Questions and Answers of Income Tax Fundamentals

Janie graduates from high school in 2020 and enrolls in college in the fall. Her parents pay $4,000 for her tuition and fees. a. Assuming Janie's parents have AGI of $172,000, what is the American
Barbara purchased a new Honda Clarity electric vehicle in 2020 for $36,000. Her federal tax credit will be:a. $0b. $2,500c. $5,000d. $7,500e. $10,000
Carl and Jenny adopt a Korean orphan. The adoption takes 2 years and two trips to Korea and is finalized in 2020. They pay $7,000 in 2019 and $7,500 in 2020 for qualified adoption expenses. In 2020,
Mike bought a solar electric pump to heat his pool at a cost of $2,500 in 2020. What is Mike’s credit?$____________
In 2020, Jeff spends $6,000 on solar panels to heat water for his main home. What is Jeff’s credit for his 2020 purchases? $______________
George and Amal file a joint return in 2020 and have AGI of $38,200. They each make a $1,600 contribution to their respective IRAs. Assuming that they are not eligible for any other credits, what is
Alice purchases a rental house on June 22, 2020, for a cost of $174,000. Of this amount, $100,000 is considered to be allocable to the cost of the home, with the remaining $74,000 allocable to the
Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2020, Owen and Lisa exchange land they both held
Trish Himple owns a retail family clothing store. Her store is located at 4321 Heather Drive, Henderson, NV 89002. Her employer identification number is 95- 1234321 and her Social Security number is
Tsate Kongia (birthdate 02/14/1954) is an unmarried high school principal. Tsate received the following tax documents:During the year, Tsate paid the following amounts (all of which can be
An asset (not an automobile) put in service in June 2020 has a depreciable basis of $25,000 and a recovery period of 5 years. Assuming half-year convention, no bonus depreciation, and no election to
An asset (not an automobile) put in service in June 2020 has a depreciable basis of $28,000 and a recovery period of 5 years. Assuming bonus depreciation is used, half-year convention and no election
Mike purchases a new heavy-duty truck (5-year class recovery property) for his delivery service on March 30, 2020. No other assets were purchased during the year. The truck is not considered a
James purchased office equipment for his business. The equipment has a depreciable basis of $14,000 and was put in service on June 1, 2020. James decides to elect straight-line depreciation under
On July 8, 2020, Holly purchased a residential apartment building. The cost basis assigned to the building is $750,000. Holly also owns another residential apartment building that she purchased on
On July 20, 2020, Kelli purchases office equipment at a cost of $24,000. Kelli elects out of bonus depreciation but makes the election to expense for 2020. She is selfemployed as an attorney, and, in
Calculate the following:a. The first year of depreciation on a residential rental building that cost $250,000 purchased June 2, 2020.b. The second year (2021) of depreciation on a computer that cost
During 2020, Pepe Guardio purchases the following property for use in his calendar year-end manufacturing business:Pepe uses the accelerated depreciation method under MACRS, if available, and does
Nadia Shalom has the following transactions during the year:Sale of office equipment on March 15 that cost $21,500 when purchased on July 1, 2018. Nadia has claimed $21,500 in depreciation and sells
Michele is single with no dependents and earns $32,000 this year. Michele claims exempt on her Form W-4. Which of the following is correct concerning her Form W-4?a. Michele may not under any
On September 14, 2020, Jay purchased a passenger automobile that is used 75 percent in his business. The automobile has a basis for depreciation purposes of $45,000, and Jay uses the accelerated
Tom has a successful business with $100,000 of taxable income before the election to expense in 2020. He purchases one new asset in 2020, a new machine which is 7-year MACRS property and costs
Derek purchases a small business from Art on June 30, 2020. He paid the following amounts for the business:a. How much of the $250,000 purchase price is for Section 197 intangible
In 2020, Mary sells for $24,000 a machine used in her business. The machine was purchased on May 1, 2018, at a cost of $22,000. Mary has deducted depreciation on the machine of $6,000. What is the
During 2020, Paul sells residential rental property for $240,000, which he acquired in 1999 for $160,000. Paul has claimed straight-line depreciation on the building of $60,000. What is the amount
Pat sells land for $25,000 cash and a $75,000 5-year note. If her basis in the property is $30,000 and she receives only the $25,000 down payment in the year of sale, how much is Pat’s taxable gain
The process for employee withholding involves:a. Using only a 2020 Form W-4 for all employees to calculate income tax withholding.b. Using a 2020 Form W-4 for new employees (all existing employees
Abbe, age 56, started a new job in 2020. At Abbe’s previous employer she had filed a Form W-4 with 5 allowances. Abbe’s new employer will:a. Use a copy of Abbe’s previous Form W-4 to calculate
Using the information from Problem 11, complete Form 941 and Worksheet 1 located on Pages 9-55 to 9-58 for Drew for the second quarter of 2020.Assume the following additional information:• Drew was
Eric, your friend, received his Form W-2 from his employer (below) and has asked for your help. Eric’s 2020 salary was $146,000 and he does not understand why the amounts in Boxes 1, 3, and 5 are
William sold Section 1245 property for $25,000 in 2020. The property cost $40,000 when it was purchased 5 years ago. The depreciation claimed on the property was $21,000.a. Calculate the adjusted
Drew Fogelman operates a small business and his payroll records for the second quarter of 2020 reflect the following:Drew’s employee identification number is 34-4321321 and his business is located
What is Sarajane’s basis in the land received in the exchange described in Question 19, assuming her basis in the land given up was $12,000?Question 19Fred and Sarajane exchanged land in a
Philcon Corporation created the following 2020 employee payroll report for one of its employees.a. Complete the following Form W-2 for Louise Chugach from Philcon Corporation.b. Philcon Corporation
Fiduciary Investments paid its employee, Yolanda, wages of $139,000 in 2020. Calculate the FICA tax: Withheld from Yolanda's wages: Paid by Fiduciary: Total FICA Tax Social Security Medicare Social
Which of the following is not true about FICA taxes?a. The FICA tax has two parts, Social Security (Old Age, Survivors, and Disability Insurance) and Medicare.b. In 2020, the maximum wage base for
Terry worked for two employers during 2020. The amount of wages paid to Terry by both employers totaled $168,400 and the employers properly withheld both income and employment taxes. As a result of
Thuy worked as the assistant manager at Burger Crown through August 2020 and received wages of $81,000. Thuy then worked at Up and Down Burger starting in September of 2020 and received wages of
Yeet Inc. has 14 employees in 2020. Yeet’s 2020 second quarter business was 70 percent lower than 2019 due to COVID-related impacts. Yeet was able to stay in business and kept ten of the fourteen
Mitchell, Max, and Romeo form a partnership to operate a grocery store. For each of the following contributions by the partners, indicate (1) the amount of income or gain recognized, if any, by the
Telly, age 38, has a $140,000 IRA with Blue Mutual Fund. He has read good things about the management of Green Mutual Fund, so he opens a Green Fund IRA. Telly asked for a distribution rollover and
In 2020, Tyck Tock Corp. paid wages of $105,000 to employees, none of which make more than the 2020 FICA cap. The Social Security tax (employer and employee share) is $13,020. No employee elected to
Wei has four employees: Anna, Kenny, Stan, and Seth, who were paid $12,000, $5,000, $8,000, and $3,000, respectively. Assuming a full state credit, Wei’s FUTA taxable wages for the year are:a.
Betty owns three separate IRA accounts with different banks. She wishes to consolidate her three IRAs into one IRA in 2020. How many distribution rollovers may Betty make in 2020?a. Oneb. Twoc.
Bonnie is getting close to retirement and realizes she has three different IRA accounts at three different financial institutions. To make life simpler, Bonnie wishes to consolidate her three IRAs
Kele and Nova wish to form the Sioux Partnership. Kele contributes property with an adjusted basis of $70,000, a fair market value of $200,000 that is subject to an $80,000 liability in exchange for
Abigail contributes land with an adjusted basis of $50,000 and a fair market value of $60,000 to Blair and Partners, a partnership. Abigail receives a 50 percent interest in Blair. What is Blair’s
Juanita contributes property with a fair market value of $30,000 and an adjusted basis of $16,000 to a partnership in exchange for an 10 percent partnership interest. a. Calculate the amount of gain
Abigail contributes land with an adjusted basis of $50,000 and a fair market value of $60,000 to Blair and Partners, a partnership. Abigail receives a 50 percent interest in Blair. What is
Walter receives cash of $18,000 and land with a fair market value of $75,000 (adjusted basis of $50,000) in a current distribution. His basis in his partnership interest is $16,000 before the
Meredith has a 40 percent interest in the assets and income of the Gantt Partnership, and the basis in her partnership interest is $60,000 at the beginning of 2020. During 2020, the partnership’s
Kiwi Interests is a partnership with a tax year that ends on September 30, 2020. During that year, Kereru, a partner, received $2,000 per month as a guaranteed payment, and his share of partnership
Janie owns a 30 percent interest in Chang Partnership. Chang has W-2 wages of $20,000 and qualified property of $900,000 in 2020.a. When computing the W-2 wages limitation, what is the amount of
In 2020, Gloria, a single taxpayer, receives a Schedule K-1 from a partnership she is invested in. The K-1 reports ordinary business income of $30,000, dividend income of $500, tax-exempt interest of
Jay is a 30 percent partner in the Closet Partnership. In 2020, Closet paid W-2 wages of $24,000 and held qualified property of $600,000. In 2020, Jay’s QBI deduction is subject to the wage
Ironwood Corporation has ordinary taxable income of $25,000 in 2020, and a shortterm capital loss of $15,000. What is the corporation’s tax liability for 2020?a. $2,100 b. $5,250c. $10,500d.
George Corporation is an S corporation started on January 1, 2020, with 50 shares owned by Trey Martin and 50 shares owned by Brianna Tabor. The corporation is located at 15620 McMullen Hwy SW,
Quince Corporation has taxable income of $285,000 for its calendar tax year. Calculate the corporation’s income tax liability for 2020 before tax credits.$____________
Tayla Corporation generated $400,000 of taxable income in the 2020. What is Tayla’s corporate tax liability?a. $71,400b. $84,000c. $115,600d. $136,000e. None of the above
Ulmus Corporation is an engineering consulting firm and has $1,400,000 in taxable income for 2020. Calculate the corporation’s income tax liability for 2020.$___________
DeMaria Corporation, a calendar year corporation, generates the following taxable income (net operating losses) since its inception in 2017:Assuming DeMaria makes no special elections with regard to
For its current tax year, Ilex Corporation has ordinary income of $250,000, a short-term capital loss of $20,000 and a long-term capital gain of $60,000. Calculate Ilex Corporation’s tax liability
Harrison Corporation generates capital gains/(losses) of ($2,000), $4,000, ($14,000) in 2018, 2019, and 2020, respectively. Harrison started operating in 2018. What is Harrison’s capital loss
Beech Corporation, an accrual basis calendar year taxpayer, was organized and began business on July of the current calendar tax year. During the current year, the corporation incurred the following
Mask Corporation generated a net operating loss of $24,000 in 2020 and taxable income of $10,000 in 2021. How much NOL can Mask use in 2021 to reduce taxable income (assume no carryback is
Mallory Corporation has a calendar year-end. The corporation has paid estimated taxes of $10,000 during 2020 but still owes an additional $5,000 for its 2020 tax year. a. When is the 2020 tax return
Fisafolia Corporation has gross income from operations of $210,000 and operating expenses of $160,000 for 2020. The corporation also has $30,000 in dividends from publicly-traded domestic
Which of the following statements is false regarding corporate tax return due dates?a. Corporate tax returns for 2020 calendar-year corporations are due April 15, 2021.b. Corporate tax returns may
Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda’s basis in her stock is $21,000. On May 26, 2020, Bill sells his stock, with a basis of $40,000, to
Cedar Corporation has an S corporation election in effect. During the 2020 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2020, the corporation paid
Which of the following is not required for a corporation to be eligible to make an S corporation election?a. The corporation must have 100 or fewer shareholders.b. The corporation must be a domestic
Which of the following statements is true about the 2020 corporate alternative minimum tax?a. The corporate alternative minimum tax only applies to small corporations.b. The corporate alternative
Any corporate AMT credit carryovers that existed at the end of 2017:a. Can be used to offset tax liability generated in 2018 and thereafterb. Do not expirec. Can generate a refundable credit of any
During 2020, William purchases the following capital assets for use in his catering business:Assume that William decides to use the election to expense on the baking equipment (and has adequate
In 2020, Ben purchases and places in service a new auto for his business. The auto costs $57,000 and will be used 60 percent for business. Assuming the half-year convention applies and Ben elects out
On February 2, 2020, Alexandra purchases a personal computer. The computer cost $2,200. Alexandra uses the computer 75 percent of the time in her accounting business, and the remaining 25 percent of
In 2020, Ben purchases and places in service a new auto for his business. The autocosts $57,000 and will be used 100 percent for business. Assuming the half-year convention applies and Ben does not
Sophie is a single taxpayer. For the first payroll period in July 2020, she is paid wages of $2,200 monthly. Sophie claims one allowance on her pre-2020 Form W-4.. a. Use the percentage method to
Sherina Smith (Social Security number 785-23-9873) lives at 536 West Lapham Street, Milwaukee, WI 53204, and is self-employed for 2020. She estimates her required annual estimated income tax payment
Kana is a single wage earner with no dependents and taxable income of $168,700 in 2020. Her 2019 taxable income was $155,000 and tax liability was $31,375. Calculate the following (note: this
Amy is a single taxpayer. Her income tax liability in the prior year was $3,803. Amy earns $50,000 of income ratably during the current year and her tax liability is $4,315. In order to avoid
Lamden Company paid its employee, Trudy, wages of $61,500 in 2020. Calculate the FICA tax: Withheld from Trudy's wages: Paid by Lamden: Total FICA Tax Social Security Medicare Social Security
Jane is a single taxpayer with a current year AGI of $181,000 and current year income tax liability of $34,968. Her AGI in the prior year was $150,400 and prior year tax liability was $27,247. Jane
Lamden Company paid its employee Trudy, wages of $61,500 in 2020. Of this amount, $2,400 was allocated to sick pay for two weeks due to Trudy’s spouse contracting COVID and Trudy being quarantined.
Floyd Corporation was formed and began operations on January 1, 2020. The corporation is located at 210 N. Main St., Pearisburg, VA 24134 and the EIN is 91-1111111.The corporation’s income
If a taxpayer’s 2020 individual income tax return was filed on March 3, 2021, the statute of limitations would normally run out on:a. April 15, 2023b. March 3, 2022c. April 15, 2024d. March 3,
In the 2020 tax year, Michelle paid the following amounts relating to her 2018 tax return:Which of the above items may be deducted on Michelle’s 2020 individual income tax return? Explain Tax
Indicate the date that the statute of limitations would run out on each of the following 2020 individual tax returns: a. A fraudulent tax return that was filed April 15, 2021 b. A tax return that was
Melodie’s taxable income is $39,000 and she pays income tax of $4,486. If Melodie’s taxable income increases to $43,000, she would pay income taxes of $5,256. What is Melodie’s marginal tax
Using the information from Problem 1A, assume Maria’s birthdate is May 18, 1953 and complete Form 1040-SR for Maria Tallchief for the 2020 tax year.Maria Tallchief is a single taxpayer (birthdate
Maria Tallchief is a single taxpayer (birthdate May 18, 1993) living at 543 Space Drive, Houston, TX 77099. Her Social Security number is 466-33-1234. For 2020, Maria has no dependents, and her
Hardy and Dora Knox are married and file a joint return for 2020. Hardy’s Social Security number is 466-47-3311 and her birthdate is January 4, 1976. Dora’s Social Security number is 467-74-4451
Abigail (Abby) Boxer is a single mother (birthdate April 28, 1982) working as a civilian accountant for the U.S. Army. Her Social Security number is 676-73-3311 and she lives at 3456 S Career Avenue,
Rahul and Ruby are married taxpayers. They are both under age 65 and in good health. For 2020 they have a total of $42,000 in wages and $300 in interest income.Rahul and Ruby’s deductions for
Which of the following tax forms are used by individuals in 2020?a. 1040Ab. 1040-EZc. 1040-SRd. 1120
Jason and Mary Wells, friends of yours, were married on December 30, 2020. They know you are studying taxes and have sent you an e-mail with a question concerning their filing status. Jason and Mary
Xialu is a single taxpayer who is under age 65 and in good health. For 2020, she has a salary of $25,000 and itemized deductions of $7,000. Leslie allows her mother to live with her during the winter
Typical corporate income is reported on:a. Form 1040b. Form 1120c. Form 1040Xd. Form 1065
In 2020, Manon earns wages of $54,000. She also has dividend income of $2,800. Manon is single and has no dependents. During the year, Manon sold silver coins held as an investment for a $7,000 loss.
Diego, age 28, married Dolores, age 27, in 2020. Their salaries for the year amounted to $48,000. They had dividend income of $2,500. Diego and Dolores’ deductions for adjusted gross income

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