Part 1 General Review Flashcards
Athene has a cabin in Lake Tahoe that she uses as a vacation home to go skiing, and also a rental. She rented out her ski home for 80 days during the year and used it personally for 20 days. She paid $2,000 for repairs and $4,000 for utilities. She received rental income of $16,000. What was Athene’s net rental income, after applying her allowable expenses?
$11,200
$16,000 - Only 80% ($6,000 × .80 = $4,800)
Josephine is single and has no children. Her elderly step-father, Harold, is widowed and has no income. Harold does not live with her, but she pays 100% of his living expenses. What filing status is available to Josephine?
She may choose to file either Single or Head of Household.
Which of the following types of income is never subject to the Additional Medicare tax?
Distributions from qualified retirement plans.
The additional Medicare tax of 0.9% applies to wages, compensation, tips, and self-employment income above specified threshold amounts
Taxpayers who are not eligible for an SSN must apply for an ITIN if they file a U.S. tax return or are listed on a tax return as a spouse or dependent. What form must a taxpayer use to request an ITIN?
Form W-7.
Taxpayers who cannot obtain an SSN must apply for an ITIN.
Frannie is a waitress at a popular restaurant. One of her customers gives her a non-cash tip in the form of concert tickets, which have a face value of $80. She happily accepts the tickets because she wants to go to the concert. How should Frannie treat this non-cash tip?
The non-cash tip is taxable to Frannie, and must be reported on her tax return. She does not have to report the non-cash tip to her employer.
The non-cash tip is taxable to Frannie and must be reported on her tax return. She does not have to report it to her employer.
Non-cash tips (for example, concert tickets, sports tickets, or other items) do not have to be reported to the employer, but they must be reported and included in the employee’s gross income at their fair market value.
Roscoe and Arista are married and file jointly. Their MAGI is $562,000. They have net investment income of $62,000 from dividends. They sell their main home that they have owned and lived in for 20 years for $1.2 million and realize a gain of $645,000 on the sale. They also sell a vacation home for $575,000 and realize a gain of $130,000 on the sale. What amount do Roscoe and Arista owe for the net investment income tax? (The NIIT threshold for couples who file jointly is $250,000.)
$11,856
The net investment income tax is imposed on individuals, estates, and trusts. For individuals, the 3.8% tax is imposed on the lesser of:
The individual’s net investment income for the year, or
Any excess of the individual’s modified adjusted gross income for the tax year over certain thresholds.
Roscoe and Arista may use section 121 to exclude $500,000 of capital gain on the sale of their primary home ($645,000 - $500,000 = $145,000 gain not excluded), but cannot exclude any of the gain on the sale of their vacation home, so their net investment income total is $337,000 ($62,000 + $145,000 + $130,000). Their MAGI over the threshold amount of $250,000 is $312,000 ($562,000 - $250,000). Since this is less than the net investment total, the answer is calculated as follows: $312,000 × 3.8% = $11,856 net investment tax owed.
Barney died on May 2, 2023. He owned $18 million in assets when he died, so his estate has a filing requirement. Which of the following items listed is not deductible from his gross estate on Form 706?
Federal taxes owed by the estate
Ambrose made a deal with his credit card company to pay $2,000 on his $7,000 balance, and the company agreed to take it as payment in full. In January of the current year, he received a Form 1099-C from his credit card company reporting the amount of debt canceled. Ambrose was solvent immediately before the debt was canceled. How much should Ambrose report on his Form 1040 as taxable income?
Ambrose must include $5,000 as “other income” on his tax return.
Francis was named the executor of her brother’s estate in his will. Francis initially accepted the appointment, but then changes her mind six months later and wishes to step down. She had already requested an EIN for the estate. How should Francis notify the IRS of the termination of her fiduciary relationship?
Form 56 should be filed.
Form 56 is used to notify the IRS of the creation or termination of a fiduciary relationship. Form 56 cannot be used to update the last known address of the trust, estate, or entity for whom the fiduciary is acting.
