Questions and Answers of Taxation Decision Makers

Comprehensive Problem: Kelly Martin is divorced; her child, Barbara, lives with her and is her dependent. Kelly has the following items of income and
Which of the following individuals must file a tax return in 2018?a. Carolyn is single and age 66. She receives $2,000 of interest income, $3,000 of dividend income, and $6,000 in Social Security
Noah, a single parent, has a gross income tax liability of $8,000. He made estimated tax payments of $5,900 during the year. Noah also determined that he is entitled to claim a child tax credit of
Jennifer, a single individual, has a $20,000 loss from an S corporation, $11,000 salary from a part-time job, and $2,000 of interest income. Her itemized deductions include $8,000 interest on the
Michelle, a single individual, reports 2018 adjusted gross income of $210,000 and has paid for the following expenses:Medical expenses
During 2018, Raymond, a single individual, earned a salary of $196,000. He also had the following items of investment income: $40,000 net short-term capital gain on sale of stock, $7,000 dividend
Lenora and Sam are married and file a joint tax return. Lenora has $180,000 in salary and Sam has $190,000 in self-employment income in 2018. How much must they pay for their additional Medicare
Andrew, a single individual, has $220,000 in salary and $60,000 in self-employment income in 2018. How much must he pay for his additional Medicare surtax?
Linda received $90,000 in salary income for 2018. She has no dependents. Determine her income tax liability under each of the following independent situations:a. She files as a single individual.b.
Roland worked for Sorbonne Company for the first four months of 2018 and earned $40,000 from which his employer withheld $3,060 for payroll taxes. In May, Roland accepted a job with Lyon Company.
Doris is a single individual with modified AGI of $58,000. During the year, she paid $11,000 tuition for a master’s in taxation program. How much can Doris claim for the lifetime learning credit
Greg and Barbara, a married couple with an AGI of $80,000, have three children who are full-time college students. They pay $6,000 for tuition annually for each child. One son is a sophomore in
Maria and Roberto are married with two dependent children ages 9 and 11. Their AGI for 2018 is $418,000. How much can they claim for the child tax credit?
Cindy files as head of household and has three dependent children ages 12, 14, and 16. Her AGI is $205,000 for 2018. How much can Cindy claim for the child tax credit?
Mark and Patricia report adjusted gross income of $410,000 and itemized deductions of $31,000 for the interest on their home acquisition mortgage (principal amount of $890,000 acquired in 2015),
Justin is single and has taxable income of $190,000 of which $140,000 is attributable to his consulting sole proprietorship. He paid W-2 wages to his employees of $60,000.a. What is Justin’s
Rich is single and has taxable income of $510,000. As a 30% partner in a partnership that produces $850,000 ordinary income from manufacturing a product, his share of partnership income is $255,000.
Scott is 15 years old and qualifies as a dependent of his parents. During 2018 he earns $2,500 from a part-time job and also receives $800 of dividend income on stock given to him by his aunt. What
Mario and Kaitlin are married and file a joint tax return. They have adjusted gross income of $385,000 that includes $4,700 of investment income ($3,000 short-term capital gains and $1,700 of
Michael’s adjusted gross income for 2018 is $90,000. He is age 30 and single. What is Michael’s taxable income?
Edward is single with income that places him in the 35 percent marginal tax bracket for ordinary income and 15 percent for long-term capital gains. He incurs interest expense of $10,000 attributable
Rebecca and Gregory, a married couple filing a joint return, reported adjusted gross income of $70,000 and total allowable itemized deductions of $24,900, including $3,100 for state income taxes, in
Daniel’s adjusted gross income is $90,000. During the year he incurred $18,000 of medical expenses and was reimbursed for $3,000 of these expenses. What is his allowable medical expense deduction
Lynn, age 66, is an unmarried individual who has a dependent grandchild who lives with her. What is Lynn’s standard deduction for 2018?
Harry and Silvia, a married couple, are both age 67 and legally blind. What is their standard deduction for 2018?
Cecilia is married and files a joint return with her husband, Steve. They have modified adjusted gross income of $145,000 for 2018. Cecilia paid $2,700 in student loan interest this year. How much of
How do alternative minimum tax itemized deductions differ from the regular income tax itemized deductions?
How do alternative minimum tax rates compare to the regular income tax rates?
Compare similarities and differences of the American opportunity tax credit and the lifetime learning credit.
Explain the gross income test to qualify as a dependent.
Compare the requirements to be considered a dependent for a qualifying child and a qualifying relative.
If the dependency exemption deduction for claiming children as dependents on their parents’ tax return has been eliminated, then what is the purpose of preserving the rules for determining who is a
Explain the deduction that was allowed prior to 2018 if a taxpayer claimed someone as a dependent. Which relatives could qualify for this deduction and which relatives did not qualify? When will this
What is the purpose of the qualified business income deduction? Explain how it is calculated.Explain the deduction that was allowed prior to 2018 if a taxpayer claimed someone as a dependent. Which
What changes were made to the individual tax model for 2018; that is, what was added and what was eliminated?
Donna, a single individual with no dependents, reports AGI of $100,000. She also reports the following itemized deductions:Medical expenses ($11,000 total – 7.5% of AGI)
Lynn and Dave, a married couple, have AGI of $300,000 in 2018 and report the following itemized deductions before deducting any floors that may apply:Interest on their home acquisition mortgage
George and Laura, a married couple with an adjusted gross income of $100,000, made the following contributions to qualified charitable organizations:• $8,000 cash given to State University.• Used
Maria, age 12, is a dependent of her parents. Her gross income consists solely of $2,800 in taxable dividends. What is Maria’s taxable income?a. $2,800b. $1,800c. $1,750d. $0
Tony and Anita are married and file a joint tax return. They provide more than half the support for their daughter (age 16) who had gross income of $4,100 and their nephew (Tony’s deceased
Go to www.irs.gov and print Form 1040 and Schedule SE. Complete the first page of Form 1040 and Schedule SE for Angelina Carlyle who is single. She reports $195,000 of net profit on her Schedule C
Evan is setting up a new business. He can operate the business as a sole proprietorship or he can incorporate as a regular C corporation or as an S corporation. He expects that the business will have
Robert, age 55, plans to retire when he reaches age 65. He is not currently an active participant in any qualified retirement plan. His budget will allow him to contribute no more than $3,000 of his
William, an employee for Williamson Corporation, receives an annual salary of $120,000 and is in the 24 percent marginal tax bracket. He is eligible to contribute to Williamson’s 401(k) plan and
Maria, age 42, just resigned from Bygone Corporation to accept a new job with Future, Inc. Bygone informed Maria that she has a $38,000 balance in its qualified retirement plan and wants to know if
Melinda has been offered two competing employment contracts for the next two years. Argus Corporation will pay her a $75,000 salary in both years 1 and 2. Dynamic Corporation will pay Melinda a
Luis operates a bakery as a sole proprietorship which generated $280,000 in net income. He has four bakers whom he employs on a full-time basis and who participate in a company-paid health insurance
Melissa has $90,000 in salary from her full-time position and $40,000 in net income in 2018 from consulting as an independent contractor. What is her self-employment tax? What portion of this can she
George has $91,700 in salary from his full-time position and $43,000 in net income in 2018 from his sole proprietorship. What is his self-employment tax? What portion of this can he deduct?
Sarah owns a business that she operates as a sole proprietorship. The business had a netprofit of $130,000 in 2018. This is Sarah’s only earned income.a. How much must she pay for self-employment
Carrie owns a business that she operates as a sole proprietorship. The business had a net profit of $25,000 in 2018. This is Carrie’s only earned income.a. How much must she pay for self-employment
In 2018, Elizabeth and Daniel (both age 40), a married couple with AGI of $118,000, file a joint tax return. They each contributed $5,500 to their IRAs.a. How much can they deduct if they are both
Nick, age 53, is single and has AGI of $67,000. He contributes $5,000 to his IRA in 2018.a. How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan?b. How
Charlie, who is in the 37 percent marginal tax bracket, is the president and sole owner of Charlie Corporation (a C corporation in the 21 percent tax bracket). His current salary is $700,000 per
Rebecca is single and an employee of Grand Corporation. In 2018 Rebecca’s salary was $190,000 and she earned a bonus of $45,000.a. How much in Social Security and Medicare taxes must be paid by
Melissa is an employee of Largo Corporation. In 2018 Melissa’s salary was $120,000 and she earned a bonus of $24,000.a. How much in Social Security and Medicare taxes must be paid by Largo
Helen is an employee of Keys Corporation. In 2018 Helen earned a salary of $100,000.a. How much in Social Security and Medicare taxes must be paid by Keys Corporation and how much of these taxes can
During 2018, Robin has net income from his sole proprietorship of $25,000. He also earned $109,900 as an employee in 2018. How much must Robin pay for self-employment tax?a. $2,137b. $2,788c.
In year 1, Incentive Corporation grants Jessica, an employee, an ISO to buy 1,000 shares of Incentive stock for $28 per share at any time during the next seven years. On the grant date, Incentive
Mike received two job offers. Friendly Corporation would like to hire him as an employee at a salary of $50,000 and would pay the premiums for comprehensive medical insurance. Micro Corporation would
Martha, an employee of Beneficial Corporation, receives annual salary of $60,000. Beneficial has a cafeteria plan that allows all employees to select an amount equal to 7 percent of their annual
Sarah, a cash-basis, calendar-year individual, is the president of SRS Corporation and owns 80 percent of its stock. SRS is an accrual-basis, calendar-year C corporation. In December year 1, SRS
Identify the issues or problems suggested by the following situations. State each issue as a question.Jason owns a computer repair shop. Jason needs some repair work done on his company car, so he
These questions require answers that are beyond the material that is covered in this chapter.On O’s Favorite Giveaway Show, the host gave 100 audience members debit cards, each one for $16,000,
Kevin and Elizabeth are negotiating a divorce settlement. Kevin is in the 35 percent marginal tax bracket and Elizabeth is in the 12 percent marginal tax bracket. Kevin has offered to pay Elizabeth
Sandra, a single taxpayer in the 37 percent marginal tax bracket, has $60,000 she can invest in either corporate bonds with a stated interest rate of 9 percent or general revenue bonds issued by her
Justin’s 24-year-old son, Carlos, is a full-time student. In April 2018, Justin gave Carlos 450 shares of Striker Oil stock. Justin purchased the stock 8 months earlier at $18 per share. On the
Krystyna, a single individual, invested $20,000 in corporate bonds with a stated interest rate of 5 percent and another $20,000 in tax-exempt municipal bonds issued for governmental activities with a
Jessica has $10,000 invested in corporate bonds with a stated interest rate of 7 percent and $10,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of
Mac’s 24-year-old daughter, Alana, is a full-time student. In 2018, Mac gives Alana 600 shares of Highgrowth stock. Mac purchased the stock 10 months ago at $20 per share. On the gift date, the
At the end of October, year 1, Dunbar Corporation hired Specialty Training, an accrualbasis, calendar-year S corporation, to provide a six-week training program for its employees. Dunbar paid
Chet, a cash-basis, calendar-year sole proprietor, repairs the computer system in his dentist’s office. On December 10, 2018, he sends the dentist a bill for $600 and records the account
Cindy was awarded a $6,000 scholarship to attend the state university. She spent $4,000 for tuition, $500 for required textbooks, and $1,500 for room and board. She works part-time on campus earning
Marilyn received the following in the current year:Alimony (from a divorce decree finalized in 2017)........................$12,000Child
Elio (age 66) is retired. His wife, Mary (age 64) works part-time. They have income from the following sources and plan to file a joint tax return.Mary’s
Kevin owes his gardener $100. After several unsuccessful attempts to collect the debt, the gardener notifies Kevin that the debt is forgiven and that he will continue as gardener only if he is paid
Jason receives semiannual annuity checks of $4,500. Jason purchased the annuity five years ago for $110,000 when his expected return under the annuity was $200,000. How much of Jason’s total
Identify the tax issues or problems suggested by the following situations. State each issue as a question.On his 2013 tax return, Stewart inadvertently overstates deductions in excess of 25 percent
Identify the tax issues or problems suggested by the following situations. State each issue as a question.Jennifer did not file a tax return for 2007 because she honestly believed that no tax was
Go to the IRS site (www.irs.gov) and search for “Circular No. 230.” Download a copy of Treasury Circular 230: Regulations Governing Practice before the Internal Revenue Service.a. Read §10.33
Go to www.irs.gov (the IRS website) and locate Publication 971: Innocent Spouse Relief. What form must be filed to request innocent spouse relief?
Go to www.irs.gov (the IRS website) and click on Careers under Work at IRS. Look under Resources, then under Job Descriptions, and finally look under Accounting, Budget & Finance to learn more
When Keith created a new corporation as the sole shareholder, he was advised by his accountant to treat 50 percent of the amount invested as a loan and 50 percent as a purchase of stock. Explain the
The manager at Striker Corporation can hire either Ken, a marketing student, who will do research on a marketing plan, or Lisa, a tax student, who will research tax strategies to reduce corporate
Richard plans to invest $100,000 for a 50 percent interest in a small business. His friend, Jack, will also invest $100,000 for the remaining 50 percent interest. They expect to generate a 10 percent
Jessica plans to invest $150,000 in a second business. She expects to generate a 12 percent before-tax return on her investment the first year. Her marginal tax rate is 32 percent due to the income
Kimo Company is a cash-basis, calendar-year sole proprietorship. The owner, Karina, is in the 24 percent marginal tax bracket this year. Kimo owes a $15,000 expense that it may pay before the end of
Monico Company is a cash-basis, calendar-year sole proprietorship. The owner, Rob, is in the 32 percent marginal tax bracket this year. If Monico bills its customers at the beginning of December, it
The 4,000 shares of Medco stock that Diana purchased 11½ months ago for $12 per share are now trading at $19 per share. Diana’s regular marginal tax rate is 32 percent and her tax rate for
Cynthia and Howard, married taxpayers filing a joint return, have $100,000 in taxable income in 2018. They have 4 children (ages 4 through 12) who have no income that is taxable. If they can legally
Thomas received $30,000 in a legal settlement in 2018. The tax treatment of the item is not certain. Thomas’s research results were ambiguous and he is not sure if the income is taxable. Because
Alison accidentally omitted $40,000 of gross income from the restaurant she owned on her 2017 tax return. The return showed gross income of $150,000 when filed on October 15, 2018. When can the IRS
Kevin deliberately omitted $40,000 of gross income from his restaurant on his 2018 tax return. The return indicated gross income of $200,000 when filed on April 14, 2019. When can the IRS no longer
Denise files her 2018 tax return on February 4, 2019. If there is no material understatement of income on her return and the return is properly signed and filed, when does the statute of limitations
What uniquely numbered part of the Internal Revenue Code does a tax researcher usually cite?
Describe the basic steps in performing tax research.
Maria is a single individual with taxable income of $75,000 in 2018. What marginal tax rate should she use to determine the tax savings from a $2,000 deductible expense?
Statement on Standards for Tax Services No. 4 states that a CPA may use estimates in completing a tax return. When would using estimates be appropriate in tax return preparation?
Your client, Teresa, claimed a deduction that the IRS agent disallowed upon audit. Teresa received a 30-day letter notifying her of the proposed additional tax liability of $1,050. Teresa is very
Regarding the Small Case Division of the Tax Court, which of the following statements is correct?a. The IRS (but not the taxpayer) can appeal an adverse judgment.b. The taxpayer (but not the IRS) can

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