Question & Answer

Penny, a full-time biochemist, loves stock car racing. To feed her passion, she bought a used dirt-track car and has started entering some local dirt-track races. The prize money is pretty small ($1,000 for the winner), but she really is not in it for the money. This, Penny reported the following income and expenses from her nights at the track:

In each of the following independent cases, indicate the amount (1) deductible for AGI, (2) deductible from AGI, and (3) neither deductible for nor deductible from AGI before considering income limitations or the standard deduction.

In each of the following independent cases, indicate the amount (1) deductible for AGI, (2) deductible from AGI, and (3) neither deductible for nor deductible from AGI before considering income limitations or the standard deduction.

For purposes of the deduction for qualified business income, what is a specified service trade or business and why is it important?

Under what circumstances would business income from an accounting practice qualify for the deduction for qualified business income?

Describe what is meant by qualified business income for purposes of the deduction for qualified business income.

Determine whether a taxpayer who is claimed as a dependent on another return is entitled to an addition to the standard deduction for age or blindness. (Hint: Read the calculation of the standard deduction under §63.)

Determine whether a taxpayer can change their election to itemize deductions once a return is filed. (Hint: Read about itemization under Reg. §1.63-1.)

Explain how the standard deduction is rationalized and why the standard deduction might be viewed as a floor limit on itemized deductions.

Describe the tax benefits from “bunching” itemized deductions in one year. Describe the characteristics of the taxpayers who are most likely to benefit from using bunching and explain why this is so.

Identify which itemized deductions are subject to floor limitations, ceiling limitations, or some combination of these limits.

Contrast ceiling and floor limitations, and provide an example of each.

Frank paid $3,700 in fees for an accountant to tabulate business information (Frank operates as a self-employed contractor and files a Schedule C). The accountant also spent time tabulating Frank’s income from his investments and determining Frank’s personal itemized deductions. Explain to Frank whether or not he can deduct the $3,700 as a business expense or as an itemized deduction, and provide a citation to an authority that supports your conclusion.

Jake is a retired jockey who takes monthly trips to Las Vegas to gamble on horse races. So far this year, Jake has won almost $47,500 during his trips to Las Vegas while spending $27,250 on travel expenses and incurring $62,400 of gambling losses. Explain how Jake’s gambling winnings and related costs will be treated for tax purposes.

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.

Cash donations to a 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.

Explain the argument that the deductions for charitable contributions and home mortgage interest represent indirect subsidies for these activities.

What types of taxes qualify to be deducted as itemized deductions? Would a vehicle registration fee qualify as a deductible tax?

Under what circumstances can a taxpayer deduct medical expenses paid for a member of their family? Does it matter if the family member reports significant amounts of gross income and cannot be claimed as a dependent?

] 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?

Explain why the medical expense provisions are sometimes referred to as “wherewithal” deductions and how this rationale is reflected in the limits on these deductions.

Assess the operation and success of the HIPC programme?

To what extent was the debt crisis of the early 1980s caused by inappropriate policies that had been pursued by the debtor countries?

How would you attempt to assess whether the technology used by an industry in a developing country was ‘inappropriate’?

Should all developing countries aim over the long term to become exporters of manufactured products?