Discuss the similarities and differences between the American Opportunity and Lifetime Learning credits.

Accounting

Taxes question

The exam consists of ten questions. Each question is worth fifteen points. Please show all work on your answer sheets and record your name on your test and all answer sheets. To receive partial credit for incorrect answers your computations must be included with your exam.

  1. Mr. Smith (age 52) is a single individual with adjusted gross income of $122,000 in 2022. Mr. Smith does not itemize. Included in Mr. Smith’s adjusted gross income of $122,000 is a long-term capital gain of $5,000. Compute Mr. Smith’s taxable income and income tax liability for 2022.
  2. Discuss the similarities and differences between the American Opportunity and Lifetime Learning credits
  3. Mr. Smith purchased an operating business for a lump sum of $295,000. The fair market value of the assets acquired was $103,000 for the building, $90,000 for the land, $70,000 for the equipment, and $45,000 for the inventory. Compute Mr. Smith’s basis in the building and the equipment.
  4. Michael is a professional musician who purchased an amplifier system on September 1, 2022, for $22,000. The system is five-year recovery property and was the only asset purchased during the year. Michael elected not to claim section 179 expense or bonus depreciation. Compute the 2022 MACRS depreciation.
  5. Define the following terms:
  • Refundable tax credit
  • Nonrefundable tax credit

6.(a) Mrs. Carson donated stock worth $45,300 to her church in 2022. Mrs. Carson’s adjusted gross income is $81,500 for 2022. If Mrs. Carson sold the stock donated to her church, she would have recognized a long-term capital gain. What is Mrs. Carson’s allowable charitable contribution deduction for 2022?

(b) John donated $56,600 in cash to the United Way in 2022. John’s adjusted gross income is $91,550 for 2022. What is John’s allowable charitable contribution deduction for 2022?

 

  1. John is divorced and files a tax return claiming his daughter (age 15) and his son (age 19) as dependents. John’s son is a full-time student at a local college. John’s adjusted gross income for 2022 is $212,500. Calculate John’s Child Credit for 2022.

 

  1. Mary, a single individual age 39 qualifying for head of household filing status, attended college full-time for 10 months in 2022 on a full scholarship valued at $15,000. While attending college, Mary incurred childcare expenses of $3,500 related to the care of her dependent daughter Sally (age 11). Mary’s only income in 2022 was $30,000 of rental income. Mary did not itemize deductions. Calculate Mary’s tax liability for 2022.

 

  1. Mr. Kane is single (age 28) with no dependents and had adjusted gross income of $42,000 for 2022. His itemized deductions were $7,750 and consisted solely of real estate taxes. Mr. Kane incurred $ 5,000 of education expenses eligible for the American Opportunity education credit. Compute Mr. Kane’s 2022 tax liability.
  2. In 2022, Mr. Smith rented his vacation home for 11 days during the year. Mr. Smith collected $3,800 of rents and incurred $1,200 in expenses during the 11 days rented. What amount of rental income should be included in Mr. Smith’s 2022 taxable income?