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south-western federal
Questions and Answers of
South-Western Federal
Arnold, who is single, sold his principal residence on April 10, 2018, and excluded the realized gain under § 121 (exclusion on the sale of a principal residence). On April 12, 2018, he purchased
Which of the following statements is not correct?a. The basis of an asset that is purchased must be adjusted for depreciation allowableb. The general rule for the basis of property acquired by gift
The specific identification method is important when one invests in mutual funds. When taxpayers sell part of their holdings, the basis of the surrendered shares can be difficult to compute. Go to
Dan bought a hotel for $2,600,000 in January 2014. In May 2018, 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 2018
Ashley inherited all of the property of her aunt, who died in 2018. Her aunt's adjusted basis for the property at the date of death was $1,200,000. The property's fair market value was $4,500,000 at
Rafael and Lucy, married taxpayers, each contribute $2,900 to their respective § 401(k) plans offered through their employers. The AGI reported on the couple's joint return is $39,000. Determine
Describe the exposure (i.e., wage base and tax rate) that a self-employed individual has to the self-employment tax for 2018.
Find an article or a website that discusses why some policy- Communications makers wanted to repeal both the corporate and individual AMT provisions from the Internal Revenue Code. Discuss the
On his 2017 Federal income tax return, Walter deducted state Critical Thinking income taxes of $8,000 for amounts withheld and estimated tax payments made in 2017 When he filed his 2017 state income
Which of the following would preclude a taxpayer from deducting student loan interest expense?a . The total amount paid is $1,000b. The taxpayer is single with AGI of $55,000.c. The taxpayer is
Kurstie received a $800 state income tax refund this year. Kurstie deducted $3,000 of state income taxes paid in the prior year as part of her itemized deductions Which of the following statements
Sydney, a single taxpayer, had $80,000 in adjusted gross income in year 2. During the year, she contributed $15,000 to her church . She also had a $17,000 contribution carryover from her year 1
Marcia, a shareholder in a corporation with stores in five states, donated stock with a basis of $10,000 to a qualified charitable organization in 2017 Although the stock of the corporation w as not
On May 28, 2018, Mary purchased and placed in service a new $20,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2018. In 2019, the usage changed
Soong, single and age 32, had the following items for the tax year 2018:• Salary of $ 30,000.• Interest income from U.S. government bonds of $2,000.• Dividends from a foreign corporation of $
Emily, who is single, sustains an NOL of $7,800 in 2018. The loss is carried forward to 2019. For 2019, Emily's income tax information before taking into account the 2018 NOL is as follows:
Belinda spent the last 60 days of 2018 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
Wilbur has been offered a job at a salary that would put him in the 24% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does
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
Locate IRS Form 2120 (at www.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?
Paige, age 17, is a dependent of her parents. During 2018, Paige earned $3,900 pet sitting and $4,100 in interest on a savings account. What are Paige's taxable income and tax liability for 2018?
Nadia died in 2017 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 maintains
During 2018, ]enny, 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
Regarding the statute of limitations on additional assessments of tax by the IRS, determine the applicable period in each of the following situations. Assume a calendar year individual with no fraud
Elijah and Anastasia are husband and wife who have five married children and nine minor grandchildren. For 2018, what is the maximum amount they can give to their family (including the sons- and
Balm, Inc., has a general business credit for 2018 of $90,000. Balm's regular income tax liability before credits is $140,000, and its tentative AMT is $132,000. Calculate the amount of general
Fox Corp., an S corporation, had an ordinary loss of $36,500 for the year ended December 31, year 2. At January 1, year 2, Duffy owned 50% of Fox's stock. Duffy held the stock for 40 days in year 2
Continue to consider the case of the taxpayer in Problem 1.32. Is it acceptable to you if Norris purposely shifts its sales force among the states to reduce its tax liabilities? In your response,
Cooper Partnership, a calendar year partnership, made qualifying rehabilitation expenditures to a building that it has used in its business for eight years. These improvements were placed in service
John Parsons (123-45-6781) and George Smith (123-45-6782) are 70%, and 30%, owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303.
One of your clients, Texas, Inc., is considering electing S status. Both of Texas's equal shareholders paid $30,000 for their stock. As of the beginning of 2018, Texas's Subchapter C NOL carryforward
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2018. The company generated a $74,000 NOL in 2017 and another NOL of $43,000 in 2018. Orange
On March 2, 2018, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident
Emily and Freda are negotiating with George to purchase the business he operates as Pelican, Inc. The assets of Pelican, Inc., a C corporation, are recorded as follows.George's basis for die Pelican
Clay Corporation has been an S corporation since its incorporation 10 years ago. During the first three years of operations, it incurred total losses of $250,000. Since then, Clay has generated
Marci and Jennifer each own 50% of the stock of Lavender, a C corporation. After each of them is paid a "reasonable" salary of $150,000, the taxable income of Lavender typically is about $800,000.The
Turtle, a C corporation, reports taxable income of $200,000 before paying salaries to the two equal shareholder-employees, Britney and Alan. Turtle follows a policy of distributing all after-tax
Jo and Velma are equal owners of JV Company. Jo invests $500,000 cash in the venture. Velma contributes land and a building (basis to her of $125,000, fair market value of $500,000). The entity then
Swift Corporation agreed to redeem some of the shares of two of its shareholders. It distributed land (basis $55,000 and fair market value $120,000) to Sam in exchange for part of his stock. Sam's
For many years, Sophie has owned and operated several apartment buildings. In 2012, upon the advice of her attorney, Sophie transferred the apartment buildings to a newly created corporation. Her
Emmy contributes $40,000 to MeldCo in exchange for a 30% ownership interest. During the first year of operations, MeldCo earns a profit of $200,000. At the end of that year, MeldCo holds liabilities
Amy, Becky, and Chau form a business entity with each contributing the following.Their ownership percentages will be as follows.Amy ................................... 40% Becky
Mabel and Alan, who are in the 32% tax bracket, recently acquired a fast-food franchise. Both of them will work in the business and receive a salary of $175,000. They anticipate that the annual
Plum Corporation will begin operations on January 1. Earnings for the next five years are projected to be relatively stable at about $80,000 per year. The shareholders of Plum are in the 32% tax
Which of the following statements is most correct?a. Tax preference items for the alternative minimum tax are always added back to regular taxable income.b. Itemized deductions that are added back to
Carol reports taxable income of $48,000. Included in that calculation are the following items.Real estate taxes on her home ............................................... $2,000Mortgage
How is the alternative minimum tax credit applied in the calculation of the tentative minimum tax (TMT)?a. It is carried forward indefinitely and applied to regular tax only.b. It is carried back
Anthony entered into a long-term construction contract in year 3. The total profit of the contract is $80,000 and does not change over the life of the contract. The contract will be completed in year
For many years, Saul's sole proprietorship and his related Form 1040 have had a number of AMT tax preferences and AMT adjustments. He has made the AMT calculation each year, but the calculated amount
Renee and Sanjeev Patel, who are married, reported taxable income of $1,008,000 for 2018. They incurred positive AMT adjustments of $75,000 and tax preference items of $67,500. The couple itemizes
Pat is 40, is single, and has no dependents. She received a salary of $390,000 in 2018. 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 eligible to be claimed as the couple's dependents. Robert earns $196,000 working as a senior manager in a public accounting
Included in Alice's regular taxable income and in her AMT base is a $300,000 capital gain on the sale of stock she owned for three years. Alice is in the 20% tax bracket for net capital gains for
Chuck is single, has no dependents, and does not itemize deductions. In 2018, he reports taxable income of $320,000. His ta,x preferences total $51,000. What is Chuck's AMTI for 2018?
Gabriel, age 40, and Emma, age 33. are married with two dependents. They recorded AGI of $250,000 in 2018 that included net investment income of $3,000 and gambling winnings of $2,500.The couple
Sammy and Monica, both age 67, incur and pay medical expenses in excess of insurance reimbursements during the year as follows.For Sammy .........................................
Flicker, a single member LLC, acquired a passive activity this year. Gross income from operations of the activity was $160,000. Operating expenses, not including depreciation, were $122,000. Regular
Lilia is going to be subject to the AMT in 2018. She owns an investment building and is considering disposing of it and investing in other realty. Based on an appraisal of the building's value, the
Allie, who was an accounting major in college, is the owner of a medium-size construction limited liability company. She prepares the company's Schedule C each year. Due to reporting a home
David is the sole proprietor of a real estate construction business. He uses the completed contract method on a particular contract that requires 16 months to complete. The contract is for $500,000,
In March 2018, 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
Falcon has a sole proprietorship that owns a silver mine that she purchased several years ago for $925,000. The adjusted basis at the beginning of the year is $400,000. For the year, Falcon deducts
Use the following data to calculate Chiara's AMT base in 2018.Taxable income ..................................... $248,000Positive AMT adjustments....................
Blue Sky, Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in the United States. It also conducts some business in the European Union through various branches.
Green Corporation hires six individuals o n January 4, 2018, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2018, and each individual
In January 2017, Iris Corporation purchased and placed in service a certified historic structure building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land.
Pineview Company, a single member LLC, placed a $5,000 asset that is ineligible for full expensing in service on June 1, 2018. The asset has a three-year MACRS class life; no bonus depreciation was
Brennen sold a machine used in his sole proprietorship for $180,000. The machine was purchased eight years ago for $340,000. Depreciation up to the date of the sale for regular income tax purposes
In March 2018, Serengeti exercised an ISO that had been granted by his employer, Thunder Corporation, in December 2015. Serengeti acquired 5,000 shares of Thunder stock for the exercise price of $65
Alison incurs the following research expenditures.In-house wages ........................................................... $60,000In-house supplies
In which of the following cases will Federal law prohibit a state from imposing a tax on net income?a. The business has a retail outlet store in the state.b. The business has its corporate
Olinto, Inc., reports taxable income (before special deductions and net operating loss deduction) of $92,000. Included in that amount is $1 2,000 interest and dividends income. Forty percent of
Night, Inc., a domestic corporation, earned $300,000 from foreign manufacturing activities on which it paid $36,000 of foreign income taxes. Night's foreign sales income is taxed at a 50% foreign tax
An S corporation has 30,000 shares of voting common stock and 20,000 shares of nonvoting common stock issued and outstanding. The S election can be revoked voluntarily with the consent of the
Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Srreerz, an S corporation real estate company. He manages all aspects of the company's operations, and he is the
Village Corp., a calendar year corporation, began business in year 1. Village made a valid S corporation election on December 5, year 4, with the unanimous consent of its shareholders. The
In 2018, miranda records net earnings from self-employment of $146,000. She reports no other gross income. Determine the amount of Miranda's self-employment tax and her for AGI income tax deduction.
Ryan Ross (111-11-1112), Oscar Omega (222-22-2222), Clark Carey (333-33-3333). and Kim Kardigan (444 44 4444) are equal active members in ROCK the Ages 11.C. ROCK serves as agent and manager for
Burgundy, Inc., and Violet Gomez are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed
Bill and Mary filed a joint Federal income tax return this year. Mary owns a 30% interest in MAJIC Partnership, a women's dress boutique. Mary's share of the partnership's net income is $280,000. Her
The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2018, Jessica contributed land valued at $600,000 to the partnership in exchange for a 50%.
George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2018, George began working in London. He worked there until January 31, 2019, when he transferred
Belinda spent the last 60 days of 2018 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 2018.Hospitalization insurance premiums for Rex and his dependents. The cost of
Meredith, who is single, would like to contribute $5,500 to her Roth IRA. What is the maximum amount that Meredith can contribute if her AGI is $121,000?
Myers, who is single, reports compensation income of $70,000 in 2018. He is an active participant in his employer's qualified retirement plan. Myers contributes $5,500 to a traditional IRA. Of the
Brenda, who is self employed, travels from Chicago to Barcelona (Spain) on business. She is gone for 10 days (including 2 days of travel), during which time she spends 5 days conducting business and
Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2018, she exchanges it with Lisa Martin (an unrelated party) for
Parent, a domestic corporation, owns 100% of Block, a foreign corporation, and Chip, a domestic corporation. Parent also owns 45% of Trial, a domestic corporation. Parent receives no distributions
Ovate, Inc., earns $140,000 in book income before tax and is subject to a 21 % marginal Federal income tax rate. Ovate records a single temporary difference:Warranty expenses deducted for book
Mike Barr was an outstanding football player in college and expects to be drafted by the NFL in the first few rounds. Mike has let it be known that he would prefer to sign with an NFL team
Orion, Inc., a U.S. corporation, reports foreign-source income and pays foreign taxes for the tax year as follows.Orion's worldwide taxable income is $600,000, and U.S. taxes before the ITC are
Crank, Inc., a U.S. corporation, operates a branch sales office in Ghana. During the current year, Crank earned $200,000 in taxable income from U.S. sources and $50,000 in taxable income from sources
Drake, Inc., a U.S. corporation, operates a branch sales office in Turkey. During the current year, Drake earned $500,000 in taxable income from U.S. sources and $100,000 in taxable income from
Fleming, Inc., a domestic corporation, operates in both Canada and the United States. This year, the business generated taxable income of $400,000 from foreign sources and $300,000 from U.S. sources.
ABC, Inc., a domestic corporation, reports $50 million of taxable income, including $15 million of foreign-source taxable income from services rendered, on which ABC paid $2.5 million in foreign
Enders, Inc., a domestic corporation, reports $290,000 total taxable income for the year, consisting of $208,800 in U.S.-source business profits and $81,200 of income from foreign investment
Cordero, Inc., is a calendar year taxpayer and a CFC for the entire tax year. Yancy Company, a U.S. corporation, owns 75% of Cordero's one class of stock for the entire year. Cordero's Subpart F
After a corporation's status as an S corporation is revoked or terminated, how many years is the corporation required to wait before making a new S election, in the absence of IRS consent to an
The Manhew Corporation, an S corporation, is equally owned by three shareholders Emily, Alejandra, and Kristina. The corporation is on the calendar year basis for tax and financial purposes. On April
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