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

On December 10, 2016, the representative of a national charitable organization contacted the CEO of Wilkie Inc., a calendar year accrual basis corporation, to solicit a $100,000 donation. The CEO presented the solicitation to Wilkie's board of directors on December 19, and the board unanimously
In 2016, Elspeth Corporation paid both regular tax ($2,714,000) and AMT ($129,300). The director of tax forecasts that Elspeth will be in an AMT position for 2017 and 2018. However, its tentative minimum tax in 2019 will be significantly less than its regular tax. Assuming a 6 percent discount
Describe the FICA payroll tax implications when the IRS classifies a portion of a salary payment to a shareholder/employee as a constructive dividend?
Why are publicly held corporations such as General Motors generally immune from the accumulated earnings tax?
Mr. and Mrs. Barnes own a fast-food restaurant that generates $160,000 average annual income. The couple wants to shift some of this income to their two children, ages 19 and 22. Can Mr. and Mrs. Barnes organize their restaurant as a family partnership and give each child a 25 percent interest?
Mega Corporation generates taxable income of $550,000 per year. Mini Corporation generates taxable income of $50,000 per year. a. Calculate regular income tax liability for Mega and Mini and total tax due by the two corporations. b. How would the total tax liability owed by Mega and Mini change if
Delta Partnership has four equal partners. At the beginning of the year, Drew was one of the Delta partners, but on October 1, he sold his partnership interest to Cody. If Delta's ordinary income for the year was $476,000, what portion of this income should be allocated to Drew, and what portion
Mr. and Mrs. Keck are in the highest marginal tax bracket. Their son, a first-year college student, earns minimal income from his summer job, and his marginal tax rate is 10 percent. Mr. and Mrs. Keck are considering making their son an equal owner in a family business that generates more than
WQ Corporation, a closely held family business, has not paid a dividend for the last seven years. Each year, the minutes of the board of directors' December meeting state that WQ must accumulate after-tax income to pay for a new manufacturing facility. Until plans for construction are finalized, WQ
Mr. Jackson owns a 40 percent interest in newly formed JKL Partnership. The partners organized their business as a pass through entity so that the start-up loss would generate an immediate tax savings. Mr. Jackson, however, had a substantial loss from another business and has no taxable income
Mr. and Mrs. Braun own 100 percent of the stock of BB Inc., which operates a temporary employment business. Late last year, Mr. Braun was short of cash in his personal checking account. Consequently, he paid several personal bills by writing checks on the corporate account and recorded the payments
REW Inc. is closely held by six members of the REW family. The corporation owns two vans that employees use for various business transportation purposes. However, for at least eight weeks during each year, the shareholders use the vans to take their families on extended vacation trips. Identify the
Eight years ago, Mr. and Mrs. Lauffer created a family partnership with their son, the son's wife, their daughter, and the daughter's husband. Each of these six individuals owns an equal interest in the partnership. This year, the son and his wife decide to divorce. Identify the tax issue or issues
LSN, a calendar year S corporation, has 13 shareholders. Since its incorporation, LSN has retained more than $800,000 income to reinvest in its business. Because LSN is a pass through entity, the shareholders have paid tax on this undistributed income and increased their stock basis accordingly.
Taha is closely held by eight family members. Taha purchased investment land 12 years ago for $100,000. The land was recently appraised at a FMV of $3 million. A buyer has offered to pay cash for the land. Because the shareholders need the cash, they plan to have Taha distribute the land to them as
Mr. and Mrs. Crandall own 100 percent of the stock in CR Inc., which recently hired the couple's nephew at a $30,000 annual salary. The nephew, age 20, has been in several scrapes with the law and needs financial help, and the Crandall family agreed that a low-stress job with the family business is
Borden Inc. conducts a business that spans four states. Its total income for the year was $32 million. However, the total of the taxable incomes reported on Borden's four state income tax returns was $34.8 million. Discuss the possible reasons for such a discrepancy?
In what situation would a multistate business deliberately create nexus with a state so that the state has jurisdiction to tax a portion of the business income?
Distinguish between a home country and a host country in the international tax context?
Watch Corporation has U.S. source income for the current year of $2 million, foreign source income from Country X of $3 million, and foreign source income from Country Y of $1 million, for total taxable income of $6 million. Watch paid $900,000 of income tax to Country X and $480,000 of income tax
For the current year, Harbor Corporation earned before-tax income of $776,000. Harbor operates in a single state with a 10 percent state income tax rate.a. Compute Harbor's state income tax liability.b. Assuming Harbor deducts state income taxes when accrued, compute Harbor's federal taxable income
Jumper Inc., which has a 34 percent marginal tax rate, owns 40 percent of the stock of a CFC. At the beginning of 2016, Jumper's basis in its stock was $660,000. The CFC's 2016 income was $1 million, $800,000 of which was subpart F income. The CFC paid no foreign income tax and distributed no
Refer to the facts in the preceding problem. In 2017, the CFC's income was $600,000, none of which was subpart F income, and it distributed a $300,000 dividend to its shareholders ($120,000 to Jumper). How much of this actual dividend is taxable to Jumper in 2017? Compute Jumper's basis in its CFC
Bianco Inc. is headquartered in Pennsylvania. Bianco produces custom stationary for sale to customers in stores located in Pennsylvania and New Jersey. It also sells its products online and ships to customers in other states. Last year, Bianco sold its products to online customers in Maryland,
Lido Inc. does business in two states, X and Y. State X uses an equal-weighted three factor apportionment formula and has a 4 percent state tax rate. State Y bases its apportionment only on the sales factor and has a 5 percent state tax rate. Lido's state-level taxable income before apportionment
Turbo is a U.S. corporation. This year, it earned $5 million before-tax income and paid $175,000 income tax to jurisdictions other than the United States. Compute Turbo's U.S. federal income tax assuming that:a. The other jurisdictions were Ireland and Germany, and Turbo's foreign tax credit was
Williams Inc. is a U.S. corporation that manufacturers toys in a factory located near Milwaukee, Wisconsin. Williams sells the toys to its foreign subsidiary, which is incorporated in Carnema, a Caribbean country with no corporate income tax. Williams actually ships the toys to a warehouse in
Durbin Corporation is incorporated and has its commercial domicile in State N. This year, Durbin sold its manufactured products to customers in State N (61 percent of sales), State O (28 percent of sales), and State P (11 percent of sales). Durbin has nexus with State N and State O. However, it has
Benton is a consulting firm with its headquarters in New York City. This year, it entered into a consulting contract with a multinational corporation. Mrs. Kalle, an employee, spent 33 days working at Benton headquarters, 28 days in London, 50 days in Paris, and 14 days in Hong Kong performing the
Funk Corporation conducts business in a foreign jurisdiction that imposes a 1 percent tax on gross receipts from sales within the jurisdiction. This year, Funk paid $750,000 gross receipts tax to the jurisdiction. Identify the tax issue or issues suggested by the above situations, and state each
Lincoln manufactures paper products in the United States and sells the products internationally. Because most of its foreign sales are in high-tax jurisdictions, Lincoln has excess foreign credits from its paper business. This year, Lincoln earned $8 million interest income on long-term bonds
Discuss possible tax policy reasons why individuals who are age 65 or older receive an additional standard deduction.
Individuals who are legally blind receive an additional standard deduction, while individuals with other disabilities, such as deafness or paralysis, aren't entitled to an additional deduction. Is there a tax policy justification for the different treatment?
Describe the restrictions on tax benefits available to an individual taxpayer who is claimed as a dependent on another taxpayer's Form 1040.
Determine Ms. A's filing status in each of the following independent cases: a. Ms. A and Mr. Z have been living together since 2015. They were married on December 13, 2017. b. Ms. A married Mr. P in 2010. They were divorced on November 8, 2017, and have no dependent children. c. Ms. A married Mr. P
Mr. P is an unmarried individual with no dependent children. He reports the following information:Wages.......................................................$65,000Schedule C net profit.......................................11,650Interest from savings
Mr. and Mrs. H are married with two dependent children living with them. Their AGI is $360,000.a. Using the worksheets in Appendixes 14-A and 14-B, compute the exemptions and the below-the-line deduction that they will report in computing taxable income. Assume that itemized deductions total
Mr. and Mrs. L are married with no dependent children. Mr. L worked for Smart Tech Corporation January through March and for Computer Associates the remainder of the year. Mrs. L finished her degree in November and immediately began as an associate with Smith and Weber. They report the following
Jaclyn Biggs, who files as a head of household, never paid AMT before 2017. In 2017, her $197,900 taxable income included $178,000 ordinary income and a $19,900 capital gain taxed at 15 percent. Her 2017 AMTI in excess of her exemption amount was $218,175.a. Compute Jaclyn's total income tax for
In January, Ms. NW projects that her employer will withhold $25,000 from her 2018 salary. However, she has income from several other sources and must make quarterly estimated tax payments. Compute the quarterly payments that result in a 2018 safe-harbor estimate assuming that: a. Her 2017 AGI was
Mr. and Mrs. Brown report taxable income of $120,000 in 2017. In addition, they report the following:Excess Social Security Withholding Credit..................$ 2,200Estimate tax
Ms. NM, a single taxpayer, projects that she will incur about $8,000 of expenses qualifying as itemized deductions in both 2017 and 2018. Assuming that her standard deduction is $6,350 in both years, compute the effect on taxable income for each year if she can shift $2,500 of deductible expenses
Mr. and Mrs. O file a joint income tax return. Determine if each of the following unmarried individuals is either a qualifying child or a qualifying relative for whom the couple can claim an exemption. a. Son Jack, age 20, lives in his parents' home and works full-time as an auto mechanic. Jack is
Mr. LR died on April 16. Mr. and Mrs. LR had been married for 11 years and had always filed a joint return. Mrs. LR remarried on December 21. Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a question.
During the first eight months of the year, Ms. V was self-employed and earned $63,200 net income. In September, she accepted a job with MW Company and earned $75,000 salary through the end of the year. Identify the tax issue or issues suggested by the above situations, and state each issue in the
Mr. and Mrs. P own a sole proprietorship that generates approximately $60,000 annual net profit. This business is the couple's only source of income. In April, June, and September, they paid their estimated tax payments. In December, they won $250,000 in a state lottery. Identify the tax issue or
In November, Mr. K discovered that his combined income tax withholding and estimated tax payments would be less than his prior year tax and, therefore, would not be a safe-harbor estimate. He immediately requested that his employer withhold enough tax from his December paycheck to result in a
Mr. and Mrs. JC were married in 1997. This year they traveled to Reno, Nevada, immediately after Christmas and obtained a divorce on December 29. They spent two weeks vacationing in California, returned to their home in Texas on January 13, and remarried the next day. Identify the tax issue or
Mr. and Mrs. CD engage a CPA to prepare their Form 1040. For the last two years, their itemized deductions totaled $11,014 and $12,300. The CPA estimates that $750 of his fee relates to the preparation of the Schedule A on which the itemized deductions are detailed. Identify the tax issue or issues
Mr. and Mrs. TB have an 11-year-old child. The couple is divorced, and Mrs. TB has sole custody of the child. However, Mr. TB pays his former wife $1,200 child support each month. Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a question.
Bill Young, a single taxpayer, reported the following information on his 2017 Form 1040:Salary from part-time job.....................................$ 16,600Interest on savings account.........................................400Net loss from sole
Mr. and Mrs. Wilson are married with one dependent child. They report the following information for 2017:Schedule C net profit.....................................................$66,650Interest income from certificate of deposit (CD) ........................2,100Self-employment tax on Schedule C
In 2012, BT granted a nonqualified stock option to Ms. P to buy 500 shares of BT stock at $20 per share for five years. At date of grant, BT stock was trading on Nasdaq for $18.62 per share. In 2017, Ms. P exercised the option when BT's stock was trading at $31.40 per share. a. How much income did
In 2008, BB granted an incentive stock option (ISO) to Mr. Y to buy 8,000 shares of BB stock at $7 per share for 10 years. At date of grant, BB stock was trading on the AMEX for $6.23 per share. In 2017, Mr. Y exercised the option when BB's stock was trading at $22.81 per share. a. How much income
Two years ago, Mrs. EL was granted a stock option from her corporate employer. At date of grant, the stock was selling at $14 per share, and the strike price was $18 per share. This year, Mrs. EL sold the option to an unrelated party for $26,000. How much gain does she recognize on this
In 2010 (year 0), Mrs. L exercised a stock option by paying $100 per share for 225 shares of ABC stock. The market price at date of exercise was $312 per share. In 2017, she sold the 225 shares for $480 per share. Assuming that Mrs. L is in the 35 percent tax bracket, has a 15 percent capital gains
Mr. and Mrs. JN moved from Lincoln, Nebraska, to Kansas City, Missouri, so that Mr. JN could take a job with the HM Company. As part of his employment agreement, Mr. JN received a $7,500 moving expense allowance. What is the effect of this $7,500 cash receipt on the couple's AGI assuming that: a.
Mr. Evon, who has participated in his employer's qualified defined-benefit plan for 38 years, retired in June. What is his maximum annual pension benefit assuming that: a. His average compensation for his three highest compensation years was $145,000? b. His average compensation for his three
This year, Mrs. Bard, who is head of Lyton Industries's accounting and tax department, received a compensation package of $360,000. The package consisted of a $300,000 current salary and $60,000 deferred compensation. Lyton will pay the deferred compensation in three annual $20,000 installments
Refer to the facts in the preceding problem. Assume Mrs. Bard retires in 2023 and receives her first $20,000 payment from Lyton Industries. a. How much compensation income does Mrs. Bard recognize in 2023? b. What is Lyton Industries's 2023 tax deduction for the payment to Mrs. Bard? c. What is the
Mrs. Shin retired in 2016 at age 63 and made her first withdrawal of $20,000 from her traditional IRA. At year-end, the IRA balance was $89,200. In 2017, she withdrew $22,000 from the IRA. At year-end, the account balance was $71,100. Determine how much of each annual withdrawal was taxable
Mr. Ballard retired in 2017 at age 69 and made his first withdrawal of $35,000 from his traditional IRA. At year-end, the IRA balance was $441,000. In 2018, he withdrew $60,000 from the IRA. At year-end, the account balance was $407,000. Determine how much of each annual withdrawal was taxable
Mr. T and Mr. V founded TV Corporation six years ago and have devoted every waking hour to the corporate business. During the first four years, neither shareholder received a salary. During the last two years, each shareholder received a $400,000 salary, which is about 180 percent of the average
Mr. S was fired from his job because of unprofessional conduct. He believed that his reputation in the local business community was damaged and that he should make a new start in a different state. Consequently, he relocated his family to Phoenix and searched for suitable employment, which he had
Early this year, Mrs. C's employer reassigned her from its Chicago office to its Memphis office. In May, she spent $1,100 on a house-hunting trip to Memphis. She located a new home and moved her family in September. In addition to her direct moving expenses, Mrs. C's employer reimbursed her for the
This year, TT Corporation agreed to defer $100,000 compensation owed to Ms. B, the director of research. TT funded its obligation by transferring $100,000 cash to a trust administered by a local bank. TT can't reclaim these funds. However, the trust fund is subject to the claims of TT's general
Corporation J sponsors a qualified profit-sharing plan for its employees. Three years ago, Ms. PQ, a participant in the plan for more than 12 years, quit her job and left town without leaving a forwarding address. The corporation has tried to locate Ms. PQ to send a Form W-2 and a final paycheck
Mr. X, age 53, owns a traditional IRA with a $215,000 current balance. Mr. X recently divorced his wife and transferred this IRA to her as part of the property settlement.Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a question.
Mr. DW has the full-time use of an automobile owned and maintained by his employer. This year, Mr. DW drove this company car 48,000 miles on business and 12,000 for personal reasons. He is not required to report this information to his employer. The employer included the $17,000 imputed value of
Mr. G is employed by a closely held corporation that gave him a year-end bonus of 50 shares of stock worth $200 per share. However, Mr. G's ownership of the stock is restricted. If he resigns from his job at any time during the next four years, he forfeits the stock back to the corporation. During
GHK recently granted a stock option to employee O to purchase 20,000 shares of stock for $11 per share. On the date of grant, GHK stock was selling for $12 on the NYSE.Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a question.
Six years ago, Ms. PL paid $20 per share for 1,000 shares of her employer's stock. This stock is now worth $58 per share. Ms. PL wants to exercise a stock option to buy 1,000 more shares at a strike price of $29 per share. Because she does not have $29,000 cash readily available, she has requested
Mr. and Mrs. SK are CPAs. Mr. SK is an employee of a national accounting firm, while Mrs. SK operates her own professional practice. Each year, the couple pays approximately $1,300 to subscribe to professional publications and research services that they both read and use in their work.Identify the
Ms. Q sadly concluded that a $7,500 debt owed to her by Mr. and Mrs. L is uncollectible. Compare the tax consequences to Ms. Q if the debt arose because she extended credit to Mr. and Mrs. L in a business transaction or if the debt arose because she loaned them money for personal reasons?
In 2015, Mrs. Ulm paid $80,000 for a corporate bond with a $100,000 stated redemption value. Based on the bond's yield to maturity, amortization of the $20,000 discount was $1,512 in 2015, $1,480 in 2016, and $295 in 2017. Mrs. Ulm sold the bond for $84,180 in March 2017. What are her tax
Ira Munro owns a life insurance policy that will pay $750,000 to his granddaughter Ginnie upon Ira's death. To date, Ira has paid $69,200 total premiums on the policy, which has a current cash surrender value of $82,500. a. Assume that Ira dies and Ginnie receives a $750,000 payment from the
In 2015, Mr. Dale paid $47,600 for 3,400 shares of GKL Mutual Fund and elected to reinvest his year-end dividends in additional shares. In 2015 and 2016, he received Form 1099s reporting the following:a. If Mr. Dale sells his 4,052 shares for $18 per share, compute his recognized gain.b. If he
This year, Linda Moore earned a $112,000 salary and $2,200 interest income from a jumbo certificate of deposit. She recognized a $15,300 capital loss on the sale of undeveloped land. Compute Linda's AGI and any capital loss carry-forward into future years in each of the following cases. a. She also
Mr. Scott sold rental real estate that had a $186,200 adjusted basis ($200,000 million cost - $13,800 straight-line accumulated depreciation). The sales price was $210,000. This was his only property disposition for the year. Compute Mr. Scott's income tax on his recognized gain assuming that:a.
Diane Stacy, who has a 33 percent marginal income tax rate and a 3.8 percent Medicare contribution tax rate on investment income, owns 13,800 shares in Tobler Mutual Fund. This year, she received an $88,400 dividend from Tobler. Compute Diane's total federal tax on this income if her Form 1099 from
Mr. Dunn, who is in a 35 percent marginal tax bracket, recognized a $15,000 capital loss in 2017. Compute the tax savings from this loss assuming that:a. He also recognized an $18,000 short-term capital gain.b. He also recognized an $18,000 long-term capital gain.c. He also recognized an $18,000 28
In 2000, Ms. Ennis, a head of household, contributed $50,000 in exchange for 500 shares of Seta stock. Seta is a qualified small business. This year, Ms. Ennis sold all 500 shares for $117,400. Her only other investment income was an $8,600 long-term capital gain from the sale of land. Her taxable
Mrs. Turner died this year at age 83. On the date of death, the FMV of Mrs. Turner's property was $6.3 million, and she owed $91,000 to various creditors. The executor of her estate paid $7,800 funeral expenses and $4,200 legal and accounting fees to settle the estate. Mrs. Turner bequeathed
Mr. OG, a 66-year-old divorced individual, has two children with his former wife. He recently married a 45-year-old woman with no property of her own. Therefore, Mr. OG plans to change his will to provide that when he dies, his fortune will be placed in a trust. His new wife will receive the income
Mr. D died on March 8. His taxable estate includes a traditional IRA with a $140,000 balance. Mr. D's contributions to this IRA were fully deductible. His son is the beneficiary of the IRA.Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a
Mrs. AS died on June 1. She and her surviving husband were co-owners of real property with a $200,000 adjusted basis and a $1.6 million FMV. Mr. AS inherited his wife's half of the property.Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a
At the beginning of the year, Ms. A owned 2,900 shares of SBS stock with a basis of $32 per share. SBS paid a 50 percent stock dividend, and Ms. A received 1,450 additional SBS shares. Before this dividend, the market price per share was $90. After the dividend, the price fell to $65.Identify the
In 1993, Mr. L paid $18,000 for a newly issued BN bond with a $30,000 stated redemption value. He has recognized $6,000 of the original issue discount (OID) as ordinary interest income. This year, BN went bankrupt and informed Mr. L that his bond was worthless.Identify the tax issue or issues
Mr. and Mrs. G paid $53,000 for a corporate bond with a $50,000 stated redemption value. They paid the $3,000 premium because the bond's annual interest rate is higher than the market interest rate.Identify the tax issue or issues suggested by the above situations, and state each issue in the form
Two years ago, Ms. X loaned $3,500 to her 20-year-old daughter, who used the loan proceeds to buy a used car. This year, the daughter informed her mother that she could not repay the debt.Identify the tax issue or issues suggested by the above situations, and state each issue in the form of a
Mr. O was a 25 percent partner in MNOP Partnership, which operated a gift and souvenir shop. He materially participated in the partnership business. Several years ago, Mr. O loaned $10,000 to MNOP in return for a written interest-bearing note. Unfortunately, MNOP went bankrupt before the loan was
This year, Ms. T had a $29,000 capital loss carry-forward and a $8,200 suspended passive activity loss carry-forward. He died on September 12 and didn't recognize any capital gain or passive activity income during the year.Identify the tax issue or issues suggested by the above situations, and
Rachel Sanchez is a limited partner in HN Partnership, which operates a souvenir shop, and a member in Jams-n-Jellies LLC, which makes specialty food items and sells them at retail. Rachel has no involvement in the partnership business, but she handles all the advertising for the LLC. The LLC
Ms. K, who is in the 35 percent marginal income tax bracket, acquired the following blocks of stock in KDS, a closely held corporation: July 12, 2003 ..................... 1,400 shares at $41 per share December 3, 2007 .................. 800 shares at $46 per share September 30, 2014 ............
Ms. Barstow purchased a limited interest in Quinnel Partnership in 2017. Her share of the partnership's 2017 business loss was $5,000. Unfortunately, Ms. Barstow couldn't deduct this loss because she had no passive activity income, so she is carrying it forward into 2018. Quinnel Partnership
Discuss the similarities and differences in the structure of the hobby loss rule and the vacation home rule?
Mr. and Mrs. Compton, ages 61 and 60, paid $9,280 of medical expenses that were not reimbursed by their private insurance provider. Compute the after-tax cost of these expenses assuming that: a. The Comptons itemize deductions on their joint tax return, their AGI is $87,000, and their marginal tax
Mr. and Mrs. Moss, ages 28 and 26, have major medical and dental insurance provided by Mrs. Moss's employer. This year, they incurred the following unreimbursed expenses:Routine office visits to doctors and dentists .......................... $940Emergency room visits
Mr. Curtis paid the following taxes: Federal income tax ...................................... $50,789 Federal gift tax ............................................... 285 Federal employer payroll tax for housekeeper ........... 920 Indiana income tax .........................................
Mrs. Stuart paid the following taxes: Local property tax on: 20 acres of land held for investment .............................. $ 2,500 Condominium used as principal residence .......................... 4,825 Sailboat used as vacation residence .................................. 1,975 Missouri

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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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