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south western federal taxation

Questions and Answers of South Western Federal Taxation

Chee, single, age 40, had the following income and expenses during 2017:Calculate Chee's taxable income for the year before personal exemptions. If Chee has any options, choose the method that
Using information from this chapter as well as information from the tax agency in your state (likely called the Department of Revenue) and your local government, find all of the taxes to which a sole
Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for 2017 by buying $65,000 worth of supplies for his business on December 27, 2017. The supplies will be used up
Cole, a 48-year-old married individual, received the following in 2017:In addition, Cole spent $500 on lottery scratch-off cards in 2017. All of the cards were losers except for one, from which Cole
Pierce, a married individual, received the following in 2017:Considering only the above, what is Pierce€™s 2017 gross income?a. $49,800b. $34,800c. $30,000d. $24,800 Workers' compensation
The following pertain to Joyce in 2017:What total amount from the above may be excluded from Joyce€™s 2017 gross income?a. $5,650b. $350c. $5,150d. $850 Medical insurance premiums
In 2015 Randall suffered bodily injury while at work. On his 2015 tax return, Randall deducted related medical expenses of $10,000 and $5,000 in 2016. In 2017, Randall won a workers’ compensation
Rosa’s employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter’s dental expenses and other medical expenses that are not covered by health insurance.
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 2017 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
Donald was killed in an accident while he was on the job in 2017. Darlene, Donald’s wife, received several payments as a result of Donald’s death. What is Darlene’s gross income from the items
What is the taxpayer’s gross income in each of the following situations?a. Darrin received a salary of $50,000 in 2017 from his employer, Green Construction.b. In July 2017, Green gave Darrin an
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 2016. Their AGI was $85,000, and itemized deductions were $13,700, which included $4,000 in state income tax. In 2017, they received a $1,800 refund of
Valentino is a patient in a nursing home for 45 days of 2017. 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 2017, she filed her 2016 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2016 Federal income tax return, but
What is the difference between a cafeteria plan and an employee flexible spending plan?
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
How does the tax benefit rule apply in the following cases?a. In 2015, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. The cost of the furniture
Starting in 2006, 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 2017. Her marginal Federal tax rate is 35%, and her marginal state tax rate is 5%. The California bond pays 3.3%
In January 2017, 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, 2017, George began working in London. He worked there until January 31, 2018, when he transferred
Charles E. Bennett, age 64, will retire next year and is trying to decide whether to begin collecting his Social Security benefits at that time. His monthly benefits will increase if he defers his
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, 2017, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2018, he borrowed an additional $10,000. Both
Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal rate was 3%. What are the tax consequences of the following loans by Ridge:a.
In 2017, Alva received dividends on her stocks as follows:a. Alva purchased the Grape stock three years ago, and she purchased the Amur stock two years ago. She purchased the Blaze stock 18 days
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 2017, she negotiated her salary for 2018. Her employer offered to pay her $21,000 per month in 2018 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 2017 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 2017 gross income:a.
Determine the effects of the following on a cash basis taxpayer’s gross income for 2017 and 2018.a. On the morning of December 31, 2017, the taxpayer received a $1,500 check from a customer. The
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 2017, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in
Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 25% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years.
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, 2017,
On January 1, 2017, 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 2001, when he was 65 years old. In 2017, Connor was killed in
Rex became a partner with a 30% interest in the partnership profits when he invested $200,000. In 2017, the partnership generated $400,000 of taxable income, and Rex withdrew $100,000. In 2018, the
On December 29, 2017, 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,
Which of the following individuals are required to file a 2017 Federal income tax return? Should any of these individuals file a return even if filing is not required? Why or why not?a. Patricia, age
Use the Tax Rate Schedules to compute Morgan’s 2017 Federal income tax liability. Morgan (age 45) is single and provides more than 50% of the support of Rosalyn (a family friend, age 36), Flo (a
Using the Tax Rate Schedules, compute the 2017 tax liability for Charlotte. Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children, who live with her.
Nadia died in 2016 and is survived by her husband, Jerold (age 44); her married son, Travis (age 22); and her daughter-in-law, Macy (age 18). Jerold is the executor of his wife’s estate. He
Christopher died in 2015 and is survived by his wife, Chloe, and their 18- year-old son, Dylan. Chloe is the executor of Christopher€™s estate and maintains the household in which she and
Compute 2017 taxable income in each of the following independent situations.a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent children,
Simon, age 12, generates $800 interest income and $4,000 dividend income for 2017. He incurs no investment expenses. His parents report $80,200 taxable income and file a joint tax return. Determine
Compute the 2017 Federal income tax liability and the marginal and effective tax rates in each of the following independent cases. Use the tax rate schedules in Appendix A for this purpose.a.
Peter maintains a household in which live his 18-year-old son Kip and Kip’s wife Kerry. Although Peter provides most of their support, he does not claim them as dependents because Kip and Kerry
Mark and Lisa were divorced last year. This year, Lisa has custody of their children, but Mark provides nearly all of their support. Who is entitled to claim the children as dependents?
Which of the following items can be exclusions from gross income?a. Alimony payments received.b. Award received by the taxpayer for compensatory damages from her broken leg.c. A new golf cart won in
A taxpayer lives in Michigan. In a controversy with the IRS, the taxpayer loses at the trial court level. Describe the appeal procedure under the following different assumptions:a. The trial court
In March 2017, Jim asks you to prepare his Federal income tax returns for tax years 2014, 2015, and 2016. In discussing this matter with him, you discover that he also has not filed for tax year
For tax year 2014, the IRS assesses a deficiency against David for $500,000. Disregarding the interest component, what is David’s penalty if the deficiency is attributable to:a. Negligence?b. Fraud?
Brianna, a calendar year taxpayer, files her income tax return for 2016 on February 3, 2017. Although she makes repeated inquiries, she does not receive her refund from the IRS until May 28, 2017. Is
Regarding the statute of limitations on additional assessments of tax by the IRS, determine the applicable period in each of the following situations.Assume a calendar year individual with no fraud
Serena operates a gift shop. To reduce costs of credit card transactions, she offers customers a discount if they pay in cash. For the holiday rush, she hires some short-term workers, but pays them
Find some planning opportunities suggested by tax professionals to minimize or reduce potential AMT exposure. In an e-mail to your instructor, outline an AMT planning opportunity not mentioned in the
In each of the following independent situations, determine the maximum withholding allowances that Eli (an employee) is permitted on Form W–4.a. Eli is single with no dependents.b. Eli is married
Jane, who is expecting to finish college in May 2017, is fortunate to have already arranged full-time employment after graduation. She will begin work on July 1, 2017, as a staff accountant at a
Julie, being self-employed, is required to make estimated payments of her tax liability for the year. Her tax liability for 2016 was $25,000, and her AGI was less than $150,000. For 2017, Julie
In 2017, Maria records self-employed earnings of $135,000. Using the format illustrated in the text, compute Maria’s self-employment tax liability and the allowable income tax deduction for the
Tim and Sarah Lawrence are married and file a joint return. Tim’s Social Security number is 123-45-6789, and Sarah’s Social Security number is 111-11-1111. They reside at 100 Olive Lane,
On July 16, 2017, Logan acquires land and a building for $500,000 to use in his sole proprietorship. Of the purchase price, $400,000 is allocated to the building, and $100,000 is allocated to the
Robin inherits 1,000 shares of Wal-Mart stock from her aunt in 2017. According to the information received from the executor of her aunt’s estate, Robin’s adjusted basis for the stock is $55,000.
Thelma inherited land from Sadie on June 7, 2017. The land appreciated in value by 100% during the six months it was owned by Sadie. The value has remained stable during the three months Thelma has
Comment on the following transactions:a. Mort owns 500 shares of Pear, Inc. stock with an adjusted basis of $22,000. On July 28, 2017, he sells 100 shares for $3,000. On August 16, 2017, he purchases
Sally owns real property for which the annual property taxes are $9,000. She sells the property to Kate on March 9, 2017, for $550,000. Kate pays the real property taxes for the entire year on
On July 1, 2017, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature in five years, and the annual interest rate is 6%. The market rate of interest is 2%.a. How
Ashley inherited all of the property of her aunt, who died in 2017. Her aunt’s adjusted basis for the property at the date of death was $1,200,000. The property’s fair market value was $4,500,000
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 did the following:• Deducted $50,500
Kareem bought a rental house in March 2012 for $300,000, of which $50,000 is allocated to the land and $250,000 to the building. Early in 2014, he had a tennis court built in the backyard at a cost
Nissa owns a building (adjusted basis of $600,000 on January 1, 2017) that she rents to Len, who operates a restaurant in the building. The municipal health department closed the restaurant for three
Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2017. The face value of the bonds is $100,000; the maturity date is December 31, 2021; and the annual interest rate is 5%. Chee will
Karen Samuels (Social Security number 123-45-6789) makes the following purchases and sales of stock:Assuming that Karen is unable to identify the particular lots that are sold with the original
Kevin purchases 1,000 shares of Bluebird Corporation stock on October 3, 2017, for $300,000. On December 12, 2017, Kevin purchases an additional 750 shares of Bluebird stock for $210,000. According
Rod Clooney purchases Agnes Mitchell€™s sole proprietorship for $990,000 onAugust 15, 2017. The assets of the business are as follows:a. Calculate Agnes€™s realized and recognized
As sole heir, Dazie receives all of Mary’s property (adjusted basis of $1,400,000 and fair market value of $3,820,000). Six months after Mary’s death in 2017, the fair market value is
Helene and Pauline are twin sisters who live in Louisiana and Mississippi, respectively. Helene is married to Frank, and Pauline is married to Richard. Frank and Richard are killed in an auto
On December 28, 2017, Kramer sells 150 shares of Lavender, Inc. stock for $77,000. On January 10, 2018, he purchases 100 shares of the same stock for $82,000.a. Assuming that Kramer’s adjusted
Alton Newman, age 67, is married and files a joint return with his wife, Clair, age 65. Alton and Clair are both retired, and during 2016, they received Social Security benefits of $10,000. Both
Is the earned income credit a form of negative income tax? Why or why not?
Describe the exposure (i.e., wage base and tax rate) that a self-employed individual has to the self-employment tax for 2017.
Samuel and Annamaria are married, file a joint return, and have three qualifying children. In 2017, they earn wages of $34,000 and no other income. Determine the amount of their earned income credit
In 2017, Henri, a U.S. citizen and calendar year taxpayer, reports $30,000 of income from France, which imposes a 10% income tax, and $50,000 from Italy, which imposes a 40% tax. In addition, Henri
Polly and her husband, Leo, file a joint return and expect to report AGI of $75,000 in 2017. Polly’s employer offers a child and dependent care reimbursement plan that allows up to $5,000 of
In 2017, Bianca earned a salary of $164,000 from her employer. Determine the amount of FICA taxes and Medicare taxes withheld from her salary.
Determine the additional Medicare taxes for these individuals.a. Mario, who is single, earns wages of $440,000 in 2017.b. George and Shirley are married and file a joint return in 2017. During the
Which of the following individuals qualify for the earned income credit for 2017?a. Thomas is single, is 21 years of age, and has no qualifying children. His income consists of $9,000 in wages.b.
Jason, a single parent, lives in an apartment with his three minor children, whom he supports. Jason earned $27,400 during 2017, paid $800 in qualified moving expenses during the year, and uses the
Kim, a U.S. citizen and resident, owns and operates a novelty goods business. During 2017, Kim reports taxable income of $100,000: $50,000 from foreign sources and $50,000 from U.S. sources. In
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
Paul and Karen Kent are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2017). Paul and Karen have two dependent children, both under the age of 13 (Samuel and Joy).
Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are gainfully employed and during 2017 earn salaries as follows: $16,000 (Jim) and $5,200 (Mary Jean).
Bernadette, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing
In each of the following independent situations, determine the amount of FICA that should be withheld from the employee’s 2017 salary by the employer.a. Harry earns a $50,000 salary, files a joint
During 2017, Greg Cruz (1401 Orangedale Road, Troy, MI 48084) works for Maple Corporation and Gray Company. He earns $90,000 at Maple Corporation, where he is a full-time employee. Greg also works
On his 2016 Federal income tax return, Walter deducted state income taxes of $8,000 for amounts withheld and estimated tax payments made in 2016. When he filed his 2016 state income tax return in
Jolene receives tax-exempt interest of $33,000 on bonds that are classified as private activity bonds. She properly excludes the $33,000 from her gross income for regular income tax purposes [under

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