Questions and Answers of Federal Taxation 2023 Comprehensive

Bud received 200 shares of Georgia Corporation stock from his uncle as a gift on July 20, 2021, when the stock had a $45,000 FMV. His uncle paid $30,000 for the stock on April 12, 2005. The taxable
Daniel receives 400 shares of A&M Corporation stock from his aunt on May 20, 2022, as a gift when the stock has a $60,000 FMV. His aunt purchased the stock in 2012 for $42,000. The taxable gift
Kathleen owns 500 shares of Buda Corporation common stock which was purchased on March 20, 2008, for $48,000. On October 10 of the current year, she receives a distribution of 500 stock rights. Each
Martha Lou owns 100 shares of Blain Corporation common stock. She purchased the stock on July 25, 1999, for $4,000. On May 2 of the current year, she receives a nontaxable distribution of 100 stock
Donna files as a head of household in 2022 and has taxable income of $110,000, including the sale of a stock held as an investment for two years at a gain of $20,000. Only one asset was sold during
On December 31, 2021, Phil purchased $20,000 of newly issued bonds of Texas Corporation for $16,568. The bonds are dated December 31, 2021. The bonds are 9%, 10-year bonds paying interest
On January 1, 2020, Swen paid $184,000 for $200,000 of the 8%, 20-year bonds of Penn Corporation, issued on January 1, 2016, at par. The bonds are held as an investment. Determine the gain and the
During 2022, Gary, who is single, receives a $90,000 salary and has no deductions for AGI. In 2021, Gary had a $5,000 STCL and no other capital losses or capital gains. Consider the following sales
On February 10, 2022, Gail purchases 20 calls on Red Corporation for $250 per call. Each call represents an option to buy 100 shares of Red stock at $42 per share any time before November 25, 2022.
On January 1, 2021, Sean purchased an 8%, $100,000 corporate bond for $92,277. The bond was issued on January 1, 2021, and matures on January 1, 2026. Interest is paid semiannually, and the effective
Dan owns 500 shares of Rocket Corporation common stock. The stock was acquired two years ago for $30 per share. On October 2, 2022, Dan writes five calls on the stock, which represent options to buy
Without considering the following capital gains and losses, Charlene, who is single, has taxable income of $660,000 and a marginal tax rate of 37%. During the year, she sold stock held for nine
In 2017, the Ryan Corporation sold a capital asset and incurred a $40,000 LTCL that was carried forward to subsequent years. That sale was the only sale of a capital asset that Ryan made until 2022,
Betty incurs the following transactions during the current year. Without considering the transactions, her 2022 AGI is $92,000. Analyze the transactions and answer the following questions:• On
Dale, who files a joint return, purchased Blue Corporation stock four years ago for $1,000 as an investment. He intended to hold the stock until funds were needed to help pay for his daughter’s
Calvin, whose tax rate is 35% and 15% for ANCG, is considering two alternative investments on January 1, 20Y1. He can purchase $100,000 of 10% bonds due in five years or purchase $100,000 of Hobbes,
On December 20 of the current year, Winneld has decided to sell all of the stock that she owns and reinvest the proceeds in state of Minnesota bonds. Without considering the sales, her taxable income
It is August 20, 2022, and Andy, whose tax rate is 32%, owns stock of Wendys and stock of Dublin. The FMV of each stock is $10,000, and the commission to sell either stock is $15. Andy has no other
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 October
Spencer Duck (SSN 000-22-1111) is single and his eight-year-old son, Mitch, lives with him nine months of the year in a rented condominium at 321 Hickory Drive in Ames, Iowa. Mitch lives with his
Joe is a single, self-employed individual who owns his own business. During 2022, Joe reported $200,000 gross income and $60,000 of business expenses. He also paid $30,000 in alimony (divorced in
For 2022, 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
Gus coaches several developing professional tennis players as an employee of the Central Tennis Training Camp (CTTC). In May of the current year, his ex-girlfriend Teresa, (a tennis player former
Roberta is a self-employed accountant. During the year, Roberta incurs the following unreimbursed expenses:Identify which of these expenses are deductible and the amount that is deductible by
During 2022, Kent, a 40-year-old single taxpayer, reports the following items of income and expense:Income:Salary
Eljay, LLP owns several apartment complexes and office buildings. The leasing and management of these buildings constitutes Eljay’s only business activity. During 2022, Eljay incurred the
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, 2021, John sells 750 shares for $5,000. On
Mr. Cougar owns 1,000 shares of Western Corporation common stock, which it purchased on March 8, 2011, for $12,000. In 2022, Mr. Cougar buys and sells Western Corporation stock as follows. On October
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
Using the following facts, determine Jaron’s 2022 taxable income. 1. In November 2020, when his wife died, Jaron left the CPA firm he was working for and started his own practice so he could
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 2020. The agent asserted that the activity was a hobby, not a business.John and Kathy live
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 Kelly
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, 2022, at age 63, and receives pension payments beginning in January 2022. Her pension payments, which will be received
In 2022, Bear Corporation transfers 100 shares of its stock to its employeePatrick. The stock is valued at $10 per share on the issue date. The stock is subject to the following restrictions:•
On February 12, 2023, Jamal, who is single and age 30, establishes a traditional IRA and contributes $6,000 to the account. Jamal’s adjusted gross income is $74,000 in 2022 and $60,000 in 2023.
Dan M. and Cheryl A. Peters are married, file a joint return, and have no children in 2022. Dan, age 45, is an independent contractor working in pharmaceutical sales and Cheryl, age 42, is a nurse at
Phil, age 30, is married and files a joint return with his spouse. On February 15, 2023, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a $12,000 contribution,
Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2022. 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, 2022, when the option price and FMV of the Bell stock is $80. The option entitles Peggy to buy 10 shares of Bell
Bender Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2022, that entitled Penny to acquire 1,000 shares of Bender stock at $80 per share. On this date, the stock
Paul Price is self-employed and operates Lightmore Communications as a sole proprietorship. Lightmore has been extremely successful over the past 20 years. Paul travels extensively in connection with
During 2022, Angela sustains serious injuries from a snowskiing accident. She incurs the following
Assume the same facts as in Problem I:8-34. In addition, assume that in 2023, Angela receives an additional $7,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,000 of
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 2022, 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, 2021, Joyce paid $120 in state income taxes with her 2020 state income tax return. During 2021, Joyce had $1,600 in state income taxes withheld.
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,
On December 1, 2022, 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 plans
During 2022, Doug incurs the following deductible expenses: $2,300 in state income taxes, $3,000 in local property taxes, $800 in medical expenses, and $2,000 in non-cash charitable contributions.
During 2022, James, a single, cash method taxpayer incurred the following expenditures:Qualified medical expenses.....................................................................................$
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 2022 tax return:1. Tim works as a
In 2021, Mark purchased two separate activities. Information regarding these activities for 2021 and 2022 is as follows:The 2021 losses were suspended losses for that year. During 2022, Mark also
During 2022, 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,
Mark Hancock is a self-employed attorney who operates his law practice as an unincorporated sole proprietorship. In 2020, the IRS disallowed several business deductions he took in 2018 and 2019. In
How can individuals deduct a loss on a deposit in a qualified financial institution on their tax returns?
Several recent tax law changes have impacted how NOLs are treated. Pre-2018, NOLs could be carried back 2 years and carried forward 20 years. For tax years 2018, 2019, and 2020, the CARES Act allowed
In 2022, Julie, a single individual, reported the following items of income and
Jerry sprayed all of the landscaping around his business with a pesticide in June 2022. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the
During 2021, 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 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 stated rate) over a
Assume the same facts as in except that the interest on their personal residence is $15,300 and they also have a $4,500 deductible casualty loss on personal property (after limitations).a. What is
During 2021, Karen, a single taxpayer, reports the following income and expense items relating to her interior design
In 2019, 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
On December 21 of the current year, Chelsea Brown, who is in the 32% tax bracket, was reviewing her trades for the past year. She determined that she had a $12,000 net long-term capital gain and an
Heather and Nikolay Laubert are married and file a joint income tax return. Their address is 3847 Jackdaw Path, Madison, WI 58493. Nikolay’s Social Security number is 000-00- 1111, and Heather’s
Woburn Corporation uses the calendar year as its tax year. Woburn purchases and places into service $1.7 million of depreciable property during 2022:You are working in Woburn’s tax department and
In 2022, Andes Corporation purchases $1.5 million of machinery (7-year property) and places it into service in its business. What are Andes’ depreciation deductions for 2022 and 2023 in each of the
Goodrich Corporation uses the calendar year as its tax year. It acquires and places into service two depreciable assets during 2022:• Asset #1: 7-year property; $950,000 cost; placed into service
Jose is considering acquiring a new luxury automobile costing $70,000 that will be used 100% in his business. The salesperson at the automobile dealership states that Jose will be entitled to
On March 1, 2022, Sarah entered into a three-year lease of an automobile used exclusively in her business. The automobile’s FMV was $58,500 at the inception of the lease. Sarah made ten monthly
Tampa Corporation sold the following assets in 2022:a. What is the depreciation deduction for each asset in 2022?b. Compute the gain or loss on each asset sold.
Prior to 2022, many taxpayers deducted research and experimental (R&E) expenditures when they were paid or incurred.a. Explain how this pre-2022 treatment differs from their deductibility in 2022
Paula is planning to either purchase or lease a $75,000 automobile. She anticipates that business use of the auto will be 60% for the first two years but will decline to 40% in years three through
Sandy acquired business machinery (which qualified as 7-year MACRS property) on July 15, 2019, for $10,000. In 2019, Sandy claimed a $1,429 regular MACRS depreciation deduction and she elected not to
Use. Sid purchased an automobile for personal use on January 18, 2018 for $20,000. On January 1, 2022, Sid starts a small business and begins to use the automobile exclusively in the business. The
Small Corporation purchased and placed in service the following 100% business-use assets (all of the assets were purchased new). Assume that Small purchased these assets in 2017, when 50% bonus
Large Corporation acquired and placed in service the following 100% business-use assets. Large did not claim Sec. 179 or bonus depreciation expensing on any of these properties.• Truck (light-duty,
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,
In 2022, Tish acquires and places into service in her business 7-year MACRS property costing $40,000 and 5-year MACRS property costing $165,000. Tish elects Sec. 179 expensing for all of the
In 2022, Richmond Corporation purchases and places into service a machine. Richmond elects Sec. 179 expensing for $1.08 million of its $1.28 million cost. The machine has a 7-year MACRS recovery
In 2022, 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:
Trish is a self-employed CPA who purchases an automobile for $72,000 and places it into service in the current year (2022). Calculate Trish’s current year MACRS depreciation deduction, assuming she
Tammy acquired an automobile for $20,000 on July 1, 2019. Her business use of the vehicle is 70% in 2019, 70% in 2020, 40% in 2021, and 35% in 2022. The property’s MACRS recovery period is 5 years,
Lutz Corporation acquired a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2022 for $64,000. The company did not elect Sec. 179 expensing and elects out of bonus depreciation. What
In 2022, Luby Corporation acquires and places into service an automobile that it uses only for business purposes. Luby does not claim Sec. 179 expensing or bonus depreciation for the vehicle. Compute
Tracy acquires an automobile (MACRS 5-year recovery) on March 1, 2022. He uses the automobile 70% in his business and 30% for personal use. The automobile cost $76,000. No amount is expensed under
Stan Bushart works as a customer representative for a large corporation. Stan’s job entails traveling to meet with customers, and he uses his personal car 100% for business use. In January 2022,
Troy entered into a three-year lease of a luxury automobile on January 1, 2022, for use 80% in business and 20% for personal use. The FMV of the automobile at the inception of the lease was $61,000,
Park Corporation incurs the following costs in 2022, its initial year of doing business:Materials and supplies for research
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
Refer to the facts in Problem I:10-47 for John and Ellen Brite. The following information is also available for them:• John (SSN 123-45-6789) and Ellen (SSN 234-56-7890) live at 111 Maple Street,
In 2020, 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 were
Milt, a self-employed attorney, incurs the following expenses in 2022:Business lunches for clients and prospective
Beach Corporation purchases tickets to sporting events and uses them to entertain customers. In 2022 Beach Corporation purchases the following tickets:100 tickets to football games (faAce value of
Turner Corporation uses the calendar year as its tax year. It purchases and places into service $2.27 million of property during 2022 to use in its business:What is Turner’s total depreciation

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