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business
federal taxation

Questions and Answers of Federal Taxation

Explain how committee reports can be used in tax research. What do they indicate?
Lean Corporation was incorporated in 1981 by Bruce Smith, who has served as an officer and member of the Board of Directors. Carl Jones has served as the secretary-treasurer of the company as a
Mike Webb, married to Nancy Webb, is employed by a large pharmaceutical company and earns a salary. In addition, Mike is an entrepreneur and has two small businesses on the side, both of which
Bart and Jane Lee are married, file a joint return and have two dependent children (twins, age 9). Bart begins a new job and is asked to fill out a Form W-4. His 2016 monthly gross earnings will be
Latisha is an unmarried taxpayer, filing head of household. She has two dependent children (7-year-old twins) who lived with her all year. Her 2016 earned income was $18,600, her AGI was $22,700, and
Jose is unmarried with no qualifying children. He has $8,300 of 2016 wages and is otherwise eligible for the earned income credit. Jose has $200 of interest income and no for AGI deductions.a. What
Carolyn is unmarried and has one dependent child, age 6, who lived with her for the entire year. In 2016, she has income of $16,000 in wages and $6,000 in alimony. Her AGI is $22,000.a. What is
Randall and Dianne Wall live in St. Louis, Missouri. Randall and Dianne are each 30 years old, neither smokes, and they have no children or other dependents.Randall is attending law school full time
Caroline, age 66 and filing single as a dependent of another, received the following income items for 2016:Social Security benefits (nontaxable)....................................$ 3,000Pension
Lou and Stella North are married, file a joint return, and have two dependent children in college, Phil and Jaci. Phil attends a State University in a neighboring state, and Jaci attends a State
Brad and Valerie decided to adopt a child and contacted an adoption agency in August 2015. After extensive interviews and other requirements (such as financial status, etc.), Brad and Valerie were
In each of the following independent situations, determine the amount of the child and dependent care tax credit. (Assume that both taxpayers are employed and the year is 2016.)a. Brad and Bonnie are
Anita, a single taxpayer, reports the following items for 2016:Salary (subject to withholding).................................................................................$20,000Income for
Arnie and Angela are married and file a joint return in 2016. Arnie is a partner in a public accounting firm. His share of the partnership’s income in the current year is $40,000, and he receives
Amelia has wages of $45,000 and net income from a small unincorporated business of $70,000 for 2016.a. What is the amount of Amelia’s self-employment (SE) tax and deduction for AGI for her SE
Allen, an unmarried taxpayer filing single, has no dependents and reports the following items on his 2016 federal income tax return:Adjusted gross
Harry and Mary Prodigious are married filing jointly and have 12 dependent children. Six of the children are under age 17. With the large number of children, they live in a very austere manner.
Jose, an unmarried taxpayer filing single with no dependents, has AGI of $200,000 and reports the following items in 2016:Taxable
William and Maria Smith are a married couple filing jointly. They have no children and report the following items in 2016:Taxable
Alice is a single mother, 37 years old, and has two qualifying children, ages 3 and 6. In 2016, she receives $3,600 alimony and earns $18,000 in wages resulting in $21,600 of AGI. Is Alice eligible
What types of business property qualify for the business energy credit?
Although it became law in 2010, one of the key features of the Affordable Care Act, the Premium Assistance Credit, became effective in 2014. Describe the tax costs to a taxpayer who does not purchase
Sarah, a married taxpayer who files a joint return, is considering a foreign assignment for two years. In 2016, she will earn $120,000 in the foreign country. Sarah has no other income. She will be
Your client, Kent Earl, whose tax rate is 35%, owns a bowling alley and has indicated that he wants to sell the business for $1 million and purchase a minor league baseball franchise. His business
Holly has recognized a $9,000 STCL. She has no other recognized capital gains and losses in 2016. She is considering the sale of a Sec. 1231 asset held for four years at a $5,000 gain in 2016. She
Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2016, when the option price and FMV of the Bell stock is $80. The option entitles Peggy to buy 10 shares of Bell
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
Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2016. She is an active participant in a qualified retirement plan sponsored by her employer.
Amelie is an employee who uses her personal automobile in connection with her job. During 2016, Amelie drove her car a total of 28,000 miles. Her business log shows that she drove 22,400 miles for
Bud received 200 shares of Georgia Corporation stock from his uncle as a gift on July 20, 2015, when the stock had a $45,000 FMV. His uncle paid $30,000 for the stock on April 12, 2000. The taxable
Russ has never recognized any Sec. 1231 gains or losses. In December 2016, Russ is considering the sale of two Sec. 1231 assets. The sale of one asset will result in a $20,000 Sec. 1231 gain while
Ed operates a storage business as a sole proprietorship and owns the following assets acquired in 1997:Warehouse.....................................................$400,000Minus: Accumulated
Mr. Briggs purchased an apartment complex on January 10, 2014, for $2 million with 10% of the price allocated to land. He sells the complex on October 22, 2016, for $2.5 million. Assume that 10% of
The LaPoint Corporation placed in service $350,000 of used equipment (seven-year recovery property) on June 3, 2015 and elected to expense $250,000 as Sec. 179 depreciation expense. LaPoint sold the
Consider the following summary of Sec. 1231 gains and losses recognized by Janet during the period 2011€“2016. Janet had no nonrecaptured Sec. 1231 losses at the beginning of 2011. If Janet
On March 10, 2013, Elizabeth, a college professor, purchased a house for $300,000. She did not move into the house until August 8, 2013. On August 1, 2014, she accepted a position as a visiting
Paden, who is single and has been employed as an accountant for 27 years with Harper, Inc., lost his job due to company downsizing. His last day of employment is July 31, 2016, and Harper provides a
Consider the following information for Mr. and Mrs. Gomez:• On May 26, 2015, they sold their principal residence, acquired in 1999, for $200,000. They paid $8,000 of selling expenses. Their basis
Consider the following information for Mr. and Mrs. Di Palma:• On June 10, 2015, they sold their principal residence for $80,000 and incur $6,000 of selling expenses. The basis of the residence,
Sherron, who is single, purchased a house to use as rental property on April 1, 2007, for $300,000. He moved into the house on June 1, 2015, and used it as a personal residence until August 1, 2016,
Mr. and Mrs. Kitchens purchased their first home in Ohio for $135,000 on October 1, 2015. Because Mr. Kitchens’ employer transferred him to Utah, they sold the house for $160,000 on January 10,
On January 10, 2016, Kirsten married Joe. Joe sold his personal residence on October 25, 2015, and excluded the entire gain of $175,000. Although they had originally planned to live in the house that
Marc, age 45, sells his personal residence on May 15, 2016, for $180,000. He pays $8,000 in selling expenses and $900 in repair expenses to help sell the residence. He has lived in the residence
The Madison Corporation paid $3,000 for several acres of land in 1993 to use in its business. The land is condemned and taken by the state in March 2016. The company receives $25,000 from the state.
Paul owns a building used in his business with an adjusted basis of $340,000 and a $750,000 FMV. He exchanges the building for a building owned by Kelley. Kelley’s building has a $950,000 FMV but
Debbie owns office equipment with a basis of $300,000 and a holding period starting on May 10, 2005. Debbie exchanges the equipment for other office equipment owned by Doug on July 23, 2016. Doug’s
BCD Partnership has, for many years, had a March 31 year-end. The partnership’s net income for the fiscal year ended March 31, 2017 is $400,000. Because of its fiscal year, BCD has $100,000 on
Dana manages real estate and is a cash method taxpayer. She changes to the accrual method in 2017. Dana€™s business income for 2017 is $30,000 computed on the accrual method. Her books show
Prime Corporation begins operations in late 2016. Prime decides to use the single-pool LIFO method. Year-end inventories under FIFO are as
John and Ellen Brite (SSN 000-00-1111 and 000-00-2222, respectively) are married and file a joint return. They have no dependents. John owns an unincorporated specialty electrical lighting retail
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
Troy entered into a three-year lease of a luxury automobile on January 1, 2016, for use 80% in business and 20% for personal use. The FMV of the automobile at the inception of the lease was $40,500,
Tracy acquires an automobile (MACRS 5-year recovery) on March 1, 2016. He uses the automobile 70% of the time in his business and 30% of the time for personal use. The automobile cost $36,000. No
Luby Corporation acquires a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2016 for $36,000. Luby does not elect Sec. 179 and elects out of bonus depreciation. What are depreciation
Lutz Corporation acquired a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2016 for $32,000. The company did not elect Sec. 179 expensing and elects out of bonus depreciation. What
Tammy acquired an automobile for $20,000 on July 1, 2013. She used the automobile partially for business purposes during the 2013–2016 period. The percentage of business use is as follows: 2013,
Long Corporation has been unprofitable for several years and has substantial NOL carryovers. Therefore, the company has elected to use straightline MACRS for property acquisitions. Long acquires,
Large Corporation acquired and placed in service the following 100% business-use assets. Large did not elect Sec. 179 expensing on any of these properties.• Truck (light-duty, modified non-personal
Sid purchased an automobile for personal use on January 18, 2012 for $10,000. On January 1, 2016, Sid starts a small business and begins to use the automobile exclusively in the business. The
Sandy acquired business machinery (which qualified as 7-year MACRS property) on July 15, 2013, for $10,000. In 2013, Sandy claimed a $1,429 regular MACRS depreciation deduction and she elected not to
Jose is considering acquiring a new luxury automobile costing $45,000 that will be used 100% in his business. The salesperson at the automobile dealership states that Jose will be entitled to
Robert is a sole proprietor who uses the calendar year as his tax year. On July 20, 2016 he acquired and placed in service a business machine, a 7-year asset, for $50,000. No other property was
Dan and Cheryl are married, file a joint return, and have no children. Dan, age 45, is a pharmaceutical salesman and Cheryl, age 42, is a nurse at a local hospital. Dan’s SSN is 400-20-1000 and
Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2016, that entitled Penny to acquire 1,000 shares of Bender stock at $80 per share. On this date, the stock has a
Phil, age 30, is married and files a joint return with his spouse. On February 15, 2017, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a $11,000 contribution,
Pat is a participant in a qualified pension plan. She retires on January 1, 2016, at age 63, and receives pension payments beginning in January 2016. Her pension payments, which will be received
Anne works for a CPA firm as a secretary/receptionist and earns approximately $27,000 per year. About five years earlier, she had completed 70 credit hours at State U. To increase her career
Michael graduates from New York University and on February 1, 2016, accepts a position with a public accounting firm in Chicago. Michael is a resident of New York. In March, Michael travels to
Bass Corporation purchases 10 tickets to the Super Bowl in February 2016 for entertaining its customers. Due to unusually high demand, the tickets have to be purchased from scalpers for $15,000 (10
Kelly is an employee who incurs $2,200 of business meal expenses in connection with business entertainment and travel, none of which are reimbursed by her employer. $500 of the business meal costs
Jace Seaton is a single taxpayer living in Eugene, Oregon. From 2012 to 2015, he worked as the CEO of Wengren & Jeffers, a local architectural firm. In 2016, he left the firm to start his own
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:8-54, 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
During 2015, 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
Jerry sprayed all of the landscaping around his house with a pesticide in June 2016. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the plants
Mark Hancock is a self-employed attorney who operates his law practice as an unincorporated sole proprietorship. In 2015, the IRS disallowed several business deductions he took in 2013 and 2014. In
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 2016 tax return:1. Tim works as a
Bonnie€™s charitable contributions and AGI for the past four years were as follows:What is the amount of the charitable deduction for each year and the order in which the deduction and
Assume the same facts as Problem I:7-40, but change the amount of Joyce’s mortgage interest to $3,000.Data From Problem I:7-40Joyce is a single, cash-method taxpayer. On April 11, 2015, Joyce paid
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
Assume the same facts as in Problem I:7-35. In addition, assume that in 2017, Angela receives an additional $7,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,000 of
John and Kathy Brown have just been audited and the IRS agent disallowed the business loss they claimed in 2014. The agent asserted that the activity was a hobby, not a business.John and Kathy live
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
Using the following facts, answer the questions below concerning Jaron’s 2016 tax liability.1. Two years ago, in November 2014, when his wife died, Jaron left the CPA firm he was working for and
Bryce, a bank official, is married and files a joint return. During 2016 he engages in the following activities and transactions:a. Being an avid fisherman, Bryce develops an expertise in tying
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
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
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
Cougar Corporation owns 1,000 shares of Western Corporation common stock, which it purchased on March 8, 2010, for $12,000. On October 3, 2016, Cougar purchases an additional 300 shares for $3,000.
Broward Corp. owns 1,500 shares of Silver Fox Corporation common stock. Broward Corp. purchased the 1,500 shares on April 17, 2010, for $20,000. On December 8, 2015, Broward sells 750 shares for
For 2016, 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
Joe is a single, self-employed individual who owns his own business. During 2016 Joe reported $200,000 gross income and $60,000 expenses from his business. He also paid $30,000 in alimony to his
Betty incurs the following transactions during the current year. Without considering the transactions, her 2016 AGI is $40,000. Analyze the transactions and answer the following questions:• On
Dan owns 500 shares of Rocket Corporation common stock. The stock was acquired two years ago for $30 per share. On October 2, 2016, Dan writes five calls on the stock, which represent options to buy
During 2016, Gary receives a $50,000 salary and has no deductions for AGI. In 2015, Gary had a $5,000 STCL and no other capital losses or capital gains. Consider the following sales and determine
To better understand the rules for offsetting capital losses and how to treat capital losses carried forward, analyze the following data for an unmarried individual for the period 2013 through 2016.
Wayne is single and has no dependents. Without considering his $11,000 adjusted net capital gain (ANCG), his taxable income, which includes no investment income, in 2016 is as follows:a. What is
Trisha, whose tax rate is 35%, sells the following capital assets in 2016 with gains and losses as shown:a. Determine Trisha€™s increase in tax liability as a result of the three sales. All
Daniel receives 400 shares of A&M Corporation stock from his aunt on May 20, 2016, as a gift when the stock has a $60,000 FMV. His aunt purchased the stock in 2006 for $42,000. The taxable gift
Sylvia, a dentist with excellent skills as a carpenter, started the construction of a house that she planned to give to her son as a surprise when he returned from Afghanistan, where he is serving in

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