John has an auto which is covered for collision losses subject to a $250 deductible. Kate's auto also has collision coverage but her deductible is $500. John got in an accident while borrowing Katie's car and incurred a $2,500 covered collision loss. John's policy will pay s of the covered loss. Katie's policy will pay $ IMPORTANT: Your answers should be rounded to the nearest integer and should NOT include symbols ('S' or ':).

John has an auto which is covered for collision losses subject to a $250 deductible. Kate's auto also has collision coverage but her deductible is $500. John got in an accident while borrowing Katie's car and incurred a $2,500 covered collision loss. John's policy will pay s of the covered loss. Katie's policy will pay $ IMPORTANT: Your answers should be rounded to the nearest integer and should NOT include symbols ('S' or ':).

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter5: Gross Income: Exclusions

Section: Chapter Questions

Problem 35P

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Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2019, the company repaired Samuel Mosleys car and charged him 1,000. Samuel did not think the problem had been fixed and refused to pay; thus, Trip refused to release the automobile. In early January 2020, Trip made a few adjustments and convinced Samuel that the automobile was working properly. At that time, Samuel agreed to pay only 900 because he did not have the use of the car for a week. Trip said fine, accepted the 900, and released the automobile to Samuel. An IRS agent thinks Trip, as an accrual basis taxpayer, should report 1,000 of income in 2019, when the work was done, and then deduct a 100 loss in 2020. Prepare a memo to Susan Apple, the treasurer of Trip, with the recommended treatment for the disputed income.
On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for 30,000. The automobile had a fair market value of 20,000 before the accident and 8,000 immediately after the accident. Sam has taken 20,000 of depreciation on the car. The car is insured for the fair market value of any loss. Because of Sams history, he is afraid that if he submits a claim, his policy will be canceled. Therefore, he is considering not filing a claim. Sam believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement. Sams current marginal tax rate is 35%. Write a letter to Sam that contains your advice with respect to the tax and cash flow consequences of filing versus not filing a claim for the insurance reimbursement for the damage to his car. Also prepare a memo for the tax files. Sams address is 450 Colonels Way, Warrensburg, MO 64093.
For each of the following, determine the amount that should be included in gross income: a. Peyton was selected the most valuable player in the Super Bowl. In recognition of this, he was awarded an automobile with a value of 60,000. Peyton did not need the automobile, so he asked that the title be put in his parents names. b. Jacob was awarded the Nobel Peace Prize. When he was presented the check for 1,400,000, Jacob said, I do not need the money. Give it to the United Nations to use toward the goal of world peace. c. Linda won the Craig County Fair beauty pageant. She received a 10,000 scholarship that paid her 6,000 for tuition and 4,000 for meals and housing for the academic year.
David is a CPA and enjoys playing the lottery. This year David won 10,000 in lottery scratch-off tickets. He spent 200 purchasing the tickets. Which statement is true regarding Davids winnings? a. David must include 9,800 in gross income. b. David must include the 10,000 in gross income and can deduct 200 as an itemized deduction not subject to the 2%-of-AGI limitation. c. David must include 10,000 in gross income and can deduct 200 as an adjustment to AGI. d. Davids winnings are not taxable.
Wade paid 7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent 2,400 on parts for it. He knows that he can sell the car for 13,000, but he is very wealthy and does not need the money. On the other hand, his daughter, who has very little income, needs money to make the down payment on a house. a. Would it matter, after taxes, whether Wade sells the car and gives the money to his daughter or whether he gives the car to his daughter and she sells it for 13,000? Explain. b. Assume that Wade gave the car to his daughter after he had arranged for another person to buy it from his daughter. The daughter then transferred the car to the buyer and received 13,000. Who is taxed on the gain?