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business
south western federal taxation

Questions and Answers of South Western Federal Taxation

Swallow Company is a large real estate construction company that has made a Subchapter S election. The company reports its income using the percentage of completion method. In 2018, the company
The Wren Construction Company reports its income by the completed con-tract method. At the end of 2017, the company completed a contract to con-struct a building at a total cost of $800,000. The
Kay, who is not a dealer, sold an apartment house to Polly during the current year (2017). The closing statement for the sale is as follows:During 2017, Kay collected $9,000 in principal on the
Ted purchased equipment and used materials to develop a patent. The development costs were deducted on prior returns. The bases and fair market values of the assets are presented below.Sarah has made
Jeffrey Boyd, the president of Eagle Furniture Company (average annual gross receipts of $4 million), has prepared the company’s financial statements and income tax returns for the past 15 years.
Raven Finance Company experiences bad debts of about 3% of its out-standing loans. At the end of the year, the company had outstanding receivables of $18 million. This balance included $2 million of
How do the all events and economic performance requirements apply to the following transactions by an accrual basis taxpayer?a. The company guarantees its products for six months. At the end of 2017,
Blue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2017), the company hires you to convert the cash receipts and
In 2016, Juan entered into a contract to write a book. The publisher advanced Juan $50,000, which was to be repaid out of future royalties. If the book was not completed by the end of 2017, however,
Gaffey Corporation obtained permission to change from a calendar year to a fiscal year ending May 31, beginning in 2017. For the short period January 1 through May 31, 2017, the corporation’s
Mauve Corporation began operations as a farm supplies business and used a fiscal year ending October 31. The company gradually went out of the farm supplies business and into the mail-order Christmas
Zorn conducted his professional practice through Zorn, Inc. The corporation uses a fiscal year ending September 30 even though the business purpose test for a fiscal year cannot be satisfied. For the
The Cardinal Wholesale Company is an S corporation that began business on March 1, 2017. Robert, a calendar year taxpayer, owns 100% of the Cardinal stock. He has $400,000 taxable income from other
Shondee Corporation uses the lower of cost or market and FIFO inventory methods. At the end of 2016, the FIFO cost of the ending inventory was $181,000, and the market value of the inventory was
Shumpert, Inc., entered into a contract that was to take two years to complete, with an estimated cost of $900,000. The contract price was $1,300,000. Costs of the contract for 2016, the first year,
Jebali Corporation, a calendar year taxpayer utilizing the completed contract method of accounting, constructed a building for Samson, Inc., under a long-term contract. The gross contract price was
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, 2017.a. Assume that the corporation
Neal uses the percentage of completion method to report his gross income from long-term contracts that were to begin in 2017. In 2018, he completes a contract for more than the estimate of total
Nathan uses the percentage of completion method to report income from his real estate construction contracts. A contract was begun in 2017 and completed in 2018. In 2017, Nathan reported gross income
Samantha, an accrual basis taxpayer, subscribes to a service that updates a database used in her business. In December 2017, Samantha paid the $120,000 subscription for the period January 2017
Samantha, an accrual basis taxpayer, subscribes to a service that updates a database used in her business. In December 2017, Samantha paid the $120,000 subscription for the period January 2017
Osprey Corporation, an accrual basis taxpayer, had taxable income for 2017 and paid $40,000 on its estimated state income tax for the year. During 2017, the company received a $4,000 refund upon
Fred, a cash basis taxpayer, received a $15,000 bonus from his employer in 2017. The bonus was based on the company’s profits for 2016. In 2018, the company discovered that its 2016 profits were
Art Funkel started his incorporated medical practice on June 1, 2017. He immediately made an S election for the corporation. Art would like the corporation to adopt a tax year ending May 31 so that a
A law practice was incorporated on January 1, 2017, and expects to earn $25,000 per month before deducting the lawyer’s salary. The lawyer owns 100% of the stock. The corporation and the lawyer
Jasmine owned rental real estate that she sold to her tenant in an installment sale. Jasmine acquired the property in 2005 for $400,000; took $178,000 of depreciation on it; and sold it for $210,000,
On June 1, 2013, 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
An individual taxpayer had a net § 1231 loss in 2017. Could any of this loss be treated as a long-term capital loss? Why or why not?
Steven established a sole proprietorship in 2012. He sold § 1231 assets at a loss in 2015 and 2016. He had only sold § 1231 assets at a gain before 2015. In 2017, he could sell a § 1231 asset at a
On May 2, 1987, Hannah Weather (Social Security Number: 111-22-3333) acquired residential rental real estate for $450,000. Of the cost, $100,000 was allocated to the land and $350,000 to the
On January 1, 2008, 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
On August 10, 2015, Jasper purchased business equipment for $40,000. On his 2015 tax return, $40,000 of § 179 immediate expense was taken on the equipment. On July 14, 2016, Jasper sold the
Miguel receives tangible personal property as an inheritance in 2015. The property was depreciated by the deceased (Miguel’s father), and Miguel will also depreciate it. At the date of the
Adrian has a 2016 Form 4797, line 9 gain of $56,000. He also has one transaction on his 2016 Form 1040 Schedule D, Part I—a loss of $58,000. What is Adrian’s AGI from these events?
Theresa has a 2016 Form 1040 Schedule D, line 16 gain of $45,000. There is also a $45,000 gain on the form’s line 19. What is the nature of the gain? What alternative tax rate applies to it?
An office building owned by Milo was destroyed by Hurricane Mel on September25, 2016. On October 2, 2016, the President of the United States declared the area where the office building was located a
Mikhail owns real estate with a basis of $400,000 and a fair market value of650,000. He exchanges it for other real estate with a fair market value of $480,000.In addition, Mikhail is relieved of a
Download IRS Form 1099–K and its instructions from the IRS website. What is the purpose of the form and when is it used? Go to the Square, Inc. website (www.squareup.com) and search for information
Find a website, other than the IRS website, that discusses the taxation of short sales of securities.
Kellye purchased her home in 2012 for $140,000. After living in it for five years, she sold it in 2017 for $170,000, its market value. What is the tax treatment of the sale of Kellye’s home?a. A
Find two newspaper stories about transactions to which you believe the involuntary conversion rules could apply. Do not limit your search to individual taxpayers.
Taylor owns a 150-unit motel that was constructed in the late 1960s. It is located on 10 acres on the main highway leading into the city. Taylor renovated the motel three years ago.Taylor’s motel
Ted and Marvin Brown purchased an apartment building in 2006 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
Asok’s AGI for 2017 is $133,050. Included in this AGI is a $45,000 25% long-term capital gain and a $13,000 0%/ 15%/ 20% long-term capital gain. Asok is single, uses the standard deduction, and has
For 2017, 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
For 2017, 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
Shen purchased corporate stock for $20,000 on April 10, 2015. On July 14,2017, when the stock was worth $12,000, Shen died and his son, Mijo, inherited the stock. Mijo sold the stock for $14,200 on
On May 9, 2017, Glenna purchases 500 shares of Ignaz Company stock for $7,500. On June 30, 2017, she writes a call option on the stock, giving the grantee the right to buy the stock for $9,000 during
Near the end of 2017, Byron realizes that he has a net short-term capital loss of $13,000 for the year. Byron has taxable income (not including the loss) of $123,000 and is single. He owns numerous
Ed receives severance damages from the state government for a public road built across his property. What are the tax implications of the severance damages?
Karl purchased his residence on January 2, 2016, for $260,000, after having lived in it during 2015 as a tenant under a lease with an option to buy clause. On August 1, 2017, Karl sells the residence
Wanda, a calendar year taxpayer, owned a building (adjusted basis of $250,000) in which she operated a bakery that was destroyed by fire in December 2017. She receives insurance proceeds of $290,000
Cabel’s warehouse, which has an adjusted basis of $380,000 and a fair market value of $490,000, is condemned by an agency of the Federal government to make way for a highway interchange. The
Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2017, she exchanges it with Lisa Martin (an unrelated party) for
Rod Clooney purchases Agnes Mitchell€™s sole proprietorship for $990,000 on August 15, 2017. The assets of the business are as follows:a. Calculate Agnes€™s realized and
Anne sold her home for $290,000 in 2017. Selling expenses were $17,400. She purchased it in 2011 for $200,000. During the period of ownership, Anne had done the following:Deducted $50,500
On August 31, 2016, Harvey and Margaret, who file a joint return and live in Charleston, South Carolina, sell their personal residence, which they have owned and lived in for 10 years. The realized
Gary, who is single, sells his principal residence (owned and occupied by him for seven years) in November 2017 for a realized gain of $148,000. He had purchased a more expensive new residence eight
On February 24, 2017, Allison’s building, with an adjusted basis of $1.3 million (and used in her trade or business), is destroyed by fire. On March 31, 2017, she receives an insurance
On June 5, 2017, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of
Bob is notified by the city public housing authority on May 3, 2017, that his apartment building is going to be condemned as part of an urban renewal project. On June 1, 2017, Carol offers to buy the
Reba, a calendar year taxpayer, owns an office building that she uses in her business. The building is involuntarily converted on November 15, 2017. On January 5, 2018, Reba receives enough proceeds
Which of the following education-related expenses can be used to claim an education credit? Room and Board Tuition Fees Meals Yes Yes a. Yes Yes b. Yes Yes Yes Yes Yes No No No C. Yes Yes d. Yes No
Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2016, good news comes their way and an adoption seems imminent. They pay qualified
Employees at the Hobby Hut requested that the company provide assistance in locating professional-quality child care services during business hours. The Hut, a C corporation, contracts with the local
Jimmy Limited added elevators, access ramps, and several technological improvements to the 1923 building in which it operates a consulting business. Jimmy is an LLC with five full-time employees and
Determine the appropriate amount of 2017 additional Medicare tax for Mario, a single individual. His wages total $440,000?
Bianca earned a salary of $164,000 from her employer, CallMart. How much in FICA and Medicare taxes will CallMart withhold from Bianca’s salary?
Rafael and Lucy Gonzalez, married taxpayers, each contribute $2,900 to their respective § 401(k) plans in 2017. The AGI reported on their joint return is $38,000. Determine the amount of the
Kathy owns and operates a grocery store as a sole proprietor. She pays wages to her husband Joe and their 17-year-old daughter Marla, both of whom work at the store. Should Kathy withhold FICA taxes
Polly and her husband, Leo, file a joint return and expect to report 2017 AGI of $75,000. Polly’s employer offers a child and dependent care reimbursement plan that allows up to $5,000 of
Marcia, a shareholder in a corporation with stores in five states, donated stock with a basis of $10,000 to a qualified charitable organization in 2016. Although the stock of the corporation was not
For calendar year 2017, Stuart and Pamela Gibson file a joint return reflecting AGI of $350,000. Their itemized deductions are as follows:Casualty loss after $100 floor (not covered by insurance)
Linda, who files as a single taxpayer, had AGI of $280,000 for 2017. She incurred the following expenses and losses during the year:Calculate Linda€™s allowable itemized deductions for the
Download IRS Form 1099–K and its instructions from the IRS website. What is the purpose of the form and when is it used? Go to the Square, Inc. website (www.squareup.com) and search for information
Prepare a blog post for the “Online Tutor Match Company” to explain to its freelancers the tax implications of their work. Topics should include (1) what records to keep (both for income and
Answer the following independent questions with respect to traditional IRA contributions for 2017:a. Juan, age 41, earns a salary of $28,000 and is not an active participant in any other qualified
Amber’s employer, Lavender, Inc., has a § 401(k) plan that permits salary deferral elections by its employees. Amber’s salary is $99,000, her marginal tax rate is 25%, and she is 42 years old.a.
Melanie is employed full-time as an accountant for a national hardware chain. She recently started a private consulting practice, which provides tax advice and financial planning to the general
In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses):a. Lily is single and is employed
William is employed by an accounting firm and uses his automobile in connection with his work. During the month of October 2017, he works at the office for 3 days and participates in the audit of a
Joey, who is single, is not covered by another qualified plan and earns $120,000 at his job in 2017. How much can he contribute to a traditional IRA or to a Roth IRA in 2017?
John Smith, age 31, is single and has no dependents. At the beginning of 2017, John started his own excavation business and named it Earth Movers. John lives at 1045 Center Street, Lindon, UT, and
Which of the following is correct about depreciation under Federal tax law?I. The recovery period is longer than the useful life of the asset.II. There are different recovery periods for new and used
In 2017, Christa purchased and placed into service five-year assets at a total cost of $2,290,000. If Christa elects both the § 179 deduction and additional first-year (bonus) depreciation, but does
Joe purchased a van on February 1, 2017, for use in his business, Crew Airport Transport. The van was purchased for $30,000, has an estimated useful life of 10 years, and has a salvage value of
Janice Morgan, age 24, is single and has no dependents. She is a freelance writer. In January 2016, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her
Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $410,000 on May 20, 2017. Lori expects the taxable income derived from her business (without regard to
On June 5, 2016, Leo purchased and placed in service a new car that cost $20,000. The business use percentage for the car is always 100%. Leo claims any available additional first-year depreciation.
Debra acquired the following new assets during 2017.Determine Debra€™s cost recovery deductions for the current year. Debra does not elect immediate expensing under § 179. She does not
Juan acquires a new 5-year class asset on March 14, 2017, for $200,000. This is the only asset Juan acquired during the year. He does not elect immediate expensing under § 179. He does not claim any
Jane Smith, age 40, is single and has no dependents. She is employed as a legal secretary by Legal Services, Inc. She owns and operates Typing Services located near the campus of Florida Atlantic
Assume that in addition to the information in Problem 42, Nell had the following items in 2017:Personal casualty gain on an asset held for four months ........................
Olaf lives in the state of Minnesota. A tornado hit the area and damaged his home and automobile. Applicable information is as follows:Because of the extensive damage caused by the tornado, the
Determine the treatment of a loss on rental property under the following facts: Basis $650,000 FMV before the loss 800,000 FMV after the loss 200,000
Mary’s diamond ring was stolen in 2016. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Mary filed an insurance claim for the stolen ring, but
Amos began a business, Silver, Inc., on July 1, 2014. The business extracts and processes silver ore. During 2017, Amos becomes aware of the domestic production activities deduction (DPAD) and would
Kelly decided to invest in Lime, Inc. common stock after reviewing Lime’s public disclosures, including recent financial statements and a number of press releases issued by Lime. On August 7,
A sale between which of the following could trigger a gain or a loss for federal tax purposes?a. Husband and wifeb. Cousin and cousinc. Majority shareholder and corporationd. Ancestor and
Aman, a sole proprietor and rental property owner, had the following expenses in 2017:Specify whether each expense would be deducted for adjusted gross income (AGI) or from AGI on Aman€™s

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