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south western federal taxation

Questions and Answers of South Western Federal Taxation

Jebali Corporation, a calendar year taxpayer utilizing the completed contract method of accounting, constructed a building for Samson, Inc., under a longterm contract. The gross contract price was
In 2018, Skylar sold an apartment building for $20,000 cash and a $300,000 note due in two years. Skylar’s cost of the property was $250,000, and he had deducted depreciation of $150,000, $60,000
On December 30, 2018, Whitney sold a piece of property for $85,000. Her basis in the property was $40,000, and she incurred $1,200 in selling expenses. The buyer paid $5,000 down with the balance
For 2018, Essence Company, a calendar year taxpayer, will change from using the cash method for tax purposes to the accrual method. At the end of 2017, Essence had the following items:Accounts
In 2018, Chaya Corporation, an accrual basis, calendar year taxpayer, provided services to clients and earned $25,000. The clients signed notes receivable to Chaya that have a fair market value of
In 2018, Aurora received a $25,000 bonus computed as a percentage of profits. In 2019, Aurora’s employer determined that the 2018 profits had been incorrectly computed, and Aurora had to refund the
Gaffey Corporation is a wholesale distributor of auto parts and uses the cash method of accounting. The company’s sales have been about $20,000,000 per year for the last few years. However, Gaffey
Delaine is a 90% shareholder in a personal service corporation (PSC). The corporation paid Delaine a salary of $265,000 during its fiscal year ending September 30, 2018.a. Assume that the corporation
December 2018, Carl Corporation sold land it held as an investment. The Decision Making corporation received $50,000 in 2018 and a note payable (with adequate interest) for $150,000 to lie paid in
On June 1, 2016, Father sold land to Son for $300,000. Father reported the gain by the installment method, with the gain to 1x? spread over five years. In May 2018, Son received an offer of $400,000
Samantha, an accrual basis taxpayer, subscribes to a service that updates a database used in her business. In December 2018, Samantha paid the $120,000 subscription for the period January 2018
Compare the cash and accrual methods of accounting for the following events:a. Purchased new equipment, paying 550,000 cash and giving a note payable for $30,000 due next year.b. Paid $3,600 for a
In 2018, the taxpayer became ineligible to use the cash method of accounting. At the lieginning of the year, accounts receivable totaled $240,000, accounts payable for merchandise totaled $80,000,
In December 2018, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for the 2019 calendar year. How much of the premiums can Nell, Inc., deduct in 2018?
Fred, a cash basis taxpayer, received a $15,000 bonus from his employer in 2018. The bonus was based on the company’s profits for 2017. In 2019, the company discovered dial its 2017 profits w'ere
A law practice was incorporated on January 1, 2018, and expects to earn $25,000 per month before deducting the lawyer’s salary. The lawyer owns 100% of die stock. The corporation and the lawyer
Assume the same facts as in Problem 35, except that the business is a “specified services" business (e.g., a consulting firm) owned equally by Elliot and Conrad (an unrelated individual) in a
Elliot operates his clothing store as a single member LLC (which he reports as a sole proprietorship). In 2018, his proprietorship generates net income of $280,000, he pays W-2 wages of $170,000, and
Jennifer is a CPA and a single taxpayer using the standard deduction. In 2018, her CPA practice generates net income of $162,000 and she has no other income or losses. Jennifer’s taxable income
Assume the same facts as in Problem 31, except that Susan's business pays $60,000 of W-2 wages and reports net income of $200,000 (all of which is qualified business income). Susan also has a
Assume the same facts as in Problem 31, except that Susan’s business reports net income of $150,000 (all of which is qualified business income). What is Susan’s QBI deduction?Data From Problem
Susan, a single taxpayer, owns and operates a bakery as a sole proprietorship. The business is not a specified services business. In 2018, the business pays $100,000 in W-2 wages, holds $150,000 of
Assume the same facts as in Problem 29, except that Tammy is not employed by BigCo. How does this affect her qualified business income deduction?Data From Problem 29Tammy, a single taxpayer, has a
Tammy, a single taxpayer, has a part-time job at BigCo, a company in which she has no ownership interest. In addition, she owns and operates LitdeCo, a sole proprietorship that is a qualified trade
Ben and Molly are married and will file jointly. Ben earns $300,000 from his single member LLC (a law firm). He reports his business as a sole proprietorship. Wages paid by the law firm amount to
Stella Watters is a CPA and operates her own accounting firm (Watters CPA LLC). As a single member LLC, Stella reports her accounting firm operations as a sole proprietor. Stella has QBI from her
Scott and Laura are married and will file a joint tax return. Scott owns a sole proprietorship (not a “specified services” business) that reports net income of $300,000. The proprietorship pays
Peter Samuels owns and manages his single member LLC that provides a wide variety of financial services to his clients. He is married and wall file a joint tax return with his spouse, Amy. His LLC
Shelly reports $200,000 of QBI from her local jewelry store (a sole proprietorship). Shelly's proprietorship paid $30,000 in W-2 wages and owns $20,000 of qualified property. Shelly’s spouse earned
Purple Company has $200,000 in net income for 2018 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single, and she claims the $12,000 standard deduction for
Henry, a freelance driver, finds passengers using various platforms such as Uber and Grubhub. He is single and has no other sources of income. In 2018, Henry’s net income from driving is $61,000.
Jason and Paula are married. They file a joint return for 2018 on which they report taxable income before the QBI deduction of $200,000. Jason operates a sole proprietorship, and Paula Is a partner
Thad, a single taxpayer, has taxable income before the QBI deduction of $187,500. Thad, a CPA, operates an accounting practice as a single member LLC (which he reports as a sole proprietorship).
Maria and Javier are the equal partners in Marja, a partnership that is a qualifying trade or business. In the current year, Marja generated $350,000 of ordinary income after reporting $500,000 in
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC records net income of $325,000 after deducting Robert’s
Charlotte is a partner in, and sales manager for, CD Partners, a domestic business that is not a specified service trade or business. During the tax year, she receives guaranteed payments of $250,000
In 2018, Meghann Carlson, a single taxpayer, reports QBI of $110,000 and modified taxable income of $78,000 (this is also her taxable income before the QBI deduction). What is Meghann’s QBI
Why do you think the QBI deduction is limited to earnings from a business Critical Thinking conducted in the United States and doesn’t include business income from a foreign business activity?
Which of the following taxpayers may claim a deduction for qualified business income? Explain.a. A driver for Uber or Lyft.b. A veterinarian operating as an S corporation. In addition to veterinary
Jane and Ben are married and usually file a joint return. They live in a separate property state (rather than a community property state). Jane is a partner in a law firm and typically generates
Define each of the following terms, and explain how each is used in determining the QBI deduction.a. Modified taxable income.b. Qualified business income.c. Qualified trade or business.d. Specified
What are the general rules surrounding the QBI deduction? How is it computed? Be specific.
Who can claim the qualified business income (QBI) deduction? Explain.
Why did the TCJA of 2017 include a deduction for qualified business income?
Section 1250 recapture applies to which of the following?a. Section 1231 real properly sold at a gain with accumulated depreciation in excess of straight line.b. Section 1231 personal property sold
Section 1245 recapture applies to which of the following?a. Section 1231 real property sold at a gain with accumulated depreciation in excess of straight line.b. Section 1231 personal property sold
Net Section 1231 losses are:a. Deducted as a capital loss against other capital gains and nothing against ordinary incomeb. Deducted as a capital loss against other capital gains and up to $3,000
Wally, Inc., sold the following three personal property assets in year 6:What is Wally's Section 1245 recapture in year 6?a. $500 lossb. $300 gain c. $800 gaind. $1,600 gain Accumulated Purchase
Wally, Inc., sold the following three personal property assets in year 6:What is Wally’s net Section 1231 gain or loss in year 6?a. $500 lossb. $300 gain c. $800 gaind. $1,600 gain Accumulated
Wally, Inc., sold the following three personal property assets in year 6:What is Wally's net Section 1231 gain or loss in year 6?a. $500 lossb. $700 loss c. $1,200 lossd. $ 1,200 gain
Wally, Inc., sold the following three personal property assets in year 6:What is Wally's net Section 1231 gain or loss in year 6?a. $500 lossb. $300 gain c. $800 gaind. $ 1,600 gain Accumulated
Jerry uses a building for business purposes. The building was purchased on April 1, year 3, for $124,000. It was sold on October 3, year 6, for $200,000. Accumulated depreciation as of the date of
Jerry uses a building for business purposes. The building was purchased on April 1, year 3, for $124,000. It was sold on October 3, year 6, for $200,000. Accumulated depreciation as of the date of
A piece of depreciable machinery Ls sold. It has been held for three years and qualifies as Section 1231 property. The selling price is greater than the adjusted basis but less than the original
Brad and Angie are married and file a joint return. For year 14, they had income from wages in the amount of $100,000 and had the following capital transactions to report on their income tax
Conner purchased 300 shares of Zinco stock for $30,000 in year 1. On May 23, year 6, Conner sold all the stock to his daughter Alice for $20,000, its then fair market value. Conner realized no other
A gain on the sale of which of the following assets will not result in a capital gain?a. Stock in a public companyb. A home used as a personal residencec. Goodwill of a corporationd. Inventory of a
Using the IRS Tax Statistics that can be found at www.irs.gov/ statistics, based on adjusted gross income for the most recent year available, determine the amount of net long-term capital gain
Your supervisor at your CPA firm has questioned whether the depreciation taken on a building under § I68(k) is subject to § 1250 depreciation recapture. Find a discussion in the Form 4797
Your client. Alternate Fuel, Inc. (a regular corporation), owns three sandwich shops in the Philadelphia area. In 2015, the year Alternate Fuel incorporated, it acquired land on the outskirts of
Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red
Siva Nathaniel owns various plots of land in Fulton County, Georgia. He acquired the land at various times during the last 20 years. About every fourth year, Siva subdivides into lots one of the
Justin Stone was an employee of DataCare Services, Inc. His salary was $45,000 through November 10, 2018, when he was laid off. DataCare Services provided medical insurance for Justin and his family
Ashley Panda lives at 1310 Meadow Lane, Wayne, OH 43466, and her Social Security Tax Computation Problem number Ls 123-45-6789. Ashley Ls single and has a 20-year-old son. Bill. His Social Security
Jasmine owned rental real estate that she sold to her tenant in an installment sale. Jasmine acquired the property in 2006 for $400,000; took $178,000 of depreciation on it; and sold it for $210,000,
Tan Corporation purchased depreciable tangible personal property for $100,000 in 2016 and immediately expensed the entire cost under § 179- In 2018, when the property was worth $80,000, Tan
Dedriea contributes to her wholly owned corporation some tangible personal property she had used in her sole proprietorship business and depreciated. She had acquired the property for $566,000 and
Miguel receives tangible personal property as an inheritance in 2016. The property was depreciated by die deceased (Miguel’s fadier), and Miguel will also depreciate it. At the dale of the
Anna received tangible personal property with a fair market value of $65,000 as a gift in 2016. The donor had purchased the property for $77,000 and had taken $77,000 of depreciation. Anna used the
Joanne is in the 24% tax bracket and owns depreciable business equipment that she purchased several years ago for $135,000. She has taken $100,000 of depreciation on the equipment, and it is worth
On January 1, 2009, Stephanie Bridges acquired depreciable real property for $50,000. She used straight-line depreciation to compute the asset's cost recovery. The asset was sold for $96,000 on
Larry is the sole proprietor of a trampoline shop. During 2018, the following transactions occurred:Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation
On May 2, 1988, Hannah Weather (Social Security number: 111-22- 3333) acquired residential real estate for $450,000. Of the cost, $100,000 was allocated to the land and $350,000 to the building. On
On June 1, 2014, Skylark Enterprises (not a corporation) acquired a retail store building for $500,000 (with $100,000 being allocated to the land). The store building was 39-year real property, and
On December 1, 2016, Lavender Manufacturing Company (a corporation) purchased another company's assets, including a patent. The patent was used in Lavender s manufacturing operations; $49,500 was
Copper Industries (a sole proprietorship) sold three § 1231 assets during 2018. Data on these property dispositions are as follows:a. Determine the amount and the character of the recognized gain or
Siena Industries (a sole proprietorship) sold three § 1231 assets during 2018. Data on these property dispositions are as follows:a. Determine the amount and the character of the recognized gain or
Jinjie owns two parcels of business land (§ 1231 assets). One parcel can be sold at a loss of $60,000, and the other parcel can be sold at a gain of $70,000. Jinjie has no non-recaptured § 1231
Keshara has the following net § 1231 results for each of the years shown. What would be the nature of the net gains in 2017 and 2018? Net §1231 Gain Tax Year Net § 1231 Loss $18,000 2013 2014
Gray, Inc., a C corporation, has taxable income from operations of $1,452,000 for 2018. It also has a net long-term capital loss of $355,000 from the sale of a subsidiary’s stock. The year 2018 is
Asok’s AGI for 2018 is $133,050. Included in this AGI is a $45,000 25% longterm capital gain and a $13,000 0%/15%/20% long-term capital gain. Asok is single and uses the standard deduction. Compute
For 2018, Wilma has properly determined taxable income of $36,000, including $3,000 of unrecaptured § 1250 gain and $8,200 of 0%/15%/20% gain. Wilma qualifies for head-of-household filing status.
Jane and Blair are married taxpayers filing jointly and have 2018 taxable income of $107,000. The taxable income includes $5,000 of gain from a capital asset held five years, $2,100 of gain from a
For 2018, Ashley has gross income of $38,350 and a $5,000 long-term capital loss. She claims the standard deduction. Ashley is 35 years old and unmarried with two dependent children. How much of
Helena has die following long-term capital gains and losses for 2018: $65,000 28% gain, $53,000 28% loss, $28,000 25% gain, and $24,000 0%/15%/20% loss. She also has a $33,000 short-term loss and a
Paul has the following long-term capital gains and losses for 2018: $62,000 28% gain, $21,000 28% loss, $18,000 25% gain, and $64,000 0%/15%/20% gain. He also has a $53,000 short-term loss and a
Phil and Susan Hammond are married taxpayers filing a joint return. The couple have two dependent children. Susan has wages of $34,000 in 2017. Phil does not work due to a disability, but he is a
In 2018, Bertha Jarow had a $28,000 loss from the sale of a personal residence. She also purchased a patent on a rubber bonding process from an individual inventor for $7,000 (and resold it in two
Maria meets all of die requirements of § 1237 (subdivided realty). In 2018, she begins selling lots and sells four separate lots to four different purchasers. She also sells two contiguous lots to
Elaine Case (single with no dependents) has the following transactions in 2018:AGI (exclusive of capital gains and losses) ..............................$240,000Long-term capital gain
Dennis sells short 100 shares of ARC stock at $20 per share on January 15, 2018. He buys 200 shares of ARC stock on April 1, 2018, at $25 per share. On May 2, 2018, he closes the short sale by
Roger inherited 100 shares of Periwinkle stock when his mother, Emily, died. Emily had acquired the stock for a total of $60,000 on November 15, 2014. She died on August 10, 2018, and the shares were
Maria held vacant land that qualified as an investment asset. She purchased the vacant land on April 10, 2014. She exchanged the vacant land for a rental house in a qualifying like-kind exchange on
Consuela was a tenant in a campus apartment. She is a student at State University. Her lease began on August 1, 2018, and was due to expire on July 31, 2019- However, her landlord sold the building,
Hilde purchased all of the rights to a patent on a new garden tool developed by a friend of hers who is an amateur inventor. The inventor obtained the patent rights, set up a manufacturing company to
Carla was the owner of vacant land that she was holding for investment. She paid $2 million for the land in 2016. Raymond was an investor in vacant land. He thought Carla’s land might be the site
Fred is an investor in vacant land. When he thinks he has identified property that would be a good investment, he approaches the landowner, pays the landowner for a “right of first refusal" to
Benny purchased $400,000 of Peach Corporation face value bonds for $320,000 on November 13, 2017. The bonds had been issued with $80,000 of original issue discount because Peach was in financial
Melaney has had a bad year with her investments. She lent a friend $8,000; the friend did not repay the loan when it was due and then declared bankruptcy. The loan is totally uncollectible. Melaney
George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events

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