1. On December 15, 2016, Jacks Tax Prep, a cash-method taxpayer, prepaid $5,000 worth of deductible interest on a business loan. The interest accrued in 2017. In addition, Jacks Tax Prep incurred $2,000 in deductible repair expenses on December 28, 2016. Jack received the invoice on January 15, 2017, and he paid the $2,000 on January 29, 2017. How much of the $7,000 in deductible business expenses may Jacks Tax Prep deduct in 2016?

2. Johns Tax Prep, an accrual-method taxpayer, incurred $2,000 in deductible repair expenses on December 28, 2016 (the repair services were performed on December 28, 2016). John received the invoice on January 15, 2017, and he paid the $2,000 on January 29, 2017. In what year my Johns Tax Prep deduct the $2,000 repair expense?

3. Derek and Meredith are married taxpayers. Grey Company is owned as follows:

Derek 28% Meredith 17% Sara, Dereks mother 25% Thatcher, Merediths father 15% Bob, an unrelated party 15%

Grey Company is an accrual-method taxpayer, and Derek and Meredith are cash-method taxpayers. Derek and Meredith each loaned Grey Company $10,000 out of their separate funds. On December 31, 2016, Grey Company accrued interest at 6% on each loan ($600 per loan, $1,200 total). The interest was paid on February 4, 2017. What amount of the interest may Grey Company deduct in 2016?

4. Pete, the owner of a very successful coffee chain in Nevada, is exploring the possibility of expanding the coffee chain into California. In 2016, Pete incurs $32,000 of expenses associated with this investigation. Based on the high cost of labor in California due to Californias minimum wage laws, Pete decides not to expand to California. In addition, Pete, who is not currently involved in the gas station business, spends $23,000 in 2016 investigating the acquisition of a gas station in Nevada. Petes research suggests that it would be a good business decision, and he acquires and begins operations on October 1, 2016. What amount can Pete deduct in 2016 for the expenses incurred in investigating the expansion of his coffee chain and the acquisition of the gas station?

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5. In 2016, David Beckham sold Adidas stock (adjusted basis of $200,000) to his sister, Joanne, for $150,000, the fair market value of the stock. What amount may David deduct on the sale of the Adidas stock? Note: make sure you understand what happens to any disallowed loss.

6. In 2014, Olivers Oil Change, a sole proprietorship, purchased a piece of property for $1,000,000 for use in business. The property has a 5-year MACRS recovery period and is depreciated under the GDS. The property was placed into service on October 10, 2014. This was the only property that Olivers placed into service in 2015. Olivers did not take Section 179 deduction or Section 168(k) bonus depreciation, and did not elect SL depreciation. Olivers sold the equipment on February 1, 2017. What is the tax depreciation deduction for 2017?

7. Frank Investor purchased an office building (including land) for $2,000,000 and placed it in service on June 27, 2016. The land is valued at $1,200,000, and the building is valued at $800,000. Frank depreciated the property under the GDS. What is Franks tax depreciation deduction for 2016?

8. Orange Co. acquired a business on August 1, 2016. The purchase included goodwill valued at $216,000. What is Orange Co.s amortization deduction for the goodwill in 2016?

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Questions 9 through 12 are a continuation of the Form 1120 you previously worked on for Carl's Cards (Chapter 4 Homework). Continuing on the Form 1120 you previously prepared for Carl's Cards in the Chapter 4 Homework, complete Lines 12-30. You will also need to complete Parts III and IV of Form 4562 to calculate the depreciation deduction for line 20. You do not need to complete a Form 1125-E. Note: Keep your Form 1120, Form 1125-A and Form 4562 for Carl's Cards as you will need them for the in-class activity on March 2, 2017.

In 2016, Carl's Cards had the following expenses:

Officer Compensation: $65,000 Rents: $7,000 Payroll Taxes: $4,973 Advertising: $10,000 Charitable Contribution: $10,000 cash

Note: the entire $10,000 is not deductible for tax purposes. See the 2016 Form 1120 instructions, page 12. You will need to calculate Carls Cards taxable income (Line 30) using $0 charitable contribution deduction and then multiply the result by 10% to figure Carls Cards maximum charitable contribution deduction. Round the maximum charitable contribution amount up to the nearest whole dollar amount.

In addition, Carl's Cards has two depreciable assets. Both assets are used 100% in the business (no listed property). Carl's Cards did not elect to expense any assets under 179 and elected not to take any168(k) bonus depreciation (i.e. Parts I and II of Form 4562 will be left blank). These two assets are the only property that Carl's Cards has placed in service since the company was formed in 2015. Both assets are depreciated under the GDS.

Asset #1: Purchased for $10,000 and placed in service on 1/1/2015. Asset #1 has a 5-year MACRS recovery period. For book purposes, Carl's Cards depreciates Asset #1 over 5 years using straight line depreciation and $0 salvage value (book depreciation = $2,000/year).

Asset #2: Purchased for $40,000 and placed in service on 1/1/2016. Asset #2 has a 5-year MACRS recovery period. For book purposes, Asset #2 is depreciated using the straight-line method with a 5-year useful life and $0 salvage value (book depreciation = $8,000/year).

Note: make sure you understand that tax depreciation is not necessarily the same as book depreciation and how this creates a book tax difference.

9. What is Carl's Cards tax depreciation for the Asset #1 in 2016 (Form 4562 Line 17)? Note: asset was placed in service in 2015, so this is year 2 depreciation for Asset #1.

10. What is Carl's Cards tax depreciation for Asset #2 in 2016 (Form 4562 Line 19b, box (g))?

11. What is Carls Cards charitable contribution deduction for 2016? Note: make sure you understand what happens to the remaining amount that Carls Cards contributed to charity in 2016 but could not deduct in 2016 and how the limit on Carls Cards charitable contribution deduction creates a book tax difference in 2016.

12. What is Carl's Cards' taxable income for 2016 (Form 1120 Line 30)?