RIA Checkpoint is not the only research tool at your disposal. In fact, the IRS website itself can often be helpful. In this assignment, you will use the IRS website as well as RIA Checkpoint to research an area that commonly exposes unique rules–the topic of interest expense.
The purpose of this assignment is to assess your ability to discuss topics relevant to this week’s lessons on RIA Checkpoint accounting.
RIA Checkpoint Accounting Sample Question
1. Read the following problem: George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $20,000 loan to facilitate the stock acquisition. The loan terms are 8 percent interest with interest-only payments due each year for five years. At the end of the five-year period the entire loan principal is due. When George closed on the loan on April 1, 2016, he decided to invest $16,000 in stock and to use the remain-ing $4,000 to purchase a four-wheel recreation vehicle. George is unsure how he will treat the interest paid on the $20,000 loan. In 2016, George paid $1,200 interest expense on the loan. For tax purposes, how should he treat the 2016 interest expense? (Hint: Visit www.irs.gov and consider IRS Publication 550.)
2. Using the research skills you have learned, access RIA Checkpoint and the IRS website to research how George should treat the 2016 interest expense.
3. Post your findings on the RIA Checkpoint assignment discussion board.
a. State the issue.
b. State your conclusion based on your findings.
c. Provide an analysis explaining why you believe your findings address the question at hand
d. Provide proper tax research citations in your analysis.
4. Respond to two of your classmates. You will not be able to see other classmates’ posts until you make your initial post.
Note: Follow the Discussion Guidelines on the RIA Checkpoint assignment when using the discussion board.
ANSWER: RIA Checkpoint Accounting Sample Question Response 1
This post Cleary addresses how George should treat $1200 by considering $960 as interest expense for the money invested in stocks. In addition, it also clearly considers $240 as interest expense for the money that purchased the vehicle which is not deductible.
The IRS publication 550 provides supporting evidence on how George should treat the $1200. According to the IRS publication, only interest expense for the amount invested in stocks can be deducted, which was $16000. Therefore, the amount invested in stocks is 80% of the total loan amount of $20,000, which gives interest expense from amount invested as $960. The remaining $4000 accounts for 20% of the loan amount, which is the amount spent on purchasing the vehicle. Applying this percentage on the $1200 gives $240, which is non-deductible. Overall, it therefore adequately addresses all the requirements of the question.
ANSWER: RIA Checkpoint Accounting Sample Question Response 2
This post does not clearly address all the requirements of the question. This is because it does not clearly indicate how George should treat the $1200 interest expense and how the figures were calculated by specifying the interest expense for 16000 investment in stocks and $4000 used as personal expense to purchase his recreational vehicle.
Although the discussion clearly quotes the relevant IRS 550 publication which can be used to calculate how the deductions should be made, it does not provide an analysis on how 80% and 20% indicated have been calculated. According to IRS publication 550, only interest expense for amount invested is deductible which is $960 (80% of $1200) while $240(20% of 1200,) is non-deductible as it is interest expense from amount spent as personal use.