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business
south western federal taxation

Questions and Answers of South Western Federal Taxation

María, age 32, earns $60,000 working in 2022. She has no other income. Her medical expenses for the year total $6,000. During the year, she suffers a casualty loss of $9,500 when her apartment is
Suzanne, a single taxpayer, operates a printing business as a sole proprietor. The business has two employees who are paid a total of $90,000 during 2022.Assume that the business has no significant
Roberta Santos, age 41, is single and lives at 120 Sanborne Avenue, Springfield, IL 62701. Her Social Security number is 123-45-6780. Roberta has been divorced from her former husband, Wayne, for two
Fynn incurred and paid the following expenses during 2022:• $50 for a ticket for running a red light while he was commuting to work.• $100 for a ticket for parking in a handicapped parking
Alex, who is single, conducts an activity in the current year that is appropriately classified as a hobby. The activity produces the following revenues and expenses:Without regard to this activity,
Ascend, a publicly held corporation, currently pays its president an annual salary of $900,000. As a means of increasing company profitability, the board of directors increased the president’s
Chee, single, age 40, had the following income and expenses during 2022:Calculate Chee’s taxable income for the year. If Chee has any options, choose the method that maximizes his deductions.
Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated
Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He
John and Mary Jane Diaz are married, filing jointly. Their address is 204 Shoe Lane, Blacksburg, VA 24061. John is age 35, and Mary Jane is age 30. They are expecting their first child in early 2023.
For 2022, MSU Corporation has $500,000 of adjusted taxable income, $22,000 of business interest income, and $120,000 of business interest expense. It has average annual gross receipts of more than
During 2022, your client, Kendra Adams, was the chief executive officer and a shareholder of Maze, Inc. She owned 60% of the outstanding stock of Maze. In 2019, Kendra and Maze, as co-borrowers,
Mark and Lucy owned two stocks, Tinker Inc., and Chance Inc., that became worthless during year 8. The adjusted basis in Tinker was $300,000. Tinker was incorporated in year 2, and Mark and Lucy
Esther owns a large home on the Southeast Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home. In September 2022, a hurricane damaged many of
Mark and Lucy owned two stocks, Tinker Inc., and Chance Inc., that became worthless during year 8. The adjusted basis in Tinker was $80,000. Tinker was incorporated in year 2, and Mark and Lucy
Which of the following is a true statement regarding the carryback and carryforward of a net operating loss (NOL) arising in a calendar tax year after 2020, assuming that there are no NOL
There is significant debate about the excess business loss deduction. Some believe it should be repealed; others (including the President) believe it should be made permanent. Find several articles
In 2022, Kelsey sustained a loss on the theft of a painting. She had paid $20,000 for the painting, but it was worth $40,000 at the time of the theft. Evaluate the tax consequences of treating the
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, 2020,
In 2019, John opened an investment account with Randy Hansen, who held himself out to the public as an investment adviser and securities broker. John contributed $200,000 to the account in 2019. John
In 2022, Larry and Susan each invest $10,000 in separate investment activities. They each incur deductible expenses of $800 associated with their respective investments. Explain why Larry’s
Amos began a business, Silver LLC (a single-member LLC), on July 1, 2019. The business extracts and processes silver ore. During 2022, as a result of a decline in demand for silver ore, Amos expects
On May 9, 2020, Calvin acquired 250 shares of stock in Hobbes Corporation, a new startup company, for $68,750. Calvin acquired the stock directly from Hobbes, and it is classified as § 1244 stock
Belinda was involved in a boating accident in 2022. Her speedboat, which was used only for personal use and had a fair market value of $30,000 and an adjusted basis of $14,000, was completely
Nanette, a single taxpayer, is a first-grade teacher. Potential deductions are charitable c ontributions of $800, personal property taxes on her car of $240, and various supplies purchased for use in
In 2022, Blair Corporation paid its CEO base compensation of $700,000 and a performance bonus of $500,000; the CEO was hired in January 2020. How much of the compensation can Blair deduct? Discuss.
Shanna, a calendar year and cash basis taxpayer, rents property to be used in her business from Janice. As part of the rental agreement, Shanna pays $8,400 rent on April 1, 2022, for the 12 months
Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for the current year by buying $65,000 worth of supplies for his business on December 27, 2022. Aubry thinks it
Lopez acquired a building on June 1, 2017, for $1,000,000. Calculate Lopez’s cost recovery deduction for 2022 if the building is:a. Classified as residential rental real estate.b. Classified as
Andre acquired a computer on March 3, 2022, for $2,800. He elects the straight-line method for cost recovery. Andre does not elect immediate expensing under § 179. He does not claim any available
Xinran, who is married and files a joint return, owns a grocery store. In 2022, his gross sales were $276,000 and operating expenses were $320,000. Other items on his 2022 return were as follows:In
Denise Lopez, 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
During 2022, Leisel, a single taxpayer, operates a sole proprietorship in which she materially participates. Her proprietorship generates gross income of $142,000 and deductions of $420,000,
Mario, a single taxpayer with two dependent children, has the following items of income and expense during 2022:a. Determine Mario’s taxable income for 2022.b. Determine Mario’s NOL for 2022.
During 2022, Rick and his wife, Sara, had the following items of income and expense to report:a. Assuming that Rick and Sara file a joint return, what is their taxable income for 2022?b. What is the
Timothy Gates and Prada Singh decide to form a new company, TGPS LLC (a multimember LLC that will report its operations as a partnership). Timothy is married, and Prada is single. Each contributes
Jed, age 55, is married with no children. During 2022, Jed had the following income and expense items:a. Three years ago, Jed loaned a friend $10,000 to help him purchase a new car. In June of the
Your client, Dave’s Sport Shop, sells sports equipment and clothing in three retail outlets in New York City. During 2022, the CFO decided that keeping track of inventory using a combination of
Mason Phillips, age 45, and his wife, Alyssa, live at 230 Wood Lane, Salt Lake City, UT 84101. Mason’s Social Security number is 111-11-1111. Alyssa’s Social Security number is 123-45-6789. Mason
In 2018, Jed James began planting a vineyard. The costs of the land preparation, labor, rootstock, and planting were capitalized. The land preparation costs do not include any nondepreciable land
In May 2022, Gwen began searching for a trade or business to acquire. In anticipation of finding a suitable acquisition, Gwen hired an investment banker to evaluate three potential businesses. She
Euclid acquires a 7-year class asset on May 9, 2022, for $80,000 (the only asset acquired during the year). Euclid does not elect immediate expensing under § 179. She does not claim any available
Hamlet acquires a 7-year class asset on November 23, 2022, for $100,000 (the only asset acquired during the year). Hamlet does not elect immediate expensing under § 179. He does not claim any
Diana acquires, for $65,000, and places in service a 5-year class asset on December 19, 2022. It is the only asset that Diana acquires during 2022. Diana does not elect immediate expensing under §
McKenzie purchased qualifying equipment for his business that cost $212,000 in 2022. The taxable income of the business for the year is $5,600 before consideration of any § 179 deduction.a.
On April 5, 2022, Kinsey places in service a new automobile that cost $60,000. He does not elect § 179 expensing, and he elects not to take any available additional first-year depreciation. The car
On October 1, 2022, Verónica purchased a business. Of the purchase price, $60,000 is allocated to a patent and $375,000 is allocated to goodwill. Calculate Verónica’s 2022 § 197 amortization
Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2019. Blue had the following expenses in connection with the project:The new product will
Olaf lives in the state of Minnesota. In May 2022, a tornado hit the area and damaged his home and automobile. Applicable information is as follows:Because of the extensive damage caused by the
Emily, who is single, sustains an NOL of $7,800 in 2022. The loss is carried forward to 2023. For 2023, Emily’s income tax information before taking into account the 2022 NOL is as follows:How much
Tim, a single taxpayer, operates a business as a single-member LLC. In 2022, his LLC reports business income of $225,000 and business deductions of $595,000, resulting in a loss of $370,000. What are
On March 25, Parscale Company purchases the rights to a mineral interest for $8,000,000. At that time, the remaining recoverable units in the mineral interest are estimated to be 500,000 tons. If
On November 4, 2020, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2020 and 2021, respectively, Blue deducted $642 and $5,128 of cost
In 2019, José purchased a house for $325,000 ($300,000 relates to the house; $25,000 relates to the land). He used the house as his personal residence. In March 2022, when the fair market value of
Orange Corporation acquired new office furniture on August 15, 2022, for $130,000. Orange does not elect immediate expensing under § 179. Orange claims any available additional first-year
Juan acquires a new 5-year class asset on March 14, 2022, 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
Debra acquired the following new assets during 2022.Determine Debra’s cost recovery deductions for the current year. Debra does not elect immediate expensing under § 179. She does not claim any
On August 2, 2022, Wendy purchased a new office building for $3,800,000. On October 1, 2022, she began to rent out office space in the building. On July 15, 2026, Wendy sold the office building.a.
On April 3, 2022, Terry purchased and placed in service a building that cost $2,000,000. An appraisal determined that 25% of the total cost was attributed to the value of the land. The bottom floor
On May 5, 2022, Christy purchased and placed in service a hotel. The hotel cost $10,800,000, and the land cost $1,200,000 ($12,000,000 in total). Calculate Christy’s cost recovery deductions for
On June 5, 2021, Javier Sanchez purchased and placed in service a new 7-year class asset costing $560,000 for use in his landscaping business, which he operates as a single member LLC (Sanchez
On June 5, 2021, Leo purchased and placed in service a new car that cost $75,000. The business use percentage for the car is always 100%. Leo does not claim any available additional first-year
On October 15, 2022, Jon purchased and placed in service a used car. The purchase price was $38,000. This was the only business use asset Jon acquired in 2022. He used the car 80% of the time for
John Rivera, age 31, is single and has no dependents. At the beginning of 2022, John started his own excavation business and named it Earth Movers. John lives at 1045 Center Street, Lindon, UT, and
Saanvi Patel (Social Security number 123-45-6785), single and age 32, lives at 3218 Columbia Drive, Spokane, WA 99210. She is employed as a regional sales manager by VITA Corporation, a manufacturer
Naya purchased a new computer (5-year property) on June 1, 2022, for $4,000. Naya could use the computer 100% of the time in her business, or she could allow her family to use the computer as well.
On March 15, 2022, Helen purchased and placed in service a new Escalade. The purchase price was $62,000, and the vehicle had a rating of 6,500 GVW. The vehicle was used 100% for business.a. Assuming
Dennis Harding is considering acquiring a new automobile that he will use 100% for business. The purchase price of the automobile would be $64,500. If Dennis leased the car for five years, the lease
On May 28, 2022, Mary purchased and placed in service a new $60,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2022. In 2023, the usage changed
In 2022, Muhammad purchased a new computer for $16,000. The computer is used 100% for business. Muhammad did not make a § 179 election with respect to the computer. He does not claim any available
Jackson, a self-employed taxpayer, uses his automobile 90% for business and during 2022 drove a total of 14,000 business miles. Information regarding his car expenses is listed below.What is
Oleander Corporation, a calendar year entity, begins business on March 1, 2022. The corporation incurs startup expenditures of $64,000. If Oleander elects § 195 treatment, determine the total amount
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
Bob and Nancy are married and file a joint return in 2022. They are both under age 50 and employed, with wages of $50,000 each. Their total AGI is $117,000. Neither of them is an active participant
In 2020, Emma purchased an automobile, which she uses for both business and personal purposes. Although Emma does not keep records as to operating expenses (e.g., gas, oil, and repairs), she can
Kim works for a clothing manufacturer as a dress designer. During 2022, she travels to New York City to attend five days of fashion shows and then spends three days sightseeing. Her expenses are as
Lara uses the standard mileage method for determining auto expenses. During 2022, she used her car as follows: 9,000 miles for business, 2,000 miles for personal use, 2,500 miles for a move to a new
In June 2022, Enrique and Denisse Espinosa traveled to Denver to attend a three-day conference sponsored by the American Society of Implant Dentistry. Denisse, a self-employed practicing oral
On July 1, 2018, Brent purchases a new automobile for $40,000. He uses the car 80% for business and drives the car for business purposes as follows: 8,000 miles in 2018, 19,000 miles in 2019, 20,000
In November 2022, Kortney (who is a self-employed management consultant) travels from Chicago to Barcelona (Spain) on business. She is gone 10 days (including 2 days of travel) during which time she
In 2022, Robert takes four key clients and their spouses out to dinner at a local restaurant. Business discussions occurred over dinner. Expenses were $700 (drinks and dinner) and $140 (tips to
In 2022, Ava, an employee, has AGI of $58,000 and the following itemized deductions:What is Ava’s total itemized deduction related to these items? Home office expenses Union dues and work
In 2022, the CEO of Crimson, Inc., entertains seven clients at a skybox in Memorial Stadium for a single athletic event during the year. Substantive business discussions occurred at various times
Kristen, an independent management consultant, is based in Atlanta. During March and April of 2022, she is contracted by a national hardware chain to help implement revised human resource policies in
Christine is a full-time fourth-grade teacher at Vireo Academy. During 2022, she spends $1,400 for classroom supplies. On the submission of adequate substantiation, Vireo reimburses her for $500 of
Jordan Johnson is single and has adjusted gross income of $50,000 in the current year. Additional information is as follows:What amount may Jordan claim as itemized deductions on her current-year
Amber’s employer, Lavender, Inc., uses a § 401(k) plan that permits salary deferral elections by its employees. Amber’s salary is $99,000, her marginal tax rate is 24%, and she is 42 years
Carri and Dane, ages 34 and 32, respectively, have been married for 11 years, and both are active participants in employer qualified retirement plans. Their total AGI in 2022 is $207,000, and they
Harvey is a self-employed accountant with earned income from the business of $120,000 (after the deduction for one-half of his self-employment tax). He uses a defined contribution Keogh plan. What is
Answer the following independent questions with respect to traditional IRA contributions for 2022.a. Juan, age 41, earns a salary of $28,000 and is not an active participant in any other qualified
Ángel was in an accident and required cosmetic surgery for injuries to his nose. He also had the doctor do additional surgery to reshape his chin, which had not been injured. Will the cosmetic
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 2021. Although the stock of the corporation was not
Jerry and Elaine are comparing their tax situations. Both are paying all of the nursing home expenses of their parents. Jerry can include the expenses in computing his medical expense deduction, but
Cheryl incurred $8,700 of medical expenses in November 2022. On December 5, the clinic where she was treated mailed her the insurance claim form it had prepared for her with a suggestion that she
On March 5, 2017, the Hortons borrowed $100,000 against the equity in their personal residence with the loan secured by that home. In 2017, they were able to deduct the interest expense on this loan
Jayden, a calendar year taxpayer, paid $16,000 in medical expenses and sustained a $20,000 casualty loss in 2022 (the loss occurred in a Federally declared disaster area). He expects $12,000 of the
Chandler’s home was damaged by a hurricane in a Federally declared disaster area. The fair market value of his home before the hurricane was $300,000. After the hurricane, the fair market value of
Michaela owns a principal residence in Georgia, a townhouse in San Francisco, and a yacht in Cape Cod. All of the properties have mortgages on which Michaela pays interest. What are the limitations
Commercial Bank has initiated an advertising campaign that encourages customers to take out loans secured by their home to pay for purchases of automobiles. Are there any tax advantages related to
Thomas purchased a personal residence from Monique. To sell the residence, Monique agreed to pay $5,500 in points related to Thomas’s mortgage. Discuss the deductibility of the points.

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