Questions and Answers of South Western Federal Taxation 2022

Last year, Miley decided to terminate the S corporation election of her solely owned corporation on October 17, 2018 (effective immediately), in preparation for taking it public. At the time of the
You have been assigned to compute the income tax provision for Motown Memories Inc. (MM) as of December 31, 2019. The company’s income statement for 2019 is provided below:MM prepared the following
Jane has been operating Mansfield Park as a C corporation and decides she would like to make an S election. What is the earliest the election will become effective under each of these alternative
Cathy, Heathcliff, and Isabelle are equal shareholders in Wuthering Heights (WH), an S corporation.Heathcliff has decided he would like to terminate the S election. In the following alternative
Winkin, Blinkin, and Nod are equal shareholders in SleepEZ, an S corporation. In the conditions listed below, how much income should each report from SleepEZ for 2019 under both the daily allocation
Chandra was the sole shareholder of Pet Emporium, which was originally formed as an S corporation.When Pet Emporium terminated its S election on August 31, 2018, Chandra had a stock basis and an
Janna has a tax basis of $15,000 in her Mimikaki stock (Mimikaki has been an S corporation since inception). In 2019, Janna was allocated $20,000 of ordinary income from Mimikaki. What is the amount
Rivendell Corporation uses the accrual method of accounting and has the following assets as of the end of 2018. Rivendell converted to an S corporation on January 1, 2019.a. What is Rivendell’s net
Virginia Corporation is a calendar-year corporation. At the beginning of 2019, its election to be taxed as an S corporation became effective. Virginia Corp.’s balance sheet at the end of 2018
Tempe Corporation is a calendar-year corporation. At the beginning of 2019, its election to be taxed as an S corporation became effective. Tempe Corp.’s balance sheet at the end of 2018 reflected
Wood Corporation was a C corporation in 2018 but elected to be taxed as an S corporation in 2019. At the end of 2018, its earnings and profits were $15,500.The following table reports Wood Corp.’s
Guido is a citizen and resident of Belgium. He has a full-time job in Belgium and has lived there with his family for the past 10 years. In 2017, Guido came to the United States for the first time.
Carmen SanDiego, a U.S. citizen, is employed by General Motors Corporation, a U.S. corporation. On April 1, 2019, GM relocated Carmen to its Brazilian operations for the remainder of 2019. Carmen was
Eagle Inc., a U.S. corporation, intends to create a limitada (limited liability company) in Brazil in 2019 to manufacture pitching machines. The company expects the operation to generate losses of
Santini’s new contract for 2019 indicates the following compensation and benefits:Santini is 54 years old at the end of 2019. He is single and has no dependents. Assume that the employer matches $1
Matthew (48 at year-end) develops cutting-edge technology for SV Inc., located in Silicon Valley. In 2019, Matthew participates in SV’s money purchase pension plan (a defined contribution plan) and
In 2019, Maggy (34 years old) is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees. According to the terms of the plan, YBU contributes 50 cents for every dollar the employee
In 2019, Nina contributes 10 percent of her $100,000 annual salary to her 401(k) account. She expects to earn a 7 percent before-tax rate of return. Assuming she leaves this (and any employer
In 2019, Nitai (age 40) contributes 10 percent of his $100,000 annual salary to a Roth 401(k) account sponsored by his employer, AY Inc. AY Inc. matches employee contributions to the employee’s
Paris participates in her employer’s nonqualified deferred compensation plan. For 2019, she is deferring 10 percent of her $320,000 annual salary. Assuming this is her only source of income and her
Leslie participates in IBO’s nonqualified deferred compensation plan. For 2019, she is deferring 10 percent of her $300,000 annual salary. Based on her deemed investment choice, Leslie expects to
John (age 51 and single) has earned income of $3,000. He has $30,000 of unearned (capital gain) income.a. If he does not participate in an employer sponsored plan, what is the maximum deductible IRA
In 2019, Susan (44 years old) is a highly successful architect and is covered by an employee-sponsored plan. Her husband, Dan (47 years old), however, is a Ph.D. student and unemployed. Compute the
In 2019, Rashaun (62 years old) retired and planned on immediately receiving distributions (making withdrawals) from his traditional IRA account. The balance of his IRA account is $160,000 (before
Jackson and Ashley Turner (both 45 years old) are married and want to contribute to a Roth IRA for Ashley. In 2019, their AGI is $197,000. Jackson and Ashley each earned half of the income.a. How
Harriet and Harry Combs (both 37 years old) are married and both want to contribute to a Roth IRA. In 2019, their AGI before any IRA contribution deductions is $50,000. Harriet earned $46,000 and
Michael is single and 35 years old. He is a participant in his employer’s sponsored retirement plan. How much can Michael contribute to a Roth IRA in 2019 in each of the following alternative
Elvira is a self-employed taxpayer who turns 42 years old at the end of the year (2019). In 2019, her net Schedule C income was $130,000. This was her only source of income. This year, Elvira is
Hope is a self-employed taxpayer who turns 54 years old at the end of the year (2019). In 2019, her net Schedule C income was $130,000. This was her only source of income. This year, Hope is
Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2019). In 2019, her net Schedule C income was $300,000. This was her only source of income. This year, Rita is
Reggie is a self-employed taxpayer who turns 59 years old at the end of the year (2019). In 2019, his net Schedule C income was $300,000. This was his only source of income. This year, Reggie is
Ian retired in June 2018 at the age of 69 (he turned 70 in August 2018). Ian’s retirement account was valued at $490,000 at the end of 2017 and $500,000 at the end of 2018. He has had all of his
Jesse Brimhall is single. In 2019, his itemized deductions were $9,000 before considering any real property taxes he paid during the year. Jesse’s adjusted gross income was $70,000 (also before
MWC Corp. is currently in the sixth year of its existence (2019). In 2014–2018, it reported the following income and (losses) (before net operating loss carryovers or carrybacks).What is MWC's 2019
Alex is 31 years old and has lived in Los Alamos, New Mexico, for the last four years where he works at the Los Alamos National Laboratory(LANL). LANL provides employees with a 401(k) plan and for
Tommy (age 47) and his wife, Michelle (age 49), live in Columbus, Ohio, where Tommy works for Callahan Auto Parts (CAP) as the vice president of the brakes division. Tommy’s 2019 salary is
Gerry (age 56) and Elaine (age 54) have been married for 12 years and file a joint tax return. The couple lives in an apartment in downtown Manhattan. Gerry’s father, Mortey, recently retired from
Sarah (single) purchased a home on January 1, 2008, for $600,000. She eventually sold the home for $800,000. What amount of the $200,000 gain on the sale does Sarah recognize in each of the following
Lewis and Laurie are married and jointly own a home valued at $240,000. They recently paid off the mortgage on their home. The couple borrowed money from the local credit union in January of 2019.
On January 1 of 2019, Jason and Jill Marsh acquired a home for $500,000 by paying $400,000 down and borrowing $100,000 with a 7 percent loan secured by the home. On January 1 of 2020, the Marshes
Cedar Corporation reported a net operating loss in 2019 of $25,000,000. In 2020, Cedar reported taxable income before any NOL carryovers of $20,000,000. What is Cedar’s taxable income in 2020 and
Timpanogos Inc. is an accrual-method calendar-year corporation. For 2019, it reported financial statement income after taxes of $1,152,000. Timpanogos provided the following information relating to
Carl purchased an apartment complex for $1.1 million on March 17 of year 1. Of the purchase price, $300,000 was attributable to the land the complex sits on. He also installed new furniture into half
Laura Li, a U.S. resident, worked for three months this summer in China. What type of tax authority may be especially useful in determining the tax consequences of her foreign income?
Aishwarya’s husband passed away in 2018. She needs to determine whether Jasmine, her 17-year-old stepdaughter, who is single, qualifies as her dependent in 2019. Jasmine is a resident but not a
John bought 1,000 shares of Intel stock on October 18, 2015, for $30 per share plus a $750 commission he paid to his broker. On December 12, 2019, he sells the shares for $42.50 per share. He also
In 2019, Tom and Amanda Jackson (married filing jointly)have $200,000 of taxable income before considering the following events:a. On May 12, 2019, they sold a painting (art) for$110,000 that was
For 2019, Sherri has a short-term loss of $2,500 and a long-term loss of $4,750.a. How much loss can Sherri deduct in 2019?b. How much loss will Sherri carry over to 2020, and what is the character
Whitney received $75,000 of taxable income in 2019. All of the income was salary from her employer. What is her income tax liability in each of the following alternative situations?a. She files under
In 2019, Lisa and Fred, a married couple, had taxable income of $300,000. If they were to file separate tax returns, Lisa would have reported taxable income of $125,000 and Fred would have reported
In 2019, Jasmine and Thomas, a married couple, had taxable income of $150,000. If they were to file separate tax returns, Jasmine would have reported taxable income of $140,000 and Thomas would have
Lacy is a single taxpayer. In 2019, her taxable income is $40,000. What is her tax liability in each of the following alternative situations?a. All of her income is salary from her employer.b. Her
In 2019, Sheryl is claimed as a dependent on her parents’ tax return. Sheryl did not provide more than half her own support. What is Sheryl’s tax liability for the year in each of the following
In 2019, Carson is claimed as a dependent on his parents’ tax return. Carson’s parents provided most of his support. What is Carson’s tax liability for the year in each of the following
Brooklyn files as a head of household for 2019.She claimed the standard deduction of $18,350 for regular tax purposes. Her regular taxable income was $80,000. What is Brooklyn’s AMTI?
Sylvester files as a single taxpayer during 2019.He itemizes deductions for regular tax purposes. He paid charitable contributions of $7,000, real estate taxes of $1,000, state income taxes of
In 2019, Nadia has $100,000 of regular taxable income. She itemizes her deductions as follows: real property taxes of $1,500, state income taxes of $2,000, and mortgage interest expense of $10,000
In 2019, Juanita is married and files a joint tax return with her husband. What is her tentative minimum tax in each of the following alternative circumstances?a. Her AMT base is $100,000, all
In 2019, Deon and NeNe are married filing jointly. Deon and NeNe’s taxable income is $1,090,000, and they itemize their deductions as follows: real property taxes of $10,000, charitable
Henrich is a single taxpayer. In 2019, his taxable income is $450,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios?a. All of his
Brooke, a single taxpayer, works for Company A for all of 2019, earning a salary of $50,000.a. What is her FICA tax obligation for the year?b. Assume Brooke works for Company A for half of 2019,
Distinguish between taxes that are regressive and those that are progressive.
In 2022, Madden, who is single, has adjusted gross income of $145,600, uses the standard deduction of $12,950, and has $132,650 of taxable income. Compute the following for Madden.a. Federal income
DraftJacks, Inc., took an uncertain tax position in 2020, recording an unrecognized tax benefit of $100,000. In 2022, the IRS challenged the position and DraftJacks agreed to pay $120,000 to settle
Prance, Inc., earned pretax book net income of $800,000 in 2021. Prance acquired a depreciable asset that year, and first-year tax depreciation exceeded book depreciation by $80,000. Prance reported
Using the facts of Problem 13, determine Prance’s 2021 deferred tax benefit or expense and any deferred tax asset or liability.Data in Problem 13Prance, Inc., earned pretax book net income of
Mini, Inc., earns pretax book net income of $750,000 in 2021. Mini recognized $20,000 in bad debt expense for book purposes. This expense is not yet deductible for tax purposes. Mini reports no other
Using the facts of Problem 17, determine Mini’s 2021 deferred tax assets and liabilities, deferred tax benefit or expense, and total tax benefit or expense.Data in Problem 17Mini, Inc., earns
Mini, in Problem 17, reports $800,000 of pretax book net income in 2022. For that year, Mini did not recognize any bad debt expense for book purposes but did deduct $15,000 in bad debt expense for
Facegram, Inc., reported net cumulative favorable book-tax temporary differences of $1,000,000 at the end of 2021. During 2022, legislation was enacted that will increase Facegram’s tax rate from
Jesse completes the following capital asset transactions. By how much does Jesse’s AGI increase/decrease as a result of these gains/losses? Long-term gain Short-term gain Short-term loss $10,000
Coline has the following capital gain and loss transactions for 2022: After the capital gain and loss netting process, what is the amount and character of Coline’s gain or loss? Short-term capital
Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does
Cécile owns a highly profitable restaurant run as a sole proprietorship. To protect herself from liabilities related to the business, Cécile incorporates the business, becoming the sole
Lupe, a cash basis taxpayer, owns 55% of the stock of Jasper Corporation, a calendar year accrual basis C corporation. On December 31, 2022, Jasper accrues a performance bonus of $100,000 to Lupe
Egret Corporation, a calendar year C corporation, was formed on March 6, 2022, and opened for business on July 1, 2022. After its formation but prior to opening for business, Egret incurred the
Broadbill Corporation, a calendar year C corporation, has two unrelated cash method shareholders: Marcia owns 51% of the stock, and Zack owns the remaining 49%. Each shareholder is employed by the
Five years ago, Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2021, his amount at risk in the activity was $30,000. His shares of the income and losses
On December 23, 2022, 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
Akiko, a single taxpayer, incurred higher than expected expenses in her active business in 2022. In addition, the economy moved into a mild recession, so her revenues were lower than in last year.
Mahan purchases 1,000 shares of Bluebird Corporation stock on October 3, 2022, for $300,000. On December 12, 2022, Mahan purchases an additional 750 shares of Bluebird stock for $210,000. According
Rod Clooney purchases Kayla Mitchell’s sole proprietorship for $990,000 on August 15, 2022. The assets of the business are:a. Calculate Kayla’s realized and recognized gain. b. Determine Rod’s
Roberto has received various gifts over the years. He has decided to dispose of several of these assets. What is the recognized gain or loss from each of the following transactions, assuming that no
On September 18, 2022, Gerald received land and a building from Lei as a gift. Lei paid no gift tax on the transfer. Lei’s records show the following:a. Determine Gerald’s adjusted basis for the
Dan bought a hotel for $2,600,000 in January 2018. In May 2022, he died and left the hotel to Ed. While Dan owned the hotel, he deducted $289,000 of cost recovery. The fair market value in May 2022
Coline has the following capital gain and loss transactions for 2022.After the capital gain and loss netting process, what is the amount and character of Coline’s net capital gain or loss?
Thania inherited 1,000 shares of Aqua, Inc. stock from Joe. Joe’s basis in the stock was $35,000, and the fair market value of the stock on July 1, 2022 (the date of Joe’s death), was $45,000.
Renata Corporation purchased equipment in 2020 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2022 for $110,000. What is the amount and
Jacob purchased business equipment for $56,000 in 2019 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2022 for $26,000. What is the amount and character of
Shannon owns two items of business equipment. Both were purchased in 2018 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Shannon is considering
An apartment building was acquired in 2013 by an individual taxpayer. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the amount of
Eagle Partners meets all of the requirements of § 1237 (subdivided realty). In 2022, Eagle Partners begins selling lots and sells four separate lots to four different purchasers. Eagle Partners also
Aliya held vacant land that qualified as an investment asset. She purchased the vacant land on April 10, 2018. She exchanged the vacant land for a rental house in a qualifying like-kind exchange on
Paul and Sonja, who are married, had itemized deductions of $13,200 and $400, respectively, during 2022. Paul suggests that they file separately—he will itemize his deductions from AGI, and she
Paul suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul
Paola and Isidora are married; file a joint tax return; report modified AGI of $148,000; and have one dependent child, Dante. The couple paid $12,000 of tuition and $10,000 for room and board for
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 2022, earn salaries as follows: $130,000 (Jim) and $5,200
During 2022, José, a self-employed technology consultant, made gifts in the following amounts.In addition, on professional assistants’ day, José takes Haley to lunch at a local restaurant at a
Myers, who is single, reports compensation income of $75,000 in 2022. He is an active participant in his employer’s qualified retirement plan. Myers contributes $6,000 to a traditional IRA. Of the
Jong, age 29, is single and an active participant in a qualified retirement plan. Her modified AGI is $70,000 in 2022.a. Calculate the amount Jong can contribute to a traditional IRA and the amount

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