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business
federal taxation

Questions and Answers of Federal Taxation

Luxury Auto Limitations. In 2019, 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
Luxury Auto Limitations. Lutz Corporation acquired a 100% business-use automobile (MACRS S-year recovery) on July 1, 2019 for $64,000. The company did not elect Sec 179 expensing and elects out of
Recapture of Depreciation Deductions Due to Personal Use. Tammy acquired an automobile for $20,000 on July 1, 2016. Her business use of the vehicle is 70% in 2016, 70% in 2017,40% in 2018, and 35% in
Trish is a self-employed CPA who purchases an automo-bile for $72,000 and places it into service in 2019. Calculate Trish's current year MACRS depreciation deduction, assuming she does not elect Sec.
In 2019, Wabash Corporation pur-chases 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:
In 2019, Richmond Corporation purchases and places into service a machine. Richmond elects Sec. 179 expensing for $1.02 million of its $1.22 million cost. The machine has a 7-year MACRS recovery
In 2019, Tish acquires and places into service in her business 7-year MACRS property costing $40,000 and 5-year MACRS property costing S 165,000. Tish elects Sec. 179 expensing for all of the
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,
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
Sid purchased an automobile for personal use on January 18, 2015 for $20,000. On January 1, 2019, 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, 2016, for $10,000. In 2016, Sandy claimed a $1,429 regular MACRS depreciation deduction and she elected not
On March 1, 2019, 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 lease
Shad Tax Fonts. Fiona Starr (social security number 111-22-3333) is single and earns $105,000 as a manager at Costco. Three years ago, she bought a single-family home on 12 Beach St., Bangor, ME
Kara and Brandon Arnold are married and file a joint return. Their Social Security numbers are 000-00-1111 and 000.00-2222, respectively. Kara and Brandon have one son, Henry, age 3. His Social
Using the information in Problem 1:7-62 for Dan and Cheryl, prepare a Form 1040, including Schedule 1 and 4, Schedule A, C, D, and SE, and Form 8829 for 2018.Problem
Given the following information for Jane Cole, complete Schedule D of Form 1040 through Part Ill.• Stock options, which she purchases on February 14 of the current year for $850, expire on October
Dawn, a single, cash-method taxpayer, paid the following taxes in the current year: Dawn's employer withheld $5,400 for federal income taxes, $2,000 for state income taxes, and $3,800 for RCA from
Joyce is a single, cash method taxpayer. On April 11, 2018, Joyce paid $120 in state income taxes with her 2017 state income tax return. During 2018, Joyce had $1,600 in state income taxes withheld.
Medical Expense Deduction. In 2019, 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
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 1:8-34. In addition, assume that in 2020, Angela receives an additional $7,000 in a settlement of a lawsuit arising because of the snow-skiing accident. $4,000 of
During 2019, Angela sustains serious injuries from a snow skiing accident. She incurs the following expenses:ItemAmountDoctor bills$11,700Hospital bills9,400Legal fees in suit against ski
Jace Seaton is a single taxpayer living in Eugene, Oregon. From 2015 to 2018, he worked as the CEO of Wengren & Jeffers, a local architectural firm. In 2019, he left the firm to start his own
In 2016, 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
Net Operating Loss. During 2019, Karen, a single taxpayer, reports the following income and expense items relating to her interior design business:Revenues$52,000Cost of goods
During 2018, Becky loans her brother Ken $5,000, which he in-tends to use to establish a small business. Because Ken has no other assets and needs cash to establish the business, the agreement
Michelle and Mark are married and file a joint return. Michelle owns an unincorporated dental practice. Mark works pare-rime as a high school math teacher, and spends the remainder of his time caring
Assume the same facts as in Problem 1:9-53, 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 stated
During 2019, 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
Year of Deduction. Jerry sprayed all of the landscaping around his business with a pesticide in June 2019. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted
In 2019, Julie, a single individual, reported the following irems of income and deduction:Salary$166,000Interest income14,000Long-teml capital gain from sales of stock22,000Shorr-term capital losses
Passive Losses. In 2018, Mark purchased two separate activities. Information regarding these activities for 2018 and 2019 is as follows: The 2018 losses were suspended losses for that year. During
Mark Hancock is a self-employed attorney who operates his law practice as an unincorporated sole proprietorship. In 2018, the IRS disallowed several business deductions he cook in 2016 and 2017. In
On December 1, 2019, 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
Qualified Business Income Deduction. During the current year, Marilyn earned $115,000 as an accounting consultant. a. If she has no other income besides a 520,000 capital gain, how much can she claim
Qualified Business Income Deduction. 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
Bonnie's charitable contributions and AGI for the four-year period are as follows: What is the amount of the charitable deduction for each year and the order in which the deduction and carryovers
During 2019, James, a single, cash method taxpayer incurred the following expenditures:Qualified medical expenses$8,000Investment interest expense16,000Other investment activity
During 2019, 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 charitable contributions. Doug is 33,
Dan and Cheryl are married, file a joint return, and have no children. Dan, age 45, is an independent contractor working in pharmaceutical sales and Cheryl, age 42, is a nurse at a local hospital.
Bender Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2019, that entitled Penny ro acquire 1,000 shares of Bender stock at $80 per share. On this date, the stock
Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2019, when the option price and FMV of the Bell stock is $80. The option entitles Peggy to buy 10 shares of Bell
Coverdell Education Savings Accounts. 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
Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2019. She is an active participant in a qualified retire-ment plan sponsored by her employer.
Phil, age 30, is married and files a joint return with his spouse. On February 15, 2020, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a 512,000 contribution,
On February 14, 2020, Jamal, who is single and age 30, establishes a traditional IRA and contributes $6,000 to the account. Jamal's adjusted gross income is $70,000 in 2019 and $60,000 in 2020. Jamal
In 2019, 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:•
Pat is a participant in a qualified pension plan. She retires on January I, 2019, at age 63, and receives pension payments beginning in January 2019. Her pension payments, which will be received
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
Beach Corporation purchases cickets to sporting events and uses them to entertain customers. In 2019 Beach Corporation purchases the following rickets:100 tickers to football games (face value of the
Milt, a self-employed attorney, incurs the following expenses in 2019:Business lunches for clients and prospective clients$4,000Entertainment of professional associates in his home (immediately
Amelie is self-employed and uses her personal automobile in connection with her business. During 2019, Amelie drove her car a total of 28,000 miles. Her business log shows that she drove 22,400 miles
Michelle is self-employed and uses her personal automobile for business trips. During 2019, Michelle drives her car 60% for business use and incurs the following total expenses (based on 100% use of
Mike is an independent contractor in 2019. Mike at-tends a professional trade association convention in Los Angeles. He spends three days at the meeting and two days vacationing before the meeting.
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
Mary is self-employed and incurs $3,600 of business-related travel and entertainment expenses during 2019 in which she was away from home over- night. These business expenses include the
Monique is a self-employed manufacturer's representative (i.e., an independent contractor) who solicits business for numerous clients and receives a commission based on sales. She incurs the
Mike, a self-employed consultant, incurs the following business-related expenses in 2019:Actual automobile expenses$ 2,500Moving expenses4,000Entertainment expenses1,500Travel expenses (including
Would education expenses incurred by a self-employed individual be allowed in 2019 for the following expenses?Cost of a CPA review course$2,500Accounting continuing education expenses (including
Bass Corporation purchases 10 ticks to the Super Bowl in February 2019 for entertaining its customers. Due to unusually high demand, the tickets have to be purchased for $25,000 (10 X $2,500). The
Are deductions allowed for entertainment expenses in 2019?
What are the two methods of computing automobile expenses of self-employed taxpayers?
What taxpayers are eligible to deduct qualified moving expenses in years 2018-2025?
Robert is an independent contractor who lives and works in Philadelphia, PA. Robert rarely travels out-of-town but travels extensively in the Philadelphia area meeting with customers. He is home
When a self-employed individual travels for business but mixes in some pleasure days, such as sightseeing, how does the taxpayer deduct expenses connected with the travel expenses to and from the
A self-employed individual travels in connection with her business. She travels in the city where she lives and works and also in several surrounding states. What is the criteria for her to deduct
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
Kelly is self-employed and incurs $2,200 of business meal expense in connection in with business travel. $500 of the business meal cost are considered to be lavish or extravagant. How much can Kelly
John and Kathy Brown have just been audited and the IRS agent disallowed the business loss they claimed in 2016. The agent asserted that the activity was a hobby, nor a business.John and Kathy live
During 2019, Kim incurs the following expenses with respect to her beachfront condominium in Hawaii:Expense ItemsAmountInsurance$ 500Repairs and maintenance700Interest on mortgage3,000Properry
Chuck, a dentist, raises prize rabbits for breeding and showing purposes. Assume that the activity is determined to be a hobby. During 2019, the activity generates the following items of income and
Emily is an interior decorator who docs consulting work for several furniture scores. Additionally, she has been designing and creating rubber stamps for the past several years. She sells the scamps
Rachel Schurtz is a high school English teacher. In her spare time, she likes to make her own body lotion, hp 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
Mr. Cougar owns 1 ,000 shares of Western Corporation common stock, which it purchased on March 8, 2011, for $12,000. On October 3, 2019, Cougar purchases an additional 300 shares for $3,000. On
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, 2018, John sells 750 shares for $5,000. On
Eljay, LLP owns several apartment complexes and office buildings. The leasing and management of these buildings constitutes Eljay's only business activity. During 2019, Eljay incurred the
During 2019, Kent, a 40-year-old single taxpayer, reports the following items of income and expense:Salary$150,000Dividends from Alta Corporation800Indterest income from a savings account1,500Rental
Gus coaches several developing professional tennis players as an employee of the Central Tennis Training Camp (CTTC). In May 2019, his ex-girlfriend Teresa, (a tennis player former client), alleged
In March 2019, Otter Corporation sends people to the stat e capital to lobby the legislature to build a proposed highway that is planned to run through the area where its business is located.a. It
For 2019, Mario, a single individual with no dependents,receives income of $55,000 and incurs deducnhle expenses of $9,000.a. What is Mario's taxable income assuming that the expenses are deductions
What is the first day that an individual could sell a capital asset purchased on March 31, 2019 and have a holding period of more than one year?
It is August 20, 2019, and Andy, whose tax race 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
Betty incurs the following transactions during the current year. Without considering the transactions, her 2019 AGI is $92,000. Analyze the transactions and answer the following questions:• On
In 2014, the Ryan Corporation sold a ca pita! asset and incurred a $40,000 LTCL that was carried forward co subsequent years. That sale was the only sale of a capital asset that Ryan made until 2019,
Manha has $40,000 AG! without considering the followinginformation. During the year, she incurs an LTCL of $10,000 and has a gain of $1 4,000due to the sale of a capital asset held for more than a
On January 1, 2018, Sean purchased an 8%, $100,000 corporate bond for $92,277. The bond was issued on January 1, 2018, and matures on January 1, 2023. 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, 2019, Dan writes five calls on the stock, which represent options to buy
On February 10, 2019, Gail purchases 20 calls on Red Corporation for $250 per call. Each call represents an option to buy 100 shares of Red stock ac $42 per share any time before November 25, 2019.
During 2019, Gary receives a $90,000 salary and has no deductionsfor AGL In 2018, Gary had a $5,000 STCL and no other capital losses or capital gains. Consider the following sales and determine
On January 1, 2017, Swen paid $184,000 for $200,000 of the 8%, 20-year bonds of Penn Corporation, issued on January 1, 2013, at par. The bonds are held as an investment.Determine the gain and the
On December 3 l, 2018, Phil purchased $20,000 of newly issued bonds of Texas Corporation for SJ 6,568. The bonds are dated December 31, 2018. The bonds are 9%, 10-year bonds paying interest
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 2016 through 2019.
Donna files as a head of household in 2019 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
Trisha, who is single and has taxable income of $300,000, sells the following capital assets in 2019 with gains and losses :is shown: a. Determine Trisha's increase in income tax liability as a
Sale of Assets Received as a Gift and Inherited Daniel receives 400 shares of A&M Corporation stock from his aunt on May 20, 2019, as a gift when the stock has a $60,000 FMV. His aunt purchased
Sale of Asset Received as a Gift. Bud received 200 shares of Georgia Corporation stock from his uncle as a gift on July 20, 2018, when the stock had a $45,000 FMV. His uncle paid $30,000 for the
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
Phil, a cash-basis taxpayer, sells the following marketable securities, which are capital assets during 2019. Determine whether the gains or losses are long-term or short term. Also deter? mine the
ln 2009, Ellen purchased a house for $ 150,000 to use as her personal residence. She paid 530,000 and borrowed S 120,000 from the local savings and loan company. In 201 I she paid $20,000 to add a

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