Questions and Answers of Income Tax Fundamentals

Travis transfers land with a fair market value of $125,000 and basis of $25,000, to a corporation in exchange for 100 percent of the corporation’s stock. What amount of gain must Travis recognize
Which of the following items are passed through and separately stated on Schedule K-1 to shareholders of an S corporation?a. Wages paidb. Typical MACRS depreciationc. Net long-term capital gainsd.
Which of the following statements is false regarding corporate capital losses?a. Corporations may deduct $3,000 of net capital loss each year until the loss is used up.b. Corporations may carry
Ironwood Corporation has ordinary taxable income of $65,000 in 2019, and a shortterm capital loss of $15,000. What is the corporation’s tax liability for 2019?a. $7,500d. $13,650b. $5,250e. None of
Stewart Beauf is a self-employed surfboard maker in 2019. His Schedule C net income is $126,503 for the year. He also has a part-time job and earns $16,100 in wages subject to FICA taxes. Calculate
If Stan’s parents elected to report Stan’s income on his parents’ return, what would the tax on Stan’s income be?
Refer to the previous problem
Yolanda is a cash basis taxpayer with the following transactions during the year:Cash received from sales of products $70,000 Cash paid for expenses (except rent and interest) 40,000 Rent prepaid on
Using the same facts as in Question 7, how much can B Corporation deduct on its 2020 tax return?a. $0b. $4,000c. $15,000d. $19,000e. $12,000
B Corporation, a calendar year-end, accrual basis taxpayer, is owned 75 percent by Bonnie, a cash basis taxpayer. On December 31, 2019, the corporation accrues interest of $4,000 on a loan from
Pekoe sold stock to his sister Rose for $12,000, its fair market value. Pekoe bought the stock 5 years ago for $16,000. Also, Pekoe sold Earl (an unrelated party) stock for$6,500 that he bought 3
Which of the following entities is required to report on the accrual basis?a. An accounting firm operating as a Personal Service Corporation.b. A manufacturing business with $30 million of gross
Rob Wriggle operates a small plumbing supplies business as a sole proprietor. In 2019, the plumbing business has gross business income of $421,000 and business expenses of $267,000, including wages
Julie, a single taxpayer, has completed her 2019 Schedule C and her net loss is$40,000. Her only other income is wages of $30,000. Julie takes the standard deduction of $12,200 in 2019.a. Calculate
Clifford Johnson has a limited partnership investment and a rental condominium.Clifford actively manages the rental condominium. During 2019, his share of the loss from the limited partnership was
Dick owns a house that he rents to college students. Dick receives $800 per month rent and incurs the following expenses during the year:Real estate taxes $1,250 Mortgage interest 1,500 Insurance 425
Charu Khanna received a Form 1099-B showing the following stock transactions and basis during 2019:Stock Date Purchased Date Sold Sales Price ($)Cost Basis ($)4,000 shares Green Co. 06/04/08 08/05/19
Harold, a single taxpayer, has $30,000 of ordinary income after the standard deduction, and $10,000 in long-term capital gains, for total taxable income of $40,000. For 2019, single taxpayers pay 0
In November 2019, Ben and Betty (married, filing jointly) have a long-term capital gain of $54,000 on the sale of stock. They have no other capital gains and losses for the year. Their ordinary
Lew is a practicing CPA who decides to raise bonsai as a business. Lew engages in the activity and has the following revenue and expenses:Sales $ 5,000 Depreciation on greenhouse 10,000 Fertilizer,
Randi qualifies for a home deduction. The amount of space devoted to business use is 400 square feet of the total 2,000 square feet of her home. Randi’s mortgage interest and property taxes in
Sam owns an insurance agency and makes the following business gifts during the year. Calculate Sam’s deduction for business gifts.Donee Amount Amount Allowed Ms. Sears (a client) $35, plus $4
Cooper and Brandy are married and file a joint income tax return with two separate Schedule Cs. Cooper is an independent security specialist who spent $395 on uniforms during the year. His laundry
Marty is a sales consultant. Marty incurs the following expenses related to the entertainment of his clients in the current year:Dues to a country club $4,500(The country club was used for business
Grace is a self-employed sales consultant who spends significant time entertaining potential customers. She keeps all the appropriate records to substantiate her entertainment. She has the following
Lawrence owns a small candy store that sells one type of candy. His beginning inventory of candy was made up of 10,000 boxes costing $1.50 per box ($15,000), and he made the following purchases of
Margaret started her own business in the current year and will report a profit for her first year. Her results of operations are as follows:Gross income $45,000 Travel 1,000 Contribution to
Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211.Scott’s CPA practice is
Carol maintains an office in her home where she conducts a dressmaking business.During the year she collects $4,000 from sales, pays $1,300 for various materials and supplies, and properly allocates
Which of the following business gifts are fully deductible?a. A gift to a client that cost $35b. A gift to an employee, for 10 years of continued service, costing $250c. A gift to a client and her
Which of the following self-employed taxpayers are most likely permitted to deduct the cost of their uniform?a. A lawyer who wears a business suitb. A furnace repairman who must wear overalls while
Which of the following formulas represents the proper method of calculating cost of goods sold?a. Beginning inventory 1 Ending inventory 2 Purchasesb. Ending inventory 2 Purchases 2 Beginning
Daniel is a self-employed consultant. Until this year he was always an employee.He comes to discuss his new business with you. As his tax accountant, you should:a. Discuss setting up a good
Sally and Charles Heck received the following Form 1099-DIV in 2019:The Hecks also received the following dividends and interest in 2019 (Forms 1099-DIV not shown):Sally Charles Jointly Qualifying
Go to the Turbo Tax Blog (http://blog.turbotax.intuit.com/) and search the blog for an article on the deduction of student loan interest. What is the maximum deduction that can be taken in a year?
In each of the following situations, determine whether the taxpayer(s) has/have a dependent and if so, the total amount of child tax credit and other dependent credit(assuming no limitations
For each of the following cases, indicate the filing status for the taxpayer(s) for 2019 using the following legend:A—Single D—Head of household B—Married filing a joint return E—Qualifying
Jim, age 50, and Martha, age 49, are married with three dependent children. They file a joint return for 2019. Their income from salaries totals $49,500, and they received$10,125 in taxable interest,
Alicia, age 27, is a single, full-time college student. She earns $13,200 from a parttime job and has taxable interest income of $1,450. Her itemized deductions are $845.Calculate Alicia’s taxable
Jayne purchased General Motors stock 6 years ago for $20,000. In the current year, she sells the stock for $35,000. What is Jayne’s gain or loss?a. $15,000 long-term gainb. $15,000 short-term
On which of these would wage income be reported?a. Schedule 1b. Schedule 2c. Schedule 3d. Form 1040
Explain the basic concepts of tax planning.
Describe the Taxpayer Bill of Rights.
Describe the rules and penalties that apply to tax practitioners.
Apply the general rule for the statute of limitations on tax returns and the important exceptions to the general rule.
Define the common penalties for taxpayers and be able to apply them to specific situations.
Describe the IRS audit process.
Identify the organizational structure of the Internal Revenue Service (IRS).
Describe tax issues associated with the repeal of the alternative minimum tax.
Describe the rules for the accumulated earnings tax and the personal holding company tax.
Describe the basic tax rules for the formation of a corporation.
Explain how an S corporation operates and is taxed.
Describe the corporate tax return filing and estimated tax payment requirements.
Identify the components of Schedule M-1 and how they are reported to the IRS.
Apply special corporate deductions to corporate taxable income.
Compute basic gains and losses for corporations.
Employ the corporate tax rates to calculate corporate tax liability.
Describe the tax treatment of limited liability companies (LLCs).
Apply the at-risk rule to partnerships.
Apply the qualified business income deduction to partners.
Describe the tax treatment of transactions between partners and their partnerships.
Determine partnership tax years.
Describe the tax treatment of partnership distributions.
Summarize the rules for partnership income reporting.
Describe the basic tax rules for partnership formation and operation.
Define a partnership for tax purposes.
Explain the pension plan rollover rules.
Describe the general rules for qualified retirement plans.
Compute the amount of FUTA tax for an employer.
Prepare employer payroll reporting.
Apply the federal deposit system to payroll withholding.
Compute the FICA tax.
Determine taxpayers’ quarterly estimated payments.
Compute the income tax withholding from employee wages.
Calculate recognized and deferred gains on involuntary conversions.
Calculate recognized and deferred gains on like-kind exchanges.
Compute the gain on installment sales.
Apply the general treatment of casualty gains and losses for business purposes.
Apply the depreciation recapture rules.
Classify gains and losses from Section 1231 assets.
Calculate the amortization of goodwill and certain other intangibles.
Apply the limitations on depreciation of “luxury automobiles.”
Apply the limitations placed on depreciation of “listed property.”
Identify when a Section 179 election to expense the cost of property may be used.
Calculate depreciation expense using the MACRS tables.
Calculate the low-income Retirement Plan Contribution Credit.
Recognize the basic individual credits for energy efficiency.
Determine the proper use and calculation of the adoption credit.
Compute the foreign income exclusion and tax credit.
Apply the special rules applicable to the American Opportunity tax credit and lifetime learning credit.
Calculate the premium tax credit available under the Affordable Care Act.
Compute the child and dependent care credit for an individual taxpayer.
Determine the earned income credit (EIC).
Calculate the child tax credit.
Compute the special taxes for high-income taxpayers.
Apply the special tax and reporting requirements for household employees (the “nanny tax”).
Calculate and report the self-employment tax (both Social Security and Medicare portions) for self-employed taxpayers.
Calculate a basic alternative minimum tax.
Apply the rules for computing tax on the unearned income of minor children and certain students (the “kiddie tax”).
Determine whether parties are considered related for tax purposes, and classify the tax treatment of certain related-party transactions.

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