Questions and Answers of Principles Taxation Business

Mr. and Mrs. Brown report taxable income of $120,000 in 2016. In addition, they report the following:Excess Social Security Withholding Credit..................................... $ 2,200Estimate tax
In January, Ms. NW projects that her employer will withhold $25,000 from her 2017 salary. However, she has income from several other sources and must make quarterly estimated tax payments. Compute
Jaclyn Biggs, who files as a head of household, never paid AMT before 2016. In 2016, her $197,900 taxable income included $178,000 ordinary income and a $19,900 capital gain taxed at 15 percent. Her
Mr. and Mrs. L are married with no dependent children. Mr. L worked for Smart Tech Corporation January through March, and for Computer Associates the remainder of the year. Mrs. L finished her degree
Mr. and Mrs. O file a joint income tax return. Determine if each of the following unmarried individuals is either a qualifying child or a qualifying relative for whom the couple can claim an
Ms. NM, a single taxpayer, projects that she will incur about $7,000 of expenses qualifying as itemized deductions in both 2016 and 2017. Assuming that her standard deduction is $6,300 in both years,
Determine Mr. J’s filing status in each of the following independent cases:a. Mr. J and Mrs. J were divorced on November 18. Mr. J has not remarried and has no dependent children.b. Mr. J and the
Determine Ms. A’s filing status in each of the following independent cases:a. Ms. A and Mr. Z have been living together since 2014. They were married on December 13, 2016.b. Ms. A married Mr. P in
Refer to the facts in the preceding problem. In 2016, the CFC’s income was $600,000, none of which was subpart F income, and it distributed a $300,000 dividend to its shareholders ($120,000 to
Jumper Inc., which has a 34 percent marginal tax rate, owns 40 percent of the stock of a CFC. At the beginning of 2015, Jumper’s basis in its stock was $660,000. The CFC’s 2015 income was $1
In 2015, Elspeth Corporation paid both regular tax ($2,714,000) and AMT ($129,300). The director of tax forecasts that Elspeth will be in an AMT position for 2016 and 2017. However, its tentative
On December 10, 2015, the representative of a national charitable organization contacted the CEO of Wilkie Inc., a calendar year accrual basis corporation, to solicit a $100,000 donation. The CEO
In 2015, NB Inc.’s federal taxable income was $242,000. Compute the required installment payments of 2016 tax in each of the following cases:a. NB’s 2016 taxable income is $593,000.b. NB’s 2016
In 2015, Bartley Corporation’s federal income tax due was $147,000. Compute the required installment payments of 2016 tax in each of the following cases:a. Bartley’s 2016 taxable income is
Hall Corporation was formed in 2012 and was exempt from AMT for that year. From 2013 through 2015, its regular tax and tentative minimum tax were as follows:a. Compute Hall’s tax for 2013, 2014,
Northup was incorporated on January 1, 2011, and adopted a calendar year for tax purposes. It had the following gross receipts for its first six taxable
Myamo was incorporated on January 1, 2014, and adopted a calendar year for tax purposes. It had the following gross receipts for its first three taxable years:2014....................................
On March 1, 2016, Eve and Frank each contributed $30,000 cash to the newly formed EF Partnership in exchange for a 50 percent general interest. The partnership immediately borrowed $50,000 from an
Herold had been a calendar year S corporation since 1990. On October 10, 2016, Mrs. Hughes sold 18 shares of Herold stock to a foreign partnership, thereby terminating Herold’s S election.
Marcus, a cash basis individual, is a general partner in MNOP Partnership. Both Marcus and MNOP use a calendar year for tax purposes. According to the partnership agreement, MNOP pays a $10,000
On January 1, 2015, Leo paid $15,000 for 5 percent of the stock in BLS, an S corporation. In November, he loaned $8,000 to BLS in return for a promissory note. BLS generated a $600,000 operating loss
At the beginning of 2016, Ms. P purchased a 20 percent interest in PPY Partnership for $20,000. Ms. P’s Schedule K-1 reported that her share of PPY’s debt at year-end was $12,000 and her share of
Refer to the facts in the preceding problem. In 2016, YZ generated $7,000 ordinary business income and $18,000 dividend and interest income. The partnership made no distributions. At the end of the
Zelda owns a 60 percent general interest in YZ Partnership. At the beginning of 2015, the adjusted basis in her YZ interest was $95,000. For 2015, YZ generated a $210,000 business loss, earned
Jayanthi and Krish each own a 50 percent general partner interest in the JK Partnership. The following information is available regarding the partnership’s 2015 activities:Sales
Rochelle is a partner in Megawatt Partnership. For 2016, her schedule K-1 from the partnership reported the following share of partnership items:Ordinary
In 2016, Wilma Way’s sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 gain on the sale of business furniture and shelving, all of which was
Mrs. Singer owns a profitable sole proprietorship. For each of the following cases, use a Schedule SE, Form 1040, to compute her 2015 self-employment tax and her income tax deduction for such tax.a.
Calculate the total Social Security and Medicare tax burden on a sole proprietorship earning 2016 profit of $300,000, assuming a single sole proprietor.
For 2016, Ms. Deming earned wages totaling $225,000. Calculate any .9 percent additional Medicare tax owed, assuming that:a. Ms. Deming is single.b. Ms. Deming files a joint return with her husband
Refer to the facts in the preceding problem. Assume that in the year 2017, the Social Security base amount increases to $121,000. Compute BDF’s 2017 employer payroll tax with respect to Mr.
Mr. Williams is employed by BDF Inc. Compute BDF’s 2016 employer payroll tax with respect to Mr. Williams assuming that:a. His annual compensation is $60,000.b. His annual compensation is $200,000.
James Jones is the owner of a small retail business operated as a sole proprietorship.During 2015, his business recorded the following items of income and expense:Revenue from inventory
On January 10, 2014, a fire destroyed a warehouse owned by NP Company. NP’s adjusted basis in the warehouse was $530,000. On March 12, 2014, NP received a $650,000 reimbursement from its insurance
On June 2, 2016, a tornado destroyed the building in which FF operated a fast-food franchise. FF’s adjusted basis in the building was $214,700. In each of the following cases, determine FF’s
For its first four years of operation, Corporation Y reported the following taxable income:In 2016, Corporation Y generated $900,000 ordinary income and recognized a $20,000 loss on the sale of a
Corporation Q, a calendar year taxpayer, has incurred the following Section 1231 net gains and losses since its formation in 2013.a. In 2016, Corporation Q sold only one asset and recognized a $4,000
Zeno Inc. sold two capital assets in 2016. The first sale resulted in a $53,000 capital loss, and the second sale resulted in a $25,600 capital gain. Zeno was incorporated in 2012, and its tax
In 2014, Firm Z elected to expense the $8,000 cost of a machine, which it reported as the only item of equipment placed in service that year. This year, the IRS audited Firm Z’s 2014 return and
In April 2016, Lenape Corporation acquired new business machinery with a total cost of $775,000. Assuming the machinery qualifies for both the Section 179 deduction and bonus depreciation, calculate
At the beginning of its 2016 tax year, Hiram owned the following business assets:On July 8, Hiram sold its equipment. On August 18, it purchased and placed in service new tools costing $589,000;
Loni Company paid $527,000 for tangible personalty in 2014 and elected to expense $500,000 of the cost (the limited dollar amount for 2014). Loni’s taxable income before a Section 179 deduction was
In 2015, Company W elected under Section 179 to expense $19,300 of the cost of qualifying property. However, it could deduct only $15,000 of the expense because of the taxable income limitation. In
In 2016, Firm L purchased machinery costing $21,300 and elected to expense the entire cost under Section 179. How much of the expense can Firm L deduct in each of the following cases?a. Its taxable
Margo, a calendar year taxpayer, paid $580,000 for new machinery (seven-year recovery property) placed in service on August 1, 2016.a. Assuming that the machinery was the only tangible property
In March 2015, Jones Company purchased a Mercedes for use in its business at a cost of $73,000. Assuming no bonus depreciation or Section 179 deductions, calculate the allowable tax depreciation on
On May 12, 2015, Nelson Inc. purchased eight used-passenger automobiles for use in its business. Nelson did not make a Section 179 election to expense any portion of the cost of the automobiles,
Herelt Inc., a calendar year taxpayer, purchased equipment for $383,600 and placed it in service on April 1, 2016. The equipment was seven-year recovery property, and Herelt used the half-year
Corporation VB’s tax returns for 2013, 2014, and 2015 provide the following information:a. On the basis of the given data, did VB derive any tax benefit from its 2013 NOL? Explain your
Company Y began business in February 2016. By the end of the calendar year, it had billed its clients for $3.5 million of services and had incurred $800,000 of operating expenses. As of December 31,
Jetex, an accrual basis, calendar year corporation, engages in the business of long distance freight hauling. Every year, Jetex is required to purchase several hundred permits and licenses from state
Moleri, an accrual basis corporation with a fiscal taxable year ending on July 31, owns real estate on which it pays annual property tax to Madison County, Texas. The county assesses the tax for the
CheapTrade, an accrual basis, calendar year corporation, operates a discount securities brokerage business. CheapTrade accepts orders to buy or sell marketable securities for its customers and
Bontaine Publications, an accrual basis, calendar year corporation, publishes and sells weekly and monthly magazines to retail bookstores and newsstands. The sales agreement provides that the
BL and TM are both calendar year corporations. On January 1, 2016, BL purchased TM’s entire business (all TM’s balance sheet assets), and TM’s shareholders dissolved the corporation under
Corporation WJ began business in 2014 and reported taxable income in both 2014 and 2015. In 2016, WJ incurred a $25,000 net operating loss. It wants to carry the NOL back as a deduction against 2015
In 2015, Firm K paid $129,000 real property tax to Jurisdiction J and deducted the payment. In 2016, it successfully contested the property tax assessment. As a result, Jurisdiction J refunded
Company A, a calendar year taxpayer, has always used the cash method of accounting. It completed an engagement for a major client in November 2016 and submitted a bill for its $160,000 fee. Because
In October 2014, Firm G completed a consulting engagement and received a $200,000 cash payment for its services. In December, the client notified Firm G that it was unsatisfied with the work and
TRW Inc. began business in 2008 and was profitable for its first three years. In 2011, it generated a $741,000 net operating loss. The following table shows TRW’s taxable income before
MG is an accrual basis corporation. In 2016, it wrote off a $65,000 account receivable as uncollectible. In 2017, it received a $65,000 check from the creditor in full payment of this receivable.a.
Acme is an accrual basis corporation. Mrs. T, Acme’s chief financial officer, is a cash basis individual. In December 2016, Acme’s board of directors decided that Mrs. T should receive a $20,000
Company N, an accrual basis taxpayer, owes $90,000 to Creditor K. At the end of 2016, Company N accrued $7,740 interest payable on this debt. It didn’t pay this liability until March 3, 2017. Both
Extronic, a calendar year, accrual basis corporation, reported a $41,900 liability for accrued 2015 state income tax on its December 31, 2015, balance sheet. Extronic made the following state income
In 2015, AS, an accrual basis corporation, contracted with a nationally prominent artist to paint a mural in the lobby of the new corporate headquarters under construction.The artist’s commission
Parmco, a calendar year corporation, made the following accruals for 2016 financial statement purposes. In each case, determine how much of the accrued expense isdeductible on Parmco’s 2016 federal
BZD, a calendar year corporation, made the following year-end accruals for 2016 financial statement purposes. In each case, determine how much of the accrued expense is deductible on BZD’s 2016
HomeSafe, an accrual basis, calendar year corporation, sells and installs home alarm systems. The contract price of a system includes four free service calls. HomeSafe’s cost of each call is $75.
Ernlo is an accrual basis corporation with a June 30 fiscal year-end. On June 2, 2016, Ernlo entered into a binding contract to purchase a six-month supply of heating oil from a local distributor at
GreenUp, a calendar year, accrual basis taxpayer, provides landscaping installation and maintenance services to its customers. In August 2016, GreenUp contracted with a university to renovate its
Wahoo Inc., a calendar year taxpayer, leases equipment to a customer for $4,500 monthly rent. On November 27, 2016, Wahoo received a $36,000 rent payment for the eight-month period beginning on
Warren Company is a calendar year, cash basis firm. On December 6, 2016, Warren paid $7,200 cash to a landscape service business that maintains the lawns and gardens around Warren’s headquarters.
Brillo Company uses the calendar year and the cash method of accounting. On December 29, 2016, Brillo made the following cash payments. To what extent can Brillo deduct the payment in 2016?a. $50,000
Firm F is a cash basis legal firm. In 2016, it performed services for a client, mailed the client a bill for $6,150, and recorded a $6,150 receivable. In 2017, Firm F discovered that the client was
Net operating losses can be carried forward for 20 years, after which time they expire. Why is it unusual for a firm to experience the expiration of an NOL?
In researching the tax-ability of non-cash compensation, a tax researcher identifies a judicial decision that seems to address the issue at hand. However, the decision was rendered in 1978, and the
Using an electronic library such as Checkpoint, CCH Internet Tax Research NetWork, or LexisNexis, find a federal tax case in which the taxpayer is found guilty of tax evasion. After reading the case,
Firm HR is about to implement an aggressive long-term strategy consisting of three phases. It is crucial to the success of the strategy that the IRS accepts Firm HR’s interpretation of the tax
Refer to the corporate rate schedule in Appendix C.a. What are the tax liability, the marginal tax rate, and the average tax rate for a corporation with $22,500 taxable income?b. What are the tax
Visit the website for the Tax Foundation (www.taxfoundation.org). Select the link “About Us” to read the organization’s mission statement. Select the link “Tax Topics” to research the
Visit the website for the Congressional Budget Office (www.cbo.gov), follow the link to Budget and Economic Information, and look up the most current Monthly Budget Review. What is the CBO’s
Ms. SP, who lives in California, traveled to Oregon to purchase gold jewelry for $20,000. California has a 7.5 percent sales and use tax, while Oregon has no sales and use tax.a. Compute the use tax
LZ Corporation uses a fiscal year ending September 30. The controller filed LZ's Form 1120 for the year ending September 30, 2018, on October 23, 2018.a. What is the last day on which the IRS may
KP, a calendar year corporation, filed its 2014 return on May 1, 2015. On February 19, 2018, it filed an amended 2014 return reflecting $2.61 million less taxable income than the original return and
Corporation N, a calendar year taxpayer, incurred a net operating loss in 2017 that it carried back as a deduction against 2015 income. Corporation N’s treasurer filed a claim for a $712,600 refund
Tom and Allie Benson (ages 53 and 46) are residents of Fort Worth, Texas, and file a joint federal income tax return. They provide the entire support for their three children, ages 19, 18, and 14. On
Mr. and Mrs. Isaacs, ages 68 and 66, always claim the standard deduction on their joint return. They own a local restaurant, the Shoreline Grill, as a sole proprietorship. They are both graduates of
For the past 10 years, Mr. Bianco lived on his sailboat for five months of the year and spent the other seven months living in his daughter’s home. This year, he realized a $35,200 gain on sale of
Mrs. Newton, who is a self-employed author, paid $3,200 for a new computer system. She uses the system to write her books, and her two children use it for their schoolwork and video games.Identify
Mr. and Mrs. Prinze are evaluating an investment in undeveloped land. The year 0 cost is $100,000, and they can borrow $60,000 of the purchase price at 8 percent. They will pay interest only in years
Mr. Pugh has a $7,900 adjusted basis in his limited interest in PKO Partnership. He also has $22,000 suspended passive activity losses from PKO. Mr. Pugh recently sent a letter to PKO’s corporate
Mr. Granger was employed by a closely held corporation that issued him a year-end bonus of 50 shares of stock worth $200 per share. Mr. Granger’s ownership of the stock was nontransferable and
Mr. Toomey (a 45-year-old single taxpayer) exercised an ISO and purchased $380,000 worth of his employer's stock for only $113,000. His only other income was his $158,500 salary, and he doesn't
Mr. Burnett owns 10 percent of the stock of ABC Inc. and is the corporation’s director of marketing. ABC has a medical insurance plan for its employees. This year, it paid $1,400 of premiums to the
A reasonable compensation problem for the sole shareholder of a C corporation is quite different from the reasonable compensation problem for the sole shareholder of an S corporation. What is the
Tim Loker is the five-year-old godson of Mr. and Mrs. Bryant. Tim’s parents died in an accident on December 18 of last year. Tim was seriously injured in the accident and remained hospitalized
Mr. and Mrs. Alexander have two dependent children. They paid $7,200 wages to a housekeeper to care for the children and $549 employer payroll tax on her wages. Mr. and Mrs. Alexander file a joint
Danny Liu is 20 years old and is considered a dependent of his parents for tax purposes. Compute Danny's taxable income in each of the following cases.a. Danny's only income item was $2,712 interest
Mr. Rogers, an unmarried individual, had the following income items.Salary ................................................................. $512,100Interest income
Ms. Timmons, an unmarried individual, has the following income items.Schedule C net profit ............................................ $31,900NOL carryforward deduction

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