Questions and Answers of Concepts In Federal Taxation

Bonnie wants to trade her Snow Bird, Utah, condominium, which she has held for investment, for investment property in Steamboat Springs or Crested Butte, Colo. On April 20, 2018, she transfers title
Rollie exchanges a parking lot used in his business for a tract of land worth $20,000 and $4,000 in cash. He plans to subdivide and sell the land as residential lots. The adjusted basis of the
Inez is a freelance artist. She purchased 10 acres of land in 2013 for $5,000. On July 15, 2018, the land is condemned by the county government to build a new courthouse and jail facility. The county
Laurie bought a home in 2015 for $65,000. On November 2, 2018, she sells it for $114,000. Laurie uses the proceeds to purchase a duplex costing $200,000. She uses one unit in the duplex as her
Harvey sells his personal residence on March 18, 2018, for $78,000. He paid $86,000 for it on April 22, 2016.
Eva and Mario are married on June 14, 2017. They use Eva’s home as their principal residence. Eva purchased the home for $97,000 in 2014. On January 13, 2018, Eva and Mario are divorced. As part of
On July 8, 2016, Joe and Jill sell their principal residence for $650,000. Their adjusted basis in the property is $275,000. To complete the sale, Joe and Jill have to take back a second mortgage for
In October 2018, fire completely destroys the principal residence of Olaf, who is 63 and single, and lives in Bemidji, Minnesota. He owned the home for 16 years; his adjusted basis is $58,000. Olaf
What is the purpose of the dividends-received deduction?
Ruiz and his two brothers founded a social club called the Last Snake Inn in 1997. They want to take advantage of a new state law that lets them serve beer, liquor, and wine to their patrons on
Powell owns a 20 percent interest in Cooke Partnership. At the beginning of 2017, Powell's basis is $22,000. Cooke reports a $90,000 operating loss in 2017, and Powell withdraws $10,000 from the
Explain the pay-as-you-go system.
Reba's 2018 income tax calculation is as follows:Before filing her return, Reba finds an $8,000 deduction that she omitted from these calculations. Although the item is clearly deductible, she is
Christie purchases a one-third interest in the Corporate Capital Partnership (CCP) in 2017 for $40,000. During 2017, CCP earns an income of $90,000, and Christie withdraws $30,000 in cash from the
Esmeralda is an attorney. Before 2018, she is employed by the law firm of Ellis and Morgan (E&M). Esmeralda is not a partner in E&M; her compensation consists of a fixed salary and a percentage of
For each of the following situations determine the proper year for recognition of the income or deduction if the taxpayer is (1) a cash basis taxpayer and (2) an accrual basis taxpayer:a. Tindle
For each of the following situations, determine the proper year for recognition of the income or deduction if the taxpayer is (1) a cash basis taxpayer and (2) an accrual basis taxpayer:a. Helen
Tim has state income taxes of $4,500 withheld from his salary during 2017. On his 2017 federal income tax return, Tim properly deducts the $4,500 as state taxes paid. Upon filing his 2017 state
Jamal Corporation is an accrual basis taxpayer. In 2017, Jamal writes off a $1,000 account receivable from a customer who has died. In 2018, the former customer's estate sends Jamal a check for $600.
Postum Partnership purchases a building in 2015 for $250,000. It deducts $5,600 in depreciation on the building in 2015, $6,400 in 2016, $6,400 in 2017, and $3,200 in 2018. It sells the building in
Chelsea, who is single, purchases land for investment purposes in 2013 at a cost of $22,000. In 2018, she sells the land for $38,000. Chelsea's taxable income without considering the land sale is
George purchases stock in Dodo Corporation in 2014 at a cost of $50,000. In 2018, he sells the stock for $32,000. What is the effect of the sale of stock on George's taxable income? Assume that
Determine whether the taxpayer in each of the following situations is in constructive receipt of income. If not, explain when the income will be constructively received.a. Norman is president of
Sidney lives in Hayes, Kansas. He owns land in Cotulla, Texas, that he inherited from his father several years ago. The land is unimproved and has never produced income. On January 26, 2018, Sidney
Determine the taxpayer's adjusted basis in each of the following situations. If any changes are made in the original basis of the asset, explain why they are necessary.a. Simone purchases 300 shares
Henrietta is the president and sole shareholder of Clutter Corporation. In 2015, Henrietta transferred ownership of her personal residence to the corporation. As part of the transfer, Clutter
Biko owns a snowmobile manufacturing business, and Miles owns a mountain bike manufacturing business. Because each business is seasonal, their manufacturing plants are idle during their respective
Aretha is an executive vice president of Franklin, Inc. On December 18, 2018, the Franklin, Inc., board of directors awards her a $20,000 bonus. Aretha asks Franklin's controller to delay processing
Darcy borrowed $4,000 in 2015 from her employer to purchase a new computer. She repays $1,000 of the loan plus 6% interest on the unpaid balance in 2015, 2016, and 2017. After closing a big deal in
Partha owns a qualified annuity that cost $52,000. Under the contract, when he reaches age 65, he will receive $500 per month until he dies. Partha turns 65 on June 1, 2018 and receives his first
Ratliff Development Corporation purchases a tract of land in 2017 at a cost of $120,000 and subdivides the land into 30 building lots. The cost of subdividing is $6,000. In 2017, Ratliff installs
The Rosco Partnership purchases a rental property in 2013 at a cost of $150,000. From 2013 through 2018, Rosco deducts $14,000 in depreciation on the rental. The partnership sells the rental property
Albert and Patricia are divorced and their agreement is finalized in 2018. As part of their divorce agreement, Patricia agrees to pay Albert alimony of $85,000 in the current year and $5,000 per year
Erica and Raphael are divorced and their agreement is finalized in 2018. Because Erica made millions in the record industry while Raphael served as the homemaker and primary caretaker to baby Dexter,
Pedro purchases 50 shares of Piper Company common stock on February 19, 2015, at a cost of $4,300. He sells the 50 shares on July 2, 2018, for $9,000. On March 14, 2018, Pedro purchases 100 shares of
Determine how much interest income Later Federal Loan Company, a cash basis taxpayer, must recognize on each of the following loans in 2018:a. A $10,000, 8.5%, 6-month loan made on October 1, 2018.
In January 2018, Conan, a cash basis taxpayer, purchases for $4,000 a Series EE savings bond with a maturity value of $4,800 (a 6% annual yield). At the same time, he also purchases for $5,000 a
How much income would an accrual basis taxpayer report in 2018 in each of the following situations?a. Toby's Termite Services Inc. provides monthly pest control on a contract basis. Toby sells a
Daryl purchases land in 2014 at a cost of $65,000. In 2018, he sells the land for $100,000.a. How much gain or loss does Daryl realize on the sale of the land?b. Assume that the sales contract on the
In 2015, Patricia purchases a rental property as an investment at a cost of $60,000. From 2015 through 2018, she takes $7,000 in depreciation on the property. In 2018, Patricia sells the rental
WCM Builders enters into a contract to build a shopping mall in 2018 for $6,000,000. Completion of the mall is expected to take 27 months and cost WCM $3,600,000. Upon signing the contract, WCM
In 2012, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2018, when Awnings' bonds are trading at 93, the company purchases and retires $100,000 par value of the bonds.
Tonya purchased land for investment purposes in 2015 for $21,000. In 2018, she sells the land for $36,000. The terms of the sale require the purchaser to pay Tonya $12,000 per year for three years
A stock appreciation right (SAR) entitles the holder of the right to a cash payment equal to the difference between the fair market value of the stock on the date the SAR is exercised and the fair
Joan is a single individual who works for Big Petroleum, Inc. During all of 2018, she is stationed in West Africa. She pays West African taxes of $20,000 on her Big Petroleum salary of $92,000. Her
Boris is an unmarried systems specialist with a public accounting firm. During all of 2018, he is on temporary assignment in London. He pays $21,000 in British income tax on his $100,000
Tia is married and is employed by Carrera Auto Parts. In 2018, Carrera established high-deductible health insurance for all its employees. The plan has a $2,600 deductible for married taxpayers.
Binh met Anika 10 years ago at a cocktail party. Anika was a wealthy investor with extensive holdings in the oil and gas industry. Binh was a real estate agent earning about $35,000 a year. Several
In 2018, RayeAnn acquires a car for $14,000. She uses the car in her advertising business and for personal purposes. Her records indicate the car is used 70% for business and that the total operating
On July 1, 2018, Andaria borrows $30,000 from the First Financial Bank. The loan is for 1-year at an annual interest rate of 10%. How much interest can Andaria deduct under each of the following
Damon's Lawn and Garden Supply, an accrual basis taxpayer, is the exclusive dealer for Tru-Cut lawn mowers. In 2018, Damon's agrees to pay the Dash Corporation, the manufacturer of Tru-Cut, an
The Parr Corporation incurs the following expenses. When can it deduct the expenses if it uses the accrual method of accounting? the cash method? a. Parr Corporation mails a check for $5,000 to the
Kai, a cash basis taxpayer, is a 75% owner and president of Finnigan Fish Market. Finnigan, an S corporation, uses the accrual method of accounting. On December 28, 2018, Finnigan accrues a bonus of
Lonnie owns 100% of Quality Company's common stock. Lonnie, the president of Quality, is a cash basis taxpayer. Quality is short of cash as of December 31, 2018, the close of its tax year. As a
The Showgate Hotel Casino is an accrual basis taxpayer and maintains its records on a calendar year. It has 3,000 slot machines, one of them a progressive machine whose jackpot increases based on the
During the current year, Benjamin and Valerie were notified that their 2016 tax return was being audited. The IRS commissioner has disallowed all the losses attributable to Valerie's cattle breeding
Rosita's grandmother dies in November 2017 and leaves her an investment portfolio worth $180,000. In January 2018, when Rosita receives ownership to the investments, the portfolio consists of
A.J. is the vice president for Keane Products, a marketing consulting firm. On a business trip to New York City in 2018, he meets with three executives from Keane’s top account. After the
Karl is the vice president of finance for Wyatt Industries. In 2018, he met a client at an afternoon baseball game. The box-seat tickets cost $30 each. Because the client had a plane flight after the
Mario owns his own business and drives his car 15,000 miles a year for business and 7,500 miles a year for commuting and personal use. He wants to claim the largest tax deduction possible for
In addition to being an employee of Rock Hard Roofing Material, Lou owns 10% of the company's common stock. Rock Hard falls on hard times in 2017. To forestall bankruptcy, Rock Hard's employees and
Tom is singleand operates a golf store as a sole proprietorship. In 2018, the store has $130,000 of net income. Tom does not itemize and has other income from interest and dividends of $2,000. What
KOM pays the following insurance premiums during 2018:a. If KOM uses the accrual method of accounting, what is the insurance expense deduction for 2018?b. If KOM uses the cash method of accounting,
Dan and Katlyn are married and operate a pizza restaurant as an S corporation. In 2018, the store has qualified business income of $300,000. Their itemized deductions are $22,000 and they have other
The Kimpton Corporation pays the following taxes during 2018:Also, the county treasurer notifies Kimpton that it is being assessed a special real estate tax of $64,000 for upgrading the sidewalks and
Diane and Peter were divorced in 2018. The divorce agreement states that Peter is to have custody of their son, Stewart, and that Peter will be entitled to the dependency exemption. In addition,
During 2018, Carson pays $1,500 in child support and $2,000 in alimony to his ex-wife. What is Carson's allowable deduction, and how should it be deducted on his tax return?
Mona works for Leonardo Corporation as a sales representative. Leonardo gives her a travel allowance of $350 per month. During 2018, she spends the following amounts on valid travel expenses:How
Evelyn is single and a self-employed engineer. During 2018, Evelyn's income from her engineering business is $55,000. Evelyn pays $3,100 for her medical insurance policy.a. How should the medical
Thomas is single and a self-employed architect. During 2018, Thomas’s income from his business is $144,000. He also pays $2,200 for a medical insurance policy.a. How should the medical insurance
Jake loaned his cousin, Arnold, $10,000 in March 2016 to open a cybercafe in Santa Barbara. Arnold signed a loan agreement to pay Jake 7% interest annually, with the principal due in 2019. Jake
Brad graduated from law school in Detroit in May 2017. He had lived in the area for 5 years before enrolling in law school. Following his graduation, he prepared for the Michigan bar exam, which he
In 2016, Samantha loaned her friend Lo Ping $15,000. The loan required Lo Ping to pay interest at 8% per year and to pay back the $15,000 loan principal on July 31, 2018. Lo Ping used the loan to
Habiby, Inc., began operations in 2017 and has the following income and expenses for 2017 through 2020.a. What is the amount of tax that Habiby should pay each year? b. How much would Hadley paid in
When is a taxpayer allowed to deduct a personal casualty loss, and how is it calculated?How would your answer change if Graves were an S corporation?
Wayne owns 30% of Label Maker Corporation. Label Maker is organized as an S corporation. During 2018, Label Maker has a loss of $160,000. At the beginning of 2018, Wayne's at-risk amount in Label
Sidney and Gertrude Pearson own 40% of Bearcave Bookstore, an S corporation. The remaining 60% is owned by their son Boris. Sidney and Gertrude do not participate in operating or managing the store
Mort is the sole owner of rental real estate that produces a net loss of $18,000 in 2017 and $20,000 in 2018 and income of $6,000 in 2019. His adjusted gross income, before considering the rental
Katrina is the sole owner of rental real estate that produces a net loss of $18,000 in 2017 and $22,000 in 2018 and income of $9,000 in 2019. Her adjusted gross income, before considering the rental
Mason owns a passive activity that generates a loss of $14,000 in 2017, $12,000 in 2018, and income of $4,000 in 2019. In 2018, Mason purchases a second passive activity that has passive income of
During 2018, Yoko has total capital gains of $8,000 and total capital losses of $16,000.a. What is the effect of the capital gains and losses on Yoko's 2018 taxable income? Explain.b. Assume that in
Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2018. Randy owns 25% of Labrador's outstanding stock. What is the effect on Labrador's and Randy's
Goldie sells 600 shares of Bear Corporation stock for $9,000 on December 14, 2018. She paid $27,000 for the stock in February 2015.a. Assuming that Goldie has no other capital asset transactions in
Bongo Corporation is incorporated in 2016. It has no capital asset transactions in 2016. From 2017 through 2020, Bongo has the following capital gains and losses:Assuming that Bongo's marginal tax
Newcastle Corporation was incorporated in 2017. For the years 2017 through 2019, Newcastle has the following net capital gain or loss.If Newcastle is in the 34% marginal tax bracket for each of these
Sonya, who is single, owns 20,000 shares of Malthouse Corporation stock. She acquired the stock in 2015 for $75,000. On August 12, 2018, Sonya’s father tells her of a rumor that Malthouse will file
Katelyn purchased 300 shares of Condine, Inc., stock in 2016 for $9,000. During 2018, she sells 200 shares of Condine to her brother, Jon, for $3,600 and the remaining 100 shares to an unrelated
Leona owns 300 shares of Ross Industries. She acquired the shares on February 17, 2016, for $6,500. On September 17, 2018, she acquires another 200 shares of Ross for $4,800. Two weeks later, a
The Readyhough Corporation was incorporated in 2010. During 2017, the corporation had operating income of $80,000. Because of a strike at its major supplier, the corporation had an operating loss of
Zoriana sells stock that she acquired in 2014 for $7,500. Her basis in the stock is $14,000. She has a $2,000 long-term capital loss carryover from 2017.
On January 1, 2018, Brenda acquires 200 shares of Disney stock for $8,000. She sells 200 shares of the stock on September 2, 2018, for $30 per share. On September 23, 2018, Brenda acquires 400 shares
Anthony owned a 2016 Luxuro automobile that had a fair market value of $18,000. His son James, who is 19, borrows the car without his father's knowledge and totals it in 2017. James has been involved
Determine the 2018 filing status in each of the following situations:a. Michaela and Harrison decide to separate on October 12, 2018. Before filing their 2018 tax return on February 18, 2019,
Determine the maximum deduction from AGI in 2018 for each of the following taxpayers:a. Pedro is single and maintains a household for his father. His father is not a dependent of Pedro’s. Pedro’s
Paula lives in Arkansas, a state, which imposes a state income tax. During 2018, she pays the following taxes:a. If Paula’s adjusted gross income is $35,000 what is her allowable deduction for
Determine the maximum deduction from AGI in 2018 for each of the following taxpayers:a. Selen is single and has itemized deductions for the year of $12,200. In addition, Selen's mother lives with
Jesse is a resident of New Jersey who works in New York City. He also owns rental property in South Carolina. During 2018, he pays the following taxes: During 2018, Jesse’s 2016New YorkState and
Simon is single and a stockbroker for a large investment bank. During 2018, he has withheld from his paycheck $2,250 for state taxes and $400 for city taxes. In June 2019, Simon receives a state tax
Frank and Liz are married. During 2018, Frank has $2,800 in state income taxes withheld from his paycheck, and Liz makes estimated tax payments totaling $2,200. In May 2019, they receive a state tax
Rocco owns a piece of land as investment property. He acquired the land in 1995 for $18,000. On June 1, 2018, he sells the land for $80,000. As part of the sale, the buyer agrees to pay all of the

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