Questions and Answers of South-Western Federal Taxation 2022 Individual Income Taxes

Answer the following independent questions with respect to a deductible IRA and § 401(k) contributions for 2021. a. Govind, age 31, earns a salary of $26,000 and is not an active participant in
Penny plans to retire in 2022 at age 70. Identify any issues that Penny faces with respect to distributions from her qualified retirement plan.
Locate IRS data about taxable IRA distributions, specifically reporting the annual number of returns with distributions and their amounts. Comment about the data for the most recent three years,
Joey, who is single, is not covered by another qualified plan and earns $127,000 at his job in 2021. How much can he contribute to a traditional IRA or to a Roth IRA in 2021?
Prepare two PowerPoint slides for each of the following items to present to your school’s Accounting Club.a. What is an inherited IRA?b. If you inherit an IRA, can you make additional contributions
Sanjay Henry calls you and asks about setting up a savings incentive match plan for his employees (SIMPLE). Prepare a memo for the tax files with your response.
Joanna, age 44, defers $24,000 in a qualified Solo § 401(k) plan in 2021.a. What amount must be returned to Joanna and by what date?b. In what year will the amount be taxed?c. What percent of the
Myers, who is single, has compensation income of $73,000 in 2021. He is an active participant in his employer’s qualified retirement plan. Myers contributes $6,000 to a traditional IRA. Of the
In 2021, Cao’s compensation before his employer’s contribution to a SEP is $66,000. Up to what amount can Cao’s employer contribute and deduct in 2021?
The AGI of the Newtons, a married couple, is $201,000 this year. They would like to contribute to a Roth IRA.a. What is the maximum amount this couple can contribute to a Roth IRA? Show your
Zaire Corporation granted an ISO for 250 shares of its stock to Bruno on July 20, 2020, for services rendered. The option price was $130 and the fair market value was $130 on the date of the grant.
On April 5, 2019, Gustavo was granted an NQSO for 200 shares of common stock at $50 per share. On the date of the grant, there was no readily ascertainable fair market value for the option. Gustavo
Cheng is age 77, and the balance in her traditional IRA account at the end of December of the prior year is $231,000. Using Exhibit 19.3, calculate Cheng’s required minimum distribution for 2022.
Lee inherits a traditional IRA at the end of 2021.a. If Lee inherits the IRA from her spouse when the value is $231,050, how must the balance be distributed to her?b. If Lee inherits the IRA from her
In 2021, Megan’s sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax).a. Calculate the maximum amount that Megan can deduct for
Harvey is a self-employed accountant with earned income from the business of $120,000 (after the deduction for one-half of his self-employment tax). He uses a defined contribution Keogh plan. What is
Answer the following independent questions with respect to traditional IRA contributions for 2021. a. Juan, age 41, earns a salary of $28,000 and is not an active participant in any other
Carri and Dane, ages 34 and 32, respectively, have been married for 11 years, and both are active participants in employer qualified retirement plans. Their total AGI in 2021 is $201,000, and they
Louis is a participant in the SIMPLE IRA of his employer Brown, Inc. During 2021, he contributes 8% of his salary of $63,000, and his employer contributes 3%. What is the total amount that will be
Gabriella, age 34, and Beth, age 32, have been married for nine years. Gabriella, who is a college student, works part-time and earns $1,500. Beth is a high school teacher and earns a salary of
Samuel, age 32, loses his job in a corporate downsizing. As a result of his termination, he receives a distribution of the balance in his § 401(k) account of $20,000 ($25,000 2 $5,000 Federal income
On November 19, 2019, Rex is granted a nonqualified stock option to purchase 100 shares of Tan Company. On that date, the stock is selling for $8 per share, and the option price is $9 per share. Rex
During 2021, Jayden Steele received a distribution of $24,000 on stock he owns in Razorbill Corporation. He had planned to report this amount as dividend income until he talked to his father-in-law,
The Orosco brothers have obtained financing to start a new venture. The business will be high-risk as to potential liability and is expected to incur losses before becoming profitable. What business
Barker acquired a 50% interest in Kode Partnership by contributing $20,000 cash and a building with an adjusted basis of $26,000 and a fair market value of $42,000. The building was subject to a
Can chatbot technology be used by a CPA firm to help clients and potential clients understand the similarities and differences among business entity types? How would this work, what are the benefits,
The dividends received deduction (DRD) is a tax deduction that may be taken by which of the following?a. An individualb. An S corporationc. A partnershipd. A C corporation
In late December 2021, Gray (a calendar year C corporation) pledges a $50,000 donation to a local relief agency formed to fight AIDS in Africa. Although Gray’s board of directors authorized the
Golf Corporation generates a $40,000 net operating loss in 2021. Leo Trees, the Golf CEO, expects to offset all of the 2022 taxable income with the NOL. Explain to Leo whether that is possible.
Kite, a calendar year C corporation, incurred a net operating loss in 2021. Explain Kite’s income tax treatment of this NOL.
Mallard Corporation was formed in December 2021 and plans to use the cash basis of accounting. Mallard incurred one-half of its organizational expenses in December 2021 and one-half in January 2022.
Corporations are subject to a flat income tax rate of 21%; individuals have graduated rates from 10% to 37%. Does this make the corporate entity a better entity choice for tax purposes? Explain.
Chang and some associates want to form a corporation to develop and operate an industrial park. Chang is to contribute the land, which has significantly appreciated in value. She would like to
Green Corporation, a calendar year taxpayer, has ordinary income of $10,000 and a long-term capital loss of $12,000 in 2021. Green incurred a long-term capital gain of $2,500 in 2018 and a long-term
Purple Corporation purchases residential rental property for $1,000,000 (disregarding any allocation to the land) on March 9, 2018. Straight-line cost recovery of $130,295 is taken before the
Drab, a calendar year S corporation, incurred the following this year. What is Drab’s ordinary business income? Sales Cost of goods sold Long-term capital gain Short-term capital
Maize Corporation (a calendar year taxpayer) was formed on April 1, 2021. Calculate the maximum deduction for organizational expenses for 2021 if these costs were: a. $4,000.b. $24,000.c.
In 2021, Emily receives a distribution of $125,000 from her wholly owned calendar year corporation. As of January 1, 2021, the corporation has accumulated E & P of $15,000 and for 2021 has
Using the legend provided below, classify each statement under 2021 tax law. a. A child care credit is available.b. The deduction of charitable contributions is subject to percentage
Kim is a 40% shareholder in Taupe, a calendar year S corporation. During 2021, Taupe had an operating loss of $200,000. If Kim has a basis of $50,000 in his stock and has made a loan to Taupe of
Robin incurred the following capital transactions in 2021. Robin also reported a net long-term capital loss in 2020 of $2,000, which it could not use, and ordinary income of $13,000. What are
Dev and Mia form the CM Partnership, each receiving a 50% capital interest. Dev contributed property worth $200,000 (adjusted basis of $230,000), while Mia contributed property worth $210,000
During 2022, Siskin Corporation (a C corporation) entered into the following transactions.In June 2022, Siskin made a contribution to a qualified charitable organization of $10,500 in cash (not
Citron, a calendar year taxpayer, began business in January 2020. It had a long-term capital gain of $5,000 in 2020 and a long-term capital loss of $10,000 in 2021. For both years, Citron had an
Three C corporations reported the following results for the calendar tax year 2021. a. Determine each corporation’s Federal income tax liability.b. Construct a single Microsoft Excel formula
On December 6, 2021, Kestrel Company (a calendar year taxpayer) authorizes a cash donation of $50,000 to the Memphis Public Library. The pledge is carried out as follows: $15,000 on December 12,
Aiden has a 35% capital interest in the Oro Partnership and is entitled to a yearly guaranteed payment of $40,000. As of January 1, 2021, Aiden’s basis in the partnership interest is $87,000.
Jenna owns 30% of the stock in Mockingbird, a calendar year S corporation. Her basis in the stock as of January 1, 2021, is $130,000. Mockingbird has an operating loss of $500,000 in 2021 and an
Del Mar Corporation (EIN 33-1234567) was formed and began operations on January 1, 2021. The corporate address is 463 E. Pershing Blvd. Cheyenne, WY 82001. Del Mar uses the accrual basis of
As of January 1, 2021, Norman has a basis of $85,000 in his 30% capital interest in the Plata Partnership. He and the partnership use the calendar year for tax purposes. The partnership incurs an
Katie exchanges a building and land (used in her business) for Tyler’s land and building and some equipment (used in his business).a. What are Katie’s recognized gain or loss and basis for the
In two unrelated transactions, Laura exchanges property that qualifies for like-kind exchange treatment. In the first exchange, Laura gives up land purchased in May 2019 (adjusted basis of $20,000;
Suni owns land (adjusted basis of $90,000; fair market value of $125,000) that she uses in her business. She exchanges it for another parcel of land (worth $100,000) and stock (worth $25,000).
Taylor has owned and occupied her personal residence (adjusted basis of $190,000) for four years. In April 2021, she sells the residence for $300,000 (selling expenses are $20,000). On the same day
Coline has the following capital gain and loss transactions for 2021:After the capital gain and loss netting process, what is the amount and character of Coline’s gain or loss? Short-term capital
Ramesh owns a beach house (four years) and a cabin in the mountains (six years). His adjusted basis is $300,000 in the beach house and $315,000 in the mountain cabin. Ramesh also rents a townhouse in
Cisco, a calendar year taxpayer who is age 63, owns a residence in which he has lived for 21 years. The residence is destroyed by fire on August 8, 2021. The adjusted basis is $190,000, and the fair
Paul has the following long-term capital gains and losses for 2021: $62,000 28% gain, $21,000 28% loss, $18,000 25% gain, and $64,000 0%/15%/20% gain. He also has a $53,000 short-term loss and a
Hakim’s rental building (a § 1231 asset) was not insured when it was destroyed by a hurricane. His adjusted basis for the building was substantial but was less than he had paid for the building in
An individual taxpayer had a net § 1231 loss in 2021. Could any of this loss be treated as a long-term capital loss? Why or why not?
Steven established a sole proprietorship in 2015. He sold § 1231 assets at a loss in 2019 and 2020. He had only sold § 1231 assets at a gain before 2019. In 2021, he could sell a § 1231 asset at a
If depreciable equipment used in a business is sold at a recognized gain on July 10, 2021, and it was purchased on August 21, 2020, does § 1245 depreciation recapture apply to the asset? Explain.
Thomas receives tangible personal property as an inheritance from a decedent who died in 2021. The property was depreciated by the deceased, and Thomas will also depreciate it. At the date of the
Several years ago Nicolas, a timber dealer, purchased a tract of land with a substantial stand of trees on it. The land cost $8,000, and the timber cost $250,000. On the first day of 2021, the timber
Renata Corporation purchased equipment in 2019 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2021 for $110,000. What is the amount and
Jacob purchased business equipment for $56,000 in 2018 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2021 for $26,000. What is the amount and character of
Shannon owns two items of business equipment. Both were purchased in 2017 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Shannon is considering
An apartment building was acquired in 2012. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of 25% gain?
Enzo is a single taxpayer with the following gains and losses for 2021:• $2,100 short-term capital loss.• $24,000 long-term capital gain from sale of stock.• $14,000 § 1231 gain that is all
Jenny purchased timber on a 100-acre tract of land in South Dakota in March 2019 for $100,000. On January 1, 2021, the timber had a fair market value of $145,000. Because of careless cutting in
Keshara has the following net § 1231 results for each of the years shown. What would be the nature of the net gains in 2020 and 2021? Tax Year 2016 2017 2018 2019 2020 2021 Net § 1231
Siena Industries (a sole proprietorship) sold three § 1231 assets during 2021. Data on these property dispositions are as follows:a. Determine the amount and the character of the recognized gain or
Amber Industries (a sole proprietorship) sold three § 1231 assets during 2021. Data on these property dispositions are as follows: a. Determine the amount and the character of the recognized
Copper Industries (a sole proprietorship) sold three § 1231 assets during 2021. Data on these property dispositions are as follows: a. Determine the amount and the character of the recognized
On December 1, 2019, Lavender Manufacturing Company (a corporation) purchased another company’s assets, including a patent. The patent was used in Lavender’s manufacturing operations; $49,500 was
On June 1, 2017, Skylark Enterprises (a calendar year LLC reporting as a sole prorietorship) acquired a retail store building for $500,000 (with $100,000 being allocated to the land). The store
On May 2, 1991, Hannah Weather (Social Security number: 111-22-3333) acquired residential rental real estate for $450,000. Of the cost, $100,000 was allocated to the land and $350,000 to the
Javier is the sole proprietor of a trampoline shop. During 2021, the following transactions occurred:• Unimproved land adjacent to the store was condemned by the city on February 1. The
On January 1, 2012, Stephanie Bridges acquired depreciable real property for $50,000. She used straight-line depreciation to compute the asset’s cost recovery. The asset was sold for $96,000 on
Anna received tangible personal property with a fair market value of $65,000 as a gift in 2019. The donor had purchased the property for $77,000 and had taken $77,000 of depreciation. Anna used the
Miguel receives tangible personal property as an inheritance in 2019. The property was depreciated by the deceased (Miguel’s father), and Miguel will also depreciate it. At the date of the
Tan Corporation purchased depreciable tangible personal property for $100,000 in 2019 and immediately expensed the entire cost under § 179. In 2021, when the property was worth $80,000, Tan
Sasha and Tara are married, filing jointly. Their correctly determined 2021 taxable income is $127,000. This taxable income includes a $5,000 § 1231 gain from the sale of business land that was
On August 10, 2019, Jasper purchased business equipment for $40,000. On his 2019 tax return, $40,000 of § 179 immediate expense was taken on the equipment. On July 14, 2020, Jasper sold the
Theresa has a 2020 Form 1040 Schedule D, line 16 gain of $45,000. There is also a $45,000 gain on the form’s line 19. What is the nature of the gain? What alternative tax rate applies to it?
Glen and Diane Okumura (both age 48) are married, file a joint return, and live at 39 Kaloa Street, Honolulu, HI 96815. Glen’s Social Security number is 111-11-1111, and Diane’s is 123-45-6789.
Would a calendar or fiscal year be more suitable for a ski lodge? Why?
Your client, Vernon Jones, is a self-employed attorney. Vernon uses the cash method of accounting. In reviewing his accounting records to get ready to prepare his tax return for the current year, you
In 2021, your client, Clear Corporation, changed from the cash to the accrual method of accounting for its radio station. The company had a positive § 481 adjustment of $2,400,000 as a result of the
A law practice was incorporated on January 1, 2021, and expects to earn $25,000 per month before deducting attorney Shonda’s salary. Shonda owns 100% of the stock in the practice. The corporation
Fred, a cash basis taxpayer, received a $15,000 bonus from his employer in 2021. The bonus was based on the company’s profits for 2020. In 2022, the company discovered that its 2020 profits were
In December 2021, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for the 2022 calendar year. How much of the premiums can Nell, Inc., deduct in 2021?
In 2021, the taxpayer became ineligible to use the cash method of accounting. At the beginning of the year, accounts receivable totaled $240,000, accounts payable for merchandise totaled $80,000, and
Osprey Corporation, an accrual basis taxpayer, reported taxable income for 2021 and paid $40,000 on its estimated state income tax for the year. During 2021, the company received a $4,000 refund upon
Samantha, an accrual basis taxpayer, subscribes to a service that updates a database used in her business. In December 2021, Samantha paid the $120,000 subscription for the period January 2021
On June 1, 2019, Father sold land to Son for $300,000. Father reported the gain by the installment method, with the gain to be spread over five years. In May 2021, Son received an offer of $400,000
In December 2021, Soraya Corporation sold land it held as an investment. The corporation received $50,000 in 2021 and a note payable (with adequate interest) for $150,000 to be paid in 2023. Soraya
Nathan uses the percentage of completion method to report income from his real estate construction contracts. A contract was begun in 2021 and completed in 2022. In 2021, Nathan reported gross income
Neal uses the percentage of completion method to report his gross income from long-term contracts that were to begin in 2021. In 2022, he completes a contract for more than the estimate of total
In 2021, Aurora received a $25,000 bonus computed as a percentage of profits. In 2022, Aurora’s employer determined that the 2021 profits had been incorrectly computed, and Aurora had to refund the

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