Questions and Answers of Concepts In Federal Taxation

Betty, whose tax rate is 32%, is in the business of breeding and racing horses. Except for the transactions below, she has no other sales or exchanges and she has no unrecaptured net Sec. 1231
Russ has never recognized any Sec. 1231 gains or losses. In December 2023, Russ is considering the sale of two Sec. 1231 assets. The sale of one asset will result in a $$20,000$ Sec. 1231 gain
Holly has recognized a $$9,000$ STCL. She has no other recognized capital gains and losses in 2023. She is considering the sale of a Sec. 1231 asset held for four years at a $$5,000$ gain in
George Buckner sells an apartment building on October 10 for $$1.75$ million. The building was purchased on January 1, 2002, for $$2$ million.Depreciation of $$420,000$ has been taken. The
Julie Hernandez is single and has no dependents. She operates a dairy farm and her Social Security number is 000-00-1111. She lives at 1325 Vermont Street in Costa, Florida, 44215. Consider the
Assume the same facts as in Case Study Problem I:13-69 except you have the following market values as a result of an appraisal:Tom insists that $$150,000$ of the purchase price should be allocated
Prime Corporation begins operations in late 2023. Prime decides to use the single-pool LIFO method. Year-end inventories under FIFO are as follows:The price index for 2023 is 130%; for 2024, 134%;
On January 30, 2023, Amy sells land to Bob for a stated price of $$200,000.$ The full $$200,000$ is payable on January 30, 2025. No interest is stated. Amy, a cash-method taxpayer, purchased the
Dana manages real estate and is a cash method taxpayer.She changes to the accrual method in 2024. Dana’s business income for 2024 is $$30,000$ computed on the accrual method. Her books show the
BCD Partnership has, for many years, had a March 31 year-end. The partnership’s net income for the fiscal year ended March 31, 2024, is $$400,000.$ Because of its fiscal year, BCD has
Dan turned age 65 and retired this year. He owned and operated a tugboat in the local harbor before his retirement. The boat cost $$100,000$ when he purchased it two years ago. A tugboat is 10-year
Short Tax Form purchases a fourplex on January 8, 2019, for $$175,000.$ She allocates $$25,000$ of the cost to the land, and she deducts MACRS depreciation totaling $$16,364.$ Barbara sells
Rita purchased a house a few years ago for $$250,000$ and has been using it since then as her residence. In the current year, she moves to an apartment in another city to start a new job. The value
In 2023, Andes Corporation purchases $$1.5$ million of machinery (7-year property) and places it into service in its business. What are Andes’depreciation deductions for 2023 and 2024 in each of
Goodrich Corporation uses the calendar year as its tax year. It acquires and places into service two depreciable assets during 2023:• Asset #1: 7-year property; $$950,000$ cost;placed into
Jose is considering acquiring a new luxury automobile costing $$70,000$ that will be used 100% in his business. The salesperson at the automobile dealership states that Jose will be entitled to
In recent years, Congress has enacted provisions in the tax law that permitted bonus depreciation for certain assets.a. What types of assets typically qualified for bonus depreciation?b. How does
On March 1, 2023, Sarah enters into a three year lease for an automobile worth $$83,000$.The monthly lease payment is $$850,$ and she uses the automobile only for her sole proprietorship.What
Woburn purchases and places into service $$2.3$ million of depreciable property during 2023:You are working in Woburn’s tax department and are trying to decide how to make the Sec. 179 election
Sandy acquired business machinery (7-year MACRS property; half-year convention) on July 15, 2020, for $$10,000.$ For 2020, Sandy claimed a $$1,429$ regular MACRS depreciation deduction and did
Sid purchased an automobile for personal use on January 18, 2019 for $$30,000.$ On January 1, 2023 (when its fair market value is $$18,000),$ Sid starts a small business and begins to use the
In 2023, Silver Corporation purchases the following properties to use in its business:Silver claims the maximum allowed Sec. 179 expensing and bonus depreciation, and it uses the calendar year as its
Large Corporation acquired and placed in service the following 100% business-use assets. Large did not claim Sec. 179 or bonus depreciation expensing on any of these properties.• Truck (light-duty,
Turner Corporation uses the calendar year as its tax year. It purchases and places into service $$2.27$ million of property during 2023 to use in its business:What is Turner’s total depreciation
In 2023, Tish acquires and places into service in her business 7-year MACRS property costing $$40,000$ and 5-year MACRS property costing $$165,000.$ Tish elects Sec. 179 expensing for all of the
Tampa Corporation sold the following assets in 2023:a. What is the depreciation deduction for each asset in 2023?b. Compute the gain or loss on each asset sold. Depreciation/ Cost- Recovery Date
In 2023, Richmond Corporation purchases and places into service a machine. Richmond elects expensing for $$1.16$ million of its $$1.36$ million cost. The machine has a 7-year MACRS recovery
In 2023, Wabash Corporation purchases two assets and places them into service (both have a 7-year MACRS recovery period):• Asset #1: $$1,260,000$ cost; placed in service in February.• Asset #2:
Bobby’s marginal tax rate has been low for several years because his sole proprietorship has had low profits. Therefore, he has not elected Sec. 179 expensing, elected out of bonus depreciation,
Trish is a self-employed CPA who purchases an automobile for $$72,000$ and places it into service in the current year (2023). Calculate Trish’s current year MACRS depreciation deduction, assuming
Tammy acquired an automobile for $$20,000$ on July 1, 2020. Her business use of the vehicle is 70% in 2020, 70% in 2021, 40% in 2022, and 35% in 2023. The property’s MACRS recovery period is 5
Lutz Corporation acquired a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2023 for $$64,000.$ The company did not elect expensing and elects out of bonus depreciation. What is
In 2023, Luby Corporation acquires and places into service an automobile that it uses only for business purposes. Luby does not claim expensing or bonus depreciation for the vehicle. Compute Luby’s
Tracy acquires an automobile (MACRS 5-year recovery) on March 1, 2023. He uses the automobile 70% in his business and 30% for personal use.The automobile cost $$76,000.$ No amount is expensed under
Troy entered into a three-year lease of an automobile on January 1, 2023, for use 80% in business and 20% for personal use. The FMV of the automobile at the inception of the lease was $$79,000,$
On January 1 of the current year, Palm Corporation purchases the net assets of Vicki’s unincorporated business for $$600,000.$ The tangible net assets have a $$300,000$ book value and a
Park Corporation incurs the following costs in 2023, its initial year of doing business:Which of these expenditures are research and experimental expenditures for federal income tax purposes?
In 2023, Tempe Corporation acquires a new research facility and hires several scientists to develop new products. Tempe incurs the following expenditures in 2023:What are Tempe’s 2023 and 2024
Phillips Corporation, a construction company that specializes in home construction, uses special computer software to schedule jobs and keep track of job costs. It uses generic software for
John and Ellen Brite are married, file a joint return, and are less than 65 years old. They have no dependents and claim the standard deduction. John owns an unincorporated specialty electrical
Stan uses a car 100% for his sole proprietorship. In January 2023, Stan must decide whether to buy or lease a new car. After bargaining with several car dealers, Stan has agreed to a price of
Helen has operated a sole proprietorship for many years and has tentatively agreed to sell its assets to Blaze Corporation. They are negotiating how to allocate $$1.4$ million of the
Thom Jones is an unincorporated manufacturer of widgets. He reports the following for 2022:Information related to the depreciable property:The business uses the cash method, Thom materially
Refer to the facts in Problem I:10-47 for John and Ellen Brite. The following information is also available for them:• The business uses the accrual method and did not make any payments that would
In 2021, the Margate Corporation acquired an automobile with a cost of $$30,000$ for use in its business. Shortly thereafter, Margate Corporation experienced a decline in sales.Several employees
In 2022, Mark purchased two separate activities. Information regarding these activities for 2022 and 2023 is as follows:The 2022 losses were suspended losses for that year. During 2023, Mark also
In 2023, Julie, a single individual, reported the following items of income and deduction:Julie owns 100% and is an active participant in the rental real estate activity. What is her taxable income
Jerry sprayed all of the landscaping around his business with a pesticide in June 2023. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the
During 2023, Pam incurred the following casualty losses:All of the items were destroyed in the same casualty, which resulted from a federally declared disaster. Before considering the casualty items,
During 2022, Becky loans her brother Ken $$5,000,$ which he intends to use to establish a small business. Because Ken has no other assets and needs cash to establish the business, the agreement
Assume the same facts as in Problem I:9-53, except that Becky and Ken are not related and that under the terms of the loan Ken agrees to repay Becky the $$5,000$ plus interest (at a reasonable
Michelle and Mark are married and file a joint return. Michelle owns an unincorporated dental practice. Mark works part-time as a high school math teacher, and spends the remainder of his time caring
Assume the same facts as in Problem I:9-55, except in addition to the other itemized deductions Michelle and Mark suffer an $$8,500$ deductible personal casualty loss (after limitations).a. What is
Assume the same facts as in Problem I:9-55, except that the interest on their personal residence is $$15,300$ and they also have an $$8,500$ deductible casualty loss on personal property (after
During 2023, Karen, a single taxpayer, reports the following income and expense items relating to her interior design business:Karen also worked part-time during the year, earning $$13,500.$ She
In 2020, Annie Cook and several family members formed Treehouse Rentals, Inc., in Denver, Colorado. Treehouse is a closely held C corporation engaged in the rental real estate business. Treehouse
Jace Seaton is a single taxpayer living in Eugene, Oregon. From 2018 to 2021, he worked as the CEO of Wengren & Jeffers, a local architectural firm. In 2021, he left the firm to start his own company
Heather and Nikolay Laubert are married and file a joint income tax return. Nikolay is a mechanical engineer, and Heather is a highly renowned speech therapist. Nikolay’s employer provides health
Kara and Brandon Arnold are married and file a joint return. They report their income on the cash method. During 2022, they report the following items:a. In 2020, Brandon had loaned a friend
In each of the following cases involving travel expenses, indicate how each item is reported on the taxpayer’s tax return for 2023. Include any limitations that might affect its deductibility.a.
Kelly is self-employed and incurs $$2,200$ of business meal expenses in connection with business travel. $$500$ of the business meal costs are considered to be lavish or extravagant. How much can
Latoya is an independent contractor and operates her own successful consulting business in Milwaukee. She has just signed a large contract with a new client that will require her to spend nine months
Louie is a self-employed taxpayer and also an investor in the stock market in his spare time. In the current year, Louie incurs $$2,500$ of travel expenses and $$1,000$ in registration fees
Are deductions allowed for entertainment expenses of customers or clients in 2023?
Bass Corporation purchases 10 tickets to the Super Bowl in February 2023 for entertaining its customers. Due to unusually high demand, the tickets have to be purchased for $$25,000$ (10 ×
Would education expenses incurred by a self employed individual be allowed in 2023 for the following expenses? Cost of a CPA review course Accounting continuing education expenses (including travel,
Austin Corporation is proposing the establishment of a pension plan that will cover only employees with salaries in excess of $$200,000.$ No other employees are covered under comparable qualified
Mike, a self-employed consultant, incurs the following business-related expenses in 2023:Mike earned $$130,000$ of gross income from his consulting business and had $$12,000$ of interest and
Monique is a self-employed manufacturer’s representative (i.e., an independent contractor) who solicits business for numerous clients and receives a commission based on sales. She incurs the
Mary is self-employed and incurs $$3,600$ of business-related travel and entertainment expenses during 2023 in which she was away from home overnight. These business expenses include the
Marilyn, an independent contractor who lives and works in Cleveland, obtains a large contract that will require her to live and work in Atlanta for a period of ten months. Marilyn leaves her husband
Mike is an independent contractor in 2023. Mike attends a professional trade association convention in Los Angeles. He spends three days at the meeting and two days vacationing before the meeting.
Michelle is self-employed and uses her personal automobile for business trips. During 2023, Michelle drives her car 60% for business use and incurs the following total expenses (based on 100% use of
Amelie is self-employed and uses her personal automobile in connection with her business. During 2023, Amelie drove her car a total of 28,000 miles. Her business log shows that she drove 22,400 miles
Milt, a self-employed attorney, incurs the following expenses in 2023:Which of the expenditures listed above (if any) are deductible in 2023 by Milt? Business lunches for clients and prospective
Beach Corporation purchases tickets to sporting events and uses them to entertain customers. In 2023, Beach Corporation purchases the following tickets:a. What amount of the above expenses are
Nancy is a self-employed consultant who uses 10% of her residence as an office. The office is used exclusively for business and is frequented by customers on a regular basis. Nancy also uses her den
Pat is a participant in a qualified pension plan. She retires on January 1, 2023, at age 63, and receives pension payments beginning in January 2023. Her pension payments, which will be received
In 2023, Bear Corporation transfers 100 shares of its stock to its employee Patrick. The stock is valued at $$10$ per share on the issue date. The stock is subject to the following restrictions:•
On February 12, 2024, Jamal, who is single and age 30, establishes a traditional IRA and contributes $$6,500$ to the account. Jamal’s adjusted gross income is $$79,000$ in 2023 and $$60,000$
Phil, age 30, is married and files a joint return with his spouse. On February 15, 2024, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a $$13,000$
Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2023. She is an active participant in a qualified retirement plan sponsored by her employer.
Jack and Katie have five grandchildren, ages 19, 16, 15, 12, and 10. They have established Coverdell Education Savings Accounts (CESA) for each of the grandchildren and would like to contribute the
Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2023, when the option price and FMV of the Bell stock is $$80.$ The option entitles Peggy to buy 10 shares of
Bender Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2023, that entitled Penny to acquire 1,000 shares of Bender stock at $$80$ per share. On this date, the
Dan M. and Cheryl A. Peters are married, file a joint return, and have no children in 2023. Dan, age 45, is an independent contractor working in pharmaceutical sales and Cheryl, age 42, is a nurse at
This tax form/return preparation problem uses the same information as Problem I:7-62 EXCEPT it applies to the 2022 tax year rather than 2023. Actual government tax forms for 2023 are unavailable at
During 2023, Angela sustains serious injuries from a snow skiing accident. She incurs the following expenses:Angela is single and has no dependents. For the year, her salary is $$58,000.$ She pays
Assume the same facts as in Problem I:8-34. In addition, assume that in 2024, Angela receives an additional $$7,000$ in a settlement of a lawsuit arising because of the snow-skiing accident.
Dan lives in Duncan, a small town in Arizona. Because of a rare blood disease, Dan is required to take special medical treatments once a month. The closest place these treatments are available to Dan
In 2023, Charla, a single taxpayer with no dependents, was severely hurt in a farm accident. Charla is 38 years old. The accident left Charla’s legs 85% paralyzed. After incurring $$14,000$ of
Joyce is a single, cash-method taxpayer. On April 11, 2022, Joyce paid $$120$ in state income taxes with her 2021 state income tax return. During 2022, Joyce had $$1,600$ in state income taxes
During the current year, Tina purchases a beachfront condominium for $$600,000,$ paying $$150,000$ down and taking out a $$450,000$ mortgage, secured by the property. At the time of the
During 2023, Doug incurs the following deductible expenses: $$2,300$ in state income taxes, $$3,000$ in local property taxes, $$800$ in medical expenses, and $$2,000$ in non-cash charitable
During 2023, James, a single, cash method taxpayer incurred the following expenditures:James’ income consisted of the following items:a. Compute James’ taxable income for the year (assuming that
Assume all the same facts as in Problem I:8-48 except that James’ salary income is $$130,000$ instead of $$70,000$ and that he does not make the election. Compute James’ taxable income for
Assume the same facts as Problem I:8-51, except that the qualified organization is a private nonoperating foundation. Determine the amount of the charitable contribution for Parts a through e.
Cathy is a 50% partner in the CD partnership, which owns a small manufacturing business. In the current year, the business had qualified business income of $$2.8$ million. CD partnership paid W-2
Tim and Monica Nelson are married, file a joint return, and are your newest tax clients. They provide you with the following information relating to their 2023 tax return:1. Tim works as a
On December 1, 2023, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year, she donates $$5,000$ to charity. She has no other itemized deductions. This year, she

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