Questions and Answers of Fundamentals Taxation 2019

Sanjay has the following information for 2023:Compute his marginal tax rate, average tax rate, and effective tax rate. Filing Status Taxable Income Total Income Married filing jointly $264,800
Sarah has asked for help in determining whether she should receive her $25,000 bonus check in the current year or next year. In the current year, her marginal tax rate is 24% and she anticipates she
Aroon is a valuable employee for his company, and he will receive a significant bonus. His employer has asked him to consider moving next year to a new company location in a different state. His
Kurt, married filing jointly, owns a manufacturing business and has the opportunity to invest in a transaction that will generate$$200,000$ before-tax cash flow and taxable income in Year 0.a.
Butch, single, operates a sole proprietorship with net income of $$145,000.$ Butch’s taxable income is also $$145,000$ including the income from the sole proprietorship. Butch is considering
Barb and Rick are married filing jointly and have taxable income of $100,000.a. Calculate their tax liability using the 2023 tax rate schedules.b. Calculate their tax liability using a flat rate of
Quincy is single, has $65,000 of wages, and pays 20% in federal and state income tax. If the combined federal and state tax rate increases to 25%, how much additional income must Quincy earn to
The state Nor lives in has the following income tax rate structure:Nor has $325,000 of income. Calculate Nor’s tax liability and indicate what type of tax rate structure his state has. Percentage
Dorice lives and works in Indiana but purchased a car from a dealership in Illinois. The sales tax in Indiana is 7% and in Illi-nois, it is 6.25%. Did Dorice avoid having to pay the additional
Benny has $100,000 to invest and is considering two options:Option A: Earn 6%, investment income is taxable Option B: Earn 4.8%, investment income is tax-exempt Benny has a 24% marginal tax rate.a.
McKeller Company would like to start a new venture. The company is currently in the 24% marginal tax bracket and uses a 5% discount factor. The company projects that the venture will produce
Rafael is thinking of starting an office supplies business specializing in home and office delivery. He is not sure what entity type is best from a tax perspective and needs your help. He projects
Being a full-time accountancy student is exciting and challenging. You are aware that there are many careers within accountancy to choose from, but your interest has been in taxation. Explain to your
A friend of yours has approached you about preparing his tax return. You are in your senior year of college taking a taxation course, and everyone keeps asking you questions and wants advice on how
Peter “The Prophet” Verdad is a self-proclaimed prophet who claims that the end of times is near. He earns income as a guest lecturer, from the sale of prophecy books and videos, and as a host at
LMNO Corporation was formed in 2011. It reported net income (loss) over the 2011 through 2017 tax years, before accounting for any net operating losses, as follows:2011 $ (4,000)2012 $
Determine taxable income in each of the following independent cases. In all cases, the company was very profitable in all years prior to 2017 and it had retained earnings of $1,000,000 at the end of
For each of the following cases, determine the amount of capital gain or loss to report in each year (after taking into account any applicable carrybacks) and the capital loss carryforward to 2018,
Chen received a $10,000 dividend from a Subchapter C corporation. He also owns a 50% interest in a Subchapter S corporation that reported $100,000 of taxable income. He received a
Which of the following statements is incorrect?a. An S corporation can own stock of a C corporation.b. A C corporation can own stock of an S corporation.c. A S corporation can be a partner
Which of the following items increase basis for a stockholder of a Subchapter S corporation?a. Capital contributions.b. Charitable contributions.c. Net losses.d. Distributions from the
Concerning the business interest expense deduction, which of the following statements is true?a. Disallowed interest expense can be carried forward indefinitely.b. The interest expense
Banana Company is widely held. It owns 85% of Strawberry Corporation. Two individuals hold the remaining 15%. Which of the following statements is true?a. Banana and Strawberry must file a
A calendar year corporate taxpayer must make its final estimated tax payment on the 15th of which month?a. November.b. December.c. January.d. February.
Which of the following statements is false?a. A corporation with average sales in excess of $25,000,000 must use the accrual method of accounting.b. The charitable contributions of a
For Subchapter C corporations, which of the following statements is true?a. Capital losses can be carried back 3 years and then carried forward 5 years.b. Corporations can elect to forego
Mountain Company owns 25% of Valley Company. Both are domestic corporations. Valley pays a $60,000 dividend to Mountain. What amount of dividend income will be included in the taxable income of
The Subchapter S status of a calendar year corporation is statutorily terminated on August 12, 2018. The Subchapter S status is deemed to be terminated on what date? What is the answer if the status
A calendar year corporation properly files a Subchapter S election on January 10, 2018. On what date is the election effective? What if the election were filed on June 1, 2018?
Explain the business interest expense limitation rules for 2018.
Explain the net operating loss rules for 2018 and later.
Calvin purchased a 40% partnership interest for $43,000 in February 2016. His share of partnership income in 2016 was $22,000, in 2017 was $25,000, and in 2018 was $12,000. He made no additional
Zach contributed land with a FMV of $25,000 and a basis of $14,000 to a partnership on April 5, 2012. On June 6, 2018, the partnership distributed the land to Art, a partner in the same partnership.
Kerry is a partner in the Kerry, Davis, Smith & Jones Partnership. Kerry owned 25% from January 1, 2018 to June 30, 2018, when he bought Jones’s 25% interest. He owned 50% for the rest of the
Katlin contributes land to a partnership with a basis of $44,000 and a FMV of $56,000 in 2016. In 2018, when the FMV of the land is $58,000, the partnership distributes the land to Baily, another
A partner recognizes a gain on a current distribution in which of the following situations?a. When a partner receives a property distribution with a basis in excess of his or her
Molly, a 30% partner in XYZ partnership, has a basis of $55,000 in her partnership interest. She receives a cash distribution of $54,000 at year-end. The distribution has what tax effect on
Partner Beth has a basis of $10,000 in a partnership at the beginning of the year. She receives $6,000 in cash distributions, her distributive share of income is $5,000, and she receives a land
Retish is a 10% partner in a partnership. The partnership pays Retish a guaranteed payment of $45,000 per year. If the partnership’s ordinary income is $38,000 before considering the guaranteed
A partner’s share of ordinary income or loss and separately stated items is reported to the partner via what form?a. Form 1065.b. Form 1040 - Schedule SE.c. Form 1065, Schedule
Which of the following items from a partnership go into the calculation of a partner’s self-employment income:a. Rental income.b. Dividend income.c. Interest income.d. § 179 expense
All of the following are considered separately stated items to a partnership except:a. Charitable contributions.b. § 179 expense.c. Depreciation.d. Capital gains and losses.
Which of the following is considered when calculating ordinary income to a partnership?a. Dividend income.b. § 179 expense.c. Guaranteed payments to partners.d. Capital gains and
Shelly contributed the following business assets to S&S Partnership on March 3, 2018:What is the basis in the equipment and the accounts receivable to S&S?a. Equipment $0; Accounts
Allie contributed the following business assets to ASW Partnership on August 1, 2018:What is the holding period for the building and the inventory to ASW Partnership?a. Building – long-term
Barbara is single and owns a home in the city, which is her primary residence. She also owns a cottage at the beach, which she treats as a vacation home. In April 2018, she borrowed $50,000 on a home
Arnold exercised an incentive stock option in 2015, acquiring 1,500 shares of stock at an option price of $80 per share. The FMV of the stock at the date of exercise was $110 per share. In 2017, the
Clay Company uses the completed contract method on a contract that requires 14 months to complete. The contract is for $750,000, and has estimated costs of $425,000. At the end of 2018, $210,000 of
Herbie is the owner of two apartment buildings. Following is information related to the two buildings:Date AcquiredTotal CostCost Allocated to LandBuilding A3/15/98$300,000$40,000Building
William is not married, nor does he have any dependents. He does not itemize deductions. His taxable income for 2018 was $87,000 and his regular tax was $15,176. His AMT adjustments totaled $125,000.
Carson had the following itemized deductions in 2018:State income taxes
In 2016, Jerry acquired an interest in a partnership in which he is not a material participant. The partnership was profitable until 2017. Jerry’s basis in the partnership interest at the beginning
Jackson invested $190,000 in a passive activity five years ago. On January 1, 2016, his at-risk amount in the activity was $45,000. His share of the income and losses in the activity were $52,000
Julia acquired passive Activity A in January 2014 and passive Activity B in July 2016. Until 2017, Activity A was profitable. Activity A produced a loss of $150,000 in 2017 and a loss of $150,000 in
Judy acquired passive Activity A in January 2013 and Activity B in July 2014. Until 2018, Activity A was profitable. Activity A produced a loss of $50,000 in 2018 and a loss of $75,000 in 2019. She
In 2018, Andrew contributed equipment with an adjusted basis of $20,000 and an FMV of $18,000 to Construction Limited Partnership (CLP) in return for a 3% limited partnership interest. Andrew’s
After computing all tax preferences and AMT adjustments, Phillip and his wife Carmin have AMTI of $1,210,000. If Phillip and Carmin file a joint tax return, what exemption amount can they claim for
Paul reported the following itemized deductions on his 2018 tax return. His AGI for 2018 was $65,000. The mortgage interest is all qualified mortgage interest to purchase his personal residence. For
Which of the following statements is correct with regard to the medical expense deduction?a. Medical expenses are not deductible for AMT.b. The medical expense deduction is decreased for
Which of the following itemized deductions is not allowed for AMT?a. Medical expenses.b. Taxes.c. Charitable contributions.d. Interest on loan to purchase principal residence.
Jacob is single with no dependents. During 2018, he has $48,000 of taxable income. He also has $28,000 of positive AMT adjustments and $12,000 of tax preferences. Jacob does not itemize his
Janel owns five small businesses, each of which has its own manager and employees. Janel spends the following number of hours this year working in the various businesses: Business A, 130 hours;
Sylvester, an accountant, owns a mail-order business in which he participates. He has one employee who works part-time in the business. Which of the following statements is incorrect?a. If
Which of the following would be considered a passive activity?a. A limited partnership interest.b. Most rental real estate activities.c. A trade or business in which the taxpayer does
Agnes and Aunt Sue each invested $140,000 cash in the A&S Partnership and each received a 50% interest in the partnership. To finance her investment in the partnership, Agnes borrowed $60,000 on
Alcott invested $20,000 for a 25% interest in a partnership (not a passive activity) on January 1, 2017. The partnership borrowed $100,000 (with full recourse to the partners) on January 15, 2018, to
Myer owns a 20% interest in a partnership (not involved in real estate) in which his at-risk amount was $50,000 at the beginning of the year. During the year, he receives a $40,000 distribution from
In 2018, Kirsten invested $20,000 for a 10% partnership interest (not a passive activity). The partnership has losses of $150,000 in 2018 and $250,000 in 2019. Kirsten’s share of the
Lewis owns 200 shares of stock in Modlin Corporation. His adjusted basis for the stock is $180,000. On December 15, 2018, he sells the stock for $170,000. He purchases 200 shares of Modlin
Harold owns 130 shares of stock in Becker Corporation. His adjusted basis for the stock is $210,000. On December 15, 2018, he sells the stock for $180,000. He purchases 200 shares of Becker
Crystal owns 150 shares of Carson, Inc., stock that has an adjusted basis of $100,000. On December 18, 2018, she sells the 150 shares for FMV ($88,000). On January 7, 2019, she purchases 200 shares
On January 1, 2018, Myron sells stock that has a $50,000 FMV on the date of the sale (basis $75,000) to his son Vernon. On October 21, 2018, Vernon sells the stock to an unrelated party. In each of
Dominique is a manager for a regional bank. He is being relocated several states away to act as a temporary manager while a new branch is interviewing for a permanent manager. He will leave on May 1,
Virginia is an accountant for a global CPA firm. She is being temporarily transferred from the Raleigh, North Carolina, office to Tokyo. She will leave Raleigh on October 7, 2018, and will be out of
On February 1, 2018, a 39-year-old widow buys a new residence for $150,000. Three months later, she sells her old residence for $310,000 (adjusted basis of $120,000). Selling expenses totaled
Pedro sells investment land on September 1, 2018. Information pertaining to the sale follows:Adjusted basis
Reid’s personal residence is condemned on September 12, 2018, as part of a plan to add two lanes to the existing highway. His adjusted basis is $300,000. He receives condemnation proceeds of
Jessica’s office building is destroyed by fire on November 15, 2018. The adjusted basis of the building is $410,000. She receives insurance proceeds of $550,000 on December 12, 2018. a.
Bryce owns 200 shares of Basic Company stock that he purchased for $8,000 three years ago. On December 28, 2018, Bryce sold 100 shares of the stock for $2,500. On January 3, 2019, Bryce repurchased
On June 1, 2018, Nigel sells land (basis $55,000) to his son Ted for $40,000, the land’s fair market value on the date of the sale. On September 21, 2018, Ted sells the land to an unrelated party.
All of the following relationships are considered related parties excepta. A corporation and a taxpayer whose spouse owns 80% of the corporation’s stock.b. A trust and a taxpayer who is
Daniel, who is single, purchased a house on May 15, 1995, for $115,000. During the years he owned the house, he installed a swimming pool at a cost of $24,000 and replaced the driveway at a cost of
Marcus purchased Vinnie and Marie’s personal residence for $225,000 cash and the assumption of their $100,000 mortgage. Vinnie and Marie bought the house six years ago for $275,000 and have used it
A taxpayer who sells her personal residence in 2018 may exclude some or all of the gain on the sale if the residence was owned and lived in fora. At least four years before the sale
Which of the following statements is correct with regard to installment sales?a. The contract price is generally the amount of cash the seller will receive. b. Sales by a taxpayer who is a
On July 1, 2018, Andrea sold land held for investment to Taylor. Andrea’s land had a $300,000 basis and was subject to a $150,000 mortgage. Under the contractual agreement, Taylor will pay Andrea
On June 15, 2018, Allen sold land held for investment to Stan for $50,000 and an installment note of $250,000 payable in five equal annual installments beginning on June 15, 2018, plus interest at
Kyla owns a convenience store with an adjusted basis of $215,000 that was destroyed by a flood on August 15, 2018. Kyla received a check for $275,000 from her insurance company on January 10, 2019,
A warehouse with an adjusted basis of $250,000 was destroyed by a tornado on April 15, 2018. On June 15, 2018, the insurance company paid the owner $395,000. The owner reinvested $470,000 in a new
A warehouse with an adjusted basis of $125,000 was destroyed by a tornado on April 15, 2018. On June 15, 2018, the insurance company paid the owner $195,000. The owner reinvested $170,000 in another
In order to build a new road, the city of Oxford annexed 20 acres of Michael’s farmland with an FMV of $30,000 and basis of $18,000. In return, Michael received 50 acres of similar land, which was
What tax form is completed to elect deferral of gain on an involuntary conversion?a. No form is required.b. Form 4797.c. Form 4562.d. Form 1040, Schedule D.
Gretel exchanges a warehouse with an adjusted basis of $150,000 and fair market value of $160,000 for a mini-storage building with a fair market value of $100,000 and $60,000 cash. What are the
Jason exchanged land for other land. The old land had an adjusted basis of $14,000, and the new land had an FMV of $22,000. Jason also paid $5,000 cash in the exchange. What are the recognized gain
Janel exchanges a building she uses in her rental business for a building owned by Russel that she will use in her rental business. The adjusted basis of Janel’s building is $160,000, and the fair
Which of the following exchanges qualifies as like-kind property?a. Partnership interest for partnership interest.b. Inventory for equipment.c. Investment land for land used as a
For the asset received in a like-kind exchange, how is the holding period of the new asset determined?a. According to the date the new asset is received.b. According to the date the old
Terrance is age 71 and retired. Beginning in 2018, he must start taking minimum distributions from his IRA account that had a balance of $150,000 as of December 31, 2017. Make these three
Will, who is single and under age 50, is employed as a full-time tax accountant at a local manufacturing company where he earns $83,000 per year. He participates in a pension plan through his
Sanjay purchased a single life annuity contract for $200,000. The contract will pay $15,000 per year beginning in 2018 for the remainder of his life and has an expected return of $330,000. What

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