Principles Of Taxation For Business And Investment Planning 2018 21st Edition Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan - Solutions

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1. Walters, an individual, received the following in 2017: W-2 income .......................................................................... $10,000 Federal tax refund for 2016 .......................................................... 1,250 Scholarship stipend, in return for teaching assistant
Valentino is a patient in a nursing home for 45 days in 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 long-term care insurance policy, which pays while he is in the facility. Assume that the daily Federal
Myers, who is single, reports compensation income of $69,000 in 2017. He is an active participant in his employer's qualified retirement plan. Myers contributes $5,500 to a traditional IRA. Of the $5,500 contribution, how much can Myers deduct? See Exhibit 11.3, Phase-out of IRA Deduction of an
Meredith, who is single, would like to contribute $5,500 to her Roth IRA. What is the maximum amount that Meredith can contribute if her AGI is $119,000?
Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2017. Determine the amounts that Rex must include in gross income. • Hospitalization insurance premiums for Rex and his dependents. The cost of the coverage for Rex is $2,900 per
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. Rosa is in the 28% marginal tax bracket and estimates that the medical and dental expenses not covered by
Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2017. Mio's salary for 2017 is $190,000. What is Mio's foreign earned income exclusion? (In your computation, round any division to four decimal places before converting to a percentage. For example,
Upon losing his job as a plant manager in Quincy, Massachusetts, Anthony incurs $6,200 in job search expenses. Having no success in finding new employment in the same type of work, Anthony moves to Clearwater, Florida, in 2017 and begins a charter boat business. His expenses in connection with the
Elijah is employed as a full-time high school teacher. The school district for which he works recently instituted a policy requiring all of its teachers to start working on a master's degree. Pursuant to this new rule, Elijah spent most of the summer of 2017 taking graduate courses at an
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $64,000 in 2017. a. Calculate the amount Janet can contribute to a traditional IRA and the amount she can deduct. b. Assume instead that Janet is a participant in a SIMPLE IRA and that she
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 2017 is $189,000, and they earn salaries of $87,000 and $95,000, respectively. What amount may Carri and Dane:a. Contribute to
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 has a profit sharing plan (e.g., defined contribution Keogh plan). What is the maximum amount Harvey can contribute to his retirement plan in 2017?
In 2017, Miranda records net earnings from self-employment of $146,000. She reports no other gross income. Determine the amount of Miranda's self-employment tax and her for AGI income tax deduction.
Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11-1111111). She also writes computer software programs for tax practitioners and has a part-time tax practice.
David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a regional sales manager for Wren Industries, a national wholesaler of plumbing and heating supplies, and Ella is a part-time dental hygienist for the Smile For Me
Jacob Patterson cannot make a fully deductible $5,500 IRA contribution because his AGI exceeds the phase-out range. Instead, he makes a $3,500 nondeductible IRA contribution to his traditional IRA. Determine how Jacob reports this on his tax return, and complete the appropriate form that he should
Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration:* Seth receives $6,000 in cash in addition to the 30 shares.** Pete receives $9,000 in cash in addition to the 30 shares.Assume that the value of each share of Kingfisher stock is $3,000. As to these
Tom and Gail form Owl Corporation with the following consideration:The installment note has a face amount of $350,000 and was acquired last year from the sale of land held for investment purposes (adjusted basis of $240,000). As to these transactions, provide the following information: a. Tom's
In January of the current year, Wanda transferred machinery worth $200,000 (adjusted basis of $30,000) to a controlled corporation, Oriole, Inc. The transfer qualified under § 351. Wanda had deducted $165,000 of depreciation on the machinery while it was used in her proprietorship. Later during
Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2017. Gull incurred the following expenses during its first year of operations (November 1, 2017-December 31, 2017): Expenses of temporary directors and organizational meetings
Egret Corporation, a calendar year C corporation, was formed on March 6, 2017, and opened for business on July 1, 2017. After its formation but prior to opening for business, Egret incurred the following expenditures: Accounting .......................................... $ 7,000 Advertising
In each of the following independent situations, determine the corporation's income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year involved is 2017. ___________________________________________ Taxable Income Purple Corporation
Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M-1 for 2017: Net income per books (after-tax) ....................................................... $257,950 Federal income tax per books
The following information for 2017 relates to Sparrow Corporation, a calendar year, accrual method taxpayer.Net income per books (after-tax) ......................................... $174,100Federal income tax per books ................................................ 86,600Tax-exempt interest
Dove Corporation, a calendar year C corporation, had the following information for 2017:Net income per books (after-tax) ..................................... $386,250Taxable income .......................................................... 120,000Federal income tax per books
In January 2017, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of a client's bankruptcy, Pelican, Inc., decreased the allowance by $60,000 in November 2017. Pelican,
Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2017. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation's deduction for organizational expenditures for 2017?
On November 1, 2007, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows:â€¢ Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211;
Tim is a real estate broker who specializes in commercial real estate. Although he usually buys and sells on behalf of others, he also maintains a portfolio of property of his own. He holds this property, mainly unimproved land, either as an investment or for sale to others. In early 2015, Irene
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from municipal bonds. (The municipality used the proceeds from the bond issue to construct a public library.)
Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer). Sparrow reported the following transactions during 2017, its second year of operation. Taxable income ..................................................................... $330,000 Federal income tax liability
On January 1 of the current year, Rhondell Corporation holds accumulated E & P of $13,000. Current E & P for the year is $84,000, earned evenly throughout the year. Elizabeth and Jonathan are the sole equal shareholders of Rhondell from January 1 to April 30. On May 1, Elizabeth sells all
Global Corporation distributed property with an $850,000 fair market value and a $415,000 adjusted basis to Kang, one of its shareholders. The property was subject to a $230,000 mortgage, which Kang assumed. Global's accumulated E & P totals $3 million. What is the amount of Kang's dividend income
Rosata Corporation has 2,000 shares of common stock outstanding. Howard owns 600 shares, Howard's grandfather owns 300 shares, Howard's mother owns 300 shares, and Howard's son owns 100 shares. In addition, Maroon Corporation owns 500 shares. Howard owns 70% of the stock of Maroon. a. Applying the
For the last 11 years, Zhang Corporation has owned and operated four different trades or businesses. Zhang also owns stock in several corporations that it purchased for investment purposes. The stock of Zhang is held equally by Sultan, an individual, and by Turquoise Corporation. Sultan and
Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. Amy is the managing member of the LLC (treated as a general partner) and is a U.S. citizen. At the beginning of the current tax year, Amy's capital account has a balance of $300,000, and the LLC
Henrietta transfers cash of $75,000 and equipment with a fair market value of $25,000 (basis to her as a sole proprietor, $10,000) in exchange for a 40% profit and loss interest worth $100,000 in the XYZ Partnership. a. Compute Henrietta's realized and recognized gains from the asset transfers. b.
The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2017, Jessica contributed land valued at $600,000 to the partnership in exchange for a 50% interest. She had purchased the land in 2009 for $420,000 and held it for investment purposes (capital
Burgundy, Inc., and Violet Gomez are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed payment of $100,000 for use of capital contributed by Burgundy. BV's taxable income (after deducting
Wozniacki and Wilcox form Jewel LLC, with each investor receiving a one-half interest in the capital and profits of the LLC. Wozniacki receives his one-half interest as compensation for tax planning services that he rendered prior to the formation of the LLC. Wilcox contributes $50,000 cash. The
Candlewood LLC began its business on September 1; it uses a calendar tax and accounting year. Candlewood incurred $6,500 in legal fees for drafting the LLC's operating agreement and $3,000 in accounting fees for tax advice of an organizational nature, for a total of $9,500 of organizational
Franco owns a 60% interest in the Dulera LLC. On December 31 of the current tax year, his basis in the LLC interest is $128,000. The fair market value of the interest is $140,000. Dulera then distributes to Franco $30,000 cash and equipment with an adjusted basis of $5,000 and a fair market value
When Bruno's basis in his interest in the MNO LLC is $150,000, he receives cash of $55,000, a proportionate share of inventory, and land in a distribution that liquidates MNO and his interest in the LLC. The inventory has a basis to the entity of $45,000 and a fair market value of $48,000. The
Polly has been the sole shareholder of a calendar year S corporation since its inception. Polly's stock basis is $15,500, and she receives a distribution of $19,000. Corporate-level accounts indicate a $6,000 balance in AAA and a $500 balance in AEP. How is Polly taxed on the distribution? What is
If the beginning balance in Swan, Inc.'s OAA is $6,700 and the following transactions occur, what is Swan's ending OAA balance? Depreciation recapture income ................................ $ 21,600 Payroll tax penalty ............................................... (4,200) Tax-exempt interest
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2017. The company generated a $74,000 NOL in 2016 and another NOL of $43,000 in 2017. Orange stock always is owned by the same four shareholders, each owning 25% of the stock. Pete, one of the
One of your clients, Texas, Inc., is considering electing S status. Both of Texas's equal shareholders paid $30,000 for their stock. As of the beginning of 2017, Texas's Subchapter C NOL carry-forward is $110,000. Its taxable income projections for the next few years are as follows. Will you
On March 2, 2017, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident alien) on January 18, 2017. Identify any potential problems for Terry or the corporation?
John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303. Premium's S election was made on January 15, 2010, its date of incorporation. The following
Alice owns 100% of Medical Data, a C corporation, and 100% of Your Realtors, an S corporation. She worked full time for Medical Data (i.e., she materially participated in the entity), but Alice did not materially participate in Your Realtors. During the tax years 2015 through 2017, Your Realtors
Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He manages all aspects of the company's operations, and he is the only person working at the company that holds a real estate broker's license. Sean works 12-hour days
Enders, Inc., a domestic corporation, reports $290,000 total taxable income for the year, consisting of $208,800 in U.S.-source business profits and $81,200 of income from foreign investment securities. Overseas tax authorities withheld $24,000 in income taxes on the investment income. Enders's
US-Co, a domestic corporation, reports worldwide taxable income of $1.5 million, including a $400,000 dividend from For-Co, a wholly owned foreign corporation. For-Co's undistributed E & P totals $16 million, and it has paid $10 million of foreign income taxes attributable to these earnings. All
Is a foreign corporation owned equally by 100 unrelated U.S. citizens considered to be a controlled foreign corporation (CFC)? Explain.
Vogel Corporation owns two subsidiaries. Song, located in State A, generated $500,000 taxable income this year. Bird, located in State B, generated a $100,000 loss for the period. a. Determine Song's taxable income in States A and B, assuming that the subsidiaries constitute independent
Oak Corporation holds the following general business credit carryovers. 2013 ............................... $ 5,000 2014 ............................... 15,000 2015 ................................. 6,000 2016 ............................... 19,000 Total carryovers ................ $45,000 If the
In January 2016, Iris Corporation purchased and placed in service a 1933 building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land. In modernizing the facility, Iris Corporation incurred $312,000 of renovation costs of the type that qualify for the
Green Corporation hires six individuals on January 4, 2017, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2017, and each individual works more than 400 hours during the year. The other three individuals each work 300 hours and receive
Blue Sky, Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in the United States. It also conducts some business in the European Union through various branches. During the current year, Blue Sky reports taxable income of $700,000, of which $500,000 is U.S.-sourced
Aqua, Inc., a calendar year corporation, has the following gross receipts and taxable income for its first four tax years: Year ____________ Gross Receipts ___________ Taxable Income 2014 .................... $6,000,000 .................... $1,400,000 2015 ..................... 7,000,000
In March 2017, Grackle, Inc., acquired used equipment for its business at a cost of $300,000. The equipment is five-year class property for regular income tax purposes and for AMT purposes. Grackle does not claim any available additional first-year depreciation.a. If Grackle depreciates the
Rust Company is a real estate construction business with average annual gross receipts of $3 million. Rust uses the completed contract method on a particular contract that requires 16 months to complete. The contract is for $500,000, with estimated costs of $300,000. At the end of 2016, $180,000 of
Allie, who was an accounting major in college, is the controller of a medium size construction corporation. She prepares the corporate tax return each year. Due to reporting a home construction contract using the completed contract method, the corporation is subject to the AMT in 2017. Allie files
Pheasant, Inc., is going to be subject to the AMT in 2017. The corporation owns an investment building and is considering disposing of it and investing in other realty. Based on an appraisal of the building's value, the realized gain would be $85,000. Ed has offered to purchase the building from
Purple Corporation, a calendar year taxpayer, began operations in 2015. It reported the following amounts for its first four tax years. Calculate Purple's positive and negative ACE adjustments for each year. _________________ Unadjusted AMTI __________ ACE 2015 ................. $85,000,000
During 2017, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during the year. Determine the amount of Lincoln's work opportunity credit?
Included in Alice's regular taxable income and in her AMT base is a $300,000 capital gain on the sale of stock she owned for three years. Alice is in the 35% tax bracket for regular income tax purposes. In calculating her regular income tax liability, she uses the appropriate alternative tax rate
In the current year, DYL Corporation earned taxable and tax-exempt interest from the following investments. Investment ___________________________________ Interest Income 10-year municipal bond (issued in 2009) ..................... $1,300 10-year private activity bond (issued in 2010)
Jane and Robert Brown are married and have eight children, all of whom are eligible to be claimed as the couple's dependents. Robert earns $94,000 working as an accountant, and Jane earns $38,000 as a teaching aide. Given their large family, they live in a frugal manner. The Browns maintain a large
Pat, who is age 66 and single with no dependents, received a salary of $90,000 in 2017. She earned interest income of $1,000, dividend income of $5,000, gambling winnings of $4,000, and interest income from private activity bonds (issued in 2006) of $40,000. The dividends are not qualified
Renee and Sanjeev Patel, who are married, reported taxable income of $273,000 for 2017. They incurred positive AMT adjustments of $38,000, negative AMT adjustments of $14,000, and tax preference items of $67,500. The couple itemizes their deductions. a. Compute the Patels' AMTI for 2017. b. Compute
Dora incurs the following research expenditures. In-house wages ................................... $60,000 In-house supplies .................................... 5,000 Payment to ABC, Inc., for research ............. 80,000 a. Determine the amount of qualified research expenditures. b. Assuming
Siga, Inc., a calendar year Corporation, records the following gross receipts and taxable income for 2015 through 2017. Year _________ Gross Receipts _________ Taxable Income 2015 ................. $4,200,000 .................. $ 900,000 2016 ................. 7,000,000 ....................
Pine-view Corporation placed an asset (three-year MACRS class life) costing $5,000 in service on June 1, 2017. Complete the table below by providing the AMT adjustment and indicate whether the adjustment increases or decreases taxable income.
Given the following information, determine the ACE adjustment for each year. _____________________________ 2017 _________ 2018 __________ 2019 Unadjusted AMTI $ ............... 800,000 ....... $2,000,000 ........ $1,500,000 Adjusted current earnings........ 1,200,000 ...... 2,000,000 .............
Adelyn has a tentative general business credit of $42,000 for the current year. Her net regular tax liability before the general business credit is $107,000, and her tentative minimum tax is $88,000. Compute Adelyn's allowable general business credit for the year?
Balm, Inc., has a general business credit for 2017 of $90,000. Balm's regular income tax liability before credits is $140,000, and its tentative AMT is $132,000.a. Calculate the amount of general business credit Balm can use in 2017, and calculate its general business credit carry-back and
Cooper Partnership, a calendar year partnership, made qualifying rehabilitation expenditures to a building that it has used in its business for eight years. These improvements were placed in service on January 5, 2016. The amount of the rehabilitation expenditures credit was $40,000. Cooper is
For many years, Saul's sole proprietorship and his related Form 1040 have had a number of AMT tax preferences and AMT adjustments. He has made the AMT calculation each year, but the calculated amount always has been $0. Saul's regular taxable income and the AMT adjustments and preferences for 2017
Roscoe contributes a personal-use asset, adjusted basis $15,000 and fair market value $28,000, to a new business in which he is an owner. Determine Roscoe's recognized gain on the transfer, and the basis of the asset to the business, if the new operation is a: a. Sole proprietorship. b.
Falcon Corporation, a calendar year taxpayer, is a deepwater offshore drilling company that is planning to sell drilling equipment that it no longer needs. The drilling equipment has an adjusted basis of $400,000 ($700,000 - $300,000 depreciation) and a fair market value of $500,000. The AMT
For many years, Sophie has owned and operated several apartment buildings. In 2011, upon the advice of her attorney, Sophie transferred the apartment buildings to a newly created corporation. Her main reason for incorporating the business was to achieve the legal protection of limited
Rosa contributes $50,000 to Flip-Co in exchange for a 10% ownership interest. Rosa materially participates in Flip-Co's business. Flip-Co incurs a loss of $900,000 for the current tax year. Entity liabilities at the end of the year are $700,000. Of this amount, $150,000 is for recourse debt, and
Why can people avoid paying an excise tax more readily than they can avoid
Mrs. DK, a resident of Rhode Island, traveled to Delaware to purchase an oil painting from a local artist. The cost of the painting was $9,400. Rhode Island has a 7 percent sales and use tax, while Delaware has no sales and use tax. a. How much Rhode Island use tax does Mrs. DK owe on the purchase
Ms. SP, who lives in California, traveled to Oregon to purchase gold jewelry for $20,000. California has a 7.5 percent sales and use tax, while Oregon has no sales and use tax. a. Compute the use tax that Ms. SP owes to California on the jewelry purchased in Oregon. b. Compute the use tax that Ms.
Company W produces circuit boards in a foreign country that imposes a 15 percent VAT. This year, Company W manufactured 8.3 million boards at a $5 material cost per unit. Company W's labor and overhead added $1 to the cost per unit. Company W sold the boards to various customers for $7.50 per unit
In each of the following cases, determine if the United States has jurisdiction to tax Mr. KT. a. Mr. KT is a U.S. citizen but has been a permanent resident of Belgium since 1993. b. Mr. KT is a citizen and resident of Canada. He owns an apartment building in Buffalo, New York, that generates
Monroe County levies a tax on the value of real property located within the county. The tax equals 3 percent of the property's assessed value up to $2 million plus 1 percent of the value in excess of $2 million. a. Compute the tax on real property valued at $1.3 million. b. Compute the tax on real
TR Company conducts business exclusively in State V, which levies a 5 percent sales and use tax on goods purchased or consumed in-state. This year, TR bought equipment in State B. The cost of the equipment was $90,000, and TR paid $5,400 sales tax to State B. TR also bought machinery in State D.
A local government levies an annual real property tax on the personal residence located at 123 Maple Drive. This tax is assessed on a calendar-year basis, and the homeowner must pay the tax before December 31. In November, Mr. and Mrs. J received the annual tax bill for $2,900. The couple purchased
Mr. KW, age 72, has lived in Los Angeles his entire life. His net worth is estimated at $95 million. Mr. KW is considering renouncing his U.S. citizenship, selling his home in Los Angeles, and permanently relocating to the Cayman Islands. The Cayman Islands impose no tax of any sort on their
Company F operates in a jurisdiction that levies real property tax but no personal property tax. This year, the company spent $6 million to add an exterior lighting system and security fences to the parking lot adjacent to its corporate headquarters.
Company B, which has offices in six states, owns an airplane that company executives use to travel from office to office. When the plane is not in use, it is stored in a hangar located in a jurisdiction that doesn't levy a personal property tax on business tangibles. When the plane is in use, it is
For the past 22 years, Mrs. O contributed part of her salary to a retirement plan sponsored by her corporate employer. Under federal law, Mrs. O did not pay tax on the income she contributed. She will, however, pay federal income tax on the distributions from the plan when she retires. Mrs. O has
Business Q orders $500,000 of office furniture from Vendor V, which ships the furniture by rail from its manufacturing facility in State V to Business Q's corporate headquarters in State Q. State V imposes a 6.5 percent sales tax, while State Q imposes only a 4 percent sales tax.
Acme Corporation was formed under the laws of State X and has its corporate headquarters in that state. Acme operates a manufacturing plant in State Y and sells goods to customers in States X, Y, and Z. All three states have a corporate income tax. This year, Acme's net profit from its tristate
Eighteen months ago, BBB Company opened a manufacturing facility in County K. As an incentive for BBB to locate within its jurisdiction, County K abated all local property taxes for the first two years of operation. BBB recently announced that it will shut down the facility before the end of the
Dempsey Corporation is organized under Canadian law and has its corporate headquarters in Montreal. This year, Dempsey sold $28 million of goods to customers who live in the United States. However, Dempsey doesn't maintain any type of office in the United States.
The federal government levies a gift tax on the value of property that people give away during their life and an estate tax on the value of property that people transfer at death. From the government's perspective, which tax is more convenient?

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Principles Of Taxation For Business And Investment Planning 2018 21st Edition Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan - Solutions

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