Questions and Answers of Concepts In Federal Taxation

Aretha is an executive vice president of Franklin, Inc. On December 18, 2018, the Franklin, Inc., board of directors awards her a $20,000 bonus. Aretha asks Franklin's controller to delay processing
Darcy borrowed $4,000 in 2015 from her employer to purchase a new computer. She repays $1,000 of the loan plus 6% interest on the unpaid balance in 2015, 2016, and 2017. After closing a big deal in
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, 2018 and receives his first
Ratliff Development Corporation purchases a tract of land in 2017 at a cost of $120,000 and subdivides the land into 30 building lots. The cost of subdividing is $6,000. In 2017, Ratliff installs
The Rosco Partnership purchases a rental property in 2013 at a cost of $150,000. From 2013 through 2018, Rosco deducts $14,000 in depreciation on the rental. The partnership sells the rental property
Albert and Patricia are divorced and their agreement is finalized in 2018. As part of their divorce agreement, Patricia agrees to pay Albert alimony of $85,000 in the current year and $5,000 per year
Erica and Raphael are divorced and their agreement is finalized in 2018. Because Erica made millions in the record industry while Raphael served as the homemaker and primary caretaker to baby Dexter,
Pedro purchases 50 shares of Piper Company common stock on February 19, 2015, at a cost of $4,300. He sells the 50 shares on July 2, 2018, for $9,000. On March 14, 2018, Pedro purchases 100 shares of
Determine how much interest income Later Federal Loan Company, a cash basis taxpayer, must recognize on each of the following loans in 2018:a. A $10,000, 8.5%, 6-month loan made on October 1, 2018.
In January 2018, Conan, a cash basis taxpayer, purchases for $4,000 a Series EE savings bond with a maturity value of $4,800 (a 6% annual yield). At the same time, he also purchases for $5,000 a
How much income would an accrual basis taxpayer report in 2018 in each of the following situations?a. Toby's Termite Services Inc. provides monthly pest control on a contract basis. Toby sells a
Daryl purchases land in 2014 at a cost of $65,000. In 2018, 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
In 2015, Patricia purchases a rental property as an investment at a cost of $60,000. From 2015 through 2018, she takes $7,000 in depreciation on the property. In 2018, Patricia sells the rental
WCM Builders enters into a contract to build a shopping mall in 2018 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 2012, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2018, when Awnings' bonds are trading at 93, the company purchases and retires $100,000 par value of the bonds.
Tonya purchased land for investment purposes in 2015 for $21,000. In 2018, 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
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
Joan is a single individual who works for Big Petroleum, Inc. During all of 2018, she is stationed in West Africa. She pays West African taxes of $20,000 on her Big Petroleum salary of $92,000. Her
Boris is an unmarried systems specialist with a public accounting firm. During all of 2018, he is on temporary assignment in London. He pays $21,000 in British income tax on his $100,000
Tia is married and is employed by Carrera Auto Parts. In 2018, Carrera established high-deductible health insurance for all its employees. The plan has a $2,600 deductible for married taxpayers.
Binh met Anika 10 years ago at a cocktail party. Anika was a wealthy investor with extensive holdings in the oil and gas industry. Binh was a real estate agent earning about $35,000 a year. Several
In 2018, RayeAnn acquires a car for $14,000. She uses the car in her advertising business and for personal purposes. Her records indicate the car is used 70% for business and that the total operating
On July 1, 2018, Andaria borrows $30,000 from the First Financial Bank. The loan is for 1-year at an annual interest rate of 10%. How much interest can Andaria deduct under each of the following
Damon's Lawn and Garden Supply, an accrual basis taxpayer, is the exclusive dealer for Tru-Cut lawn mowers. In 2018, Damon's agrees to pay the Dash Corporation, the manufacturer of Tru-Cut, an
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 the
Kai, a cash basis taxpayer, is a 75% owner and president of Finnigan Fish Market. Finnigan, an S corporation, uses the accrual method of accounting. On December 28, 2018, Finnigan accrues a bonus of
Lonnie owns 100% 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, 2018, the close of its tax year. As a
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
During the current year, Benjamin and Valerie were notified that their 2016 tax return was being audited. The IRS commissioner has disallowed all the losses attributable to Valerie's cattle breeding
Rosita's grandmother dies in November 2017 and leaves her an investment portfolio worth $180,000. In January 2018, when Rosita receives ownership to the investments, the portfolio consists of
A.J. is the vice president for Keane Products, a marketing consulting firm. On a business trip to New York City in 2018, he meets with three executives from Keane’s top account. After the
Karl is the vice president of finance for Wyatt Industries. In 2018, he met a client at an afternoon baseball game. The box-seat tickets cost $30 each. Because the client had a plane flight after the
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
In addition to being an employee of Rock Hard Roofing Material, Lou owns 10% of the company's common stock. Rock Hard falls on hard times in 2017. To forestall bankruptcy, Rock Hard's employees and
Tom is singleand operates a golf store as a sole proprietorship. In 2018, the store has $130,000 of net income. Tom does not itemize and has other income from interest and dividends of $2,000. What
KOM pays the following insurance premiums during 2018:a. If KOM uses the accrual method of accounting, what is the insurance expense deduction for 2018?b. If KOM uses the cash method of accounting,
Dan and Katlyn are married and operate a pizza restaurant as an S corporation. In 2018, the store has qualified business income of $300,000. Their itemized deductions are $22,000 and they have other
The Kimpton Corporation pays the following taxes during 2018:Also, the county treasurer notifies Kimpton that it is being assessed a special real estate tax of $64,000 for upgrading the sidewalks and
Diane and Peter were divorced in 2018. The divorce agreement states that Peter is to have custody of their son, Stewart, and that Peter will be entitled to the dependency exemption. In addition,
During 2018, Carson pays $1,500 in child support and $2,000 in alimony to his ex-wife. What is Carson's allowable deduction, and how should it be deducted on his tax return?
Mona works for Leonardo Corporation as a sales representative. Leonardo gives her a travel allowance of $350 per month. During 2018, she spends the following amounts on valid travel expenses:How
Evelyn is single and a self-employed engineer. During 2018, Evelyn's income from her engineering business is $55,000. Evelyn pays $3,100 for her medical insurance policy.a. How should the medical
Thomas is single and a self-employed architect. During 2018, Thomas’s income from his business is $144,000. He also pays $2,200 for a medical insurance policy.a. How should the medical insurance
Jake loaned his cousin, Arnold, $10,000 in March 2016 to open a cybercafe in Santa Barbara. Arnold signed a loan agreement to pay Jake 7% interest annually, with the principal due in 2019. Jake
Brad graduated from law school in Detroit in May 2017. 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
In 2016, Samantha loaned her friend Lo Ping $15,000. The loan required Lo Ping to pay interest at 8% per year and to pay back the $15,000 loan principal on July 31, 2018. Lo Ping used the loan to
Habiby, Inc., began operations in 2017 and has the following income and expenses for 2017 through 2020.a. What is the amount of tax that Habiby should pay each year? b. How much would Hadley paid in
When is a taxpayer allowed to deduct a personal casualty loss, and how is it calculated?How would your answer change if Graves were an S corporation?
Wayne owns 30% of Label Maker Corporation. Label Maker is organized as an S corporation. During 2018, Label Maker has a loss of $160,000. At the beginning of 2018, Wayne's at-risk amount in Label
Sidney and Gertrude Pearson own 40% of Bearcave Bookstore, an S corporation. The remaining 60% is owned by their son Boris. Sidney and Gertrude do not participate in operating or managing the store
Mort is the sole owner of rental real estate that produces a net loss of $18,000 in 2017 and $20,000 in 2018 and income of $6,000 in 2019. His adjusted gross income, before considering the rental
Katrina is the sole owner of rental real estate that produces a net loss of $18,000 in 2017 and $22,000 in 2018 and income of $9,000 in 2019. Her adjusted gross income, before considering the rental
Mason owns a passive activity that generates a loss of $14,000 in 2017, $12,000 in 2018, and income of $4,000 in 2019. In 2018, Mason purchases a second passive activity that has passive income of
During 2018, 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 2018 taxable income? Explain.b. Assume that in
Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2018. Randy owns 25% of Labrador's outstanding stock. What is the effect on Labrador's and Randy's
Goldie sells 600 shares of Bear Corporation stock for $9,000 on December 14, 2018. She paid $27,000 for the stock in February 2015.a. Assuming that Goldie has no other capital asset transactions in
Bongo Corporation is incorporated in 2016. It has no capital asset transactions in 2016. From 2017 through 2020, Bongo has the following capital gains and losses:Assuming that Bongo's marginal tax
Newcastle Corporation was incorporated in 2017. For the years 2017 through 2019, Newcastle has the following net capital gain or loss.If Newcastle is in the 34% marginal tax bracket for each of these
Sonya, who is single, owns 20,000 shares of Malthouse Corporation stock. She acquired the stock in 2015 for $75,000. On August 12, 2018, Sonya’s father tells her of a rumor that Malthouse will file
Katelyn purchased 300 shares of Condine, Inc., stock in 2016 for $9,000. During 2018, she sells 200 shares of Condine to her brother, Jon, for $3,600 and the remaining 100 shares to an unrelated
Leona owns 300 shares of Ross Industries. She acquired the shares on February 17, 2016, for $6,500. On September 17, 2018, she acquires another 200 shares of Ross for $4,800. Two weeks later, a
The Readyhough Corporation was incorporated in 2010. During 2017, the corporation had operating income of $80,000. Because of a strike at its major supplier, the corporation had an operating loss of
Zoriana sells stock that she acquired in 2014 for $7,500. Her basis in the stock is $14,000. She has a $2,000 long-term capital loss carryover from 2017.
On January 1, 2018, Brenda acquires 200 shares of Disney stock for $8,000. She sells 200 shares of the stock on September 2, 2018, for $30 per share. On September 23, 2018, Brenda acquires 400 shares
Anthony owned a 2016 Luxuro automobile that had a fair market value of $18,000. His son James, who is 19, borrows the car without his father's knowledge and totals it in 2017. James has been involved
Determine the 2018 filing status in each of the following situations:a. Michaela and Harrison decide to separate on October 12, 2018. Before filing their 2018 tax return on February 18, 2019,
Determine the maximum deduction from AGI in 2018 for each of the following taxpayers:a. Pedro is single and maintains a household for his father. His father is not a dependent of Pedro’s. Pedro’s
Paula lives in Arkansas, a state, which imposes a state income tax. During 2018, she pays the following taxes:a. If Paula’s adjusted gross income is $35,000 what is her allowable deduction for
Determine the maximum deduction from AGI in 2018 for each of the following taxpayers:a. Selen is single and has itemized deductions for the year of $12,200. In addition, Selen's mother lives with
Jesse is a resident of New Jersey who works in New York City. He also owns rental property in South Carolina. During 2018, he pays the following taxes: During 2018, Jesse’s 2016New YorkState and
Simon is single and a stockbroker for a large investment bank. During 2018, he has withheld from his paycheck $2,250 for state taxes and $400 for city taxes. In June 2019, Simon receives a state tax
Frank and Liz are married. During 2018, Frank has $2,800 in state income taxes withheld from his paycheck, and Liz makes estimated tax payments totaling $2,200. In May 2019, 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, 2018, he sells the land for $80,000. As part of the sale, the buyer agrees to pay all of the
Robin purchases a new home costing $80,000 in 2017. She pays $8,000 down and borrows the remaining $72,000 by securing a mortgage on the home. She also pays $1,750 in closing costs, $1,600 in points
Determine the taxable income of each of the following dependents in 2018:a. Louis is 12 and receives $1,250 in interest income. b. Jackson is 16. He earns $2,050 from his newspaper route and
Calculate the 2018 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 whether each of the following taxpayers must file a return in 2018: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
Jacqueline is single. In June 2018, she receives a refund of $250 from her 2017 state tax return. Her 2017 itemized deductions were $8,000. In October 2018, her 2016 state tax return is audited, and
Troy’s 2016 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
Carl Corporation acquires a business use warehouse for $200,000 on January 2, 2011. From 2011 through 2016, Carl Corporation properly deducts a total of $30,000 in depreciation. Carl incurs a net
Hannibal owns a farm. He purchases a tractor in 2014 at a cost of $25,000. Because 2014 is a bad year, he does not deduct any depreciation on the tractor in 2014. He sells the tractor in 2018
Erin purchases 2 acres of land in 2018 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%. In
On October 1, 2018, 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 to
Izzy is an employee of Kosmo's Kustom Kars, Inc. The company rebuilds classic automobiles for resale. Last year, Izzy bought a rebuilt 1957 Thunderbird for $15,000 from the company. A car like Izzy's
On January 5, 2018, Henry purchases 500 shares of Wichmann, Inc., common stock at a cost of $24,700. On April 1, 2018, he purchases an additional 300 shares for $19,500. On November 13, 2018,
Eric owns 600 shares of Razor, Inc., stock for which he paid $3,500 in 2014. On December 14, 2018, he sells the 600 shares for $4 per share and pays a commission of $200 on the sale. On January 3,
Firefly, Inc., acquires business equipment in July 2018 for $2,515,000. Assume that Firefly elects not to claim bonus depreciation.a. What is Firefly's maximum Section 179 deduction for 2018?
In 2018, Terrell, Inc., purchases machinery costing $2,528,000. Its 2018 taxable income before considering the Section 179 deduction is $990,000. Assume that Terrell elects not to claim bonus
Brad is a shareholder and full-time employee of an S corporation. During 2018, 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 December 2018 for $12,000. This is the only depreciable personal property acquired during the year. Browser elects not to claim bonus depreciation and does
Kris starts a new business in 2018. 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
In July 2018, Surecut Sawmills buys office furniture for $1,060,000. Assume that Surecut elects not to claim bonus depreciation.a. Compare cost-recovery deductions using maximum, minimum, and
On June 2, 2018, Lokar Corporation purchases a patent for $68,000 from the inventor of a new extrusion process. The patent has 12 years remaining on its legal life. Also, Lokar purchases
On April 18, 2018, Petros buys all the assets of Brigid's Muffler Shop. Included in the purchase price of $295,000 is a payment of $20,000 to Brigid not to open a competing shop in the state for a
Bailey Construction Company purchases a bulldozer on December 20, 2018. An ice storm delays delivery until December 24. Because of the holidays, the equipment is not used until January 2.
During 2018, Schottenheim Corporation buys laptop computers and desktop computers to use in its general sales offices. Schottenheim buys laptops for $42,000 on March 29, additional laptops for
Spencer purchases 100 shares of Reality Virtual Corporation common stock for $1,200 on July 30, 2018. He sells 75 shares of this stock for $525 on December 27, 2018. On January 12, 2019, Spencer
For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss on the disposition and whether that gain or loss is short-term or long-term:a. Ari
For each of the following capital asset dispositions, determine whether the taxpayer has realized a gain or loss and whether that gain or loss is short-term or long-term:a. Larry's aunt June dies on
Yorgi purchases qualified small business stock in Gnu Company, Inc., on September 15, 2008, for $50,000. She sells the shares for $400,000 on December 30, 2018. The stock retains its qualified small

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