Questions and Answers of Taxation of Business Entities

Leslie participates in IBO’s non-qualified deferred compensation plan.For 2018, she is deferring 10 percent of her $300,000 annual salary.Based on her deemed investment choice, Leslie expects to
Paris participates in her employer’s non-qualified deferred compensation plan. For 2018, she is deferring 10 percent of her $320,000 annual salary.Assuming this is her only source of income and her
Marissa participates in her employer’s non-qualified deferred compensation plan. For 2018, she is deferring 10 percent of her $320,000 annual salary.Assuming this is her only source of income and
In 2018, Nitai (age 40) contributes 10 percent of his $100,000 annual salary to a Roth 401(k) account sponsored by his employer, AY Inc.AY Inc., matches employee contributions to the employee’s
Kathleen, age 56, works for MH, Inc. in Dallas, TX.Kathleen contributes to a Roth 401(k) and MH contributes to a traditional 401(k) on her behalf.Kathleen has contributed $30,000 to her Roth 401(k)
In 2018, Nina contributes 10 percent of her $100,000 annual salary to her 401(k) account.She expects to earn a 7 percent before-tax rate of return. Assuming she leaves this (and any employer
In 2018, Maggy (34 years old)is an employee of YBU Corp. YBU provides a 401(k) plan for all its employees.According to the terms of the plan, YBU contributes 50 cents for every dollar the employee
Matthew (48 at year-end) develops cutting-edge technology for SV, Inc. located in Silicon Valley.In 2018, Matthew participates in SV’s money purchase pension plan (a defined contribution plan) and
Tim has worked for one employer his entire career.While he was working, he participated in the employer’s defined contribution plan [traditional 401(k)].At the end of 2018, Tim retires. The balance
Alicia has been working for JMM Corp. for 32 years.Alicia participates in JMM’s defined benefit plan.Under the plan, for every year of service for JMM she is to receive 2 percent of the average
Deductions for traditional IRAs and contributions to Roth IRAs are phased out based on modified AGI (MAGI). In general terms how does MAGI for purposes of determining the traditional IRA deduction
From a tax perspective, what issues does an employee need to consider in deciding whether to defer compensation under a non-qualified deferred compensation plan or to receive it immediately?
In the current year, Jill, age 35, received a job offer with two alternative compensation packages to choose from. The first package offers her $90,000 annual salary with no qualified fringe
Sylvana is given a job offer with two alternative compensation packages to choose from. The first package offers her $250,000 annual salary with no qualified fringe benefits. The second package
Santini’snew contract for 2018 indicates the following compensation and benefits: Benefit DescriptionAmountSalary$130,000Health insurance$9,000Restricted stock granted$2,500Bonus$5,000Hawaii
LaMont works for a company in downtown Chicago. The company encourages employees to use public transportation (to save the environment) by providing them with transit passes at a cost of $265 per
Seiko’s current salary is $85,000. Her marginal tax rate is 32 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an Idaho Office
Nicole’s employer, Poe Corporation, provides her with an automobile allowance of $20,000 every other year. Her marginal tax rate is 32 percent. Poe Corporation has a marginal tax rate of 21
On January 1, year 1, Jessica received 10,000 shares of restricted stock from her employer, Rocket Corporation. On that date, the stock price was $10 per share. On receiving the restricted stock,
On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. On receiving the restricted stock, Dave made
On January 1, year 1, Dave received 1,000 shares of restricted stock from his employer, RRK Corporation. On that date, the stock price was $7 per share. Dave’s restricted shares will vest at the
Harmer Inc. is now a successful company. In the early days (before it became profitable), it issued incentive stock options (ISOs) to its employees. Now Harmer is trying to decide whether to issue
Antonio received 40 ISOs at the time he started working for Zorro Corporation six years ago (each option gives him the right to purchase 20 shares of Zorro stock for $3 per share). Zorro’s share
Mark received 10 ISOs at the time he started working for Hendricks Corporation five years ago when Hendricks’s price was $5 per share (each option gives him the right to purchase 10 shares of
Haven received 200 NQOs (each option gives him the right to purchase 20 shares of Barlow Corporation stock for $7 per share) at the time he started working for Barlow Corporation three years ago when
Cammie received 100 NQOs (each option provides a right to purchase 10 shares of MNL stock for $10 per share) at the time she started working for MNL Corporation (5/1/Y1) four years ago when MNL’s
Marcus is the CEO of publicly traded ABC Corporation and earns a salary of $1,500,000. Assume ABC has a 21 percent marginal tax rate.What is ABC’s after-tax cost of paying Marcus’s salary?
Lynette is the CEO of publicly traded TTT Corporation and earns a salary of $200,000 in the current year. Assume TTT is profitable.What is TTT Corporation’s after-tax cost of paying Lynette’s
Fizbo Corporation is in the business of breeding and racing horses. Fizbo has taxable income of $5,000,000 other than from these transactions. It has nonrecaptured §1231 losses of $10,000 from 2014
Olympia Corporation, of Kittery, Maine, wants to exchange its manufacturing facility for Bangor Company’s warehouse. Both parties agree that that Olympia’s building is worth $100,000 and that
Burbank Corporation (calendar-year end) acquired the following property this year:Burbank acquired the copier in a nontaxable transaction when the shareholder contributed the copier to the business
Assume AMP Corporation (calendar year end) has 2018 taxable income of $900,000 for purposes of computing the §179 expense. During 2018, AMP acquired the following assets:AssetPlaced in
Way Corporation disposed of the following tangible personal property assets in the current year. Assume that the delivery truck is not a luxury auto. Calculate Way Corporation’s 2018 depreciation
At the beginning of the year, Dee began a calendar-year business and placed in service the following assets during the year:AssetDate AcquiredCost BasisComputer
Assume Sarah is a cash-method calendar-year taxpayer, and she is considering making the following cash payments related to her business. Calculate the after-tax cost of each payment assuming she has
Heather paid $15,000 to join a country club in order to meet potential clients. This year she paid $4,300 in greens fees when golfing with client sand an additional $5,700 paid when Heather held
Ralph operates a business that acts as a sales representative for a large firm that produces and sells precious metals to electronic manufacturers. Ralphcontacts manufacturers and convinces them to
Trey has two dependents, his two daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. What amount of child credit will Trey be able to claim for his daughters in each of
During 2018, your clients, Mr. and Mrs. Howell, owned the following investment assets:Investment AssetsDate AcquiredPurchase PriceBroker’s Commission Paid at Time of Purchase300 shares of IBM
George recently received a great stock tip from his friend, Mason. George didn’t have any cash on hand to invest, so he decided to take out a $20,000 loan to facilitate the stock acquisition. The
Mickey and Jenny Porter file a joint tax return, and they itemize deductions. The Porters incur $2,000 in investment expenses. They also incur $3,000 of investment interest expense during the year.
Shaun bought 300 shares of Dental Equipment, Inc. several years ago for $10,000. Currently the stock is worth $8,000. Shaun’s marginal tax rate this year is 24 percent, and he has no other capital
Christopher sold 100 shares of Cisco stock for $5,500 in the current year. He purchased the shares several years ago for $2,200. Assuming his marginal ordinary income tax rate is 24 percent, and he
For 2018, Sherri has a short-term loss of $2,500 and a long-term loss of $4,750.a. How much loss can Sherri deduct in 2018?b. How much loss will Sherri carryover to 2019 and what is the character of
In 2018, Tom and Amanda Jackson (married filing jointly) have $200,000 of taxable income before considering the following events:a. On May 12, 2018, they sold a painting (art) for $110,000 that was
During the current year, Ron and Anne sold the following assets:Capital AssetMarket ValueTaxBasisHolding Period L stock$50,000$41,000> 1 year M stock28,00039,000> 1 year N
George bought the following amounts of Stock A over the years:Date PurchasedNumber of SharesAdjusted BasisStock A11/21/19921,000$24,000Stock A3/18/19985009,000Stock A5/22/200775027,000On October 12,
Grayson is in the 24 percent tax rate bracket and has the sold the following stocks in 2018:Date PurchasedBasisDate SoldAmount RealizedStock A1/23/1994$7,2507/22/2018$4,500Stock
Matt and Meg Comer are married and file a joint tax return. They do not have any children. Matt works as a history professor at a local university and earns a salary of $64,000. Meg works part-time
Dahlia is in the 32 percent tax rate bracket and has purchased the following shares of Microsoft common stock over the years:Microsoft common stockDate
John bought 1,000 shares of Intel stock on October 18, 2014 for $30 per share plus a $750 commission he paid to his broker. On December 12, 2018, he sells the shares for $42.50 per share. He also
Five years ago, Kate purchased a dividend-paying stock for $10,000. For all five years, the stock paid an annual dividend of 4 percent before tax and Kate’s marginal tax rate was 24 percent. Every
Hayley recently invested $50,000 in a public utility stock paying a 3 percent annual dividend. If Hayley reinvests the annual dividend she receives net of any taxes owed on the dividend, how much
At the beginning of his current tax year David invests $12,000 in original issue U.S. Treasury bonds with a $10,000 face value that mature in exactly 10 years. David receives $700 in interest ($350
Matt recently deposited $20,000 in a savings account paying a guaranteed interest rate of 4 percent for the next 10 years. If Matt expects his marginal tax rate to be 22 percent for the next 10
Discuss the treatment of suspended passive losses upon the sale of a passive activity?
Joe and Jessie are married and have one dependent child, Lizzie. Lizzie is currently in college at State University. Joe works as a design engineer for a manufacturing firm while Jessie runs a craft
Read the following letter and help Shady Slim with his tax situation. Please assume that gross income is $172,900 (which consists only of salary) for purposes of this problem.December 31, 2018To the
This year Evan graduated from college, and took a job as a deliveryman in the city. Evan was paid a salary of $67,300 and he received $700 in hourly pay for part-time work over the weekends. Evan
Tammy teaches elementary school history for the Metro School District. In 2018 she has incurred the following expenses associated with her job:Noncredit correspondence course on history
This year Jack intends to file a married-joint return. Jack received $167,500 of salary, and paid $5,000 of interest on loans used to pay qualified tuition costs for his dependent daughter, Deb. This
Fred currently earns $9,000 per month. Fred has been offered the chance to transfer for three to five years to an overseas affiliate. His employer is willing to pay Fred $10,000 per month if he
A. and Paula file as married taxpayers. In August of this year they received a $5,200 refund of state income taxes that they paid last year. How much of the refund, if any, must L. A. and Paula
How was the income tax formula for individuals changed for 2018 by the Tax Cuts and Jobs Act?
Dennis is currently considering investing in municipal bonds that earn 6 percent interest, or in taxable bonds issued by the Coca-Cola Company that pay 8 percent. If Dennis’ tax rate is 22 percent,
Ernie's Farm and Garden Implement Store sells, repairs, and services farm and garden equipment. In 2016, the state attorney general began to investigate customers' complaints that Ernie's was adding
Ghon is a married taxpayer who retired from his job at Smithfield Printing in 2016. During 2017, he turns 70 1/2 and begins withdrawing the $215,000 (balance December 31, 2016) in assets in his
Labrador Corporation has total capital gains of $18,000 and total capital losses of $35,000 in 2017. Randy owns 25% of Labrador's outstanding stock. What is the effect on Labrador's and Randy's 2017
Tomiko owns the copyright to several classic Motown songs. In 2015, he became aware that Tinseltown Records was selling several of his songs without his permission. He sues Tinseltown seeking
Marjorie is a software systems engineer for Hacker Corporation. In November 2014, she inherited two parcels of land in Brower Township from her grandfather. Her grandfather's estate valued the
Dagwood has come to you with a pressing problem. In November 2006, he purchased an office building that he has rented out to various businesses. On May 2 of the current year, a fire swept through the
How many chapters are within Subtitle A?
Henry invests $50,000 in an entity called Forward Investments on January 20, 2016. Under the terms of the investment agreement, the $50,000 is considered a loan that Forward will use to invest in
Adrian is a salesperson who represents several wholesale companies. On January 2, 2017, she receives by mail a commission check from Ace Distributors in the amount of $10,000 and dated December 30,
Gary is an internal auditor for Bodine Information Systems (BIF). In 2014, BIF opened a large production plant in Las Vegas, Nevada. Subsequently, Gary has had to spend several months each year at
Assume that in problem 77, Stan sells the machinery in 2023 for $28,500. Determine the effect of the sale on Stan's regular taxable income and his alternative minimum taxable income in 2023.Data from
Stan purchases machinery costing $100,000 for use in his business in 2017. The machinery is 7-year MACRS property and has an ADS life of 12 years. Prepare a depreciation schedule using the regular
Return to the facts of problem 72. Assume that Lavinia sells the building in April 2020.a. How much of the older buildings tax credit must Lavinia recapture?b. Assuming the building qualified for
Lavinia owns an advertising agency. In February 2017, Lavinia purchases for $32,000 a building that was originally placed in service in 1922. Lavinia spends $65,000 rehabilitating the building for
Sonya owns 60% and her sister Karen owns 40% of the Tanglewood Group. They inherited their ownership from their mother who died in 2016. Sonya is the president and CFO of the corporation and receives
On July 1, 2017, Howard is granted the right to acquire 500 shares of the Matoney Corporation for $15 per share. The option qualifies under the company’s incentive stock option plan. The current
On May 10, 2017, Somerton Inc., grants Louise a nonqualified stock option to acquire 700 shares of the company’s stock for $11 per share. The fair market value of the stock on the date of grant is
On September 1, 2017, Beaconsfield Corporation grants Albert a nonqualified stock option to acquire 500 shares of the company’s stock for $8 per share. The fair market value of the stock on the
Glenna is retired from the Cherry Hills Corporation. When she retired at 68, she decided to take her pension as a lump-sum distribution and roll over the proceeds tax free into her IRA. On January 1,
Ross is single and maintains an IRA. During a trip to Las Vegas in 2017, he wins $14,000 at the roulette wheel. He decides to put half his earnings in his IRA account and spend the other half on a
Lacy Corporation sells equipment and a building during the current year. The equipment, which cost $14,000 in 2014, is sold for $9,000. The equipment was expensed using the Section 179 election in
Powell owns a 20% interest in Cooke Partnership. At the beginning of 2016, Powell's basis is $22,000. Cooke reports a $90,000 operating loss in 2016, and Powell withdraws $10,000 from the
In addition to the federal income tax, a corporation is subject to the laws of the state in which it is incorporated, including state income tax. Use the Internet to locate sources of tax law that
Ruiz and his two brothers founded a social club called the Last Snake Inn in 1996. They want to take advantage of a new state law that lets them serve beer, liquor, and wine to their patrons on
Gary and Gertrude are married on April 8, 2016. They use Gertrude’s home as their residence. Gertrude purchased the home on November 14, 2014, for $60,000. On February 19, 2017,
Kerri and John are married. On May 12, 2017, they sell their home for $190,000 and purchase another residence costing $225,000. What is Kerri and John’s realized and recognized gain in each of the
Aretha sells her house on June 9, 2017, for $220,000 and pays commissions of $10,000 on the sale. She had purchased the house for $60,000 and made capital improvements costing $15,000. What are
Grant Industries' warehouse is condemned by the city on August 18, 2017. Because of widespread publicity leading up to the condemnation, Grant anticipates it and purchases a replacement warehouse on
On July 8, 2017, Cynthia and her daughter Constance agree to exchange land they held for investment. Both tracts are worth $18,000. Cynthia acquired her land 4 years earlier for $9,000. Constance
Eva and Mario are married on June 14, 2016. They use Eva’s home as their principal residence. Eva purchased the home for $97,000 in 2013. On January 13, 2017, Eva and Mario are divorced. As part of
Harvey sells his personal residence on March 18, 2017, for $78,000. He paid $86,000 for it on April 22, 2015.
Laurie bought a home in 2014 for $65,000. On November 2, 2017, she sells it for $114,000. Laurie uses the proceeds to purchase a duplex costing $200,000. She uses one unit in the duplex as her
Inez is a freelance artist. She purchased 10 acres of land in 2012 for $5,000. On July 15, 2017, the land is condemned by the county government to build a new courthouse and jail facility. The county
Claude is a CPA and a partner with SKH and Associates, a regional public accounting firm. In September 2015, Brokaw Technologies approached one of his clients, Walter Fenner, about acquiring 100
In October 2017, fire completely destroys the principal residence of Olaf, who is 63 and single, and lives in Bemidji, Minnesota. He owned the home for 16 years; his adjusted basis is $58,000. Olaf

Showing 300 - 400 of 551