PROBLEMS

I:$1-39$

Tax Rates. Latesha, a single taxpayer, had the following income and deductions for the

tax year $2019$:

a$.$ Compute Latesha's taxable income and federal tax liability for $2019($round to dollars

and ignore the qualified business income deduction for this problem$).$

b$.$ Compute Latesha's marginal, average, and effective tax rates.

c$.$ For tax planning purposes, which of the three rates in Part b is the most important?

Marginal Tax Rate. Jill and George are married and file a joint return. They expect to

have $$425,000$ of taxable income in the next year and are considering whether to pur$-$

chase a personal residence that would provide additional tax deductions of $$40,000$ for

mortgage interest and real estate taxes.

a$.$ What is their marginal tax rate for purposes of making this decision?

b$.$ What is the tax savings if the residence is acquired?

Comparison of Tax Entities.

a$.$ Keith Thomas and Thomas Brooks began a new consulting business on January $1,$

They organized the business as a C corporation, KT$,$ Inc. During $2019,$ the

corporation was successful and generated revenues of $$2,000,000.$ KT had operat$-$

ing expenses of $$800,000$ before any payments to Keith or Thomas. During $2019,$

KT paid dividends to Keith and Thomas in the amount of $$450,000$ each. Assume

that Keith's wife earned $$120,000$ from her job, they file a joint return, have item$-$

ized deductions of $$40,000,$ and have no children. Compute the total tax liability

of KT and Keith and his wife for $2019.$

b$.$ Instead of organizing the consulting business as a C corporation, assume Keith and

Thomas organized the business as a limited liability company, KT$,$ LLC$.$ KT made a

distribution of $$450,000$ each to Keith and Thomas during $2019.$ Compute the total

tax liability of KT and Keith for $2019.$ Ignore any additional tax on net investment

income.

Interest and Penalties. In $2018,$ Paul, who is single, has a comfortable salary from his job

as well as income from his investment portfolio. However, he is habitually late in filing his

federal income tax return. He did not file his $2018$ income tax return until December $4,$

$2019($due date was April $15,2019)$ and no extensions of time to file the return were filed.

Below are amounts from his $2018$ return:

Paul sent a check with his return to the IRS for the balance due of $$5,400.$ He is re$-$

lieved that he has completed his filing requirement for $2018$ and has met his financial

obligation to the government for $2018.$

Has Paul met all of his financial obligations to the IRS for $2018?$ If not, what addi$-$

tional amounts will Paul be liable to pay to the IRS?