Question 1:
Anthony is a cash method taxpayer. Below are his items of income in the current year.
Salary: $80k
Annuity payment received: $10k. Anthony originally purchase the annuity a while ago for 60k. The annuity promises to pay Anthony $10k every year for 10 years.
Income from stock trading activity: $5k. Anthony is a part-time day-trader, where he buys and sells stock on a day-to-day basis. The longest stock he has ever held is 3 months.
Other than the 3 main sources of income, Anthony also has the following items where he is not sure whether to include in the tax calculation or not.
Gambling prize won: $5k. Anthony took a trip to Vegas and won $5k playing Blackjack. The only issue is, to get that $5k winning, he has already lost $4k in the same trip on the Blackjack table.
Profit from house sale: $25k. In this year, Anthony decided to sell his main house for $500k. He originally bought it just last year for $475k.
a) Calculate Anthony gross income in 2022. Show calculations and explanations.
b) Name 1 thing that Anthony should have done differently to any of his 5 income items above that could significantly reduce the amount of income that he needs to recognize (in other words, lower his gross income). Provide a detailed explanation why it would help.
Question 2:
For each scenario below, identify:
(1) The best filing status,
(2) The amount of standard deduction (watch out for additional amount related to standard deduction), and
(3) Potential Tax Credits (if any).
Provide detailed explanation/calculation if needed to justify your answers or for partial credits.
a) Allen, 35, is a software engineer at Apple. Allens wife died in December 2021 due to COVID-19. In 2022, Allen takes care of his two children (3 years old and 5 years old) with his late wife by himself.
b) Albert, 74, is a retired taxi driver. Albert is living with his wife, Annie, a 66-year-old artist. The two are living together without children in a poor neighborhood (since they cannot afford anything much with their very low income). In 2022, their total income was about $12k.
c) Aldo, 19, is a college student. Aldo also works part-time at a local restaurant to support himself through college. Aldo has always heard about a financial trap called Student Loan from his dad; for that reason, Aldo decides to not take out any loan and just work his way through college, paying for his personal expenses as well as his college tuition.
Question 3
Austin is the sole owner of a small LLC, specializing in manufacturing hand sanitizer. Austin sends you the following income/expenses items a week ago:
Income from the business: $1 million
Expenses:
Factory: $300k purchased in September of this year.
Machine: $150k purchased in July of this year
Employee salary: $300k (1 full-time factory manager = $50k, 15 part-time contractors, $10k each. In addition, Austin also hires his dad working as a vice-manager at the factory and pays his dad $100k. Through some research, you know that the average salary for that same position is about $45k)
This year is an extremely profitable year for Austins business. For that reason, Austin decided to host an employee appreciation year-end party to celebrate. Austin believes that he would need to host quite a kick-ass party because his annual pays for the employees are quite low. In addition, a fun and special party would be helpful to boost employee morale. Austin decides to rent out a small yacht for a night of 12/30/2022 and host the company party there. Below is the cost of the party:
Yacht rental = $30k
Food and Drinks served on board at the party = $20k
Utilities: $30k
a) Assume there are no depreciation expenses allowed (which also mean no Section 179, and no Bonus depreciation), calculate Andrews AGI. Show details calculation and explanation.
b) How would your answer in a) change if we now account for asset depreciation expenses (including 179, Bonus depreciation, and MACRS)? Show details calculation and explanation.
c) It seems like Austin is trying to implement some tax strategy in this year. Identify at least 1 strategy that Austin used and explain how it helps (or expected to help) Austin to reduce his tax liability?
Question 4
Alice has the following items in this year. Her AGI before any items below is 0.
Alice has the tax-basis in her Alice in the Wonderland LLC of $60k. Alice in the Wonderland LLC has a loss and Alice's share of the loss is $80k. Alice does not actively work for the LLC.
Alice invests in stock and has a $2k long-term capital gain and $3k of short-term capital gain.
Alice has a small online shop which she very rarely manages. Most work is done by a manager and Alice's only job is to collect money from the store. The business generates $10k income
Alice has a spare home in Honolulu which she rents out on Airbnb. The Airbnb rental business has a bad year with a $12k loss.
Alice's main job is being the managing director at Alice-a Keys LLC, a company specializing in producing R&B music tracks. Alice is also the sole owner of the LLC. In this year, the company generates $25k
How much loss from the business activities can Alice deduct in this year? How much of the loss is carried forward (report loss carried forward separately)?
Show step-by-step calculation and explanation.
Question 5
Ambers business goes bankrupt in 2023. To close her business, Amber start by selling off her business assets. Below are the asset disposition transactions:
Assume there is no Section 179 and Bonus depreciation. Use MACRS only for depreciation calculation
Show detailed calculation and explanation
a) Calculate total accumulated depreciation of each asset until the sold date (12/31/2023).
b) Calculate the adjusted basis for each asset
c) Calculate the gain/loss for each asset
d) Point out the exact character of gain/loss for each asset gain/loss (ex: Ordinary, pure 1231, 1245, 1250, etc.)
e) Calculate the Net 1231 Gain/Loss
Hint: Be aware of 1245 Depreciation recapture and 1231 lookback rules
Question 6
a) In which tax form we can find the total wages received and total federal income tax withheld in a year of an individual?
b) In which tax form we fill out to file individual income tax
