Questions and Answers of South-Western Federal Taxation 2022 Individual Income Taxes

Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2020, his amount at risk in the activity was $30,000. His shares of the income and losses
Bonnie and Jake (ages 35 and 36, respectively) are married with no dependents and live in Montana (not a community property state). Because Jake has large medical expenses, they seek your advice
A number of years ago, Lee acquired a 20% interest in the BlueSky Partnership for $60,000. The partnership was profitable through 2020, and Lee’s amount at risk in the partnership interest was
Mandy, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities and is in the 22% tax bracket. She has $12,000 of losses from Activity A,
Jaimee and Mike live in Austin, Texas. They married early in January 2020. They had saved a significant amount of money for their wedding, but instead decided to elope.The couple used the money they
Alfred is single, and his AMTI of $1,850,000 consists of the following amounts. What tax rates are applicable in calculating Alfred’s TMT? Ordinary income Long-term capital gains Qualified
On his 2020 Federal income tax return, Rigved deducted state income taxes of $8,000 for amounts withheld and estimated tax payments made in 2020. When he filed his 2020 state income tax return in
The TCJA of 2017 repealed the corporate AMT provisions. However, any unused AMT credits a corporation had at that point in time were allowed to be used over four tax years, beginning in 2018. The
Use the IRS’s Statistics of Income page to determine how many individual income tax returns reported an AMT liability from 2013 to 2018. What percentage of returns filed in this time period report
In 2007, Malik purchased an office building for $500,000 to be used in his business. He sells the building in the current tax year. Explain whether his recognized gain or loss for regular tax
In a popular press article about the AMT, the author of the article indicated that he was not going to distinguish between preferences and adjustments because “… irrespective of the label, both
Paola exercised an incentive stock option on March 1, 2021. She acquired 2,000 shares of stock at an exercise price of $3 per share when the fair market value of the stock was $15 per share. However,
Matt, who is single, always has elected to itemize deductions rather than take the standard deduction. In prior years, his itemized deductions always exceeded the standard deduction by a substantial
Amee moved to the San Francisco Bay Area to work for a technology startup 25 years ago. The startup eventually went public, and Amee is now one of the company’s most senior and successful
During the year, Rachel earned $18,000 of interest income on private activity bonds that she had purchased in 2016. She also incurred interest expense of $7,000 in connection with amounts borrowed to
Yanni, who is single, provides you with the following information for 2021.a. What is Yanni’s 2021 taxable income?b. What is Yanni’s 2021 AMT base?c. What is Yanni’s 2021 TMT? Salary State
Use the following data to calculate Chiara’s AMT base in 2021. Chiara will itemize deductions and will file as a single taxpayer. Taxable income Positive AMT adjustments Negative AMT
Compute the 2021 AMT exemption for the following taxpayers.a. Bristol, who is single, reports AMTI of $650,000.b. Marley and Naila are married and file a joint tax return. Their AMTI is $1,528,000.
In March 2021, Serengeti exercised an ISO that had been granted by his employer, Thunder Corporation, in December 2018. Serengeti acquired 5,000 shares of Thunder stock for the exercise price of $65
Calculate the exemption amount for the following cases in 2021 for a married taxpayer filing jointly and for a married taxpayer filing separately. In addition, use Microsoft Excel to express your
Elijah is single. He has a $12,000 AMT credit from 2020. In 2021, his regular tax liability is $28,000 and his tentative minimum tax is $24,000. Does Elijah owe AMT in 2021? How much (if any) of the
Arthur Wesson, an unmarried individual who is age 58, reports taxable income of $510,000 in 2021. He records positive AMT adjustments of $80,000 and preferences of $35,000. Arthur itemizes his
Angela, who is single, incurs circulation expenditures of $270,000 during 2021. She is deciding whether to deduct the entire $270,000 or to capitalize the expenses and deduct them over a three-year
Archie runs a small mineral exploration business (as a sole proprietorship). In 2019, he purchased land (for $68,000) where he suspected a magnesium deposit was located. He incurred $18,000 of
In March 2021, 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 2021, Geoff incurred $900,000 of mine and exploration expenditures. He elects to deduct the expenditures as quickly as the tax law allows for regular tax purposes.a. How will Geoff’s treatment
David is the sole proprietor of a real estate construction business. The business uses the completed contract method on a particular contract that requires 16 months to complete. The contract is for
In 2021, Reya exercised an incentive stock option that had been granted to her in 2018 by her employer, Weather Corporation. Reya acquired 100 shares of Weather stock for the option price of $190 per
Christopher regularly invests in technology company stocks, hoping to become wealthy by making an early investment in the next high-tech phenomenon. In 2013, Christopher purchased 3,000 shares of
Pat is 40, is single, and has no dependents. She received a salary of $390,000 in 2021. She earned interest income of $11,000, dividend income of $15,000, gambling winnings of $14,000, and interest
Jane and Robert Brown are married and have eight children, all of whom are considered dependents for Federal income tax purposes. Robert earns $196,000 working as senior manager in a public
Farr is single, has no dependents, and does not itemize her deductions. She reports the following items on her 2021 tax return.a. Determine Farr’s AMT adjustments and preferences for 2021.b.
Renee and Sanjeev Patel, who are married, reported taxable income of $1,008,000 for 2021. They incurred positive AMT adjustments of $75,000 and tax preference items of $67,500. The couple itemizes
Lynn, age 45, is single and has no dependents. Her income and expenses for 2021 are reported as follows. The $64,000 business income is from Apex Office Supplies Company, a sole proprietorship
Jacob, age 42, and Jane Brewster, age 44, are married and file a joint return in 2021. The Brewsters have two dependent children, Lukas and Alexa, 14-year-old twins. Unless otherwise noted, all of
Evan is single and has AGI of $277,300 in 2021. His potential itemized deductions before any limitations for the year total $52,300 and consist of the following:Medical expenses (before the
Bailey owns a small rental townhouse complex that generates a loss during the year. Under what circumstances can Bailey deduct a loss from the rental activity? What limitations apply?
Locate IRS Form 2120 (at irs.gov), and answer the following questions.a. Who must sign the form?b. Who must file the form?c. Can it be used for someone who is not related to the taxpayer? Explain.
Compute the taxable income for 2021 for Emily on the basis of the following information. Her filing status is single.Salary
Compute the taxable income for 2021 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2019.Salary $ 80,000Interest on bonds issued by
Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $42,000 to her employer’s qualified pension fund, all of which was taxable when earned. She elects
Your client Murray reported to the Environmental Protection Agency that his employer was illegally dumping chemicals into a river. His charges were true, and Murray’s employer was fined. In
Lime Finance Company requires its customers to purchase a credit life insurance policy associated with the loans it makes. Lime is the beneficiary of the policy to the extent of the remaining balance
One income exclusion that some states allow but the Federal government does not is for lottery winnings. Does your state have an exclusion for lottery winnings? If so, how does it work? Why do you
Dolly is a cash basis taxpayer. In 2021, she filed her 2020 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2020 Federal income tax return but
Valentino is a patient in a nursing home for 45 days of 2021. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his
Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2021. Mio’s salary for 2021 is $190,000. In your computation, round any division to four decimal places
Adrian was awarded an academic scholarship to State University for the 2021–2022 academic year. He received $6,500 in August and $7,200 in December 2021. Adrian had enough personal savings to pay
Jarrod receives a scholarship of $18,500 from East State University to be used to pursue a bachelor’s degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board,
Apply the tax benefit rule to determine the amount of the state income tax refund included in gross income in 2021.a. Myrna and Geoffrey filed a joint tax return in 2020. Their AGI was $85,000, and
Determine the gross income of the beneficiaries in the following cases:a. Justin’s employer was downsizing and offered employees an amount equal to one year’s salary if the employee would
Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2021: • Hospitalization insurance premiums for Rex and his dependents.
Belinda spent the last 60 days of 2021 in a nursing home. The cost of the services provided to her was $18,000 ($300 per day). Medicare paid $8,500 toward the cost of her stay. Belinda also received
Tim is the vice president of western operations for Maroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company
George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2021, George began working in London. He worked there until January 31, 2022, when he transferred
In January 2021, Ezra purchased 2,000 shares of Gold Utility Mutual Fund for $20,000. In June, Ezra received an additional 100 shares as a dividend, in lieu of receiving $1,000 in cash dividends. In
Tonya, who lives in California, inherited a $100,000 State of California bond in 2021. Her marginal Federal tax rate is 35%, she itemizes deductions on her Federal tax return, and her marginal state
Starting in 2010 Chuck and Luane have been purchasing Series EE bonds in their name to use for the higher education of their daughter Susie, who currently is age 18. During the year, they cash in
How does the tax benefit rule apply in the following cases?a. In 2019, the Orange Furniture Store, an accrual method sole proprietorship, sold furniture on credit for $1,000 to Sammy. The cost of the
Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2018. Alfred and Beulah will file a joint return for 2020. Alfred’s Social Security number is 111-11- 1109. Beulah’s Social
Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2021. Although they intended to use the beach house occasionally for recreational purposes, to help pay the mortgage
Classify each of the following expenditures paid in 2021 as a deduction for AGI, a deduction from AGI, or not deductible:a. Roberto gives cash to his father as a birthday gift.b. Sandra gives cash to
Classify each of the following expenditures paid in 2021 as a deduction for AGI, a deduction from AGI, or not deductible: a. Barak contributes to his H.R. 10 plan (i.e., a retirement plan for a
Isabelle was contemplating making a contribution to her traditional IRA in 2020. She determined that she would contribute $6,000 in December 2020, but forgot about making the contribution until she
In 2021, Larry and Susan each invest $10,000 in separate investment activities. They each incur deductible expenses of $800 associated with their respective investments. Explain why Larry’s
Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for 2021 by buying $65,000 worth of supplies for his business on December 27, 2021. The supplies will be used up
Linda operates an illegal gambling operation. Which of the following expenses that she incurs can reduce taxable income?a. Bribes paid to city employees.b. Salaries to employees.c. Security
Shanna, a calendar year and cash basis taxpayer, rents property to be used in her business from Janice. As part of the rental agreement, Shanna pays $8,400 rent on April 1, 2021, for the 12 months
Meghan, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2021, she leases an office building to use in her business for $120,000 for an
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
Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2021. Gross receipts were $300,000. The following expenses were incurred and paid as indicated:Because the coliseum was
Chee, single, age 40, had the following income and expenses during 2021:Calculate Chee’s taxable income for the year. If Chee has any options, choose the method that maximizes his deductions.
Alex, who is single, conducts an activity in 2021 that is appropriately classified as a hobby. The activity produces the following revenues and expenses: Without regard to this activity,
Fynn incurred and paid the following expenses during 2021:• $50 for a ticket for running a red light while he was commuting to work.• $100 for a ticket for parking in a handicapped parking
Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He
Jamari Peters (Social Security number 123-45-6789) conducts a business with the following results in 2021:Revenue ............................................... $20,000Depreciation on
For 2021, MSU Corporation has $500,000 of adjusted taxable income, $22,000 of business interest income, and $120,000 of business interest expense. It has average annual gross receipts of more than
Roberta Santos, age 41, is single and lives at 120 Sanborne Avenue, Springfield, IL 62701. Her Social Security number is 123-45-6780. Roberta has been divorced from her former husband, Wayne, for
Alicia and Rafel are in the process of negotiating a divorce agreement to be finalized in 2021. They both worked during the marriage and contributed an equal amount to the marital assets. They own a
Kathy and Brett Ouray married in 2003. They began to experience marital difficulties in 2017 and, in the current year, although they are not legally separated, consider themselves completely
In late 2021, 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
What purpose is served by Form 8857? Read the directions for the form, and see IRS Publication 971 for additional information.
In 2021, David is age 78, is a widower, and is being claimed as a dependent by his son. How does this situation affect the following?a. David’s own individual filing requirement.b. The standard
Research the following questions regarding virtual currency, and write your answers in the form of a set of “frequently asked questions” (FAQs) suitable for the website of your CPA firm. As part
Caden and Lily are divorced on March 3, 2020. For financial reasons, however, Lily continues to live in Caden’s apartment and receives her support from him. Caden does not claim Lily as a dependent
In 2020, Madison and Nick Koz have two children, ages 8 and 10. Both children meet the definition of qualifying child. The Koz family has adjusted gross income of $300,000. What is the amount of the
Mark and Lisa were divorced in 2020. In 2021, Mark has custody of their children, but Lisa provides nearly all of their support. Who is entitled to claim the children as dependents?
The Tiller family has an adjusted gross income of $200,000 in 2020. The Tillers have two children, ages 12 and 13, who qualify as dependents. All of the Tillers’ income is from wages. What is the
Casey is a U.S. citizen employed by a multinational corporation at its London office. Casey is married to Michael, a British citizen, and they reside in England. Michael receives substantial rent
Comment on the availability of head-of-household filing status for 2021 in each of the following independent situations:a. Taxpayer lives alone but maintains the household of his parents. In July
Jayden calculates his 2021 income tax by using both the Tax Tables and the Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this amount.a. Why
Brett and Abby are dependents of their parents, and each has income of $2,100 for the year. Brett’s standard deduction for the year is $1,100, and Abby’s is $2,450. Because their income is the
Compute the 2021 standard deduction for the following taxpayers.a. Ellie is 15 and claimed as a dependent by her parents. She has $800 in dividend income and $1,400 in wages from a part-time jobb.
Paul and Sonja, who are married, had itemized deductions of $13,200 and $400, respectively, during 2021. Paul suggests that they file separately—he will itemize his deductions from AGI, and she
Compute the 2021 tax liability and the marginal and average tax rates for the following taxpayers (use the 2021 Tax Rate Schedules in Appendix A for this purpose):a. Chandler, who files as a single
In 2021, Jack, age 12, has interest income of $4,900 on funds he inherited from his aunt and no earned income. He has no investment expenses. Christian and Danielle (his parents) have taxable income
Madeline sells her personal scooter for $550. She purchased the scooter for $700 three years ago. She also sells a painting for $1,200 that she acquired five years ago for $900. What are the tax
Compute the taxable income for 2021 in each of the following independent situations:a. Aaron and Michele, ages 40 and 41, respectively, are married and file a joint return. In addition to four
Determine the amount of the standard deduction allowed for 2021 in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent.a. Curtis,
For tax year 2021, determine the number of dependents in each of the following independent situations:a. Ben and Molly (ages 48 and 46, respectively) are married and furnish more than 50% of the

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