1. Brandy graduated from Vanderbilt with her bachelor\'s degree recently. She wo

Question

1. Brandy graduated from Vanderbilt with her bachelor's degree recently. She works for Walton & Company CPAs. The firm pays her tuition ($7,500 per year) for her so that she can receive her MBA. How much of the $7,500 tuition benefit does Brandy need to include in her income?

2. Redoubt LLC traded machinery used in its business to a machinery dealer for some new machinery. Redoubt originally purchased the machinery for $80,180 and it had an adjusted basis of $52,820 at the time of the exchange. The new machinery had a fair market value of $62,180. Redoubt also received $7,090 of computer equipment in the transaction. What is Redoubt's gain or loss recognized on the exchange?

3. Lina, a single taxpayer with a 35 percent marginal tax rate, desires health insurance. The health insurance would cost Lina $8,500 to purchase if she pays for it herself (Lina's AGI is too high to receive any tax deduction for the insurance as a medical expense). Lina's employer has a 30 percent marginal tax rate. What is the maximum amount of before-tax salary Lina would give up to receive health insurance? (Round your answer to the nearest whole number.)

Explanation / Answer

Question 1). Solution:- Tuition benefit to be included in the income of Brandy = 7500 - 5250(NOTE)

= $ 2250.

Conclusion :- Tuition benefit to be included in the income of Brandy = $ 2250.

NOTE :- Brandy will exclude up to $ 5250 (on account of tuition benefit received) from the his gross income while arriving at the taxable income as per the Internal revenue service (IRS) code.  

Question 2). Solution :- Realized gain = 62180 - 52820 = $ 9360.

Fair market value of boot received = $ 7090.

Gain recognized on the exchange = Lesser of the realized gain or fair market value of the boot received.

= Leser of $ 9360 or $ 7090.

= $ 7090.

Conclusion :- Gain of Redoubt on the exchange = $ 7090.

Question 3). Solution :-

Maximum before-tax salary given up for receiving the health insurance = 8500 / (1 - 0.35)

= 8500 / 0.65

= $ 13077 (approx).

Conclusion :- Maximum before-tax salary given up for receiving the health insurance = $ 13077 (approx).

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