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business
federal taxation 2019

Questions and Answers of Federal Taxation 2019

Mr. and Mrs. Sam Morris retired on February 10, 2019, and call you in for tax advice. Both Sam and his wife Sarah have worked for many years. Sam is 65 years of age and his wife is 63.One of their
Larry Sorich, as part of his estate planning, assigned his $100,000 group-term life insurance policy to his niece.Larry's employer provided for only $50,000 of coverage; therefore, the niece paid for
What is the difference between the cost depletion method and the percentage depletion method for tax purposes? Which method does a taxpayer use if the taxpayer is eligible for both methods?
Define the term “transportation expenses” as used for tax purposes. Give three examples of transportation expenses which are deductible by employees.
Define the term “travel expenses” as used for tax purposes. Define the term “away from home’ as interpreted by the IRS.
Refer to the facts in Problem 22 but assume that Al's total car expenses amounted to only $4,700. What is the amount of Al's car expense deduction on his current year tax return?Problem 22For the
For the current year, Al Johnson used his personal car for both business and personal purposes. He drove 18,000 miles in the car during the year: 10,000 miles were for business-related purposes and
Are any of the following losses deductible on an individual's income tax return? If so, is the loss deductible "for" or "from" AGI? Explain each loss. Loss Loss on sale of stock in an individual's
Indicate whether the following expenditures are trade or business deductions (T), production of income deductions (PI), personal deductions (P), or are not deductible (X). Also indicate if the
Indicate whether the following expenditures are trade or business deductions (T), production of income deductions (PI), personal deductions (P), or are not deductible (X). Also indicate if the
Which of the following trade or business expenditures of Ajax Inc. are deductible on its current year tax return? If an expenditure is not deductible, explain why it is not a valid deduction.
Are any of the following expenditures deductible on an individual taxpayer's income tax return? Explain each item. Expenditure Cost of having income tax return prepared by a CPA Legal fee for divorce
Indicate whether the following expenditures are deductible for AGI, from AGI or not deductible.a. Medical expenses of individual taxpayerb. Safe deposit box rental for businessc. Interest expense on
For the current month, Jackson Cement Co. incurred payroll expenses as follows:a. What amount can Jackson claim as a tax deduction for salary and wage expense?b. How much can Jackson deduct as tax
Two years ago, Jack Peters borrowed $150,000 from the First National Bank which he used to buy equipment used in his business. Business slowed considerably this year, and Jack was unable to make
Bevis Bag Co. purchased a tract of land on August 31 of the current year, paying $225,000. Prior to the sale, the seller paid property taxes of $18,000 on the property. The taxes covered the calendar
Compute MACRS depreciation for the following qualified assets for the calendar years 2019 and 2020: (Ignore bonus depreciation and the Section 179 deduction.) Asset Business equipment (7-year
Refer to the facts in Problem 33 and assume that the straight-line method under the alternative MACRS system was elected over the MACRS recovery period for all the assets listed. Based on these
In 2019, Jason Products Co., a calendar year taxpayer, purchased business equipment (7-year property) for $3,400,000. No other personal property was purchased during the year. Jason wants to take the
LB Corporation purchased a business car in June 2019 for $62,000. The car weighs 4,000 pounds and will be used 100 percent of the time in the business. Compute the largest depreciation deduction
Refer to the facts in Problem 38 and assume the business car purchased is an SUV weighing 8,000 pounds. Compute the largest depreciation deduction possible in 2019. (Consider bonus depreciation and
LCD Corporation purchased residential real property for $385,000 (exclusive of land cost) and placed it in service on August 16, 2019. Compute MACRS depreciation on the property for 2019 and 2020.
Refer to the facts in Problem 40 and assume the property purchased is nonresidential rental property. Compute MACRS depreciation on the property for 2019 and 2020, assuming the property is not
In March, Gary Parker started a new career as a real estate agent. He established Gary Parker Company, LLC on March 11 and began seeking clients. He listed his first property on March 21, and closed
In the current year, James Jar Co., a calendar year taxpayer, incurred the following research and experimentation expenditures(R&E): Salaries—$ 150,000; and Materials—$ 100,000.a. If James Jar
At the beginning of the year, NRD Company purchased the rights to a natural resource for $10,000,000. The estimated recoverable units from the natural resource amount to 3,500,000 units. During the
In 2019, Mary Kelly drove her personal car 2,800 miles for business purposes. She also incurred $182 in parking fees and $191 in turnpike tolls connected with her business trips. Compute Mary’s
Herman Welbe owns one car dealership in Ohio and one in Florida. Each year, Herman lives eight months in Ohio and four months in Florida. In the current year, Herman received $900,000 net income from
For an individual taxpayer, expenses connected with rents and royalties are normally deducted:a. For AGIb. From AGIc. Either for or from AGId. For AGI but limited to a maximum percentage amount
An ordinary trade or business expenditure is one which is:a. Reasonable in amountb, Commonly incurred by other businessesc. Appropriate for a particular businessd. Not a capital expenditure
A necessary trade or biisiness expenditure is one which is:a. Reasonable in‘amountb. Commonly incurred by other businessesc. Appropriate for a particular businessd. Not a capital expenditure
John Stantus, single, is the sole owner of Stantus Accounting Services, Co.He started the company, which is organized as a sole proprietorship, on February 10 of the current year. For this year,
The maximum amount ofc apital expenditures eligible for immediate expensing is:a. $3,500,000b. $25,000c. $1000,000d. $2,500,000
The following selected court cases have helped to shape the tax law in regard to allowable trade or business tax deductions. Read the following court cases and prepare a brief written abstract for
Prepare a brief written abstract for each of the following additional selected court cases relating to allowable trade or business deductions.a. A. Trujillo, 68 TC 670, Dec. 34,554.b. Illinois
How can nonrental undertakings be combined?
Identify the six tests concerning rental properties that help to establish a nonrental activity.
What relief from passive loss restrictions is provided to help taxpayers deduct losses from rental real estate activities? What are the qualifications?
What is “active participation”?
What consequences does a taxpayer face when one of several activities is no longer a passive activity?
Explain the tax treatment oft he following business casualty losses: complete destruction of the property and partial destruction of the property.
How does an expected insurance reimbursement for a business casualty loss affect the amount of a casualty loss deduction? Does it make a difference whether an expected insurance reimbursement for
How will a business property's basis be adjusted as a result of a casualty loss?
Generally, are net operating losses available for personal-use expenditures? Explain.
What qualifications must be met before a taxpayer is allowed a home office deduction?
How can a vacation home become rental property? What is the difference between“rental property” and “personal residence”?
Refer to the facts in Problem 33 and assume instead that Triple-K allocated to her a loss of $60,000 in 2019. What amount does Wilmah have at risk as of January 1, 2020?Problem 33In 2019, Wilmah
Refer to the facts in Problem 33 and assume that Triple-K allocated to Wilmah net income of $10,000 from operations in 2019, What amount does Wilmah have at risk as of January 1, 2020? Would your
In 2019, Wilmah Lansing invested in the Triple-K Limited Partnership by paying $15,000 cash and signing a $40,000 nonrecourse note. She also pledged $25,000 worth of securities for a loan obtained by
Billy Bob is at risk for $10,000 in Partnership A and $22,000 in Partnership B on January 1, 2019. Both partnerships are passive activities to Billy Bob. Billy Bob's share of net income from
In 2004, Keith Jackson invested in a partnership known as Astonishing Discoveries, Ltd. He was a limited partner.Mr. Jackson paid $25,000 cash and, along with all other partners, signed a nonrecourse
Tammy Faye Jones owned three passive activities in 2019 (she had no suspended losses prior to 2019):How much is her passive loss deduction (against nonpassive income) and suspended loss for each
Brent Fullback owned four passive activity interests in 2019:On March 2, 2019, Fullback sold his entire interest in A-1 for $15,000. His basis in the activity on January 1, 2019, was $11,000.Compute
Jean Kelley owned three limited partnership interests in 2019:How much is her passive loss deduction (against nonpassive activities) and suspended loss for each activity? 2019 Allocated Pre-2019 Date
Thomas Settleton owned an interest as a general partner in LBO partnership. Settleton was not a material participant in the activity.His basis was $25,000 on the date he gifted the LBO partnership
Teri Frazier owned three businesses and rental properties in 2019. During the year, her hair salon business experienced a $32,000 net loss. She participated 200 hours in the hair salon business. All
Janice Hoplin, MD, owned her own medical clinic. She also owned the office building in which the clinic was located. The medical activity generated $125,000 of net income.She managed the building,
Darian Basemore owned an interest in five businesses in 2019. His level of participation and percentage of ownership in each enterprise is as follows:In which activity, if any, will Darian be
A single taxpayer has $150,000 in wages and $180,000 in net self-employment income. What is the amount of Additional Medicare Tax that would be due on Form 1040 for the year?
What is the amount of the net investment income tax for a single individual that has $250,000 of modified adjusted gross income and $25,000 of net investment income?
Melvin leases a building that he owns to his wholly-owned S corporation for $30,000 for the year. Melvin materially participates in the S corporation. What amount does Melvin have to report as net
Mr. Smith died early in the year. Mrs. Smith remarried in December and, therefore, was unable to file a joint return with Mr. Smith. What is the filing status of the decedent, Mr. Smith?a. Singleb.
Which relative does not have to live in the same household of the taxpayer claiming head of household filing status?a. Auntb. Sonc. Granddaughterd. Fathere. Brother
Which of the following is not considered when determining the total support test for a child?a. Fair rental value of lodgingb. Medical insurance premiumsc. Birthday presentsd. Scholarshipe. Recreation
To qualify for head of household rates, which of the following must be present?a. You must be unmarried on the last day of your tax year.b. You must maintain a household and contribute over 50
What is the total tax due for 2019, including self- employment tax, for Stuart, assuming that he earned $20,000 in wages, earned $24,000 in self-employment income from his first business, had a loss
Richard and Jennifer were married in 2010. They have a five-year-old child and a son born November 15, 2019. Richard's 67-year-old father lived in a nursing home until his death on May 23, 2019.
Scott and Cilenna are married with two dependent children. They have $74,000 in wage income and $4,600 in interest income on some bonds they own. They have deductions for adjusted gross income of
Research Problem. Sidney and Angelene were married in 2015. During 2019, they were both employed, each earning $132,000 for the year. They discovered that there was a significant tax savings if they
The divorce decree requires John to pay $800 a month to Jane and does not specify the use of the money. According to the decree, the payments will stop after the children reach 18 or graduate from
All of the following would be excluded from income as a qualified scholarship by an individual who is a candidate for a degree at a qualified educational institution, except:a. Tuitionb. Student
On January 1, 2018, John made a loan of $6,000 to his neighbor. The loan was evidenced by a written promise to repay the principal within three years and was to bear interest at a rate of 6% per
If another person cancels or pays your debts, but not as a loan or gift, have you constructively received this amount, and generally must you include it in your gross income for the year?
Leah Sarah is employed at Cleveland Inc. at an annual salary of $45,000. Leah received $35,000 in salary in 2019 from Cleveland Inc., a prosperous company. They credited the unpaid salary to Leah
Cal Corey and his wife are living in Las Vegas, Nevada, and own an apartment house from which they receive $20,000 a year in net rental income. Cal's wife also owns an apartment house, which she
Fred Miller, a teacher, had several additional sources of income during 2019. He received a $500 gift as a result of his helping a friend build a house, and he was assigned $300 of interest due his
Helen Troy, a student seeking a Master's degree in accounting, was awarded a 50 percent scholarship to graduate school (valued at $3,000) and a $6,000 per year teaching assistantship (not required of
Billy Dent, as the owner of an apartment building, receives and makes the following payments during 2019:How much rental income must Billy Dent include on his 2019 income tax return? Received in
Abby, a cash basis taxpayer, is paid an annual salary of $250,000 plus a percentage of net profits. The additional compensation for 2019 was $50,000. This sum is payable to her on February 9, 2020
Judd Harrison owns 200 shares of stock in the Widget Company for which he paid $1,600 in 1999. The board of directors of the company decided to pay a 10 percent stock dividend in April 2019, for
Joe and Mabel, a married couple filing a joint return, have modified adjusted gross income of $385,000. Included in this sum is $100,000 of net investment income. Are Joe and Mabel subject to the 3.8
Abby is a single taxpayer with $250,000 of modified adjusted gross income which includes $80,000 of net investment income. Abby owes 3.8 percent Net Investment Income Tax on what amount of her income?
In January 2020, Judd Harrison decides to sell 100 shares in the Widget Company. Since April 2019, no stock dividends had been paid by the company. On the date the stock is sold the market price is
In 2019, Ollie Lingo and his wife have several endowment life insurance policies. On the first, which begins payment in 2020, but was fully paid by 2010, a dividend of $200 is declared and paid. On
For each independent situation, determine the amount, if any, that is includible in the gross income of the employee.a. The employee of a motel has the choice w of free lodging on the premises (fair
R.E. Lee entered into a 10-year lease in 2015 with Mr. Grant. In addition to the $18,000 a year rent he paid in 2019, he prepaid two months of 2020 rent totaling $3,000. Also, in 2019, Mr. Lee
Arnold and Barbara Cane were divorced in June 2018. Pursuant to the divorce decree, Arnold is obliged to perform as follows:a. Transfer title of their personal home to Barbara. They purchased the
Roy Rainer will pay his wife, Mae, alimony according to the following schedule:Roy and Mae were divorced on January 6, 2019.For the first three years of the agreement, what portions are excludable
John and Mary Johnson were divorced in January 2018. By terms of their divorce decree John had to pay alimony to Mary at the rate of $50,000 in 2018, $25.000 in 2019, and zero in 2020. For the first
Richard and Sally Murphy were divorced in 2017. By the terms of their decree Richard pays Sally $1,000 a month for alimony and child support. When Jane, their 14-year-old daughter, reaches age 18,
An individual performed special valuable services not called for by his employment, in consideration for which his employer agreed to pay him a bonus in an amount to be determined later. After due
A married taxpayer, age 57, has the following receipts:During the tax year, the taxpayer pays $2,200 in taxes on his rental property and $2,650 for its operation and maintenance. He had gambling
Robert Reed, a bachelor, maintains his parents in a nursing home. They have no income of their own and are completely dependent on their son. His parents are 75 and 72 years of age. Robert has the
Fran Finery's boutique has assets of $100,000 and liabilities of $140,000. Fran's major creditor cancels $50,000 in liabilities.Discuss the tax ramifications of this forgiveness of debt. Assume the
If Mack Mudd becomes insolvent with assets of $35,000 and liabilities of $65,000 and one of his creditors cancels a debt of $10,000, what amount must Mack recognize as income?
Faraway Travel, Inc. granted its vice-president, Chris Best, an incentive stock option on 1,000 shares of Faraway stock at $25 a share, its fair market value, on July 22, Year 1. Chris exercised the
Mr. Garcia, a cash-basis taxpayer, owns an apartment building. His records reflect the following information for 2019:What is the amount of gross rental income Mr. Garcia should include in his gross
Joe signed for a ten-year lease to rent office space from Stanley. In the first year, Joe paid Stanley $5,000 for the first year’s rent and $5,000 as rent for the last year oft he lease How much
The “fruit-of-the-tree” concept is associated with which doctrine regarding income:a. Constructive Receipt Doctrineb. Assignment of Income Doctrinec. Economic Benefit Doctrined. All of the
Each oft he following would be one oft he requirements for a payment to be alimony under instruments executed after 1984, but before 2019, except:a. Payments are required by a divorce or separation

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