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tax problems - discussions..........,mm




Question;Ch10 DISCUSSION QUESTIONS1. LO.1, 2 Dan, a self-employed individual taxpayer, prepared his own income tax return for the past year and has asked you to check it for accuracy. Your review indicates thatDan failed to claim certain business entertainment expenses.a. Will the correction of this omission affect the amount of medical expenses Dan can deduct? Explain.b. Would it matter if Dan were employed rather than self-employed? Explain.2. LO.2 Barbara incurred the following expenses during the year: $840 dues at a health club she joined at the suggestion of her physician to improve her general physical condition, $240 for multiple vitamins and antioxidant vitamins, $500 for a smoking cessation program, $240 for nonprescription nicotine gum, $600 for insulin, and $7,200 for funeral expenses for her mother who passed away in June. Which of these expenses may be included in computing the medical expense deduction?3. LO.2 Joe was in an accident and required cosmetic surgery for injuries to his nose. He also had the doctor do additional surgery to reshape his chin, which had not been injured. Will the cosmetic surgery to Joe?s nose qualify as a medical expense? Will the cosmetic surgery to Joe?s chin qualify as a medical expense? Explain.4. LO.2, 9 Jerry and Ernie are comparing their tax situations. Both are paying all of the nursing home expenses of their parents. Jerry can include the expenses in computing his medical expense deduction, but Ernie cannot. What explanation can you offer for the difference?5. LO.2 During the current year, Pauline and her three dependent children had annual physical exams, which cost $750, and dental checkups for all four of them, which cost $420. In addition, Pauline paid $800 for medically supervised treatments to enable her to stop smoking. After she stopped smoking, she began to gain weight and incurred $1,200 in costs for a medically supervised weight loss program. Which of these expenses qualify for the medical expense deduction?6. LO.2 Caroyl incurred $8,700 of medical expenses in November 2013. On December 5, the clinic where she was treated mailed her the insurance claim form it had prepared for her with a suggestion that she sign and return the form immediately to receive her reimbursement from the insurance company by December 31. What tax issues should Caroyl consider in deciding whether to sign and return the form in December 2013 or January 2014?7. LO.2 David, a sole proprietor of a bookstore, pays a $7,500 premium for medical insurance for him and his family. Joan, an employee of a small firm that doesn?t provide her with medical insurance, pays medical insurance premiums of $8,000 for herself. How does the tax treatment differ for David and Joan?8. LO.2 Arturo, a calendar year taxpayer, paid $16,000 in medical expenses and sustained a $20,000 casualty loss in 2013. He expects $12,000 of the medical expenses and $14,000 of the casualty loss to be reimbursed by insurance companies in 2014. Before considering any limitations on these deductions, how much can Arturo include in determining his itemized deductions for 2013?9. LO.2 Hubert, a self-employed taxpayer, is married and has two children. He has asked you to explain the tax and nontax advantages of creating a Health Savings Account (HSA) for him and his family.10. LO.2 A local ophthalmologist?s advertising campaign included a certificate for freeLASIK eye surgery for the lucky winner of a drawing. Ahmad held the winning ticket, which was drawn in December 2012. Ahmad had no vision problems and was uncertain what he should do with the prize. In February 2013, Ahmad?s daughter, who lives with his former wife, was diagnosed with a vision problem that could be treated with either prescription glasses or LASIK surgery. The divorce decree requires that Ahmad pay for all medical expenses incurred for his daughter. Identify the relevant tax issues forAhmad.11. LO.3 In 2013, a state issued checks to homeowners as a rebate of property taxes. Funds for the rebate were available because of unexpectedly high state tax revenues due to a new law that legalized gambling in the state. In December 2013, Edward received a $290 rebate check from the state. In January 2014, he returned the check to the governor because he thought it was improper for the state to spend the money in this manner.Edward, a dedicated opponent of gambling and other ?games of chance,? attached a letter to the governor indicating his desire to have the $290 spent on a campaign to educate youth about the financial and nonfinancial dangers of gambling. List some of the tax issues relevant to Edward?s situation.12. LO.5, 9 Diane owns a principal residence in Georgia, a townhouse in San Francisco, and a yacht in Cape Cod. All of the properties have mortgages on which Diane pays interest.What are the limitations on Diane?s mortgage interest deduction? What strategy should Diane consider to maximize her mortgage interest deduction?13. LO.5, 9 Mason Gregg?s car was destroyed by a flood. Unfortunately, his insurance had lapsed two days before he incurred the loss. Mason uses his car for both business and personal use. Mason, who is self-employed, does not have adequate savings to replace the car and must borrow money to purchase a new car. He is considering taking out a home equity loan, at a 5% interest rate, to obtain funds for the purchase. Margaret, his wife, would prefer not to do so because they paid off their mortgage recently and she does not want to incur any obligations related to their home. She would prefer to sell some of their stock in Bluebird, Inc., to raise funds to purchase the new car. Mason does not want to sell the stock because it has declined in value since they purchased it and he is convinced that its price will increase in the next two years. Mason has suggested that they obtain conventional financing for the purchase from their bank, which charges 7% interest on car loans. Identify the tax issues related to each of the three alternativesMason and Margaret are considering.14. LO.5 Commercial Bank has initiated an advertising campaign that encourages customers to take out home equity loans to pay for purchases of automobiles. Are there any tax advantages related to this type of borrowing? Explain.15. LO.5 Thomas purchased a personal residence from Rachel. To sell the residence,Rachel agreed to pay $5,500 in points related to Thomas?s mortgage. Discuss the deductibility of the points.


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