Federal Taxation 2018

BA 431 Federal Taxation, Fall 2018

Midterm 2

Name:________________________________________________

1. T and Z are married and file a joint return. Their itemized deductions for the current

year are $25,000. Assuming the standard deduction is $12,000, T and Z should use________12%______________________________.

2. For 2018, the deduction is _____________cents per mile for medical travel and

___________cents per mile for charitable travel.

3. The ___________________________ method of depreciation must be used for amortizing intangible property.

4. A casualty loss is usually deductible in the taxable year________________________. A theft is deductible in the__________________________.

5. H's house was flooded this year due to abnormal rainfall. She was forced to stay in a motel while the water subsided. Her motel stay, which cost $600, was not covered by her insurance policy. H may deduct $______________________for the motel stay as part of her casualty loss from the flood.

6. Assuming a taxpayer itemizes deductions, medical expenses are deductible only to the extent that they exceed ___________________________% of the taxpayer’s AGI.

7. List the four criteria that determine whether a bona fide debtor-creditor relationship exists.

8. P, a calendar year, cash basis taxpayer, started a business on May 1, 2018. His lease required monthly payments of $800 beginning on May 1. Insurance for premises also began on May 1 and was to be paid every three months and cost $125 per month. Premiums were paid on May 1, 2018, August 1, 2018, November 1, 2018 and February 1, 2019. What are the total expenses that P may deduct for 2018?

9. Complete Depreciation Schedule for a passenger automobile used solely for business purposes.

Year	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8
Unadjusted Basis	56000	56000	56000	56000	56000	56000	56000	56000
Depreciation %	20.00	32.00	19.20	11.52	11.52	5.76
MACRS Depreciation
Limit	10000	16000	9600	5760	5760	5760	5760	5760
Deduction
Cumulative Depreciation
Adjusted Basis

10. Y's inventory records reveal the following information:

Item Cost FMV

1 3,300 3,400

2 5,500 5,700

3 6,300 6,000

4 7,500 8,000

5 4,900 4,700

For financial accounting purposes, Y values inventory using FIFO and the lower of cost or market. For tax purposes, the value of Y’s ending inventory is:

11. Peggy and Clyde Wagner have an AGI of $65,000 for 2018. Their expenses for 2018 are:

Prescription drugs $ 4,580

Interest on home mortgage 9,700

Doctor and dental bills paid 2,700

Hospital bills paid 1,900

Property taxes paid on home 3,650

State Income Taxes withheld from wages 2,700

Safe deposit box rental 360

Interest on automobile loan 1,750

Credit Card Interest paid 500

Medical Insurance Premiums 2,600

Eyeglasses for Peggy 565

Fair Market Value of TPP, Inc stock donated to church 2,800

Union Dues paid by Clyde 720

Cash contributions to church 2,800

Tax preparation fee 450

Both Peggy and Clyde are under 40 and have lived in Oregon for the entire year. They have four children, ages 8, 10, 14 and 17. They will file a joint income tax return for this year.

a. Calculate their total itemized deductions.

b. What is their taxable income?

c. Calculate their tax liability.

d. If they had a total of $5,600 of Federal withholding from their employment, will they have an overpayment (refund) or underpayment (tax to pay)?

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