Questions and Answers of Taxation Decision Makers

Cora was in Europe from Thanksgiving of 2018 until early January of 2019. When she returned, she found her home office had been broken into and equipment with a fair market value of $40,000 and a
Danny’s living room furniture and his flat screen television were damaged in a fire in his home in January. In March, his golf cart was damaged in a flood. He was able to establish the following
Jewel’s home was completely destroyed by a wildfire in 2018 in an area declared a national disaster. The building had an appraised value of $185,000 before the fire. Four years ago Jewel paid
Delta Corporation exchanges a warehouse for an office building from Gamma Corporation.Delta’s warehouse has a fair market value of $4,000,000 and a basis of $2,250,000. The office building has a
Explain how the deductibility of personal casualty losses changed after 2017.
Explain the functional-use test. Explain the taxpayer-use test.
What is an indirect exchange? What are the two most common forms of indirect exchanges?
What types of realty qualify for like-kind exchange treatment?
Mark, Nancy, and Carl form a partnership with each partner having an equal share in profits and losses. Mark and Carl each contribute $40,000 in cash to the partnership. Nancy contributes land valued
Marylou transfers $220,000 of equipment (basis = $170,000) to her wholly owned corporation in exchange for all the authorized nonvoting stock and $20,000 cash. How much gain or loss does Marylou
The Joneses’ home that they had owned and lived in for 12 years was destroyed in a flood. Fortunately, they had flood insurance that paid replacement value of $280,000 for their loss. The home had
Cragin’s manufacturing facility had an adjusted basis of $7,600,000: $2,000,000 for the land and $5,600,000 for the building when destroyed by fire. It received $7,000,000 from its insurance
JB Manufacturing and BP Company exchange two pieces of land. JB’s land has a basis of $800,000 and a fair market value of $750,000. BP’s land has a basis of $560,000 and a fair market value of
Go to the IRS website (www.irs.gov) and print Form 4797: Sales of Business Property.Complete Form 4797 for the following sales of machinery on December 20, year 6: Date acquired Machine Cost recovery
Go to the IRS website (www.irs.gov) and print Schedule D for Form 1040 and Form 8949.Compute the net effect of the following asset sales on Gineen Tibeau’s taxable income using Form 8949 and
In 2018, Gregory, a single person, had $450,000 of ordinary taxable income. He sold Section 1202 stock at a taxable gain of $45,000, his art collection at a taxable gain of $102,000, and stock at a
Joy purchased a home in Maine on December 15, 1999 for $250,000 and lived in it full-time until she purchased a second home in Florida on October 1, 2013 for $380,000. In 2013 and 2014 she continued
Monique is planning to increase the size of the manufacturing business that she operates as a sole proprietorship. She has a number of older assets that she plans to replace as part of the expansion.
George has a short-term capital loss of $42,000 this year. His brother wants to buy a piece of land that George has owned as an investment for $60,000. The land’s basis is only $20,000. George also
Natalie expects her ordinary income to exceed $600,000 putting her in the 37 marginal percent tax bracket for 2018. So far this year, she has a $5,000 short-term capital loss. As of June 1, she is
Bill had the following gains and losses on asset sales: $500 gain on stock held 11 months; a $2,300 gain on land held two years; $1,900 loss on gold coins held two years; $1,200 gain on antique toys
A single taxpayer has $158,000 of ordinary taxable income in 2018 (after his standard deduction but before consideration of the following recognized gains), a $9,000 long-term capital gain on the
What are the maximum tax rates that apply to a single individual’s $20,000 long-term capital gain on corporate stocks if total taxable income in 2018 isa. $30,000?b. $230,000?c. $450,000?d. How
Geraldine is single with $165,000 ordinary income that is taxed at a marginal tax rate of 32 percent after a number of transactions involving taxable gains and losses on several types of capital
Al Shalou, a single individual, had $170,000 of salary income in 2018 and also had a number of taxable gains and losses on his property transactions during the year with the following results:a.
Clarice became very ill in August of 2018 and was unable to work the rest of the year. She had only $30,000 of income from her job for the time she worked and was forced to sell the following
Barbara sold three assets during 2018. How much and what kind of gain or loss does she recognize from each sale? What tax rate applies to the net gain if Barbara is a single individual with $160,000
Taylor bought 10,000 shares of qualifying Section 1202 stock from a start-up company A on May 1, 2012 for $1,000,000 and 5,000 shares of Section 1202 stock from start-up company B on June 1, 2014 for
In January 2009, Daniel bought some qualified small business stock for $2,000,000. In the current year, he sells that stock for $13,000,000. How much and what kind of gain or loss does he have? How
Juno Corporation had ordinary taxable income of $167,000 in the current year before consideration of any of the following property transactions. It sold two blocks of stock held for investment. One
What is the potential advantage to having a substantial investment in stock in a qualified small business corporation rather than an equal investment in other corporate stock not meeting their
How are assets classified to determine their tax treatment on disposition? What are other ways to classify assets?
Mason is single and the original shareholder of 1,000 shares of Section 1244 stock in Miles Corporation acquired four years ago. He has a basis of $65,000 in the stock. The stock has significantly
Jonathon sells the computer that he used 75 percent for business and 25 percent for personal purposes for $1,200. The computer cost $4,000 and the allowable depreciation on the computer is $2,200.
Trendy Corporation has a net short-term capital loss of $9,000 and a net long-term capital loss of $14,000 in year 5. Trendy Corporation cana. Deduct $3,000 of the short-term capital loss from its
A taxpayer has the following gains and losses from property transactions in the current year:$40,000.......................Section 1231 gain$25,000....................... Section 1231
Vera has three assets she plans to sell. The first is her personal automobile that is seven years old; the second is a truck used in her business for 11 months; and the third is some land that she
Maria Sanchez, the sole proprietor of a consulting business, has gross receipts of $720,000 for 2017. Expenses paid by her business are:Advertising
Go to the IRS website at www.irs.gov and print Form 4562. Using the following information, complete this form to the extent possible. Barclays Corporation, a calendar-year taxpayer, had taxable
Identify the issues or problems suggested by the following situations. State each issue as a question.Monicon Corporation purchased a $24,000 computer in 2015 and elected to expense it under Section
Identify the issues or problems suggested by the following situations. State each issue as a question.Demark Corporation took delivery of a new machine on December 31, 2018. Due to the high number of
Identify the issues or problems suggested by the following situations. State each issue as a question.James Corporation had a net operating loss of $30,000 before claiming any depreciation
Go to the IRS website at www.irs.gov and locate Publication 946: How to Depreciate Property. Locate the section on where amortization is reported. On what form is amortization reported? On which part
Go to the IRS website at www.irs.gov and locate Publication 946: How to Depreciate Property. Locate the depreciation tables at the end of the publication and calculate the first-year depreciation for
Bing Corporation can buy a new car for business use for $40,000 (including tax, license, and title fees) or it can lease an identical car for $450 per month, paying $2,100 up front for tax, license,
Jennifer, age 35, is single and an active participant in her employer’s qualified retirement plan. Compute the maximum Roth IRA contribution that she can make in 2018 ifa. her adjusted gross income
Herald Corporation, a calendar-year taxpayer, purchased the following business assets:a. If these assets were placed in service in 2017, what is Herald Corporation’s depreciation deduction for 2017
Roman Corporation (a calendar-year corporation) purchased and placed in service the following assets in 2017:$60,000 of the cost of the warehouse property is for the land.a. What is Roman
Arco Corporation acquired some heavy equipment mid-year (in addition to the $2,600,000 in equipment purchased in January of this year). The new equipment is 7-year class property, but Arco expects to
Robert Lento, the sole proprietor of a consulting business, has gross receipts of $600,000 in 2018. Expenses paid by his business areAdvertising
Zenon Corporation (a calendar-year corporation) began work on a new experimental project in year 1. It incurred $8,000 in qualifying research expenses in year 1 and $11,000 in year 2. The benefits
Jillian is an employee of Monrow Corporation (a calendar-year corporation). In February 2018, Monrow purchased a new $50,000 car for Jillian’s use. During 2018 and 2019, 60 percent of Jillian’s
On June 26, 2016, Elaine purchased and placed into service a new computer system costing $8,000. The computer system was used 80 percent for business and 20 percent for personal use in both 2016 and
Karen is an employee of KF Corporation (a calendar-year taxpayer). In February 2017, KF purchased a new $40,000 car for Karen’s use. During 2017, 2018, and 2019, 60 percent of Karen’s mileage on
McDowell Corporation (a calendar-year corporation) purchased and placed in service in 2017 a $25,000 new automobile on August 15, $300,000 of new furniture on September 1, and a $680,000 warehouse
Nicko Corporation (a calendar-year corporation) purchased a new machine (7-year property) in July 2015 for $20,000. Nicko did not elect Section 179 for this asset but did claim 50 percent bonus
In August, 2017 Jimbo Corporation (a calendar-year corporation) purchased used computer equipment for $665,000, the only assets Jimbo purchased this year. Jimbo Corporation was in the 34 percent
David operates his business as a sole proprietorship. In 2017, he spends $20,000 for a used machine (7-year property). His business income, before consideration of any Section 179 deduction, is
On March 1, 2017 Harry Corporation (a calendar-year taxpayer) purchased and placed in service office furniture costing $550,000. Compute the maximum amount Harry Corporation could elect to expense
Corando Corporation (a calendar-year taxpayer) purchased $850,000 of factory equipment in April 2018. Determine the maximum depreciation deduction for the equipment for 2018.
Kondar Corporation (a calendar-year taxpayer) spent $2,090,000 to purchase used machinery in February 2017. It elected to expense the maximum under Section 179. What is Kondar’s total depreciation
In July 2017, Lenux Corporation (a calendar-year taxpayer) purchased $2,140,000 of new office furniture. Lenux claimed the maximum allowable Section 179 expensing and regular MACRS depreciation (but
Willis Corporation (a calendar-year corporation) purchased $550,000 of machinery (7-year property) on August 1, 2018. No other property was acquired in 2018. What is the maximum depreciation expense
Craig Corporation (a calendar-year corporation) purchased $3,000,000 of office furniture in April. It would like to know what is its reduction in depreciation expense for the first three years if it
At the beginning of 2018, AB Corporation (a calendar-year corporation) owned the following assets:On February 1, 2018, AB sold its office furniture. On March 15, 2018, AB sold its computer equipment.
Azona Corporation (a calendar-year taxpayer) purchased only one business asset during the year, 7-year used property that cost $2,600,000. Compute Azona’s depreciation for 2017 assuming that bonus
In 2015, Chris purchased a machine (7-year property) that cost $20,000 for use in his sole proprietorship. He claimed only regular MACRS depreciation (no Section 179 expensing or bonus depreciation)
Blanco Corporation (a calendar-year taxpayer) purchased $2,200,000 of used manufacturing equipment in July, $400,000 of used computer equipment in August, and an office building for $850,000 (of
Mark wants to purchase a new luxury sedan for $70,000 for use exclusively in his business. The car salesman told Mark that he could expense the entire cost in the first-year. Is he correct? Explain
Carl purchased a Jaguar automobile for $90,000 to use exclusively in his business. He boasts that he can recover his cost through MACRS depreciation deductions over five years. What restrictions
What is listed property? Explain how the change to listed property affects computers purchased in 2018.
Delta Corporation purchased three assets during 2017: a new automobile costing $60,000 acquired in April, used office furniture costing $600,000 acquired in July, and a warehouse costing $850,000 (of
In May 2017, Jose purchased a used automobile for $12,000 and used it 75 percent for business. No Section 179 election was made for this asset. In 2018, Jose’s business use of the automobile
On October 2, 2018 Bedrock Corporation (a calendar-year corporation) acquired and placed into service 7-year used business equipment costing $5,900,000. It made no other acquisitions during the year.
Probest Corporation (a calendar-year corporation) purchased and placed the following assets in service during 2018:All assets are used 100 percent for business. $100,000 of the cost of the warehouse
Ricardo purchased a personal computer for $3,000 two years ago that is currently worth $1,000. He used the computer exclusively for personal use until the current year, when he began using it
Maria received Mega Corporation stock as a gift from her Uncle Glen two years ago when its fair market value was $90,000. Glen paid $60,000 for the stock five years ago, and he paid $3,000 in gift
Jordan (SSN 150-66-7788) and Diana (SSN 150-67-4321) Diego are a married couple who reside at 111 Coral Drive in Miami, FL 33156. They have one dependent daughter, Emily (SSN 155-88-4321), age 18,
Comprehensive Problem for Chapters 4 and 6. Go to the IRS website (www.irs.gov) and print Schedule C: Profit or Loss for Business (Sole Proprietorship), Schedule SE: Self-Employment Tax, and Form
Go to the IRS website (www.irs.gov) and print Form 2106: Employee Business Expenses for 2017. Use the following information to complete this form. Carl is an employee of Intelligent Devices, Inc. in
Go to the IRS website (www.irs.gov) and locate the publication on travel. Julie plans to attend a business convention in Costa Rica. Her friend told her that she cannot deduct expenses for attending
These questions require answers that are beyond the material that is covered in this chapter.Effective 2018, Congress reduced the progressive corporate income tax rates to a flat rate of 21 percent.
Kondex, a cash-basis sole proprietorsip, is considering paying $50,000 of expenses at the end of this year rather than waiting until next year. The owner of Kondex has a marginal tax rate for the
Barley Corporation used the FIFO method for inventory valuation when it began operations because this reflected the true physical flow of inventory. Its inventory under FIFO is valued at $375,000 at
Sorbon Corporation pays federal income tax at a 21 percent rate. In year 1, Sorbon deducts $80,000 as bad debt expense in computing its book income but deducts only $70,000 for bad debt expense on
John is a teacher at a local high school. During 2017 and 2018, he travels three days per week to a school in the next county to work with gifted children in an after-school program that does not end
Jim, a self-employed individual, takes an important customer to the hockey playoffs. Although the face value of a ticket is only $70, he pays a scalper $400 for each ticket. How much can Jim deduct
Elisa spends $1,000 to entertain her customers at the local country club. The club charges an annual membership fee of $800. Elisa uses the facility 80 percent of the time for business. Her employer
Mary, a taxpayer in the 35 percent marginal tax bracket, borrows $500,000 at 10 percent interest to invest in 7 percent tax-exempt municipal bonds. The annual interest expense on the loan is $50,000.
Stadler Corporation’s federal income tax rate is 21 percent. It reports $100,000 depreciation expense on its financial statements and deducts $140,000 depreciation expense on its tax return. How
Esslinger Corporation has income per books before tax of $300,000. Included in the income per books is $4,000 interest income from tax-exempt municipal bonds. Esslinger also deducted $20,000 for
Howard, a self-employed consultant, uses one room in his home exclusively and regularly for his home office. The office occupies 360 square feet of floor space in the 2,400 square foot home.
Which of the following items is not deductible?a. Dues for club used solely for business meetingsb. Business meals while travelingc. Fire insurance premiums for office buildingd. Dues for
On October 1, Pembroke Inc. (a cash-basis, calendar-year corporation) borrowed $60,000 from the bank at 12 percent annual interest. On December 30, Pembroke pays $7,200 to the bank for the first
Jose (SSN 150-45-6789) and Rosanna (SSN 123-45-7890) Martinez are a married couple who reside at 1234 University Drive in Coral Gables, FL 33146. They have two children: Carmen, age 19 (SSN
Janice Morgan is 17 and in her senior year of high school. She lives with her parents at 7829 Dowry Lane, Boston, MA 02112, and they are her primary source of support and claim her as a dependent.
Identify the issues or problems suggested by the following situations. State each issue as a question.Gillian and Paul are married and have a son who is a sophomore at the local university. In the
Sharon has not worked outside the home since her first child was born five years ago and the younger of her two children is now three. She thinks they are old enough to go to a day care center so she
Lauren is single, age 60, and has an annual salary of $120,000. She paid off her mortgage in December 2017 but expects that her annual real estate taxes will continue to be approximately $10,000.
Jennifer and Jason Greco are married and file a joint tax return. Their two dependent children (Jim, age 14 and Jessica, age 16); both live at home. The Grecos have the following income and

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