Questions and Answers of Taxation of Business Entities

Karane Enterprises, a calendar-year manufacturer based in College Station, Texas, began business in 2021. In the process of setting up the business, Karane has acquired various types of assets. Below
Lina purchased a new car for use in her business during 2022. The auto was the only business asset she purchased during the year, and her business was extremely profitable. Calculate her maximum
Santini’s new contract for 2022 indicates the following compensation and benefits:Santini is 54 years old at the end of 2022. He is single and has no dependents. Assume that the employer matches
Tamika Meer purchased a new car for use in her business during 2022 for $75,000. The auto was the only business asset she purchased during the year, and her business was very profitable. Calculate
In 2022, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees. According to the terms of the plan, YBU contributes 50 cents for every dollar the employee
Explain Congress’s rationale for depreciation recapture.
Franco converted a building from personal to business use in May 2019 when the fair market value was $55,000. He purchased the building in July 2016 for $80,000. On December 15 of this year, Franco
Identify each of Avery Corporation’s following assets as an ordinary, capital, or §1231 asset.a) Two years ago, Avery used its excess cash to purchase a piece of land as an investment.b) Two years
Fizbo Corporation is in the business of breeding and racing horses. Fizbo has taxable income of $5,000,000 other than from these transactions. It has nonrecaptured §1231 losses of $10,000 from 2018
True or False. Both Sato and Kiran have worked for JBP Corp. and have participated in JBP’s defined benefit plan for the past 20 years. Sato’s annual salary over the prior three years was
What is the limitation on a deductible IRA contribution for 2022?
What is a qualified charitable donation (QCD), who is eligible to complete a QCD, and how would a taxpayer benefit from a QCD?
What is a “backdoor” Roth IRA contribution, and when is it useful?
What is the saver’s credit, and who is eligible to receive it?
Alicia has been working for JMM Corp. for 32 years. Alicia participates in JMM’s defined benefit plan. Under the plan, for every year of service for JMM, she is to receive 2 percent of the average
Tim has worked for one employer his entire career. While he was working, he participated in the employer’s defined contribution plan [traditional 401(k)]. At the end of 2022, Tim retires. The
Matthew (48 at year-end) develops cutting-edge technology for SV Inc., located in Silicon Valley. In 2022, Matthew participates in SV’s money purchase pension plan (a defined contribution plan) and
In 2022, Nina contributes 10 percent of her $100,000 annual salary to her 401(k) account. She expects to earn a 7 percent before-tax rate of return. Assuming she leaves this (and any employer
In 2022, Nitai (age 40) contributes 10 percent of his $100,000 annual salary to a Roth 401(k) account sponsored by his employer, AY Inc. AY Inc. matches employee contributions to the employee’s
Marissa participates in her employer’s nonqualified deferred compensation plan. For 2022, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and
Clayton participates in his employer’s nonqualified deferred compensation plan. For 2022, he is deferring 10 percent of his $320,000 annual salary. Assuming this is his only source of income and
Leslie participates in IBO’s nonqualified deferred compensation plan. For 2022, she is deferring 10 percent of her $300,000 annual salary. Based on her deemed investment choice, Leslie expects to
In 2022, LeSean (age 51 and single) has earned income of $3,000. He also has $30,000 of unearned (capital gain) income.a) If he does not participate in an employer-sponsored plan, what is the maximum
William is a single writer (age 35) who recently decided that he needs to save more for retirement. His 2022 AGI before the IRA contribution deduction is $69,000 (all earned income).a) If he does not
In 2022, Susan (44 years old) is a highly successful architect and is covered by an employee-sponsored plan. Her husband Dan (47 years old), however, is a Ph.D. student and unemployed. Compute the
In 2022, Rashaun (62 years old) retired and planned on immediately receiving distributions (making withdrawals) from his traditional IRA account. The balance of his IRA account is $160,000 (before
Jaden (single) has a traditional IRA to which he has made only deductible contributions. At the end of 2022, Jaden is 74 years old. Jaden’s required minimum distribution (RMD) from his IRA for 2022
Brooklyn has been contributing to a traditional IRA for seven years (all deductible contributions) and has a total of $30,000 in the account. In 2022, she is 39 years old and has decided that she
Jackson and Ashley Turner (both 45 years old) are married and want to contribute to a Roth IRA for Ashley. In 2022, their AGI is $209,000. Jackson and Ashley each earned half of the income.a) How
Harriet and Harry Combs (both 37 years old) are married, and both want to contribute to a Roth IRA. In 2022, their AGI before any IRA contribution deductions is $50,000. Harriet earned $46,000 and
Sarah was contemplating making a contribution to her traditional individual retirement account for 2022. She determined that she would contribute $6,000 to her IRA, and she deducted $6,000 for the
Elvira is a self-employed taxpayer who turns 42 years old at the end of the year (2022). In 2022, her net Schedule C income was $130,000. This was her only source of income. This year, Elvira is
Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2022). In 2022, her net Schedule C income was $130,000. This was her only source of income. This year, Hope is
Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2022). In 2022, her net Schedule C income was $300,000. This was her only source of income. This year, Rita is
Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2022). In 2022, his net Schedule C income was $300,000. This was his only source of income. This year, Reggie is
Ian retired in December of 2021 at the age of 71 (his birthday is January 6). Ian’s retirement account was valued at $490,000 at the end of 2020 and $500,000 at the end of 2021. He has had all of
Alex is 31 years old and has lived in Los Alamos, New Mexico, for the last four years, where he works at the Los Alamos National Laboratory (LANL). LANL provides employees with a 401(k) plan, and for
Tommy (age 47) and his wife Michelle (age 49) live in Columbus, Ohio, where Tommy works for Callahan Auto Parts (CAP) as the vice president of the brakes division. Tommy’s 2022 salary is $360,000.
Gerry (age 56) and Elaine (age 54) have been married for 12 years and file a joint tax return. The couple lives in an apartment in downtown Manhattan. Gerry’s father, Mortey, recently retired from
Seo-yeon owns a condominium. In each of the following alternative situations, determine whether the condominium should be treated as a residence or a non residence for tax purposes.a) Seo-yeon lives
Leticia and Stephanie Sims purchased a home in Spokane, Washington, for $400,000. They moved into the home on February 1 of year 1. They lived in the home as their primary residence until June 30 of
Jesse Brimhall is single. In 2022, his itemized deductions were $9,000 before considering any real property taxes he paid during the year. Jesse’s adjusted gross income was $70,000 (also before
Daria is considering investing in one of two partnerships that will build, own, and operate a hotel. One is located in Canada and one is located in Arizona. Assuming both investments will generate
Do tax-exempt organizations pay tax on dividends received from C corporations? Do tax-exempt organizations pay tax on business income earned? Explain.
Willow Corp. (a calendar-year C corporation) reported taxable income before the net operating loss deduction (NOL) in the amount of $100,000 in 2022. Willow had an NOL carryover of $90,000 to 2022.
Mustafa, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mustafa is contributing $200,000 for a 40 percent ownership interest, Mickayla is contributing a building
Haruki and Bob have owned and operated SOA as a C corporation for a number of years. When they formed the entity, Haruki and Bob each contributed $100,000 to SOA. Each has a current basis of $100,000
What are the requirements to contribute to a health savings account? What limits are imposed on the contributions and deductions?
Jian teaches elementary school history for the Metro School District. In 2022 they incurred the following expenses associated with their job:Jian’s employer does not provide any funding for the
Jake is a retired jockey who takes monthly trips to Las Vegas to gamble on horse races. Jake also trains racehorses part time at his Louisville ranch. So far this year, Jake has won almost $47,500
Stephanie is 12 years old and often assists neighbors on weekends by babysitting their children. Calculate the 2022 standard deduction Stephanie will claim under the following independent
Yesenia is a lawyer who uses the cash method of accounting. Last year Yesenia provided a client with legal services worth $55,000, but the client could not pay the fee. This year Yesenia requested
Geri has a certificate of deposit at the local bank. The interest on this certificate was credited to their account on December 31 of last year, but they didn’t withdraw the interest until January
Helaina was just hired by Acme Corporation and has decided to purchase disability insurance. This insurance promises to pay her weekly benefits to replace her salary should she be unable to work
Louis files as a single taxpayer. In April of this year he received a $900 refund of state income taxes that he paid last year. How much of the refund, if any, must Louis include in gross income
L. A. and Paula file as married taxpayers. In August of this year, they received a $5,200 refund of state income taxes that they paid last year. How much of the refund, if any, must L. A. and Paula
Priya works for the Shine Company, a retailer of upscale jewelry. How much taxable income does Priya recognize under the following scenarios?a) Priya buys a diamond ring from Shine Company for
Grayson (single) is in the 24 percent tax rate bracket and has sold the following stocks in 2022:a) What is Grayson’s net short-term capital gain or loss from these transactions?b) What is
Jackson is 18 years old and has a dog-sitting business. Calculate the 2022 standard deduction Jackson will claim under the following independent circumstances.a) Jackson reported $2,000 of earnings
In 2022, Nadia has $100,000 of regular taxable income. She itemizes her deductions as follows: real property taxes of $1,500, state income taxes of $2,000, and mortgage interest expense of $10,000
John bought 1,000 shares of Intel stock on October 18, 2018, for $30 per share plus a $750 commission he paid to his broker. On December 12, 2022, he sells the shares for $42.50 per share. He also
In 2022, Tom and Alejandro Jackson (married filing jointly) have $200,000 of taxable income before considering the following events:a) On May 12, 2022, they sold a painting (art) for $110,000 that
For 2022, Sherri has a short-term loss of $2,500 and a long term loss of $4,750.a) How much loss can Sherri deduct in 2022?b) How much loss will Sherri carry over to 2023, and what is the character
In 2022, for a taxpayer with $50,000 of taxable income, without doing any actual computations, which filing status do you expect to provide the lowest tax liability? Which filing status provides the
In 2022, Sven is single and has $120,000 of regular taxable income. He itemizes his deductions as follows: real property tax of $2,000, state income tax of $4,000, and mortgage interest expense of
Jennie’s grandmother paid her tuition this fall to State University (an eligible educational institution). Jennie is claimed as a dependent by her parents, but she also files her own tax return.
In 2022, Janet and Ray are married filing jointly. They have five dependent children under 18 years of age. Janet and Ray’s taxable income is $2,400,000, and they itemize their deductions as
Whitney received $75,000 of taxable income in 2022. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations?a) She files under
In 2022, Lisa and Fred, a married couple, had taxable income of $300,000. If they were to file separate tax returns, Lisa would have reported taxable income of $125,000 and Fred would have reported
In 2022, Jasmine and Thomas, a married couple, had taxable income of $150,000. If they were to file separate tax returns, Jasmine would have reported taxable income of $140,000 and Thomas would have
Lacy is a single taxpayer. In 2022, her taxable income is $44,000. What is her tax liability in each of the following alternative situations?a) All of her income is salary from her employer.b) Her
In 2022, Sheryl is claimed as a dependent on her parents’ tax return. Her parents report taxable income of $550,000 (married filing jointly). Sheryl did not provide more than half her own support.
In 2022, Carson is claimed as a dependent on his parents’ tax return. His parents report taxable income of $200,000 (married filing jointly). Carson’s parents provided most of his support. What
In 2022, Deon and NeNe are married filing jointly. Deon and NeNe’s taxable income is $1,090,000, and they itemize their deductions as follows: real property taxes of $10,000, charitable
Brooklyn files as a head of household for 2022. They claimed the standard deduction of $19,400 for regular tax purposes. Their regular taxable income was $80,000. What is Brooklyn’s AMTI?
Sylvester files as a single taxpayer during 2022. He itemizes deductions for regular tax purposes. He paid charitable contributions of $7,000, real estate taxes of $1,000, state income taxes of
Olga is married and files a joint tax return with her husband. What amount of AMT exemption may she deduct under each of the following alternative circumstances?a) Her AMTI is $390,000.b) Her AMTI is
In 2022, Juanita is married and files a joint tax return with her husband. What is her tentative minimum tax in each of the following alternative circumstances?a) Her AMT base is $100,000, all
Steve’s tentative minimum tax for 2022 is $245,000. What is his AMT ifa) His regular tax is $230,000?b) His regular tax is $250,000?
Henrich is a single taxpayer. In 2022, his taxable income is $480,000. What are his income tax and net investment income tax liability in each of the following alternative scenarios?a) All of his
Brooke, a single taxpayer, works for Company A for all of 2022, earning a salary of $50,000.a) What is her FICA tax obligation for the year?b) Assume Brooke works for Company A for half of 2022,
Alice is single and self-employed in 2022. Her net business profit on her Schedule C for the year is $160,000. What are her self-employment tax liability and additional Medicare tax liability for
Rasheed works for Company A, earning $350,000 in salary during 2022. Assuming he is single and has no other sources of income, what amount of FICA tax will Rasheed pay for the year?
Kyle, a single taxpayer, worked as a freelance software engineer for the first three months of 2022. During that time, he earned $44,000 of self-employment income. On April 1, 2022, Kyle took a job
Eva received $60,000 in compensation payments from JAZZ Corp. during 2022. Eva incurred $5,000 in business expenses relating to her work for JAZZ Corp. JAZZ did not reimburse Eva for any of these
In 2022, Elaine paid $2,800 of tuition and $600 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. What is the
In 2022, Laureen is currently single. She paid $2,800 of qualified tuition and related expenses for each of her twin daughters Sheri and Meri to attend State University as freshmen ($2,800 each, for
For the following taxpayers, determine if they are required to file a tax return in 2022.a) Ricko, single taxpayer, with gross income of $15,000.b) Fantasia, head of household, with gross income of
In 2022, Jack is single and has two children, ages 10 and 12. Jack works full time and earns an annual salary of $195,000 as a consultant. Jack files as a head of household and does not itemize his
Susmita purchased a car this year and uses it for both business and personal purposes. Susmita drove the car 11,000 miles on business trips and 9,000 miles for personal transportation. Describe how
Armelio operates a business that acts as a sales representative for firms that produce and sell precious metals to electronics manufacturers. Armelio contacts manufacturers and convinces them to sign
Sasha is a self-employed taxpayer. They recently spent $1,000 for airfare to travel to Italy. What amount of the airfare is deductible in each of the following alternative scenarios?a) Sasha’s trip
Haru is a self-employed cash-method, calendar-year taxpayer who made the following cash payments related to his business this year. Calculate the after-tax cost of each payment assuming Haru has a 37
Red Inc. is a C corporation and a calendar-year taxpayer. Red reports sales of $24 million in 2019, $28.3 million in 2020, and $32 million in 2021.a) Is Red subject to the business interest
Compare and contrast the three trial-level courts.
Aminata is a tax expert, whereas Rob is a tax novice. Explain how their process in identifying tax issues may differ.
What is Circular 230?
What are some of the common law issues that a tax practitioner may face with respect to their duties, and how might a tax practitioner avoid these issues?
What determines whether someone is considered a tax return preparer?
Janelle and Lori were divorced in 2016. Pursuant to the divorce decree, Janelle receives $10,000 of alimony each month. Use an available tax service to determine if the alimony Janelle receives is

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