Questions and Answers of Taxation Decision Makers

22. Clark works all year at the front desk of the Dew Drop Inn and earns a salary of $30,000. He is offered the option of a $400-per-month living allowance or rent-free use of a room at the Dew Drop
32. Nick, age 53, is single and has AGI of $58,000. He contributes $5,000 to his IRA in 2011.a. How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan?b. How
35. George has $71,300 in salary from his full-time position and $43,000 in net income in 2011 from his sole proprietorship. What must he pay for self-employment tax? What portion of this can he
42. What tax planning should be done before exercising incentive stock options?
43. Construct a scenario in which the tax treatment of stock options is very unfavorable for the employee.
49. George just accepted a job as an apartment manager and is paid a salary of $28,000 per year. In addition to the salary, he is offered the choice of rent-free use of an apartment or a $500 per
52. Sarah is single and earns $60,000 in salary. She wants to invest $2,500 per year in an IRA but is not sure which type she qualifies for and whether this would be a better investment than
54. Martin Martindale, the 40-year-old founder and president of Martindale Corporation (an accrual-basis, calendar-year C corporation), owns 60 percent of the stock and receives a salary of $600,000.
56. Robert, age 35, has accumulated $36,000 in his traditional IRA. He recently married and would like to withdraw $25,000 from his IRA for a down payment on his first house. Write a letter to Robert
60. Go to www.irs.gov and print Form 1040 and Schedule SE for 2010.Complete the first page of Form 1040 and Schedule SE for Angelina, a single individual, who reports $75,000 of net profit on her
67. Melinda has been offered two competing employment contracts for the next two years. Argus Corporation will pay her a $75,000 salary in both 2012 and 2013. Dynamic Corporation will pay Melinda a
These questions require answers that are beyond the material that is covered in this chapter.Select one of the expenses that is deductible from adjusted gross income. Present an argument about why
These questions require answers that are beyond the material that is covered in this chapter.Select one of the expenses that is deductible for adjusted gross income. Present an argument about why you
Differentiate a wealth tax from a wealth transfer tax and give examples of each.
Perform the calculation to prove that the 3 percent surtax on corporate income between $15,000,000 and $18,333,333 equals the benefit of the 34 percent tax rate on income of no more than $10,000,000.
Carolyn has a 50 percent interest in a general partnership that has a $14,000 loss for the year. She materially participates in the partnership. Her basis in the partnership is $10,000. She also has
As a bill proceeds through Congress, various committee reports are generated. What three committee reports typically are generated as a result of this process?
Go to www.irs.gov (the IRS Web site) and click on Careers under Work at IRS. Look under Students & Recent Grads, then under Opportunities, and finally look under Accounting, Budget & Finance to learn
Jessica has $10,000 invested in corporate bonds with a stated interest rate of 7 percent and $10,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 7
Explain how exemptions are phased out. Can a taxpayer lose the benefit of all of his or her personal and dependency exemptions?
Select one of the expenses that is deductible for adjusted gross income. Present an argument about why you think that expense is misclassified and should be reclassified as a deduction from adjusted
Select one of the expenses that is deductible from adjusted gross income. Present an argument about why you think that expense is misclassified and should be reclassified as a deduction for adjusted
Makai Corporation has a potential deduction of up to $1,000 that it would like to claim on its current-year tax return. Its tax position meets the recognition threshold of more likely than not, but
On March 1, Harry Corporation (a calendar-year taxpayer) purchased and placed in service office furniture costing $550,000. Compute the maximum amount Harry Corporation can elect to expense under
What types of realty qualify for like-kind exchange treatment? What kinds of personalty qualify for like-kind exchange treatment?
Explain the functional-use test. Explain the taxpayer-use test.
In addition to the federal income tax, an entity is subject to the laws of the state in which it is organized. Use the Internet to locate sources of tax law that govern the tax treatment of
Wilbur transfers property valued at $100,000 (basis = $70,000) to the Debold Corporation in exchange for 100 percent of its stock.a. What is Wilbur’s realized gain or loss on the transfer and his
Denise files her 2019 tax return on February 4, 2020. If there is no material understatement of income on her return and the return is properly signed and filed, when does the statute of limitations
Identify the type of IRA (Roth or traditional) that would be best for a taxpayer in each of the following circumstances:a. Sharon believes she will be in a higher tax bracket when she withdraws the
James and Dean plan to start a new business but have not decided whether to organize as a partnership, an S corporation, or a C corporation. They are interested in taking advantage of any tax-free
Tom is 68 years old. His employer pays the premiums for group term life insurance coverage of $110,000. The cost for Tom’s coverage is $3,000.a. If the plan providing this coverage is
Kevin is an employee of One Hour Dry Cleaners, Inc. All employees of One Hour are eligible for a 40 percent discount on their dry cleaning. During the year, Kevin paid $300 for cleaning that normally
Luis received 400 shares of his employer’s stock as a bonus. He must return the stock to the company if he leaves before the 5-year vesting period ends. The fair market value of the stock at the
Five years ago, Cargo Corporation granted Mark a nonqualified stock option to buy 3,000 shares of Cargo common stock at $10 per share exercisable for five years. At the date of the grant, Cargo stock
Collin pledged a $5,000 gift to his church’s building fund. He has 125 shares of stock that he purchased six years ago for $100 per share. They are currently worth $40 per share. Collin plans to
Three years ago, Netcom granted an ISO to Karen to buy 2,000 shares of Netcom stock at $6 per share exercisable for five years. At the date of the grant, Netcom stock was selling for $5 per share.
Four years ago, Handcock Corporation granted 300 SARs to Maria as a bonus. Handcock’s stock was worth $20 a share on the date of grant. Maria exercises her SARs this year when the stock is worth
Larry, age 32, works for Horizon Corporation. His annual salary is $60,000 and he is not a key employee. Horizon provides the following benefits to all employees:Group term life insurance (each
Briefly explain two deductions that an individual is allowed to claim as adjustments to income.
Explain why Congress allows taxpayers to deduct the penalty for a premature withdrawal from a certificate of deposit?
Which itemized deductions must exceed a basic minimum (floor) before the taxpayer’s taxable income is reduced for the excess? Contrast ceiling and limitations for itemized deductions. Provide
What is a casualty loss? Explain the limits that apply to deductibility of this type of loss.
Describe the types of expenses that were allowed as miscellaneous itemized deductions for 2017. What limitation was imposed on these expenses? When will this expense category be reinstated?
Explain the deduction that was allowed prior to 2018 if a taxpayer claimed someone as a dependent. Which relatives could qualify for this deduction and which did not qualify? When will this
Kleer Corporation (a calendar-year corporation) purchased and placed in service in 2019 a $58,000 new automobile, $400,000 of new furniture, and a $900,000 warehouse (of which $110,000 was for the
If the dependency exemption deduction for claiming children as dependents on their parents’ tax return has been eliminated, then what is the purpose of preserving rules for determining who is
Explain the difference between a tax credit and a tax deduction?
Yuma Corporation owns a parking lot adjacent to its office building for which it incurs $9,000 of total parking expenses. Yuma’s parking lot has 120 spots are used by its customers and
Marino Corporation owns a multi-level parking garage adjacent to its office building for which Marino spends $10,000 annually for maintaining this garage. The parking garage has 1,000 spots where its
Londo Corporation (a calendar-year taxpayer) purchased a new car at a cost of $70,000 for use in its business in 2019. Compute the depreciation deductions for this car for 2019 and 2020.
Fida Corporation (a calendar-year taxpayer) purchased a new car at a cost of $65,000 for use in its business in 2019. Compute the depreciation deductions this car for 2019, 2020, and 2021.
On June 26, 2017, Elaine purchased and placed into service a new computer system costing $8,000. The computer system was used 80 percent for business and 20 percent for personal use in both 2017 and
Jewel’s home was completely destroyed by a wildfire in 2019 in an area declared a national disaster. The building had an appraised value of $185,000 before the fire. Four years ago Jewel paid
Explain the functional-use test. Explain the taxpayer-use test.
Robert Lento, the sole proprietor of a consulting business, has gross receipts of $600,000 in 2019. Expenses paid by his business areRobert purchased a new car for his business on May 15 for $50,000.
In 2019, Gregory, a single person, had $450,000 of ordinary taxable income. He sold Section 1202 stock at a taxable gain of $45,000, his art collection at a taxable gain of $102,000, and stock
Joy purchased a home in Maine on December 15, 2000 for $250,000 and lived in it full-time until she purchased a second home in Florida on October 1, 2014 for $380,000. In 2014 and 2015 she continued
Kevin, a single individual, has $180,000 income from salary in 2019 plus the following recognized gains: a $9,000 long-term capital gain on the sale of a painting, a $10,000 unrecaptured Section 1250
Barbara sold three assets during 2019. How much and what kind of gain or loss does she recognize from each sale? What tax rate applies to the net gain if Barbara is a single individual with $160,000
Mango Corporation reports the following results for 2019:What is Mango Corporation’s taxable income for 2019? Gross receipts from operations Operating expenses Long-term capital loss Short-term
Velvet Corporation has revenues of $340,000 and deductible expenses of $350,000. It also received a $40,000 dividend from a corporation in which it owns 10 percent. What is the corporation’s
Perez Corporation reports the following results for 2019:a. What is Perez Corporation’s taxable income for 2019?b. How would Perez Corporation’s taxable income change if it had a $10,000 NOL
Wang Corporation reports the following results for 2019:In addition, Wang Corporation has a $5,000 NOL carryforward available from 2018. What is Wang Corporation’s taxable income for 2019? Gross
What is a corporation’s income tax if its taxable income is $14,000,000 for 2019?
Jenkins Corporation had $675,000 of taxable income for 2018 and $575,000 for 2019. What is the minimum amount that it must submit for each estimated quarterly tax payment to avoid any penalty for
Susanna is single with taxable income in 2019 of $188,225 of which $130,000 is attributable to her consulting sole proprietorship. She paid W-2 wages of $60,000 to her employees. Compute her
Refer to the information in problems 29 and 50. a. Go to the IRS website (www.irs.gov) and print out the first page and K for Form 1065. Use the information in problem 29 to complete these
Determine the credit for the gift and estate tax exclusion if the indexed exclusion in 2020 is $11,700,000.
Joan is 15 and a dependent of her parents. If she has $5,000 income from her trust fund this year, how much income tax will she pay for 2019 if her parents $150,000 of taxable income?
Benjamin has made no previous taxable gifts. Determine his gift tax if he makes $14,000,000 (after annual exclusions) in taxable gifts in 2019.
Steven had a taxable estate of $14,850,000 when he died in 2019. If he had no prior taxable gifts, what is his net estate tax liability?
Your friend Mark suggested that you should open an Individual Retirement Account. He said that an IRA is a great way to save because you do not have to pay tax on the income from the investment and
Stu and Harriett divorced on January 2, 2018 after eight years of marriage. Under the divorce decree, Harriett received a vacation home that was held jointly with Stu while they were married. The
Kimo Company is a cash-basis, calendar-year sole proprietorship. The owner, Karina, is in the 24 percent marginal tax bracket this year. Kimo owes a $15,000 expense that it may pay before the end of
Describe the new limitation for net business losses. What are the threshold amounts for 2019?
In 2019, John is single and is the owner of a proprietorship with $650,000 of gross income and $975,000 of deductions, resulting in a $325,000 loss for the year. How much of this loss can John deduct
Lynn, who is single, is allocated $500,000 of income and $795,000 of deductions in 2019 from ABC Partnership. How much of this loss can Lynn deduct in 2019 what does she do with the excess loss?
During 2019, Cherie gives $34,000 cash to her daughter, Helen, and a remainder interest in investment land to her sister, Silvia. The remainder interest is valued at $40,000. In the same year, John,
Ginny made the following gifts during 2019. Her husband, Ken, made no gifts during the year.• Gift of land valued at $250,000 to her husband• Gift of $20,000 in stock to her daughter• Gift of
In 2019, Marah gives $20,000 cash to Sam, $60,000 of stock to Craig, and $100,000 of bonds to Lynn. In the same year, Marah’s husband, Bryan, gives land valued at $120,000 to Jerry.a. What are
Cindy, an 18-year-old full-time student, has $5,100 interest income from a trust established by her grandparents. Cindy also earned $6,000 working at a part-job. She lives at home with her parents
Lenny, age 12, has $5,600 interest income from a trust established by his uncle. This is Lenny’s only source of income for 2019.a. What is Lenny’s taxable income and how much income tax does he
On January 15, 2019, Eileen, age 24, receives stock worth $30,000 as a gift from her parents. Her parents jointly purchased the stock six years ago for $14,000. During the year, Eileen receives
When Godfrey died in 2019, his assets were valued as follows:The executor sold the stock two months after the decedent’s death for $5,200,000. The bonds were sold seven months after the
Nick, age 53, is single and has AGI of $68,000. He contributes $5,000 to his IRA in 2019.a. How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan?b. How
In 2019, Elizabeth and Daniel (both age 40), a married couple with AGI of $120,000, file a joint tax return. They each contributed $6,000 to their IRAs.a. How much can they deduct if they are both
Identify the issues or problems suggested by the following situations. State each issue as a question. While walking through the parking lot, Nelson finds a $50 bill on the ground. No one else is
Identify the tax issues or problems suggested by the following situation.On his 2014 tax return, Stewart inadvertently overstates deductions in excess of 25 percent of the adjusted gross income on
Identify the tax issues or problems suggested by the following situation.Jennifer did not file a tax return for 2008 because she honestly believed that no tax was due. In 2019, the IRS audits
Marlin Company, a sole proprietorship owned by Miguel, must decide between two mutually exclusive projects because it lacks sufficient personnel to complete both projects. Each project takes two
June and John decide to form a business. They each plan to contribute $20,000 in exchange for a 50 percent interest in the business. They will then take out a bank loan for $30,000 to cover the
Cynthia and Howard, married taxpayers filing a joint return, have $100,000 in taxable income in 2019. They have 4 children (ages 4 through 12) who have no income that is taxable. If they can legally
Sandra and Nick, married taxpayers filing a joint return, have $180,000 in taxable income in 2019. They have 3 children (ages 6 through 11) who have no income that is taxable. If they can legally
Kevin deliberately omitted $40,000 of gross income from his restaurant on his 2019 tax return. The return indicated gross income of $200,000 when filed on April 14, 2020. When can the IRS no longer
Alison accidentally omitted $40,000 of gross income from the restaurant she owned on her 2018 tax return. The return showed gross income of $150,000 when filed on October 15, 2019. When can the IRS
Maria and Mario, married taxpayers filing a joint return, purchased 10,000 shares of Striker stock 11 months ago for $10 per share. This stock is now trading at $16 per share. Their regular marginal
Jennifer, age 35, is single and an active participant in her employer’s qualified retirement plan. Compute the maximum Roth IRA contribution that she can make in 2019 ifa. her adjusted gross income
Carrie owns a business that she operates as a sole proprietorship. The business had a net profit of $25,000 in 2019. This is Carrie’s only earned income.a. How much must she pay for self-employment
Sarah owns a business that she operates as a sole proprietorship. The business had a net profit of $138,000 in 2019. This is Sarah’s only earned income.a. How much must she pay for self-employment

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