Questions and Answers of Taxation of Individuals and Business Entities 2021

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
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 2020 salary is
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
Desmond is 25 years old, and he participates in his employer’s 401(k) plan. During the year, he contributed $3,000 to his 401(k) account. What is Desmond’s saver’s credit in each of the
Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2020). In 2020, his net Schedule C income was $300,000. This was his only source of income. This year, Reggie is
Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2020). In 2020, her net Schedule C income was $300,000. This was her only source of income. This year, Rita is
Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2020). In 2020, her net Schedule C income was $130,000. This was her only source of income. This year, Hope is
Elvira is a self-employed taxpayer who turns 42 years old at the end of the year (2020). In 2020, her net Schedule C income was $130,000. This was her only source of income. This year, Elvira is
Sarah was contemplating making a contribution to her traditional individual retirement account for 2020. She determined that she would contribute $6,000 to her IRA, and she deducted $6,000 for the
Jimmer has contributed $15,000 to his Roth IRA, and the balance in the account is $18,000. In the current year, Jimmer withdrew $17,000 from the Roth IRA to pay for a new car. If Jimmer’s marginal
In 2020, 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
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 2020, 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 2020, their AGI is $201,000. 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 2020, their AGI before any IRA contribution deductions is $50,000. Harriet earned $46,000 and
Michael is single and 35 years old. He is a participant in his employer’s sponsored retirement plan. How much can Michael contribute to a Roth IRA in 2020 in each of the following alternative
WAR (We Are Rich) has been in business since 1987. WAR is an accrual-method sole proprietorship that deals in the manufacturing and wholesaling of various types of golf equipment. Hack & Hack
Explain the differences and similarities between fringe benefits and salary as forms of compensation.
North Inc. is a calendar-year C corporation, accrual-basis taxpayer. At the end of the year 1, North accrued and deducted the following bonuses for certain employees for financial accounting
Jorgensen High Tech Inc. is a calendar-year, accrual-method taxpayer. At the end of year 1, Jorgensen accrued and deducted the following bonuses for certain employees for financial accounting
Antonio received 40 ISOs (each option gives him the right to purchase 20 shares of Zorro stock for $3 per share) at the time he started working for Zorro Corporation six years ago. Zorro’s
Santini’s new contract for 2020 indicates the following compensation and benefits: Benefit DescriptionAmountSalary$130,000Health insurance$9,000Restricted stock granted$2,500Bonus$5,000Hawaii
What is the limitation on a deductible IRA contribution for 2020?
How is the saver’s credit computed?
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 2020, Tim retires. The
Matthew (48 at year-end) develops cutting-edge technology for SV Inc., located in Silicon Valley. In 2020, Matthew participates in SV’s money purchase pension plan (a defined contribution plan) and
In 2020, 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
In 2020, 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 2020, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and
Paris participates in her employer’s nonqualified deferred compensation plan. For 2020, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and her
Leslie participates in IBO’s nonqualified deferred compensation plan. For 2020, she is deferring 10 percent of her $300,000 annual salary. Based on her deemed investment choice, Leslie expects to
John (age 51 and single) has earned income of $3,000. He has $30,000 of unearned (capital gain) income.a. If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA
William is a single writer (age 35) who recently decided that he needs to save more for retirement. His 2020 AGI before the IRA contribution deduction is $66,000 (all earned income).a. If he does not
In 2020, 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 is unemployed. Compute
In 2020, 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
What is a “disqualifying disposition” of ISOs, and how does it affect employees who have exercised ISOs?
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 2016
Hans runs a sole proprietorship. Hans has reported the following net §1231 gains and losses since he began business. Net §1231 gains shown are before the lookback rule.YearNet §1231
Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2020, she sells the following long-term assets used in her business:AssetSales PriceCostAccumulated
Diamond Mountain was originally thought to be one of the few places in North America to contain diamonds, so Diamond Mountain Inc. (DM) purchased the land for $1,000,000. Later, DM discovered that
Franco converted a building from personal to business use in May 2017 when the fair market value was $55,000. He purchased the building in July 2014 for $80,000. On December 15 of this year, Franco
Karane Enterprises, a calendar-year manufacturer based in College Station, Texas began business in 2019. In the process of setting up the business, Karane has acquired various types of assets. Below
Compare and contrast the similarities and differences between like-kind exchanges and involuntary conversions for tax purposes.
While completing undergraduate school work in information systems, Dallin Bourne and Michael Banks decided to start a technology support company called eSys Answers. During year 1, they bought the
Tater Meer purchased a new car for use in her business during 2020 for $75,000. The auto was the only business asset she purchased during the year and her business was very profitable. Calculate
Lina purchased a new car for use in her business during 2020. The auto was the only business asset she purchased during the year and her business was extremely profitable. Calculate her maximum
Phil owns a ranch business and uses four-wheelers to do much of his work. Occasionally, though, he and his boys will go for a ride together as a family activity. During year 1, Phil put 765 miles on
Assume that Sivart Corporation has 2020 taxable income of $1,750,000 for purposes of computing the §179 expense and acquired several assets during the year. Assume the delivery truck does not
Woolard Supplies (a sole proprietorship) has taxable income in 2020 of $240,000 before any depreciation deductions (§179, bonus, or MACRS) and placed some office furniture into service during the
Chaz Corporation has taxable income in 2020 of $312,000 for purposes of computing the §179 expense and acquired the following assets during the year:AssetPlaced in ServiceBasisOffice
Assume that ACW Corporation has 2020 taxable income of $1,500,000 for purposes of computing the §179 expense. The company acquired the following assets during 2020 (assume no bonus
Assume Timberline Corporation’s 2020 taxable income of $240,000 for purposes of computing the §179 expense. It acquired the following assets in 2020: AssetPurchase DateBasisFurniture
Assume TDW Corporation’s (calendar-year-end) has 2020 taxable income of $650,000 for purposes of computing the §179 expense. The company acquired the following assets during 2020:AssetPlaced in
AMP Corporation (calendar-year-end) has 2020 taxable income of $1,900,000 for purposes of computing the §179 expense. During 2020, AMP acquired the following assets:AssetPlaced in
Harris Corp. is a technology start-up and is in its second year of operations. The company didn’t purchase any assets this year but purchased the following assets in the prior year:AssetPlaced in
Carl purchased an apartment complex for $1.1 million on March 17 of year 1. Of the purchase price, $300,000 was attributable to the land the complex sits on. He also installed new furniture
On November 10 of year 1, Javier purchased a building, including the land it was on, to assemble his new equipment. The total cost of the purchase was $1,200,000; $300,000 was allocated to the basis
Way Corporation disposed of the following tangible personal property assets in the current year. Assume that the delivery truck is not a luxury auto. Calculate Way Corporation’s 2020 depreciation
At the beginning of the year, Anna began a calendar-year business and placed in service the following assets during the year:AssetDate AcquiredCost BasisComputers1/30$28,000Office
Jack operates a large home repair business as a sole proprietorship. Besides providing services, Jack also sells home repair supplies to homeowners. However, these sales constitute a relatively small
In 2020, 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, mortgage interest expense of
What is the kiddie tax? Explain.
During 2020, your clients, Mr. and Mrs. Howell, owned the following investment assets:Investment AssetsDate AcquiredPurchase PriceBroker’s Commission Paid at Time of Purchase300 shares of IBM
For 2020, 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 2020?b. How much loss will Sherri carryover to 2021 and what is the character of
BCS Corporation is a calendar-year, accrual-method taxpayer. BCS was formed and started its business activities on January 1 of this year. It reported the following information for the year. Indicate
Jeremy is a calendar-year taxpayer who sometimes leases his business equipment to local organizations. He recorded the following receipts this year. Indicate the extent to which these
Renee operates a proprietorship selling collectibles over the web, and last year she purchased a building for $24 million for her business. This year, Renee’s proprietorship reported revenue of
The cash method of accounting is generally preferred by taxpayers. Describe two types of businesses that are not allowed to use the cash method.
Compare and contrast the different year-ends available to sole proprietorships, flow-through entities, and C corporations.
How does a casualty loss on a business asset differ when the asset is stolen as opposed to destroyed in a fire?
Describe the gross receipts test and identify how this test relates to the business interest deduction.
Provide an example of an expense associated with the production of tax-exempt income, and explain what might happen if Congress repealed the prohibition against deducting expenses incurred to produce
Rebecca is a calendar-year taxpayer who operates a business. She made the following business-related expenditures in December of this year. Indicate the amount of these payments that she may deduct
Red Inc. is a C corporation and a calendar year taxpayer. Red reports sales of $24 million in 2017, $28.3 million in Year 2018, and $32 million in 2019. a) Is Red subject to the business
Sarah is a cash-method calendar-year taxpayer, and she is considering making the following cash payments related to her business. Calculate the after-tax cost of each payment assuming she has a 37
Describe two specific accounting methods that are treated as initiated by the taxpayer without any need for consent of the IRS when the business qualifies under the gross receipts test.
Stephanie began her consulting business this year, and on April 1 Stephanie received a $9,000 payment for full payment on a three-year service contract (under the contract Stephanie is obligated to
For the following taxpayers, determine if they are required to file a tax return in 2020. a. Ricko, single taxpayer, with gross income of $15,000.b. Fantasia, head of household, with gross
What is an “ordinary and necessary” business expenditure?
In 2020, Zach is single with no dependents. He is not claimed as a dependent on another’s return. All of his income is from salary and he does not have any for AGI deductions. What is
In 2020, 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 2020, Jack is single 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
In 2020, 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
In 2020, Amanda and Jaxon Stuart have a daughter who is one year old. The Stuarts are full-time students and they are both 23 years old. Their only sources of income are gains from stock they
Trey has two dependents, his two daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. What amount of child credit will Trey be able to claim for his daughters in each of
Terry Hutchison worked as a self-employed lawyer until two years ago, when he retired. He used the cash method of accounting in his business for tax purposes. Five years ago, Terry represented his
Eva received $60,000 in compensation payments from JAZZ Corp. during 2020. Eva incurred $5,000 in business expenses relating to her work for JAZZ Corp. JAZZ did not reimburse Eva for any
Kyle, a single taxpayer, worked as a freelance software engineer for the first three months of 2020. During that time, he earned $44,000 of self-employment income. On April 1, 2020, Kyle took a job
Alice is single and self-employed in 2020. Her net business profit on her Schedule C for the year is $150,000. What is her self-employment tax liability and additional Medicare tax liability for 2020?
Rasheed works for Company A, earning $350,000 in salary during 2020. Assuming he is single and has no other sources of income, what amount of FICA tax will Rasheed pay for the year?
Brooke, a single taxpayer, works for Company A for all of 2020, 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
Henrich is a single taxpayer. In 2020, his taxable income is $450,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios?a. All of his
In 2020, 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
Corbett’s AMTI is $600,000. What is his AMT exemption under the following alternative circumstances?a. He is married and files a joint return.b. He is married and files a separate return.c.
In 2020, 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
Sylvester files as a single taxpayer during 2020. He itemizes deductions for regular tax purposes. He paid charitable contributions of $7,000, real estate taxes of $1,000, state income taxes of
In 2020, Sheryl is claimed as a dependent on her parent’s tax return. Her parents report taxable income of $500,000 (married filing jointly). Sheryl did not provide more than half her own support.
In 2020, 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
Steve’s tentative minimum tax (TMT) for 2020 is $245,000. What is his AMT ifa. His regular tax is $230,000?b. His regular tax is $250,000?
In 2020, 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

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