ch 6 tax problems

Discussion
Questions

1. [LO 1] It has been suggested that tax
policy favors deductions for AGI
compared to itemized deductions.
Describe two ways in which deductions for AGI
are treated more favorably than itemized deductions.

2. [LO 1] How is a business activity
distinguished from an investment activity?
Why is this distinction important for the purpose of calculating federal
income taxes?

3. [LO 1] Describe how a business element is
reflected in the requirements to deduct moving expenses and how Congress
limited this deduction to substantial moves.
4. [LO 1] Explain why Congress allows
self-employed taxpayers to deduct the cost of health insurance above the line
(for AGI) when employees can only
itemize this cost as a medical expense.
Would a self-employed taxpayer ever prefer to claim health insurance
premiums as an itemized deductions rather than a deduction for AGI?
Explain.

5. [LO 1]
Explain why Congress allows self-employed taxpayers to deduct the
employer portion of their self-employment tax.
.

6. [LO 1] {Research}
Using the Internal Revenue Code, describe two deductions for AGI that
are not discussed in this chapter?
7. [LO 1] Explain why Congress allows taxpayers to
deduct interest forfeited as a penalty on the premature withdrawal from a
certificate of deposit.

8. [LO 1]
Describe the mechanical limitation on the deduction for interest on
qualified educational loans.

9. [LO
2] Explain why the medical expense and
casualty loss provisions are sometimes referred to as “wherewithal” deductions
and how this rationale is reflected in the limits on these deductions.
10. [LO 2]
Describe the type of medical expenditures that qualify for the medical
expense deduction. Does the cost of
meals consumed while hospitalized qualify for the deduction? Do over-the-counter drugs and medicines
qualify for the deduction?

11. [LO 2] Under what circumstances can a
taxpayer deduct medical expenses paid for a member of his family? Does it matter if the family member reports
significant amounts of gross income and cannot be claimed as a dependent?
12. [LO
2] What types of taxes qualify to be
deducted as itemized deductions? Would a
vehicle registration fee qualify as a deductible tax?
13. [LO 2]
Compare and contrast the limits on the deduction of interest on home
acquisition indebtedness versus home equity loans. Are these limits consistent with horizontal
equity? Explain.
14. [LO 2]
Explain the argument that the deductions for charitable contributions
and home mortgage interest represent indirect subsidies for these
activities.
15. [LO 2]
{Research} Cash donations to
charity are subject to a number of very specific substantiation
requirements. Describe these requirements
and how charitable gifts can be substantiated.
Describe the substantiation requirements for property donations.

16. [LO 2]
Describe the conditions in which a donation of property to a charity
will result in a charitable contribution deduction of fair market value and
when it will result in a deduction of the tax basis of the property.

17. [LO 2]
Describe the type of event that qualifies as a casualty for tax
purposes.
18. [LO 2]
A casualty loss from the complete destruction of a personal asset is
limited to the lesser of fair market value or the property’s adjusted
basis. Explain the rationale for this
rule as opposed to just allowing a deduction for the basis of the asset.
19. [LO 2] {Research} This week Jim’s residence was heavily damaged
by a storm system that spread destruction throughout the region. While Jim’s property insurance covers some of
the damage, there is a significant amount of uninsured loss. The governor of Jim’s state has requested that
the president declare the region a federal disaster area and provide federal
disaster assistance. Explain to Jim the
income tax implications of such a declaration and any associated tax planning
possibilities.