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concepts in federal taxation 2021

Questions and Answers of Concepts in Federal Taxation 2021

Christina Ruiz provides you with the following information regarding her investment income.Interest received:Cavendar State Bank checking account .........................$ 43Federal Employee’s
Tia is married and is employed by Carrera Auto Parts. In 2020, Carrera established high-deductible health insurance for all its employees. The plan has a $2,800 deductible for married taxpayers.
Hamid’s employer provides a high-deductible health plan ($1,400 deductible) and contributes $500 to each employee’s Health Savings Account (HSA). Hamid makes the maximum allowable contribution to
Boris is an unmarried systems specialist with a public accounting firm. During all of 2020, he is on temporary assignment in London. He pays $21,000 in British income tax on his $100,000 salary.
Joan is a single individual who works for Big Petroleum, Inc. During all of 2020, she is stationed in West Africa. She pays West African taxes of $20,000 on her Big Petroleum salary of $92,000. Her
On July 1, 2020, Andaria borrows $30,000 from the First Financial Bank. The loan is for 1 year at an annual interest rate of 10 percent. How much interest can Andaria deduct under each of the
What is an exclusion?
Are punitive damages taxable? Explain.
Marvin and Tracy Peery’s 2019 taxable income is $87,830 before considering the effect of their investment activities. The details of their 2019 sales of investment assets follow:The Form 1099
A stock appreciation right (SAR) entitles the holder of the right to a cash payment equal to the difference between the fair market value of the stock on the date the SAR is exercised and the fair
Tonya purchased land for investment purposes in 2017 for $21,000. In 2020, she sells the land for $36,000. The terms of the sale require the purchaser to pay Tonya $12,000 per year for three years
In 2014, Awnings, Inc., issues $200,000 of 15 percent, 20-year bonds payable at par. During 2020, when Awnings’ bonds are trading at 93, the company purchases and retires $100,000 par value of the
WCM Builders enters into a contract to build a shopping mall in 2019 for $6,000,000. Completion of the mall is expected to take 27 months and cost WCM $3,600,000. Upon signing the contract, WCM
In 2017, Patricia purchases a rental property as an investment at a cost of $60,000. From 2017 through 2020, she takes $7,000 in depreciation on the property. In 2020, Patricia sells the rental
Daryl purchases land in 2016 at a cost of $65,000. In 2020, he sells the land for $100,000.a. How much gain or loss does Daryl realize on the sale of the land?b. Assume that the sales contract on the
How much income would an accrual basis taxpayer report in 2020 in each of the following situations?a. Toby’s Termite Services, Inc., provides monthly pest control on a contract basis. Toby sells a
In January 2020, Conan, a cash basis taxpayer, purchases for $4,000 a Series EE savings bond with a maturity value of $4,800 (a 6 percent annual yield). At the same time, he also purchases for $5,000
Determine how much interest income Later Federal Loan Company, a cash basis taxpayer, must recognize on each of the following loans in 2020:a. A $10,000, 8.5 percent, 6-month loan made on October 1,
Pedro purchases 50 shares of Piper Company stock on February 19, 2017, at a cost of $4,300. He sells the 50 shares on July 2, 2020, for $9,000. On March 14, 2020, Pedro purchases 100 shares of Troxel
The Rosco Partnership purchases a rental property in 2015 at a cost of $150,000. From 2015 through 2020, Rosco deducts $14,000 in depreciation on the rental. The partnership sells the rental property
Ratliff Development Corporation purchases a tract of land in 2019 at a cost of $120,000 and subdivides the land into 30 building lots. The cost of subdividing is $6,000. In 2019, Ratliff installs
Duc has been employed by Longbow Corporation for 25 years. During that time, he bought an annuity at a cost of $50 per month ($15,000 total cost). The annuity will pay him $200 per month after he
Minnie owns a qualified annuity that cost $78,000. The annuity is to pay Minnie $650 per month for life after she reaches age 65. Minnie turns 65 on September 28, 2020, and receives her first payment
Partha owns a qualified annuity that cost $52,000. Under the contract, when he reaches age 65, he will receive $500 per month until he dies. Partha turns 65 on June 1, 2020, and receives his first
Darcy borrowed $4,000 in 2017 from her employer to purchase a new computer. She repays $1,000 of the loan plus 6 percent interest on the unpaid balance in 2017, 2018, and 2019. After closing a big
Are Social Security benefits taxable? Explain.
Kimberly Cerny is a graduate student. She is 22 years old and works part-time as a graduate assistant in the biology department. In the summer, Kimberly was an intern at Neutrobio, Inc. Details
Aretha is an executive vice president of Franklin, Inc. On December 18, 2020, the Franklin, Inc., board of directors awards her a $20,000 bonus. Aretha asks Franklin’s controller to delay
Henrietta is the president and sole shareholder of Clutter Corporation. In 2017, Henrietta transferred ownership of her personal residence to the corporation. As part of the transfer, Clutter
Determine the taxpayer’s adjusted basis in each of the following situations. If any changes are made in the original basis of the asset, explain why they are necessary.a. Simone purchases 300
Sidney lives in Hayes, Kansas. He owns land in Cotulla, Texas, that he inherited from his father several years ago. The land is unimproved and has never produced income. On January 26, 2020, Sidney
Determine whether the taxpayer in each of the following situations is in constructive receipt of income. If not, explain when the income will be constructively received.a. Norman is president of
Consider the following two situations. Although they are similar, their treatments are exactly opposite. Identify the concept underlying both treatments, and explain why the concept treats the two
Determine whether the taxpayer in each of the following situations has a claim of right to the income received:a. Sulley’s Spa Spot sells hot tubs that have a 2-year warranty. The warranty provides
George purchases stock in Dodo Corporation in 2016 at a cost of $50,000. In 2020, he sells the stock for $32,000. What is the effect of the sale of stock on George’s taxable income? Assume that
Chelsea, who is single, purchases land for investment purposes in 2015 at a cost of $22,000. In 2020, she sells the land for $38,000. Chelsea’s taxable income without considering the land sale is
Postum Partnership purchases a building in 2017 for $250,000. It deducts $5,600 in depreciation on the building in 2017, $6,400 in 2018, $6,400 in 2019, and $3,200 in 2020. It sells the building in
For each of the following tax treatments, determine the concept, construct, or doctrine that provides the rationale for the treatment:a. During the current year, Trafalger Corporation pays $475,000
For each of the following tax treatments, determine the concept, construct, or doctrine that provides the rationale for the treatment:a. Lester purchases some stock for a total cost of $2,500. On
Jamal Corporation is an accrual basis taxpayer. In 2019, Jamal writes off a $1,000 account receivable from a customer who has died. In 2020, the former customer’s estate sends Jamal a check for
Tim has state income taxes of $4,500 withheld from his salary during 2019. On his 2019 federal income tax return, Tim properly deducts the $4,500 as state taxes paid. Upon filing his 2019 state
For each of the following situations, determine the proper year for recognition of the income or deduction if the taxpayer is (1) a cash basis taxpayer and (2) an accrual basis taxpayer:a. Helen
For each of the following situations, determine the proper year for recognition of the income or deduction if the taxpayer is (1) a cash basis taxpayer and (2) an accrual basis taxpayer:a. Tindle
Christie purchases a one-third interest in the Corporate Capital Partnership (CCP) in 2019 for $40,000. During 2019, CCP earns an income of $90,000, and Christie withdraws $30,000 in cash from the
What is a capital expenditure?
Norman and Vanessa are married and have 2 dependent children. This is a summary of their 2020 tax return:Adjusted gross income .....................$107,837Deductions from adjusted gross
Shawna earns $95,000 as a biologist for Berto Corporation. She also consults with other businesses on compliance with environmental regulations. During the current year, she earns $50,000 in
Joey and Camilla are married and have three children, ages 8, 16, and 18. They own a commercial cleaning business that is organized as a sole proprietorship and makes $140,000 annually. They have
Marla had $2,100 in state income taxes withheld from her 2020 salary. When she files her 2020 state income tax return, her actual state tax liability is $2,300.Identify the tax issue(s) posed by the
For each of the following situations, state whether the taxpayer’s action is tax evasion or tax avoidance.a. Tom knows that farm rent received in cash or farm produce is income subject to tax. To
Elki would like to invest $50,000 in taxexempt securities. He now has the money invested in a certificate of deposit that pays 5.75 percent annually. What rate of interest would the taxexempt
Esmeralda is an attorney. Before 2020, she is employed by the law firm of Ellis and Morgan (E&M). Esmeralda is not a partner in E&M; her compensation consists of a fixed salary and a
Art is in the 24 percent marginal tax bracket for 2020. He owes a $10,000 bill for business expenses. Because he reports taxable income on a cash basis, he can deduct the $10,000 in either 2020 or
Inga, an attorney, completed a job for a client in November 2020. If she bills the client immediately, she will receive her $10,000 fee before the end of the year. By delaying the billing for a
Reba’s 2020 income tax calculation is as follows:Gross income ..............................................$120,000Deductions for adjusted gross income ........(3,000)Adjusted gross income
Darrell is an employee of Whitney’s. During the current year, Darrell’s salary is $136,000. Whitney’s net selfemployment income is also $136,000. Calculate the Social Security and
Eric is a self-employed financial consultant. During the current year, Eric’s net selfemployment income is $160,000. What is Eric’s selfemployment tax?
Gosney Corporation has two employees. During the current year, Clinton earns $80,000 and Trahn earns $150,000. How much Social Security tax does Gosney have to pay on the salaries earned by Clinton
Joe Bob is an employee of Rollo Corporation who receives a salary of $14,000 per month. How much Social Security tax will be withheld from Joe Bob’s salary ina. March?b. November?
Rory earns $70,000 per year as a college professor. Latesia is a marketing executive with a salary of $140,000. With respect to FICA taxes, what are Rory’s and Latesia’sa. Total FICA taxes?b.
If you were in the 24 percent marginal tax bracket and you could choose either a $1,000 tax credit or a $3,000 tax deduction, which would give you the most tax savings? Why?
What is a tax credit?
Explain the pay-as-you-go system.

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