Taxation For Decision Makers 2019 9th Edition Shirley Dennis Escoffier, Karen A. Fortin - Solutions

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 should Stadler account for the difference between its federal tax liability and its book tax expense
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 business meal expenses, $3,000 for premiums on officers’ life insurance policies (the corporationis
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. Howard’s gross income from his business is $10,000. Expenses of his business (other than home office
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 professional association
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 year’s interest on the loan. What is Pembroke’s interest expense deduction in the current year?a.
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 234-65-4321), and Greg, age 10 (SSN 234-65-5432). Carmen is a full-time student at the local university; she
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. She is covered under their health insurance plan. Her Social Security number is 988-77-6543. She
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 current year, they paid $5,000 for tuition and $3,000 for room and board for him. Their adjusted gross
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 can return to work. Sharon received two job offers. Mahalo Company offered her a salary of $19,000
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. Lauren contributes $3,000 each year to her favorite qualified charities but she has no other itemized
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 expenses:Income:Jennifer’s salary
Comprehensive Problem: Kelly Martin is divorced; her child, Barbara, lives with her and is her dependent. Kelly has the following items of income and expense:Income:Salary.................................................................................................................$58,000Cash
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 benefits.b. Tim is single, age 18, and a full-time student. He is a dependent of his parents. Tim
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 $2,000. What is Noah’s tax due?
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 $200,000 principal on her home acquisition mortgage, $2,800 in taxes, and $2,500 in
Michelle, a single individual, reports 2018 adjusted gross income of $210,000 and has paid for the following expenses:Medical expenses ............................................................................................................................$18,000Interest on home acquisition
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 income, $5,000 interest income from corporate bonds, and $4,000 interest income from tax-exempt
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 surtax?
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. She is married and files a joint return with her spouse. Their only income is her $90,000 salary.c.
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. During the last eight months of the year, Roland earned $94,000 from which Lyon withheld $7,191 for
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 for 2018?
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 college and the other son is a senior. Their daughter is a graduate student. How much can Greg and
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), $14,000 in state and local taxes, and $38,000 in charitable contributions. They file a joint income tax
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 qualified business income deduction?b. How would your answer change if Justin’s taxable income was
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. The partnership paid $250,000 of W-2 wages and the total un-adjusted basis of tangible depreciable
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 is Scott’s taxable income?
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 corporate bond interest). They paid the following expenses for the year:Unreimbursed medical expenses
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 to his investment in stocks and bonds. His gross investment income is $6,200 ($1,000 of which is
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 2018. They received a $1,000 refund of state income taxes in April 2019. How much of the state
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 if he is age 45, single, and itemizes? If this is Daniel’s only itemized deduction, should he
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 this interest is deductible?
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 dependent?
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 deduction be reinstated?
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 relatives could qualify for this deduction and which relatives did not qualify? When will this
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) ....................................................................$3,500Interest on her home acquisition mortgage ($250,000
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 ($750,000 principal amount) ..........................$32,000Taxes
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 personal clothing, acquired within the last two years for $6,000, donated to Goodwill. Its current
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 brother’s child) who is 17 and lives with them. He had gross income of $3,400. Both the daughter and the
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 from her sole proprietorship and $2,000 of taxable interest income. Her SSN is 167-88- 5544 and her
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 gross income of $130,000 in the first year with expenses of $25,000 excluding the following. He
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 income before taxes to either a traditional IRA or a Roth IRA to provide retirement income. 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 could contribute the pretax amount of $12,000. Alternatively, he could contribute only $6,000 to the
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 she plans to roll over this balance into another plan or prefers to receive a lump-sum payment. Maria
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 $100,000 salary in year 1 and a $49,000 salary in year 2. Melinda expects to be in the 24 percent
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 plan. Luis is also covered by this same plan. The annual premiums are $2,300 per person. The
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 deduct?
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 taxes?b. How much can she deduct on her tax return?
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 taxes?b. How much can she deduct on her tax return?c. If the business had a net loss of $10,000
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 active participants in qualified retirement plans?b. How much can they deduct if Elizabeth is not an
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 much can Nick deduct if he is covered by an employer-sponsored qualified retirement plan?
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 year. What are the income and FICA tax consequences if the IRS determines that $200,000 of his salary is
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 Grand Corporation and how much of these taxes can it deduct?b. How much Social Security and Medicare
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 Corporation and how much of these taxes can it deduct?b. How much Social Security and Medicare taxes are
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 it deduct?b. How much Social Security and Medicare taxes are paid by Helen?
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. $2,964d. $3,825
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 stock is selling for $26 per share. In year 5, when the stock is selling for $38 per share, Jessica
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 like to hire him as an independent contractor. Mike would earn $55,000 annually in consulting fees
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 salary from a menu of nontaxable fringe benefits or receive the cash. Martha selects $45,000 of group
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 Corporation accrued a $50,000 bonus payable to Sarah and $120,000 in bonuses payable to other employees.
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 agrees to repair the computer at Bob’s Auto Repairs in exchange for fixing the car.
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, with the stipulation that the audience members donate the money to their favorite charitable cause
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 $15,000 each year for 10 years; payments would cease if Elizabeth dies before the end of the 10-year
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 municipality with a stated interest rate of 6 percent. What do you recommend she do? Would your
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 gift date, the stock was worth $31 per share. After the gift, Striker Oil declared and paid a $200
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 stated interest rate of 4.75 percent. Calculate her after-tax cash flow from each investment if: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 5.5 percent. Calculate her after-tax cash flow from each investment if:a. her marginal tax rate is 12
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 stock is worth $35 per share. After the gift, High growth declares and pays a $170 dividend to Alana.
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 Specialty its full training fee of $30,000 on the first day of training. After five weeks of training
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 receivable. In January 2019, Chet accepts dental work worth $575 in full payment of the bill. How much and in
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 $5,000, which covers the balance of her room and board and other expenses. How much must Cindy
Marilyn received the following in the current year:Alimony (from a divorce decree finalized in 2017)........................$12,000Child support..........................................................................................8,000Interest income from corporate
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 cash in advance. How much of the $100 forgiveness should Kevin report as gross income?a. $100b. $50c.
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 annual payment is a nontaxable return of capital?a. $9,000b. $4,950c. $4,050d. Zero
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 of the adjusted gross income on his return. In 2018, the IRS audits Stewart and the agent proposes a
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 due. In 2018, the IRS audits Jennifer and the agent proposes a deficiency of $500.
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 and then list four best practices for tax advisors.b. Read §10.37 regarding requirements for written
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 about Internal Revenue Agent positions. a. If you are a recent college graduate, how many hours
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 advantages and disadvantages of this structure rather than a 100 percent stock purchase?
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 taxes. If she hires Ken, his wages and benefits will total $5,600 (all tax-deductible expenses).
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 before-tax return on their investment the first year. Richard’s marginal tax rate is 24 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 from her other business. She needs to decide whether to establish this second business as a sole
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 this year or in January of next year.a. If Karina expects her marginal tax rate to be 24 percent
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 will receive $5,000 of income prior to year-end. If it bills its customers at the end of December,
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 long-term capital gains is 15 percent.a. What is Diana’s after-tax net cash flow from the sale if she

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Taxation For Decision Makers 2019 9th Edition Shirley Dennis Escoffier, Karen A. Fortin - Solutions

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