Taxation For Decision Makers 2017 7th Edition Shirley Dennis Escoffier, Karen Fortin - Solutions

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What is a tax? How does a tax differ from a fine?
Differentiate the tax treatment of an individual's capital losses from the tax treatment of corporate capital losses.
What are the basic tax rates for an individual and a corporation?
What are two fiduciary entities and how are they created? Define grantor, trustee, and beneficiary for a trust.
Which version of the tax code is applicable today?
If a taxpayer has $140,000 of employee salary, how much will be withheld for the Social Security and Medicare taxes in 2016?
Determine Amy's taxable income for 2016 if she has $40,000 of salary income, is single, and has $10,350 in total allowable deductions.
Marlee is a single parent with $25,450 in total allowable deductions and qualifies as head of household for 2016. Determine her taxable income if she has a salary of $71,000 and interest income of $1,500.
Determine George and Mary's taxable income and tax liability for 2016 if George has $65,000 and Mary has $45,000 of salary income, they have $36,200 of total allowable deductions, and they file a joint tax return.
Refer to the information in problem 34. Determine Warner Corporation's income tax liability. Data from problem 34 The Warner Corporation has gross income of $560,000. It has business expenses of $325,000, a capital loss of $20,000, and $2,500 of interest income on temporary investments
Define tax expenditure?
Explain the integration of the gift and estate taxes.
Sally and Jim are married and have taxable income in 2016 of $160,000. If they could file their income tax as single individuals, each of them would have taxable income of $80,000. Do they have a marriage penalty when they file their joint return? If so, what is the amount of the penalty?
Conrad and Anita (a college student with no income) plan to marry on December 21, 2016. Filing jointly, they expect to have $180,000 of taxable income for the year. If they wait until January of 2017 to marry, Conrad will file as a single person and report the $180,000 of taxable income on his
Carrie and Stephen have gross salary and wages of $76,000 in 2016 and file a joint return. They have $27,150 of total allowable deductions and a $240 child care credit. Determine their taxable income and their tax liability.
An estate has $20,000 of taxable income in 2016. What amount of tax will the estate pay if it fails to distribute the income to the beneficiaries?
Lilikoi Corporation began business in 2014. Lilikoi earned taxable income of $40,000 in 2014 and $120,000 in 2015. For 2016, Lilikoi Corporation has a net operating loss of $50,000 and decides to carry the loss back, filing a refund claim. Compute the amount of corporate income tax that Lilikoi
June and John decide to form a business. They each plan to contribute $20,000 in exchange for a 50 percent interest in the business. They will then take out a bank loan for $30,000 to cover the balance of their working capital needs. They expect that the business will make a profit of $64,000 in
John and Martha are planning to be married. Both are professionals each with taxable incomes of $89,700 annually. They are deciding on a wedding date. They have two dates to choose from: December 14, 2016, or January 11, 2017. If they marry on December 14, 2016, they will have to choose between
Jeremy is setting up a service business. He can either operate the business as a sole proprietorship or he can incorporate as a regular C corporation. He expects that the business will have gross income of $80,000 in the first year with expenses of $12,000 excluding the following. He plans to take
Carol has recently incorporated her sole proprietorship and is considering making an S election. The corporation has $200,000 of gross revenue and expenses of $75,000 before Carol's salary. She plans to take a gross salary of $60,000 from the business and this will be her only income for the year.
What is the maximum income tax rate that applies to the employee salary, the employment tax rate(s) on the salary, and the capital gain rate(s) on the long-term capital gains, for these four single individual taxpayers in 2016? a. Employee Salary = $27,000; Capital Gain = $9,000 b. Employee Salary
Differentiate a consumption based tax from an income tax and illustrate with an example.
How does a franchise tax differ from an income tax?
Go to www.taxfoundation.org (the Web site for the Tax Foundation). a. What is Tax Freedom Day? b. When were Tax Freedom Days in 2014 and 2015?
What employment taxes are imposed on an employee and an employer?
Over what ranges of taxable income in 2016 will the total income tax liability two persons with equal incomes who file as single individuals equal their income tax liability if they file jointly as a married couple?
Differentiate a progressive tax system from a proportional and a regressive system and give examples of each.
What basic tax rates apply to the ordinary income, dividend income, and interest income of an individual? What are they for a corporation?
What tax rates apply to an individual's capital gains and to which tax brackets do each of this rates apply?
Briefly explain Adam Smith's four canons of taxation.
What Constitutional Amendment allowed implementation of an income tax? In what year was it ratified?
Explain the business purpose doctrine.
In the citation Reg. §1.247-3, what do the 1 and the 247 indicate?
What does it mean when a Tax Court decision says that the decision has been entered under Rule 155?
What are the four sections of a memo to the file? Explain what each section should include.
Kevin deliberately omitted $40,000 of gross income from his restaurant on his 2016 tax return. The return indicated gross income of $200,000 when filed on April 14, 2017. When can the IRS no longer pursue Kevin with the threat of collection of the related tax, interest, and penalties?
Alison accidentally omitted $40,000 of gross income from the restaurant she owned on her 2015 tax return. The return showed gross income of $150,000 when filed on October 15, 2016. When can the IRS no longer pursue Alison with the threat of collection of the related tax, interest, and penalties
Thomas received $30,000 in a legal settlement in 2016. The tax treatment of the item is not certain. Thomas's research results were ambiguous and he is not sure if the income is taxable. Because some doubt remained and because he did not think he would be audited, Thomas decided the income was not
Cynthia and Howard, married taxpayers filing a joint return, have $100,000 in taxable income in 2016. They have 4 children (ages 4 through 12) who have no income that is taxable. If they can legally shift $2,000 in taxable income to each child, how much does the family save in taxes?
What are the three courts in which a taxpayer initiates tax litigation to settle a dispute with the IRS? To which courts can adverse decisions from these courts be appealed?
Go to www.aicpa.org (the AICPA's Web site) and search for Statements on Standards for Tax Services. Read the history section of the most recent version of the Statements on Standards for Tax Services. What reasons were provided for revising the SSTS?
Jim was reviewing several of a client's prior tax returns in preparation for completing the current year's return. Jim discovered a serious error on the return filed almost three years earlier that would subject the client to $40,000 in additional taxes.
Your client, Ms. I.M. Gorgeous, is an aspiring actress. She has managed to earn a living doing television commercials but was unable to get the acting parts she really wanted. She decided to have botox injections in her forehead and collagen enhancements to her lips. After these procedures, her
Last year your client, Barney Bumluck, worked part-time for Timely Tax Return Preparation Service. Barney was promised an hourly wage plus a commission. He worked under this arrangement from early February until April 15. His accrued pay amounted to $900 plus $120 of commissions. When he went to
Your clients, Sonny and his wife Honey, believe in worshiping Ta-Ra, the Sun God. To practice their religious beliefs, they take a weeklong trip to Hawaii to worship Ta-Ra. The cost of this pilgrimage (including airfare, hotel, and meals) is $2,800. Sonny wants to know if he can deduct the cost of
Fred Fisher is a licensed scuba diver who lives in Key Largo. He is employed full-time as an engineer. Five years ago he had been employed as a professional diver for a salvage company. While working for the salvage company he became interested in marine archaeology and treasure hunting. Until
Locate and read Greg McIntosh, TC Memo 2001-144, 81 TCM 1772, RIA TC Memo ¶2001-144 (6/19/2001). Answer the following questions. a. What requirements must be met for a taxpayer to recover litigation costs from the IRS? b. Was the taxpayer in this case able to recover his attorney fees from the
Locate and read the following two cases: J.B.S. Enterprises, Inc., T.C. Memo 1991-254,61 TCM. 2829, 1991 PH T.C. Memo ¶91,254 Summit Publishing Company, Inc., T.C. Memo 1990-288,59 TCM. 833, 1990 PH T.C. Memo ¶90,288 List those facts that you feel most influenced the judges to reach different
Explain the realization principle.
Explain how the community property laws can affect the allocation of income between spouses.
At the beginning of the current year, Martha, a cash-basis taxpayer, purchased a $10,000 three-year bond from Lauderhill Corporation at its issue price of $7,000. At the end of the year, $840 of the interest had accrued. How much income does Martha report for the current year?
Provide three reasons why generally accepted accounting principles are not allowed for tax purposes.
At the end of October, year 1, Dunbar Corporation hired Specialty Training, an accrual-basis, calendar-year taxpayer, to provide a six-week training program for its employees. Dunbar paid Specialty its full training fee of $30,000 on the first day of training. After five weeks of training sessions,
Mac's 24-year-old daughter, Alana, is a full-time student. In 2016, Mac gives Alana 600 shares of Highgrowth stock. Mac purchased the stock 10 months ago at $20 per share. On the gift date, the stock is worth $35 per share. After the gift, Highgrowth declares and pays a $170 dividend to Alana. The
What are two major categories of differences between financial accounting income and taxable income?
What types of investments are favored by tax law and why?
Krystyna, a single individual, invested $20,000 in corporate bonds with a stated interest rate of 5 percent and another $20,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 4.75 percent. Calculate her after-tax cash flow from each investment if: a.
Justin's 24-year-old son, Carlos, is a full-time student. In April 2016, Justin gave Carlos 450 shares of Striker Oil stock. Justin purchased the stock 8 months earlier at $18 per share. On the gift date, the stock was worth $31 per share. After the gift, Striker Oil declared and paid a $200
Some politicians have proposed changing the way Social Security benefits are taxed. One proposal would increase the amount of Social Security benefits included in gross income to 100 percent. A tax rate of 100 percent would then apply for some high-income individuals effectively preventing them
U.S. citizens residing in certain countries are exempt from U.S. tax on their social security benefits. Go to the IRS Web site (www.irs.gov) and locate Publication 915: Social Security and Equivalent Railroad Retirement Benefits to determine which countries are covered under this special provision.
Gamma Corporation, a calendar-year accrual-basis taxpayer, operates department stores. Alpha Corporation and Beta Corporation are wholly-owned domestic subsidiaries of Gamma Corporation and file a consolidated federal tax return under Gamma Corporation's consolidated group. Gamma, Alpha, and Beta
Thomas ran for Congress, raising $2 million for his campaign. Six months after losing the election, auditors discovered that Thomas kept $160,000 of the campaign funds using the money to purchase a vacation home. What are the tax consequences of this use of campaign funds?
Samantha has been unemployed for some time and is very short of money. She learned that the local blood bank has a severe shortage of her type of blood and, therefore, is willing to pay $120 for each blood donation. Samantha gives blood twice a week for 12 weeks, receiving $120 for each donation.
Alice and Manny agree to divorce. Alice proposes that Manny purchase and assign to her a life insurance policy on his life as part of the divorce agreement. She wants Manny to continue paying the premiums on this policy for the next 10 years. Manny wants to know if the premium payments will be
A minister receives an annual salary of $16,000 in addition to the use of a church parsonage with an annual rental value of $6,000. The minister accepted this minimal salary because he felt that was all the church could afford to pay. He plans to report these amounts on his income tax return but he
John is a single individual who works for Auto Rental Cars in Japan during the entire calendar year. His salary is $140,000. How much of this salary can he exclude?
Nick, age 53, is single and has AGI of $63,000. He contributes $5,000 to his IRA in 2016. a. How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan? b. How much can Nick deduct if he is covered by an employer-sponsored qualified retirement plan?
Jennifer, age 35, is single and is an active participant in her employer's qualified retirement plan. Compute the maximum Roth IRA contribution that she can make in 2016 if a. Her adjusted gross income is $135,000. b. Her adjusted gross income is $59,000. c. Her adjusted gross income is $38,000
Carrie owns a business that she operates as a sole proprietorship. The business had a net profit of $25,000 in 2016. This is Carrie's only earned income. a. How much must she pay for self-employment taxes? b. How much can she deduct on her tax return? c. If the business had a net loss of $10,000
George has $83,000 in salary from his full-time position and $43,000 in net income in 2016 from his sole proprietorship. What is his self-employment tax? What portion of this can he deduct?
Luis operates a bakery as a sole proprietorship which generated $280,000 in net income. He has four bakers whom he employs on a full-time basis and who participate in a company-paid health insurance plan. Luis is also covered by this same plan. The annual premiums are $2,300 per person. The
Global Corporation is looking for a new CEO. The board of directors selected Miguel as the top candidate. During negotiations, Miguel indicated he wanted a $2 million salary in addition to the stock-based compensation the board was offering. Although this salary level could be considered
Evan is setting up a new business. He can operate the business as a sole proprietorship or he can incorporate as a regular C corporation or as an S corporation. He expects that the business will have gross income of $130,000 in the first year with expenses of $25,000 excluding the following. He
Go to www.legalbitstream.com. Locate and read Revenue Ruling 2003-102. What type of medicines and drugs can be reimbursed through a flexible spending arrangement (FSA) according to this ruling? What change took effect in 2011?
Martin Martindale, the 40-year-old founder and President of Martindale Corporation (an accrual-basis calendar-year C corporation), owns 60 percent of the stock and receives a salary of $600,000. Four unrelated shareholders own the rest of the stock equally. The corporation has paid dividends
McGuire Corporation is planning to acquire a corporate jet to increase the efficiency and security of its executives who will use the jet for both business trips and personal vacations. McGuire Corporation wants to know how it should determine the amount that is taxed to its employees when they use
Robert, age 35, has accumulated $36,000 in his traditional IRA. He recently married and would like to withdraw $25,000 from his IRA for a down payment on their first house. Write a letter to Robert stating the tax implications of his proposed withdrawal.
Jennifer, age 40, has accumulated $40,000 in her traditional IRA. She would like to withdraw $22,000 from her IRA to pay for her daughter's college expenses. She plans to use $15,000 for tuition and $7,000 for room and board. Write a letter to Jennifer stating the tax implications of her proposed
Elena is single but her mother, Maria, lives with her. Maria's sole income is $7,000 in Social Security (which she saves for unexpected medical expenses) and $500 of interest income on that account. Elena provided a room in her home for Maria that could have been rented for $5,500 and Elena spent
Mark and Patricia report adjusted gross income of $380,500 and itemized deductions of $64,000 for the interest on home acquisition mortgage (principal amount of $890,000), taxes, and charitable contributions. They file a joint income tax return and claim their four children as dependents. What is
Cindy files as head of household and has three dependent children ages 12, 14, and 16. Her AGI is $80,000. How much can Cindy claim for the child tax credit?
Greg and Barbara, a married couple with an AGI of $80,000, have three children who are full-time college students. They pay $6,000 for tuition annually for each child. One son is a sophomore in college and the other son is a senior. Their daughter is a graduate student. How much can Greg and
Doris is a single individual with modified AGI of $56,000. During the year, she paid $11,000 tuition for a master's in taxation program. How much can Doris claim for the lifetime learning credit?
Roland worked for Sorbonne Company for the first four months of 2016and earned $40,000 from which his employer withheld $3,060 for payroll taxes. In May, Roland accepted a job with Lyon Company. During the last eight months of the year, Roland earned $84,000 from which Lyon withheld $6,426 for
Linda received $90,000 in salary income for 2016. She has no dependents. Determine her income tax liability under each of the following independent situations: a. She files as a single individual. b. She is married and files a joint return with her spouse. Their only income is her $90,000
Andrew, a single individual, has $220,000 in salary and $60,000 in self-employment income in 2016. How much must he pay for his additional Medicare tax?
Lenora and Sam are married and file a joint tax return. Lenora has $180,000 in salary and Sam has $190,000 in self-employment income in 2016. How much must they pay for their additional Medicare tax?
During 2016, Raymond, a single individual, earned a salary of $196,000. He also had the following items of investment income: $40,000 net short-term capital gain on sale of stock, $7,000 dividend income, $5,000 interest income from corporate bonds, and $4,000 interest income from tax-exempt
Michelle, a single individual, reports 2016adjusted gross income of $280,000 and has the following itemized deductions before applicable limitations: Medical expenses.........................................$ 14,000 Interest on home acquisition mortgage interest with a principal amount of
Which of the following individuals must file a tax return in 2016? a. Carolyn is single and age 66. She receives $2,000 of interest income, $3,000 of dividend income, and $6,000 in Social Security benefits. b. Tim is single, age 18, and a full-time student. He is claimed as a dependent on his
Kelly Martin is divorced; her dependent child, Barbara, lives with her and is her dependent. Kelly has the following items of income and expense: Income: Salary............................................................................$60,000 Cash
Differentiate between an abandoned spouse and a surviving spouse.
Jennifer and Jason Greco are married and file a joint tax return. Their two dependent children (Jim, age 14 and Jessica, age 16); both live at home. The Grecos have the following income and expenses:Income:Jennifer's salary.........................................................$120,000Jason's net
Lauren is single, age 60, and has an annual salary of $68,000. She paid off her mortgage in December 2015 but expects that her annual real estate taxes will continue to be approximately $5,800. Lauren contributes $2,500 each year to her favorite qualified charities but she has no other itemized
Manuel plans to make a significant contribution to his favorite charity with one of the following assets. Which asset would you recommend Manuel contribute and why? a. Stock acquired five years ago at a cost of $13,000. The current fair market value is $10,000. b. Stock acquired six months ago at a
When would a taxpayer claim the standard deduction rather than itemizing deductions?
Don has a very painful terminal disease and has learned that marijuana may mitigate his pain. Don lives in a state in which it is legal to use the drug if its use is under the direction of a medical doctor. Can Don deduct the cost of the marijuana as a medical expense?
Charlene provides 100 percent of the support for her elderly handicapped mother, Amanda. Amanda insists on living alone in her own apartment even though she has a severe hearing impairment. Amanda has always liked cats, so Charlene purchased a cat that is registered as a hearing assistance animal
Howard is a single parent with an 11-year-old dependent son. The son currently attends sixth grade at public school. Howard accepts a temporary foreign assignment from his employer, which is expected to last from August through December. Because of the unstable political environment in the foreign

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Taxation For Decision Makers 2017 7th Edition Shirley Dennis Escoffier, Karen Fortin - Solutions

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