8:54 PM bbhosted.cuny.edu ill Simple Tax Regulation and Strategies (BUSN 7131X)
ID: 2590563 • Letter: 8
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8:54 PM bbhosted.cuny.edu ill Simple Tax Regulation and Strategies (BUSN 7131X) Term Project Fall 2017 Answer all questions. Points above 30 will be credited to extra credit. You must show all calculations. No points will be awarded if calculations are not shown 1. Loss deduction. Pylon, Inc. a calendar year S corporation, is partly owned by Doris, who has a beginning stock basis of S10,000. Doris' share of long term capital gain (LTCG is $2,000 and her share her share of an ordinary loss is $9,000. If Doris receives a S6,000 distribution, what is her deductible loss? (2 points) 2. Alimony recapture. Dave and Sue's divorce became final on January 2 of the current year. Dave is an executive for a Fortune 500 company a business this year. In the current year (year 1 of the divorce agreement), Dave expects his marginal income tax rate to be 35% and Sue's marginal income tax rate will be 25% because of some start-up expenses of her business. Two years from now (year 3 of the divorce agreement), Dave will retire and will be in the 15% tax bracket, and Sue's business, a sole proprietorship, will cause her to be in the 35% tax bracket, Dave intentionally front-loaded his alimony payments to Sue (S60,000 in year 1, S40,000 in year 2, and S20,000 in year 3). What is Dave's alimony recapture in year 3? Formula: R P1+ P2-2P-$37,500 (2 points) nd Sue is starting her own 3. Education expenses. Dawn, who holds a bachelor's degree in art history, is a middle school teacher in New York. She wants to further her education in art history, believing this will allow her to become a better teacher. Dawn spent her summer break attending the University in Hawaii taking art history courses. Her expenses are as follows Books and tuition Meals Lodging S2,000 1,000 700Explanation / Answer
1. Computation of her deductible loss:
Beginning stock basis
10,000.00
Less: Long term capital gain
2,000.00
Total
12,000.00
Less: Distributions
(6,000.00)
Basis for loss initiation purpose
6,000.00
Deductible loss
6,000.00
2. Formula: R3 = P1 + P2 -2P3 - $37,500
Year
1.00
2
3
Alimony payments
60,000.00
40000
20000
Dave's tax rate
35%
Given that Dave is in 15% tax bracket in year 3
Calculation of P1, P2 and P3, with tax rate 35% + 15% = 50%:
P1
=60,000-50%
30,000
P2
=40,000-50%
20,000
P3
=20,000-50%
10,000
R3=$30,000+$20,000-2*$10,000-$37,500
=$7,500
Beginning stock basis
10,000.00
Less: Long term capital gain
2,000.00
Total
12,000.00
Less: Distributions
(6,000.00)
Basis for loss initiation purpose
6,000.00
Deductible loss
6,000.00
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