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business
south western federal taxation

Questions and Answers of South Western Federal Taxation

Rod Clooney purchases Agnes Mitchell?s sole proprietorship for $990,000 on August 15, 2019. The assets of the business are: a. Calculate Agnes?s realized and recognized gain. b. Determine Rod?s
Kevin purchases 1,000 shares of Bluebird Corporation stock on October 3, 2019, for $300,000. On December 12, 2019, Kevin purchases an additional 750 shares of Bluebird stock for $210,000. According
Karen Samuels (Social Security number 123-45-6789) makes the following purchases and sales of stock: Assuming that Karen is unable to identify the particular lots that are sold with the original
Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2019. The face value of the bonds is $100,000; the maturity date is December 31, 2023; and the annual interest rate is 5%. Chee will
Kareem bought a rental house in March 2014 for $300,000, of which $50,000 is allocated to the land and $250,000 to the building. Early in 2016, he had a tennis court built in the backyard at a cost
Anne sold her home for $290,000 in 2019. Selling expenses were $17,400. She purchased it in 2013 for $200,000. During the period of ownership, Anne had done the following:• Deducted $50,500
On August 31, 2018, Harvey and Ling, who file a joint return and live in Charleston, South Carolina, sell their personal residence, which they have owned and lived in for 10 years. The realized gain
Gary, who is single, sells his principal residence (owned and occupied by him for seven years) in November 2019 for a realized gain of $148,000. He had purchased a more expensive new residence eight
On February 24, 2019, Allison’s building, with an adjusted basis of $1,300,000 (and used in her trade or business), is destroyed by fire. On March 31, 2019, she receives an insurance reimbursement
On June 5, 2019, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of
In June 2019, Sue exchanges a sport-utility vehicle (adjusted basis of $16,000; fair market value of $19,500) for cash of $2,000 and a pickup truck (fair market value of $17,500). Both vehicles are
On July 1, 2019, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature in five years, and the annual interest rate is 3%.a. How much interest income and/or interest
Bob is notified by the city public housing authority on May 3, 2019, that his apartment building is going to be condemned as part of an urban renewal project. On June 1, 2019, Carol offers to buy the
Reba, a calendar year taxpayer, owns an office building that she uses in her business. The building is involuntarily converted on November 15, 2019. On January 5, 2020, Reba receives enough proceeds
Comment on the following transactions.a. Mort owns 500 shares of Pear, Inc. stock with an adjusted basis of $22,000. On July 28, 2019, he sells 100 shares for $3,000. On August 16, 2019, he purchases
Thelma inherited land from Sadie on June 7, 2019. The land appreciated in value by 100% during the six months Sadie owned it. The value has remained stable during the three months Thelma has owned
Susie purchased her primary residence on March 15, year 4, for $550,000. She sold it on October 15, year 7, for $240,000. What amount of loss from the sale is recognized on her year 7 income tax
Robin inherits 1,000 shares of Wal-Mart stock from her aunt in 2019. According to the information received from the executor of her aunt’s estate, Robin’s adjusted basis for the stock is $55,000.
In early year 8, Alice sold Tom, her son, 20 shares of common stock for $20,000. Alice had paid $25,000 for the stock in year 2. In late year 8, Tom sold the stock to an unrelated third party for
On January 25, year 10, Mother Hall gave her daughter, Nadyne, 500 shares of common stock of XYZ, Corp. The fair market value of the stock on January 25 was $2,000. Mother Hall had paid $4,000 for
On February 1 of the current year, Duffy learned that he was bequeathed 1,000 shares of common stock under his father’s will. Duffy’s father had paid $12,500 for the stock 20 years ago. Fair
How are transactions using Bitcoin (or another virtual currency) treated under U.S. tax law? Some background on Bitcoin can be found at bitcoin.org/en/faq. Locate the current IRS guidance on this
Ted and Marvin Brown purchased an apartment building in 2007 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
Ruth Ames died on January 10, 2019. In filing the estate tax return, her executor, Melvin Sims, elects the primary valuation date and amount (fair market value on the date of death). On March 12,
Joshua and Ellen are married and file a joint return. Three individuals qualify as their dependents: their two children, ages 5 years and 6 months, and Ellen’s 18-year-old son from a previous
Green Corporation hires six individuals on January 4, 2019, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2019, and each individual
Oak Corporation holds the following general business credit carryovers.2015............................................$
Determine the appropriate amount of 2019 additional Medicare tax for Mario, a single individual. His wages total $440,000.
In 2019, Bianca earned a salary of $164,000 from her employer. How much in FICA and Medicare taxes will be withheld from Bianca’s salary?
Santiago and Amy are married and file a joint tax return. They have three children, ages 12, 14, and 18. All parties are U.S. citizens. Their AGI is $140,000. Determine any available child tax credit
During 2019, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during the
On July 16, 2019, Logan acquires land and a building for $500,000 to use in his sole proprietorship. Of the purchase price, $400,000 is allocated to the building, and $100,000 is allocated to the
Madison and Nick Koz have two children, ages 8 and 10. Both children meet the definition of qualifying child. The Koz family has adjusted gross income of $300,000. What is the amount of the child tax
In 2019, Kathleen Tweardy incurs $30,000 of interest expense related to her investments. Her investment income includes $7,500 of interest, $6,000 of qualified dividends, and a $12,000 net capital
Bonnie and Jake (ages 35 and 36, respectively) are married with no dependents and live in Montana (not a community property state). Because Jake has large medical expenses, they seek your advice
Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2018, his amount at risk in the activity was $30,000. His shares of the income and losses
A number of years ago, Lee acquired a 20% interest in the BlueSky Partnership for $60,000. The partnership was profitable through 2018, and Lee’s amount at risk in the partnership interest was
A number of years ago, Kay acquired an interest in a partnership in which she is not a material participant. Kay’s basis in her partnership interest at the beginning of 2018 is $40,000. Kay’s
Dorothy acquired a 100% interest in two passive activities: Activity A in January 2014 and Activity B in 2015. Through 2017, Activity A was profitable, but it produced losses of $200,000 in 2018 and
In 2018, Fred invested $50,000 in a general partnership. Fred’s interest is not considered to be a passive activity. If his share of the partnership losses is $35,000 in 2018 and $25,000 in 2019,
Sally recently invested $10,000 (tax basis) in a limited partnership interest. Her atrisk amount is also $10,000. The partnership lost $6,000 this year, and Sally’s share of the loss is $2,000.
For calendar year 2019, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions are as follows:Casualty loss in a Federally declared disaster area after$100
Linda, who files as a single taxpayer, had AGI of $280,000 for 2019. She incurred the following expenses and losses during the year:Medical expenses (before the 10%-of-AGI
Evan is single and has AGI of $277,300 in 2019. His potential itemized deductions before any limitations for the year total $52,300 and consist of the following:Medical expenses (before the AGI
Bart and Elizabeth Forrest are married and have no dependents. They have asked you to advise them whether they should file jointly or separately in 2019. They present you with the following
On December 27, 2019, Roberta purchased four tickets to a charity ball sponsored by the city of San Diego for the benefit of underprivileged children. Each ticket cost $200 and had a fair market
Ramon had AGI of $180,000 in 2019. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current allowable
Liz had AGI of $130,000 in 2019. She donated Bluebird Corporation stock awith a basis of $10,000 to a qualified charitable organization on July 5, 2019.a. What is the amount of Liz’s deduction
This year, Amy purchased a personal residence at a cost of $1,000,000. She borrowed $800,000 secured by the home to make the purchase. This year, she paid interest expense on this mortgage of
Norma, who is single and uses the cash method of accounting, lives in a state that imposes an income tax. In April 2019, she files her state income tax return for 2018 and pays an additional $1,000
During 2019, Susan incurred and paid the following expenses for Beth (her daughter), Ed (her father), and herself:Surgery for Beth..........................................................$4,500Red
For calendar year 2019, Jean was a self-employed consultant with no employees. She had $80,000 of net profit from consulting and paid $7,000 in medical insurance premiums on her policy covering 2019.
Paul suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul
Emma Doyle is employed as a corporate attorney. For calendar year 2019, she had AGI of $75,000 and paid the following medical expenses:Medical insurance
Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2019. She purchased the stock for $18,100 on December 28, 2018, and it had a fair market value of $27,000 when
Derek, a cash basis, unmarried taxpayer, had $610 of state income tax withheld during 2019. Also in 2019, Derek paid $50 that was due when he filed his 2018 state income tax return and made estimated
Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2019. Also in 2019, Pierre paid $455 that was due when he filed his 2018 state income tax return and made
William, a high school teacher, earns about $50,000 each year. In December 2019, he won $1,000,000 in the state lottery. William plans to donate $100,000 to his church. He has asked you, his tax
Which of the following may not be claimed as a deduction by a taxpayer who claims the standard deduction?a. Interest penalty on early withdrawal of savingsb. Self-employed health insurancec. State
Jayden, a calendar year taxpayer, paid $16,000 in medical expenses and sustained a $20,000 casualty loss in 2019 (the loss occurred in a Federally declared disaster area). He expects $12,000 of the
Cheryl incurred $8,700 of medical expenses in November 2019. On December 5, the clinic where she was treated mailed her the insurance claim form it had prepared for her with a suggestion that she
On March 5, 2016, Mr. and Mrs. Horton borrowed $100,000 against the equity in their personal residence with the loan secured by that home. For 2016 and 2017, they were able to deduct the interest
Sydney, a single taxpayer, had $80,000 in adjusted gross income in year 2. During the year, she contributed $15,000 to her church. She also had a $17,000 contribution carryover from her year 1 church
Marcia, a shareholder in a corporation with stores in five states, donated stock with a basis of $10,000 to a qualified charitable organization in 2018. Although the stock of the corporation was not
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 2019 is $196,000, and they
Answer the following independent questions with respect to traditional IRA contributions for 2019.a. Juan, age 41, earns a salary of $28,000 and is not an active participant in any other qualified
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 has a profit sharing plan (e.g., defined
Amber’s employer, Lavender, Inc., has a § 401(k) plan that permits salary deferral elections by its employees. Amber’s salary is $99,000, her marginal tax rate is 24%, and she is 42 years old.a.
Melanie is employed full-time as an accountant for a national hardware chain. She recently started a private consulting practice, which provides tax advice and financial planning to the general
In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses):a. Lily is single and is employed
Elijah is employed as a full-time high school teacher. The school district where he works recently instituted a policy requiring all of its teachers to start working on a master’s degree. Pursuant
Kim works for a clothing manufacturer as a dress designer. During 2019, she travels to New York City to attend five days of fashion shows and then spends three days sightseeing. Her expenses are as
Kristen, an independent management consultant, is based in Atlanta. During March and April of 2019, she is contracted by a national hardware chain to help implement revised human resource policies in
On July 1, 2015, Rex purchases a new automobile for $40,000. He uses the car 80% for business and drives the car as follows: 8,000 miles in 2015, 19,000 miles in 2016, 20,000 miles in 2017, and
Jackson, a self-employed taxpayer, uses his automobile 90% for business and during 2019 drove a total of 14,000 business miles. Information regarding his car expenses is listed below.Business
In 2019, Ava, an employee, has AGI of $58,000 and the following itemized deductions:Home office expenses..................................................................$1,200Union dues and work
In 2019, the CEO of Crimson, Inc., entertains seven clients at a skybox in Memorial Stadium for a single athletic event during the year. Substantive business discussions occurred at various times
Lara uses the standard mileage method for determining auto expenses. During 2019, she used her car as follows: 9,000 miles for business, 2,000 miles for personal use, 2,500 miles for a move to a new
Joey, who is single, is not covered by another qualified plan and earns $124,000 at his job in 2019. How much can he contribute to a traditional IRA or to a Roth IRA in 2019?
In 2017, Emma purchased an automobile, which she uses for both business and personal purposes. Although Emma does not keep records as to operating expenses (e.g., gas, oil, and repairs), she can
Bert Johnson, a sole proprietor with no employees, has a Keogh profit sharing plan to which he may contribute 25% of his annual earned income. For this purpose, “earned income” is defined as net
Milton is a resident of Mobile (Alabama) and is employed by Scaup Corporation. Because Scaup closed its Mobile office, Milton no longer has any nondeductible commuting expenses although he continues
Sophia and Jacob are married and file a joint return and have come to you to prepare their 2019 tax returns. While reviewing their prior year tax returns, you notice that their 2017 tax return
Oleander Corporation, a calendar year entity, begins business on March 1, 2019. The corporation incurs startup expenditures of $64,000. If Oleander elects § 195 treatment, determine the total amount
In 2019, Muhammad purchased a new computer for $16,000. The computer is used 100% for business. Muhammad did not make a § 179 election with respect to the computer. He does not claim any available
Dennis Harding is considering acquiring a new automobile that he will use 100% for business. The purchase price of the automobile would be $48,500. If Dennis leased the car for five years, the lease
Sally purchased a new computer (5-year property) on June 1, 2019, for $4,000. Sally could use the computer 100% of the time in her business, or she could allow her family to use the computer as well.
On May 28, 2019, Mary purchased and placed in service a new $60,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2019. In 2020, the usage changed
On March 15, 2019, Helen purchased and placed in service a new Escalade. The purchase price was $62,000, and the vehicle had a rating of 6,500 GVW. The vehicle was used 100% for business.a. Assuming
On June 5, 2018, Leo purchased and placed in service a new car that cost $75,000. The business use percentage for the car is always 100%. Leo does not claim any available additional first-year
On October 15, 2019, Jon purchased and placed in service a used car. The purchase price was $38,000. This was the only business use asset Jon acquired in 2019. He used the car 80% of the time for
Jabari Johnson is considering acquiring an automobile at the beginning of 2020 that he will use 100% of the time as a taxi. The purchase price of the automobile is $48,000. Johnson has heard of cost
On June 5, 2018, Javier Sanchez purchased and placed in service a new 7-year class asset costing $560,000 for use in his landscaping business, which he operates as a single member LLC (Sanchez
Olga is the proprietor of a small business. In 2019, the business’s income, before consideration of any cost recovery or § 179 deduction, is $250,000. Olga spends $620,000 on new 7-year class
Janice acquired an apartment building on June 4, 2019, for $1,600,000. The value of the land is $300,000. Janice sold the apartment building on November 29, 2025.a. Determine Janice’s cost recovery
On May 5, 2019, Christy purchased and placed in service a hotel. The hotel cost $10.8 million, and the land cost $1.2 million ($12 million in total). Calculate Christy’s cost recovery deductions
On April 3, 2019, Terry purchased and placed in service a building that cost $2,000,000. An appraisal determined that 25% of the total cost was attributed to the value of the land. The bottom floor
On August 2, 2019, Wendy purchased a new office building for $3.8 million. On October 1, 2019, she began to rent out office space in the building. On July 15, 2023, Wendy sold the office building.a.
Debra acquired the following new assets during 2019. Determine Debra?s cost recovery deductions for the current year. Debra does not elect immediate expensing under ? 179. She does not claim any
Juan acquires a new 5-year class asset on March 14, 2019, for $200,000. This is the only asset Juan acquired during the year. He does not elect immediate expensing under § 179. He does not claim any

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