Questions and Answers of Concepts In Federal Taxation

In 2023, Wabash Corporation purchases two assets and places them into service (both have a 7-year MACRS recovery period):• Asset #1: $$1,260,000$ cost; placed in service in February.• Asset #2:
Bobby’s marginal tax rate has been low for several years because his sole proprietorship has had low profits. Therefore, he has not elected Sec. 179 expensing, elected out of bonus depreciation,
Trish is a self-employed CPA who purchases an automobile for $$72,000$ and places it into service in the current year (2023). Calculate Trish’s current year MACRS depreciation deduction, assuming
Tammy acquired an automobile for $$20,000$ on July 1, 2020. Her business use of the vehicle is 70% in 2020, 70% in 2021, 40% in 2022, and 35% in 2023. The property’s MACRS recovery period is 5
Lutz Corporation acquired a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2023 for $$64,000.$ The company did not elect expensing and elects out of bonus depreciation. What is
In 2023, Luby Corporation acquires and places into service an automobile that it uses only for business purposes. Luby does not claim expensing or bonus depreciation for the vehicle. Compute Luby’s
Tracy acquires an automobile (MACRS 5-year recovery) on March 1, 2023. He uses the automobile 70% in his business and 30% for personal use.The automobile cost $$76,000.$ No amount is expensed under
Troy entered into a three-year lease of an automobile on January 1, 2023, for use 80% in business and 20% for personal use. The FMV of the automobile at the inception of the lease was $$79,000,$
On January 1 of the current year, Palm Corporation purchases the net assets of Vicki’s unincorporated business for $$600,000.$ The tangible net assets have a $$300,000$ book value and a
Park Corporation incurs the following costs in 2023, its initial year of doing business:Which of these expenditures are research and experimental expenditures for federal income tax purposes?
In 2023, Tempe Corporation acquires a new research facility and hires several scientists to develop new products. Tempe incurs the following expenditures in 2023:What are Tempe’s 2023 and 2024
Phillips Corporation, a construction company that specializes in home construction, uses special computer software to schedule jobs and keep track of job costs. It uses generic software for
John and Ellen Brite are married, file a joint return, and are less than 65 years old. They have no dependents and claim the standard deduction. John owns an unincorporated specialty electrical
Stan uses a car 100% for his sole proprietorship. In January 2023, Stan must decide whether to buy or lease a new car. After bargaining with several car dealers, Stan has agreed to a price of
Helen has operated a sole proprietorship for many years and has tentatively agreed to sell its assets to Blaze Corporation. They are negotiating how to allocate $$1.4$ million of the
Thom Jones is an unincorporated manufacturer of widgets. He reports the following for 2022:Information related to the depreciable property:The business uses the cash method, Thom materially
Refer to the facts in Problem I:10-47 for John and Ellen Brite. The following information is also available for them:• The business uses the accrual method and did not make any payments that would
In 2021, the Margate Corporation acquired an automobile with a cost of $$30,000$ for use in its business. Shortly thereafter, Margate Corporation experienced a decline in sales.Several employees
In 2022, Mark purchased two separate activities. Information regarding these activities for 2022 and 2023 is as follows:The 2022 losses were suspended losses for that year. During 2023, Mark also
In 2023, Julie, a single individual, reported the following items of income and deduction:Julie owns 100% and is an active participant in the rental real estate activity. What is her taxable income
Jerry sprayed all of the landscaping around his business with a pesticide in June 2023. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the
During 2023, Pam incurred the following casualty losses:All of the items were destroyed in the same casualty, which resulted from a federally declared disaster. Before considering the casualty items,
During 2022, Becky loans her brother Ken $$5,000,$ which he intends to use to establish a small business. Because Ken has no other assets and needs cash to establish the business, the agreement
Assume the same facts as in Problem I:9-53, except that Becky and Ken are not related and that under the terms of the loan Ken agrees to repay Becky the $$5,000$ plus interest (at a reasonable
Michelle and Mark are married and file a joint return. Michelle owns an unincorporated dental practice. Mark works part-time as a high school math teacher, and spends the remainder of his time caring
Assume the same facts as in Problem I:9-55, except in addition to the other itemized deductions Michelle and Mark suffer an $$8,500$ deductible personal casualty loss (after limitations).a. What is
Assume the same facts as in Problem I:9-55, except that the interest on their personal residence is $$15,300$ and they also have an $$8,500$ deductible casualty loss on personal property (after
During 2023, Karen, a single taxpayer, reports the following income and expense items relating to her interior design business:Karen also worked part-time during the year, earning $$13,500.$ She
In 2020, Annie Cook and several family members formed Treehouse Rentals, Inc., in Denver, Colorado. Treehouse is a closely held C corporation engaged in the rental real estate business. Treehouse
Jace Seaton is a single taxpayer living in Eugene, Oregon. From 2018 to 2021, he worked as the CEO of Wengren & Jeffers, a local architectural firm. In 2021, he left the firm to start his own company
Heather and Nikolay Laubert are married and file a joint income tax return. Nikolay is a mechanical engineer, and Heather is a highly renowned speech therapist. Nikolay’s employer provides health
Kara and Brandon Arnold are married and file a joint return. They report their income on the cash method. During 2022, they report the following items:a. In 2020, Brandon had loaned a friend
In each of the following cases involving travel expenses, indicate how each item is reported on the taxpayer’s tax return for 2023. Include any limitations that might affect its deductibility.a.
Kelly is self-employed and incurs $$2,200$ of business meal expenses in connection with business travel. $$500$ of the business meal costs are considered to be lavish or extravagant. How much can
Latoya is an independent contractor and operates her own successful consulting business in Milwaukee. She has just signed a large contract with a new client that will require her to spend nine months
Louie is a self-employed taxpayer and also an investor in the stock market in his spare time. In the current year, Louie incurs $$2,500$ of travel expenses and $$1,000$ in registration fees
Are deductions allowed for entertainment expenses of customers or clients in 2023?
Bass Corporation purchases 10 tickets to the Super Bowl in February 2023 for entertaining its customers. Due to unusually high demand, the tickets have to be purchased for $$25,000$ (10 ×
Would education expenses incurred by a self employed individual be allowed in 2023 for the following expenses? Cost of a CPA review course Accounting continuing education expenses (including travel,
Austin Corporation is proposing the establishment of a pension plan that will cover only employees with salaries in excess of $$200,000.$ No other employees are covered under comparable qualified
Mike, a self-employed consultant, incurs the following business-related expenses in 2023:Mike earned $$130,000$ of gross income from his consulting business and had $$12,000$ of interest and
Monique is a self-employed manufacturer’s representative (i.e., an independent contractor) who solicits business for numerous clients and receives a commission based on sales. She incurs the
Mary is self-employed and incurs $$3,600$ of business-related travel and entertainment expenses during 2023 in which she was away from home overnight. These business expenses include the
Marilyn, an independent contractor who lives and works in Cleveland, obtains a large contract that will require her to live and work in Atlanta for a period of ten months. Marilyn leaves her husband
Mike is an independent contractor in 2023. Mike attends a professional trade association convention in Los Angeles. He spends three days at the meeting and two days vacationing before the meeting.
Michelle is self-employed and uses her personal automobile for business trips. During 2023, Michelle drives her car 60% for business use and incurs the following total expenses (based on 100% use of
Amelie is self-employed and uses her personal automobile in connection with her business. During 2023, Amelie drove her car a total of 28,000 miles. Her business log shows that she drove 22,400 miles
Milt, a self-employed attorney, incurs the following expenses in 2023:Which of the expenditures listed above (if any) are deductible in 2023 by Milt? Business lunches for clients and prospective
Beach Corporation purchases tickets to sporting events and uses them to entertain customers. In 2023, Beach Corporation purchases the following tickets:a. What amount of the above expenses are
Nancy is a self-employed consultant who uses 10% of her residence as an office. The office is used exclusively for business and is frequented by customers on a regular basis. Nancy also uses her den
Pat is a participant in a qualified pension plan. She retires on January 1, 2023, at age 63, and receives pension payments beginning in January 2023. Her pension payments, which will be received
In 2023, Bear Corporation transfers 100 shares of its stock to its employee Patrick. The stock is valued at $$10$ per share on the issue date. The stock is subject to the following restrictions:•
On February 12, 2024, Jamal, who is single and age 30, establishes a traditional IRA and contributes $$6,500$ to the account. Jamal’s adjusted gross income is $$79,000$ in 2023 and $$60,000$
Phil, age 30, is married and files a joint return with his spouse. On February 15, 2024, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a $$13,000$
Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2023. She is an active participant in a qualified retirement plan sponsored by her employer.
Jack and Katie have five grandchildren, ages 19, 16, 15, 12, and 10. They have established Coverdell Education Savings Accounts (CESA) for each of the grandchildren and would like to contribute the
Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2023, when the option price and FMV of the Bell stock is $$80.$ The option entitles Peggy to buy 10 shares of
Bender Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2023, that entitled Penny to acquire 1,000 shares of Bender stock at $$80$ per share. On this date, the
Dan M. and Cheryl A. Peters are married, file a joint return, and have no children in 2023. Dan, age 45, is an independent contractor working in pharmaceutical sales and Cheryl, age 42, is a nurse at
This tax form/return preparation problem uses the same information as Problem I:7-62 EXCEPT it applies to the 2022 tax year rather than 2023. Actual government tax forms for 2023 are unavailable at
During 2023, Angela sustains serious injuries from a snow skiing accident. She incurs the following expenses:Angela is single and has no dependents. For the year, her salary is $$58,000.$ She pays
Assume the same facts as in Problem I:8-34. In addition, assume that in 2024, Angela receives an additional $$7,000$ in a settlement of a lawsuit arising because of the snow-skiing accident.
Dan lives in Duncan, a small town in Arizona. Because of a rare blood disease, Dan is required to take special medical treatments once a month. The closest place these treatments are available to Dan
In 2023, Charla, a single taxpayer with no dependents, was severely hurt in a farm accident. Charla is 38 years old. The accident left Charla’s legs 85% paralyzed. After incurring $$14,000$ of
Joyce is a single, cash-method taxpayer. On April 11, 2022, Joyce paid $$120$ in state income taxes with her 2021 state income tax return. During 2022, Joyce had $$1,600$ in state income taxes
During the current year, Tina purchases a beachfront condominium for $$600,000,$ paying $$150,000$ down and taking out a $$450,000$ mortgage, secured by the property. At the time of the
During 2023, Doug incurs the following deductible expenses: $$2,300$ in state income taxes, $$3,000$ in local property taxes, $$800$ in medical expenses, and $$2,000$ in non-cash charitable
During 2023, James, a single, cash method taxpayer incurred the following expenditures:James’ income consisted of the following items:a. Compute James’ taxable income for the year (assuming that
Assume all the same facts as in Problem I:8-48 except that James’ salary income is $$130,000$ instead of $$70,000$ and that he does not make the election. Compute James’ taxable income for
Assume the same facts as Problem I:8-51, except that the qualified organization is a private nonoperating foundation. Determine the amount of the charitable contribution for Parts a through e.
Cathy is a 50% partner in the CD partnership, which owns a small manufacturing business. In the current year, the business had qualified business income of $$2.8$ million. CD partnership paid W-2
Tim and Monica Nelson are married, file a joint return, and are your newest tax clients. They provide you with the following information relating to their 2023 tax return:1. Tim works as a
On December 1, 2023, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year, she donates $$5,000$ to charity. She has no other itemized deductions. This year, she
Following is a list of information for Peter and Amy Jones for the current tax year. Peter and Amy are married and have three children, Aubrynne, Bryson, and Caden. They live at 100 Main Street,
Kelly and Chanelle Chambers, ages 47 and 45, are married and live at 584 Thoreau Drive, Boston, MA 59483. Kelly’s Social Security number is 111-11-1111 and Chanelle’s is 222-22-2222. The Chambers
Joe is a single, self-employed individual who owns his own business. During 2023, Joe reported $$200,000$ gross income and $$60,000$ of business expenses. He also paid $$30,000$ in alimony
For 2023, Mario, a single individual with no dependents, receives income of $$55,000$ and incurs deductible expenses of $$9,000$.a. What is Mario’s taxable income assuming that the expenses are
In March 2023, Otter Corporation sends people to the state capital to lobby the legislature to build a proposed highway that is planned to run through the area where its business is located.a. If
For vs. From AGI. During 2023, Kent, a 40-year-old single taxpayer, reports the following items of income and expense:The amounts above are before any limitations. What is Kent’s taxable income for
Capitalization vs. Expense. Sam owns a small apartment building (this is the only rental building Sam owns). During the year Sam incurs the following expenditures:Discuss the proper tax treatment for
Political Contributions and Lobbying Expenses. Eljay, LLP owns several apartment complexes and office buildings. The leasing and management of these buildings constitutes Eljay’s only business
During January and February of the current year, Big Bang LLP incurs $$13,000$ in travel, feasibility studies, and legal expenses to investigate the feasibility of opening a new entertainment
John Broward owns 1,500 shares of Silver Fox Corporation common stock. John purchased the 1,500 shares on April 17, 2011, for $$21,000.$ On December 8, 2022, John sells 750 shares for $$5,000.$
Mr. Cougar owns 1,000 shares of Western Corporation common stock, which was purchased on March 8, 2011, for $$12,000.$ In 2023, Mr. Cougar buys and sells Western Corporation stock as follows. On
Sally is an attorney who computes her taxable income using the cash method of accounting. Sage Corporation, owned 40% by Sally’s brother, 40% by her cousin, and 20% by her grandmother, uses the
Rachel Schurtz is a high school English teacher. In her spare time, she likes to make her own body lotion, lip gloss, and bath and shower gel. She uses the bath products herself and gives them to her
Emily is an interior decorator who does consulting work for several furniture stores. Additionally, she has been designing and creating rubber stamps for the past several years. She sells the stamps
Chuck, a dentist, raises prize rabbits for breeding and showing purposes. Assume that the activity is determined to be a hobby. During the current year, the activity generates the following items of
During the current year, Kim incurs the following expenses with respect to her beachfront condominium in Hawaii:During the current year, Kim used the condominium 20 days for vacation. She rented it
Bryce, a bank official, is 40 years old, unmarried and has no dependents. During 2023 he engages in the following activities and transactions:a. Being an avid fisherman, Bryce develops an expertise
Using the following facts, determine Jaron’s 2023 taxable income.1. In November 2021, when his wife died, Jaron left the CPA firm he was working for and started his own practice so he could have
Danielle Anderson, your client and a cash method taxpayer, works full-time at a music store located in a mall. She assists the manager in buying decisions, serves customers on the sales floor, and
John and Kathy Brown have just been audited and the IRS agent disallowed the business loss they claimed in 2021. The agent asserted that the activity was a hobby, not a business. John and Kathy live
Given the following information for Jane Cole, complete Schedule D of Form 1040 through Part III.• Stock options, which she purchases on February 14 of the current year for $$850,$ expire on
In 2017, Harry and Mary purchased Series EE bonds, and in 2023 redeemed the bonds, receiving $$500$ of interest and $$1,500$ of principal. Their income from other sources totaled $$30,000.$
Stan rented an office building to Clay for $$3,000$ per month. On December 29, 2022, Stan received a deposit of $$4,000$ in addition to the first and last months’ rent. Occupancy began on
Ed owns Oak Knoll Apartments. During the year, Fred, a tenant, moved to another state. Fred paid Ed $$1,000$ to cancel the two-year lease he had signed. Ed subsequently began renting the unit to
Sally W. Emanual, a teacher, had the following dividends and interest during 2022:Additional information pertaining to Sally Emanual includesThe taxable portion of the pension is $$7,000.$ Sally
Jim and Linda are your tax clients. They were divorced in 2018, and the divorce decree stated that Jim was to make monthly payments to Linda. The court designated $$300$ per month as alimony and
On January 5, 2023, Rita left the United States for Germany, where she had accepted an appointment as vice president of foreign operations. Her employer, USA Corporation, told her the assignment

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