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south western federal taxation

Questions and Answers of South Western Federal Taxation

Soong, single and age 32, had the following items for the tax year 2017:• Salary of $30,000.• Interest income from U.S. government bonds of $2,000.• Dividends from a foreign corporation of
Pete and Polly are married and file a joint return. They had the following income and deductions for 2017:Salary .............................................................................
Robert and Susan Reid had an NOL of $30,000 in 2017. They had $14,250 oftaxable income for 2015 computed as follows:Write a letter to Robert and Susan informing them of the amount of the remaining
Assume that in addition to the information in Problem 49, Rick and Sara had $3,700 of taxable income for 2015 computed as follows:a. Determine Rick and Sara€™s recomputed taxable income for
During 2017, Rick and his wife, Sara, had the following items of income and expense to report:Gross receipts from business .................................................
Gus, who is married and files a joint return, owns a grocery store. In 2017, his gross sales were $276,000, and operating expenses were $320,000. Other items on his 2017 return were as
Sam, age 45, is single. For 2017, he has the following items:Business income ................................................. $70,000Business expenses
Barbara, a calendar year taxpayer, owns and operates a company that manufactures toys. For 2017, she has modified AGI of $500,000 and QPAI of $550,000. Ignoring the W–2 wage limitation, calculate
Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2017, a fire caused major damage to the building and its contents. Heather purchased the
Olaf lives in the state of Minnesota. A tornado hit the area and damaged his home and automobile. Applicable information is as follows:Because of the extensive damage caused by the tornado, the
Emily, who is single, sustains an NOL of $7,800 in 2017. The loss is carried back to 2015. For 2015, Emily€™s income tax information was as follows:As a result of the carryback, what is
Phillis and Trey are married and file a joint tax return. For 2017, they have $4,800 of nonbusiness capital gains, $2,300 of nonbusiness capital losses, $500 of interest income, and no itemized
In 2017, Loftis, Inc., a calendar year taxpayer, has QPAI of $4.5 million and taxable income of $3.1 million. Because Loftis outsources much of its work to independent contractors, its W–2 wage
Belinda was involved in a boating accident in 2017. Her speedboat, which was used only for personal use and had a fair market value of $28,000 and an adjusted basis of $14,000, was completely
Amos began a business, Silver, Inc., on July 1, 2014. The business extracts and processes silver ore. During 2017, Amos becomes aware of the domestic production activities deduction (DPAD) and would
Kelly decided to invest in Lime, Inc. common stock after reviewing Lime’s public disclosures, including recent financial statements and a number of press releases issued by Lime. On August 7,
Aman, a sole proprietor and rental property owner, had the following expenses in 2017:Payment to tax lawyer for advice related to business tax liability ...........................
Assume that in addition to the information in Problem 54, Nell had the following items in 2017:Personal casualty gain on an asset held for four months ............. $10,000Personal
Your client, Jacob, turned 66 years old this year. Jacob has no heirs and has decided that he would like to sell a life insurance policy to fund a trip to Africa that he has wanted to take.Jacob knew
On June 1, 2016, Heloise gave Henrietta a gift of stock worth $10,000. Heloise had purchased the stock on January 1, 2016 for $13,000. Henrietta sold the stock to an unrelated party on January 1,
Marilyn owns land that she acquired three years ago as an investment for $250,000. Because the land has not appreciated in value as she anticipated, she sells it to her brother, Amos, for its fair
On July 1, 2017, Penelope gave Peter a gift of stock worth $9,000. Penelope had purchased the stock for $10,000 in 2014. On November 1, 2017, Peter sold the stock to an unrelated party for $8,500.
How are transactions using Bitcoin (virtual currency) treatedunder U.S. tax law? Some background on Bitcoin can be found at https://bitcoin.org/en/faq. Locate the IRS guidance on this question, and
John Benson, age 40, is single. His Social Security number is 111-11-1111, and he resides at 150 Highway 51, Tangipahoa, LA 70465.John has a 5-year-old child, Kendra, who lives with her mother, Katy.
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. She elects to receive her retirement benefits as
Linda and Don are married and file a joint return. In 2017, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest.a. Compute the couple’s adjusted
Charles E. Bennett, age 64, will retire next year and is trying to decide whether to begin collecting his Social Security benefits at that time. His monthly benefits will increase if he defers his
Daniel B. Butler and Freida C. Butler, husband and wife, file a joint return. The Butlers live at 625 Oak Street in Corbin, KY 40701. Dan's Social Security number is 111-11-1112, and Freida's is
Cecil C. Seymour is a 64-year-old widower. He had income for 2017 as follows:Pension from former employer ........................................................................
Smith, an individual, is required to pay Goode yearly alimony of $6,000 and yearly child support of $18,000. Smith paid Goode $20,000 in 2017. Smith’s 2017 W–2 income was $50,000. Considering
Walters, an individual, received the following in 2017: W–2 income .............................................................................. $10,000 Federal tax refund for 2016
Doran, a single individual, received $20,000 in Social Security benefits in 2017. Doran’s 2017 provisional income (income plus half of the Social Security) was $65,000. Considering only these
On October 1, 2017, Cruz purchased an annuity for $90,000 in post-tax dollars, effective immediately, that pays Cruz $500 a month until death. At the date of purchase, Cruz’s official life
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
What is the difference between a cafeteria plan and an employee flexible spending plan?
Several of Egret Company’s employees have asked the company to create a hiking trail that employees could use during their lunch hours. The company owns vacant land that is being held for future
Dolly is a cash basis taxpayer. In 2017, she filed her 2016 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2016 Federal income tax return, but
Valentino is a patient in a nursing home for 45 days of 2017. 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
George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2017, George began working in London. He worked there until January 31, 2018, when he transferred
Myrna and Geoffrey filed a joint tax return in 2016. Their AGI was $85,000, and itemized deductions were $13,700, which included $4,000 in state income tax. In 2017, they received a $1,800 refund of
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
Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per month, indexed for inflation. However, she would no longer be able to use the company’s health
Rosa’s employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter’s dental expenses and other medical expenses that are not covered by health insurance.
What is the taxpayer’s gross income in each of the following situations?a. Darrin received a salary of $50,000 in 2017 from his employer, Green Construction.b. In July 2017, Green gave Darrin an
Belinda spent the last 60 days of 2017 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
Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2017:• Hospitalization insurance premiums for Rex and his dependents. The cost
Donald was killed in an accident while he was on the job in 2017. Darlene, Donald’s wife, received several payments as a result of Donald’s death. What is Darlene’s gross income from the items
In January 2017, 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 2017. Her marginal Federal tax rate is 35%, and her marginal state tax rate is 5%. The California bond pays 3.3%
Starting in 2006, 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 2015, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. The cost of the furniture
Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2014. Alfred and Beulah will file a joint return for 2016. Alfred’s Social Security number is 111-11-1112. Beulah’s Social
Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA
In 2015 Randall suffered bodily injury while at work. On his 2015 tax return, Randall deducted related medical expenses of $10,000 and $5,000 in 2016. In 2017, Randall won a workers’ compensation
The following pertain to Joyce in 2017:Medical insurance premiums paid by employer ....................................... $4,800Teacher of the Year Award, in the form of gift cards
Pierce, a married individual, received the following in 2017:Workers’ compensation award .................................... $25,000W–2 income
Norbert works in a beauty salon. He receives a 50% employee discount for salon services. In 2017, he used his discount to buy $1,000 of services with a fair market value of $2,000. As a result of
Cole, a 48-year-old married individual, received the following in 2017:S corporation stock dividends ............................................................ $5,000Interest earned on
Manish is a student who began working part-time as a restaurant waiter in October of 2017. He earned the following tips in 2017, with each month’s tips reported in a schedule submitted to the
Nanette is a first-grade teacher. Potential deductions are charitable contributions of $800, personal property taxes on her car of $240, and various supplies purchased for use in her classroom of
Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for 2017 by buying $65,000 worth of supplies for his business on December 27, 2017. The supplies will be used up
Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2017, she leases an office building to use in her business for $120,000 for an 18-month
Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2017. Gross receipts were $300,000. The following expenses were incurred and paid as indicated:Because the coliseum was
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
Freddy, a sole proprietor, is one of several retail business owners competing to rent space in a desirable location that rents at a rate of $2,000 per month. Freddy pays the landlord 12 months’
Sarah was contemplating making a contribution to her traditional IRA in 2016. She determined that she would contribute $5,000 in December 2016, but forgot about making the contribution until she was
Alex, who is single, conducts an activity in 2017 that is appropriately classified as a hobby. The activity produces the following revenues and expenses:Revenue
Chee, single, age 40, had the following income and expenses during 2017:Calculate Chee€™s taxable income for the year before personal exemptions. If Chee has any options, choose the method
Roberta Santos, age 41, is single and lives at 120 Sanborne Avenue, Springfield, IL 60781. Her Social Security number is 123-45-6789. Roberta has been divorced from her former husband, Wayne, for
Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2016. Although they intended to use the beach house occasionally for recreational purposes, to help pay the mortgage
Mona viewed herself as a creative individual who had chosen to go to law school for economic reasons. Mona’s undergraduate majors were creative writing and American Indian studies.Mona was very
Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 25% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years.
Al is a medical doctor who conducts his practice as a sole proprietor. During 2017, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in
Determine the effects of the following on a cash basis taxpayer’s gross income for 2017 and 2018.a. On the morning of December 31, 2017, the taxpayer received a $1,500 check from a customer. The
Marlene, a cash basis taxpayer, invests in Series EE U.S. government savings bonds and bank certificates of deposit (CDs). Determine the tax consequences of the following on her 2017 gross income:a.
Freda is a cash basis taxpayer. In 2017, she negotiated her salary for 2018. Her employer offered to pay her $21,000 per month in 2018 for a total of $252,000. Freda countered that she would accept
The Bluejay Apartments, a new development, is in the process of structuring its lease agreements. The company would like to set the damage deposits high enough that tenants will keep the apartments
Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation. On June 30, 2017, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2018, he borrowed an additional $10,000. Both
Troy, a cash basis taxpayer, is employed by Eagle Corporation, also a cash basis taxpayer. Troy is a full-time employee of the corporation and receives a salary of $60,000 per year. He also receives
In 2017, Alva received dividends on her stocks as follows:Amur Corporation (a French corporation whose stock is traded on anestablished U.S. securities market)
Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal rate was 3%. What are the tax consequences of the following loans by Ridge:a.
Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12-month and 24-month contracts. The corporation provides services to each customer every month. On July 1, 2017,
On January 1, 2017, Kunto, a cash basis taxpayer, pays $46,228 for a 24-month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No
Connor purchased an annuity that was to pay him a fixed amount each month for the remainder of his life. He began receiving payments in 2001, when he was 65 years old. In 2017, Connor was killed in
Rex became a partner with a 30% interest in the partnership profits when he invested $200,000. In 2017, the partnership generated $400,000 of taxable income, and Rex withdrew $100,000. In 2018, the
On December 29, 2017, an employee received a $5,000 check from her employer’s client. The check was payable to the employer. The employee did not remit the funds to the employer until December 30,
Kyle and Elena Smith contributed to the support of their two children, Alexandra and Matthew, and Elena’s divorced father, Nick. For 2017, Alexandra, a 22-year-old full-time college student, earned
Slaton served 10 days on jury duty in 2017, for which Slaton was paid $25 per day by the county. Slaton’s employer requires employees to remit to it all pay received by the county during jury duty,
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
Each year, Tom and Cindy Bates normally have itemized deductions of $10,000, including a $4,000 pledge payment to their church. Upon the advice of a friend, they do the following: in early January
During 2017, Chester had the following transactions involving capital assets:Gain on the sale of an arrowhead collection (acquired as an investment at differenttimes but all pieces have been held for
During 2017, Inez had the following transactions involving capital assets:Gain on the sale of unimproved land (held as an investment for 3 years) ........................................
Nadia died in 2016 and is survived by her husband, Jerold (age 44); her married son, Travis (age 22); and her daughter-in-law, Macy (age 18). Jerold is the executor of his wife’s estate. He
Christopher died in 2015 and is survived by his wife, Chloe, and their 18-year-old son, Dylan. Chloe is the executor of Christopherâ€™s estate and maintains the household in which she and Dylan
In each of the following independent situations, determine Winston’s filing status for 2017. Winston is not married.a. Winston lives alone, but he maintains a household in which his parents live.
Walter and Nancy provide 60% of the support of their daughter (age 18) and son-in-law (age 22). The son-in-law (John) is a full-time student at a local university, while the daughter (Irene) holds
During 2017, Jenny, age 14, lives in a household with her father, uncle, and grandmother. The household is maintained by the uncle. The parties, all of whom file separate returns, have AGI as
For tax year 2017, determine the number of personal and dependency exemptions in each of the following independent situations:a. Leo and Amanda (ages 48 and 46, respectively) are husband and wife and
In 2017, Simon, age 12, has interest income of $800 and dividend income of $4,000. He has no investment expenses. His parents have taxable income of $80,200 and file a joint tax return. Assume that
Comment on the availability of head-of-household filing status for 2017 in each of the following independent situations:a. Taxpayer lives alone but maintains the household of his parents. In July

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