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south western federal taxation

Questions and Answers of South Western Federal Taxation

Monique owns a building that she leases to an individual who operates a grocery store. Rent income is $10,000, and rental expenses are $6,000. On what Form 1040 schedule or schedules are the income
The Groves own a beach house as a second home. This year, the Groves used the beach house personally for 4 months. For 14 days during the summer, the Groves rented out their beach house for $5,000
Nanette, a single taxpayer, is a first-grade teacher. Potential deductions are charitable contributions of $800, personal property taxes on her car of $240, and various supplies purchased for use in
The Griffins own a mountain cabin that is used for both personal and rental purposes. In the current year, the Griffins rented the cabin out for 150 days and used it personally for 50 days. Assume
Bob is a farmer and is required to use the accrual method. At the beginning of the year, Bob has inventory, including livestock held for resale, amounting to $10,000. During the year, Bob purchased
How does the tax benefit rule apply in the following cases?a. In 2017, the Orange Furniture Store, an accrual method sole proprietorship, sold furniture on credit for $1,000 to Sammy. The cost of the
Starting in 2008, Chuck and Luane have been purchasing Series EE bonds in their name to use for the higher education of their daughter Susie, who currently is age 18. During the year, they cash in
Tonya, who lives in California, inherited a $100,000 State of California bond in 2019. Her marginal Federal tax rate is 35%, and her marginal state tax rate is 5%. The California bond pays 3.3%
In January 2019, Ezra purchased 2,000 shares of Gold Utility Mutual Fund for $20,000. In June, Ezra received an additional 100 shares as a dividend, in lieu of receiving $1,000 in cash dividends. In
George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2019, George began working in London. He worked there until January 31, 2020, when he transferred
Does the taxpayer recognize gross income in the following situations?a. Ava is a filing clerk at a large insurance company. She is permitted to leave the premises for lunch, but she usually eats in
Tim is the vice president of western operations for Maroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company
Belinda spent the last 60 days of 2019 in a nursing home. The cost of the services provided to her was $18,000 ($300 per day). Medicare paid $8,500 toward the cost of her stay. Belinda also received
Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2019:• Hospitalization insurance premiums for Rex and his dependents. The cost
Lime Finance Company requires its customers to purchase a credit life insurance policy associated with the loans it makes. Lime is the beneficiary of the policy to the extent of the remaining balance
Adrian was awarded an academic scholarship to State University for the 2019–2020 academic year. He received $6,500 in August and $7,200 in December 2019. Adrian had enough personal savings to pay
Determine the gross income of the beneficiaries in the following cases:a. Justin’s employer was downsizing and offered employees an amount equal to one year’s salary if the employee would
Myrna and Geoffrey filed a joint tax return in 2018. Their AGI was $85,000, and itemized deductions were $24,700, which included $7,000 in state income tax and no other state or local taxes. In 2019,
Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2019. Mio’s salary for 2019 is $190,000. In your computation, round any division to four decimal places
Valentino is a patient in a nursing home for 45 days of 2019. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his
Dolly is a cash basis taxpayer. In 2019, she filed her 2018 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2018 Federal income tax return but
Eagle Life Insurance Company pays its employees $0.30 per mile for driving their personal automobiles to and from work. The company reimburses each employee who rides the bus $100 a month for the
In January 2019, Sonja deposited $20,000 in a bank in the Bahamas. She earned $500 interest income. She closed the account in December 2019.a. Is Sonja subject to the FBAR reporting requirement?
Aubrey Brown is a decorated veteran of the Vietnam War. As a result of his exposure to Agent Orange during the war, Aubrey developed lung cancer and is unable to work. He received $12,000 of Social
Jeffrey Dean, a Master’s Degree candidate at North State Central University, was awarded a $15,000 scholarship from North State Central in the current year. During the current year, he paid the
Cecil C. Seymour is a 64-year-old widower. He had income for 2019 as follows:Pension from former
Daniel B. Butler and Freida C. Butler, husband and wife, file a joint return. The Butlers live at 625 Oak Street in Corbin, KY 40701. Dan?s Social Security number is 111-11-1112, and Freida?s is
Linda and Don are married and file a joint return. In 2019, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest.a. Compute the couple’s adjusted
Herbert was employed for the first six months of 2019 and earned $90,000 in salary. During the next six months, he collected $8,800 of unemployment compensation, borrowed $12,000 (using his personal
Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $42,000 to her employer’s qualified pension fund. She elects to receive her retirement benefits as
Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation. On June 30, 2019, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2020, he borrowed an additional $10,000. Both
Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy’s father, Hal,
In 2019, Alva received dividends on her stocks as follows:Amur Corporation (a French corporation whose stock is traded on anestablished U.S. securities
Troy, a cash basis taxpayer, is employed by Eagle Corporation, also a cash basis taxpayer. Troy is a full-time employee of the corporation and receives a salary of $60,000 per year. He also receives
Freda is a cash basis taxpayer. In 2019, she negotiated her salary for 2020. Her employer offered to pay her $21,000 per month in 2020 for a total of $252,000. Freda countered that she would accept
Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effect of each of the following transactions on the company’s 2019 gross income
Marlene, a cash basis taxpayer, invests in Series EE U.S. government savings bonds and bank certificates of deposit (CDs). Determine the tax consequences of the following on her 2019 gross income:a.
Determine the effects of the following on a cash basis taxpayer’s gross income for 2019 and 2020:a. On the morning of December 31, 2019, the taxpayer received a $1,500 check from a customer. The
Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2019, the company repaired Samuel Mosley’s car and charged him
Selma operates a contractor’s supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return.
Al is a medical doctor who conducts his practice as a sole proprietor. During 2019, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in
Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12-month and 24-month contracts. The corporation provides services to each customer every month. On July 1, 2019,
On January 1, 2019, Kunto, a cash basis taxpayer, pays $46,228 for a 24-month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No
Connor purchased an annuity that was to pay him a fixed amount each month for the remainder of his life. He began receiving payments in 2003, when he was 65 years old. In 2019, Connor was killed in
Rex became a partner with a 30% interest in the partnership profits when he invested $200,000. In 2019, the partnership generated $400,000 of taxable income and Rex withdrew $100,000. In 2020, the
On December 29, 2019, an employee received a $5,000 check from her employer’s client. The check was payable to the employer. The employee did not remit the funds to the employer until December 30,
Howard buys wrecked cars and stores them on his property. Recently, he purchased a 1991 Ford Taurus for $400. If he can sell all of the usable parts, his total proceeds from the Taurus will be over
For 2019, the Guess Trust retains all of its income items, which include only$100,000 of net investment income and $40,000 of profits from an active businessoperation. Guess incurs an additional tax
In its first tax year, the Vasquez Estate generated $50,000 of taxable interest income and $30,000 of tax-exempt interest income. It paid fiduciary fees of $8,000. The estate is subject to a 40%
A distribution to an estate’s sole beneficiary for the calendar year equaled $15,000, the amount currently required to be distributed by the will. The estate’s records showed the following. What
Reinus, a cash basis taxpayer, died on February 3. During the year, the estate’s executor made a distribution of $12,000 from estate income to Reinus’s sole heir and adopted a calendar year to
Lyon, a cash basis taxpayer, died on January 15 of the current year. During the current year, the estate executor made the required periodic distribution of $9,000 from estate income to Lyon’s sole
A distribution from estate income currently required was made to the estate’s sole beneficiary during its calendar year. The maximum amount of the distribution to be included in the beneficiary’s
Winder Ltd. is an S corporation that is wholly owned by Juan Plowright. Because several of Juan’s ancestors have had Alzheimer’s disease, Juan is transferring many of his assets to trusts, and he
On January 1, year 1, Olinto created a $650,000 trust that provided his mother with a lifetime income interest starting on January 1, year 1, with the remainder interest to go to his son. Olinto
In terms of the Federal income and transfer taxes, comment on what is accomplished in the following disclaimer situations occurring in 2019.a. Lester dies without a will and is survived by a
Last year Salvador sold a tract of land (basis of $1 million) to Kate (an unrelated party) for $4 million, with a cash down payment of $1 million and notes for the balance. The notes carry a 3.5%
At the time of her death in 2019, Wanda has an adjusted gross estate of $6.5 million. Her estate includes the family farm, with a most suitable use value of $3.3 million and a current use value of
Bill and Ellen are husband and wife with five married children and eight grandchildren. Commencing in December 2019, they would like to transfer a tract of land (worth $1.2 million) equally to their
In each of the following independent situations, determine the valuation to be used for estate tax purposes if ? 2032A is elected. All deaths occurred in 2019. Most Suitable Decedent Special Use
During 2019, Vasu wants to take advantage of the annual exclusion and make gifts to his 6 married children (including their spouses) and his 12 minor grandchildren.a. How much property can Vasu give
At the time of his death in 2019, Donald owned a farm (a qualified, closely held business) with a most suitable use value of $5 million and a current use value of $3.5 million.a. If the special-use
During the current year, Diane Stevens made two gifts to her son Greg. The first gift was ABC stock with a value at the date of the gift of $5,000. Diane?s basis in ABC was $2,000. The second gift,
In May 2019, Dudley and Eva enter into a property settlement preparatory to the dissolution of their marriage. Under the agreement, Dudley is to pay Eva $6 million in full satisfaction of her marital
In 2013 and with $200,000, Alice purchases a CD at State Bank listing title as follows: “Alice, payable on proof of death to Clark.” Alice dies in 2020, and Clark (Alice’s nephew) redeems the
Elizabeth made taxable gifts of $3 million in 2019 and $14 million in 2020. She paid no gift tax on the 2019 transfer. On what amount is the Federal gift tax computed for the 2020 gift?
David Collins died during the current year. The personal representative of David’s estate reviewed the following assets. Stocks in David’s name only $ 2,000,000 Investment property in a trust
Bob died in year 3. His gross estate consisted of assets with a fair market value of $13,500,000. In his will, Bob leaves $1,000,000 to his wife, $500,000 to his only daughter, and $250,000 to his
Which of the following statements about the estate tax is not correct?a. The estate tax return, Form 706, is due nine months after the date of death.b. The alternate valuation date for an estate, if
Larry plans to gift his daughter $25,000 during the current taxable year. Further, provided she graduates from a four-year accredited college, he will also gift her $100,000. Which of the following
Steve and Kay Briar, U.S. citizens, were married for the entire calendar year. During the year, Steve gave a $32,000 cash gift to his sister. The Briars made no other gifts in the year. They each
Which of the following requires filing a gift tax return if the transfer exceeds the available annual gift tax exclusion?a. Medical expenses paid directly to a physician on behalf of an individual
How does the Federal unified transfer tax differ from an income tax?
Fred and Amy Kehl, both U.S. citizens, are married. All of their real and personal property is owned by them as tenants by the entirety or as joint tenants with right of survivorship. The gross
Grace Lang was employed as a waitress at the Pancake House in Grand Bay, Alabama. While working the morning shift on March 7, 2012, one of Grace’s customers left her a Florida lottery ticket as a
On April 3, 2017, Luis filed his 2016 income tax return, which showed a tax due of $75,000. On June 1, 2019, he filed an amended return for 2016 that showed an additional tax of $10,000. Luis paid
Jane filed her 2018 Form 1040 on April 4, 2019. What is the date on which the applicable statute of limitations expires in each of the following independent situations?a. Jane incurred a bad debt
Kold Services Corporation estimates that its 2019 taxable income will be $500,000. Thus, it is subject to a 21% income tax rate and incurs a $105,000 liability. For each of the following independent
Maureen, a calendar year individual taxpayer, files her 2018 return on November 4, 2020. She did not obtain an extension for filing her return, and the return reflects additional income tax due of
Olivia, a calendar year taxpayer, does not file her 2019 Form 1040 until December 12, 2020. At this point, she pays the $40,000 balance due on her 2019 tax liability of $70,000. Olivia did not apply
Compute the failure to pay and failure to file penalties for John, who filed his 2019 income tax return on December 20, 2020, paying the $10,000 amount due at that time. On April 1, 2020, John
On June 15, 2018, Sheridan filed his 2017 income tax return, paying a tax of $10,500. On October 5, 2019, he filed an amended 2017 return showing an additional $6,400 of tax, which he paid with the
Which of the following is not required conduct for a preparer of an income tax return?a. Abide by the tax Code and legally minimize the taxpayer’s tax liability.b. Verify that the information the
Treasury Department Circular 230 provides guidance for doing which of the following activities?a. Practicing before the IRSb. Practicing before the U.S. Tax Courtc. Presenting before state boards of
Blanche Creek (111 Elm Avenue, Plymouth, IN 46563) has engaged your firm because she has been charged with failure to file her 2017 Federal Form 1040. Blanche maintains that the “reasonable
A taxpayer presented her tax return preparer, Dev Powell, with documentation supporting income she had earned as an independent contractor. Although Powell knew that the taxpayer’s income should be
Fillon Corporation’s operations include two manufacturing facilities, one in State A and one in State B. The plant located in A generated $200,000 of income, and the plant located in B generated a
Wish, Inc., a § 501(c)(3) organization, pays unreasonable compensation to Renata, the treasurer of Wish. Renata’s compensation is $600,000. Assume that reasonable compensation would be $500,000.a.
Rejoice, Inc., a private foundation, has existed for 10 years. Rejoice held undistributed income of $160,000 at the end of its 2017 tax year. Of this amount, $90,000 was distributed in 2018, and
Abby Wang recently became the treasurer of First Point Church. The church has existed for three years and never has filed any documents with the IRS.a. Identify any Federal income tax reporting
Which of the following is a false statement?a. An annual information return (Form 990) stating gross income, receipts, contributions, and disbursements is required of most exempt organizations that
Unrelated business income (UBI):a. Includes unrelated income from an activity where all the work is performed by volunteers.b. Is not created if the activity results in a loss.c. Is 100% taxable on
RadioCo, a domestic corporation, reports a deferred tax asset relating to receivables of $100,000 and a deferred tax liability relating to cost recovery of $165,000. How and where on the GAAP
LawnCo and TreeCo operate in the same industry, and both report a 25% effective tax rate (combined Federal, state, and global). Their book income and current, deferred, and total tax expense are
U.S. corporate income tax law changed dramatically at the end of 2017 due to amendments to the Internal Revenue Code by Congress. List at least two specific changes to the law and their general
Significant changes to U.S. corporate income tax law are made only on rare occasions. What tax policy principles might underlie this characterization?
Miguel Allred will purchase either the stock or the assets of Jewel Corporation. All of the Jewel stock is owned by Charley. Miguel and Charley agree that Jewel is worth $700,000. The tax basis for
Parrott, Inc., a C corporation, is owned by Alfonso (60%) and Deanna (40%). Alfonso is the president, and Deanna is the vice president for sales. All three are cash basis taxpayers. Late in 2018,
Andrea is an employee of Fern Corporation. She also has her own business working as a life coach. For 2019, Andrea’s wages from Fern were $210,000. Her self-employment income was $30,000.a. Compute
Basu owns 100% of an S corporation. This year, the corporation paid Basu a salary of $100,000. His share of S corporation income for the year was $42,000. Assuming that this is Basu’s only income

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