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business
taxation of individuals

Questions and Answers of Taxation of Individuals

LO.3 Jenna, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing
LO.3 Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are employed outside the home and, during 2018, earn salaries as follows: $16,000 (Jim) and $5,200
LO.3 Paul and Karen Kent are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2018). Paul and Karen have two dependent children, both under the age of 13 (Samuel and
LO.3 Ann and Bill were on the list of a local adoption agency for several years. seeking to adopt a child. Finally, in 2017, good news comes their way, and an adoption seems imminent. They paid
LO.2 Linda, age 37, who files as a single taxpayer, had AGI of $280,000 for 2018. She incurred the following expenses and losses during the year. Medical expenses (before the 7.5%-of-AGI limitation)
LO.2 Ramon had AGI of $180,000 in 2018. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current
LO.2 In December of each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 24% marginal tax bracket, is considering the following
LO.2 The Wilmoths plan to purchase a house and would like to determine the after- tax cost of financing its purchase. Given their projected taxable income, the Wilmoths are in the 24% Federal income
LO.2 Helen Derby borrowed $150,000 to acquire a parcel of land to be held for investment purposes. During the current year, she reported AGI of $90,000 and paid interest of $12,000 on the loan. Other
LO.2 In 2018, Kathleen Tweardy incurs $30,000 of interest expense related to her investments. Her investment income includes $7,500 of interest, $6,000 of quali- fied dividends, and a $12,000 net
LO.2 Norma, who is single and uses the cash method of accounting, lives in a state that imposes an income tax. In April 2018, she files her state income tax return for 2017 and pays an additional
LO.2 Paul suffers from emphysema and severe allergies and, upon the recommen- dation of his physician, has a dust elimination system installed in his per- sonal residence. In connection with the
LO.1 Herbert was employed for the first six months of 2018 and earned $90,000 in salary. During the next six months, he collected $8,800 of unemployment compensation, borrowed $12,000 (using his
LO.1 For each of the following, determine the amount that should be included in gross income:a. Peyton was selected the most valuable player in the Super Bowl. In recognition of this, he was awarded
LO.1 Patrick and Eva are planning to divorce in 2018. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alter- natively, Patrick will transfer to Eva
LO.1 William and Abigail, who live in San Francisco, have been experiencing prob- C lems in their marriage. They have a 3-year-old daughter, April, who stays with William's parents during the day
LO.3 Ivanna, who has three children under age 13, worked full-time while her spouse, Sergio, attended college for nine months during the year. Ivanna earned $28,000, and the couple incurred $9,100 of
LO.3 Santiago and Amy are married and file a joint tax return claiming their three children, ages 12, 14, and 18, as dependents. Their AGI is $140,000. Determine the amount of the couple's child and
LO.3 In late 2017, Randy and Rachel Erwin paid $7,000 in legal fees, adoption fees. and other expenses directly related to the adoption of an infant son, Jameson.In 2018, the year in which the
LO.2 Thomas purchased a personal residence from Rachel. To sell the residence, Rachel agreed to pay $5,500 in points related to Thomas's mortgage. Discuss the deductibility of the points.
LO.2 Barbara incurred the following expenses during the year. Membership dues at a health club Barbara joined at the suggestion of her physician to improve her general physical condition Multiple
LO.2 Donna donates stock in Chipper Corporation to the American Red Cross on September 10, 2018. She purchased the stock for $18,100 on December 28, 2017, and it had a fair market value of $27,000
LO.2 Miller owns a personal residence with a fair market value of $195,000 and an outstanding first mortgage of 157,500, which was entirely used to acquire the residence. This year, Miller gets a
LO.2 Troy's financial records for the year reflect the following: Interest income from bank savings account Taxable annuity receipts City ad valorem property tax on investments $ 900 1,800 125 3,200
LO.2 Pierre, a cash basis, unmarried taxpayer, had $1,400 of state income tax withheld during 2018. Also in 2018, Pierre paid $455 that was due when he filed his 2017 state income tax return and made
LO.1 Jarrod receives a scholarship of $18,500 from Riggers University to be used to pursue a bachelor's degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board,
LO.1 Sally was an all-state soccer player during her junior and senior years in high school. She accepted an athletic scholarship from State University. The schol- arship provided the following:
LO.1 Casper and Cecile divorced in 2018. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the
Explain some of the key tax provisions of the Affordable Care Act.
Explain and illustrate the adoption expenses credit, child tax credit, education tax credits, credit for child and dependent care expenses, and earned income credit.
Determine an individual's allowable itemized deductions.
Identify specific income inclusions and exclusions applicable to individuals.
Identify major tax and nontax considerations associated with the corporate form of business.
Explain the tax consequences of incorporating and transferring assets to controlled corporations.
Describe the special rules that apply when a corporation assumes a shareholder's liability.
Identify the basis issues relevant to the shareholder and the corporation.
Characterize the tax differences between debt and equity investments.
Compute the corporate income tax. Explain the rules unique to computing the tax of related corporations.
Describe the reporting process for corporations.
LO.4 Yvonne and Simon form lon Corporation. Yvonne transfers equipment (basis of $110,000 and fair market value of $165,000). Simon invests $130,000 of cash. They each receive 100 shares in Ion
LO.8 Compute the income tax liability for each of the following unrelated calendar year C corporations.a. In 2017, Darter Corporation has taxable income of $68,000.b. In 2017, Owl Corporation has
LO.1 Can a sole proprietor form as a single-member limited liability company (LLC)? If so, how would such an LLC be taxed?
LO.2 Sarah incorporates her small business but does not transfer the machinery and equipment used by the business to the corporation. Instead, the machinery and equipment are leased to the
Bob and Nancy are married and file a joint return. They are both under age 50 and employed, with wages of $50,000 each. Their total AGI is $110,000. Neither of them is an active participant in a
Linda is an employee of JRH Corporation. Which of the following is included in Linda's gross income?a. Premiums paid by JRH Corporation for a group term life insurance policy for $50,000 of coverage
Sarah was contemplating making a contribution to her traditional IRA in 2017. She determined she would contribute $5,000 in December 2017, but forgot about making the contribution until she was
Jacob Patterson cannot make a fully deductible $5,500 IRA con- tribution because his AGI exceeds the phaseout range. Instead, he makes a $3,500 nondeductible IRA contribution to his traditional IRA.
Aaron, a resident of Minnesota, has been a driver for Green Delivery Service for the past six years. For this purpose, he leases a truck from Green, and his compensation is based on a percentage of
Rick Beam has been an independent sales representative for various textile manufacturers for many years. His products consist of soft goods such as tablecloths, curtains, and drapes. Rick's customers
Your client, Jasper, is an employee of a defense contractor and was assigned to work on a military base in Australia. As a condition of his employ- ment, he was required to live in housing that was
LO.7 Alex, who is single, conducts an activity this year that is classified as a hobby. The activity produces the following revenues and expenses. Revenue Property taxes Materials and supplies
LO.6 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
LO.6 In 2018, Susan's sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax). Calculate the maximum amount Susan can deduct for
LO.5 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 2018 is $192,000, and
LO.5 Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $65,000 in 2018.a. Calculate the amount Janet can contribute to a traditional IRA and
LO.6 Ashley (a single taxpayer) is the owner of ABC LLC. The LLC (a sole proprietor- ship) reports QBI of $900,000 and is not a "specified services" business. ABC paid total W-2 wages of $300,000,
LO.3 In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under 222 (targeted tuition and related expenses).a. Lily is single and is employed
LO.3 Elijah is employed as a full-time high school teacher. The school district for which he works recently instituted a policy requiring all of its teachers to start working on a master's degree.
LO.3,4 Christine is a full-time teacher of the fourth grade at Vireo Academy. Dur ing the current year, she spends $1,400 for classroom supplies. On the submission of adequate substantiation, Vireo
LO.3 Veronica is a key employee of Perdiz Corporation, an aerospace engineering concern located in Seattle. Perdiz would like to establish an office on the east coast of Florida and wants Veronica to
LO.3 On Thursday, Justin flies from Baltimore (his home office) to Cadiz (Spain). He conducts business on Friday and Tuesday; vacations on Saturday, Sunday, and Monday (a legal holiday in Spain); and
LO.3 In June of this year, Dr. and Mrs. Bret Spencer traveled to Denver to attend a three-day conference sponsored by the American Society of Implant Den- tistry. Bret, a self-employed practicing
LO.3 Kristen, an independent management consultant, is based in Atlanta. During March and April of 2018, she is contracted by a national hardware chain to help implement revised human resource
LO.3 During the current year, Paul, the vice president of a bank, made gifts in the following amounts. To Sarah (Paul's personal assistant) at Christmas To Darryl (a key client)-53 was for gift
LO.2 George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2018, George began working in London. He worked there until January 31, 2019, when he
LO.2 Bluebird, Inc., does not provide its employees with any tax-exempt fringe benefits. The company is considering adopting a hospital and medical ben- efits insurance plan that will cost
LO.2 Several of Egret Company's employees have asked the company to create a hiking trail that employees could use during their lunch hours. The company owns vacant land that is being held for future
LO.2 Ted works for Azure Motors, an automobile dealership. All employees can buy a car at the company's cost plus 2%. The company does not charge employ- ees the $300 dealer preparation fee that
LO.2 Sparrow Corporation would like you to review its employee fringe benefits program with regard to the tax consequences of the plan for the company's president (Polly), who is also the majority
LO.2 Rosa's employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter's dental expenses and other medical expenses that are not covered by health insurance.
LO.1,4 Finch Construction Company provides the carpenters it employs with all required tools. However, the company believes that this practice has led to some employees not taking care of the tools,
LO.2 Tim is the vice president of western operations for Maroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company
LO.2 Does the taxpayer recognize gross income in the following situations? Explain.a. Ava is an office associate at a large insurance company. She is permitted to leave the premises for her lunch,
LO.2 Belinda spent the last 60 days of 2018 in a nursing home. The cost of the services provided to her was $18,000 ($300 per day). Medicare paid $8,500 toward the cost of her stay. Belinda also
LO.2 Casey is in the 12% marginal tax bracket, and Jean is in the 35% marginal tax bracket. Their employer is experiencing financial difficulties and cannot continue to pay for the company's health
LO.2 Rex, age 55, is an officer of Blue Company, which provides him with the fol- lowing nondiscriminatory fringe benefits in 2018. Hospitalization insurance premiums for Rex and his dependents. The
LO.1 Mason performs various home repair services for Isabella. In determining whether Mason is an employee or an independent contractor, comment on the relevance of each of the factors listed
LO.5 Meredith, who is single, would like to contribute $5,500 to her Roth IRA. What is the maximum amount that Meredith can contribute if her AGI is $121,000?
LO.5 Myers, who is single, reports compensation income of $70,000 in 2018. He is an active participant in his employer's qualified retirement plan. Myers contributes $5,500 to a traditional IRA. Of
LO.6 In 2018, Miranda records net earnings from self-employment of $146,000. She reports no other gross income. Determine the amount of Miranda's self-employment tax and her for AGI income tax
LO.3 In 2018, the CEO of Crimson, Inc., entertains seven clients at a skybox in Memorial Stadium for an athletic event. Substantive business discussions occurred at various times during the event.
LO.3 In 2018, Robert entertains four key clients and their spouses at a nightclub. Business discussions occurred over dinner and prior to the entertainment beginning. Expenses were $200 (limo
LO.3 Samantha recently was employed by an accounting firm. During the year, she spends $2,500 for a CPA exam review course and begins working on a law degree in night school. Her law school expenses
LO.3 Brenda, who is self employed, travels from Chicago to Barcelona (Spain) on business. She is gone for 10 days (including 2 days of travel), during which time she spends 5 days conducting business
LO.3 Fred, who is self employed, travels from Denver to Miami primarily on busi- ness. He spends five days conducting business and two days sightseeing. His expenses are $400 (airfare), $150 per day
LO.6 In 2018, Meghann Carlson, a single taxpayer, has QBI of $110,000 and modi- fied taxable income of $78,000 (this is also her taxable income before the QBI deduction). Given this information, what
LO.2 Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2018. Mio's salary for 2018 is $190,000. What is Mio's foreign earned income exclusion? (In your
LO.2 Valentino is a patient in a nursing home for 45 days in 2018. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his
Distinguish between business and hobby activities and apply the rules limiting the deduction of hobby losses.
State and explain the tax provisions applicable to proprietors.
Understand the opportunities available to build wealth through Individual Retirement Accounts.
Explain the difference between accountable and nonaccountable employee plans.
Apply the rules for computing deductible expenses of work, including transportation, travel, moving, education, and entertainment expenses.
LO.2, 4 Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration: From Seth- Consideration Transferred Basis to Transferor Fair Market Value Number of Shares Issued
State and explain the exclusions from income available to employees who receive fringe benefits.
Distinguish between employee and independent contractor status.
LO.2,4 Tom and Gail form Owl Corporation with the following consideration: Consideration Transferred Basis to Transferor Fair Market Value Number of Shares Issued From Tom- Cash Installment note $
Describe and apply the components of the Federal income tax formula for individuals.
LO.2, 4 Rafael transfers the following assets to Crane Corporation in exchange for all of its stock. (Assume that neither Rafael nor Crane plans to make any special tax elections at the time of
LO.7 In each of the following independent situations, determine the dividends received deduction for the calendar year C corporation. The corporate share- holders own less than 20% of the stock in

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