Need help solving this. These quesitons are based on 2014 for U.S. Tax

Question 2 (15 marks) Roxie and Logan were divorced in 2012. They have two children, nine-year-old Byron and 21-year-old Celeste. Byron lives with Roxie, and Celeste is attending university fulltime in Memphis. At the beginning of 2014, Roxie, with the court's permission, relocated to Memphis with Byron. She and Byron moved into a big house in Memphis at the beginning of 2014. Celeste gave up her campus apartment and moved into the house to help her mother save money. Roxie's mother's health has been declining, and Roxie moved her into the house to care for her. Roxie provides 65% of her mother's support. Roxie had a part-time job lined up before moving to Memphis. She earned $9,000 from this job in 2014. Her employer withheld $200 in federal taxes and $100 in state taxes. In April 2014, Roxie started caring for her landlord's mother for a few hours every day in lieu of paying rent of $1,500 per month. As part of her divorce settlement, Roxie received part of an investment portfolio. In 2014, she did not sell or acquire any investments, but she received $2,500 in interest from some municipal bonds, $2,100 in interest from corporate bonds, and $5,600 in qualified dividends. She receives $2,000 in alimony and $1,200 in child support every month from Logan. In accordance with their divorce agreement, Logan will pay for all costs associated with their children's education. Roxie paid $2,100 to a moving company to move her belongings to Memphis. She and Byron drove 980 miles from their old home to Memphis. On the way, she spent $350 for motels and $120 for food. Celeste paid $300 to move from her campus apartment, and Roxie paid a moving company $500 to move her mother into her home. Celeste earned $6,500 from her part-time job. She spent half of it on a cruise, and she is saving the rest to buy a car. Roxie's mother receives $4,500 in nontaxable social security benefits and $1,500 in qualified dividends. Required: a. Calculate Roxie's AGI. b. Calculate Roxie's taxable income. c. Calculate Roxie's tax liability or refund. (For this question, ignore any tax credits.) d. For any of the items that were not included in your calculations above, explain why TAXX 304 v13 Assignment 1 May 5/2015 they were not included. Question 3 (10 marks) Marvin's wife passed away from cancer in 2013, leaving him to care for their three preschool children. For 2014, Marvin has an AGI of $155,000 before considering the disposals below. His itemized deductions total $11,500. In 2014, Marvin sold the following stocks: Date Acquire d Date Sold Stock Shares Sold (#) Selling ($) Price/Share 10/28/02 02/14/1 4 06/02/13 Selling Acquisition ($) Costs ($) Price/Share Wilau Co. 1,800 $25 $2,500 $3 04/30/1 4 Retool Co. 500 35 500 56 08/31/13 07/06/1 4 Dark Ltd. 2,000 10 600 6 01/13/08 11/27/14 Light Co. 1,200 17 600 25 He sold his wife's stamp collection for $7,500. The basis of the collection was $4,000. In addition, Marvin sold a rental cottage that he and his wife had owned for many years, resulting in a $125,000 gain. For tax purposes, $70,000 of the gain qualifies as an unrecaptured Section 1250 gain. Marvin also had a yard sale to get rid of some of some furniture, knick-knacks, clothes, and books. He earned $1,500 from the sale, and he estimated that he had originally paid $10,000 for the goods. Required: Calculate Marvin's taxes payable. Be sure to show all your work. Question 4 (10 marks) Sonja is a single mother of two school-aged children. She receives monthly alimony of $900 and monthly child support of $1,000. She is thankful that over the four years that she has been divorced, her ex-husband has never been in arrears with his payments. Sonja works part-time and earned $8,000 in 2014. She operates a small business selling perfume at home parties and dreams of turning it into a multi-million-dollar business someday. To help finance her business, she sold some stocks that she had received as a TAXX 304 v13 Assignment 1 May 5/2015 gift from her parents many years ago. This sale resulted in a gain of $15,000. She knows that it takes money to make money and she is grateful that she has some inheritance money to fall back on. For 2014, the first year of her business, her records show the following: Sales Cost of goods sold Advertising and promotion Supplies Food and wine for parties Transportation costs Casual labor costs $66,000 53,500 25,000 10,000 3,500 1,500 2,500 In 2014, Sonja received $500 of interest on City of Atlanta bonds, $2,500 in dividends from Peachland Orchards, Ltd., and a $75,000 inheritance from her late sister. She also received refunds on her 2013 state and federal income taxes of $250 and $700, respectively. Sonja paid mortgage interest of $5,500, property taxes of $700, state taxes of $300, and medical expenses of $8,000 for her daughter. Sonya did not itemize her deductions last year. Required: a. Calculate Sonja's taxable income or loss for tax purposes for the year. Ignore any self-employment taxes. b. Calculate Sonja's NOL for the year. c. Explain what Sonja can do with the NOL. Question 5 (30 marks) Barry, 53, and Vera, 49, are married and are the parents of 22-year-old Julia, 20-year-old Gary, and three-year-old twins, Larry and Laura. They have provided the following information for 2014: Barry is a popular television weatherman. He earns a salary of $250,000 per year. In 2014, his employer withheld $46,000 in federal taxes and $11,000 in state income taxes. Barry is an active participant in his employer-sponsored pension plan. Barry builds upscale dog beds in his spare time. He started out building them for his own dogs, and then his friends wanted to buy them. He sells them online now. He finds building the dog beds relaxing. He has not made any profit over the years doing thishe just finds it enjoyable. He will probably pursue it to a greater extent when he retires. In 2014, he had sales of $35,000 and incurred the following expenses: TAXX 304 v13 Assignment 1 May 5/2015 Materials and supplies Shipping costs Workshop rental Website maintenance and promotional costs $23,800 6,500 7,200 1,500 Vera has just started a new career as a retirement coach. Her business is unincorporated. She earned gross revenues of $27,500 and incurred the following expenses: Office rent Trade journal subscriptions Advertising Supplies Professional development courses Seminar costs Donation to her mother's campaign to run for governor $12,000 300 2,000 1,500 900 2,400* 30,000 *These costs were incurred for two seminars that Vera held at retirement fairs. Laura has a speech defect for which her doctor referred her to a speech therapist. The therapist was paid $15,000 and these costs were not covered by insurance. During the year, Barry and Vera paid $9,000 in health insurance premiums and $800 in dental insurance premiums. Vera paid $5,500 for cataract surgery and Barry paid $7,500 for Botox injections and laser treatments to maintain his television image. Vera paid $3,000 for a dental implant. Her dental plan reimbursed her $2,200. Barry paid $6,500 to the veterinarian for cancer treatments for one of his dogs. Vera received a $125,000 cash inheritance from her late uncle. At the end of the year, Barry sold his shares in Shanna Ltd. for $9,000. He had purchased the shares 11 months earlier for $3,500. Around the same time, Vera sold her shares of Knoll Co. for $3,600. She had purchased the stock three years earlier for $14,900. Barry and Vera went to Reno for a weekend getaway. Barry won $35,000 playing poker, and Vera lost $10,000 at blackjack. Barry and Vera have a vacation home in Florida. During 2014, they used the vacation home for 30 days and rented it out for 200 days. The home stood empty for the rest of the year. They received $40,000 of rental revenue and incurred the following expenses: TAXX 304 v13 Assignment 1 May 5/2015 Mortgage interest Property taxes Utilities Repairs and maintenance Insurance Advertising Depreciation (maximum available) $18,000 4,500 4,800 3,900 2,100 1,000 13,900 As in the past, they will use the IRS method to allocate expenses. Barry and Vera also received the following in 2014: Dividends from Kate Corp. Interest from a savings account Interest from City of Portland bonds $6,000 2,700 15,800 Barry and Vera paid the following in 2014: Property taxes on house Credit card interest Donations to church State sales taxes $16,700 2,300 3,600 5,500 Julia is a full-time student at Daye College. She received a scholarship that covered all her tuition, books, and supplies. Her parents pay for her room and board and miscellaneous living expenses. To save money, Julia moves back to her parents' house during her summer breaks. In 2014, she earned $6,000 from her summer job. She has saved $4,000 of it for a new car and has spent the rest on clothes and entertainment. Gary is taking two night courses at the local community college. He does not know what kind of career he wants and is trying to \"find himself.\" In the meantime, he lives in an apartment with his cousin and his parents are happy to support him while he looks for himself. On occasion, he works for a moving company when it needs extra hands. In 2014, he earned $4,000 doing this. Barry and Vera plan to file a joint return, as usual. Required: a. Calculate Barry and Vera's AGI and taxable income. Ignore any self- employment taxes. For items that you have not included, explain why they have not been included. b. Both Barry and Vera want to make contributions to IRAs. Advise them as to what type of IRAs they are eligible to contribute to and the maximum amount, if any, TAXX 304 v13 Assignment 1 May 5/2015 that each of them may contribute. Question 6 (20 marks) Kyle Kincaid is the sole proprietor of Kyle's Cookies Plus. For 2014, Kyle provided the following information: Sales Cost of goods sold Interest expense on business loan Transportation expense Licenses and permits Utilities Wages for part- and full-time staff Advertising Supplies $1,500,000 847,300 11,500 28,700 3,800 9,700 297,600 150,000 4,900 Kyle started operations in 2013. He has acquired the following assets: Acquisition Date April 1, 2013 May 1, 2013 May 15, 2013 January 2, 2014 January 2, 2014 April 15, 2014 October 16, 2014 December 3, 2014 Asset* refrigeration unit (used) integrated cookie machine (new) packing machine (used) building (new) Land adaptor set for cookie machine (new) pastry machine (new) freezer (used) Cost $ 15,000 300,000 95,000 750,000 50,000 40,000 Recovery Period 3 years 10 years 7 years 325,000 50,000 10 years 7 years 5 years In 2013, Kyle did not elect into Section 179 and did not opt out of bonus depreciation. For 2014, Kyle wants to minimize taxes and will take the necessary elections. Kyle did not pay himself a salary. Kyle's wife, Carly, earned $60,000 in salary and commissions from her sales job. Her employer withheld $2,700 in state income taxes and $8,900 in federal income taxes. Kyle and Carly received $15,200 in dividends from Atlantic Peach Co. and $23,800 in interest from municipal bonds. They made the following expenditures: Medical bills for their infant daughter Property taxes State income tax installments paid TAXX 304 v13 $43,000 7,600 5,500 Assignment 1 May 5/2015 Federal tax installments paid Charitable contributions 17,600 1,500 Carly is the sole supporter of her elderly aunt who lives in a nearby nursing home. Required: Kyle and Carly want to minimize their taxes. Calculate their taxable income or loss for tax purposes. For this calculation, ignore any self-employment taxes. Be sure to show all your work. TAXX 304 v13 Assignment 1 May 5/2015 Assignment 2 Question 1 (15 marks) Harry had the following property exchanges in 2014: a. Harry exchanged a machine used in his business that had an adjusted basis of $37,484 and a fair market value of $59,000 for a machine owned by Jack. Jack's machine had an adjusted basis of $49,500 and a fair market value of $55,000. As part of the exchange, Jack also gave Harry $4,000 in cash. b. Harry exchanged a machine used in his business that had an adjusted basis of $9,371 and a fair market value of $14,750 for office furniture owned by Jill. Jill's furniture had an adjusted basis of $11,250 and a fair market value of $13,750. As part of the exchange, Jill also gave Harry $1,000 in cash. c. Harry exchanged a refrigeration system used in his business that had an adjusted basis of $112,000 and a fair market value of $110,000 for a small warehouse owned by Peter. Peter's warehouse had a $60,000 liability that Harry agreed to assume. Peter's warehouse had an adjusted basis of $185,600 and a fair market value of $170,000. d. Harry exchanged a tract of land that he was holding for investment for a tract of land owned by Mina Co. Harry had acquired the land 13 years ago for $6,000. Its fair value is $13,000. The land owned by Mina Co. was acquired nine months ago for $17,000 and had a fair market value of $20,000 at the date of exchange. Harry agreed to assume the $7,000 debt on Mina's land. Required: For each of the situations presented, calculate i. the realized gain for Harry and for the other party in the exchange. ii. the recognized gain for Harry and for the other party in the exchange. iii. each party's basis in the property received. Be sure to show all your work. Question 2 (20 marks) Erica, a scientist, had worked for PBJ Labs, Ltd. for 15 years. On January 31, 2014, she lost her job due to corporate downsizing. For 2014, Erica received $7,500 in salary and benefits from PBJ. In addition, PBJ gave Erica a severance package of $5,000 and agreed TAXX 304 v13 Assignment 2 May 5/2015 to continue paying her medical insurance premiums of $500 per month until December 31, 2014. Her medical plan provides coverage for her and her family. Erica's husband, Morris, an assembly line worker, lost his job on May 31, 2014 when his employer closed down due to bankruptcy. From January 1 to May 31, 2014, Morris earned $17,500. He felt fortunate that he received all his pay when his employer closed down. Late in 2013, Morris had learned that his employer was having financial difficulties. He suspected that he might lose his job, so he signed up for a training course that would qualify him to drive city buses. He took the course on a part-time basis from January through March and passed his examination in April, 2014. He paid $5,500 for the course. Erica found a new job in February, 2014. However, it was located in Maryland. With the future of Morris' employer in question, they decided to relocate from California to Maryland. Erica started her new job in March. She and Morris decided that she would move to Maryland first and the rest of the family would join her after the children finished their school year in June. Erica lived in an apartment-hotel until she was able to purchase a house. During this time, she spent $6,000 on accommodations and about $1,000 on food. She purchased a house for $300,000, taking out a $175,000 mortgage. She paid points of $2,200 to take out the mortgage and took possession of the house in April. For 2014, Erica paid $4,665 of interest on this mortgage. The seller of the house was having financial difficulties and had not paid the property taxes for 2013. Erica agreed to pay all the outstanding property taxes to obtain an early possession date for the house. She paid $2,900 for 2013 property taxes at the closing date. The 2014 property taxes of $3,250 were due and paid on June 15, 2014. Between the time Erica moved to Maryland and when her family was finally able to join her, she made two trips back to California to visit her family and to help them organize the move. The cost of these trips totaled $2,100. In relocating to Maryland, Erica and Morris sold their house for $390,000 at the end of July 2014. They paid a $9,000 commission to their realtor and had closing costs of $7,000. They had paid $525,000 cash for the house four years ago. Property taxes for 2014 for the house were $3,900. These taxes were apportioned at closing as Erica had paid the 2014 taxes in April 2014. Erica had a home equity loan of $150,000 secured by the house. She had paid interest of $6,000 on the loan in 2014. To save money on the move, Morris decided to rent a trailer and drive his family and possessions to Maryland. The trailer rental was $750 and the trip covered 3,200 miles. Motel rooms during the trip cost a total of $400 and meals totaled $550. During the move to Maryland, someone broke into the trailer while they were sleeping. The cost of the stolen goods totaled $19,800. However, because Morris had not properly completes the insurance paperwork when he rented the trailer, the claim was denied. Morris sold 500 shares of Krane Ltd. stock on May 25, 2014 for $10 per share. He had purchased the stock 10 years ago for $13 per share. His intention was to use the money to TAXX 304 v13 Assignment 2 May 5/2015 make charitable contributions to his college and Erica's university before they left. After discussing this, Morris and Erica decided that this gift was too generous, given their situation. Morris subsequently purchased 250 shares of Krane on June 5, 2014 for $9 per share. The rest of the cash was donated, split equally between Morris and Erica's alma maters. Erica receives a monthly salary of $7,000 from her new employer. She usually gets paid at the end of each month. In December, her check was ready at the end of the month, but because of the Christmas break, she did not pick up her check until January 2015. When Erica started her job, she needed some laboratory supplies and paid $1,200 for them. The company said that it would reimburse her, but it never did. Morris started a new job, driving buses, at the beginning of November. He is paid $2,000 semi-monthly. The company deposits his pay directly into his bank account. Erica's employers withheld a total of $11,500 in federal income taxes and $1,000 in state income taxes from her paychecks. Morris's employers withheld a total of $6,000 in federal income taxes and $1,500 in state income taxes from his paychecks. During 2014, the couple received a federal income tax refund of $3,800 and a state income tax refund of $900. These refunds relate to their 2013 returns. They chose to itemize their deductions on their 2013 Form 1040. Required: a. Erica and Morris will file a joint return. Calculate their AGI. Be sure to show all your work. b. Calculate the amount of their itemized deductions. c. Calculate their taxable income. d. What is the basis of their new house in Maryland? Question 3 (10 marks) Wow Events Co. was incorporated and began operations on February 1, 2013. It is an accrual basis taxpayer that has a December 31 year-end. During its 2013 fiscal year, Wow incurred the following organizational costs: Costs for organization meetings and temporary directors State incorporation fees Accounting fees Legal services for drafting corporate charter and bylaws Costs related to printing and sale of stock certificates $15,000 1,500 15,500 33,000 49,000 For 2013, Wow maximized its organizational expenditures deduction. TAXX 304 v13 Assignment 2 May 5/2015 For the 2014 fiscal year, Wow reported the following: Sales $949,000 Dividends received from 12%-owned domestic corporation 175,000 Long-term capital gain 32,000 Short-term capital loss 49,800 Operating expenses, excluding depreciation and amortization 709,500 Charitable contributions 25,000 MACRS 223,400 Required: a. Calculate Wow's taxable income and regular tax liability for 2014. Be sure to show all your work. b. Assume that the $175,000 in dividends received by Wow were comprised of the following: $131,250 from a 33%-owned domestic corporation $43,750 from a 10%-owned domestic corporation Recalculate Wow's taxable income based on these assumptions. c. What carryovers, if any, are available, and to what years can they be applied? Question 4 (20 marks) Sarah has been designing women's wear for many years. She received a large inheritance from her grandmother a few years ago and opened a store to sell her designs. The store has not been profitable since it opened, mainly because Sarah is more interested in creating than selling. Two of her friends, Ellen and Tina, have recently agreed to invest in her business. With her friends coming on board as investors, Sarah decided to change her business entity from a sole proprietorship to a C corporation. To form the corporation, Sarah contributed the following in exchange for 60 common shares: Adjusted basis Fair market value Inventor y $10,000 $15,000 Building 100,000 175,000 Land 75,000 130,000 $185,000 $320,000 TOTAL In addition to the stock issued, the newly-formed corporation, Edgewear Co., assumed TAXX 304 v13 Assignment 2 May 5/2015 Sarah's $215,000 mortgage on the land and building. Ellen contributed $75,000 cash for 25 shares, and Tina contributed a copyrighted slogan with a zero basis and a fair value of $45,000 for 15 shares. Required: a. What is Sarah's realized gain or loss? b. What is Sarah's recognized gain or loss? c. What is Sarah's basis in the Edgewear stock? d. What is Edgewear's basis in the property transferred in by Sarah? e. What is Tina's recognized gain or loss? f. What is Tina's basis in her Edgewear stock? g. What is Edgewear's basis in the marketable securities transferred by Tina? h. When do Sarah's, Ellen's, and Tina's holding periods for their stock begin? i. Assume that Ellen, an attorney, contributed $70,000 in legal services and $5,000 cash for her 25 shares. In what way, if any, would your answers to questions (a) to (h) change under these assumptions? Question 5 (10 marks) Black Corporation is a calendar-year taxpayer. Bob is the sole shareholder. His basis in the stock is $20,000. Required: Determine the tax consequences of the distribution to Bob, and Bob's basis in the stock after the distribution in each of the following independent situations. Note that part (d) has an additional requirement. a. Black had current E & P of $40,000 and accumulated E & P of $(15,000). Black distributed $60,000 to Bob on August 31, 2014. b. Black had current E & P of $(26,500) and accumulated E & P of $75,000. Black distributed $80,000 to Bob on March 1, 2014. c. Black had current E & P of $(10,000) and accumulated E & P of $(45,000). Black distributed $50,000 to Bob on June 30, 2014. d. Black had current E & P of $60,000 and accumulated E & P of $29,000. Black distributed a tract of land to Bob on September 15, 2014. The land had a fair market TAXX 304 v13 Assignment 2 May 5/2015 value of $80,000 and an adjusted basis of $40,000. Bob assumed the $26,000 mortgage on the land. What are the tax consequences of the distribution to Bob? What is Bob's basis in the stock after the distribution, and what is his basis in the land? Question 6 (25 marks) Spa Products, a business entity, has provided the following information for 2014: Sales $1,054,000 Cost of goods sold 403,800 Operating expenses 315,300 Rental income 100,000 Rental expenses (excluding depreciation) 31,000 Interest from City of Portland bonds 50,200 Interest from Courtland Ltd. bonds 10,000 Dividend income from an 18%-owned domestic corp. 35,600 Dividend income from a 35%-owned domestic corp. 47,200 Accounting gain on sale of land 153,000 Long-term capital gain on sale of stocks 30,300 Long-term capital loss on sale of stocks 35,800 Short-term capital gain on sale of stocks 17,500 Section 1231 gain on sale of equipment 26,300 Section 1245 gain on sale of machinery 33,300 Accounting depreciation on machinery and equipment $203,900 Accounting depreciation on rental property 9,900 Charitable contributions 50,000 Interest expense on business loan 43,700 Interest expense: loan used to acquire City of Portland bonds 12,300 Interest expense: loan used to acquire Courtland bonds 2,500 Additional information: The land sold by the entity that yielded the $153,000 gain was contributed by Sophia years ago, under Section 351, when its basis was $29,000 and its FMV was $57,000. For financial accounting purposes, the land was recorded at its fair market value. A total of $200,000 in rent was received in 2014: $100,000 for 2014 and $100,000 for 2015. For accounting purposes, the $100,000 for 2015 was recorded as deferred revenue. Section 179 was taken on new equipment purchased: $35,000 TAXX 304 v13 Assignment 2 May 5/2015 MACRS depreciation: rental property machinery and equipment $6,300 198,500 Included in operating expenses are life insurance premiums of $6,000 paid on a policy for Sophia, the CEO. Spa Products is the beneficiary of the policy. Required: a. Assume that the entity is a C corporation and that Sophia had contributed the land in exchange for 100% of the shares of the corporation. i. ii. b. Calculate the taxable income for the entity. Can Sophia convert this C corporation into an S corporation? Fully explain your answer. If possible, describe the process to do so. Assume that the entity is a limited liability limited partnership (LLLP) and that Sophia had contributed the land in exchange for a 60% partnership share. Sophia is a general partner and manages the LLLP. The other partners are limited partners. Identify which of the above items should be treated i. ii. as part of ordinary income for tax purposes. as separately-stated items for tax purposes. TAXX 304 v13 Assignment 2 May 5/2015