conducting business and 3 days sightseeing. Her expenses are $2,150 (airfare), $215 per day (meals), and $450 per night (lodging). Because Brenda stayed with relatives while sightseeing, she only paid for 5 nights of lodging. Compute Brenda's deductions for the following: If required, round your answers to the nearest dollar. a. Deduction for airfare: b. Deduction for meals: c. Deduction for lodging: a. 1505 b. 753 c. 2250