Acct 553

Acct 553

Week 3 Homework

7/7 Differentiate between the following: active income, passive income, and portfolio income?

Portfolio income is derived from investments and includes capital gains, interest, dividends, and royalties. Various types of portfolio income are taxed differently.

Passive Income, this type of income comes from activities in which you do not actively participate. Such activities include income from real estate and certain business arrangements, such as limited partnerships.

Active Income, Income for which services have been performed. This includes wages, tips, salaries, commissions, and income from businesses in which there is material participation.

7/13 Briefly, what is "material participation"? Why is the determination of whether a taxpayer materially participates important?

Material participation is the point at which an individual becomes Actively or Continuously involved in a project . Earned revenue from the project is no longer considered passive income.

This is important as this determines whether income is active or passive inconsideration of how loses are deducted and how this income is taxed.

7/46 Mary Beth is a CPA, devoting 3,000 hours per year to her practice. She also owns an office building in which she rents out space to tenants?

Mary has to see it as a passive loss because she is using a property management company. She makes no management decisions. Mary Beth unfortunately has to carry the loss to future years. She is not allowed to use the loss to reduce her taxable income.

8/34 Mike and Sally Card file a joint return for the 2012 tax year. Their adjusted gross income is $65,000 and they incur the following interest expenses?

-Personal loans are not deductible by individuals

- Education loans $2,500 2011 and 2012 taxpayers are allowed an interest deduction for AGI of up to $2,500

-Total deduction = $21,500

8/40 In each of the following independent cases determine the amount of charitable contributions...