Income Tax Fundamentals
Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1985. He also acquired a rental house in 2006, which he actively manages. During 2006, Walter's share of the partnership's losses was $30,000, and his rental house generated $20,000 in losses. Walter's modified adjusted gross income before passive losses is $120,000.
a. Calculate the amount of Walter's allowable deduction for rental house activities for 2006.
b. Calculate the amount of Walter's allowable deduction for the partnership losses for 2006.
c. What may be done with the unused losses, if anything?
During 2006, Jill, age 39, participated in a Section 401k plan which provides for maximum employee contributions of 12 percent. Jill's salary was $90,000 for the year. Jill elects to make the maximum contribution. What is Jill's maximum tax-deferred contribution to the plan for the year?
Lawrence owns a small candy store that sells one type of candy. His beginning inventory of candy was made up of 10,000 boxes costing $1.50 per box ($15,000), and he made the following purchases of candy during the year.
March 1 10, 000 boxes at $1.60 $16,000
August 15 20,000 boxes at $1.60 $32,000
November 20 10,000 boxes at $1.75 $17,500
At the end of the year Lawrence's inventory consisted of 15,000 boxes of candy.
a. Calculate Lawrence's ending inventory and cost of goods sold using the FIFO inventory valuation method.
Cost of Goods Sold
b. Calculate Lawrence's ending inventory and cost of goods sold using the LIFO inventory valuation method.
Cost of Goods Sold
Phil and Linda are 25-year old newlyweds and file a joint tax return. Linda is covered by retirement plan at work, but Phil is not.
a. Assuming Phil's wages were $27,000 and Linda's wages were $18,500 for 2006 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2006? Phil ; Linda
b. Assuming Phil's wages were $39,000 and Linda's wages were $47,000 for 2006 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2006? Phil ; Linda
Telly, age 38, has a $140,000 IRA with Blue Mutual Fund. He has read good things about the management of Green Mutual Fund, so he opens a Green Fund IRA. Telly receives his balance from the Blue Fund on May 1, 2006.
a. What amount will Telly receive from the Blue Fund IRA?
b. What amount must Telly contribute to the Green Fund IRA to avoid having taxable income and penalties for early withdrawal?
c. When is the last day Telly can rollover the amount received into the Green Fund IRA and avoid taxation in the current year, assuming no unusual circumstances?
d. What amount would Telly receive if the distribution were from his employer's qualified retirement plan?
Professor Patricia (Patty) Pate is retired from the Palm Springs Culinary Arts Academy (PSCAA). She is a single taxpayer and is 68 years old. Patty lives atXXXXX Henderson, NV 89052. Professor Pate's Social Security number is XXXXX Patty receives monthly retirement benefits from her PSCAA retirement plan. Earnings and income tax withholding shown on her retirement 2006 Form 1099 are:
Gross distribution and taxable amount $61,200
Federal tax withheld $7,350
State tax withheld $0
Patricia owns a rental condo located atXXXXX The Lakes, NV 88905. The condo rents for $850 per month and was rented for the entire year. The following are the related expenses for the rental house:
Real Estate taxes $2,725
Mortgage Interest $7,500
Home Owners Association dues $1,540
Repairs &nb sp; $300.00
The condo was purchased on August 31,2000. Professor Pate handles all rental activities (e.g., rent collection, finding tenants, etc.) herself.
During March 2006 Patricia took a $75,000 distribution from her 401k plan (which is not included in the Form 1099 above). Patricia received only $60,000 because the 401k plan administrators withheld $15,000 Federal income tax from the distribution. Forty-five days after the distribution, Patty deposited $50,000 in a rollover IRA, keeping $10,000 of the $60,000 received in order to remodel her kitchen.
****Assume that the standard federal telephone excise amount is chosen (See New Law Alert)
Complete Professor Pate's federal tax return for 2006. Use Form 1040, Schedule E, Form 8582, and any other appropriate schedule (s). Do not complete Form 4562 for reporting depreciation. Make realistic assumptions about any missing data.
Fill-in Forms (www.irs.gov)
Deductions for exemptions worksheet
Itemized deductions worksheet
Qualified dividends and capital gain tax worksheet