Questions and Answers of Concepts In Federal Taxation

Robin purchases a new home costing $80,000 in 2017. She pays $8,000 down and borrows the remaining $72,000 by securing a mortgage on the home. She also pays $1,750 in closing costs, $1,600 in points
Determine the taxable income of each of the following dependents in 2018:a. Louis is 12 and receives $1,250 in interest income. b. Jackson is 16. He earns $2,050 from his newspaper route and
Calculate the 2018 tax liability and the tax or refund due for each situation:a. Mark is single with no dependents and has a taxable income of $60,000. He has $9,200 withheld from his salary for the
Determine whether each of the following taxpayers must file a return in 2018:a. Jamie is a dependent who has wages of $4,150.b. Joel is a dependent who has interest income of $1,200.c. Martin is
Jacqueline is single. In June 2018, she receives a refund of $250 from her 2017 state tax return. Her 2017 itemized deductions were $8,000. In October 2018, her 2016 state tax return is audited, and
Troy’s 2016 tax return is audited. The auditor determines that Troy inadvertently understated his ending inventory in calculating his business income. The error creates an additional tax liability
Carl Corporation acquires a business use warehouse for $200,000 on January 2, 2011. From 2011 through 2016, Carl Corporation properly deducts a total of $30,000 in depreciation. Carl incurs a net
Hannibal owns a farm. He purchases a tractor in 2014 at a cost of $25,000. Because 2014 is a bad year, he does not deduct any depreciation on the tractor in 2014. He sells the tractor in 2018
Erin purchases 2 acres of land in 2018 by paying $4,000 in cash at closing and borrowing $40,000 to be repaid at $8,000 per year for the next 5 years with interest on the unpaid balance at 10%. In
On October 1, 2018, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust's adjusted basis in the lot is $20,000. Real estate taxes attributable to
Izzy is an employee of Kosmo's Kustom Kars, Inc. The company rebuilds classic automobiles for resale. Last year, Izzy bought a rebuilt 1957 Thunderbird for $15,000 from the company. A car like Izzy's
On January 5, 2018, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of $24,700. On April 1, 2018, he purchases an additional 300 shares for $19,500. On November 13, 2018,
Eric owns 600 shares of Razor, Inc., stock for which he paid $3,500 in 2014. On December 14, 2018, he sells the 600 shares for $4 per share and pays a commission of $200 on the sale. On January 3,
Firefly, Inc., acquires business equipment in July 2018 for $2,515,000. Assume that Firefly elects not to claim bonus depreciation.a. What is Firefly's maximum Section 179 deduction for 2018?
In 2018, Terrell, Inc., purchases machinery costing $2,528,000. Its 2018 taxable income before considering the Section 179 deduction is $990,000. Assume that Terrell elects not to claim bonus
Brad is a shareholder and full-time employee of an S corporation. During 2018, he earns a $50,000 salary from the S corporation and is allocated $12,000 as his share of its net operating loss. In
The Browser Company purchases a computer in December 2018 for $12,000. This is the only depreciable personal property acquired during the year. Browser elects not to claim bonus depreciation and does
Kris starts a new business in 2018. She purchases 7-year MACRS property costing $12,000. Her business income before any cost-recovery deductions is $8,000. Kris does not want to claim bonus
In July 2018, Surecut Sawmills buys office furniture for $1,060,000. Assume that Surecut elects not to claim bonus depreciation.a. Compare cost-recovery deductions using maximum, minimum, and
On June 2, 2018, Lokar Corporation purchases a patent for $68,000 from the inventor of a new extrusion process. The patent has 12 years remaining on its legal life. Also, Lokar purchases
On April 18, 2018, Petros buys all the assets of Brigid's Muffler Shop. Included in the purchase price of $295,000 is a payment of $20,000 to Brigid not to open a competing shop in the state for a
Bailey Construction Company purchases a bulldozer on December 20, 2018. An ice storm delays delivery until December 24. Because of the holidays, the equipment is not used until January 2.
During 2018, Schottenheim Corporation buys laptop computers and desktop computers to use in its general sales offices. Schottenheim buys laptops for $42,000 on March 29, additional laptops for
Spencer purchases 100 shares of Reality Virtual Corporation common stock for $1,200 on July 30, 2018. He sells 75 shares of this stock for $525 on December 27, 2018. On January 12, 2019, Spencer
For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss on the disposition and whether that gain or loss is short-term or long-term:a. Ari
For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss and whether that gain or loss is short-term or long-term:a. Larry's aunt June dies on
Yorgi purchases qualified small business stock in Gnu Company, Inc., on September 15, 2008, for $50,000. She sells the shares for $400,000 on December 30, 2018. The stock retains its qualified small
During August 2013, Madeline invests $400,000 in Qual Company, Inc., buying 100,000 shares of stock. Her broker tells her this will be an excellent investment because the securities are qualified
Marnie buys 500 shares of qualified small business stock in H.R. Pizza, Inc., on September 10, 2008 for $20,000. She sells the 500 shares for $120,000 on October 2, 2018. Marnie's other capital asset
Opal's neighbor, Jillian, persuades her to invest in Schaake Corporation, a new venture, on March 4, 2017. Opal pays $15,000 for 3,000 shares of common stock. On February 6, 2018, Schaake Corporation
Dawn started her own rock band on January 2, 2016. She acquired all her equipment on January 2, 2016, and did not dispose of any of it before 2018. On April 15, 2018, the band’s amplifier,
Rhinelander Corporation has the following net Section 1231 gains and losses for 2013 through 2017:a. What is the proper characterization of the net Section 1231 gains and losses for 2013 - 2017 for
Thuy buys a rental house in 2010 for $75,000. In 2018, she sells it for $86,000. Thuy properly deducted $22,000 in depreciation on the house before its sale.a. What is the amount and character of the
Avalon Inc., buys equipment costing $150,000 in 2015 and sells it in 2018. Avalon deducts $94,000 in depreciation on the equipment before the sale. What is the character of the gain or loss on the
Marino inherits antique pottery from the estate of his grandmother on March 10, 2018. He immediately sells the pottery for $15,000 to a collector who had made the offer to the executor of the estate
Martina purchases 10,000 shares of Monrovia Corporation stock for $90,000 on November 14, 2017. On June 18, 2018, Monrovia declares bankruptcy. Because the corporation’s assets are less than its
Tawana purchased real property in 2016 at a cost of $200,000. In 2018, she is experiencing cash-flow problems and sells the property for $220,000. The adjusted basis of the property is $185,000.
As a gift for her granddaughter Ella's 13th birthday, Melanie bought 500 shares of Soft'n Sales Corporation stock on September 25, 2013. Melanie bought the stock directly from the underwriter for
At the beginning of 2018, Heather owns the following stocks:In addition to these stocks, Heather received 400 shares of Poor Boy preferred stock from her grandfather as a gift on December 25, 2017.
Joy incurs the following expenses in her business. When can she deduct the expenses if she uses the accrual method of accounting? the cash method?a. Joy rents an office building for $750 a month.
Grant Industries' warehouse is condemned by the city on August 18, 2021. Because of widespread publicity leading up to the condemnation, Grant anticipates it and purchases a replacement warehouse on
On July 8, 2019, Joe and Mateo sell their principal residence for $650,000. Their adjusted basis in the property is $275,000. To complete the sale, Joe and Mateo have to take back a second mortgage
DeShawn is a retired auto mechanic. Since retiring four years ago, he has made stained glass windows. Because he has only occasional sales, DeShawn treats this activity as a hobby. A friend of
In 2021, Lucy 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
As a hobby, Salome creates and sells oil paintings. During the current year, her sales total $8,000. How is the tax treatment of her hobby different from the treatment of a trade or business, ifa.
Lee and Ben own a winter retreat in Harlingen, Texas, that qualifies as their second home This year they spent 40 days in their cabin. Because of its ideal location, it is easy to rent at $120 a day
Haysad owns a house on Lake Tahoe. He uses a real estate firm to screen prospective renters, but he makes the final decision on all rentals. He also is responsible for setting the weekly rental price
On July 1, 2021, 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 2021, 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, 2021, 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, 2021, 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 2019 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 2020 and leaves her an investment portfolio worth $180,000. In January 2021, 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 2021, he meets with three executives from Keane’s top account. After the meeting,
Karl is the vice president of finance for Wyatt Industries. In 2021, 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
Ping is an officer of the Branson Corporation a publicly traded corporation. His salary for the year is $1,320,000, which is the sixth-highest salary at Branson. What amount can the corporation
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 2020. To forestall bankruptcy, Rock Hard's employees and
Dan and Katlyn are married and operate a pizza restaurant as an S corporation. They are not eligible for any additional standard deduction amounts. In 2021, the store has qualified business income of
KOM pays the following insurance premiums during 2021:a. If KOM uses the accrual method of accounting, what is the insurance expense deduction for 2021?b. If KOM uses the cash method of accounting,
The Kimpton Corporation pays the following taxes during 2021:Also, the county treasurer notifies Kimpton that it is being assessed a special real estate tax of $64,000 for upgrading the sidewalks and
Evelyn is single and a self-employed engineer. During 2021, 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 2021, Thomas’s income from his business is $170,000. He also pays $2,200 for a medical insurance policy.a. How should the medical insurance
Lois and Shanice are married and file a joint return. Lois earns $64,500 and Shanice earns $40,000. Their adjusted gross income is $114,000. Determine the maximum IRA contribution and deduction in
Jake loaned his cousin, Arnold, $10,000 in March 2019 to open a cybercafe in Santa Barbara. Arnold signed a loan agreement to pay Jake 7% interest annually, with the principal due in 2021. Jake
Mei loaned $2,000 to her minister a year ago. The loan is not evidenced by a note and does not bear interest. The minister has moved out of town without paying her back. She doesn't want to embarrass
Brad graduated from law school in Detroit in May 2020. 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 2019, 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, 2021. Lo Ping used the loan to
Baker, Inc., purchases office furniture (7-year MACRS property) costing $1,051,000 and a computer system (5-year MACRS property) costing $1,051,000 in 2021. Assuming that Baker elects not to claim
Dikembe purchases 1,000 breeding hogs for $1,124,000 in April 2021.a. What is his maximum 2021 cost-recovery deduction for the hogs?b. Dikembe's farming operation incurs a net loss this year and
Assume that in problem 37, the United Express Company sells a truck that cost $50,000 in 2021 for $15,000 in June 2024. Assume that none of the truck was expensed in 2021. Compute the adjusted basis
Kris starts a new business in 2021. She purchases 7-year MACRS property costing $12,000. Her business income before any cost-recovery deductions is $8,000. Kris does not want to claim bonus
The Browser Company purchases a computer in December 2021 for $12,000. This is the only depreciable personal property acquired during the year. Browser elects not to claim bonus depreciation and does
The Browser Company purchases a computer in August 2021 for $12,000. Browser elects not to claim bonus depreciation and does not elect to expense the asset but wants to claim the maximum
The United Express Company begins business in August 2021 by purchasing the assets listed in the table below. If United Express elects not to claim bonus depreciation, calculate the maximum MACRS
Brad is a shareholder and full-time employee of an S corporation. During 2021, he earns a $50,000 salary from the S corporation and is allocated $12,000 as his share of its net operating loss. In
During 2021, Belk Corporation purchases $70,000-worth of equipment for use in its business. Belk's current taxable income before considering the Section 179 deduction is $26,000. Assume that Belk
In 2021, Theo purchases $16,000 of Section 179 property for use in his delivery business. During 2021, he has $12,000 in taxable income from his business. Assume that Theo elects not to claim bonus
In 2021, Terrell, Inc., purchases machinery costing $2,618,000. Its 2021 taxable income before considering the Section 179 deduction is $1,100,000. Assume that Terrell elects not to claim bonus
Firefly, Inc., acquires business equipment in July 2021 for $2,605,000. Assume that Firefly elects not to claim bonus depreciation.a. What is Firefly's maximum Section 179 deduction for 2021?
Tom, an executive for a large corporation, enjoys the challenge of preparing his tax return. He is aggressive in preparing his return and searches through all the available publications to reduce his
Paula lives in Arkansas, a state, which imposes a state income tax. During 2021, she pays the following taxes:a. If Paula’s adjusted gross income is $35,000 what is her allowable deduction for
Heather makes cash contributions during the current year of $30,000 and donates property worth $40,000 to a local hospital. She purchased the property several years ago for $32,000. Her adjusted
Robin purchases a new home costing $80,000 in 2021. She pays $8,000 down and borrows the remaining $72,000 by securing a mortgage on the home. She also pays $1,750 in closing costs, $1,600 in points
Suzanne is married and the sole owner of Laidlaw Corporation. When the corporation was established in 2010, she received 10,000 shares of qualified small business stock in exchange for her $100,000
Alicia, Bob and Carol are equal partners in, Dunning Law Associates. In 2015, Alicia, in an attempt to maximize the firm’s return on its investment portfolio, encourages her partners to acquire
On January 1, 2021, Brenda acquires 200 shares of Disney stock for $8,000. She sells 200 shares of the stock on September 2, 2021, for $30 per share. On September 23, 2021, Brenda acquires 400 shares
Sonya, who is single, owns 20,000 shares of Malthouse Corporation stock. She acquired the stock in 2018 for $75,000. On August 12, 2021, Sonya’s father tells her of a rumor that Malthouse will file
The Graves Corporation was incorporated in 2020 and incurred a net operating loss of $35,000. The company’s operating income in 2021 was $47,000. Because of a downturn in the local economy,
Mort is the sole owner of rental real estate that produces a net loss of $18,000 in 2020 and $20,000 in 2021 and income of $6,000 in 2022. His adjusted gross income, before considering the rental
Habiby, Inc., began operations in 2020 and has the following income and expenses for 2020 through 2023.What is the amount of tax that Habiby should pay each year? Income Expenses Taxable
The Gladys Corporation buys office equipment costing $1,124,000 on May 12, 2021. In 2024, new and improved models of the equipment make it obsolete, and Gladys sells the old equipment for $34,000 on
On April 18, 2021, Petros buys all the assets of Brigid's Muffler Shop. Included in the purchase price of $295,000 is a payment of $20,000 to Brigid not to open a competing shop in the state for a
In July 2021, Surecut Sawmills buys office furniture for $1,100,000. Assume that Surecut elects not to claim bonus depreciation.a. Compare cost-recovery deductions using maximum, minimum, and
In June 2021, Copper Kettle, Inc., purchases duplicating equipment for $541,000.a. Compare cost recovery deductions using maximum, minimum, and intermediate methods over the recovery period of the
Stan purchases machinery costing $100,000 for use in his business in 2021. The machinery is 7-year MACRS property and has an ADS life of 12 years. Complete a depreciation schedule using the regular
Felicia is a single taxpayer who retired from her job as a sales executive with Waynesville Associates, LLC. During 2022, she turns 72 and decides to begin withdrawing the $320,000 in assets (balance
Claude is a CPA and a partner with SKH and Associates, a regional public accounting firm. In September 2019, Brokaw Technologies approached one of his clients, Walter Fenner, about acquiring 100
Will owns residential rental property that is destroyed by a tornado in March 2020. He files a claim with his insurance company and receives $90,000 for the property. The building is fully

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