Questions and Answers of Concepts in Federal Taxation 2021

Anton purchases a building on May 4, 2003, at a cost of $270,000. The land is properly allocated $30,000 of the cost. Anton sells the building on October 18, 2020, for $270,000. What is his gain or
Stan purchases machinery costing $100,000 for use in his business in 2020. The machinery is 7-year MACRS property and has an ADS life of 12 years. Complete a depreciation schedule using the regular
In July 2020, Surecut Sawmills buys office furniture for $1,100,000. Assume that Surecut elects not to claim bonus depreciation.a. Compare cost-recovery deductions using maximum, minimum, and
In June 2020, Copper Kettle, Inc., purchases duplicating equipment for $541,000.a. Compare cost-recovery deductions using maximum, minimum, and intermediate methods over the recovery period of the
The Gladys Corporation buys office equipment costing $1,114,000 on May 12, 2020. In 2023, new and improved models of the equipment make it obsolete, and Gladys sells the old equipment for $34,000 on
Baker, Inc., purchases office furniture (7-year MACRS property) costing $1,051,000 and a computer system (5-year MACRS property) costing $1,051,000 in 2020. Assuming that Baker elects not to claim
Dikembe purchases 1,000 breeding hogs for $1,124,000 in April 2020.a. What is his maximum 2020 cost-recovery deduction for the hogs?b. Dikembe’s farming operation incurs a net loss this year and
Kris starts a new business in 2020. She purchases 7-year MACRS property costing $12,000. Her business income before any cost-recovery deductions is $8,000. Kris does not want to claim bonus
Larry purchases machinery for his business (7-year MACRS property) on April 1 at a cost of $1,057,000. On June 1, he spends $84,000 for equipment (5-year MACRS property). Larry does not want to claim
For each of the dependents in problem 44, calculate the income tax on their taxable income. The parents’ marginal tax rate is 24% in each part.Data from Problem 44Determine the taxable income of
Mona works for Leonardo Corporation as a sales representative. Leonardo gives her a travel allowance of $350 per month. During 2020, she spends the following amounts on valid travel
Simon is single and a stockbroker for a large investment bank. During 2020, he has withheld from his paycheck $2,250 for state taxes and $400 for city taxes. In June 2021, Simon receives a state tax
Frank and Liz are married. During 2020, Frank has $2,800 in state income taxes withheld from his paycheck, and Liz makes estimated tax payments totaling $2,200. In May 2021, they receive a state tax
Rocco owns a piece of land as investment property. He acquired the land in 1995 for $18,000. On June 1, 2020, he sells the land for $80,000. As part of the sale, the buyer agrees to pay all of the
Robin is single and purchases a new home for $80,000 in 2020. She pays $8,000 down and borrows the remaining $72,000 by securing a mortgage on the home. Robin pays $1,750 in closing costs, $1,600 in
Astrid originally borrowed $600,000 to acquire her home in 2012. When the balance on the original mortgage is $540,000, she purchases a ski chalet by borrowing $500,000, which is secured by a
Determine the taxable income of each of the following dependents for 2020:a. Louis is 12 and receives $1,250 in interest income.b. Jackson is 16. He earns $2,050 from his newspaper route and receives
Calculate the 2020 tax liability and the tax or refund due for each situation:a. Mark is single with no dependents and has a taxable income of $60,000. He has $9,200 withheld from his salary for the
Determine the total allowable 2019 earned income credit in each of the following situations:a. Judy is single and earns $6,500 in salary for the year. In addition, she receives $3,500 in unemployment
Determine the total allowable 2019 earned income credit in each of the following situations:a. Rina is single and earns $6,800 in salary for the year. In addition, she receives $2,200 in unemployment
Determine whether each of the following taxpayers must file a return for 2020:a. Jamie is a dependent who has wages of $4,150.b. Joel is a dependent who has interest income of $1,200.c. Martin is
Determine whether each of the following taxpayers must file a return for 2020:a. Felicia is a dependent who has wages of $6,350 and interest income of $225.b. Jason is a dependent who has interest
Jacqueline is single. In June 2020, she receives a refund of $250 from her 2019 state tax return. Her 2019 itemized deductions were $8,000. In October 2020, her 2018 state tax return is audited, and
Troy’s 2018 tax return is audited. The auditor determines that Troy inadvertently understated his ending inventory in calculating his business income. The error creates an additional tax liability
Tom, an executive for a large corporation, enjoys the challenge of preparing his tax return. He is aggressive in preparing his return and searches through all the available publications to reduce his
Determine the adjusted basis of each of the following assets:a. André purchased a parcel of land 3 years ago for $17,000. In the current year, the adjoining property owner sues him, claiming that
Carl Corporation acquires a business use warehouse for $200,000 on January 2, 2013. From 2013 through 2018, Carl Corporation properly deducts a total of $30,000 in depreciation. Carl incurs a net
Hannibal owns a farm. He purchases a tractor in 2016 at a cost of $25,000. Because 2016 is a bad year, he does not deduct any depreciation on the tractor in 2016. He sells the tractor in 2020 for
Erin purchases 2 acres of land in 2020 by paying $4,000 in cash at closing and borrowing $40,000 to be repaid at $8,000 per year for the next 5 years with interest on the unpaid balance at 10
On October 1, 2020, Mitzo Realty Partnership purchases a lot for future development for $60,000 from the Elm Trust. The trust’s adjusted basis in the lot is $20,000. Real estate taxes attributable
On January 5, 2020, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of $24,700. On April 1, 2020, he purchases an additional 300 shares for $19,500. On November 13, 2020,
Eric owns 600 shares of Razor, Inc., stock for which he paid $3,500 in 2016. On December 14, 2020, he sells the 600 shares for $4 per share and pays a commission of $200 on the sale. On January 3,
On November 14, 2020, Noel sells 2,000 shares of Marker, Inc., stock for $6,000. He had purchased the stock 2 years earlier for $10,000. Because the price of the stock continued to drop, Noel
Harry and Freddi, a married couple, purchased 100 shares of Opaque Mutual Fund in 2005 for $2,800 as joint tenants with the right of survivorship. Freddi dies during the current year. The fair market
What is the purpose of the acquisition-and disposition-year convention?
Firefly, Inc., acquires business equipment in July 2020 for $2,605,000. Assume that Firefly elects not to claim bonus depreciation.a. What is Firefly’s maximum Section 179 deduction for 2020?
In 2020, Terrell, Inc., purchases machinery costing $2,618,000. Its 2020 taxable income before considering the Section 179 deduction is $1,100,000. Assume that Terrell elects not to claim bonus
In 2020, Theo purchases $16,000 of Section 179 property for use in his delivery business. During 2020, he has $12,000 in taxable income from his business. Assume that Theo elects not to claim bonus
During 2020, Belk Corporation purchases $70,000 worth of equipment for use in its business. Belk’s current taxable income before considering the Section 179 deduction is $26,000. Assume that Belk
Brad is a shareholder and full-time employee of an S corporation. During 2020, he earns a $50,000 salary from the S corporation and is allocated $12,000 as his share of its net operating loss. In
The Browser Company purchases a computer in August 2020 for $12,000. Browser elects not to claim bonus depreciation and does not elect to expense the asset but wants to claim the maximum
The Browser Company purchases a computer in December 2020 for $12,000. This is the only depreciable personal property acquired during the year. Browser elects not to claim bonus depreciation and does
Jesse is a resident of New Jersey who works in New York City. He also owns rental property in South Carolina. During 2020, he pays the following taxes:New Jersey state estimated tax payments
Paula lives in Arkansas, which imposes a state income tax. During 2020, she pays the following taxes:Federal tax withheld .........................5,125State income tax withheld
Hongtao is single and has a gross income of $89,000. His allowable deductions for adjusted gross income are $4,200, and his itemized deductions are $19,000.a. What is Hongtao’s taxable income and
Determine the maximum deduction from AGI for 2020 for each of the following taxpayers:a. Selen is single and has itemized deductions for the year of $12,900. In addition, Selen’s mother lives with
Determine the 2020 filing status in each of the following situations:a. Michaela and Harrison decide to separate on October 12, 2020. Before filing their 2020 tax return on February 18, 2021,
Why is a taxpayer’s filing status important?
Anthony owned a 2018 Luxuro automobile that had a fair market value of $78,000. He uses the car 90% for business. His son James, who is 19, borrows the car without his father’s knowledge and totals
Suzanne is married and is the sole owner of Laidlaw Corporation. When the corporation was established in 2009, she received 10,000 shares of qualified small business stock in exchange for her
Alicia, Bob, and Carol are equal partners in Dunning Law Associates. In 2014, Alicia, in an attempt to maximize the firm’s return on its investment portfolio, encourages her partners to acquire
On January 1, 2020, Brenda acquires 200 shares of Disney stock for $8,000. She sells the 200 shares on September 2, 2020, for $30 per share. On September 23, 2020, Brenda acquires 400 shares of
Zoriana sells stock that she acquired in 2016 for $7,500. Her basis in the stock is $14,000. She has a $2,000 long-term capital loss carryover from 2019.
The Readyhough Corporation was incorporated in 2012. During 2019, the corporation had operating income of $80,000. Because of a strike at its major supplier, the corporation had an operating loss of
Leona owns 300 shares of Ross Industries. She acquired the shares on February 17, 2018, for $6,500. On September 17, 2020, she acquires another 200 shares of Ross for $4,800. Two weeks later, a
Katelyn purchased 300 shares of Condine, Inc., stock in 2018 for $9,000. During 2020, she sells 200 shares of Condine to her brother, Jon, for $3,600 and the remaining 100 shares to an unrelated
Sonya, who is single, owns 20,000 shares of Malthouse Corporation stock. She acquired the stock in 2017 for $75,000. On August 12, 2020, Sonya’s father tells her of a rumor that Malthouse will file
Newcastle Corporation was incorporated in 2019. For the years 2019 through 2021, Newcastle has the following net capital gain or loss.If Newcastle is in the 21 percent marginal tax bracket for each
Bongo Corporation was incorporated in 2018. It had no capital asset transactions in 2018. From 2019 through 2022, Bongo has the following capital gains and losses:Assuming that Bongo’s marginal tax
Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2020. Randy owns 25 percent of Labrador’s outstanding stock. What is the effect on Labrador’s and
Goldie sells 600 shares of Bear Corporation stock for $9,000 on December 14, 2020. She paid $27,000 for the stock in February 2017.a. Assuming that Goldie has no other capital asset transactions in
During 2020, Yoko has total capital gains of $8,000 and total capital losses of $16,000.a. What is the effect of the capital gains and losses on Yoko’s 2020 taxable income? Explain.b. Assume that
Return to the facts of problem 36. At the end of 2021, Mason sells the passive activity that generated the losses for $16,000. What is the effect on his taxable income if his basis in the activity
Mason owns a passive activity that generates a loss of $14,000 in 2019, $12,000 in 2020, and income of $4,000 in 2021. In 2020, Mason purchases a second passive activity that has passive income of
Katrina is the sole owner of rental real estate that produces a net loss of $18,000 in 2019 and $22,000 in 2020 and income of $9,000 in 2021. Her adjusted gross income, before considering the rental
Mort is the sole owner of rental real estate that produces a net loss of $18,000 in 2019 and $20,000 in 2020 and income of $6,000 in 2021. His adjusted gross income, before considering the rental
Habiby, Inc., began operations in 2019 and has the following income and expenses for 2019 through 2022.a. What is the amount of tax that Habiby should pay each year?b. How much would Hadley
The Graves Corporation was incorporated in 2019 and incurred a net operating loss of $35,000. The company’s operating income in 2020 was $47,000. Because of a downturn in the local economy, the
How are the new net operating loss rules different than the old rules? Are the rules better or worse for the taxpayer?
In 2018, Samantha loaned her friend Lo Ping $15,000. The loan required Lo Ping to pay interest at 8 percent per year and to pay back the $15,000 loan principal on July 31, 2020. Lo Ping used the loan
Brad graduated from law school in Detroit in May 2019. He had lived in the area for 5 years before enrolling in law school. Following his graduation, he prepared for the Michigan bar exam, which he
Scott is single and wants to maximize his retirement income. He contributes the maximum allowable to his company’s qualified pension plan. His adjusted gross income for the year is $80,000.Identify
Jake loaned his cousin, Arnold, $10,000 in March 2018 to open a cybercafe in Santa Barbara. Arnold signed a loan agreement to pay Jake 7 percent interest annually, with the principal due in 2021.
In the current year Kevin and Jill are married and file a joint return. Kevin is 52 and is not an active participant in a qualified employee pension plan, while Jill is 48 and is an active
In the current year Chanda is 36, single, and an active participant in a qualified employee pension plan. Determine the maximum Roth IRA contribution that she can make in each of the following
Lois and Kam are married and file a joint return. Lois earns $64,500 and Kam earns $40,000. Their adjusted gross income is $114,000. Determine the maximum IRA contribution and deduction in each of
Thomas is single and a self-employed architect. During 2020, Thomas’s income from his business is $170,000. He also pays $2,200 for a medical insurance policy.a. How should the medical insurance
Evelyn is single and a self-employed engineer. During 2020, Evelyn’s income from her engineering business is $55,000. Evelyn pays $3,100 for her medical insurance policy.a. How should the medical
Alvin is an employee of York Company. During 2020, he incurs the following employment-related expenses:Travel ........$4,000Meals ..........3,500Lodging ......2,500a. How should Alvin treat these
The Kimpton Corporation pays the following taxes during 2020:Federal taxes withheld from employees .......................$ 26,000State taxes withheld from employees
Martin receives the following tax bills, related to a rental dwelling, from the county treasurer:Special assessment for installing sidewalks and streets .....$ 12,000Real property tax on dwelling for
KOM pays the following insurance premiums during 2020:Auto accident and liability insurance:Paid 1/1/20 Coverage period 1/1/20–12/31/20 .....$ 3,500Fire, storm, and other casualty insurance:Paid
For the last 3 years, the JCR corporation has averaged annual gross receipts of $27 million. This year, JCR has EBITDA of $6,000,000, and it has incurred $2,100,000 in business interest expense. What
Dan and Katlyn are married and operate a pizza restaurant as an S corporation. They are not eligible for any additional standard deduction amounts. In 2020, the score has qualified business income of
Tom is single and operates a golf store as a sole proprietorship. In 2020, the store has $130,000 of net income. Tom does not itemize and has other income from interest and dividends of $2,000. What
In addition to being an employee of Rock Hard Roofing Material, Lou owns 10 percent of the company’s common stock. Rock Hard falls on hard times in 2019. To forestall bankruptcy, Rock Hard’s
Mario owns his own business and drives his car 15,000 miles a year for business and 7,500 miles a year for commuting and personal use. He wants to claim the largest tax deduction possible for
Cassandra owns her own business and drives her van 15,000 miles a year for business and 5,000 miles a year for commuting and personal use. She purchases a new van in 2020 and wants to claim the
Karl is the vice president of finance for Wyatt Industries. In 2020, he met a client at an afternoon baseball game. The box-seat tickets cost Karl $30 each. Because the client had a plane flight
A.J. is the vice president for Keane Products, a marketing consulting firm. On a business trip to New York City in 2020, he meets with three executives from Keane’s top account. After the meeting,
Are sales taxes deductible? Explain.
Rosita’s grandmother dies in November 2019 and leaves her an investment portfolio worth $180,000. In January 2020, when Rosita receives ownership of the investments, the portfolio consists of
The Showgate Hotel Casino is an accrual basis taxpayer and maintains its records on a calendar year. It has 3,000 slot machines, one of them a progressive machine whose jackpot increases based on the
Lonnie owns 100 percent of Quality Company’s common stock. Lonnie, the president of Quality, is a cash basis taxpayer. Quality is short of cash as of December 31, 2020, the close of its tax year.
Kai, a cash basis taxpayer, is a 75 percent owner and president of Finnigan Fish Market. Finnigan, an S corporation, uses the accrual method of accounting. On December 28, 2020, Finnigan accrues a
The Parr Corporation incurs the following expenses. When can it deduct the expenses if it uses the accrual method of accounting? the cash method? a. Parr Corporation mails a check for $5,000 to
Joy incurs the following expenses in her business. When can she deduct the expenses if she uses the accrual method of accounting? the cash method? a. Joy rents an office building for $750 a
Damon’s Lawn and Garden Supply, an accrual basis taxpayer, is the exclusive dealer for Tru-Cut lawn mowers. In 2020, Damon’s agrees to pay the Dash Corporation, the manufacturer of Tru-Cut, an
When are capital expenditures deductible?
You are a CPA working for a local firm and have been assigned the 2020 tax return of Bobby Crosser. In going over the data that Bobby gave the firm, you are surprised to see that he has reported no

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