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business
federal taxation

Questions and Answers of Federal Taxation

You are working with the top management of one of your clients in selecting the U.S. location for a new manufacturing operation. Craft a plan for the CEO to use in discussions with the economic
How would your answer to parts (a) and (b) of Problem 36 differ if Julio were a corporate shareholder (in the 34% tax bracket) rather than an individual shareholder and the stock ownership in Gray
In 2019, Susan’s sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax). Calculate the maximum amount Susan can deduct for
Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2019. Hospitalization insurance premiums for Rex and his dependents. The
In 2019, Miranda records net earnings from self-employment of $146,000. She reports no other gross income. Determine the amount of Miranda’s self-employment tax and her for AGI income tax deduction.
In 2019, Robert entertains four key clients and their spouses at a nightclub. Business discussions occurred over dinner and prior to the entertainment beginning. Expenses were $200 (limo charge),
Sarah was contemplating making a contribution to her traditional IRA in 2018. She determined she would contribute $5,000 in December 2018 but forgot about making the contribution until she was
Where is the deduction for qualifying business income (QBI) applied in the individual tax formula? a. As an adjustment to arrive at adjusted gross income b. As an itemized deduction c.
Joyce, a widow, lives in an apartment with her two minor children (ages 8 and 10), whom she supports. Joyce earns $33,000 during 2019. She uses the standard deduction. a. Calculate the amount,
Jenna, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing education
Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are employed outside the home and, during 2019, earn salaries as follows: $16,000 (Jim) and $5,200
Paul and Karen Kent are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2019). Paul and Karen have two dependent children, both under the age of 13 (Samuel and Joy).
Jason, a single parent, lives in an apartment with his three minor children, whom he supports. Jason earned $27,400 during 2019 and uses the standard deduction. Calculate the amount, if any, of
In December of each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 24% marginal tax bracket, is considering the following
Patrick and Eva are planning to divorce in 2019. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alternatively, Patrick will transfer to Eva common
Santiago and Amy are married and file a joint tax return claiming their three children, ages 12, 14, and 18, as dependents. Their AGI is $140,000. Determine any available child tax credit and
Kim was seriously injured at her job. As a result of her injury, she received the following payments. • $5,000 reimbursement from employer-provided health insurance for medical
Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2019. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at
Compute the taxable income for 2019 in each of the following independent situations. a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four
Castle and Dave formed an S corporation; Castle owns 75% of the outstanding shares, and Dave owns the rest. When the entity’s AAA balance is $1,000,000, it distributes an asset to each shareholder;
Renee and Sanjeev Patel, who are married, reported taxable income of $1,008,000 for 2019. They incurred positive AMT adjustments of $75,000 and tax preference items of $67,500. The couple itemizes
Pat is 40, is single, and has no dependents. She received a salary of $390,000 in 2019. She earned interest income of $11,000, dividend income of $15,000, gambling winnings of $14,000, and interest
Anh is single, has no dependents, and itemizes deductions. In the current year for regular tax purposes, she records $60,000 of income and $105,000 of deductions and losses, primarily from business
Determine whether each of the following transactions is a preference (P), is an adjustment (A), or is not applicable (NA) for purposes of the AMT. a. Depletion in excess of basis. b.
Lilia is going to be subject to the AMT in 2019. She owns an investment building and is considering disposing of it and investing in other realty. Based on an appraisal of the building’s value, the
Allie, who was an accounting major in college, is the owner of a medium-size construction limited liability company. She prepares the company’s Schedule C each year. Due to reporting a home
In March 2019, Helen Carlon acquired used equipment for her business at a cost of $300,000. The equipment is five-year property for regular tax depreciation purposes. a. If Helen depreciates the
In January 2018, Iris Corporation purchased and placed in service a certified historic structure building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land.
Oak Corporation holds the following general business credit carryovers. 2015................................$
Dimitri owns a gold mine that qualifies for a 15% percentage depletion rate. The basis of the property at the beginning of the year, prior to any current-year depletion deduction, is $21,000. Gross
Pineview Company, a single member LLC, placed a $5,000 asset that is ineligible for full expensing in service on June 1, 2019. The asset has a three-year MACRS class life; no bonus depreciation was
In March 2019, Serengeti exercised an ISO that had been granted by his employer, Thunder Corporation, in December 2016. Serengeti acquired 5,000 shares of Thunder stock for the exercise price of $65
Teal Company, a single member LLC, owns two warehouses that were placed in service before 1987. This year accelerated depreciation on Warehouse A is $36,000 (straight-line depreciation would have
Cooper Partnership, a calendar year partnership, made qualifying rehabilitation expenditures to a building that it has used in its business for eight years. These improvements were placed in service
Balm, Inc., has a general business credit for 2019 of $90,000. Balm’s regular income tax liability before credits is $140,000, and its tentative AMT is $132,000. Calculate the amount of general
Castle Corporation conducts business and has nexus in States A, B, and C. All of the states use a three-equal-factors apportionment formula, with the factors evenly weighted. Castle generates
Cordeio, Inc., is a calendar year taxpayer and a CFC for the entire tax year. Yancy Company, a U.S. corporation, owns 75% of Cordeio’s one class of stock for the entire year. Cordeio’s Subpart F
One of your clients, Texas, Inc., is considering electing S status. Both of Texas’s equal shareholders paid $30,000 for their stock. As of the beginning of 2019, Texas’s Subchapter C NOL
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2019. The company generated a $74,000 NOL in 2018 and another NOL of $43,000 in 2019. Orange
Scott Tierney owns 21% of an S corporation. He is confused with respect to the amounts of the corporate AAA and his stock basis. Write a memo to the tax research file, identifying the key differences
On March 3, 2019, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident
Greiner, Inc., a calendar year S corporation, holds no AEP. During the year, Chad, an individual shareholder, receives a $30,000 cash distribution from Greiner. Prior to the distribution, Chad’s
Continue with the same facts of Problem 16. Consider Amy’s tax-basis capital account. a. What is Amy’s capital account at the beginning of the year? b. What is Amy’s capital account
Assume the same facts as in Problem 16. What income, gains, losses, and deductions does Amy report on her income tax return? Based on the information provided, what other calculations is Amy required
Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. Amy is the managing member of the LLC (treated as a general partner) and is a U.S. citizen. At
Sam and Drew are equal members of the SD LLC, formed on June 1 of the current year. Sam contributed land that he inherited from his uncle Garza in 2009. Garza had purchased the land in 1984 for
Ashby and Curtis are married and have a 2-year-old son, Jason. Curtis works full-time as an electrical engineer, but Ashby has not worked outside the home since Jason was born. Since Jason is getting
Jacob Patterson cannot make a fully deductible $6,000 IRA contribution because his AGI exceeds the phaseout range. Instead, he makes a $3,500 nondeductible IRA contribution to his traditional IRA.
Myers, who is single, reports compensation income of $71,000 in 2019. He is an active participant in his employer’s qualified retirement plan. Myers contributes $6,000 to a traditional IRA. Of the
Meredith, who is single, would like to contribute $6,000 to her Roth IRA. What is the maximum amount that Meredith can contribute if her AGI is $123,000?
Kristen, an independent management consultant, is based in Atlanta. During March and April of 2019, she is contracted by a national hardware chain to help implement revised human resource policies in
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $66,000 in 2019. a. Calculate the amount Janet can contribute to a traditional IRA
In each of the following independent situations, determine the dividends received deduction for the calendar year C corporation. The corporate shareholders own less than 20% of the stock in the
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from
Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer). Sparrow reported the following transactions during 2019, its second year of operation. Taxable
On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1,000,000 note. The note is payable in five installments, with the first payment due
Julio is in the 32% tax bracket. He acquired 2,000 shares of stock in Gray Corporation seven years ago at a cost of $50 per share. In the current year, Julio received a payment of $150,000 from Gray
How would your answer to Problem 34 differ if Julio were a corporate shareholder rather than an individual shareholder and the stock ownership in Gray Corporation represented a 25%
Barney Chang and Aldrin, Inc., a domestic C corporation, have decided to form BA LLC. The new entity will produce a product that Barney recently developed and patented. Barney and Aldrin each will
Robin Corporation is owned as follows: Isabelle.................................................26% Peter, Isabelle’s husband...................19% Sonya, Isabelle’s
Which statement below is incorrect about the Section 179 deduction? a. The Section 179 deduction is allowed even if there is a loss. b. The Section 179 deduction may be reduced based on
The exclusion of state and local bond interest from Federal income tax often is criticized as creating a tax haven for the wealthy. Critics, however, often fail to take into account the effect of
Parent, a domestic corporation, owns 100% of Block, a non-U.S. corporation, and Chip, a domestic corporation. Parent also owns 45% of Trial, a domestic corporation. Parent receives no distributions
Continue with the results of Problem 24. Prepare the GAAP journal entries for Britton’s year 1 income tax expense. Data From Problem 24.Britton, Inc., an accrual basis C corporation, sells
Your client, New Shoes Ltd., is a retailer that often issues store gift (debit) cards to customers in lieu of a cash refund. You recall that a special rule allows accrual method taxpayers to defer
Your friend Hui is an investor in bluecoin, a virtual currency. Indicate whether and how she is subject to Federal income taxation in the following circumstances a. Earns $1,000 in bluecoin from
Elizabeth makes the following interest-free loans during the year. The relevant Federal interest rate is 5%, and none of the loans are motivated by tax avoidance. All of the loans were outstanding
Determine the taxpayer’s current-year (1) economic income and (2) gross income for tax purposes from the following events. a. Ja-ron’s employment contract as chief executive of a large
Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effects of each of the following transactions on the company’s 2019 gross income
Dr. Randolph, a cash basis taxpayer, knows that she will be in a lower marginal tax bracket next year. To take advantage of the expected decrease in the marginal tax rate, Randolph instructs her
Liz and Doug were divorced on December 31, 2019, after 10 years of marriage. The couple’s income received before the divorce included: Doug’s
How does the tax benefit rule apply in the following cases? a. In 2017, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. Orange’s cost of
Ridge is a generous individual. During the year, she made interest-free loans to various family members when the Federal interest rate was 3%. What are the Federal tax consequences of the following
Shanna, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Shanna pays $8,400 rent on April 1, 2019, for the 12 months ending March 31,
Lark Corporation is considering the acquisition of an asset for use in its business over the next five years. However, Lark must decide whether it would be better served by leasing the asset or
On November 4, 2017, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2017 and 2018, respectively, Blue took $642 and $5,128 of cost
For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. a. Kiera sells Parchment, Inc. stock (adjusted basis
Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2019. Blue had the following expenses in connection with the project: The new
In 2019, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2014. Gray is contemplating a gift of land to a qualified charity in
Julieta Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Julieta plans for the corporation to make a charitable contribution to the University
On December 23, 2019, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is
Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2019, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the
Noelle’s diamond ring was stolen in November 2017. She originally paid $8,000 for the ring, but it was worth considerably more at the time of the theft. Noelle filed an insurance claim for the
Monty loaned his friend Ned $20,000 three years ago. Ned signed a note and made payments on the loan. Last year, when the remaining balance was $11,000, Ned filed for bankruptcy and notified Monty
Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities. Ida has a marginal tax rate of 22%. She has $12,000 of losses from
Thomas believes that he has an NOL for the current year and plans to carry it forward, offsetting it against future income. In determining his NOL, Thomas offset his business income by alimony
Ted and Marvin Brown purchased an apartment building in 2007 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
Maple Company owns land (adjusted basis of $90,000; fair market value of $125,000) that it uses in its business. Maple exchanges it for another parcel of land (worth $100,000) and stock (worth
Determine the realized, recognized, and postponed gain or loss and the new basis for each of the following like-kind exchanges: g. Create a Microsoft Excel spreadsheet that—by entering the
Randall owns an office building (adjusted basis of $250,000) that he has been renting to a group of physicians. During negotiations over a new seven-year lease, the physicians offer to purchase the
Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red
Sally is single and has taxable income of $170,000 as of November 30 of this year. She wants to sell a Rodin sculpture that has appreciated $90,000 since she purchased it six years ago, but she does
Jinjie owns two parcels of land (§ 1231 assets). One parcel can be sold at a loss of $60,000, and the other parcel can be sold at a gain of $70,000. Jinjie has no nonrecaptured § 1231 losses from
Siena Industries (a sole proprietorship) sold three § 1231 assets on October 10, 2019. Data on these property dispositions are as follows. a. Determine the amount and the character of the
Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a
In the current tax year, Blake Smith provided more than half of the support for his cousin, niece, and a close family friend. Blake lives alone and sends a monthly support check to each person. None
In late 2019, the Polks come to you for tax advice. They are considering selling some stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you
Compute the taxable income for 2019 for Emily on the basis of the following information. Her filing status is
In 2019, David is age 78, is a widower, and is a dependent of his son. How does this situation affect the following? a. David’s own individual filing requirement. b. The standard
For tax year 2019, determine the number of dependents in each of the following independent situations. a. Leo and Amanda (ages 48 and 46, respectively) are husband and wife and furnish more than

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