Questions and Answers of Fundamentals Taxation 2020

Which of the following statements is false?a. A corporation with average sales in excess of $26,000,000 must use the accrual method of accounting.b. The charitable contributions of a corporation may
In each of the following independent cases, determine the amount of business interest expense deduction and disallowed interest expense carryforward, if any.a. Company A has ATI of $70,000 and
For each of the following cases, determine the amount of capital gain or loss to report in each year (after taking into account any applicable carrybacks) and the capital loss carryforward to 2019,
Concerning the business interest expense deduction, which of the following statements is true?a. Disallowed interest expense can be carried forward indefinitely.b. The interest expense deduction
A corporation has a fiscal year-end of July. If the corporation does not receive an automatic extension of time to file its return, the return will be due on the 15th of:a. December.b. November.c.
The Subchapter S status of a calendar year corporation is statutorily terminated on August 12, 2019. The Subchapter S status is deemed to be terminated on what date? What is the answer if the status
A calendar year corporation properly files a Subchapter S election on January 10, 2019. On what date is the election effective? What if the election were filed on June 1, 2019?
Explain the business interest expense limitation rules for 2019.
Calvin purchased a 40% partnership interest for $43,000 in February 2017. His share of partnership income in 2017 was $22,000, in 2018 was $25,000, and in 2019 was $12,000. He made no additional
Jessica’s office building is destroyed by fire on November 15, 2019. The adjusted basis of the building is $410,000. She receives insurance proceeds of $550,000 on December 12, 2019. a.
Terri is single and age 32. She reported AGI of $70,000 in tax year 2019. She is an active participant in her employer’s pension plan. What is the maximum deductible IRA contribution she can make
Lauer Company started its business on July 25, 2019. On August 9, it paid wages for the first time and accumulated a tax liability of $48,000. On Friday, August 16, it incurred a tax liability of
Employees claim withholding allowances on Form W-4. Each withholding allowance claimed lowers their annual withholding base by what amount for calendar year 2019?a. $4,050.b. $4,100.c. $4,150.d.
Ely is single and is paid $1,272 per week and claims one allowance. What is the amount of federal income tax withheld on Ely’s gross wages for the week? Use the wage bracket table in the Appendix
Marla is married, is paid $3,425 semimonthly,and claims four withholding allowances. What is the amount of federal income tax withheld on Marla’s gross wages for the semimonthly period? Use the
Erica earned $133,800 during 2019. How much will her employer withhold from her, in total, for FICA taxes?a. $9,842.90.b. $10,179.90.c. $10,222.65.d. $10,235.70.
Carlos earned a total of $236,000 for 2019. How much in FICA tax will his employer be required to withhold in his name?a. $11,448.30.b. $11,661.80.c. $11,706.80.d. $11,985.80
Household employees are subject to FICA withholding if they are paid at least what amount during any calendar quarter in 2019?a. $1,800.b. $1,900c. $2,000.d. $2,100.
Employers pay a maximum federal unemployment tax of 6.0%on how much of an employee’s taxable wages for 2019?a. $1,800.b. $3,800.c. $5,800.d. $7,000.
Adrienne is a self-employed attorney. She has net earnings(profit) from her practice of $106,800. Her self-employment taxes for the year are:a. $13,117.76.b. $13,338.85.c. $14,204.40.d.
On January 3, 2019, Jane employed a part-time household worker in her home. She paid the household worker $350 per month for 2019. What amount of FICA tax is Jane required to record on Schedule
Baker Company is trying to determine how often it needs to deposit payroll taxes for calendar year 2019. The company made the following quarterly payroll tax deposits during the last two
Ed and Cathy, both under age 50, file a joint return. Neither is covered under an employer pension plan. Cathy earned compensation of $53,000 in 2019. Ed worked part-time and earned $1,200.
Jack is single and age 53. He reported AGI of $71,000 in 2019. He is an active participant in his employer’s pension plan. What is the maximum deductible IRA contribution he can make in
Patrice is single and age 26. She reported AGI of $68,000 in tax year 2019. She is an active participant in her employer’s pension plan. What is the maximum deductible Roth IRA contribution she can
Vickie is single and age 43. She reported AGI of $126,000 in tax year 2019. She is an active participant in her employer’s pension plan. What is the maximum Roth IRA contribution she can make in
Without regard to AGI limitations, what is the maximum contribution permitted to a Coverdell Education Savings Account in 2019?a. $500b. $2,000c. $6,000d. The lower of $6,000 or 100%
Vanessa and Martin file a joint return for 2019. They have one child age 12. They have combined AGI of $202,000. What is their maximum permitted contribution to a Coverdell Education Savings Account
Juan is single and retired on January 1, 2019 at age 62. He is entitled to receive monthly payments of $1,500 over his life from his employer’s qualified pension plan. The payments began January 1,
Mark, who is single, must start making distributions from his pension plan beginning April 1, 2019. At the end of 2018 when Mark was 71 years old, the plan had a balance of $220,000. He will use a
A warehouse with an adjusted basis of $250,000 was destroyed by a tornado on April 15, 2019. On June 15, 2019, the insurance company paid the owner $395,000. The owner reinvested $470,000 in a new
Juanita, age 62, retired in 2019. During the year,she received distributions of $9,000 from her IRA. She made nondeductible contributions of $20,000 to the IRA in prior years and has never received a
Sanjay purchased a single life annuity contract for $200,000. The contract will pay $15,000 per year beginning in 2019 for the remainder of his life and has an expected return of $330,000. What
Determine the maximum contribution that can be made to a Keogh plan in each of the following cases. In all instances, the individual is self-employed, and the self-employment tax reduction has
Pablo and his wife Bernita are both age 45. Their combined AGI is $90,000. Neither is a participant in an employer-sponsored retirement plan. They have been contributing to a traditional IRA for many
Terrance is age 71 and retired. Beginning in 2019, he must start taking minimum distributions from his IRA account that had a balance of $150,000 as of December 31, 2018. Make these three
A warehouse with an adjusted basis of $125,000 was destroyed by a tornado on April 15, 2019. On June 15, 2019, the insurance company paid the owner $195,000. The owner reinvested $170,000 in another
Kyla owns a convenience store with an adjusted basis of $215,000 that was destroyed by a flood on August 15, 2019. Kyla received a check for $275,000 from her insurance company on January 10, 2020,
On June 15, 2019, Allen sold land held for investment to Stan for $50,000 and an installment note of $250,000 payable in five equal annual installments beginning on June 15, 2019, plus interest at
On July 1, 2019, Andrea sold land held for investment to Taylor. Andrea’s land had a $300,000 basis and was subject to a $150,000 mortgage. Under the contractual agreement, Taylor will pay Andrea
A taxpayer who sells her personal residence in 2019 may exclude some or all of the gain on the sale if the residence was owned and lived in fora. At least four years before the sale
Daniel, who is single, purchased a house on May 15, 1996, for $115,000. During the years he owned the house, he installed a swimming pool at a cost of $24,000 and replaced the driveway at a cost of
On June 1, 2019, Nigel sells land (basis $55,000) to his son Ted for $40,000, the land’s fair market value on the date of the sale. On September 21, 2019, Ted sells the land to an unrelated party.
Bryce owns 200 shares of Basic Company stock that he purchased for $8,000 three years ago. On December 28, 2019, Bryce sold 100 shares of the stock for $2,500. On January 3, 2020, Bryce repurchased
Carlton holds undeveloped land for investment. His adjusted basis in the land is $200,000, and the FMV is $325,000. On November 1, 2019, he exchanges this land for land owned by his son, who is 31
Kim owns a storage building that is used exclusively in her business. The building has an adjusted basis of $8,500 (FMV $5,000). Kim transfers the building and $2,000 cash to David for another
Reid’s personal residence is condemned on September 12, 2019, as part of a plan to add two lanes to the existing highway. His adjusted basis is $300,000. He receives condemnation proceeds of
Pedro sells investment land on September 1, 2019. Information pertaining to the sale follows:Adjusted basis ......................................... $25,000Selling price
Virginia is an accountant for a global CPA firm. She is being temporarily transferred from the Raleigh, North Carolina, office to Tokyo. She will leave Raleigh on October 7, 2019,and will be out of
On February 1, 2019, a 39-year-old widow buys a new residence for $150,000. Three months later, she sells her old residence for $310,000 (adjusted basis of $120,000). Selling expenses totaled
Dominique is a manager for a regional bank. He is being relocated several states away to act as a temporary manager while a new branch is interviewing for a permanent manager. He will leave on May 1,
Crystal owns 150 shares of Carson, Inc., stock that has an adjusted basis of $100,000. On December 18, 2019, she sells the 150 shares for FMV ($88,000). On January 7, 2020, she purchases 200 shares
On January 1, 2019, Myron sells stock that has a $50,000 FMV on the date of the sale (basis $75,000) to his son Vernon. On October 21, 2019, Vernon sells the stock to an unrelated party. In each of
Harold owns 130 shares of stock in Becker Corporation. His adjusted basis for the stock is $210,000. On December 15, 2019, he sells the stock for $180,000. He purchases 200 shares of Becker
Lewis owns 200 shares of stock in Modlin Corporation. His adjusted basis for the stock is $180,000. On December 15, 2019, he sells the stock for $170,000. He purchases 200 shares of Modlin
In 2019, Kirsten invested $20,000 for a 10% partnership interest (not a passive activity). The partnership has losses of $150,000 in 2019and $250,000 in 2020. Kirsten’s share of the partnership’s
Alcott invested $20,000 for a 25% interest in a partnership (not a passive activity) on January 1, 2019. The partnership borrowed $100,000 (with full recourse to the partners) on January 15, 2019, to
Jacob is single with no dependents. During 2019, he has $48,000 of taxable income. He also has $28,000 of positive AMT adjustments and $12,000 of tax preferences. Jacob does not itemize his
Paul reported the following itemized deductions on his 2019 tax return. His AGI for 2019was $65,000. The mortgage interest is all qualified mortgage interest to purchase his personal residence. For
After computing all tax preferences and AMT adjustments, Phillip and his wife Carmin have AMTI of $1,210,000. If Phillip and Carmin file a joint tax return, what exemption amount can they claim for
In2019, Andrew contributed equipment with an adjusted basis of $20,000 and a FMV of $18,000 to Construction Limited Partnership (CLP) in return for a 3% limited partnership interest. Andrew’s share
Judy acquired passive Activity A in January 2014 and Activity B in July 2015. Until 2019, Activity A was profitable. Activity A produced a loss of $50,000 in 2019 and a loss of $75,000 in 2020. She
Julia acquired passive Activity A in January 2015 and passive Activity B in July 2017. Until 2018, Activity A was profitable. Activity A produced a loss of $150,000 in 2018 and a loss of $150,000 in
Jackson invested $190,000 in a passive activity five years ago. On January 1, 2017, his at-risk amount in the activity was $45,000. His share of the income and losses in the activity were
In 2017, Jerry acquired an interest in a partnership in which he is not a material participant. The partnership was profitable until 2018. Jerry’s basis in the partnership interest at the beginning
Carson had the following itemized deductions in 2019:State income taxes..................................................$1,500Charitable
William is not married, nor does he have any dependents. He does not itemize deductions. His taxable income for 2019 was $87,000 and his regular tax was $15,061. His AMT adjustments totaled
Herbie is the owner of two apartment buildings.?Following is information related to the two buildings: Herbie elected the maximum depreciation available for each asset. What is the effect of
Clay Company uses the completed contract method on a contract that requires 14 months to complete. The contract is for $750,000, and has estimated costs of $425,000. At the end of 2019,
Arnold exercised an incentive stock option in 2016, acquiring 1,500 shares of stock at an option price of $80 per share. The FMV of the stock at the date of exercise was $110 per share. In 2018, the
Barbara is single and owns a home in the city, which is her primary residence. She also owns a cottage at the beach, which she treats as a vacation home. In April 2019, she borrowed $50,000 on a home
Allie contributed the following business assets to ASW Partnership on August 1, 2019: What is the holding period for the building and the inventory to ASW Partnership? a. Building ? long-term
Shelly contributed the following business assets to S&S Partnership on March 3, 2019: What is the basis in the equipment and the accounts receivable to S&S? a. Equipment $0; Accounts
Styron is a partner in Styron, Lee, & Jane Partnership. Styron owned 25% from January 1, 2019 to June 30, 2019, when he bought Lee’s 25% interest. He owned 50% for the rest of the year. The
Katlin contributes land to a partnership with a basis of $44,000 and a FMV of $56,000 in 2017. In 2019, when the FMV of the land is $58,000, the partnership distributes the land to Baily, another
Kerry is a partner in the Kerry, Davis, Smith & Jones Partnership. Kerry owned 25% from January 1, 2019 to June 30, 2019, when he bought Jones’s 25% interest. He owned 50% for the rest of the
Zach contributed land with a FMV of $25,000 and a basis of $14,000 to a partnership on April 5, 2013. On June 6, 2019, the partnership distributed the land to Art, a partner in the same partnership.
Which of the following is true regarding SEPs?a. The plan cannot discriminate in favor of highly compensated employees.b. Deductible contributions cannot exceed the lower of 15% of the
Thomas is a self-employed plumber under the age of 50. His earnings from self- employment, before the Keogh deduction but after deducting half of the self-employment tax, are $80,000. What is his
A participant in a 401(k) plan under the age of 50 may contribute up to what amount in 2019?a.$6,000.b.$13,000.c.$19,000.d.$56,000.
A participant in a Keogh plan over the age of 50 may contribute up to what amount in 2019?a. $7,000.b. $25,000.c. The lower of $56,000 or 25% of earned income from self-employment.d.
Which of the following is an individual-sponsored pension plan?a. Defined benefit plan.b. Keogh plan.c. Roth IRA.d. SIMPLE plan.
Adenike has two jobs and earned $115,000 from her first job and $20,000 from her second job. How much total FICA taxes will Adenike have withheld from her wages from working two jobs?a. $9,945.00.b.
Dewoun has two jobs, and both employers withheld FICA tax. From his first job, he earned $104,110, and from his second job, he earned $30,300. How much can Dewoun claim as an additional payment on
Carol works for ABC Company and earned $63,000 for the entire 2019 year. How much in FUTA tax is her employer required to withhold in her name? Assume that the employer receives the maximum credit
A taxpayer with 2019 AGI of $160,000 has no income tax withholding and is required to pay estimated taxes. The taxpayer can avoid an underpayment penalty by payinga. At least 90% of the 2019 tax
Adam received a bonus of $6,000 from his employer. Which one of the following federal income withholding tax amounts is not in accordance with IRS rules regarding supplemental wage payments? Adam
Allison is paid $1,520 per week. What is the amount of federal income tax withheld from Allison’s paycheck under the following conditions? Use the percentage method table in the Appendix to this
Henry,who earned $115,920 during 2019, is paid on a monthly basis, is married, and claims four allowances. Use the percentage method table in the Appendix to this chapter.a. What is Henry’s federal
Lisa is single and claims one allowance. Use the wage bracket tables available online in Publication 15 (Circular E) Employers Tax Guide.a. If she is paid weekly and her annual wages are $78,000,
Roberto’s salary is $133,200 in 2019. Roberto is paid on a semimonthly basis, is single, and claims one allowance. Use the percentage method table in the Appendix to this chapter.a. What is
Lauprechta Inc. has the following employees on payroll: Complete the table for taxes to be withhold for each pay period. Employee Federal Withholding Tax Social Security Tax Medicare Tax Total
Jacob Turner hired Jen Hatcher as a housekeeper starting on January 2 at $750 per month. Jacob does not withhold any federal taxes. Assume that Jen is not a housekeeper for anyone else. Assume Jacob
Determine the amount of Earned Income Credit in each of the following cases. Assume that the person or persons is/are eligible to take the credit. Calculate the credit using the formulas.a) A single
Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $15,500 in 2018 for adoption-related expenses. The adoption was finalized in early 2019. Marsha received $3,000 of employer-provided
Use the information in Problem 51. What education tax credits are available if Walt and Deloris report modified AGI of $119,700? Does your answer change if Tiffany is taking one class a semester (is
Respond to the following independent situations:a. Masa and Haiming, husband and wife, filing jointly, earn $275,000 in salaries and do not have any net investment income.(1). How much in surtax will
Amnaowns undeveloped land with an adjusted basis of $350,000. She sells the property to George for $405,000.a. What is Amna’s realized and recognized gain?b. To what IRC section does the gain on
In 2019, Arturo’s pleasure boat that he purchased in 2013 for $48,500 was destroyed by a hurricane in a part of Florida that was declared a federal disaster area. His loss was not totally covered
Respond to the following independent situations:a. Jacob is a single taxpayer who has net investment income consisting of $10,000 interest on a certificate of deposit, $5,000 from dividends from a

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